EBR 20-F DEF-14A Report Dec. 31, 2012

EBR 20-F Report ended Dec. 31, 2012

BRAZILIAN ELECTRIC POWER CO

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20-F 1 d516878d20f.htm 20-F 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34129

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS

(exact name of registrant as specified in its charter)

BRAZILIAN ELECTRIC POWER COMPANY

(translation of registrant’s name into English)

Federative Republic of Brazil

(jurisdiction of incorporation or organization)

Avenida Presidente Vargas, 409 – 9 ^th floor, Edifício Herm. Stoltz – Centro, CEP 20071-003, Rio de Janeiro, RJ, Brazil

(address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered

American Depositary Shares, evidenced by American Depositary Receipts, each representing one Common Share		New York Stock Exchange

Common Shares, no par value*		New York Stock Exchange

American Depositary Shares, evidenced by American Depositary Receipts, each representing one Class B Preferred Share		New York Stock Exchange

Preferred Shares, no par value*		New York Stock Exchange

*	Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the SEC.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2012 was:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes x No

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12-b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non accelerated filer ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ¨ IFRS x Other ¨

Indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item 17 x Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). ¨ Yes x No

CONTENTS


		Page

ITEM 1.	Identity of Directors, Senior Management and Advisers	6
ITEM 2.	Offer Statistics and Expected Timetable	6
ITEM 3.	Key Information	6
ITEM 4.	Information on the Company	25
ITEM 4A.	Unresolved Staff Comments	71
ITEM 5.	Operating and Financial Review and Prospects	71
ITEM 6.	Directors, Senior Management and Employees	92
ITEM 7.	Major Shareholders and Related Party Transactions	98
ITEM 8.	Financial Information	100
ITEM 9.	The Offer and Listing	104
ITEM 10.	Additional Information	115
ITEM 11.	Quantitative and Qualitative Disclosures About Market risk	127
ITEM 12.	Description of Securities Other than Equity Securities	127
ITEM 12.D.	American Depositary Shares	127
ITEM 13.	Defaults, Dividend arrearages and Delinquencies	128
ITEM 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	128
ITEM 15.	Controls and Procedures	128
ITEM 15T.	Controls and Procedures	130
ITEM 16A.	Audit Committee Financial Expert	130
ITEM 16B.	Code of Ethics	130
ITEM 16C.	Principal Accountant Fees and Services	130
ITEM 16D.	Exemption from the Listing Standards for Audit Committees	131
ITEM 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	131
ITEM 16F.	Change in registrant’s certifying accountant	131
ITEM 16G.	Corporate Governance	132
ITEM 17.	Financial Statements	132
ITEM 18.	Financial Statements	132
ITEM 19.	Exhibits	133

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, unless otherwise indicated or the context otherwise requires, all references to “we,” “our,” “ours,” “us” or similar terms refer to Centrais Elétricas Brasileiras S.A. – Eletrobras and its consolidated subsidiaries.

We prepare our consolidated annual financial statements in compliance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The last consolidated financial statements available under United States (“U.S. GAAP”) which were filed with the United States Securities and Exchange Commission were those for the year ended December 31, 2009.

Beginning in 2011, we adopted certain changes to the presentation of our financial statements in an effort to make the presentation of the financial statements of each company within our group more consistent. Accordingly, we added and deleted a limited number of line items in our balance sheet, income of statement and cash flow statement as of and for the years ended December 31, 2012, 2011 and 2010.

As a result of this change in presentation, for the year ended December 31, 2010, R$236 million of current assets were improperly classified as non-current assets. With respect to the income statement, for the year ended December 31, 2010, the subsidy of fuel account (“CCC”) was presented as an other operating expense, but it is now presented as other operating revenue, which resulted in a R$82 million decrease in operating expenses and a corresponding R$82 million increase in operating revenues. In our cash flow statement for the year ended December 31, 2010, dividends received were originally classified as investing activities, and, due to the fact that we are a holding company, we now present them as operating activities. This resulted in a R$601 million decrease in investing activities in 2010 as permitted by paragraph 14 of IAS 7. In 2011, we reclassified R$843.0 million related to provisions for investment losses (assets) and provisions for operating liabilities.

In this annual report, the term “Brazil” refers to the Federative Republic of Brazil and the phrase “Brazilian Government” refers to the federal government of Brazil. The term “Central Bank” refers to the Central Bank. The terms “ real ” and “ reais ” and the symbol “R$” refer to the legal currency of Brazil. The terms “U.S. dollar” and “U.S. dollars” and the symbol “U.S.$” refer to the legal currency of the United States of America.

Certain figures in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

Terms contained within this annual report have the following meanings:

•

Eletrobras Amazonas Energia , or Amazonas Energia : Amazonas Energia S.A ., a distribution company wholly owned by Eletrobras and operating in the State of Amazonas. Amazonas Energia was formed in 2008 as a result of the merger between Ceam and Manaus Energia S.A.;

•

ANDE : Administración Nacional de Electricidad;

•

ANEEL : Agência Nacional de Energia Elétrica , the Brazilian Electric Power Agency;

•

Average tariff or rate : total sales revenue divided by total MWh sold for each relevant period, including unbilled electricity. Total sales revenue, for the purpose of computing average tariff or rate, includes both gross billings before deducting VAT and other taxes and unbilled electricity sales upon which such taxes have not yet accrued;

•

Basic Network : interconnected transmission lines, dams, energy transformers and equipment with voltage equal to or higher than 230 kV, or installations with lower voltage as determined by ANEEL;

•

BNDES : Banco Nacional de Desenvolvimento Econômico e Social , the Brazilian Development Bank;

•

Brazilian Corporate Law : Law No. 6,404 of December 15, 1976, as amended;

•

Capacity charge : the charge for purchases or sales based on contracted firm capacity whether or not consumed;

•

CCC Account : Conta de Consumo de Combustível , or Fuel Consumption Account;

•

CCEAR : Contratos de Comercialização de Energia no Ambiente Regulado , contracts for the commercialization of energy in the Regulated Market;

•

CDE Account : Conta de Desenvolvimento Energético , the energy development account;

- 1 -

•

Ceam : Eletrobras Amazonas Energia , a distribution company that used to operate in the State of Amazonas. In March 2008, Ceam merged with Manaus Energia S.A. The resulting entity is Amazonas Energia S.A.;

•

CGE : Câmara de Gestão da Crise de Energia Elétrica , the Brazilian Energy Crisis Management Committee;

•

Eletrobras CGTEE , or CGTEE : Companhia de Geração Térmica de Energia Elétrica , a generation subsidiary of Eletrobras;

•

CMN : Conselho Monetário Nacional , the highest authority responsible for Brazilian monetary and financial policy;

•

CNEN : Comissão Nacional de Energia Nuclear S.A ., the Brazilian national commission for nuclear energy;

•

CNPE : Conselho Nacional de Política Energética , the advisory agency to the President of the Republic of Brazil for the formulation of policies and guidelines in the Energy sector;

•

Concessionaires or concessionaire companies : companies to which the Brazilian Government transfers rights to supply electrical energy services (generation, transmission, distribution) to a particular region in accordance with agreements entered into between the companies and the Brazilian Government pursuant to Law No. 8,987 (dated February 1995), as amended, and Law No. 9,074 (the Power Sector Law, dated July 7, 1995), as amended (together, the “Concessions Laws”);

•

Distribution : the transfer of electricity from the transmission lines at grid supply points and its delivery to consumers through a distribution system. Electricity reaches consumers such as residential consumers, small industries, commercial properties and public utilities at a voltage of 220/127 volts;

•

Distributor : an entity supplying electrical energy to a group of customers by means of a distribution network;

•

DNAEE : Departamento National de Águas e Energia Elétrica , the Brazilian national department of water and electrical energy;

•

Electricity Regulatory Law : Law No. 10,848 ( Lei do Novo Modelo do Setor Elétrico ), enacted on March 15, 2004, as amended, and which regulates the operations of companies in the electricity industry;

•

Eletrobras Distribuição Alagoas , or Distribuição Alagoas : Companhia Energética de Alagoas , a distribution company operating in the State of Alagoas (Ceal);

•

Cepel : Centro de Pesquisas de Energia Elétrica , a research center of the Brazilian electric sector;

•

Eletrobras : Centrais Elétricas Brasileiras S.A. – Eletrobras;

•

Eletrobras Chesf , or Chesf : Companhia Hidro Elétrica do São Francisco , a generation and transmission subsidiary of Eletrobras;

•

Eletrobras Distribuição Acre , or Distribuição Acre : Companhia de Eletricidade de Acre , a distribution company operating in the State of Acre (Eletroacre);

•

Eletrobras Distribuição Piauí , or Distribuição Piauí : Companhia Energética de Piauí , a distribution company operating in the State of Piauí (Cepisa);

•

Eletrobras Distribuição Rondônia , or Distribuição Rondônia : Centrais Elétricas de Rondônia , a distribution company operating in the State of Rondônia (Ceron);

•

Eletrobras Distribuição Roraima , or Distribuição Roraima, formally known as Boa Vista Energia S.A., a distribution company operating in the city of Boa Vista, in the State of Roraima;

•

Eletrobras Eletronorte , or Eletronorte : Centrais Elétricas do Norte do Brasil S.A. , a generation and transmission subsidiary of Eletrobras;

•

Eletrobras Eletronuclear , or Eletronuclear : Eletrobras Termonuclear S.A. , a generation subsidiary of Eletrobras;

•

Eletrobras Eletropar , or Eletropar : Eletrobras Participações S.A ., a holding company subsidiary created to hold equity investments (formerly, Light Participações S.A. – LightPar );

•

Eletrobras Eletrosul , or Eletrosul : Eletrosul Centrais Elétricas S.A. , a generation and transmission subsidiary of Eletrobras;

•

Eletrobras Furnas , or Furnas : Furnas Centrais Elétricas S.A. , a generation and transmission subsidiary of Eletrobras;

•

Energy charge : the variable charge for purchases or sales based on actual electricity consumed;

•

Environmental Crimes Act : Law No. 9,605, dated February 12, 1998, as amended;

•

Final consumer (end user) : a party who uses electricity for its own needs;

- 2 -

•

FND : Fundo National do Desestatização , the national privatization fund;

•

Free consumers : customers that were connected to the system after July 8, 1995 and have a contracted demand above 3 MW at any voltage level; or customers that were connected to the system prior to July 8, 1995 and have a contracted demand above 3 MW at voltage level higher than or equal to 69 kV;

•

Gigawatt ( GW) : one billion watts;

•

Gigawatt hour ( GWh) : one gigawatt of power supplied or demanded for one hour, or one billion watt hours;

•

High voltage : a class of nominal system voltages equal to or greater than 100,000 volts (100 kVs) and less than 230,000 volts (230 kVs);

•

Hydroelectric plant or hydroelectric facility or hydroelectric power unity (HPU) : a generating unit that uses water power to drive the electric generator;

•

IRFS : International Financial Reporting Standards as issued by the International Accounting Standards Board;

•

IGP-M : Índice Geral de Precos-Mercado , the Brazilian general market price index, similar to the retail price index;

•

INB : Indústrias Nucleares Brasileiras , a Brazilian Government-owned company responsible for processing uranium used as power to provide electricity at Angra I and Angra II Nuclear Plants;

•

Installed capacity : the level of electricity which can be delivered from a particular generating unit on a full-load continuous basis under specified conditions as designated by the manufacturer;

•

Interconnected Power System : systems or networks for the transmission of energy, connected together by means of one or more links (lines and/or transformers);

•

Isolated system : generation facilities in the North of Brazil not connected to the national transmission grid;

•

Itaipu : Itaipu Binacional , the hydroelectric generation facility owned equally by Brazil and Paraguay;

•

Kilowatt (kW) : 1,000 watts;

•

Kilowatt Hour (kWh) : one kilowatt of power supplied or demanded for one hour;

•

Kilovolt (kV) : one thousand volts;

•

Megawatt (MW) : one million watts;

•

Megawatt hour (MWh) : one megawatt of power supplied or demanded for one hour, or one million watt hours;

•

Mixed capital company : pursuant to Brazilian Corporate Law, a company with public and private sector shareholders, but controlled by the public sector;

•

MME : Ministério de Minas e Energia , the Brazilian Ministry of Mines and Energy;

•

MRE : Mercado Regulado de Energia , the Brazilian Energy Regulated Market;

•

National Environmental Policy Act : Law No. 6,938, dated August 31, 1981, as amended;

•

Northeast region : the States of Alagoas, Bahia, Ceará, Maranhão, Paraíba, Pernambuco, Piauí, Rio Grande do Norte and Sergipe;

•

ONS : Operador Nacional do Sistema , the national system operator;

•

Power Sector Law : Law No. 9,074 of July 7, 1997, as amended;

•

Procel : Programa Nacional de Combate ao Desperdício de Energia Elétrica , the national electrical energy conservation program;

•

Proinfa : Programa de Incentivo às Fontes Alternativas de Energia , the program for incentives to develop alternative energy sources;

•

RGR Fund : Reserva Global de Reversão , a fund we administer, funded by consumers and providing compensation to all concessionaires for non-renewal or expropriation of their concessions used as source of funds for the expansion and improvement of the electrical energy sector;

•

Selic rate : an official overnight government rate applied to funds traded through the purchase and sale of public debt securities established by the special system for custody and settlement;

- 3 -

•

Small Hydroelectric Power Plants : power plants with capacity from 1 MW to 30 MW;

•

Substation : an assemblage of equipment which switches and/or changes or regulates the voltage of electricity in a transmission and distribution system;

•

TFSEE : Taxa de Fiscalização de Serviços de Energia Elétrica , the fee for the supervision of electricity energy services;

•

Thermoelectric plant or thermoelectric power unity (TPU) : a generating unit which uses combustible fuel, such as coal, oil, diesel natural gas or other hydrocarbon as the source of energy to drive the electric generator;

•

Transmission : the bulk transfer of electricity from generating facilities to the distribution system at load center station by means of the transmission grid (in lines with capacity between 69 kV and 525 kV);

•

TWh : Terawatt hour (1,000 Gigawatt hours);

•

UBP Fund : Fundo de Uso de Bem Publico , the public asset use fund;

•

U.S. GAAP : generally accepted accounting principles in the United States;

•

Volt (V) : the basic unit of electric force analogous to water pressure in pounds per square inch; and

•

Watt : the basic unit of electrical power.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This annual report includes certain forward-looking statements, including statements regarding our intent, belief or current expectations or those of our officers with respect to, among other things, our financing plans, trends affecting our financial condition or results of operations and the impact of future plans and strategies. These forward-looking statements are subject to risks, uncertainties and contingencies including, but not limited to, the following:

•

general economic, regulatory, political and business conditions in Brazil and abroad;

•

interest rate fluctuations, inflation and the value of the real in relation to the U.S. dollar;

•

changes in volumes and patterns of customer electricity usage;

•

competitive conditions in Brazil’s electricity generation, transmission and distribution markets;

•

the effects of competition;

•

our level of debt;

•

the likelihood that we will receive payment in connection with account receivables;

•

changes in rainfall and the water levels in the reservoirs used to run our hydroelectric power generation facilities;

•

our financing and capital expenditure plans;

•

our ability to serve our customers on a satisfactory basis;

•

existing and future governmental regulation as to electricity rates, electricity usage, competition in our concession area and other matters;

•

our ability to execute our business strategy, including our growth strategy;

•

adoption of measures by the granting authorities in connection with our concession agreements;

•

changes in other laws and regulations, including, among others, those affecting tax and environmental matters;

•

future actions that may be taken by the Brazilian Government, our controlling shareholder;

•

the outcome of our tax, civil and other legal proceedings; and

•

other risk factors as set forth under “Item 3.D, Risk Factors.”

The forward-looking statements referred to above also include information with respect to our capacity expansion projects that are in the planning and development stages. In addition to the above risks and uncertainties, our potential expansion projects involve engineering, construction, regulatory and other significant risks, which may:

•

delay or prevent successful completion of one or more projects;

•

increase the costs of projects; and

•

result in the failure of facilities to operate or generate income in accordance with our expectations.

- 4 -

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

- 5 -

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Background

The selected financial information presented herein should be read in conjunction with our financial statements and related notes, which appear elsewhere in this annual report.

The following paragraphs discuss some important features of the presentation of the selected financial information and our financial statements. These features should be considered when evaluating the selected financial information.

A. Selected Financial Data

Consolidated Balance Sheet Information


	As of December 31,
	2012		2011		2010
	(R$ thousands)
Assets
Current
Cash and cash equivalents		4,429,375		4,959,787		9,220,169
Restricted cash		3,509,323		3,034,638		2,058,218
Marketable securities		6,622,611		11,252,504		6,774,073
Accounts Receivable		4,496,963		4,352,024		3,779,930
Financial asset of concession agreements		579,295		2,017,949		1,723,522
Loans and financings		1,976,191		2,082,054		1,359,269
Fuel consumption account – CCC		1,240,811		1,184,936		1,428,256
Investment remuneration		118,790		197,863		178,604
Taxes and social contribution		2,810,134		1,947,344		1,825,905
Reimbursement rights		7,115,200		3,083,157		1,704,239
Warehouse (storeroom)		454,635		358,724		378,637
Stock of nuclear fuel		360,751		388,663		297,972
Indemnifications – Law 12,783		8,882,836		—		—
Financial instruments		252,620		195,536		283,220
Other		1,493,009		1,607,493		1,557,857

Total current assets		44,342,544		36,662,672		32,569,871


Non-current
Long term assets
Reimbursement rights		901,029		500,333		371,599
Loans and financings		7,747,286		7,651,336		8,300,171
Accounts receivable		1,482,946		1,478,994		1,706,292
Marketable securities		404,337		398,358		769,905
Stock of nuclear fuel		481,495		435,633		523,957
Taxes and social contribution		6,931,626		5,774,286		4,338,682
Judicial deposit		2,829,912		2,316,324		1,750,678
Fuel consumption account – CCC		521,097		727,136		785,327
Financial asset of concession of agreements		44,834,877		46,149,379		40,643,712
Financial instruments		223,099		185,031		297,020
Advances for future capital increase		4,000		4,000		7,141
Indemnifications – Law 12,783		5,554,436		—		—
Other		830,754		701,763		1,165,529

		72,746,894		66,322,573		60,660,013


Investments		5,398,299		5,510,192		4,724,647

- 6 -

As of December 31,

2012

2011

2010

(R$ thousands)

Property, plant and equipment

47,407,102

53,214,861

46,682,498

Intangible assets

2,300,740

2,371,367

2,263,972

Total non-current assets

127,853,035

127,418,993

114,331,130

Total assets

172,195,578

164,081,665

146,901,001


	As of December 31,
	2012		2011		2010
	(R$ thousands)
Liabilities and shareholders’ equity
Current
Borrowings		4,447,175		4,005,326		1,868,465
Debentures		316,899		739,237		—
Financial Liability		52,862		—		—
Compulsory loan		12,298		16,331		16,925
Suppliers		7,490,802		6,338,102		5,165,765
Advances from clients		469,892		413,041		341,462
Taxes and social contributions		1,257,016		1,032,521		1,102,672
Fuel consumption account – CCC		1,369,201		3,079,796		2,579,546
Shareholders’ remuneration		3,977,667		4,373,773		3,424,520
National Treasury Credits		131,047		109,050		92,770
Estimated liabilities		1,444,992		802,864		772,071
Reimbursement Obligations		5,988,698		1,955,966		759,214
Complementary pension plans		118,553		451,801		330,828
Provision for contingencies		267,940		240,190		257,580
Regulatory fees		1,308,152		901,692		584,240
Leasing		162,929		142,997		120,485
Concessions payable		40,131		35,233		25,098
Derivative financial instruments		185,031		269,718		237,209
Personnel voluntary dismissal		—		93,137		—
Research and development		—		274,722		219,538
Profit sharing		—		296,547		227,563
Other		1,808,362		552,765		243,560

Total current liabilities		30,849,647		26,124,809		18,369,511


Non-current
Borrowings		45,204,025		38,408,352		31,269,971
National Treasury credits		37,072		155,676		250,485
Debentures		409,228		279,410		710,536
Advances from clients		830,234		879,452		928,653
Compulsory loan		321,894		211,554		141,425
Decommission obligations		988,490		408,712		375,968
Operational provision		1,005,908		843,029		—
Fuel consumption account – CCC		2,401,069		954,013		785,327
Provision for contingencies		5,288,394		4,652,176		3,901,289
Complementary pension plans		4,628,570		2,256,132		2,066,702
Onerous contracts		4,905,524		96,204		—
Reimbursement obligations		1,801,059		1,475,262		1,091,271
Leasing		1,860,104		1,775,544		1,694,547
Shareholders’ remuneration		—		3,143,222		5,601,077
Concessions payable		1,577,908		1,534,532		1,089,726
Advances for future capital increase		161,308		148,695		5,173,856
Derivative financial instruments		291,252		197,965		303,331
Regulatory Fees		428,501		385,724
Personnel voluntary dismissal		—		0		273,671
Research and development		—		0		284,820
Taxes and social contributions		1,414,884		1,902,522		1,217,649
Other		509,914		1,046,362		840,776

- 7 -


	As of December 31,
	2012			2011			2010
	(R$ thousands)
Total non-current liabilities		74,065,338			60,754,538			58,001,080


Shareholders’ equity
Share capital		31,305,331			31,305,331			26,156,567
Capital reserves		26,048,342			26,048,342			26,048,342
Profit reserves		10,836,414			18,571,011			16,804,851
Asset valuation adjustment		208,672			220,915			163,335
Additional Proposed Dividend		433,962			706,018			753,201
Other comprehensive income		(1,748,776	)		(8,111	)		377,818
Non-controlling shareholders’ interest		196,648			358,812			226,296

Total shareholders’ equity		67,280,593			77,202,318			70,530,410


Total liabilities and shareholders’ equity		172,195,578			164,081,665			146,901,001

Consolidated Income Statement


	For the year ended December 31,
	2012			2011			2010
	(R$ thousands)
Net operating revenue		34,064,477			29,532,744			26,832,085
Operating expenses
Personnel, supplies and services		8,439,302			7,670,716			7,370,713
Profit sharing for employees and management		—			317,035			296,270
Electricity purchased for reselling		4,573,673			3,386,289			4,315,084
Charges upon use of electric network		1,763,953			1,420,934			1,353,839
Construction – Distribution		1,345,519			711,740			810,475
Construction – Transmission		3,681,603			3,567,868			2,143,009
Fuel for electricity production		708,711			162,673			252,502
Remuneration and reimbursement		1,651,724			1,328,994			1,087,341
Depreciation and amortization		1,658,161			1,549,988			1,498,059
Operating provisions		5,326,991			2,848,749			2,497,262
Itaipu’s income to offset		491,859			655,290			441,057
Donations and contributions		380,101			289,964			261,006
Other		2,257,666			1,305,765			669,434
		32,396,316			25,389,902			23,090,468

Operating result before financial result		1,668,161			4,142,842			3,741,617

Financial result
Financial revenue
Revenue from interest, commissions and fees		767,534			757,450			781,872
Revenue from financial investments		1,731,870			1,664,517			1,537,435
Arrears surcharge on electricity		230,597			359,208			393,987
Monetary restatement		858,049			652,949			616,141
Exchange rate variation gain		421,013			669,731			—
Remuneration for indemnification – Law 12,783		—			—			—
Other financial revenues		326,379			158,471			394,890

Financial expenses
Debt charges		(2,333,643	)		(1,708,670	)		(1,675,821	)
Leasing charges		(412,152	)		(350,861	)		(332,449	)
Charges on shareholders’ resources		(572,322	)		(1,178,989	)		(1,298,647	)
Exchange rate variation loss		—			—			(431,497	)
Other financial expenses		(384,816	)		(789,353	)		(350,033	)

- 8 -


	For the year ended December 31,
	2012			2011			2010
	(R$ thousands)

		632,509			234,453			(364,122	)

Result/loss before participation in associates and other investments and before effects of Law 12,783		2,300,670			4,056,037			3,377,495


Result of participation in associates and other investments		468,584			482,785			669,755


Income before effects of Law 12,783		2,769,254			4,538,822			—
Effects – Law 12,783		(10,085,380	)		—			—

Income (loss) before income tax and social contribution		(7,316,126	)		4,538,822			4,047,250


Income tax (expense)/benefit		244,688			(474,994	)		(1,074,606	)
Social contribution on net income (expense)/benefit		145,786			(301,809	)		(419,659	)


Net income (loss) for the year		(6,925,652	)		3,762,019			2,552,985


Attributable to controlling shareholders		(6,878,915	)		3,732,565			2,247,913
Attributable to non-controlling shareholders		(46,737	)		29,454			305,072
Net earnings per share		(5.09	)		2.60			2.25

- 9 -

Brazilian Corporate Law and our by-laws provide that we must pay our shareholders mandatory dividends equal to at least 25% of our adjusted net income for the preceding fiscal year. In addition, our by-laws require us to give: (i) class “A” preferred shares a priority in the distribution of dividends, at 8% each year over the capital linked to those shares; and (ii) class “B” preferred shares that were issued on or after June 23, 1969 a priority in the distribution of dividends, at 6% each year over the capital linked to those shares. In addition, preferred shares must receive a dividend 10% over the dividend paid to the common shares.

The following table sets out our declared dividends for the periods indicated:


	Year
	2012 ⁽¹⁾		2011 ⁽¹⁾		2010 ⁽¹⁾
	(R$)
Common Shares		0.40		1.23		0.83
Class A Preferred Shares		2.18		2.17		2.17
Class B Preferred Shares		1.63		1.63		1.63

(1)	Interest on own capital.

The following table sets forth a summary of dividends/interest on own capital declared per share for the periods presented, both at the time declared and as adjusted for our 500:1 reverse stock split effected in 2007.

Dividend per Share


	Declared								Paid ⁽²⁾
	On 12/31/2007				Equivalent on 08/20/2007 ⁽¹⁾				On 06/15/2008				Equivalent on 08/20/2007 ⁽¹⁾
	R$		U.S.$		R$		U.S.$		R$		U.S.$		R$		U.S.$
Common		0.40155520020		0.22670084130		0.40155520020		0.22670084130		0.41587767968		0.24648985282		0.41587767968		0.24648985282
Preferred A		2.01949731106		1.14012155539		2.01949731106		1.14012155539		2.09152777855		1.23964424997		2.09152777855		1.23964424997
Preferred B		1.51462298231		0.85509116599		1.51462298231		0.85509116599		1.56864583289		0.92973318687		1.56864583289		0.92973318687

	Declared								Paid ⁽²⁾
	On 12/31/2008				Equivalent on 08/20/2007 ⁽¹⁾				On 04/30/2009 ⁽³⁾				Equivalent on 08/20/2007 ⁽¹⁾
	R$		U.S.$		R$		U.S.$		R$		U.S.$		R$		U.S.$
Common		1.484883733		0.635380288		1.484883733		0.635380288		1.548692924		0.662684178		1.548692924		0.662684178
Preferred A		2.174044374		0.930271448		2.174044374		0.930271448		2.267468532		0.970247553		2.267468532		0.970247553
Preferred B		1.630533280		0.697703586		1.630533280		0.697703586		1.703562217		0.728952596		1.703562217		0.728952596

	Declared				Paid				Declared				Paid
	On 12/31/2009				On 05/18/2010				On 12/31/2010				On 06/29/2011
	R$		U.S.$		R$		U.S.$		R$		U.S.$		R$		U.S.$
Common		0.4096631540		0.713305484		1.548692924		0.662684178		0.832245170		1.386686902		0.877358220		1.380084480
Preferred A		2.1740443750		3.785446066		2.267468532		0.970247553		2.174043683		3.622391585		2.291890859		3.605144321
Preferred B		1.6305332814		2.839084549		1.703562217		0.728952596		1.630533280		2.716794551		1.718918690		2.703859099

					Declared				Paid				Declared ⁽⁴⁾
					On 12/31/2011				On 5/29/2012				On 12/31/2012
					R$		U.S.$		R$		U.S.$		R$		U.S.$
Common						1.231779162		2.310571353		1.280047007		0.641820601		0.399210837		0.195356416
Preferred A						2.178256581		4.085973695		2.263612588		1.134984250		2.178256581		1.065944008
Preferred B						1.633692440		3.064480279		1.697709445		0.851238189		1.633692440		0.799458008

(1)	Adjusted to reflect the reverse stock split.

(2)	Adjusted by Selic rate variation.

(3)	General Stockholders Meeting.

(4)	Eletrobras expects to pay the dividends declared on December 31, 2012 by year-end 2013.

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Exchange Controls and Foreign Exchange Rates

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

Since 1999, the Central Bank has allowed the real /U.S. dollar exchange rate to float freely, and since then, the real /U.S. dollar exchange rate has fluctuated considerably. Until early 2003, the value of the real declined relative to the U.S. dollar and then began to stabilize. The real appreciated against the U.S. dollar in 2004-2007. In 2008, as a result of the worsening of the global financial and economic crisis the real depreciated 31.9% against the U.S. dollar, and on December 31, 2008 the exchange rate of the real in relation to the U.S. dollar was R$2.34 per U.S.$1.00. In 2009, the real appreciated 25.5% against the U.S. dollar, due to improved economic conditions in Brazil. In 2010, the real appreciated 4.3% against the U.S. dollar. In 2011, the real depreciated 12.6% against the U.S. dollar. In 2012, the real appreciated 8.9% against the U.S. dollar. In the past, the Central Bank has intervened occasionally to control instability in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian Government will continue to allow the real to float freely or will intervene in the exchange rate market through a currency band system or otherwise. We cannot assure that the real will not depreciate substantially or continue to appreciate against the U.S. dollar in the near future.

The following table sets forth the period end, average, high and low selling rates published by the Central Bank expressed in reais per U.S.$ for the periods and dates indicated.


	*Reais* per U.S. Dollar
Year Ended	Period-end		Average ⁽¹⁾		Low		High
December 31, 2008		2.3370		1.8374		1.5593		2.5004
December 31, 2009		1.7412		1.9905		1.7024		2.4218
December 31, 2010		1.6662		1.7593		1.6554		1.8811
December 31, 2011		1.8758		1.6746		1.5345		1.9016
December 31, 2012		2.0435		1.9550		1.7024		2.1121

(1)	Represents the average of month-end rates beginning with December of the previous period through last month of period indicated.

The following table sets forth the period end, high and low commercial market/foreign exchange market selling rates published by the Central Bank expressed in reais per U.S.$ for the periods and dates indicated.


	*Reais* per U.S. Dollar
Month	Period-end		Average		Low		High
November 2012		2.1074		2.0678		2.0312		2.1074
December 2012		2.0435		2.0778		2.0435		2.1121
January 2013		1.9883		2.0331		1.9883		2.0471
February 2013		1.9754		1.9733		1.9570		1.9893
March 2013		2.0138		1.9828		1.9528		2.0185
April 2013 (through April 24, 2013)		2.0244		2.0020		1.9736		2.0244

Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian Government in the future. See “Item 3.D, Risk Factors – Risks Relating to Brazil.”

We currently maintain our financial books and records in reais . For ease of presentation, however, certain consolidated financial information contained in this annual report has been presented in U.S. dollars. See “Item 8, Financial Information.”

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

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D. Risk Factors

Risks Relating to our Company

The renewal of our concessions, which were due to expire between 2015 and 2017, pursuant to Law No. 12,783, may adversly affect our financial condition and results of operations.

On September 11, 2012, the Brazilian Government enacted Provisional Measure No. 579/2012, later converted into Law No. 12,783 (“ Law No. 12,783 ”), in order to regulate the terms and conditions for the renewal of concessions for the generation, distribution and transmission of electricity which were due to expire between 2015 and 2017. The terms of the law provide that companies may, only once, renew their generation and transmission concessions for a further thirty year term, provided they accept certain conditions established by ANEEL, such as accepting the revised tariffs to be calculated by ANEEL, and submitting to the agency’s quality standards.

On December 4, 2012, we renewed the generation and transmission concessions which were due to expire between 2015 and 2017 of Eletrobras Chesf, Eletrobras Eletronorte, Eletrobras Eletrosul and Eletrobras Furnas for further 30 year terms pursuant to Law No. 12,783. By doing so, we accepted the application of the significantly reduced revised tariffs and annual permitted revenues ( Receita Anual Permitida ) as remuneration for our generation and transmission activities in accordance with the Ministry for Mining and Energy’s ordinance Nos. 578 and 579. While renewing our generation and transmission concessions for an additional 30 years assures us of long-term revenue generating assets, for the year ended December 31, 2012 the effects of Law 12,783, and specifically the significantly reduced tariffs effective January 1, 2013 with respect to those assets with concessions expiring in the years 2015 through 2017, resulted in a non-recurring charge of R$10.1 billion. Furthermore, we expect that in the future our revenues from concessions that have been renewed pursuant to Law 12,783 will be significantly lower, and may result in us incurring losses in 2013 and in subsequent periods. For more information regarding the effects of Law No. 12,783 on our income, please see “Item 5, Operating and Financial Review and Prospects – Overview – The Effects of Law No. 12,783” below. For further information about which of our concessions were renewed pursuant to Law No. 12,783, please see “Item 4, Information on the Company – Business Overview – Generation – Concessions.”

The amount of any indemnification payments to be received following renewal of our concessions, which were due to expire between 2015 and 2017, may not be sufficient to cover our investments in these concessions.

By agreeing to renew the concessions, which were due to expire between 2015 and 2017, we accepted indemnification for the unamortized portion of our assets relating to those concessions. However, until December 31, 2013 we have the right to claim indemnification from ANEEL (i) in relation to any transmission assets, which became operational prior to 2000 and (ii) for the modernization of any generation assets in accordance with Law No. 12,783. The value of any indemnification payments received by us might be less than the amounts we accounted for and invested in those transmission and generation assets, which could materially adversely affect our financial condition and results of operations.

The value of the revised tariffs we calculated based on our expected expenses, costs and revenues may be higher than the tariffs we will eventually receive.

Law No. 12,783 determines, among other things, the tariffs to be charged by concessionaires based on costs of operation and maintenance, charges, taxes and payments for the use of the transmission and distribution systems. By agreeing to renew our concessions early, we made certain assumptions about the assets of Eletrobras Furnas, Eletrobras Chesf and Eletrobras Eletrosul that may not materialize over time, particularly in relation to planned cost reductions. As a result, the tariffs we will receive in time may be lower than predicted, which could materially adversely affect our financial condition and results of operations.

There are no guarantees that our existing concession contracts will be renewed and, if so, at what terms.

We carry out our generation, transmission and distribution activities pursuant to concession agreements entered into with the Brazilian Government through ANEEL.

The Brazilian Government may renew any existing concessions that were not renewed pursuant to Law No. 12,783 for an additional period of 30 years without the need to carry out a new bidding process. In case we request such a renewal, the Brazilian Government may grant their approval on less favorable terms. This applies to approximately 37.5% of our generation assets, all of our distribution assets and 5.8% of our transmission assets, other than Itaipu and our nuclear power plants, Angra I and Angra II.

- 12 -

Given the Brazilian Government’s discretion in relation to the renewal of concessions, we may face considerable competition from our competitors during the renewal process. Consequently, we cannot give you any assurances that our concessions will be renewed or renewed under similar conditions. Further, our shareholders may choose not to renew any expiring concessions if the terms of the renewal are not favorable, which would adversely affect our financial condition and results of operations.

The value of any government bonds received by us in exchange for our credits in Itaipu might be less than the value of our credits.

Law No. 12,783 authorized the Brazilian Government to acquire any of the credits we hold against Itaipu as a result of our financing of the construction of the Itaipu hydroelectric power plant in exchange for Brazilian Government bonds ( títulos da dívida pública mobiliária ) of an equivalent value. Should the Brazilian Government acquire these credits, the value of any government bonds transferred to us may be less than the value of our credits in Itaipu and could materially adversely affect our financial condition and results of operations.

Any hydroelectric generation concessions renewed pursuant to Law No. 12,783 are subject to a quota allocation regime.

As a result of the renewal of our hydroelectric generation concessions, our generation companies must comply with a quota allocation regime under which those companies are required to provide power to distribution companies which also renewed their concessions pursuant to Law No. 12,783. Accordingly, we cannot access the free market, which generally attracts higher returns, to sell any electricity generated by such companies, and our financial condition and results of operations could be materially and adversely affected.

We are controlled by the Brazilian Government, the current policies and priorities of which directly affect our operations and may conflict with interests of our investors.

The Brazilian Government, as our controlling shareholder, has pursued (and may continue to pursue) some of its macroeconomic and social objectives through us using principally Brazilian Government funds, which we administer. These funds are the RGR Fund, the CCC Account and the CDE Account.

The Brazilian Government also has the power to appoint eight out of the 10 members of our Conselho de Administração (or Board of Directors) and, through them, a majority of the executive officers responsible for our day-to-day management. Additionally, the Brazilian Government currently holds the majority of our voting shares. Consequently, the Brazilian Government has the majority of votes at our shareholders’ meetings, which empowers it to approve most matters prescribed by law, including the following: (i) the partial or total sale of the shares of our subsidiaries; (ii) increase of our capital stock through a subscription of new shares; (iii) our dividend distribution policy, as long as it complies with the minimum dividend distribution regulated by law; (iv) issuances of securities in the domestic market and internationally; (v) corporate spin-offs and mergers; (vi) swaps of our shares or other securities; and (vii) the redemption of different classes of our shares, independent from approval by holders of the shares and classes that are subject to redemption.

Our operations impact the commercial, industrial and social development promoted by the Brazilian Government. The Brazilian Government has in the past and may in the future require us to make investments, incur costs or engage in transactions (which may include, for example, requiring us to make acquisitions) that may not be consistent with our objective of maximizing our profits.

We are subject to rules limiting borrowing by public sector companies and may not be able to obtain sufficient funds to complete our proposed capital expenditure programs.

Our current budget anticipates capital expenditures of approximately R$10.2 billion in 2013. We cannot assure you that we will be able to finance our proposed capital expenditure programs from either our cash flow or external resources. Moreover, as a state controlled company, we are subject to certain rules limiting our indebtedness and investments and must submit our proposed annual budgets, including estimates of the amounts of our financing requirements and sources of our financing, to the Ministry of Planning, Budget and Management and the Brazilian Congress for approval. Thus, if our operations do not fall within the parameters and conditions established by such rules and the Brazilian Government, we may have difficulty in obtaining the necessary financing

- 13 -

authorizations, which could create difficulties in raising funds. If we are unable to obtain such funds, our ability to invest in capital expenditures for expansion and maintenance may be adversely impacted, which would materially adversely affect the execution of our growth strategy, particularly our investment in large scale projects, which could materially adversely affect our financial condition and results of operations.

We own a number of subsidiaries whose performance significantly influences our results.

We conduct our business mainly through our operating subsidiaries, including Eletrobras Eletronorte, Eletrobras CGTEE, Eletrobras Eletronuclear, Eletrobras Chesf, Eletrobras Furnas and Eletrobras Eletrosul and through Itaipu. Our ability to meet our financial obligations is therefore related in part to the cash flow and earnings of those subsidiaries and the distribution or other transfer of those earnings to us in the form of dividends, loans or other advances and payment. Some of our subsidiaries are, or may in the future be, subject to loan agreements that require that any indebtedness of these subsidiaries to us be subordinate to the indebtedness under those loan agreements. Our subsidiaries are separate legal entities. Any right we may have to receive assets of any subsidiary or other payments upon its liquidation or reorganization will be effectively subordinated to the claims of that subsidiary’s creditors (including tax authorities, trade creditors and lenders to such subsidiaries), except to the extent that we are a creditor of that subsidiary, in which case our claims would still be subordinated to any security interest in the assets of that subsidiary and indebtedness of that subsidiary senior to that held by us.

The amounts we receive from the Fuel Consumption Account may decrease.

The Brazilian Government introduced the Fuel Consumption Account, or CCC Account, in 1973. The purpose of the CCC Account is to generate financial reserves payable to distribution companies and some generation companies (all of which must make annual contributions to the CCC Account) to cover some of the costs of the operation of thermoelectric plants in the event of adverse hydrological conditions. In recent periods, the amounts we (and other companies in our industry) have received as reimbursements from the CCC Account have exceeded our contributions to that account.

Following the enactment of Law No. 12,783, we are no longer required to make payments to the CCC Account. Nevertheless, the CCC Account has not been abolished. The assets which remain will still be distributed to generation and distribution companies which may incur additional expenses due to the use of thermoelectric plants should hydrological conditions be unfavorable. To ensure its continuing viability, Law No. 12,783 allows for transfers between the Conta de Desenvolvimento Energético (Energy Development Account or CDE Account) and the CCC Account.

However, we cannot assure you that we will continue to receive reimbursements from the CCC Account and any decrease in the amounts we receive may materially adversely affect our financial condition and results of operations.

We may be unable to fully implement our strategy.

Our ability to implement the principal components of our strategy depends on a series of factors, among them, our ability to:

•

Implement an operational efficiency plan aimed at reducing costs, increasing revenues and improving the quality and reliability of our services;

•

Expand our business in a sustainable and profitable manner; and

•

Improve our business model, corporate governance and management.

We cannot guarantee that we will be to accomplish these objectives in their entirety or successfully. Any impact on the main elements of our strategy may adversely affect our financial condition and results of operations.

If any of our assets were deemed assets dedicated to providing an essential public service, they would not be available for liquidation in the event of our bankruptcy and could not be subject to attachment to secure a judgment.

- 14 -

debt reorganization judicial proceeding known as concordata (reorganization) for judicial and extrajudicial recovery. The New Bankruptcy Law provides that its provisions do not apply to government owned and mixed capital companies (such as Eletrobras). However, the Brazilian Federal Constitution establishes that mixed capital companies, such as Eletrobras, which operate a commercial business, will be subject to the legal regime applicable to private corporations in respect of civil, commercial, labor and tax matters. Furthermore, Law No. 12,767/2012 provides that judicial and extrajudicial recovery do not apply to public entity concessionaires until the termination of those concessions. Accordingly, it is unclear whether or not the provisions relating to judicial and extrajudicial recovery and liquidation proceedings of the New Bankruptcy Law would apply to us.

We believe that a substantial portion of our assets, including our generation assets, our transmission network and our limited distribution network, would be deemed by Brazilian courts to be related to providing an essential public service. Accordingly, these assets would not be available for liquidation in the event of our bankruptcy or available for attachment to secure a judgment. In either case, these assets would revert to the Brazilian Government pursuant to Brazilian law and the terms of our concession agreements. Although the Brazilian Government would in such circumstances be under an obligation to compensate us in respect of the reversion of these assets, we cannot assure you that the level of compensation received would be equal to the market value of the assets and, accordingly, our financial condition and results of operations may be affected.

We may be liable for damages, subject to further regulation and have difficulty obtaining financing if there is a nuclear accident involving our subsidiary Eletrobras Eletronuclear.

Our subsidiary Eletrobras Eletronuclear, as an operator of two nuclear power plants, is subject to strict liability under Brazilian law for damages in the event of a nuclear accident. The Vienna Convention on Civil Liability for Nuclear Accidents (or the Vienna Convention) became binding in Brazil in 1993. The Vienna Convention provides that an operator of a nuclear installation, such as Eletrobras Eletronuclear, in a jurisdiction which has adopted legislation implementing the Vienna Convention, will be strictly liable for damages in the event of a nuclear accident (except as covered by insurance). Eletrobras Eletronuclear is regulated by several federal and state agencies. As of December 31, 2012, Eletrobras Eletronuclear’s Angra I and Angra II plants were insured for an aggregate amount of U.S.$1,000 million in the event of a nuclear accident (see “Item 4.B, Business Overview – Generation – Nuclear Plants”). In addition to the liability for damages in the event of a nuclear accident, Eletrobras Eletronuclear has acquired insurance to cover operational risks due to potential equipment failure, in the amount of U.S.$390,4 million for each unit. We cannot assure that this coverage will be sufficient in the event of a nuclear accident. Accordingly, any nuclear accident may have a material adverse effect on our financial condition and results of operations.

The Brazilian nuclear regulatory authority CNEN has not established any additional safety requirement existing or planned for the nuclear power plants as a result of the Fukushima accident in Japan. Eletrobras Eletronuclear complied with all the requests of CNEN regarding the lessons learned from the Fukushima accident, including the performance of “stress tests” developed for European reactors in accordance with the technical guidelines set forth by the European Commission. The Brazilian site conditions for the existing plants were subject before the Fukushima accident to an extensive reevaluation for licensing the construction of the third unit (Angra III) at the same site. The results of the reevaluation confirmed the adequacy of the safety design criteria.

The technology applied in the Brazilian nuclear power plants and the design, incorporating additional safety features such as double emergency supply systems and alternatives for passive reactor cooling, should withstand accidents beyond the design basis. Nonetheless, Eletrobras Eletronuclear established a comprehensive program to evaluate and enlarge its existing safety margins and allocated approximately US$150 million to be applied towards this effect through 2016. Therefore, the Fukushima accident did not affect nuclear power generation in Brazil; our current plants remain operational and our projects are still on schedule.

We do not have alternative supply sources for the key raw materials that our thermal and nuclear plants use.

Our thermal plants operate on coal and/or oil and our nuclear plants operate on processed uranium. In each case, we are entirely dependent on third parties for the provision of these raw materials. In the event that supplies of these raw materials become unavailable for any reason, we do not have alternative supply sources and, therefore, the ability of our thermal and/or nuclear plants, as applicable, to generate electricity would be materially adversely affected, which may materially adversely affect our financial condition and results of operations.

- 15 -

Our distribution companies operate under challenging market conditions and historically, in the aggregate, have incurred losses.

Our distribution activities are carried out in the northern and northeastern regions of Brazil, representing 12.1% of our consolidated net revenue as of December 31, 2012. The northern and northeastern regions of Brazil are the poorest regions in the country, and our distribution subsidiaries incur significant commercial losses due to illegal connections, as well as relatively high levels of default by consumers in those regions. Historically, in the aggregate, our distribution subsidiaries have incurred losses which have adversely affected our consolidated results of operations. In May 2008, we implemented a new management structure for our distribution activities. As a result, several measures have been taken in order to reduce commercial losses and to renegotiate debts due by consumers in default with our distribution subsidiaries. However, we cannot be certain that such measures will succeed, and that the losses suffered by our distribution subsidiaries will be substantially reduced. We also cannot be certain that the conditions in the market where theses subsidiaries operate will not deteriorate.

In addition, the tariffs we charge for sales of electricity to customers are determined by ANEEL pursuant to concession agreements and Brazilian law, which establish mechanisms that permit adjustment periodically. ANEEL determines the level of any adjustment by analyzing the costs of each distribution company and their weighted average cost of capital, or WACC. The third tariff review cycle for energy distribution companies resulted in a WACC of 7.5%. Given that the macroeconomic indicators of Brazil have recently improved, the new WACC could lead to lower energy costs while other costs remain stable. Therefore, our electrical power distribution subsidiaries may incur losses, and may continue to adversely affect our financial condition and results of our operations.

We may incur losses and spend time and money defending pending litigation and administrative proceedings.

We are currently a party to numerous legal proceedings relating to civil, administrative, environmental, labor and tax claims filed against us. These claims involve substantial amounts of money and other remedies. Several individual disputes account for a significant part of the total amount of claims against us. We have established provisions for all amounts in dispute that represent a probable loss in our view after consulting our legal advisors and in relation to those disputes that are covered by laws, administrative decrees, decrees or court rulings that have proven to be unfavorable. As of December 31, 2012, we provisioned a total aggregate amount of approximately R$5,556 million in respect of our legal proceedings, of which R$636 million were related to tax claims, R$3,780 million were related to civil claims and R$1,139 million were related to labor claims. (See “Item 8.A, Consolidated Financial Statements and Other Information – Litigation”).

In the event that claims involving a material amount and for which we have no provisions were to be decided against us, or in the event that the losses estimated turn out to be significantly higher that the provisions made, the aggregate cost of unfavorable decisions could have a material adverse effect on our financial condition and results of operations. In addition, our management may be required to direct its time and attention to defending these claims, which could preclude them from focusing on our core business. Depending on the outcome, certain litigation could result in restrictions in our operations and have a material adverse effect on certain of our businesses.

Our insurance coverage may be insufficient to cover potential losses.

Our business is generally subject to a number of risks and hazards, including industrial accidents, labor disputes, unexpected geological conditions, changes in the regulatory environment, environmental hazards and weather and other natural phenomena. Additionally, we and our subsidiaries are liable to third parties for losses and damages caused by any failure to provide generation, transmission and distribution services.

Our insurance covers only part of the losses that we may incur. We maintain insurance in amounts that we believe to be adequate to cover damages to our plants caused by fire, general third-party liability for accidents and operational risks. If we are unable to renew our insurance policies from time to time or losses or other liabilities occur that are not covered by insurance or that exceed our insurance limits, we could be subject to significant unexpected additional losses.

Judgment may not be enforceable against our directors or officers.

All of our directors and officers named in this annual report reside in Brazil. We, our directors and officers and our Fiscal Council members, have not agreed to accept service of process in the United States. Substantially all of our assets, as well as the assets of these

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persons, are located in Brazil. As a result, it may not be possible to effect service of process within the United States or other jurisdictions outside Brazil upon these persons, attach their assets, or enforce against them or us in United States courts, or the courts of other jurisdictions outside Brazil, judgments predicated upon the civil liability provisions of the securities laws of the United States or the laws of other jurisdictions.

If we are unable to remedy the material weaknesses in our internal controls, the reliability of our financial reporting and the preparation of our financial statements may be materially adversely affected.

Pursuant to SEC regulations, our management, including our Chief Executive Officer and Chief Financial Officer, evaluate the effectiveness of our disclosure controls and procedures, including the effectiveness of our internal control over financial reporting. Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. As a result of our management’s evaluation of the effectiveness of our disclosure, controls and procedures in 2012, our management determined that these controls and procedures were not effective due to material weaknesses in our internal controls over financial reporting. These material weaknesses included our lack of design and maintenance of effective operating controls over:

•

financial reporting based criteria established by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, including: internal control deficiencies not remediated in a timely manner; lack of adequately implemented risk assessment process to ensure that effective controls were adequately designed and implemented that would prevent and detect material misstatements to our financial statements, based on risks known by us; lack of adequate effective information technology controls, including those related to segregation of duties, security and monitoring access to our financial application programs and data;

•

monitoring and approval processes relating to the recording of recurring and non-recurring journal entries;

•

the completeness/accuracy of the judicial deposits and legal lawsuits, including periodic reviews/updates of them and the expected losses for accrual purposes;

•

the completeness/accuracy or the review/monitoring of the post retirement benefits plans (pension plans) sponsored by us;

•

the impairment calculation of assets. Specifically, there is no evidence of the analysis of financial information that was used for the impairment calculation of assets; and

•

the appropriate review/monitoring related to the preparation of financial statements and related disclosures, and insufficient headcount of internal accounting personnel.

In response to these findings by our management, we have established a working group consisting of representatives from certain areas in which we operate. This working group has identified goals which the directors and managers for each area have to meet. In addition, we are currently working with outside consultants who assisted us during the testing stage and are continuing to help us devise specific actions to remedy the existing material weaknesses. In the event we are unable to remedy these material weaknesses, the reliability of our financial reporting and the preparation of our financial statements may be materially adversely affected, which may materially adversely affect our company and our reputation.

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Risks Relating to Brazil

The Brazilian Government has exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian economic and political conditions have a direct impact on our business, financial condition, results of operations and prospects.

The Brazilian economy has been characterized by the significant involvement of the Brazilian Government, which often changes monetary, credit and other policies to influence Brazil’s economy. The Brazilian Government’s actions to control inflation and effect other policies have often involved wage and price controls, depreciation of the real , controls over remittances of funds abroad, intervention by the Central Bank to affect base interest rates and other measures. We have no control over, and cannot predict, what measures or policies the Brazilian Government may take in the future. Our business, financial condition, results of operations and prospects may be adversely affected by changes in Brazilian Government policies, as well as general factors including, without limitation:

•

Brazilian economic growth;

•

inflation;

•

interest rates;

•

variations in exchange rates;

•

exchange control policies;

•

liquidity of the domestic capital and lending markets;

•

fiscal policy and changes in tax laws; and

•

other political, diplomatic, social and economic policies or developments in or affecting Brazil.

Changes in, or uncertainties regarding the implementation of, the policies listed above could contribute to economic uncertainty in Brazil, thereby increasing the volatility of the Brazilian securities market and the value of Brazilian securities traded abroad.

The stability of the Brazilian real is affected by its relationship with the U.S. dollar, inflation and Brazilian Government policy regarding exchange rates. Our business could be adversely affected by any recurrence of volatility affecting our foreign currency-linked receivables and obligations.

The Brazilian currency has experienced high degrees of volatility in the past. The Brazilian Government has implemented several economic plans, and has used a wide range of foreign currency control mechanisms, including sudden devaluation, small periodic devaluation during which the occurrence of the changes varied from daily to monthly, floating exchange market systems, exchange controls and parallel exchange market. From time to time, there was a significant degree of fluctuation between the U.S. dollar and the Brazilian real and other currencies. On December 31, 2012, the exchange rate between the real and the dollar was R$2.0435 to U.S.$1.00.

The real may not maintain its current value or the Brazilian Government may implement foreign currency control mechanisms. Any governmental interference with the exchange rate, or the implementation of exchange control mechanisms, could lead to a depreciation of the real , which could reduce the value of our receivables and make our foreign currency-linked obligations more expensive. Other than in respect of our revenues and receivables denominated in U.S. dollars, such devaluation could materially adversely affect our business, operations or prospects.

On December 31, 2012, approximately 38.93% of our consolidated indebtedness, which equals R$19,330 million as of such date, was denominated in foreign currencies, of which R$19,007million (or approximately 38.28%) was denominated in U.S. dollars, and approximately R$9,419 million (or approximately 48.73%) of such foreign indebtedness related to Itaipu indebtedness.

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Inflation, and the Brazilian Government’s measures to curb inflation, may contribute significantly to economic uncertainty in Brazil and materially adversely impact our operating results.

Brazil has historically experienced high rates of inflation. Inflation and some of the Brazilian Government’s measures taken in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Since the introduction of the real in 1994, Brazil’s rate of inflation has been substantially lower than in previous periods. However, inflationary pressures persist, and policies adopted to contain inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty.

Brazil may experience high levels of inflation in the future. Inflationary cost pressures may lead to further government intervention, including the introduction of policies that could adversely affect our business, financial condition, results of operations and prospects.

Risks Relating to the Brazilian Power Industry

We cannot predict whether the constitutionality of the Electricity Regulatory Law will be upheld; if it is not, we may face both uncertainty and costs in re-aligning our business.

In 2004, the Brazilian Government enacted the Electricity Regulatory Law, a far reaching piece of legislation that provides the framework for regulation of the electricity sector in Brazil. Among other changes, the new legislation (i) modifies the rules regarding the purchase and sale of electric power between generation companies and distribution companies; (ii) established new rules for the auction of generation companies; (iii) created the Electric Power Commercialization Chamber (“CCEE”) and new divisional bodies; and (iv) modified the responsibilities of the Energy and Mining Ministry and ANEEL. We have aligned our business within this framework. However, the constitutionality of the Electricity Regulatory Law is being challenged in the Brazilian Supreme Court. The Supreme Court has not yet issued a final ruling in this case although it recently agreed to deny a request to suspend the effectiveness of the Electricity Regulatory Law while the challenge is pending. If the Supreme Court were to hold that the Electricity Regulatory Law is unconstitutional, this would result in significant uncertainty in Brazil as to the appropriate regulatory framework for the electricity sector, which could materially adversely affect the operation of our business. Moreover, we have no way of predicting the terms of any alternative framework for the regulation of electricity in Brazil. We would likely face costs in re-aligning our business to meet the requirements of any such framework, which would materially adversely affect our financial condition and results of operations.

We could be penalized by ANEEL for failing to comply with the terms of our concession agreements and we may not recover the full value of our investment in the event that any of our concession agreements are terminated.

We carry out our generation, transmission and distribution activities in accordance with concession agreements we execute with the Brazilian Government through ANEEL. The length of such concessions varies from 20 to 35 years. ANEEL may impose penalties on us in the event that we fail to comply with any provision of our concession agreements. Depending on the extent of the non-compliance, these penalties could include substantial fines (in some cases up to two percent of our gross revenues in the fiscal year immediately preceding the assessment), restrictions on our operations, intervention or termination of the concession. For example, on May 22, 2010, our subsidiary Eletrobras Furnas received a R$53.7 million fine from ANEEL, as a result of ANEEL determining that there were two malfunctions in the protection system of the Itaberá and Ivaiporã substations that led to power outages and disruption in generation on November 10, 2009. ANEEL may also terminate our concessions prior to their due date in the event that we fail to comply with their provisions, are declared bankrupt or are dissolved, or in the event that ANEEL determines that such termination would serve the public interest (see “Item 4.B, Business Overview – Generation – Concessions”).

As of December 31, 2012, we believe we were in compliance with all material terms of our concession agreements. However, we cannot assure you that we will not be penalized by ANEEL for a future breach of our concession agreements or that our concessions will not be terminated in the future. In the event that ANEEL were to terminate any of our concessions before their expiration date, the compensation we recover for the unamortized portion of our investment may not be sufficient for us to recover the full value of our investment and, accordingly, could have a material adverse effect on our financial condition and results of operations.

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We may be subject to administrative intervention if we provide our services in an inadequate manner or violate contractual obligations, regulations and other legal obligations.

In August 2012 the Brazilian Government published a provisional measure which later became Law No. 12,767/2012, permitting ANEEL to intervene in electric power concessions considered part of the public service in order to guarantee adequate levels of service as well as performance of the concession contract, regulations and other relevant legal obligations. If ANEEL were to intervene in concessions as part of an administrative procedure, management would have to present a recovery plan to correct any violations and failures that gave rise to the intervention. Should the recovery plan be dismissed or not presented within the timelines stipulated by the regulations, ANEEL may, among other things, expropriate or forfeit the concession, reallocate our assets or adopt measures which may alter our shareholding structure.

If the holders of our concessions are subject to an administrative intervention, we and our subsidiaries may be subject to an internal reorganization in accordance with the recovery plan presented by management, which may adversely affect our financial condition and results of operations. In addition, should the recovery plan be rejected by the administrative authorities, ANEEL would be able to use its powers described above, which may adversely affect our financial condition and results of operations.

Our generation, transmission and distribution activities are regulated and supervised by the Brazilian Government. Our business could be adversely affected by any regulatory changes or by termination of the concessions prior to their expiration dates, and any indemnity payments for the early terminations may be less than the full amount of our investments.

According to Brazilian law, ANEEL has the authority to regulate and supervise the generation, transmission and distribution activities of electrical energy concessionaries, such as us and our subsidiaries, including in relation to investments, additional expenses, tariffs and the passing of costs to customers, among other matters. Regulatory changes in the electrical energy sector are hard to predict and may have a material adverse impact on our financial condition and results of operations.

Concessions may be terminated early through expropriation and/or forfeiture. Granting authorities may expropriate concessions in the interest of the public as expressly provided for by law, in which case granting authorities carry out the service during the concession period. A granting authority may declare the forfeiture of concessions after ANEEL or MME conduct an administrative procedure and declare that the concessionaire (a) did not provide proper service for more than 30 consecutive days and did not present any acceptable alternative to ANEEL or to ONS, or failed to comply with the applicable law or regulation; (b) lost the technical, financial or economic conditions necessary to provide the service properly; and/or (c) did not comply with the fines charged by the granting authority.

Penalties are set forth in ANEEL Resolution No. 63, of May 12, 2004, and include warnings, substantial fines (in certain cases up to 2.0% of the revenue for the fiscal year immediately preceding the evaluation), restrictions on the concessionaire’s operations, intervention or termination of the concession.

We may contest any expropriation or forfeiture and will be entitled to receive compensation for our investments in expropriated assets that have not been fully amortized or depreciated. However, the indemnity payments may not be sufficient to fully recover our investments, which could materially adversely affect our financial condition and results of operations.

ANEEL establishes the tariffs for generation, transmission and distribution based on certain criteria established by law.

Eletrobras conducts its generation, transmission and distribution activities in accordance with the terms of the concession contracts entered into with the Brazilian Government through ANEEL and in certain cases ANEEL is responsible for setting the tariffs. The concessions renewed in 2012 pursuant to Law No. 12,783 were conditional on ANEEL establishing new tariffs and annual permitted revenue rates. If ANEEL questions or rejects our tariff adjustment requests based on our investments incurred to date, our financial condition and results of operations may be adversely affected.

We are subject to strict safety, health and environmental laws and regulations that may become more stringent in the future and may result in increased liabilities and increased capital expenditures.

Our operations are subject to comprehensive federal, state and local safety, health and environmental legislation as well as supervision by agencies of the Brazilian Government that are responsible for the implementation of such laws. Among other things, these laws

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require us to obtain environmental licenses for the construction of new facilities or the installation and operation of new equipment required for our business. The rules are complex and may change over time, making our ability to comply with the applicable requirements more difficult or even impossible, thereby precluding our continuing or future generation, transmission and distribution operations. For example, the Ministry of Environment required us to fulfill 33 steps related to health and safety and the environment in order to receive a permit for operation of our Madeira river project. We see increasing health and safety requirements as a trend in our industry. Moreover, private individuals, non-governmental organizations and the public have certain rights to commence legal proceedings to obtain injunctions to suspend or cancel the licensing process. In addition, Brazilian Government agencies could take enforcement action against us for any failure to comply with applicable laws. Such enforcement action could include, among other things, the imposition of fines, revocation of licenses and suspension of operations. Such failures may also result in criminal liability, irrespective of our strict liability to perform environmental remediation and to indemnify third parties for environmental damage. We cannot accurately predict the effect that compliance with enhanced environmental, health or safety regulations may have on our business. If we do not secure the appropriate permits, our growth strategy will be significantly adversely affected, which may materially adversely affect our results of operations and our financial condition.

Environmental regulations require us to perform environmental impact studies on future projects and obtain regulatory permits.

We must conduct environmental impact studies and obtain regulatory permits for our current and future projects. We cannot assure you that these environmental impact studies will be approved by the Brazilian Government, that public opposition will not result in delays or modifications to any proposed project or that laws or regulations will not change or be interpreted in a manner that could materially adversely affect our operations or plans for the projects in which we have an investment. We believe that concern for environmental protection is an increasing trend in our industry. Changes in environmental regulations, or changes in the policy of enforcement of existing environmental regulations, could materially adversely affect our results of operations and our financial condition by delaying the implementation of electricity projects, increasing the costs of expansion, or subjecting us to regulatory fines for non-compliance with environmental regulations.

We are affected by hydrological conditions and our results of operations could be affected.

Hydrological conditions could adversely affect our operations. For example, hydrological conditions that result in a low supply of electricity in Brazil could cause, among other things, the implementation of broad electricity conservation programs, including mandatory reductions in electricity generation or consumption. The most recent period of extremely low rainfall in a large portion of Brazil was in the years immediately prior to 2001, and as a result, the Brazilian Government instituted a program to reduce electricity consumption from June 1, 2001 to February 28, 2002. Furthermore, precipitation levels recorded in 2012 were relatively low, which in turn reduced the levels of reservoirs at our hydroelectric power plants. Consequently,we needed to rely on thermal plants to generate energy we had expected to generate from our hydroelectric plants, which was significantly more expensive.

A recurrence of unfavorable hydrological conditions that result in a reduced supply of electricity to the Brazilian market could cause, among other things, the implementation of broad electricity conservation programs, including mandatory reductions in electricity consumption or the imposition of special taxes on the sector to finance thermal power plants, which are often more expensive than hydroelectric plants per MW of energy produced. Therefore, it is possible that prolonged periods of reduced precipitation levels could adversely affect our financial condition and the results of operations in the future. Our generation capacity could also be affected by events such as floods which might damage our installations. This may in turn materially adversely affect our financial condition and results of operations.

Construction, expansion and operation of our electricity generation, transmission and distribution facilities and equipment involve significant risks that could lead to lost revenues or increased expenses.

The construction, expansion and operation of facilities and equipment for the generation, transmission and distribution of electricity involve many risks, including:

•

the inability to obtain required governmental permits and approvals;

•

the unavailability of equipment;

•

supply interruptions;

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•

work stoppages;

•

labor unrest;

•

social unrest;

•

interruptions by weather and hydrological conditions;

•

unforeseen engineering and environmental problems;

•

increases in electricity losses, including technical and commercial losses;

•

construction and operational delays, or unanticipated cost overruns; and

•

the unavailability of adequate funding.

For example, we experienced work stoppages during the construction of our Jirau, Santo Antônio and Belo Monte hydroelectric plants. We do not have insurance coverage for some of these risks, particularly for those related to weather conditions. Furthermore, the implementation of investments in the transmission sector have suffered delays due to the difficulty to obtain the necessary government permits and approvals. This has led to delays in investments in generation due to the lack of transmission lines to drain production. If we experience any of these or other unforeseen risks, we may not be able to generate, transmit and distribute electricity in amounts consistent with our projections, which may have a material adverse effect on our financial condition and results of operations.

We are strictly liable for any damages resulting from inadequate supply of electricity to distribution companies, and our contracted insurance policies may not fully cover such damages.

Under Brazilian law, we are strictly liable for direct and indirect damages resulting from the inadequate supply of electricity to distribution companies, such as abrupt interruptions or disturbances arising from the generation, distribution or transmission systems. Accordingly, we may be held liable for such damages even if we were not at fault. As a result of the inherent uncertainty involved in these matters, we do not maintain any provisions in relation to potential damage, and these interruptions or disturbances may not covered by our insurance policies or may exceed the coverage limits of such policies. Accordingly, if we are found liable to pay damages in a material amount, our financial condition and results of operations would be materially adversely affected to a greater degree than those claims where we have recorded provisions.

Risks Relating to our Shares and ADSs

If you hold our preferred shares, you will have extremely limited voting rights.

In accordance with the Brazilian Corporate Law and our by-laws, holders of the preferred shares, and, by extension, holders of the ADSs representing them, are not entitled to vote at our shareholders’ meetings, except in very limited circumstances. This means, among other things, that a preferred shareholder is not entitled to vote on corporate transactions, including mergers or consolidations with other companies. Our principal shareholder, who holds the majority of common shares with voting rights and controls us, is therefore able to approve corporate measures without the approval of holders of our preferred shares. Accordingly, an investment in our preferred shares is not suitable for you if voting rights are an important consideration in your investment decision.

Exercise of voting rights with respect to common and preferred shares involves additional procedural steps.

When holders of common shares are entitled to vote, and in the limited circumstances where the holders of preferred shares are able to vote, holders may exercise voting rights with respect to the shares represented by ADSs only in accordance with the provisions of the deposit agreement relating to the ADSs. There are no provisions under Brazilian law or under our by-laws that limit ADS holders’ ability to exercise their voting rights through the depositary bank with respect to the underlying shares. However, there are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in

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communicating with such holders. For example, holders of our shares will receive notice directly from us and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will not receive notice directly from us. Rather, in accordance with the deposit agreement, we will provide the notice to the depositary bank, which will in turn, as soon as practicable thereafter, mail to holders of ADSs the notice of such meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the depositary bank how to vote their shares. Because of this extra procedural step involving the depositary bank, the process for exercising voting rights will take longer for ADS holders than for holders of shares. ADSs for which the depositary bank does not receive timely voting instructions will not be voted at any meeting.

If we issue new shares or our shareholders sell shares in the future, the market price of your ADSs may be reduced.

Sales of a substantial number of shares, or the belief that this may occur, could decrease the prevailing market price of our common and preferred shares and ADSs by diluting the shares’ value. If we issue new shares or our existing shareholders sell shares they hold, the market price of our common and preferred shares, and of the ADSs, may decrease significantly. Such issuances and sales also might make it more difficult for us to issue shares or ADSs in the future at a time and a price that we deem appropriate and for you to sell your securities at or above the price you paid for them.

Political, economic and social events as well as the perception of risk in other countries, including the United States, European Union and emerging countries, may affect the market prices for securities in Brazil, including Eletrobras shares.

The Brazilian securities market is influenced by economic and market conditions in other countries, including the United States, European Union and emerging countries. Despite the significant different economic conjecture between these countries and Brazil, investors’ reactions to events in these countries may have a relevant adverse effect on the market value of Brazilian securities, especially those listed on the stock exchange. Crisis in the United States, European Union or emerging countries may reduce investors’ interest in Brazilian companies, including Eletrobras. For example, the prices of shares listed on BM&FBOVESPA have been historically affected by fluctuations of the American interest rate as well as the variations of the main indexes for North-American shares. Events in other countries and capital markets may adversely affect the market price of Eletrobras shares to the extent that, in the future, it could difficult or prevent access to capital markets and investment financing on acceptable terms.

The Global Financial Crisis that began in the second half of 2008 had significant consequences, including in Brazil, such as volatility on the stock and credit market, lack of credit, higher interest rates, general economic desacceleration, volatile exchange rates, inflationary pressure, among others, that could adversely affect us, affect the price of Brazilian securities, including Eletrobras shares.

The persistence of uncertainty in Europe, especially in Greece, Spain, Italy and Portugal, intensified the concern about their fiscal sustainability and their default risk, therefore reducing investor confidence and bringing volatility to the markets. Furthermore, projected growth in the United States remains low, considering certain savings criteria (?), firmer fiscal policies and lower global growth rates. The continuous financial deterioration of these countries appears to have adversely affected the global economy and, indirectly, the emerging markets, including Brazil and China, which have already begun to show signs of slowing their rate of growth.

Exchange controls and restrictions on remittances abroad may adversely affect holders of ADSs.

You may be adversely affected by the imposition of restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and the conversion of reais into foreign currencies. The Brazilian Government imposed remittance restrictions for approximately three months in late 1989 and early 1990. Restrictions like these would hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of our shares, as the case may be, from reais into U.S. dollars and the remittance of the U.S. dollars abroad. We cannot assure you that the Brazilian Government will not take similar measures in the future.

Exchanging ADSs for the underlying shares may have unfavorable consequences.

As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our preferred shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the preferred shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw preferred shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of or distributions relating to the preferred shares unless

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you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration you would not be able to remit abroad non-Brazilian currency. In addition, if you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our preferred shares.

If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our preferred shares or the return of your capital in a timely manner. The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.

You may receive reduced dividend payments if we incur net losses or our net income does not reach certain levels.

Under Brazilian Corporate Law and our by-laws, we must pay our shareholders a mandatory distribution equal to at least 25% of our adjusted net income for the preceding fiscal year, with holders of preferred shares having priority of payment. Our by-laws require us to pay holders of our preferred shares annual dividends equal to the greater of 8% (in the case of our class “A” preferred shares (subscribed on June 23, 1969) and 6% (in the case of our class “B” preferred shares (subscribed on June 24, 1969), calculated by reference to the capital stock portion of each type and class of stock. The priority minimum dividend payable to holders of our preferred shares must be paid whenever there is a net profit or, in the event of losses in that year, whenever a reserve of profits is available. If our net income is negative or insufficient in a fiscal year, our management may recommend at the annual shareholders’ meeting in respect of that year that the payment of the mandatory dividend should not be made. In these circumstances there is no impediment for the majority shareholder to further capitalize the Company, which could result in the dilution of the current shareholders’ shares.

You may not be able to exercise preemptive rights with respect to the preferred or common shares.

You may not be able to exercise the preemptive rights relating to the preferred or common shares underlying your ADSs unless a registration statement under the United States Securities Act of 1933, as amended, (the “Securities Act”), is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse and accordingly your ownership position relating to the preferred or common shares will be diluted.

Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our shares or ADSs.

Law No. 10,833 of December 29, 2003 provides that the disposition of assets located in Brazil by a non-resident to either a Brazilian resident or a non-resident is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposition of our common or preferred shares by a non-resident of Brazil to another non-resident of Brazil. There is no judicial guidance as to the application of Law No. 10,833 of December 29, 2003 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of our ADSs between non-residents of Brazil. However, in the event that the disposition of assets is interpreted to include a disposition of our ADSs, this tax law would accordingly result in the imposition of withholding taxes on the disposition of our ADSs by a non-resident of Brazil to another non-resident of Brazil.

Because any gain or loss recognized by a U.S. Holder (as defined in “Item 10.E, Taxation – Material United States Federal Income Tax Consequences”) will generally be treated as a U.S. source gain or loss unless such credit can be applied (subject to applicable limitations) against tax due on the other income treated as derived from foreign sources, such U.S. Holder would not be able to use the foreign tax credit arising from any Brazilian tax imposed on the disposition of our common or preferred shares or our ADSs.

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ITEM 4. INFORMATION ON THE COMPANY

Overview

Directly and through our subsidiaries, we are involved in the generation, transmission and distribution of electricity in Brazil. As of December 31, 2012, we controlled approximately 35% of the installed power generating capacity within Brazil. Through our subsidiaries, we are also responsible for approximately 53% of the installed transmission capacity above 230 kV in Brazil. Our revenues derive mainly from:

•

the generation of electricity and its sale to electricity distribution companies and free consumers;

•

the transmission of electricity on behalf of other electricity concessionaires; and

•

the distribution of electricity to end consumers.

For the year ended December 31, 2012, we derived 70.6%, 27.6% and 15.8% of our net revenue from our electricity generation, transmission and distribution businesses, respectively. For the year ended December 31, 2012, our net revenues were R$34,064 million, compared to R$29,533 million for the year ended December 31, 2011.

A. History and Development

General

We were established on June 11, 1962 as a mixed capital company with limited liability and unlimited duration. We are subject to Brazilian Corporate Law. Our executive offices are located at Avenida Presidente Vargas, 409, 13th Floor, Edifício Herm. Stolz, CEP 20071-003, Rio de Janeiro, RJ, Brazil. Our telephone number is +55 21 2514 6331. Our legal name is Centrais Elétricas Brasileiras S.A. – Eletrobras and our commercial name is Eletrobras.

Capital Expenditures

In the last five years, we have invested an average of R$5.4 billion per year in capital projects. Approximately 39% was invested in our generation segment, 34% in our transmission segment and the balance in our distribution segment and other investments.

Our core business is the generation, transmission and distribution of energy and we intend to invest heavily in these segments in the upcoming years.

The Government selects companies to construct new generation units and transmission lines through a tender process. It is, therefore, difficult to predict the precise amounts that we will invest in these segments in the future. We are, however, working to secure a significant number of new concessions either alone or as part of a consortium including the private sector.

The EPE 10 Year Plan estimates that Brazil will have 148,969 km of transmission lines and 182,408 MW of installed generation capacity by 2021. These estimates would represent approximately R$269 billion investments across the Brazilian electricity section. As the current largest player in the market based on length of transmission lines, we expect to participate in the majority of these new investments. In accordance with the Business Plan, we believe that over the next five years we will invest approximately R$52.4 billion in our generation, transmission and distribution businesses. For these investments, we expect to use the funding derived from our net cash flow as well as from accessing national and international capital markets and bank financing.

Our capital expenditures in 2012, 2011 and 2010 were R$5,924.1 million, R$6,775.2 million and R$5,279.4 million, respectively.

B. Business Overview

Strategy

Our main strategic objectives are to achieve sustained growth and profitability, while maintaining our position as a leader in the Brazilian electricity sector. In order to achieve these objectives, our main strategies are as follows:

•

Implement operational efficiency. Our business has historically been focused on our core operations in the Brazilian generation, transmission and distribution markets as well as our former role as lender to third parties, including historically as lender to our subsidiaries. We intend to reduce our operational costs through a number of measures, including: (i) implementation of a voluntary redundancy scheme for employees and regulation and elaboration of an employee mobility plan to further their development; (ii) standardization of procedures, controls and management systems, including for the operation and maintenance of our assets; (iii) centralization of administrative and procedural activities; and (iv) approval of a simplified licensing procedure. We believe that these measures will allow us to reduce our costs and improve our operational efficiency while maintaining the quality and reliability of our services.

- 25 -

•

Expand our business in a sustainable and profitable way. Due to our position as a leader in the Brazilian energy sector, the scale of our operations and the expertise of our management, we believe that we are in a privileged position to explore new opportunities in the Brazilian energy sector in a sustainable way. We believe that there are opportunities for growth through the participation in (i) transmission and generation partnerships in Brazil, which will allow us to maintain our leadership position as well as safeguarding our profitability; and (ii) the development of transmission and generation projects in countries outside of Brazil, where the profit margins are higher than in Brazil, particularly in relation to renewable power generation and integration of electric grids.

•

Improve our business model, corporate governance and management. We intend to improve our business model, corporate governance and management through a study which is aimed at created a new integrated business model which applies to all of our activities. This study will largely focus on the following items: (i) reorganizing the distribution of electric energy, (ii) creating subsidiaries through which we will manage investments in new or existing infrastructure projects, as well as analyzing any potential mergers and/or spin-offs which would allow us to bring together assets and unify their management; (iii) creating shared service centers in order to capture synergies and economies of scale within our group; and (iv) setting up a new management for regulatory issues.

In addition, our shares are listed on the BM&FBOVESPA’s Level 1 segment and on the NYSE. As a result of these listings, we are required to comply with numerous regulations, and we believe that by complying with these regulations we will maintain high corporate governance standards. Our current corporate governance standards are included in the PAE, the audit and administration manuals, the internal regulations of the Board of Directors and Audit Committee and our by-laws. In addition, we are a signatory to the United Nations Global Compact, the world’s largest corporate responsibility initiative, and are a member of the BM&FBOVESPA’s ISE Corporate Sustainability Index. We strive to continue to be a competitive company that emphasizes social and environmental responsibility and sustainability together with the development and quality of life for our employees.

Generation

Our principal activity is the generation of electricity. Net revenues (including financial revenues at the holding company level) from generation represented 70.6%, 64.7% and 68.6% of our total net revenues in the years ended December 31, 2012, 2011 and 2010, respectively.

Pursuant to Law No. 5,899, of July 5, 1973, and Decree 4,550, of December 27, 2002, Eletrobras must sell all energy produced by Itaipu to distribution companies in the Southern, Southeastern and Midwestern regions in Brazil (see “Item 5, Operating and Financial Review and Prospects – Electric Power Market – Itaipu”).

We had an installed capacity of 42,333 MW as of December 31, 2012, 41,621 MW as of December 31, 2011 (including the 350 MW capacity of Candiota III, which is in operation since January 3, 2011) and 41,360 MW as of December 31, 2010. The increase in capacity over these periods reflects continuous growth. Additionally, we have approximately 11,631 MW in planned projects throughout Brazil through 2015, which are currently under construction, and we have begun feasibility studies for an additional approximately 20,000 MW.

- 26 -

The map below shows the geographic location of our generation assets as of December 31, 2012:

LOGO

- 27 -

Concessions

As of December 31, 2012, we operated under the following concessions/authorizations granted by ANEEL for our generation businesses:

Concessions/Authorizations

State

Type of Plant

Installed
Capacity
(MW)

End of Concession/
Authorization

Began Service
or expect to begin

Eletrobras CGTEE

São Jerônimo

Rio Grande do Sul

Thermal

20.00

July 2015

April 1953

Presidente Médici

Rio Grande do Sul

Thermal

446.00

July 2015

January 1974

Nutepa

Rio Grande do Sul

Thermal

24.00

July 2015

February 1968

Candiota III

Rio Grande do Sul

Thermal

350.00

January 2024

January 2011

Eletrobras Chesf

Funil ⁽¹⁾

Bahia

Hydroelectric

30.00

December 2042 ⁽⁸ ⁾

March 1962

Pedra ⁽¹⁾

Bahia

Hydroelectric

20.00

December 2042 ⁽⁸ ⁾

April 1978

Araras

Ceará

Hydroelectric

4.00

July 2015

February 1967

Curemas

Bahia

Hydroelectric

3.52

November 2024

June 1957

Paulo Afonso Complex and Moxotó (Apolônio Sales)

Bahia

Hydroelectric

4,280.00

December 2042 ⁽⁸ ⁾

January 1955

Sobradinho

Bahia

Hydroelectric

1,050.30

December 2022 ⁽⁸ ⁾

April 1979

Luiz Gonzaga

Pernambuco

Hydroelectric

1,479.60

December 2042 ⁽⁸⁾

February 1988

Boa Esperança

Piauí/Maranhão

Hydroelectric

237.30

December 2042 ⁽⁸ ⁾

January 1970

Xingó

Sergipe/Alagoas

Hydroelectric

3,162.00

December 2042 ⁽ ⁸ ⁾

April 1994

Piloto

Bahia

Hydroelectric

2.00

July 2015

February 1949

Camaçari

Bahia

Thermal

360.00

August 2027

February 1979

Dardanelos ⁽ ⁷ ⁾

Mato Grosso

Hydroelectric

261.00

July 2042 ⁽ ⁸ ⁾

August 2011

Eletrobras Eletronorte

Rio Acre

Acre

Thermal

45.49

Indefinite

April 1994

Rio Branco II

Acre

Thermal

32.75

Indefinite

April 1981

Rio Branco I

Acre

Thermal

18.65

Indefinite

February 1998

Santana

Amapá

Thermal

177.74

Indefinite

January 1993

Rio Madeira

Rondônia

Thermal

119.35

Indefinite

April 1968

Coaracy Nunes

Amapá

Hydroelectric

78.00

December 2042 ⁽⁸ ⁾

October 1975

Tucurui

Pará

Hydroelectric

8,535.00

July 2024

November 1984

Samuel

Rondônia

Hydroelectric

216.75

September 2029

July 1989

Curuá-Una ⁽²⁾

Pará

Hydroelectric

30.30

July 2028

July 1977

Senador Arnon Afonso Farias de Mello

Roraima

Thermal

85.92

Indefinite

December 1990

Serra do Navio ⁽⁵⁾

Amapá

Thermal

23.30

May 2037

November 2008

Dardanelos ⁽ ⁷ ⁾

Mato Grosso

Hydroelectric

261.00

July 2042 ⁽⁸ ⁾

August 2011

Eletrobras Eletronuclear ⁽³⁾

Angra I

Rio de Janeiro

Nuclear

640.00

Indefinite

January 1985

Angra II

Rio de Janeiro

Nuclear

1,350.00

Indefinite

September 2000

Eletrobras Eletrosul

Cerro Chato I

Rio Grande do Sul

Wind

30.00

August 2045

November 2011

Cerro Chato II

Rio Grande do Sul

Wind

30.00

August 2045

September 2011

Cerro Chato III

Rio Grande do Sul

Wind

30.00

August 2045

May 2011

Passo São João

Rio Grande do Sul

Hydroelectric

77.00

August 2041

July 2012

Mauá

Paraná

Hydroelectric

363.00

July 2042 ⁽⁸ ⁾

November 2012

Eletrobras Holding

Mangue Seco 2

Rio Grande do Norte

Wind

26.00

July 2045

September 2011

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Concessions/Authorizations

State

Type of Plant

Installed
Capacity
(MW)

End of Concession/
Authorization

Began Service
or expect to begin

Eletrobras Furnas

Corumbá I

Goiás

Hydroelectric

375.00

November 2014

April 1997

Serra da Mesa

Goiás

Hydroelectric

1,275.00

December 2042 ⁽⁸ ⁾

April 1998

Eletrobras Furnas

Minas Gerais

Hydroelectric

1,216.00

November 2038

March 1963

Itumbiara

Minas Gerais/Goiás

Hydroelectric

2,082.00

February 2020

February 1980

Marimbondo

São Paulo/Minas Gerais

Hydroelectric

1,440.00

December 2042 ⁽⁸⁾

April 1975

Peixoto (Mascarenhas de Moraes)

Minas Gerais

Hydroelectric

476.00

October 2023

April 1973

Porto Colômbia

Minas Gerais

Hydroelectric

320.00

December 2042 ⁽⁸⁾

March 1973

Manso

Mato Grosso

Hydroelectric

212.00

February 2035

October 2000

Funil ⁽¹⁾

Minas Gerais

Hydroelectric

216.00

December 2042 ⁽⁸⁾

April 1969

Estreito

São Paulo

Hydroelectric

1,050.00

December 2042 ⁽⁸⁾

January 1969

Campos ⁽⁴⁾

Rio de Janeiro

Thermal

30.00

July 2007

April 1977

Santa Cruz

Rio de Janeiro

Thermal

932.00

December 2042 ⁽⁸⁾

March 1967

Peixe Angical ⁽⁵⁾

Tocantins

Hydroelectric

452.00

November 2036

June 2006

Baguari ⁽⁵⁾

Minas Gerais

Hydroelectric

140.00

August 2041

November 2009

Retiro Baixo ⁽⁵⁾

Minas Gerais

Hydroelectric

82.00

August 2041

March 2010

Foz do Chapecó ⁽⁵⁾

Rio Grande do Sul

Hydroelectric

855.00

November 2036

August 2010

Serra do Facão ⁽⁵⁾

Goiás

Hydroelectric

212.60

November 2036

October 2010

Santo Antônio

Rondônia

Hydroelectric

3,150.40

June 2043

March 2012

Itaipu ⁽⁶⁾

Itaipu Binacional

Paraná

Hydroelectric

14,000.00

Not applicable

—

Eletrobras Amazonas Energia

Aparecida

Amazonas

Thermal

282.05

Indefinite

February 1984

Mauá

Amazonas

Thermal

738.10

Indefinite

April 1973

Balbina

Amazonas

Hydroelectric

277.50

March 2027

January 1989

UT CO Cidade Nova

Amazonas

Thermal

29.70

Indefinite

August 2008

UT AS São José

Amazonas

Thermal

73.40

Indefinite

February 2008

UT FO Flores

Amazonas

Thermal

124.70

Indefinite

August 2008

UTE Iranduba

Amazonas

Thermal

66.60

Indefinite

November 2010

UTE Distrito

Amazonas

Thermal

51.30

Indefinite

October 2010

Electron (TG)

Amazonas

Thermal

121.10

Indefinite

June 2005

Others

Amazonas

Thermal

439.00

Indefinite

—

Eletrobras Distribuição Rondônia

Rio Vermelho

Rondônia

Small Hydroelectric Central

2.60

Indefinite

November 1986

Under Construction Suitable Plants

Simplício

Rio de Janeiro/Minas Gerais

Hydroelectric

333.70

August 2041

February 2013

Batalha

Minas Gerais/Goiás

Hydroelectric

52.50

August 2041

May 2013

São Domingos

Mato Grosso do Sul

Hydroelectric

48.00

December 2037

March 2013

Barra do Rio Chapéu

Santa Catarina

Small Hydroelectric Central

15.00

December 2035

January 2013

João Borges

Santa Catarina

Small Hydroelectric Central

19.00

December 2035

April 2013

Angra III

Rio de Janeiro

Nuclear

1,405.00

Indefinite

June 2016

Casa Nova

Bahia

Wind

180.00

January 2045

August 2013

Mauá 3

Amazonas

Thermal

589.61

Indefinite

April 2014

- 29 -

Concessions/Authorizations

State

Type of Plant

Installed
Capacity
(MW)

End of Concession/
Authorization

Began Service
or expect to begin

Special Purpose Vehicle

Jirau

Rondônia

Hydroelectric

3,750.00

August 2043

April 2013

Belo Monte

Pará

Hydroelectric

11,233.00

August 2045

February 2015

São Pedro do Lago

Bahia

Wind

30.00

February 2046

January 2013

Pedra Branca

Bahia

Wind

28.80

February 2046

January 2013

Sete Gameleiras

Bahia

Wind

30.00

February 2046

January 2013

Miassaba 3

Rio Grande do Norte

Wind

68.50

August 2045

April 2013

Teles Pires

Mato Grosso/Pará

Hydroelectric

1,820.00

December 2046

September 2014

Rei dos Ventos 1

Rio Grande do Norte

Wind

58.45

December 2045

June 2013

Rei dos Ventos 3

Rio Grande do Norte

Wind

60.12

December 2045

May 2013

Livramento Complex

Rio Grande do Sul

Wind

78.00

April 2047

March 2013

Santa Vitória do Palmar Complex

Rio Grande do Sul

Wind

258.00

March 2047

November 2013

Famosa I

Rio Grande do Norte

Wind

22.50

May 2042

July 2014

Pau-Brasil

Ceará

Wind

15.00

March 2042

July 2014

Rosada

Rio Grande do Norte

Wind

30.00

September 2042

July 2014

São Paulo

Ceará

Wind

17.50

March 2042

July 2014

(1)	Approval for the renovation of the environmental licences of both Funil and Pedra has been requested but the licences have not yet been granted. However, this does not affect the operations at either plant.

(2)	This plant was transferred from Celpa to Eletrobras Eletronorte in December 2005 as payment for outstanding debts owed by Celpa to Eletrobras Eletronorte relating to sales of energy.

(3)

The nuclear plants are authorized to operate for 40 years from the date on which they commenced operations. A few years prior to this due expiration date, each applicable nuclear energy company may request an extension of its respective permit from CNEN. In order to obtain an extension, CNEN may request the replacement of certain equipment. For example, in the case of Angra I, CNEN requested the replacement of a steam generator following our request to extend the permit by 20 years.

(4)	This plant is not operational.

(5)

Serra do Navio, Peixe Angical, Baguari, Retiro Baixo, Foz do Chapecó, Serra do Facão and Santo Antônio are special purpose entities in which we hold an ownership interest of 49.0%, 40.0%, 15.0%, 49.0%, 49.5% , 40.0% and 39.0%, respectively. Figures in this table refer to the total capacity of each plant.

(6)	Itaipu does not operate pursuant to a concession but rather the Itaipu Treaty that expires in 2023. We own 50.0% of Itaipu Binacional.

(7)	Our subsidiaries Eletrobras Eletronorte and Eletrobras Chesf both owned 24.0% of this unit. Figure in this table refers to the total capacity of the plant.

(8)	Renewed pursuant to Law No. 12,783.

Source: internal sources.

Types of Plants

Hydroelectric power plants accounted for 89.7% of our total power generated in 2012, compared to 90.7% in 2011 and 91.0% in 2010.

We also generate electricity through our thermal and nuclear plants. Thermal plants accounted for 4.0% of our total power generated in 2012, compared to 2.9% in 2011 and 2.8% in 2010. Nuclear plants accounted for 6.3% of our total power generated in 2012, compared to 6.4% in 2011 and 6.3% in 2010.

The following table sets out the total amount of electricity generated in the periods indicated, measured in megawatt hours, broken down by type of plant:


	Year Ended December 31,
	2012		2011		2010 ⁽²⁾
	(MWh)
Type of plant :
Hydroelectric ⁽¹⁾		229,916,793		221,787,327		209,030,648
Thermal		10,353,648		7,013,394		6,369,683
Nuclear		16,006,532		15,644,251		14,543,807

Total ⁽³⁾		256,276,973		244,444,973		229,944,139

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(1)	Including 100% of the Itaipu plant.

(2)	Does not consider energy generated by SPEs in which we hold equity interests.

(3)	Does not consider MWh produced by any wind plant.

Hydroelectric Plants

Hydroelectric plants are our most cost-efficient source of electricity, although efficiency is significantly dependent on meteorological factors, such as the level of rainfall. Based on our experience with both types of plants, we believe construction costs for hydroelectric plants are higher than for thermal plants; however, the average useful life of hydroelectric plants is longer. We use our hydro-powered plants to provide the bulk of our primary and back-up electricity generated during peak periods of high demand. During periods of rapid change in supply and demand, hydroelectric plants also provide greater production flexibility than our other forms of electric generation because we are able to instantly increase (or decrease) output from these sources, in contrast to thermal or nuclear facilities where there is a time lag while output is adjusted.

As of December 31, 2012, we owned and operated 29 hydroelectric plants. In addition, we hold a 50.0% interest in Itaipu, the other 50.0% of which is owned by a Paraguayan governmental entity and participations in the Peixe Angical (40.0%), Serra do Facão (49.5%), Retiro Baixo (49.0%), Foz do Chapecó (40.0%), Baguari (15.0%), Dardanelos (49%) and Santo Antônio (49.0%) plants. Also, we have participation in the Serra Mesa (48.5%), Manso (70.0%) and Mauá (49.0%). The ONS is solely responsible for determining, in any year, how much electricity each of our plants should generate. As of December 31, 2012, the total installed capacity of our hydroelectric plants was 35,674 MW (including 50.0% of Itaipu and our participations in the SPEs referred to above). The following table sets out information with respect to hydroelectric plants owned by us and with partners as of December 31, 2012 and for the year then ended:


	Installed ⁽¹⁾ Capacity		Assured Energy ⁽²⁾		Began Service
	(MW)
Hydroelectric plants :
Curuá-Una ⁽³⁾		30.3		24.00		1977
Peixoto (Mascarenhas de Morais)		476.0		295.00		1973
Curemas		35.2		1.90		1957
Paulo Afonso complex and Moxotó		4,281.6		2,225.00		1955
Funil (Eletrobras Chesf)		30.0		14.73		1962
Eletrobras Furnas		1,216.0		598.00		1963
Araras		4.0		—		1967
Funil (Eletrobras Furnas)		216.0		121.00		1969
Estreito		1,050.0		495.00		1969
Boa Esperança		237.0		143.00		1970
Porto Colômbia		320.0		185.00		1973
Coaracy Nunes ⁽³⁾		78.0		—		1975
Marimbondo		1,440.0		726.00		1975
Pedra		20.0		6.84		1978
Sobradinho		1,050.0		531.00		1979
Luiz Gonzaga		1,479.0		959.00		1988
Itumbiara		2,082.0		1,015.00		1980
Tucurui complex		8,535.0		4,140.00		1984
Samuel ⁽³⁾		216.8		92.7		1989
Balbina ⁽³⁾		277.5		—		1989
Xingó		3,162.0		2,139.00		1994
Corumbá I		375.0		209.00		1997
Serra da Mesa ⁽⁴⁾		1,275.0		671.00		1998
Manso ⁽⁴⁾		212.0		92.00		2000

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	Installed ⁽¹⁾ Capacity		Assured Energy ⁽²⁾		Began Service
	(MW)
Peixe Angical ⁽⁵⁾		452.0		271.00		2006
Baguari ⁽⁷⁾		140.0		80.00		2009
Retiro Baixo ⁽⁸⁾		82.0		39.00		2010
Serra do Facão ⁽⁹⁾		212.6		182.40		2010
Foz do Chapecó ⁽¹⁰⁾		855.0		432.00		2010
Itaipu ⁽⁶⁾		14,000.0		8,577.00		1985
Dardanelos ⁽¹¹⁾		261.0		154.90		2011
Santo Antônio ⁽¹²⁾		3,150.0		2,218.0		2012
Mauá ⁽¹³⁾		363.0		117.8		2012
Passo São João		77.0		39.0		2012
Rio Vermelho		2.6		2.0		1986

(1)	The installed capacity of Itaipu is 14,000 MW. Itaipu is equally owned by Brazil and Paraguay.

(2)	Assured energy is the maximum amount per year that each plant is permitted to sell in auctions/supply to the Interconnected Power System, an amount determined by ONS. Any energy produced in excess of assured energy is sold in the Free Market.

(3)	The Balbina, Curuá-Una, Samuel and Coaracy Nunes plants are part of the isolated system and do not have an assured energy restriction.

(4)	We own 48.46% of the Serra Mesa plant and 70.0% of the Manso plant. Figures in this table refer to the entire capacity/utilization of each plant.

(5)	We own 40.0% of the Peixe Angical plant. Figures in this table refer to the entire capacity/utilization of the plant.

(6)	We own 50.0% of the Itaipú plant. Figures in this table refer to the entire capacity/utilization of the plant.

(7)	We own 15.0% of the Baguari plant. Figures in this table refer to the entire capacity/utilization of the plant.

(8)	We own 49.0% of the Retiro Baixo plant. Figures in this table refer to the entire capacity/utilization of the plant.

(9)	We own 49.5% of the Serra do Facão plant. Figures in this table refer to the entire capacity/utilization of the plant.

(10)	We own 40.0% of the Foz do Chapecó plant. Figures in this table refer to the entire capacity/utilization of the plant.

(11)	We own 49.0% of the Dardanelos plant.

(12)	We own 49.0% of the Santo Antônio plant.

(13)	We own 49.0% of the Mauá plant.

The following table describes the energy generated by the hydroelectric plants owned by us, the assured energy and the actual operational utilization. We have converted the measurement of the assured energy to MWh so that we can compare it against the energy generated.


	Assured Energy		Generated Energy ⁽¹⁾		Actual Operational Utilization
	( MWh)				(%)
Hydroelectric plants :
Funil (Eletrobras Chesf)		129,035		36,107		27.91
Pedra		59,918		2,072		3.46
Araras		0		0		—
Curemas		16,644		7,081		42.54
Paulo Afonso complex and Moxotó		19,491,000		17,331,057		88.92
Sobradinho		4,651,560		4,112,861		88.42
Luiz Gonzaga		8,400,840		7,943,888		94.56
Boa Esperança		1,252,680		1,103,018		88.05
Xingó		18,737,640		19,181,306		102.37
Coaracy Nunes ⁽²⁾		—		395,557		—

- 32 -


	Assured Energy		Generated Energy ⁽¹⁾		Actual Operational Utilization
	( MWh)				(%)
Tucurui complex		36,266,400		39,236,437		108.19
Samuel		812,052		771,421		95.00
Corumbá I		1,830,840		1,665,633		90.98
Curuá-Una ⁽²⁾		210,240		222,751		105.95
Serra da Mesa ⁽³⁾		2,848,459		3,134,339		110.04
Furnas		5,238,480		6,431,994		122.78
Itumbiara		8,891,400		6,758,940		76.02
Marimbondo		6,359,760		7,755,094		121.94
Peixoto (Mascarenhas de Morais)		2,584,200		3,099,334		119,93
Porto Colômbia		1,620,600		2,101,308		129.66
Manso ⁽³⁾		564,144		407.076		72.16
Funil (Eletrobras Furnas)		1,059,960		1,840,557		173.64
Estreito		4,336,200		4,996,933		115.24
Balbina ⁽²⁾		—		1,140,281		—
Passo São João		341,640		208,010		60.89
Mauá ⁽⁵⁾		505,645		60,566		11.98
Rio Vermelho		17,520		15,155		86.50

Total		126,226,857		129,958,776		102.96	⁽⁴⁾

(1)	Excluding (i) Itaipu, which is owned equally by Brazil and Paraguay; and (ii) any energy generated through our participation in SPEs.

(2)	The Balbina, and Coaracy Nunes plants are part of the isolated system and do not have an assured energy restriction.

(3)	We own 48.46% of the Serra Mesa plant and 70.0% of the Manso plant.

(4)	This percentage is based on the average operational utilization.

(5)	We own 49.0% of the Mauá plant.

See “ – Concessions” for information on the hydroelectric power plants operated by Eletrobras Chesf, Eletrobras Eletronorte and Eletrobras Furnas.

Hydroelectric utilities in Brazil are required to pay royalty fees to the Brazilian states and municipalities in which a plant is located or in which land may have been flooded by a plant’s reservoir for the use of hydrological resources. Fees are established independently by each state and/or municipality as applicable and are based on the amount of energy generated by each utility and are paid directly to the states and municipalities. Fees for the states and municipalities in which we operate were R$1,652 million in 2012, compared to R$1,329 million in 2011 and R$1,087 million in 2010. These fees are recorded as operating costs in our financial statements.

Our subsidiaries have acquired concessions for the construction of 10 new hydroelectric power plants. Information regarding these new plants is set out in the table below:


	Installed Capacity		Construction began	Service begins ⁽¹⁾
	(MW)
New plants :
Barra do Rio Chapéu		15.2	October 2008	January 2013
Batalha		52.5	June 2008	May 2013
Simplício		337.7	March 2007	February 2013
São Domingos		48.0	August 2009	March 2013
Santo Antônio ⁽²⁾		3,150.0	September 2008	March 2012
Jirau		3,750.0	December 2009	April 2013
Belo Monte		11,233.0	June 2011	February 2015
João Borges		19.0	June 2010	March 2013
Teles Pires		1,820.0	August 2011	April 2015
Santo Cristo		19.5	August 2013	December 2014

(1)	Estimated dates based on current timetable.

(2)	Nine turbines operating, totalling 644MW of installed capacity.

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Simplício and Paulistas (Batalha) will be operated only by Eletrobras Furnas.

São Domingos, João Borges and Santo Cristo will be operated solely by our subsidiary Eletrobras Eletrosul. Santo Antônio will be operated by Furnas and partners. Teles Pires will be operated by our subsidiaries Eletrobras Furnas and Eletrobras Eletrosul with partners. Jirau will be operated by our subsidiaries Eletrobras Eletrosul and Eletrobras Chesf with third parties and. Belo Monte will be operated by Eletrobras holding, Eletrobras Eletronorte and Eletrobras Chesf. We intend to finance these plants from cash flow from operations, and, if necessary, from financing obtained in the international capital markets and/or multilateral agencies.

On August 19, 2011, IBAMA granted Companhia Hidrelétrica Teles Pires an installation license for the construction of UHE Teles Pires on the Teles Pires River. The plant’s dam will be located between the States of Mato Grosso and Pará. Companhia Hidrelétrica Teles Pires is a SPE whose main shareholders are Teles Pires Participações S.A. (50.1%), Eletrobras Eletrosul (24.5%), Eletrobras Furnas (24.5%) and Odebrecht Participações e Investimentos (0.9%). These companies form the Teles Pires Energia Eficiente consortium.

Thermal Plants

As of December 31, 2012, we owned and operated 122 thermal plants. In addition, we hold a 49.0% interest in the Serra do Navio plant. Thermal plants include coal and oil power generation units. The total installed capacity of our thermal plants was 4,566 MW as of December 31, 2012, compared to 4,535 MW as of December 31, 2011 and 4,150 MW as of December 31, 2010.

The following table sets out information regarding our thermal plants as of December 31, 2012 and for the year ended:


	Installed Capacity		Generated Energy ⁽²⁾		Assured Energy ⁽¹⁾
	(MW)		(MWh)		(MWh)
Thermal plants :
P. Médici (Candiota)		446.00		722,496		2,203,140
S. Jerônimo (Candiota)		20.00		42,430		110,376
Candiota III		350.00		1,912,261		2,557,920
Nutepa (Candiota)		24.00		112		53,436
Santa Cruz		932.00		466,342		6,018,120
Campos		30.00		0		183,960
Camaçari		346.80		6,378		2,013,048
Electron		121.11		10,586		—
Rio Madeira		119.40		0		—
Santana		177.74		1,057,609		—
RioBranco I		18.65		0		—
RioBranco II		32.75		0		—
Rio Acre		45.49		200,087		—
Mauá		738.10		2,260,648		—
Senador Arnon Farias de Mello		85.92		0		—
Aparecida		282.50		948,791		—
Cidade Nova		29.70		90,181		—
São José		73.40		272,952		—
Flores		124.70		429,720		—
Distrito		51.30		158,454		—
Iranduba		66.60		151,595		—
Others in the Isolated System		438.95		1,472,797		—

Total		4,555		10,203,439		13,140,000

(1)	Assured Energy is only determined in respect of plants from the Interconnected Power System, but not the Isolated system. Most of our thermal plants are part of the Isolated system.

(2)	Generated Energy does not include energy generated through our participations in SPEs.

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In December 2005, our subsidiary Eletrobras CGTEE was granted authorization to begin construction on an extension of the Candiota thermal plant. This extension has increased the installed capacity of the Candiota thermal plant by 350 MW and will require an investment of approximately R$939 million. Construction on this extension began in July 2006 and commercial operation commenced in January 2011.

Each of our thermal plants operates on coal and/or oil. The fuel for the thermal plants is delivered by road, rail, pipeline or waterway, depending on the plant’s location.

Although we do not have alternatives if our sources of these raw materials become unavailable or uneconomical, we have spare capacity in our hydroelectric plants and we are increasing our investment in transmission lines, which when completed, will allow us to partially compensate for any disruption in supplies. We are not subject to price volatility with respect to these raw materials because the Brazilian Government and entities that the Brazilian Government controls regulate prices, which they set annually.

We seek to operate our thermal plants at a consistent, optimal level in order to provide a constant source of electricity production. Our thermal plants are significantly less efficient and have significantly shorter useful lives, than our hydroelectric plants. We incurred gross expenditure for fuel purchased for energy production of R$709 million for 2012, compared to R$163 million for 2011 and R$253 million for 2010, which are reimbursed to us from the CCC Account in accordance with Law No. 12,111.

We have recovered a substantial portion of the thermal plants’ excess operating costs, which correspond to the difference between the cost of a thermal plant and the cost of a hydroelectric plant, through reimbursements pursuant to the CCC Account. The Brazilian Government created the CCC Account in 1973 for the purpose of building financial reserves to cover the costs of using fossil fuel thermal power plants, which are more expensive to operate than hydroelectric plants, in the Basic Network and the Interconnected Power System should a power shortage create a need for increased production of thermal power plants. Consumers through electricity distributors in Brazil are required to contribute annually to the CCC Account, which in effect serves as an insurance fund against an extraordinary situation, such as a rainfall shortage, which would require increased use of thermal plants. The aggregate amount of the annual required contribution is calculated on the basis of the current year’s cost of fuel estimates for all thermal plants. Each utility is then allocated a proportional contribution towards the aggregate amount based on such utility’s total electricity sales during the previous year. In 1993, the scope of the CCC Account was extended to include a portion of the costs of thermal electricity generation in isolated, non-integrated grids in remote areas of Brazil’s northern region.

Each of Eletrobras Furnas, Eletrobras Chesf, CGTEE and Eletrobras Eletronorte receives CCC Account reimbursement for its thermal plant fuel costs, thereby reducing the operating costs of each of their plants. We administer the CCC Account. Reimbursements from the CCC Account for the fuel costs of thermal plants connected to the Basic Network are being phased out in conjunction with the development of a competitive wholesale market. In the event of a complete phase out of the CCC Account, we will have to bear the entire operating costs of our thermal plants.

The following tables set forth information relating to the price paid and amount of fuel purchased for use in our thermal plants in the periods indicated:


	Year Ended December 31,
	2012		2011		2010
	(R$ thousands)
Type of fuel
Coal		144,000		95,719		68,435
Light oil		4,571,130		3,872,179		2,346,923
Crude Oil		36,000		30,529		38,329
Gas		100,690		30,549		2,160
Uranium		309,600		294,800		270,842

Total		5,161,400		4,323,776		2,726,689


	Year Ended December 31,
	2012		2011		2010
Type of fuel
Coal (tons)		2,711,544		1,957,566		1,142,228
Light oil (litres)		1,063,497,912		681,019,419		611,848,980
Crude Oil (tons)		33,725		25,879,055		28,865,267

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	Year Ended December 31,
	2012		2011		2010
Gas (m ³ )		259,552,623		46,446,077		2,155
Uranium (Kg)		282,010		263,345		293,669

Nuclear Plants

Nuclear power plants represent a relatively costly source of electricity for us. The Brazilian Government, however, has a special interest in the continuing existence of nuclear power plants in Brazil and is required by law to maintain ownership and control over these plants. Accordingly, we expect to continue to own 99.9% of Eletrobras Eletronuclear.

Through Eletrobras Eletronuclear, we operate two nuclear power plants, Angra I, with an installed capacity of 640 MW and Angra II, with 1,350 MW. In addition, Eletrobras Eletronuclear started the construction of a new nuclear plant, called Angra III, during the second half of 2009. The construction is estimated to take between 3 and 5.5 years. On March 5, 2009, IBAMA issued an installation license to Eletrobras Eletronuclear with a validity of 6 years and on March 9, 2009, CNEN issued a partial construction license to Eletrobras Eletronuclear. Once constructed, we estimate that Angra III will have an installed capacity of 1,405 MW and that the cost of its construction will be approximately R$13.1 billion

The following table sets out information regarding our nuclear plants as of December 31, 2012 and for the year then ended:

Installed
Capacity

Generated
Energy

Assured
Energy ⁽¹⁾

Began Service ⁽²⁾

(MW)

(MWh)

Nuclear plant :

Angra I

640

5,361,303

4,465,848

January 1, 1985

Angra II

1,350

10,645,229

10,553,172

September 1, 2000

Total

1,990

16,006,532

15,019,020

(1)	For our nuclear plants, assured energy is not limited by ONS or any other regulatory body.

(2)	Commercial operation in: Angra I – January 1985 and Angra II – September 2000.

We estimate that Angra I will be operating at 82.33% capacity in 2013 in line with industry standards. Accordingly, the assured energy of Angra I in 2013 will be 4,125,411.94 MWh/yr.

We also estimate that Angra II will be operating at 85.99% capacity in 2013 in line with industry standards. Accordingly, the assured energy of Angra II will be 9,748,693.15 MWh/yr in 2013.

Both Angra I and Angra II utilize uranium obtained pursuant to a contract with Indústrias Nucleares Brasileiras – INB, a Brazilian Government-owned company responsible for processing uranium used in nuclear plants. The fuel elements are shipped by truck to the nuclear plant and under the terms of the contract; Eletrobras Eletronuclear bears responsibility for the safe delivery of that fuel. To date, Eletrobras Eletronuclear (and the previous owner of Angra I – Eletrobras Furnas) has experienced no material difficulty in the transportation of fuel to Angra I and Angra II. In addition, low-level nuclear waste (such as filters and certain resins) is stored in specially designed containers in an interim storage site on the grounds of the plants. As is the case with many other countries, Brazil has not yet devised a permanent storage solution for nuclear waste. High-level nuclear waste (spent nuclear fuel) is stored in the fuel cells (compact storage racks in the fuel pool) of the plants. The liability relating to the decommissioning of nuclear power plants Angra I and Angra II commenced at the same time as the operations began at these two units in 1985 and 2000, respectively. The amount of this provision is supported by a technical report of a work group by Eletrobras Eletronuclear created in 2001. In relation to Angra I, the estimated decommissioning cost referred to December 31, 2010 is U.S.$ 307 million and in relation to Angra II, the estimated decommissioning cost is U.S.$ 426 million. The economic useful life of the plants was estimated to be 40 years. Eletrobras Eletronuclear makes provisions for the estimated present value of the decommissioning costs related to Angra I and Angra II.

The electricity generated by Eletrobras Eletronuclear through year-end 2012 was generally sold to our subsidiary Eletrobras Furnas at a regulated price determined by ANEEL (Law No. 12,111 of December 9, 2009). This regulated price reflected Eletrobras Eletronuclear’s nuclear fuel acquisition and financial index correction (IPCA). However, in on-selling this electricity to distribution companies, Eletrobras Furnas is required to participate in the public auction process, in which other generation companies in a pool provide bids that reflect the maximum cost of electricity each is willing to supply and the distribution companies pay a price equal to an average of all these bids. As a result of this auction process, the price that Eletrobras Furnas sells in the auction is higher than that it paid to Eletrobras Eletronuclear for the corresponding electricity. Historically, however, the reverse has been true and we recorded consolidated losses in respect of electricity generated by Eletrobras Eletronuclear. We analyzed different measures to reduce these

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losses if this situation re-occurs, including replacing Eletrobras Furnas in the supply chain described above with Eletrobras itself, which is not required to sell electricity only pursuant to the auction process. From January 1, 2013 onwards, the payments related to Eletrobras Eletronuclear´s energy generation will be prorated among all energy distribution concessionaires pursuant to regulations to be established by ANEEL.

Sales of Electricity Generated

We sold approximately R$19,003 million of electricity generated (net of electricity purchased for resale and VAT and other taxes) in 2012, compared to R$18,414 million in 2011 and R$18,103 million in 2010. These sales are made only to distribution companies (which constitute the main sources of sales of electricity generated) or free consumers. We own certain distribution companies that operate in the northern and northeastern regions of Brazil and we sell a relatively small portion of the electricity we generate to these distribution companies, which does not give rise to revenues in our generation segment as discussed in “ – Distribution.”

We sell the electricity generated pursuant to both supply contracts with industrial end-users and to an auction process for sales to distribution companies. The following table sets forth, by type of sale, sales of electricity generated in the regions we served in the periods presented:


	Year Ended December 31,
	2012				2011				2010
	(R$ thousands)		(MWh)		(R$ thousands)		(MWh)		(R$ thousands)		(MWh)
Type of sale:
Through auctions and initial contracts (energy charge)		11,374,177		123,899,079		11,089,516		121,534,206		7,028,630		117,050,494
Through free market agreements or bilateral contracts (energy charge)		5,264,239		47,820,840		3,748,996		54,777 ,952		4,398,180		65,792,556
Itaipu		6,720,217		97,533,631		5,769,310		91,522,813		8,203,198		85,302,628

Total		23,358,633		269,253,550		20,607,822		267,834,971		19,588,008		254,784,279

The table below shows a summary of the amount of electricity that we have sold through auction sales:


	Year Ended December 31,
	2012		2011		2010
Capacity Average (MW):
1 ^st Auction		11,003		11,003		11,003
2 ^nd Auction		644		644		644
3 ^rd Auction		—		—		—
4 ^th Auction		396		396		396
5 ^th Auction		180		180		180

Total		12,223		12,223		12,223
Energy (MWh) per year		107,073,480		107,073,480		107,073,480
Average tariff (R$/MWh)		64.77		64.77		64.77
Estimated revenues (R$ thousands)		6,935,149		6,935,149		6,935,149

With respect to supply contracts, the amount that we receive from each sale is determined on the basis of a “capacity charge,” and “energy charge” (or, in some cases, both). A capacity charge is based on a guaranteed capacity amount specified in MW and is charged without regard to the amount of electricity actually delivered. The charge is for a fixed amount (and so is not dependent on the amount of electricity that is actually supplied). In contrast, an energy charge is based on the amount of electricity actually used by the recipient (and is expressed in MWh). Our purchases of Itaipu electricity, and our sales of Itaipu electricity to distributors, are paid for on the basis of a capacity charge (including a charge for transmission paid to Eletrobras Furnas). Our sales of electricity (through our subsidiaries Eletrobras Chesf and Eletrobras Eletronorte) to final consumers, especially to industrial customers, are billed on the basis of both a capacity charge and an energy charge. With respect to auction sales, as discussed in “The Brazilian Power Industry – Regulation under the Electricity Regulatory Law,” invitations to participate in auctions are prepared by ANEEL and, in the event that we are successful, we enter into sale and purchase contracts with the relevant distribution company for an amount of electricity that is proportionate to such company’s estimated demand over the contract period.

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Transmission

Transmission of Electricity

Billings in our transmission segment are fixed by ANEEL, which sets a fixed billing each year. Net revenues (including financial revenues at the holding company level) from transmission represented 25.5% of our total net revenues in 2012, compared to 26.3% in 2011 and 22.0% in 2010. The electricity that we generate is transported through Brazil’s tension transmission network, with 52,516 km of transmission lines belonging to us above 230 kV as of December 31, 2012, compared to 53,923 km in 2011 and 53,790 km as of December 31, 2010. Including our partnerships with private companies in SPCs/Consortia we have approximately 55,118 km above 138 KV in operation as of December 31, 2012. For further information, see “ – Lending and Financing Activities – Equity Participation.” In Brazil, the majority of hydroelectric plants are located a considerable distance from the major load centers and therefore, in order to reach consumers, an extensive transmission system has been developed. Transmission is the bulk transfer of electricity, at very high voltages (from 230 kV to 750 kV), from the generation facilities to the distribution systems at the load centers by means of the transmission grid. There is one Interconnected Power System in Brazil that links the northern and northeastern regions to the south and southeast regions. Coordinating the transmission systems is necessary to optimize the investments and operating costs and to ensure reliability and adequate load supply conditions throughout the Interconnected Power System.

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The map below shows the geographic location of our transmission assets as of December 31, 2012:

LOGO

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Transmission Concessions

As of December 31, 2012, our transmission operations were carried out pursuant to the following concessions granted by ANEEL (excluding transmission operations carried out through any SPEs):

Total
length

Voltage
Levels

Average years
remaining of
concession

(km)

(kV)

Eletrobras Furnas

19,420.0

69 – 750

29.6

Eletrobras Chesf

18,973.8

69 – 500

29.8

Eletrobras Eletrosul

10,006.1

69 – 500

30.0

Eletrobras Eletronorte

9,983.0

69 – 500

29.6

Eletrobras Amazonas Energia

673.0

69 – 230

Not applicable

Due to the development of the hydroelectric resources of the Amazon region, which requires the transmission of large amounts of energy, Brazil has developed the Interconnected Power System. A national transmission grid provides generators with access to customers in all regions. Eletrobras Furnas and Eletrobras Eletronorte built the first north-south transmission system linking the northern and southern regions of Brazil, which consists of approximately 1,250 km of 500 kV transmission lines and which began operation in 1998. A second north-south transmission system, the construction of which was funded by the private sector, began operation in 2004. The following table sets forth the length of transmission lines (in km) by subsidiary and by voltage as of December 31, 2012:


	750 kV		600 kV (DC) ⁽¹⁾		525/500 kV		345 kV		230 kV		138 kV		132/ 13.8kV		Total
Company:
Eletrobras Chesf		—		—		5,163.8		—		13,019.0		454.4		336.6		18,973.8
Eletrobras Eletronorte		—		—		3,243.3		—		5,577.8		959.1		202.8		9,983.0
Eletrobras Eletrosul		—		—		2,945.5		—		5,150.6		1,841.3		68.7		10,006.1
Eletrobras Furnas		2,698.0		1,612.0		4,571.5		6,220.5		1,949.0		2,204.0		165		19,420.0
Eletrobras Amazonas Energia		—		—		—		—		364.9		—		308.1		672.9

Total ⁽²⁾		2,698.0		1,612.0		15,924.1		6,220.5		26,061.3		5,458.8		1,081.2		59,055.9

(1)	DC means direct current.

(2)	This table does not include transmission lines owned by SPEs in which we participate. Had such transmission lines been included, the total would be 61,721 km.

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The following table sets forth, on a consolidated basis, the percentage of the total transmission grid above 230 kV in Brazil that we were responsible for as of December 31, 2012, considering our participations in SPEs:


	750 kV		600 kV (DC) ⁽¹⁾		525/500 kV		400 kV		345 kV		230 kV		Total
Entity:
Eletrobras		100.00		100.00		48.43		—		61.81		56.24		53.17
Others		0.00		0.00		51.57		100.00		38.19		42.76		46.83

Total		100.00		100.00		100.00		100.00		100.00		100.00		100.00

(1)	DC means direct current.

Except in relation to a small portion of transmission lines of Eletrobras Eletronorte located in the isolated system, the transmission lines in the Interconnected Power System are totally integrated.

As of December 31, 2012, we owned approximately 53% of all transmission lines in Brazil (230 kV and above) and, as a result, received fees from companies that transmit electricity on these lines. Net operating revenues from transmission were R$8,689 million in 2012, compared to R$7,779 million in 2011 and R$5,895 million in 2010. As a generation company, we must also pay a tariff in respect of our transmission of electricity over those transmissions that we do not own. Taking into account all transmission lines in Brazil (230 kV and above), this means we pay a tariff in respect of 47% of all transmission lines in Brazil.

Losses of electricity in the transmission system of Eletrobras were, in 2012, approximately 2.19% of all electricity transmitted in the system.

We operate as part of an integrated and coordinated national electricity system for Brazil. The Concessions Law authorizes us to begin to charge fees for the use of our transmission system by other electricity companies.

Through Eletrobras Furnas, we charge a tariff (approximately R$4,655.09 per MW/month as of December 31, 2012) for the transmission of electricity generated by Itaipu and purchased for resale. The transmission charge for the power Itaipu generates is used to compensate Eletrobras Furnas, which owns the applicable transmission line, for making its transmission system available for the exclusive use of plant-connection installations. This system comprises the 750 kV Itaipu / Ivaiporã and the 600 kV DC Itaipu / Ibiúna transmission lines that are not part of the Basic Network.

Expansion of Transmission Activities

Our main transmission companies took part in a planning initiative related to the expansion of the PAE 2009/2012 transmission network through the Regional Transmission Study Group (GET), which is responsible for such transmission expansion initiatives at a regional level. In addition, our transmission companies took part in the regional networks and plant integration studies.

PAE initiatives included, among others, studies on the integration of the Belo Monte hydroelectric plant, focusing on alternative means of transmission to allow for the distribution of electric power from the Belo Monte plant to the northern, northeastern and southeastern regions of Brazil.

Distribution

Distribution of Electricity

Our distribution activities constitute a relatively small proportion of our overall operations. Net revenues (including financial revenues at holding company level), from distribution represented 12.1% of our total net revenues in 2012, compared to 8.3% in 2011 and 10.9% in 2010.

Distribution Companies

The following companies in our group undertake distribution activities pursuant to distribution concessions granted by ANEEL:

•

Eletrobras Eletronorte , which distributes power directly to industrial consumers through its wholly owned subsidiary known as Eletrobras Distribuição Roraima . Eletrobras Eletronorte’s distribution concession ends on July 7, 2015;

•

Eletrobras Amazonas Energia , which distributes electricity to the city of Manaus, in the State of Amazonas, pursuant to a concession that ends on July 7, 2015;

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•

Eletrobras Distribuição Alagoas , which distributes electricity in the State of Alagoas pursuant to a concession that ends on July 12, 2015;

•

Eletrobras Distribuição Piauí , which distributes electricity in the State of Piauí pursuant to a concession that ends on July 12, 2015;

•

Eletrobras Distribuição Rondônia , which distributes electricity in the State of Rondônia pursuant to a concession that ends on July 12, 2015;

•

Eletrobras Distribuição Acre , which distributes electricity in the State of Acre pursuant to a concession that ends on July 12, 2015; and

•

Eletrobras Distribuição Roraima (formally known as Boa Vista Energia S.A. ), which distributes electricity in the city of Boa Vista, the capital of the State of Roraima, pursuant to a concession that ends on July 7, 2015.

The table below indicates relevant operational numbers of our distribution companies as of December 31, 2012:


Company	Number of Consumers		Number of Municipalities		Distribution Lines (km)		Substations
Eletrobras Amazonas Energia		777,465		62		22,113		50
Eletrobras Distribuição Alagoas		949,669		102		39,816		37
Eletrobras Distribuição Piauí		1,062,094		224		66,142		78
Eletrobras Distribuição Rondônia		548,553		52		52,130		57
Eletrobras Distribuição Acre		222,570		22		16,591		14
Eletrobras Distribuição Roraima		92,695		1		3,143		3

Each of Eletrobras Distribuição Alagoas, Eletrobras Distribuição Piauí, Eletrobras Distribuição Rondônia and Eletrobras Distribuição Acre was previously owned by the individual Brazilian state in which each respective company operated. Companhia Energética de Roraima , which is owned by the State of Roraima, transferred the assets and liabilities pertaining to the city of Boa Vista to a newly formed company called Eletrobras Distribuição Roraima and controlled by Eletrobras Eletronorte. We first made equity investments in these companies in 1996 with the objective of improving their financial condition and preparing them for privatization. Eletrobras Amazonas Energia was created in 2008 as a result of the merger between Ceam and Manaus Energia S.A.; Ceam was also previously owned by the Brazilian state in which it operated and we also made an investment in Ceamin 1996 with the objective of improving its financial condition and preparing it for privatization.

Eletrobras Amazonas Energia, Eletrobras Distribuição Alagoas, Eletrobras Distribuição Piauí, Eletrobras Distribuição Rondônia, Eletrobras Distribuição Roraima and Eletrobras Distribuição Acre operate in particularly challenging market conditions – the North and Northeastern regions of Brazil are among the very poorest regions in the country. One of our principal continuing challenges in respect of these companies is reducing the amount of commercial losses (principally being the theft of electricity) and customer defaults that these companies suffer from. We are attempting to address these problems by developing mechanisms that make theft of electricity more difficult and by renegotiating debts that customers of these companies currently owe.

Management Structure for our Distribution Activities

In May of 2008 we introduced a new management structure for our distribution activities. Until May 2008, we managed our investment in Eletrobras Amazonas Energia, Eletrobras Distribuição Alagoas, Eletrobras Amazonas Energia, Eletrobras Distribuição Piauí, Eletrobras Distribuição Rondônia, Eletrobras Distribuição Roraima and Eletrobras Distribuição Acre through the Comitê Gestor das Empresas Federais de Distribuição (a management committee) which focused on, among other matters, proposing financial strategies and targets to improve the financial condition of these companies.

Pursuant to the new structure, this management committee no longer exists. The new structure involves one executive officer at the Eletrobras level, currently Mr. Marcos Aurélio Madureira da Silva, acting as chief executive officer of each of the companies involved in distribution. Each of the companies involved in distribution will then have the same chief financial officer, engineering director, commercial director and regulatory director, in each case appointed by the chief executive officer of these distribution companies.

Transmission and Distribution System

Our transmission and distribution network consists of overhead transmission lines and sub-stations with varying voltage ranges. The clients we serve through our distribution network are classified by voltage level. With respect to our distribution to state utilities and industrial companies, we distribute electricity at higher voltage levels (up to 750 kV), while we distribute to residential and certain commercial companies at lower voltage levels (either at 230 kV, 138 kV or 69 kV).

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System Performance

The following table sets forth information concerning our electricity losses for our distribution companies, and the frequency and duration of electricity outages per customer per year for the periods indicated:


	Year Ended December 31,
	2012			2011			2010
Technical losses		9.61	%		9.57	%		9.57	%
Commercial losses		21.40	%		24.71	%		25.60	%

Total electricity losses		31.01	%		34.28	%		35.17	%

Outages:
Frequency of outages per customer per year (number of outages)		31.4			31.5			33.5
Duration of outages per customer per year (in hours)		38.7			39.3			40.6
Average response time (in minutes)		9.61	%		9.57	%		9.57	%

Electricity Losses

We experience two types of electricity losses: technical losses and commercial losses. Technical losses are those that occur in the ordinary course of our distribution of electricity. Commercial losses are those that result from illegal connections, fraud or billing errors. Total electricity losses for our distribution business were 31.01% of energy generated and bought in the year ended December 31, 2012 compared to 34.28% of energy generated and bought in the year ended December 31, 2011 and 35.17% of energy generated and bought in the year ended December 31, 2010.

Reducing the level of commercial losses in the distribution companies presents a continuing challenge to us. Commercial losses at these companies have averaged approximately 21% of electricity generated and sold over recent periods. We are attempting to address these problems by developing procedures that make theft of electricity more difficult and by renegotiating debts that customers of these companies currently owe.

For example, we have invested in system that monitors the energy consumption by large clients through remote reading equipment. As a result, Eletrobras Amazonas Energia was able to recover R$ 53 million in 2012 after fining 16,500 properties, of which 3,000 had illegal connections. In 2012, we managed to recover R$ 174 million from defaulting customers of our distribution companies.

In 2012, our distribution companies experienced a reduction in losses. Particularly, Eletrobras Distribuição Alagoas and Eletrobras Distribuição Rondônia, reduced its losses by 2.95 percentage points and 4.96 percentage points, respectively. In February 2011, we entered into a loan agreement with the World Bank in the amount of U.S.$495 million. This money will be used in the “Eletrobras Distribution Rehabilitation Project” (the name given by the World Bank to our project “ Projeto Energia + ”), with the main objective of improving the quality of our services and improving the economic and financial condition of our distribution companies. Once implemented, this project is intended to reduce our losses and consequently to strengthen the operational revenues of our distribution companies.

The following table sets out information regarding total losses in our distribution segment recorded by each distribution company set forth below:


	Year Ended December 31,
	2012		2011		2010
	(percentages)
Company:
Eletrobras Distribuição Alagoas		27.00		29.95		31.51
Eletrobras Distribuição Piauí		30.35		33.03		33.57
Eletrobras Distribuição Rondônia		22.82		27.78		29.08
Eletrobras Distribuição Acre		20.99		23.38		24.48
Eletrobras Amazonas Energia		39.06		41.84		42.37
Eletrobras Distribuição Roraima		12.29		15.78		16.14

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Power Outages

With respect to the Interconnected Power System, we aim to respond to repair requests within one and a half to two and a half hours, depending on the scale and nature of the problem. Our average response time in the Interconnected Power System in 2012 was 4.39 hours. The following table sets forth our average response time, in hours, to repair requests in the Interconnected Power System:


	Year Ended December 31,
	2012		2011
Company:
Eletrobras Distribuição Alagoas		3.98		2.22
Eletrobras Distribuição Piauí		4.80		5.60
Average		4.39		3.91

With respect to distribution operations in the Isolated system, we aim to respond to repair requests within half an hour to two hours, depending on the scale and nature of the problem. Our average response time in the Isolated system in 2012 was 3.78 hours. The following table sets forth our average response time, in hours, to repair requests in the Isolated system:


	Year Ended December 31,
	2012		2011
Company:
Eletrobras Distribuição Acre		6.30		4.91
Eletrobras Distribuição Rondônia		4.86		5.43
Eletrobras Amazonas Energia		2.86		2.41
Eletrobras BoaVista Energia		1.10		1.46
Average		3.78		3.55

Customers

The following table sets forth our total distribution of electricity in terms of MWh and gross revenues, by type of user, for the periods indicated:


	Year Ended December 31,
	2012		2011		2010
	(MWh)
Distribution to:
State utilities		2,203,984		1,872,815		1,358,030
Industrial		3,143,629		2,978,936		2,814,782
Residential		5,564,719		4,907,094		4,574,356
Commercial		3,315,134		2,871,517		2,662,126
Other ⁽¹⁾		995,035		949,814		1,373,239

Total		15,222,501		13,580,176		12,781,533

(1)	This figure includes distribution to rural customers and the government.

Tariffs

We classify our customers into two different groups, Group A and Group B, based on the voltage level at which we supply the electricity to our customers. Each customer is placed in a certain tariff level defined by law and based on its respective classification, although some volume-based discounts are available. Group B customers pay higher tariffs, compensating the aggregated costs in all sub-systems in which electricity flows to supply them. There are differentiated tariffs in Group B by types of customer (such as residential, commercial, rural and industrial). Customers in Group A pay lower tariffs, depending on consumer levels established by ANEEL because they demand electricity at higher voltages, which requires a lower level of use of the energy distribution system. Tariffs we charge for sales of electricity to final customers are determined pursuant to our concession agreements and regulations established by ANEEL. These concession agreements and related regulations establish a cap on tariffs that provides for annual, periodic and extraordinary adjustments. For a discussion of the regulatory regime applicable to our tariffs and their adjustment, see “ – The Brazilian Power Industry.”

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Group A customers receive electricity at 2.3 kV or higher. Tariffs for Group A customers are based on the voltage level at which electricity is supplied, and the time of year and the time of day electricity is supplied, although customers may opt for a differentiated tariff in peak periods. Tariffs for Group A customers are composed of two components: a “capacity charge” and an “energy charge.”

The capacity charge, expressed in reais per MW, is based on the higher of: (i) contracted firm capacity; or (ii) power capacity actually used. The energy charge, expressed in reais per MWh, is based on the amount of electricity actually consumed. Tariffs charged to Group A customers are lower than those for Group B customers because Group A customers consume electricity at higher voltage ranges, and therefore avoid the costs associated with lowering the electricity voltage as is required for consumption by our Group B customers.

Group B customers receive electricity at less than 2.3 kV (220V and 127V). Tariffs for Group B customers consist solely of an energy consumption charge and are based on the classification of the customer.

Billing Procedures

The procedure we use for billing and payment for electricity supplied to our customers is determined by customer category. Meter readings and invoicing take place on a monthly basis for low voltage consumers, with the exception of rural consumers whose meters are read in intervals varying from one to three months, as authorized by relevant regulation. Bills are prepared from meter readings or on the basis of estimated usage. Low voltage customers are billed within five business days after the invoice date. In case of nonpayment, a notification of nonpayment accompanied by the next month’s invoice is sent to the customer and a period of 15 days is provided to satisfy the amount owed to us. If payment is not received within three business days after the 15-day period, the customer’s electricity supply is suspended. High voltage customers are billed on a monthly basis with payment required within five business days after the invoice date. In the event of non-payment, a notice is sent to the customer two business days after the due date, giving a deadline of 15 days to make payment. If payment is not made within three business days after the notice, the customer is subject to discontinuation of service.

As of December 31, 2012, 2011 and 20010, customers in default represented an average of 11.4%(including Eletrobras Distribuição Acre) and 11.5%, 18.5% and 15.7% (not including Eletrobras Distribuição Acre) of annual net revenues, respectively. These default rates have generally remained stable over recent years and we do not expect to see material changes in these default rates in the foreseeable future.

Purchase of Electricity for Distribution

We purchased 16,585 GWh of electricity for distribution in 2012, compared to 15,576 GWh in 2011 and 14,285 GWh in 2010. Our distribution companies purchase electricity in the public auction process from a pool of generation companies that provide bids setting out the maximum price at which they will supply electricity. After all bids are received, the average price of all bids is calculated and this is the price that we pay for the electricity. The purchase is made from all generation companies that provided bids.

Lending and Financing Activities

Loans Made by Us

Brazilian law allows us to only lend to our subsidiaries. Historically, Brazilian law allowed us to act as lender to our subsidiaries and to public energy utilities under our control. While certain of those subsidiaries are no longer in our group, the majority of our loans are to related parties. Prior to the privatization of the Brazilian electricity industry that began in 1996, this was a particularly widespread part of our operations because most companies in the industry were state-owned, allowing us to engage in lending activities to them. However, as the result of privatization, the number of companies to whom we may lend has diminished and lending is no longer a significant aspect of our business. The total amounts we recorded on our balance sheet: R$9.7 billion as of December 31, 2012, R$9.7 billion as of December 31, 2011 and R$9.7 billion as of December 31, 2010. Of this total amount, loans to Itaipu accounted for R$5.8 billion as of December 31, 2012, R$5.8 billion as of December 31, 2011 and R$5.7 billion as of December 31, 2010. The loans related to our distribution companies are as follows: R$3.9 billion as of December 31, 2012, R$3.8 billion as of December 31, 2011 and R$4.0 billion as of December 31, 2010.

Sources of Funds

We obtain funding for our lending activities from loans from financial institutions and offerings in the international capital markets. As of December 31, 2012, our consolidated long-term debt was R$45,204 million, compared to R$38,408 million as of December 31, 2011 and R$31,270 million as of December 31, 2010, with the majority of our foreign currency debt (approximately 38.22% over the three-year period) denominated in U.S. dollars. Further details of our borrowings are set out in “ – Liquidity and Capital Resources – Cash Flows.”

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In addition, we utilize borrowings from the RGR Fund, which we administer, to on-lend to our subsidiaries and other electricity companies. As of December 31, 2012, December 31, 2111 and December 31, 2010, we incurred interest at 5.0% in respect of borrowings from the RGR Fund and charge an average administrative fee of up to 2.0% on funds which we on-lend to subsidiaries and other entities.

Equity Participation

We act as a minority participant in private sector generation and transmission companies and joint ventures. We are also authorized to issue guarantees for those companies in which we participate as an equity investor. We are constantly considering investments in a number of such companies, focusing primarily on those in line with our strategy of building on our core businesses of generation and transmission (see “Item 7.B, Related Party Transactions”).

The current participations that we have are in private sector generation and transmission companies and joint ventures. Participation is determined primarily on merit and profitability criteria based on our managerial controls.

The table below shows an estimate of the total percentage of our participation in transmission and generation companies as of December 31, 2012:


Special Purpose Company/Consortium	Object of investment	Eletrobras Participation

Transmission
Interligação Elétrica do Madeira S.A.	600 kV transmission line of 2,375 km	Eletrobras Chesf (24.5%)

		Eletrobras Furnas (24.5%)

	Plus Rectifier and Inverter Station

Norte Brasil Transmissora de Energia S.A.	600kV Transmission Line of 2,375 km:	Eletrobras Eletronorte (24.5%) Eletrobras Eletrosul (24.5%)

	SE Coletora – Araraquara 2, Porto Velho

Estação Transmissora de Energia S.A.	500/±600 kV Conversion and Inversion Station 01	Eletrobras Eletronorte (100.0%)

Manaus Transmissora de Energia S.A.	500 kV Transmission Line of 587 km:	Eletrobras Chesf (19.5%) Eletrobras Eletronorte (30.0%)

	Oriximiná – Silves; 500 kV Transmission Line of 224 km and Subestations Itacoatiara e Cariri: Silves –Lechuga

STN – Sistema de Transmissão Nordeste S.A. ⁽²⁾	500 kV Transmission Line of 546 km:	Eletrobras Chesf (49.0%)

	Teresina-Sobral-Fortaleza

Intesa – Integração de Energia S.A. ⁽²⁾	500 kV Transmission Line of 695 km: Colinas-Miracema-Gurupí-Peixe Nova-Serra da Mesa 2	Eletrobras Chesf (12.0%), Eletrobras Eletronorte (37.0%)

Porto Velho Transmissora de Energia S.A.	230 kV transmission lines of 17 km: 500/230 kV SE Coletora Porto Velho	Eletrobras Eletrosul (100.0%)

Ártemis – Transmissora de Energia S.A. ⁽²⁾	525 kV Transmission Line of 476 km: S. Santiago-Ivaporã-Cascavel	Eletrobras Eletrosul (100.0%)

Transenergia Renovável	230/138 kV Transmission Line of 635 km: Connects biomass plants and small hydroelectric plants to the Sistema Interligado Nacional (SIN)	Eletrobras Furnas (49.0%)

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Special Purpose Company/Consortium	Object of investment	Eletrobras Participation

Brasnorte Transmissora de Energia S.A. ⁽²⁾	230kV Transmission Lines of 402 km: Jauru-Juba-C2; LT Maggi-Nova Mutum	Eletrobras Eletronorte (49.7%)

RS Energia – Empresa de Transmissão de Energia do Rio Grande do Sul S.A. ⁽²⁾	525 kV Transmission Line of 260 km: Campos Novos-Nova Santa Rita and 230 kV transmission line of 33 km SE Monte Claro – SE Garibaldi	Eletrobras Eletrosul (100.0%)

Companhia Transleste de Transmissão S.A. ⁽²⁾	345 kV Transmission Line of 139 km: Montes Claros-Irapé	Eletrobras Furnas (24.0 24.5%)

Amazônia Eletronorte Transmissora de Energia S.A. – Aete ⁽²⁾	230 kV Transmission Line of 193 km: Coxipó-Cuiabá-Rondonópolis and SE Seccionadora Cuiabá	Eletrobras Eletronorte (49.0%)

Etau – Empresa de Transmissão do Alto Uruguai ⁽²⁾ S.A.	240 kV Transmission Line of 187 km: Campos Novos-Barra Grande-Lagoa Vermelha-Santa Marta	Eletrobras Eletrosul (27.4%)

Uirapuru Transmissora de Energia S.A. ⁽²⁾	525 kV Transmission Line of 122 km: Ivaiporã-Londrina	Eletrobras Eletrosul (100.0%)

Companhia Transudeste de Transmissão S.A. ⁽²⁾	345 kV Transmission Line of 144 km: Itutinga-Juiz de Fora	Eletrobras Furnas (25.0%)

Companhia Transirapé de Transmissão S.A. ⁽²⁾	345 kV Transmission Line of 61 km: Irapé-Araçuaí	Eletrobras Furnas (25.0 24.5%)

Companhia Centroeste de Minas S.A.	345 kV Transmission Line of 63 km: Eletrobras Furnas-Pimenta II	Eletrobras Furnas (49.0%)

Linha Verde Transmissora de Energia S.A.	230 kV Transmission Line of 987 km: Porto Velho – Jauru	Eletrobras Eletronorte (49.0%)

Rio Branco Transmissora de Energia S.A.	230 kV Transmission Line of 487 km: Porto Velho-Abunã-Rio Branco	Eletrobras Eletronorte (100.0%)

Transmissora Matogrossense de Energia S.A.	500 kV Transmission Line of 348 km: Jauru – Cuiabá and SE Jauru	Eletrobras Eletronorte (49.0%)

Transenergia São Paulo S.A.	Itatiba Substation, 500 kV	Eletrobras Furnas (49.0%)

Transenergia Goiás S.A	230 kV Transmission Line of 188 km: Serra da Mesa-Niquelândia-Barro Alto	Eletrobras Furnas (49.0%)

Consórcio Goiás Transmissão	500 kV Transmission Line of 193 km: Rio Verde Norte –Trindade. and 230 kV Transmission Line of 66 km: Xavantes-Trindade-Carajás and SE Trindade	Eletrobras Furnas (49.0%)

Consórcio MGE Transmissão	500 kV Transmission Line of 248 km: Mesquita-Viana 2. and 345 kV transmission line of 10 km: Viana – Viana 2 and SE Viana 2	Eletrobras Furnas (49.0%)

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Special Purpose Company/Consortium	Object of investment	Eletrobras Participation

TDG Transmissora Delmiro Gouveia SA	230 kV Transmission Line of 96 km: São Luiz II – São Luiz III and SE Pecém and SE Aquiraz II	Eletrobras Chesf (49.0%)

Interligação Elétrica Garanhus SA	500 kV Transmission Line of 653 km: Luiz Gonzaga – Garanhus, Garanhus – Campina Grande III and Garanhus – Pau Ferro and 230 kV transmission line of 13 km: Garanhus – Angelim I	Eletrobras Chesf (49.0%)

Transnorte Energia SA	500 kV Transmission Line of 715 km: Engenheiro Lechuga – Equador (RR) – Boa Vista e SEs	Eletrobras Eletronorte (49.0%)

Costa Oeste Transmissora de Energia SA	230 kV Transmission Line of 143 km Cascavel Oeste –Umuarama	Eletrobras Eletrosul (49.0%)

Marumbi Transmissora de Energia SA	525 kV Transmission Line of 28 km: Curitia – Curitia Leste	Eletrobras Eletrosul (20.0%)

Transmissora Sul Brasileira de Energia SA	525 kV Transmission Line of 495 km: Salto Santiago – Itá – Nova Santa Rita and 230 kV transmission line of 303 km: Nova Santa Rita – Camaquã – Quinta	Eletrobras Eletrosul (80.0%)

Consórcio Caldas Novas	SE Corumbá 345/138 kV – 2 x 75 MVA	Eletrobras Furnas (49.9%)

Generation

Madeira Energia SA	HPU Santo Antonio with 3,150 MW	Eletrobras Furnas (39.0%)

Energia Sustentável do Brasil	HPU Jirau with 3,750 MW	Eletrobras Chesf (20.0%) Eletrobras Eletrosul (20.0%)

Foz do Chapecó Energia S.A.	HPU Foz do Chapecó with 855 MW	Eletrobras Furnas (40.0%)

Enerpeixe S.A. ⁽²⁾	HPU Peixe Angical with 452 MW	Eletrobras Furnas (40.0%)

Consórcio Energético Cruzeiro do Sul S.A.	HPU Mauá with 361 MW	Eletrobras Eletrosul (49.0%)

Serra de Facão S.A.	HPU Serra do Facão with 213 MW	Eletrobras Furnas (49.5%)

Energetica Águas da Pedra S.A. – EAPSA (Aripuanã; Água Das Pedras)	HPU Dardanelos with 261 MW	Eletrobras Chesf (24.5%), Eletrobras Eletronorte (24.5%)

Baguari I Geração de Energia Elétrica S.A. ⁽²⁾	HPU Baguari with 140 MW	Eletrobras Furnas (15.0%)

Retiro Baixo Energética S.A.	HPU Retiro Baixo with 82 MW	Eletrobras Furnas (49.0%)

AMAPARI Energia S.A. ⁽²⁾	TPU Serra do Navio and Small HPU Capivara with 53 MW	Eletrobras Eletronorte (49.0%)

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Special Purpose Company/Consortium	Object of investment	Eletrobras Participation

Norte Energia S.A.	HPU Belo Monte with 11,233 MW	Eletrobras Eletronorte (19.9%) Eletrobras Chesf (15.0%) Eletrobras Holding (15.0%)

Brasventos Eolo Geradora de Energia S.A.	Parque Eólico Rei doVentos I with 58 MW	Eletrobras Furnas (24.5%) Eletrobras Eletronorte (24.5%)

Rei dos Ventos 3 Geradora de Energia S.A.	Parque Eólico Rei dos Ventos 3 with 60MW	Eletrobras Furnas (24.5%) Eletrobras Eletronorte (24.5%)

Brasventos Miassaba 3 Geradora de Energia S.A.	Parque Eólico Miassaba 3 with 68 MW	Eletrobras Furnas (24.5%) Eletrobras Eletronorte (24.5%)

Companhia Hidrelétrica Teles Pires	HPU Teles Pires with 1,820 MW	Eletrobras Eletrosul (24.5%) Eletrobras Furnas (24.5%)

Cerro Chato I S.A.	Parque Eólico Cerro Chato I with 30 MW	Eletrobras Eletrosul (100.0%)

Cerro Chato II S.A.	Parque Eólico Cerro Chato I Iwith 30 MW	Eletrobras Eletrosul (100.0%)

Cerro Chato III S.A.	Parque Eólico Cerro Chato III with 30 MW	Eletrobras Eletrosul (100.0%)

Eólica Mangue Seco 2 Geradora e Comercializadora de Energia Elétrica	Eólica Mangue Seco 2 with 26 MW	Eletrobras Holding (49.0%)

Chuí Holding S.A.	Eólicas Chuí I a V with 98 MW and Eólicas Minuano VI and VII with 46 MW	Eletrobras Eletrosul (49.0%)

Livramento Holding S.A.	Eólicas Cerro Chato IV, V and VI, Ibirapuitã e Trindade with 78 MW	Eletrobras Eletrosul (49.0%)

Santa Vitória do Palmar Holding S.A.	Eólicas Geribatu I to X with 258 MW	Eletrobras Eletrosul (49.0%)

São Pedro do Lago S.A.	Eólica São Pedro do Lago with 30 MW	Eletrobras Chesf (49.0%)

Pedra Branca S.A.	Eólica Pedra Branca with 30 MW	Eletrobras Chesf (49.0%)

Sete Gameleiras S.A.	Eólica Sete Gameleiras with 30 MW	Eletrobras Chesf (49.0%)

Central Geradora Eólica Famosa I S.A.	Eólica Famosa I with 23 MW	Eletrobras Furnas (49.0%)

Central Geradora Eólica Pau – Brasil S.A.	Eólica Pau – Brasil with 15 MW	Eletrobras Furnas (49.0%)

Central Geradora Eólica Rosada S.A.	Eólica Rosada with 30 MW	Eletrobras Furnas (49.0%)

Central Geradora Eólica São Paulo	Eólica São Paulo with 18 MW	Eletrobras Furnas (49.0%)

Energia dos Ventos I	Eólica Goiabeira with 19 MW	Eletrobras Furnas (49.0%)

Energia dos Ventos II	Eólica Ubatuba with 13 MW	Eletrobras Furnas (49.0%)

Energia dos Ventos III	Eólica Santa Catarina with 16 MW	Eletrobras Furnas (49.0%)

Energia dos Ventos IV	Eólica Pitombeira with 27 MW	Eletrobras Furnas (49.0%)

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Special Purpose Company/Consortium	Object of investment	Eletrobras Participation

Brasnorte Transmissora de Energia S.A. ⁽²⁾	230kV Transmission Lines of 402 km: Jauru-Juba-C2; LT Maggi-Nova Mutum	Eletrobras Eletronorte (49.7%)

TDG Transmissora Delmiro Gouveia SA	230 kV Transmission Line of 96 km: São Luiz II – São Luiz III and SE Pecém and SE Aquiraz II	Eletrobras Chesf (49.0%)

Norte Energia S.A.	HPU Belo Monte with 11,233 MW	Eletrobras Eletronorte (19.9%) Eletrobras Chesf (15.0%) Eletrobras Holding (15.0%)

Energia dos Ventos V	Eólica São Januário with 19 MW	Eletrobras Furnas (49.0%)

Energia dos Ventos VI	Eólica Nossa Senhora de Fátima with 29 MW	Eletrobras Furnas (49.0%)

Energia dos Ventos VII	Eólica Jandaia with 29 MW	Eletrobras Furnas (49.0%)

Energia dos Ventos VIII	Eólica São Clemente with 19 MW	Eletrobras Furnas (49.0%)

Enegia dos Ventos IX	Eólica Jandaia I with 19 MW	Eletrobras Furnas (49.0%)

Energia dos Ventos X	Eólica Horizonte with 14 MW	Eletrobras Furnas (49.0%)

Caiçara I SA	Eólica Caiçara I with 30 MW	Eletrobras Chesf (49.0%)

Caiçara II SA	Eólica Caiçara II with 21 MW	Eletrobras Chesf (49.0%)

Junco I SA	Eólica Junco I with 30 MW	Eletrobras Chesf (49.0%)

Junco II SA	Eólica JuncoII with 30 MW	Eletrobras Chesf (49.0%)

Brazilian Government Programs

In addition to the Proinfa program created by the Brazilian Government in 2002 to create certain incentives for the development of alternative sources of energy (discussed more fully in “The Brazilian Power Industry – Proinfa”), we also participate in four additional Brazilian Government programs:

•

the Programa Reluz (Relighting Program), a program introduced in order to bring basic lighting to the main public areas of certain municipalities in Brazil;

•

the Programa Procel (Conservation Program), a program that aims to promote energy conservation and efficiency;

•

Luz Para Todos (Light for All), a program that aims to bring electricity to an additional 12 million people in Brazil; and

•

Programa de Desenvolvimento Tecnológico e Industrial (Program of Technological and Industrial Development), a program to coordinate research and development activities in the Brazilian electricity sector and promote the development and manufacture of equipment required to ensure the development of the sector.

Any funds used by us in respect of these programs come from the Brazilian Government itself, in the form of funds allocated for the sector, and accordingly we do not use our own funds for these programs.

We also participate in other initiatives using our own funds, one of which is the Projeto Ribeirinhas , or Riverbank Communities Project. Through this initiative, we aim to evaluate the applicability and sustainability of technologies based on renewable resources of energy in certain small communities living in the Amazon region.

Research and Development

See “Item 5.C, Research and Development, Patents and Licenses”

International Activities

As of December 31, 2012, we did not operate internationally. However, as part of our strategy we continue to explore certain opportunities in international electricity markets and selectively identify profitable opportunities in those markets for the future, mainly related to the integration of the electrical power systems in the Americas. As part of our internationalization plan, we have established representative offices in Lima, Peru; Panama City, Panama and Montevideo, Uruguay in order to comply with local rules, which provide that concessions may only be granted to companies that maintain a local representative office. These offices will also provide a connection between us and partners in Latin America. We are actively seeking to invest in generation projects in other Latin American countries and we have also already begun to commercialize power with some of these countries. We also hold equity interests in two specific purpose entities (SPEs), in Peru and in Nicaragua, which are currently undertaking feasibility studies for hydro generation projects. Furthermore, we are in the process of obtaining the necessary licenses for the construction in Brazil of an interconnection line between Brazil and Uruguay, which is scheduled to begin in 2013. As part of the expansion strategy, we may also identify and pursue selected growth opportunities, including renewable generation and transmission lines, outside of South America, notably in Africa.

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Environmental

General

Environmental issues can significantly impact our operations. For example, large hydroelectric plants can cause the flooding of large areas of land and the relocation of large numbers of people. The Brazilian Constitution gives both the Brazilian Government and state and local governments power to enact laws designed to protect the environment and to issue regulations under such laws. While the Brazilian Government has the power to promulgate general environmental regulations, state and local governments have the power to enact more stringent environmental regulations. Accordingly, most of the environmental regulations in Brazil are state and local rather than federal.

Any failure to comply with environmental laws and regulations may result in criminal liability, irrespective of the strict liability to perform environmental remediation and to indemnify third parties for environmental damages. These failures may also subject us to administrative penalties such as fines, suspension of public agency subsidies or injunctions requiring us to discontinue, temporarily or permanently, the prohibited activities.

In order to build a hydroelectric plant, Brazilian electricity companies must comply with a number of environmental safeguards. For projects for which the environment impact is considered significant, such as generation projects with an output above 10 MW, as well as transmission lines above 230 kV, together with certain other environmentally sensitive projects, first, a basic environmental impact study must be prepared by outside experts who make recommendations as to how to minimize the impact of the plant on the environment. The study, together with a special environmental report on the project prepared by the company, is then submitted to federal, state or local governmental authorities, depending on the projected impact, for analysis and approval. Once approved, the project goes through a three stage licensing process, which comprises a license to attest the viability of the project, a license to begin work, and a license to operate the project. In addition, the company is required by law to devote 0.5% of the total cost of any investment in new projects with a significant environmental impact to environmental preservation. Since the early 1980’s, the Brazilian electricity sector has endeavored to improve its treatment of the social and environmental aspects of power project planning, implementation and operation. In general, our generation subsidiaries are in compliance with applicable environmental regulations in Brazil, and the environmental policies and guidelines of the electricity sector. Our generation and transmission facilities benefit from certain exemptions to licensing requirements because their operations commenced before the applicable environmental legislation. Nonetheless, some environmental authorities have issued notices of infringement alleging the absence of environmental licenses. See “Item 8.A, Consolidated Financial Statements and Other Information – Litigation – Environmental Proceedings.”

As of December 31, 2012, our subsidiary Eletrobras Eletronuclear operated two nuclear power plants in the State of Rio de Janeiro, Angra 1 and Angra 2. Because Eletrobras Eletronuclear initiated its activities before the enactment of an environmental legislation, Angra 1 was licensed by CNEN under the nuclear and environmental regulations in effect at that time. A study group formed by the Federal Public Attorney’s Office, CNEN, the Instituto Brasileiro do Meio Ambiente e Recursos Naturais Renováveis (or IBAMA), the Fundação Estadual de Engenharia do Meio Ambiente (or FEEMA), Eletrobras Eletronuclear and Eletrobras prepared a Termo de Ajustamento de Conduta (a Term of Adjustment or TAC) according to which the guidelines for the environmental licensing update procedure should be established. Angra 2 has obtained all the environmental licenses necessary for its operations, but the Federal Public Attorney’s Office challenged its renewal, which it conditioned upon the compliance with a TAC and according to which Eletrobras Eletronuclear should implement a program in order to improve emergency plans, environmental monitoring programs and effluents treatment systems. Until these obligations are accomplished, IBAMA and CNEN should abstain from issuing any definitive licenses or authorizations for the operation of Angra II. An assessment comprising the accomplishments of the TAC was issued by IBAMA to the Public Attorney in June 2006. After evaluation of the status of completion of these conditions, IBAMA issued a report concluding that all technical conditions compiled in the TAC were satisfied. In September 2011, IBAMA informed that a Environmental Unified Operating License will be issued for the nuclear installations in operation at the CNAAA site – Angra 1, Angra 2 and the Radwaste Management Centre (including initial storage facilities). It is expected that the Environmental Unified Operating License for the CNAAA will be issued in the first semester of 2013. Currently, both nuclear power plants have their own Authorization for Permanent Operation ( Autorização de Operação Permanente – AOP). The AOP of Angra 1 is valid up to August 2024, and the AOP of Angra 2 is valid up to June 2041. Eletrobras Eletronuclear is strictly liable for nuclear accidents as an operator of nuclear plants in Brazil. See “Item 3.D, Risk Factors – Risks Relating to Our Company – We may be liable for damages, subject to further regulation and have difficulty obtaining financing if there is a nuclear accident involving our subsidiary Eletrobras Eletronuclear.”

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Energy Conservation

Over the past 20 years, the Brazilian Government has implemented a number of actions directed to energy conservation on the electricity sector. The Brazilian Government normally finances these actions and we administer them. The most important project in this area is the Procel.

The Programa de Conservação de Energia Elétrica – Procel (the national electric conservation program) was created in 1985 to improve energy efficiency and rationalization of the use of natural resources throughout Brazil. MME coordinates the program and we are responsible for its execution. The main objective of Procel is to encourage cooperation among various sectors of Brazilian society to improve energy conservation both on the production and consumer sides.

Alternative Electricity Sources

In 2002 the Brazilian Government created the Programa de Incentivo às Fontes Alternativas de Energia Elétrica – Proinfa (the program for the development of alternative electricity sources), with the objective of diversifying the Brazilian energy matrix by searching for regional solutions with the use of renewable energy sources.

The Brazilian Power Industry

General

According to Regulation No. 937, dated November 24, 2010, MME approved a ten-year expansion plan ( Plano Decenal de Expansão de Energia Elétrica or PDE 2010-2019), which provides guidance to the Brazilian government and to all agents in the Brazilian energy industry in order to ensure that there is a sustainable supply of energy in Brazil, including electricity, taking into consideration environmental needs, the Brazilian economy and a business’ technical capabilities.

The studies carried out in the PDE include a plan for the next ten years and are subject to annual reviews which take into account, among other aspects, changes in the forecast for the growth of electricity consumption and the re-evaluations of the economical and operational feasibility of the generation projects, as well as the estimations regarding the expansion of transmission lines.

According to ANEEL, in December 2011, when taking into account the SIN generating units, the power generators installed in the isolated systems and in the generators owned by individuals, Brazil had a total installed capacity of 116,796 MW.

Currently, the SIN is divided into four electric sub-systems: South-East/Mid-West, South, North-East and North. One of the goals of the PDE is to complete the integration of the isolated systems of Manaus-Macapá, into the North sub-systems by November 2012.

In addition to the SIN, there are also the isolated systems, i.e., those systems that do not make part of the SIN, are generally located in the Northern and North-Eastern regions of Brazil, have as sole source of energy the electricity generated by coal-fired and oil-fuelled thermal plants which are extremely pollutants and have a generation cost three to four times higher than, for instance, a hydro-electric power station. The CCC account was introduced by article 13, III of Law No. 5899, of July 5, 1973, as amended, with the purpose of generating financial reserves payable to distribution companies and to some generation companies (all of which must make annual contributions to the CCC Account) in order to cover some of the costs of the operation of thermoelectric plants in the event of adverse hydrological conditions, and also of subsidizing the electricity generated by the “isolated systems” in order to allow consumers of the isolated systems to bear charges for electricity equivalent to the charges borne by consumers served by hydraulic generation. There is currently a significant discrepancy between charges paid by consumers in the Northern and Northeastern regions when compared to what is charged from the Southern/South-Eastern Region consumers. Therefore, interconnecting the isolated systems to the SIN would enable consumers from these regions to have access to hydroelectric energy sources, which results in reduced production costs and a convergence of prices in these regions to other regions of the country.

With the purpose of promoting a significant reduction of the CCC account of the isolated systems, the PDE further intends to integrate the isolated systems to the SIN. Such integration would be carried out through the construction of the transmission lines of Jauru/Vilhena (230kV), Tucuruí/Manaus (Cariri) (500kV) and Jurapari/Macapá (230kV), within the shortest term possible, given that the preliminary analysis for implementing the integration project has already been concluded.

In addition to the integration of the isolated systems, the PDE also provides for the expansion of electricity generation through the improvement of the generation capacity, defined by the PDE as the execution of a set of works aimed at enhancing the capacity and efficiency while modernizing the already existing power plants, which should not represent a lot in terms of ensured power but would contribute to meet the increase in the highest level expected of electricity demand.

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According to ANEEL, the total installed electricity generation capacity in Brazil in 2012 was 120,660,741 KW with 2,736 operating ventures. Currently, there are 177 ventures currently under construction and another 542 with permits granted. An additional generation capacity of 27,500,695 KW is expected in the coming years.

Pursuant to the EPE 10 Year Plan, Brazil’s total installed power generation capacity is projected to increase to 182.4 GW by 2021, of which 111.7 GW 61.25 is projected to be hydroelectric and 70.6 GW 38.75 to be thermoelectric and from other sources.

We currently control approximately 35% of the installed power generating capacity within Brazil and are responsible for approximately 53% of the installed transmission capacity above 230 kV. In addition, some Brazilian states control entities involved in the generation, transmission and distribution of electricity. The remainder of the market is held by several companies including Cemig, Copel, Tractebel, CPFL, Duke and Brasil Energia. Certain of these companies have entered into joint venture arrangements in the past.

In net revenue terms, we believe we are the largest generation and transmission company in Brazil. We mainly compete for generation and transmission businesses through a competitive auction process.

In 2012, according to the Empresa de Pesquisa Energética (the Energetic Research Company or EPE), the electricity consumption in Brazil reached 448,276 GWh, which represented an increase compared to total consumption in 2011 by 3.5%. The electricity consumption in Brazil in 2011 was 433,034 GWh according to EPE, which represented a 4.2% increase compared to the total consumption of 415,683 GWh in 2010.

Historical Background

The Brazilian Constitution provides that the development, use and sale of energy may be undertaken directly by the Brazilian Government or indirectly through the granting of concessions, permissions or authorizations. Historically, the Brazilian power industry has been dominated by generation, transmission and distribution concessionaires controlled by the Brazilian Government. This changed during Fernando Henrique Cardoso’s administration (1995-2002), during which many state controlled companies were privatized in an effort to increase efficiency and competition. In recent years, the Brazilian Government has taken a number of measures to remodel the power industry. In general, these measures were aimed at increasing the role of private investment and eliminating foreign investment restrictions, thus increasing overall competition in the power industry.

In particular, the Brazilian Government has taken the following measures:

•

The Brazilian Constitution was amended in 1995 by Constitutional Amendment No. 6 to allow foreign companies to invest in Brazilian companies that hold power generation concessions. Prior to this amendment, all generation concessions were held either by a Brazilian individual or an entity controlled by Brazilian individuals or by the Brazilian Government;

•

The Brazilian Government enacted Law No. 8,987 on February 13, 1995 as amended by Law No. 11,196 of November 21, 2005 and Law No. 11,445 of January 5, 2007 (or the Concessions Law) and Law No. 9,074 on July 7, 1995, as amended (or the Power Concessions Law), that together: (i) required that all concessions for the provision of energy related services be granted through public bidding processes; (ii) gradually allowed certain electricity consumers with significant demand, designated “free consumers,” to purchase electricity directly from suppliers holding a concession, permission or authorization; (iii) provided for the creation of generation entities (or Independent Power Producers) which, by means of a concession, permission or authorization, may generate and sell, for their own account and at their own risk, all or part of their electricity to free consumers, distribution concessionaires and trading agents, among others; (iv) granted free consumers and electricity suppliers open access to all distribution and transmission systems; and (v) eliminated the need for a concession to construct and operate power projects with capacity from 1 MW to 30 MW (the so called Pequenas Centrais Hidrelétricas – PCHs) although an authorization or permission from ANEEL or MME is required, as the case may be;

•

Beginning in 1995, a portion of the controlling interests held by us and various states in certain generation and distribution companies were sold to private investors. At the same time, certain state governments also sold their stakes in major distribution companies;

•

In 1998, the Brazilian Government enacted Law No. 9,648 (or the Power Industry Law) to overhaul the basic structure of the electricity industry. The Power Industry Law provided for the following:

•

the establishment of a self-regulated body responsible for coordinating the purchase and sale of electric energy available in the Interconnected System ( Mercado Atacadista de Energia Elétrica – MAE ), or the Wholesale Energy Market – MAE, an entity which replaced the prior system of regulated generation prices and supply contracts. The Wholesale Energy Market – MAE was later replaced by the CCEE;

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•

a requirement that distribution and generation companies enter into initial energy supply agreements (or the Initial Supply Contracts) generally “take or pay” commitments, at prices and volumes approved by ANEEL. The main purpose of the Initial Supply Contracts was to ensure distribution companies access to a stable electricity supply at prices that guaranteed a fixed rate of return for the electricity generation companies during the transition period leading to the establishment of a free and competitive electricity market;

•

the creation of the National Electricity System Operator ( Operador Nacional do Sistema Elétrico ), or ONS, a non-profit, private entity responsible for the operational management of the generation and transmission activities of the Interconnected Power System; and

•

the establishment of public bidding processes for concessions for the construction and operation of power plants and transmission facilities.

•

In 2001, Brazil faced a serious energy crisis that lasted until the end of February 2002. As a result, the Brazilian Government implemented measures that included:

•

a program for the rationing of electricity consumption in the most adversely affected regions, namely the southeast, central-west and northeast regions of Brazil; and

•

the creation of the CGE, which passed a series of emergency measures that provided for reduced electricity consumption targets for residential, commercial and industrial consumers in the affected regions by introducing special tariff regimes that encouraged the reduction of electricity consumption.

•

In March 2002, the CGE suspended the emergency measures and electricity rationing as a result of large increases in supply (due to a significant rise in reservoir levels) and a moderate reduction in demand, and accordingly, the Brazilian Government enacted new measures in April 2002 that, among other things, stipulated an extraordinary tariff readjustment to compensate financial losses incurred by the electricity suppliers as a result of the mandatory electricity rationing.

•

On March 15, 2004, the Brazilian Government enacted the Law No. 10,848 and on July 30, 2004, the Decree No. 5.163, or the Electricity Regulatory Law, in an effort to further restructure the power industry with the ultimate goal of providing consumers with secure electricity supplies combined with low tariffs, which law was regulated by a number of decrees enacted by the Brazilian Government in July and August of 2004, and is still subject to further regulation to be issued in the future. See “ – Challenges to the Constitutionality of the Electricity Regulatory Law.”

•

At the end of 2012, the Brazilian Government enacted two Provisional Measures ( Medidas Provisórias or MP) that have considerably changed the Brazilian electric energy sector overview, namely MP 577, dated as of August 29, 2012 and MP 579, dated as of September 11, 2012. Both of them were approved and converted into Law No. 12,767, dated as of December 27, 2012 (“ Law No. 12,767/2012 ”) and Law No. 12,783, dated as of January 11, 2013 (“ Law No. 12,783 ”), respectively. In general, the MPs provided the regulation of the renewal of the electric energy generation, distribution and transmission concessions, as well as the intervention of the granting authority in the concessions.

Concessions

The companies or consortia that wish to build or operate facilities for generation, transmission or distribution of electricity in Brazil must apply to MME or to ANEEL, as representatives of the Brazilian Government, for a concession, permission or authorization, as the case may be. Concessions grant rights to generate, transmit or distribute electricity in the relevant concession area for a specified period, though a concession may be revoked at any time at the discretion of the MME, following consultation with ANEEL. This period is usually 35 years for new generation concessions, and 30 years for new transmission or distribution concessions.

The Concession Law establishes, among other things, the conditions that the concessionaire must comply with when providing electricity services, the rights of the consumers, and the obligations of the concessionaire and the granting authority. Furthermore, the concessionaire must comply with regulations governing the electricity sector. The main provisions of the Concession Law are as follows:

•

Adequate service . The concessionaire must render adequate service equally with respect to regularity, continuity, efficiency, safety, and accessibility.

•

Use of land . The concessionaire may use public land or request the granting authority to expropriate necessary private land for the benefit of the concessionaire. In that case, the concessionaire must compensate the private landowners affected.

•

Strict liability . The concessionaire is strictly liable for all damages arising from the provision of its services.

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•

Changes in controlling interest . The granting authority must approve any direct or indirect change in the concessionaire’s controlling interest.

•

Intervention by the granting authority . The granting authority may intervene in the concession, by means of an administrative proceeding, to ensure the adequate performance of services, as well as full compliance with applicable contractual and regulatory provisions. Such intervention procedure was regulated by MP No. 577/2012, duly converted into Law No. 12,767/2012.

•

Termination of the concession . The termination of the concession agreement may be accelerated by means of expropriation and/or forfeiture. Expropriation is the early termination of a concession for reasons related to the public interest that must be expressly declared by law. Forfeiture must be declared by the granting authority after a final administrative ruling that the concessionaire, among other things: (i) has failed to render adequate service or to comply with applicable law or regulation; (ii) no longer has the technical, financial or economic capacity to provide adequate service; or (iii) has not complied with penalties assessed by the granting authority. The concessionaire may contest any expropriation or forfeiture in the courts. The concessionaire is entitled to indemnification for its investments in expropriated assets that have not been fully amortized or depreciated, after deduction of any amounts for fines and damages due by the concessionaire.

•

Expiration . When the concession expires, all assets, rights and privileges that are materially related to the rendering of the electricity services revert to the Brazilian Government. Following the expiration, the concessionaire is entitled to indemnification for its investments in assets that have not been fully amortized or depreciated at the time of expiration.

Penalties

Law No. 9,427 of December 26, 1996, as amended, enacted by the Brazilian Government and supplemented by ANEEL’s regulation govern the imposition of sanctions against the agents of the electricity sector and classify the appropriate penalties based on the nature and importance of the breach (including warnings, fines, temporary suspension from the right to participate in bidding procedures for new concessions, licenses or authorizations and forfeiture). For each breach, the fines can be up to 2.0% of the revenue of the concessionaire in the 12-month period preceding any assessment notice or, for independent producers or self producers, the estimated amount of energy produced in the same period. Some infractions that may result in fines relate to the failure of the agent to request ANEEL’s approval, including the following (pursuant to ANEEL Resolution No. 63/2004, as amended from time to time):

•

entering into certain related party transactions;

•

sale or assignment of the assets related to services rendered as well as the imposition of any encumbrance (including any security, bond, guarantee, pledge and mortgage) on them or any other assets related to the concession or the revenues of the electricity services;

•

changes in controlling interest of the holder of the authorization or concession; and

•

non-compliance with the schedule for the beginning of the commercial operation of the power plant, as previously approved by the ANEEL through the relevant contract.

With respect to contracts executed between related parties that are submitted for ANEEL’s approval, ANEEL may seek to impose restrictions on the terms and conditions of these contracts and, in extreme circumstances, determine that the contract be terminated early.

Furthermore, ANEEL has the institutional role of controlling the transactions of the energy industry, requiring that such transactions (change of control of the agents of the electric energy sector) be submitted to its prior approval before its implementation.

Renewal of the Concessions – Law No. 12,783

The Brazilian Government has recently enacted MP No. 579/2012, which was converted into Law No. 12,783. Among other provisions, the main purpose of this normative act is to regulate the renewal conditions for electric energy generation, distribution and transmission concessions.

Law No. 12,783 (i) establishes the conditions for the renewal of electric energy generation, distribution and transmission concessions; (ii) assures a tariff reduction; and (iii) creates a quotas system characterized by the allocation of the power generated by the hydroelectric plants to the distribution concessionaires of the Sistema Interligado Nacional – SIN.

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(i)

Conditions for the renewal of electric energy generation, distribution and transmission concessions

The granting authority may extend the maturing concessions of electric energy generation, distribution and transmission companies for a maximum period of 30 additional years, as long as the current concessionaires accept new specific conditions legally imposed in order to assure the continuity of the electric energy supply and the tariff-reduction.

The main terms and conditions for the renewal of concession imposed by Law No. 12,783 are:

•

Hydroelectric generation : The renewal is subject to (i) a tariff determined by ANEEL, (ii) the commercialization in accordance with the quota allocation system and (iii) compliance with quality standards established by ANEEL;

•

Self-Producer ( Autoprodutor ) : For the renewal of the concession the Self-Producer will be deemed to provide additional payment for the use of the public assets which will be used by the Federal Government to reduce the energy tariff charged to consumers;

•

Thermal Generation : The renewal must be requested by the concessionaire at least twenty four (24) months prior to expiration of the concession. If requested, the renewal will be granted for a maximum period of twenty (20) years;

•

Power Transmission : The renewal of transmission concessions is subject to the reduction of the annual permitted revenue ( Receita Anual Permitida or RAP, which is the annual value received by the concessionaire for rendering public transmission services) calculated by ANEEL as well compliance with quality standards established by ANEEL.

•

Power Distribution : The renewal is subject to specific conditions set forth in an amendment to the concession agreement (to be executed with companies applying for the renewal of the concessions), in order to optimize the services provided by the distribution concessionaires, as well as compliance with quality standards established by ANEEL.

These new conditions required for the renewal of concessions will be formalized by means of amendments to the concession agreements.

The concessions that are not renewed in accordance with the terms and conditions established by Law No. 12,783 will revert to the granting authority at the expiration of the concession and, subsequently, subjected to a new bidding procedure conducted by ANEEL, in accordance with the terms set forth in Law 8,666/1993. As a result of the bidding procedure, the generation, transmission or distribution assets will be granted to a concessionaire for a maximum period of 30 years. The concession holder will remain responsible for rendering public services, under the terms and conditions set forth in Law No. 12,783, until the assumption of the new winning bidder.

If the concession is renewed, the concessionaire will be entitled to an indemnification corresponding to the amount of investment made by the concessionaire for non-amortized reversible assets .

The Ministry of Mines and Energy is responsible for determining the value of the non-amortized investments within these energy concessions to be renewed. In accordance with the Ministry’s determination, the values of our companies’ indemnifications are the following:

Generation Concession Contracts

Concessionaire

Hydroelectric Power Plant

Potential (MW)

Indemnification
(R$ thousand)

Commencement of the
Operation

Eletrobras Chesf

Xingó

3,162.0

2,929,832

December 16, 1994

Eletrobras Chesf

Paulo Afonso IV

2,462.40

360,473

December 1, 1979

Eletrobras Chesf

Luiz Gonzaga (Itaparica)

1,479.6

1,730,602

June 13, 1988

Eletrobras Furnas

Marimbondo

1,440.0

64,368

October 25, 1975

Eletrobras Chesf

Apolônio Sales (Moxotó)

400.0

84,613

April 15, 1977

Eletrobras Furnas

Corumbá I

375.0

679,880

April 1, 1997

Eletrobras Chesf

Boa Esperança (Castelo Branco)

237.3

72,783

April 7, 1970

Eletrobras Eletronorte

Coaracy Nunes

68.0

35,492

December 30, 1975

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Transmission Concession Contracts


Concessionaire	Concession Contract	Indemnification (R$ thousand)
Eletrobras Chesf	061/2001-ANEEL	R$	1,587,160
Eletrobras Eletronorte	058/2001-ANEEL	R$	1,682,267
Eletrobras Eletrosul	057/2001-ANEEL	R$	1,985,568
Eletrobras Furnas	062/2001-ANEEL	R$	2,878,027

(ii)

Tariff-reduction

According to Law No. 12,783, the tariff reduction will be the result of: (i) the reduction of sector charges, such as CCC, CDE and RGR; (ii) the new calculation of tariffs and RAPs of the renewed concessions as mentioned above; and (iii) investments provided by Federal Government.

(iii)

Quotas Allocation System

Law No. 12,783 also creates a mechanism for the allocation of the power generated by the hydroelectric plants connected to the SIN, whose concessions were renewed under this new regulatory framework, to the Regulated Market, with the purpose of increase the amount of energy available to the distribution concessionaires and reduce the tariff charged to the final consumer. The quotas and the portion of energy allocated to the distribution concessionaires will be reviewed from time to time.

Administrative Intervention in Concessions

In August 2012, the Brazilian Government enacted Law No. 12,767/2012 to regulate ANEEL’s intervention in the concessionaires to ensure the quality of the services provided by concessionaires and the performance of legal, regulatory and contract obligations.

In addition, Law No. 12,767/2012 regulates the termination of the concession in case of extinguishment or bankruptcy of the concessionaire or forfeiture of the concession. Furthermore, this law sets forth an administrative proceeding which is required for the termination of the concession.

As to recovery procedures involving energy concessionaires, Law No. 12,767/2012 changed the regulatory framework as it forbids energy concessionaires to initiate judicial or extrajudicial procedures. See “Item 3.D, Risk Factors – Risks Relating to the Brazilian Power Industry” for more details.

Principal Authorities

Ministry of Mines and Energy

The MME is the Brazilian Government’s primary regulator of the power industry acting as the granting authority on behalf of the Brazilian Government, and empowered with policy-making, regulatory and supervising capacities. The Brazilian Government, acting primarily through the MME, will undertake certain duties that were previously under the responsibility of ANEEL, including drafting guidelines governing the granting of concessions and the issuance of directives governing the bidding process for concessions relating to public services and public assets.

ANEEL

The Brazilian power industry is regulated by ANEEL, an independent federal regulatory agency. ANEEL’s primary responsibility is to regulate and supervise the power industry in line with the policy dictated by the MME and to respond to matters which are delegated to it by the Brazilian Government and by the MME. ANEEL’s current responsibilities include, among others: (i) administering concessions for electricity generation, transmission and distribution activities, including the approval of electricity tariffs; (ii) enacting regulations for the electricity industry; (iii) implementing and regulating the exploitation of energy sources, including the use of hydroelectric energy; (iv) promoting the public bidding process for new concessions; (v) settling administrative disputes among electricity generation entities and electricity purchasers; and (vi) defining the criteria and methodology for the determination of transmission tariffs.

National Energy Policy Council

On August 6, 1997, pursuant to Article 2 of Law No. 9,478, the Conselho Nacional de Politica Energética (the National Energy Policy Council or CNPE) was created to advise the Brazilian president with respect to the development and creation of national energy policy. The CNPE is presided over by the Minister of Mines and Energy, and the majority of its members are ministers of the Brazilian Government. The CNPE was created to optimize the use of Brazil’s energy resources, to assure the supply of electricity to the country and to periodically review the use of regular and alternative energy to determine whether the nation is properly using a variety of sources of energy and is not heavily dependent on a particular source.

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National Electricity System Operator

The ONS was created in 1998 by Law No. 9.648 dated May 27, 1998. The ONS is a non-profit private entity comprised of concessionaires, other legal entities holding permissions or authorizations in the electrical energy market, and consumers connected to the interconnected system. The Electricity Regulatory Law granted the Brazilian Government the power to nominate three executive officers to ONS’s board of executive officers. The primary role of the ONS is to coordinate and control the generation and transmission operations in the Interconnected Power System, subject to ANEEL’s regulation and supervision. The objectives and principal responsibilities of the ONS include: operational planning for the generation industry, organizing the use of the domestic Interconnected Power System and international interconnections, guaranteeing that all parties in the industry have access to the transmission network in a non-discriminatory manner, assisting in the expansion of the energy system, proposing plans to the MME for extensions of the Basic Network (which proposals must be taken into account in planning expansion of the transmission system) and submitting rules for the operation of the transmission system for ANEEL’s approval. Generators must declare their availability to ONS, which then attempts to establish an optimal electricity dispatch program.

Energy Trading Chamber

On August 12, 2004, the Brazilian Government enacted a decree setting forth the regulations applicable to the new Câmara de Comercialização de Energia Elétrica (Energy Trading Chamber or CCEE). On November 10, 2004 the CCEE succeeded the Wholesale Energy Market – MAE, the market in which all large electricity generation companies, energy traders and importers and exporters of electricity had participated and on which the spot price of electricity was determined. The CCEE assumed all of the assets and operations of the Wholesale Energy Market (which had previously been regulated by ANEEL).

One of the principal roles of the CCEE is to conduct public auctions on the Regulated Market, see “– The Electricity Regulatory Law; the Free Market and the Regulated Market – The Regulated Market.” In addition, the CCEE is responsible, among other things, for: (i) registering all the energy purchase agreements in the Contratos de Comercialização de Energia no Ambiente Regulado (Regulated Market or CCEAR), and the agreements resulting from market adjustments and the volume of electricity contracted in the Free Market, see “ – The Electricity Regulatory Law; the Free Market and the Regulated Market – The Free Market;” and (ii) accounting and clearing of short-term transactions.

The CCEE’s members include generation, distribution and trading companies, as well as free consumers. Its board of directors is composed of four directors appointed by its members and one director, who serves as chairman of the board of directors, appointed by the MME.

The MME determines the maximum price of the energy sold in the regulated market through auctions, as specified under Decree No. 5,163 of 2004

Energy Research Company

On August 16, 2004 the Brazilian Government enacted a decree creating the Empresa de Pesquisa Energética (Energy Research Company or EPE) a state-owned company which is responsible for conducting strategic research on the energy industry, including with respect to electrical energy, oil, gas, coal and renewable energy sources. The research carried out by EPE is subsidized by the MME as part of its policymaking role in the energy industry. Furthermore, EPE is the entity in charge of the technical qualification of the projects participating in the bids promoted by ANEEL for sale of energy.

Energy Industry Monitoring Committee

The Electricity Regulatory Law authorized the creation, under Federal Decree No. 5,175 of August 9, 2004, of the Comitê de Monitoramento do Setor Elétrico (Energy Industry Monitoring Committee or CMSE), which acts under the direction of the MME. The CMSE is responsible for monitoring the supply conditions of the system and for proposing preventive action (including demand-related action and contracting for a supply-side reserve) to restore service conditions where applicable.

Electric Power Transmission in Brazil

Transportation of large volumes of electricity over long distances is made by way of a grid of transmissions lines and substations with high voltages (from 230 kV to 750 kV), known as the Basic Network. Any electric power market agent that produces or consumes power is entitled to use the Basic Network.

Transmission lines in Brazil are usually very long, since most hydroelectric plants are usually located away from the large centers of power consumption. Today, the country’s system is almost entirely interconnected. Only the states of Amazonas, Roraima, Amapá, Rondônia and a part of Pará are still not linked up to the Interconnected Power System. In these states, supply is made by small thermal plants or hydroelectric plants located close to their respective capital cities.

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The Interconnected Power System provides for the exchange of power among the different regions when any one region faces problems generating hydroelectric power due to a drop in their reservoir levels. As the rainy seasons are different in the south, southeast, north and northeast of Brazil, the higher voltage transmission lines (500 kV or 750 kV) make it possible for locations with insufficient power output to be supplied by generating centers that are in a more favorable location.

The operation and management of the Basic Network is the responsibility of ONS, which is also responsible for managing power dispatching from plants on optimized conditions, involving use of the Interconnected Power System hydroelectric reservoirs and fuel thermal plants.

Our transmission system, which consists of a set of transmission lines interconnected to substations, is comprised of approximately 55,118 kilometers of transmission lines, corresponding to approximately 53.1% of the total lines in Brazil with a voltage higher or equal to 230 KV.

Besides operating and maintaining this system in accordance with the standards of performance and quality required by ANEEL, we have actively participated in the expansion of transmission lines through concessions in auctions conducted by ANEEL, alone or through consortiums, as well as through permits for reinforcements of the current system.

The major transmission projects under development are: (i) LT 230 kV Funil – Itapebi C3 (BA); (ii) LT 230 kV Picos – Tauá II (PI/CE); (iii) LT 345 kV Tijuco Preto – Itapeti – Nordeste (SP); (iv) LT 500 kV Oriximiná – Itacoatiara – Cariri (PA/AM); (v) LT 600 kV Porto Velho – Araraquara (RO/SP); (vi) LT 230 kV Eunapólis – Teixeira de Freitas II C2 (BA); and (vii) LT 500 kV Bom Despacho 3 – Ouro Preto 2 (MG).

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Brazil has a total of six medium and large interconnections with other countries in South America, four of them operated by us, as set forth below:

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with Paraguay, through four 500 kV transmission lines connecting Usina de Itaipu to Margem Direita (Paraguay) substation and the Foz do Iguaçu in Brazil substation. Itaipu’s 50 Hz energy sector is then transported to the Ibiúna substation in São Paulo through a direct current transmission system with a capacity of 6,300 MW;

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with Uruguay, through Rivera’s frequency converter station in Uruguay, with a capacity of 70 MW and a 230 kV transmission line connecting it to the Livramento substation in Brazil;

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with Argentina, through Uruguaiana’s frequency converter station in Brazil, with a capacity of 50 MW and a 132 kV transmission line connecting it to Paso de los Libres in Argentina; and

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with Venezuela, through a 230 kV transmission line with a capacity of 200 MW, which connects the city of Boa Vista, in the State of Roraima, to the city of Santa Elena in Venezuela.

In the transitional environment (2002-2005), there was a gradual decline in the amounts of power contracted under Initial Supply Contracts, the generating companies paid for the use of the transmission line grid, whereas distributors were required to pay two types of transmission tariffs: (i) nodal tariffs, associated with each connection point from where these distributors demand voltage; and (ii) the transmission tariff, associated with the Initial Supply Contracts, which was applied to part of the demand contracted in that environment. Once the amounts under the Initial Supply Contracts dropped to zero, the power generating, distributing and selling companies and free consumers had free access agreements governing their use of transmission lines on equivalent terms with those of agents that entered the market after free access became compulsory. In this free market environment, transmission tariffs are determined based on the effective use that each party that accesses the Basic Network makes of it.

The Electricity Regulatory Law; the Free Market and the Regulated Market

The Electricity Regulatory Law introduced material changes to the regulation of the power industry with a view to: (i) remedying the deficiencies in the Brazilian electric system and (ii) creating incentives to ensure growth in the electrical energy sector to support Brazilian economic and social development. Through this law, legislators attempted to protect the distribution concessionaires’ captive consumers and to make low cost electrical energy continuity, which has a minimal environmental impact, available. The key features of the Electricity Regulatory Law included:

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Creation of: (i) the Regulated Market, in which the purchase and sale of electrical energy must follow rules imposed by the ANEEL and must occur through the CCEE; and (ii) a market specifically addressed to certain participants (e.g., free consumers and commercialization companies), that will permit a certain degree of competition with respect to the Regulated Market, called the Ambiente de Contratação Livre , or the Free Market, in which parties are free to negotiate the terms and conditions of their purchase and sale agreements;

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Restrictions on certain activities of distributors, so as to ensure that they focus only on their core business to guarantee more efficient and reliable services to captive consumers;

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Elimination of self-dealing, to provide an incentive to distributors to purchase electricity at the lowest available prices rather than buying electricity from related parties; and

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Respect for contracts executed prior to the Electricity Regulatory Law, in order to provide stability to transactions carried out before its enactment.

The Electricity Regulatory Law also excludes us and our subsidiaries from the National Privatization Program, which is a program created by the Brazilian Government in 1990 with a view to promote the privatization process of state-owned companies.

Challenges to the Constitutionality of the Electricity Regulatory Law

Some aspects of the Provisional Measure No. 144, as of December 10 2003, which originated the Electricity Regulatory Law, are being challenged in the Brazilian Supreme Court in Lawsuits No. 3090 and 3100. The provisional requests of both lawsuits were denied by the Brazilian Supreme Court in a decision published on October 26, 2007. A final decision on this matter is subject to majority vote of the 11 judges, provided that a quorum of at least eight justices must be present. To date, the Brazilian Supreme Court has not reached a final decision and we do not know when such a decision may be reached. The Brazilian Supreme Court ruled by six votes to four to deny the provisional measure requested to suspend the effects of the Electricity Regulatory Law until the final decision on the case has been made; however, a final decision remains pending. Therefore, the Electricity Regulatory Law is in force as of March 15, 2004 to present date. Regardless of the Supreme Court’s final decision, certain portions of the Electricity Regulatory Law relating to restrictions on distribution companies performing activities unrelated to the distribution of electricity, including sales of energy by distribution companies to free consumers and the elimination of self-dealing are expected to remain in full force and effect.

If all or a relevant portion of the Electricity Regulatory Law is determined unconstitutional by the Brazilian Supreme Court, the regulatory scheme introduced by the Electricity Regulatory Law may lose its effectiveness, generating uncertainty as to how the Brazilian Government will define the rules for the electrical energy sector. Considering that we have already purchased virtually all of our electricity needs through our subsidiaries both in the ACR and ACL and that the pass through to tariffs of such electricity is expected to continue to be regulated by the regime predating the Electricity Regulatory Law, irrespective of the outcome of the Supreme Court’s decision, we believe that in the short term, the effects of any such decision on our activities should be relatively limited. The exact effect of an unfavorable outcome of the legal proceedings on us and the electricity industry as a whole is difficult to predict, but it could have an adverse impact on our business and results of operations even in the short term (see “Risk Factors – Risks Relating to the Brazilian Power Industry”).

Markets for the Trading of Electricity

Under the Electricity Regulatory Law, electricity purchase and sale transactions may be carried out in two different market segments: (i) the Regulated Market, which contemplates the purchase by distribution companies through public bids of all electricity necessary to supply their captive consumers; and (ii) the Free Market, which encompasses purchase of electricity by non-regulated entities (such as free consumers and energy traders).

Nevertheless, electricity generated by plants qualified under the Proinfa, nuclear power plants and Itaipu are governed by a special regimen for commercialization and, therefore, are not subject to either the Regulated or the Free Market. The electricity generated by Itaipu, the most relevant among energy sources governed by separate regimes including Decree 4,550 of December 27, 2002, is sold to us and sold to distribution concessionaires in the south and center-south-eastern power markets in proportion to their market share in those markets. The rates at which Itaipu-generated electricity is traded are denominated in U.S. dollars and established pursuant to a treaty between Brazil and Paraguay. As a consequence, Itaipu rates rise or fall in accordance with the variation of the U.S. dollar/ real exchange rate. Changes in the price of Itaipu-generated electricity are, however, subject to full pass-through to distribution tariffs.

The Regulated Market

Distribution companies must meet market demand by supplying electricity primarily purchased in public auctions in the Regulated Market. Distribution companies, however, may purchase electricity from: (i) generation companies that are connected directly to such distribution company, except for hydro generation companies with capacity higher than 30 MW and certain thermo generation companies; (ii) electricity generation projects participating in the initial phase of the Proinfa; and certain power distribution companies in the south and center-south-eastern power markets, and (iii) the Itaipu hydroelectric plant.

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Electricity public auctions for new generation projects in process are held: (i) five years before the initial delivery date (referred to as “A-5” auctions); and (ii) three years before the estimated initial delivery date (referred to as “A-3” auctions). Electricity auctions from existing power generation facilities are held one year before the estimated initial delivery date (referred to as “A-1” auctions). Electricity public auctions for electrical energy from alternative sources are held between A-1 and A-5 auctions. Additionally, the Brazilian Government, directly or indirectly through ANEEL, carries out public auctions for the sale of electrical energy to energy distributors to allow distributors to adjust their volume of electrical energy as necessary to meet their customers’ demands, or Market Adjustments.

The public auctions are prepared by ANEEL in compliance with guidelines established by the MME, including the requirement to use the lowest bid as the criteria to determine the winner of the auction.

Each generation company that participates in the auction must execute a contract for purchase and sale of electricity with each distribution company in proportion to the distribution companies’ respective estimated demand for electricity. The CCEARs for both “A-5” and “A-3” auctions have a term of between 15 and 30 years, and the CCEARs for “A-1” auctions have a term between three and 15 years. The CCEARS for alternative energy sources are between 10 and 30 years. The only exception to these rules relates to the market adjustment auction, in which the generation and the distribution companies will enter into two-year bilateral agreements that must be registered with the ANEEL and the CCEE.

The regulations also establish a pass-through tariff mechanism called Annual Reference Value, which limits the amounts of electric energy acquisition costs that can be passed through to final consumers. The Annual Reference Value corresponds to the weighted average of the electricity prices in the “A-5” and “A-3” auctions, calculated for all distribution companies.

The Annual Reference Value creates an incentive for distribution companies to contract for their expected electricity demand in the “A-5” auctions, where the prices are expected to be lower than in “A-3” auctions. ANEEL allows companies to pass on their electrical energy acquisition costs to final consumers pursuant to the following criteria: (i) in the A-5 auctions, companies are permitted to pass on all costs to consumers, subject to the limitations referred to below; (ii) in the A-3 auctions companies are permitted to: (a) pass all acquisition costs for energy acquired in A-5 auctions up to 2% of the difference between the energy acquired in A-3 auctions during the year and the distributor’s energy requirements; and (b) pass on whichever of the following is less – the A-5 auctions and in the A-3 auctions; (iii) in the A-1 auctions, companies are permitted to pass on all costs to consumer; (iv) in the Market Adjustments auctions and in the acquisitions of energy directly from a generation plant connected to the distributors’ electric system (except as set forth in law), companies are permitted to pass on all costs up to the Annual Reference Value to consumer; and (v) in the alternative energy source auctions and others determined by the Brazilian government, companies are permitted to pass on all costs to consumer.

ANEEL maintains the economic value of the Annual Reference Value by adjusting the Annual Reference Value pursuant to the monetary adjustment index agreed upon in the CCEARs.

The Electricity Regulatory Law establishes the following limitations on the ability of distribution companies to pass through costs to consumers:

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No pass-through of costs for electricity purchases that exceed 103.0% of actual demand;

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The pass-through of electricity acquisition costs from new electricity generation projects equal to the difference between the minimum purchase threshold (96% of repossessed energy contracted pursuant to the Electricity Regulatory Law) and the energy purchased in the A-1 auctions will be limited to the weighted average amount (in reais /MWh) of the acquisition prices in the A-1 auctions, except that this limit is applicable solely: (i) in the first three years following A-1 auctions in which the minimum purchase threshold was not reached; (ii) to the CCEARs relating to portion of energy acquired in A-3 and A-5 auctions with the highest price;

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The MME will establish the maximum acquisition price for electricity generated by existing projects; and

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If distribution companies do not comply with the obligation to fully contract their demand, the pass-through of the costs from energy acquired in the CCEE short-term market will be the lower of the Price of Liquidation of Differences (PLD) and the Annual Reference Value.

Auctions in the Regulated Market, subject to the conditions set forth in the respective requests for proposals, may originate two types of CCEARs: (i) Contratos de Quantidade de Energia (Energy Agreements); and (ii) Contratos de Disponibilidade de Energia (Capacity Agreements).

Under an Energy Agreement, a generator commits to supply a certain amount of electricity and assumes the risk that the electricity supply could be adversely affected by hydrological conditions and low reservoir levels, among other conditions, that could interrupt the supply of electricity, in which case the generator will be required to purchase the electricity elsewhere in order to comply with its

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supply commitments. Under a Capacity Agreement, a generator commits to make a specified amount of capacity available to the Regulated Market. In this case, the revenue of the generator is guaranteed and the distribution companies face the risk of a supply shortage. However, the increased prices of electricity due to a supply shortage are passed on by the distribution companies to consumers. Together, these agreements comprise the energy purchase agreements in the Contratos de Comercialização de Energia no Ambiente Regulado (CCEAR).

The Electricity Regulatory Law sets forth that all electricity generation, distribution and trading companies, independent power producers and free consumers must inform MME, by the first of August of each year, of their estimated electricity demand or estimated electricity generation, as the case may be, for each of the subsequent five years. To encourage power distribution companies to make accurate estimations and to enter into power purchase agreements accordingly, pass-through tariffs, as mentioned above, are permitted provided that the purchased power stays within 103.0% of the distribution company’s actual power demand. Surpluses and shortages of power distribution companies concerning power acquisitions in the Regulated Market may be offset against each other by means of an offsetting mechanism managed by CCEE. According to the Electricity Regulatory Law, electricity distribution entities are entitled to pass on to their customers the costs related to electricity purchased through public auctions as well as any taxes and industry charges related to public bids, subject to certain limitations related to the inability of distribution companies to accurately forecast demand.

Electrical Energy Trading Convention

ANEEL Resolutions No. 109, of October 26, 2004 and No. 210, of February 24, 2006, govern the Convenção de Comercialização de Energia Elétrica (the Electrical Energy Trading Convention) which regulates the organization and functioning of the CCEE and the electrical energy trading conditions and defines, among others: (i) the rights and obligations of CCEE Agents; (ii) the penalties to be imposed on defaulting agents; (iii) the means of dispute resolution; (iv) trading rules in the Regulated and Free Markets; and (v) the accounting and clearing process for short-term transactions.

CCEE is a non-profit organization whose members are all agents of the Brazilian power sector (certain agents are not mandatory members of CCEE and may be represented by other members) and subject to ANEEL’s authorization, supervision and regulation. CCEE is responsible for (i) registering the conditions concerning power amounts and terms set forth in all power purchase agreements, whether entered into in the Regulated Market or the Free Market; and (ii) the accounting and liquidation of the power market, including the power surpluses and shortages spot market, among other attributions. CCEE is governed by a board of directors comprised of five members, four being nominated by the referred agents while its president is nominated by the MME.

The Free Market

The Free Market covers freely negotiated electricity sales between generation concessionaires, Independent Power Producers, self-generators, energy traders, importers of energy and free consumers. The Free Market also includes bilateral contracts between generators and distribution companies executed before the enactment of the Electricity Regulatory Law, until they expire. Upon expiration, new contracts must be entered into in accordance with the Electricity Regulatory Law guidelines.

Such an extended period of notice seeks to assure that, if necessary, the construction of cost-efficient new generation could be finalized in order to supply the re-entry of free consumers into the Regulated Market. State-owned generators may sell electricity to free consumers, but as opposed to private generators, they are obligated to do so through a public process that guarantees transparency and equal access for all interested parties.

Free Consumers

According to the Electricity Regulatory Law, a free consumer may elect to: (i) continue to procure power from a local distribution company; (ii) buy power directly from an independent producer or from self-producers with surplus power; or (iii) buy power from a power trade agent.

The Electricity Regulatory Law does not permit distribution concessionaires to sell power to free consumers directly (except under certain regulatory conditions).

The Electricity Regulatory Law further establishes that the option to become a free consumer is subject to the prior expiration or termination of its power purchase agreement with the power distribution company. In the event that the power purchase agreement has an indefinite term, the migration to the Free Market is permitted only in the year following receipt of a migration notice by the power distribution company, provided that this notice is presented by July 15 of such year. Once a consumer has migrated to the Free Market, it may only return to the Regulated Market once it has given the relevant distribution company five years’ notice, although the distribution company may reduce that term at its discretion.

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The Electricity Regulatory Law has, in principle, established some conditions and power and consumption thresholds that define which consumers could qualify as “free consumers.” These thresholds may be gradually reduced over the years by ANEEL so as to allow an increasing number of consumers to make this election, until such time as all consumers from all the different classes can choose which supplier they want to procure power from.

The law assures suppliers and their respective consumers free access to the grid subject to the payment of tariffs for the use of the electric power grids and connection costs. All regulatory charges to which captive consumers are subject are added to these tariffs in order to assure fair and equal treatment between captive and free consumers.

The regulations above are intended (1) to avoid arbitrage between captive and free markets by Free Consumers, prohibiting opportunistic migrations, as well as (2) to protect power distribution companies by making the captive market more predictable. Further, ANEEL must regulate the migration to the Free Market without increasing captive market tariffs.

Restricted Activities of Distributors

Distribution companies are not permitted to, except as otherwise provided by Law 9,074/1995: (i) develop activities related to the generation or transmission of electricity; (ii) sell electricity to free consumers, except for those in their concession area and under the same conditions and tariffs maintained with respect to captive customers in the Regulated Market; (iii) hold, directly or indirectly, any interest in any other company, corporation or partnership; or (iv) develop commercial activities that are unrelated to their respective concessions, except for those permitted by law or in the relevant concession agreement. Generators are not allowed to hold equity interests in excess of 10.0% in distribution companies or to hold a controlling shareholding interest in distribution companies.

Elimination of Self-Dealing

Since the purchase of electricity for captive consumers will be performed through the Regulated Market, so-called self-dealing is no longer permitted, except in the context of agreements that were duly approved by ANEEL before the enactment of the Electricity Regulatory Law. Distribution companies may, however, enter into power purchase agreements with related parties, provided that such agreements are the result of power auctions conducted in the Regulated Market. Before the Electricity Regulatory Law, such companies were permitted to meet up to 30.0% of their electricity needs through electricity that was acquired from affiliated companies.

Ownership Limitations

In 2000, ANEEL established limits on the concentration of certain services and activities within the power industry. Under such limits, with the exception of companies participating in the National Privatization Program (which needed only comply with such limits once their final corporate restructuring is accomplished) no power company (including both its controlling and controlled companies) could: (i) own more than 20.0% of Brazil’s installed capacity, 25.0% of the installed capacity of the southern/southeastern/mid-western region of Brazil or 35.0% of the installed capacity of the northern/northeastern region of Brazil, except if such percentage corresponded to the installed capacity of a single generation plant; (ii) own more than 20.0% of Brazil’s distribution market, 25.0% of the southern/southeastern/mid-western distribution market or 35.0% of the northern/northeastern distribution market, except in the event of an increase in the distribution of electricity exceeding the national or regional growth rates; or (iii) own more than 20.0% of Brazil’s trading market with final consumers, 20.0% of Brazil’s trading market with non-final consumers or 25.0% of the sum of the above percentages.

In accordance with paragraph one, Article 31 of the Electricity Regulatory Law, we and our subsidiaries Eletrobras Furnas, Eletrobras Chesf, Eletrobras Eletronorte, Eletrobras Eletrosul and Eletrobras CGTEE were excluded from the National Privatization Program. Accordingly, we were subject to the limits and conditions imposed on the participation of agents in the activities of the electricity sector, in accordance with ANEEL Resolution No. 278/2000, which is aimed at achieving effective competition between agents and preventing a concentration in the services and activities undertaken by agents within the electricity sector.

On November 10, 2009, ANEEL issued Resolution No. 378, which revoked and replaced Resolution No. 278/2000 and established that ANEEL, upon identifying an act that may result in unfair competition or in significant control of the generation, transmission and distribution markets, must notify the Secretary of Economic Law (Secretaria de Direito Econômico , or SDE) of the Ministry of Justice, pursuant to art. 54 of Law No. 8,884 of June 11, 1994. After notification, the SDE must inform the antitrust authority, the Administrative Counsel of Economic Defense ( Conselho Administrativo de Defesa Econômica ), or CADE. If necessary, the SDE will require ANEEL to analyze potential infractions under Resolution No. 378, while CADE must determine any applicable punishment, which may vary from pecuniary penalties to the dissolution of the company, pursuant to articles 23 and 24 of the abovementioned law.

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Tariffs for the Use of the Distribution and Transmission Systems

ANEEL oversees tariff regulations that govern access to the distribution and transmission systems and establish tariffs for the use of and access to said systems. The tariffs are: (i) network usage charges, which are charges for the use of the proprietary local grid of distribution companies (or TUSD); and (ii) a tariff for the use of the transmission system, which is the Basic Network and its ancillary facilities (or TUST). Additionally, distribution companies in the Southern/Southeastern Interconnected Power System pay specific charges for the transmission of electricity generated at Itaipu and for access to the transmission system.

TUSD

The TUSD is paid by generators, free consumers and special consumers for the use of the distribution system of the distribution company to which the relevant generator or free consumer is connected and are revised annually according to an inflation index. The amount to be paid is based on a formula set forth and consolidated by ANEEL Resolution No. 166/2005, as amended, by ANEEL Resolution No. 399/2010, and may vary pursuant to a number of different factors, including, for instance, costs of the network, operating costs and energy losses, among others. Our distribution companies receive the TUSD paid by free consumers in their concession areas and by some other distribution companies which are connected to our distribution system.

TUST

The TUST is paid by distribution companies and uses, including generators, free consumers and special consumers, for the use of the Basic Network. The amount to be paid is based on a formula ser by ANEEL Resolution No. 67/2004, as amended by ANEEL Resolution No. 442/2011, and it may vary pursuant to a number of different factors. According to criteria established by ANEEL, owners of the different parts of the transmission grid have transferred the coordination of their facilities to the ONS in return for receiving regulated payments from users of the transmission system. Network users, including generation companies, distribution companies and free consumers, have signed contracts with the ONS entitling them to use the transmission grid in return for the payment of published tariffs. Other parts of the grid that are owned by transmission companies but which are not considered part of the transmission grid are made available directly to the interested users who pay a specified fee to the relevant transmission company.

Contract for Access to the Intermediary Connection System – Access Charge

Some distribution companies, especially in the State of São Paulo, access the Basic Network through an intermediary connection system located between their respective distribution lines and the Basic Network. This connection is formalized by means of a Contract for the Access to the Intermediary Connection System entered into with transmission concessionaires that own such facilities. Compensation for the transmission companies is regulated by ANEEL and is defined in accordance with the cost of the assets used, whether they are their exclusive property or shared among the electricity industry agents. The correspondent compensation incidental to the use of the intermediary connection system is revised annually by ANEEL according to an inflation index and to the costs relating to the assets.

Itaipu Transportation Charge

The Itaipu plant has an exclusive transmission grid operated in alternating and continuous current, which is not considered to be part of the Basic Network or of the intermediary connection system. The use of such system is compensated by a specific charge, denominated the Itaipu transportation charge, paid by those companies entitled to quotas of the electricity from Itaipu, in proportion to their quotas.

Distribution Tariffs

Distribution tariff rates are subject to review by ANEEL, which has the authority to adjust and review tariffs in response to changes in electricity purchase costs and market conditions. When adjusting distribution tariffs ANEEL divides the costs of distribution companies between: (i) costs that are beyond the control of the distributor (or Parcel A costs); and (ii) costs that are under the control of distributors (or Parcel B costs). The readjustment of tariffs is based on a formula that takes into account the division of costs between the two categories.

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Parcel A costs include, among others, the following:

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costs of electricity purchased for resale pursuant to Initial Supply Contracts;

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costs of electricity purchased from Itaipu;

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costs of electricity purchased pursuant to bilateral agreements that are freely negotiated between parties; and

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certain other connection and usage charges for the transmission and distribution systems.

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Parcel B costs are determined by subtracting all the Parcel A costs from the distribution company’s revenues.

Each distribution company’s concession agreement provides for an annual tariff adjustment ( reajuste anual ). In general, Parcel A costs are fully passed through to consumers. Parcel B costs, however, are adjusted for inflation in accordance with the IGP-M index.

Electricity distribution companies are also entitled to revisão periódica (revisions) every four or five years. These revisions are aimed at: (i) assuring revenues are sufficient to cover Parcel B operating costs and that adequate compensation for essential investments for the services within the scope of each such company’s concession; and (ii) determining the “X factor,” which is based on three components: (a) expected gains of productivity from increase in scale; (b) evaluations by consumers (verified by ANEEL); and (c) labor costs.

The X factor is used to adjust the proportion of the change in the IGP-M index that is used in the annual adjustments. Accordingly, upon the completion of each periodic revision, application of the X factor requires distribution companies to share their productivity gains with final consumers.

The pass-through of electricity purchase costs under supply agreements negotiated before the enactment of the Electricity Regulatory Law is subject to a ceiling based on a value established by ANEEL for each different source of energy (such as hydroelectric, thermoelectric and alternative sources of energy). This ceiling is adjusted annually in order to reflect increases in costs incurred by generators. That adjustment takes into account: (i) inflation; (ii) costs incurred in hard currency; and (iii) fuel related costs (such supply of natural gas). Costs incurred correspond to at least 25.0% of all costs incurred by generators.

Recently, ANEEL’s calculation methods used for the annual adjustment of distribution tariffs was questioned. In 2008, the Federal Budget Oversight Board convened to discuss the tariff adjustment of certain companies, and it concluded that consumers paid more than necessary to the distribution companies in moments of high energy demands. The oversight board concluded that since 2002 these payments exceeded those estimated for the tariffs, which unduly increased the distribution companies’ revenues. This additional gain was incorporated in Parcel B of the distribution tariff, which is how the distribution companies are remunerated. The analysis uncovered an irregular gain by the distribution companies of about R$7 billion from 2002 to 2008, which on average resulted in a gain of R$1 billion per year. This excess gain should have been passed on to consumers, leading to a decrease in the tariff. Because the distribution companies did not pass on these gains, São Paulo’s Foundation for the Protection of the Consumers ( Procon-SP ) filed a lawsuit demanding restitution for those consumers. The distribution companies did not agree with the demands for restitution. As a result, a Parliamentary Investigation Commission was established ( CPI das Contas de Luz) to discuss potential solutions.

The issue arose due to the methodology used to calculate the tariff adjustments. ANEEL used the total revenue of the previous twelve months without taking into consideration the future demand for energy. Therefore, the concessionaries did not consider the estimated growth of 5% per year in energy demand when making their calculation, resulting in excessive gains by these distribution companies.

ANEEL admitted that the calculation method was flawed and proposed to fix it by changing Ministerial Order No. 25/2002. There is no consensus as to whether or not the ministerial order could be amended. Moreover, the distribution companies claim that any amendment would constitute a breach under the concession agreements.

Accordingly, the regulators decided to amend all the concession agreements in order to establish the new calculation method for the annual tariff adjustment. With respect to amounts that were incorrectly charged, the regulators decided to make the concession agreement amendments effective as of 2009.

In addition, concessionaires of electricity distribution are entitled to revisão extraordinária (extraordinary review) of tariffs, on a case by case basis, to ensure their financial equilibrium and compensate them for unpredictable costs, including taxes, that significantly change their cost structure.

Incentive Programs for Alternative Sources of Electricity

Thermoelectric Priority Program

In 2000, a federal decree created the Programa Prioritário de Termeletricidade (the Thermoelectric Priority Program or PPT), for purposes of diversifying the Brazilian energy matrix and decreasing its strong dependency on hydroelectric plants. The benefits granted to thermoelectric plants under the PPT include: (i) guaranteed gas supply for 20 years; (ii) assurance that costs related to the acquisition of the electricity produced by thermoelectric plants will be transferred to tariffs up to a normative value determined by ANEEL; and (iii) guaranteed access to a BNDES special financing program for the power industry.

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Proinfa

In 2002, the Proinfa program was established by the Brazilian Government to create certain incentives for the development of alternative sources of energy, such as wind energy projects, Small Hydroelectric Power Plants and biomass projects. As with some other social programs, we are involved in the administration of the Proinfa program.

Under the Proinfa program, we purchase electricity generated by these alternative sources for a period of up to 20 years and transfer it to free consumers and certain electricity distribution companies (which are responsible for including the costs of the program in the tariffs for all final consumers in their respective concession area, except for low-income consumers). In its initial phase, the Proinfa program is limited to a total contracted capacity of 3,300 MW (1,100 MW for each of the three alternative energy sources).

In its second phase, which will start after the 3,300 MW limit is reached, the Proinfa program is intended, in a period of up to 20 years, to have contracted capacity equivalent to 10.0% of the annual domestic consumption of electricity. The energy production that will be commercialized under the Proinfa program will not be provided by generation concessionaires nor by independent power producers. Such production may only be provided by an autonomous independent producer, which may not be controlled by or affiliated with a generation concessionaire or an independent power producer or controlled by or affiliated with their controlling entities.

Research and Development – R & D

Concessionaires and companies authorized to engage in public power distribution, generation and transmission businesses are required to invest annually at least 1.0% of their net operating income in electric power research and development. Companies that only generate power from wind, biomass and Small Hydroelectric Power Plants are not subject to this requirement.

Regulatory Charges

Global Reversion Reserve Fund

In certain circumstances, power companies are compensated for assets used in connection with a concession if the concession is eventually revoked or is not renewed. In 1971, the Brazilian Congress created a Reserva Global de Reversão (a Global Reversion Reserve Fund or RGR Fund) designed to provide funds for such compensation. In February 1999, ANEEL revised the assessment of a fee requiring all distributors and certain generators operating under public service regimes to make monthly contributions to the RGR Fund at an annual rate equal to 2.5% of the company’s fixed assets in service, but not to exceed 3.0% of total operating revenues in any year. In recent years, no concessions have been revoked or have failed to be renewed, and in recent years the RGR Fund has been used principally to finance generation and distribution projects. With the introduction of MP No. 517/2010, the RGR Fund is scheduled to be phased out by 2035, and ANEEL is required to revise the tariff so that the consumer will receive some benefit from the termination of the RGR Fund. In accordance with Law No. 12,783, distribution concessions, transmission concessions granted after September 12, 2012 and all renewed generation and transmission concessions will no longer be deemed to pay RGR charges by January 1st, 2013.

Public Use Fund

The Brazilian Government has imposed a fee on Independent Power Producers reliant on hydrological resources, except for Small Hydroelectric Power Plants, similar to the fee levied on public industry companies in connection with the RGR Fund. Independent Power Producers are required to make contributions to the Fundo de Uso de Bem Público (the Public Use Fund or UBP Fund) according to the rules of the corresponding public bidding process for the granting of concessions. We received the UBP Fund payments until December 31, 2002. All payments to the UBP Fund since December 31, 2002 are paid directly to the Brazilian Government.

Fuel Consumption Account

Distribution companies, and generation companies that sell directly to final consumers, must contribute to the Conta de Consumo de Combustível (the Fuel Consumption Account or CCC Account). The CCC Account was created in 1973 to generate financial reserves to cover elevated costs associated with the increased use of thermoelectric energy plants, in the event of a rainfall shortage, given the higher marginal operating costs of thermoelectric energy plants compared to hydroelectric energy plants. In February 1998, the Brazilian Government provided for the phasing out of the CCC Account. Subsidies from the CCC Account have been phased out over a three-year period beginning in 2003 for thermoelectric energy plants constructed prior to February 1998 and belonging to the Interconnected Power System. Thermoelectric plants constructed after that date will not be entitled to subsidies from the CCC Account. In April 2002, the Brazilian Government established that subsidies from the CCC Account would continue to be paid to those thermoelectric plants located in isolated regions for a period of 20 years in order to promote generation of electricity in those regions.

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Law No. 12,111 amended the formula for calculation of the CCC Account relating to the Isolated System. The amount of the reimbursement through the CCC Account is equal to the total cost of generation minus the total amount of energy utilized by the agent at the average unitary energy price determined at auctions of the Interconnected system. The total cost of generation includes the cost of fuel, the cost of energy purchased and associated power, operation and maintenance costs for distribution, asset depreciation, return on investment, energy sector fees, goods circulation tax (provided it is not compensated by the distribution company) and other costs associated with the rendering of services in remote regions. Our subsidiaries which produce energy in the North of Brazil are being reimbursed for their production costs through the CCC Account. The CCC Account’s regulatory agency established thresholds for costs associated with the generation of energy, and costs above these thresholds are not reimbursed.

However, Law No. 12,783 extinguished the apportionment of the benefit of reduction of the costs for fuel consumption within electric energy generation.

Energy Development Account

In 2002, the Brazilian Government instituted the Conta de Desenvolvimento Energético (Energy Development Account or CDE Account), which is funded through annual payments made by concessionaires for the use of public assets, penalties and fines imposed by ANEEL and, since 2003, the annual fees to be paid by agents offering electricity to final consumers, by means of a charge to be added to the tariffs for the use of the transmission and distribution systems. These fees are adjusted annually. The CDE Account was created to support the: (i) development of electricity production throughout the country; (ii) production of electricity by alternative energy sources; and (iii) universalization of energy services throughout Brazil. The CDE Account will be in effect for 25 years and is regulated by ANEEL and managed by us.

The Electricity Regulatory Law establishes that the failure to pay the contribution to the RGR Fund, Proinfa program, the CDE Account, the CCC Account, or payments due by virtue of purchase of electricity in the Regulated Market or from Itaipu prevents the non-paying party from receiving a tariff readjustment (except for an extraordinary review) or receiving resources arising from the RGR Fund, CDE Account or CCC Accounts.

Electricity Reallocation Mechanism

The Mecanismo de Realocação de Energia (energy reallocation mechanism) provides financial protection against hydrological risks for hydro-generators according to energy commercialization rules in effect, to mitigate the shared hydrological risks that affect the generators and assure the optimal use of the hydroelectric resources of the Interconnected Power System.

The mechanism guarantees that all the generators that participate in it will be able to sell the amount of electricity which they have contracted to sell under long-term contracts as determined by ANEEL, which we refer to as “assured electricity,” irrespective of their actual electricity production, provided that the power plants participating in the mechanism, as a whole, have generated sufficient electricity. In other words, the mechanism reallocates electricity, transferring surplus electricity from those generators whose generation was in excess of their assured electricity, to those whose generation was less than assured electricity. The effective generation dispatch is determined by the National Electricity System Operator, which takes into account nationwide electricity demand, the hydrological conditions of the Interconnected Power System and transmission limitations.

Reimbursement of the generation costs of the relocated electricity is provided to compensate generators that relocate electricity to the system in excess of their assured electricity. Generators are reimbursed for their variable operational costs (except fuel) and costs for the use of water. The total costs of the relocated electricity (from all generators that provided electricity to the energy reallocation mechanism) are then combined and paid by the generators that receive electricity from the mechanism.

The mechanism includes all hydroelectric power plants subject to the centralized dispatching of the National Electricity System Operator, small hydroelectric stations that opt to participate in the mechanism and thermal power plants with centralized dispatching, included in the Initial Supply Contracts and whose fuel costs are subsidized by the Fuel Consumption Account. Since 2003, the Fuel Consumption Account power plants only partially participated in the mechanism, due to the gradual reduction of the subsidy.

Electric Power Services Supervision Fee – TFSEE

ANEEL also charges a supervision fee from electric power services agents and concessionaires. This fee is called the Electric Power Services Supervision Fee (or TFSEE) and was created under Law No. 9,427 of December 26, 1996, as amended by Law No. 12,111 of December 9, 2009, and is charged at the rate of 0.5% of the annual economic benefit posted by the agent or concessionaire. The economic benefit is determined based on the installed capacity of authorized generating and transmitting concessionaires or on annual sales income posted by distribution concessionaires. This fee is collected by ANEEL in twelve monthly installments.

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Financial Compensation For Use Of Water Resources (CFURH)

The states, the Federal District, and municipalities, as well as direct public federal administration bodies all receive financial compensation from generating companies for use of water resources and loss of productive land due to the flooding of the area for the construction and generation of electric power. CFURH is based on power output and paid to the states and municipalities in which the plant or reservoir is situated. ANEEL is responsible for the collection and management of such fee. This charge is not assessed on Small Hydroelectric Power Plants, as they are exempt from this requirement.

Emergency Capacity Charge (ECE)

ECE was created as provided for in Article 1 of Law No. 10,438 of April 26, 2002, as amended by Law No. 12,212 of January 20, 2010. It is assessed proportionally to the final individual total consumption of all consumers served by the Interconnected Power System and classified as a specific tariff charge. ANEEL ruled that its basis would be the cost of contracting generating capacity or voltage estimated by Comercializadora Brasileira de Energia Emergencial (or CBEE) in any given year.

Rationing

The Electricity Regulatory Law establishes that, in a situation where the Brazilian Government decrees a compulsory reduction in the consumption of electricity in a certain region, all energy amount agreements in the Regulated Market, registered within the CCEE in which the buyer is located, must have their volumes adjusted in the same proportion to the consumption reduction.

The Effects of the New Bankruptcy Law on Us

On February 9, 2005, the Brazilian Government enacted Law No. 11,101, or the New Bankruptcy Law. The New Bankruptcy Law, which came into effect on June 9, 2005, governs judicial recovery, extrajudicial recovery and liquidation proceedings and replaces the debt reorganization judicial proceeding known as concordata (reorganization) for judicial recovery and extrajudicial recovery. The New Bankruptcy Law provides that its provisions do not apply to government owned and mixed capital companies. However, the Brazilian Federal Constitution establishes that mixed capital companies, such as Eletrobras, which operate a commercial business, will be subject to the legal regime applicable to private corporations in respect of civil, commercial, labor and tax matters. Therefore it is unclear whether or not the provisions in connection with judicial and extrajudicial recovery and liquidation proceedings of the New Bankruptcy Law would apply to us.

Judicial Recovery

In order to request judicial recovery, a debtor must fulfill the following requirements: (i) conduct its business in a regular manner for more than two years; (ii) not be bankrupt (or, in the event that the debtor was bankrupt in the past, then all obligations arising therefrom must have been declared extinguished by a judgment not subject to appeal); (iii) not have been granted a judicial recovery or special judicial recovery in the five or eight years prior to its request, respectively; and (iv) not have been convicted of (or not have a controlling partner or manager who has been convicted of) a bankruptcy crime. All claims in existence at the time of the request for judicial recovery are subject to such procedure (including potential claims), except for claims of tax authorities, creditors acting as fiduciary owners of real or personal properties, lessors, owners or committed sellers of real estate, including for real estate developments, or owners under sale agreements with a title retention clause (paragraph 3 of Article 49 of the New Bankruptcy Law). The judicial recovery can be implemented by means of one or more of the following transactions, amongst others (i) the granting of special terms and conditions for the payment of the debtor’s obligations; (ii) spin-off, merger, transformation of the company, incorporation of a wholly-owned subsidiary or the assignment of quotas or shares; (iii) transfer of corporate control; (iv) partial or total replacement of the debtor’s management, as well as the granting to its creditors the right to independently appoint management and the power of veto; (v) capital increase; (vi) leasing of its premises; (vii) reduction in wages, compensation of hours and reduction of the workday, by means of collective bargaining; (viii) payment in kind or the renewal of the debtor’s debts; (ix) creation of a company composed of creditors; (x) partial sale of assets; (xi) equalization of the debtor’s financial charges; (xii) constitution of an usufruct on the company; (xiii) shared management of the company; (xiv) issuance of securities; and (xv) creation of a special purpose company for purposes of receiving the debtor’s assets.

However, in accordance with Law No. 12,767/2012, energy concessionaires may no longer initiate judicial or extrajudicial recovery procedures.

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Extrajudicial Recovery

The New Bankruptcy Law also created the extrajudicial recovery mechanism, by means of which a debtor who meets the requirements for the judicial recovery (as outlined above) may propose and negotiate with its creditors an extrajudicial recovery plan, which must be submitted to the court for approval. Once approved, such a plan will constitute a valid means of enforcement. The extrajudicial recovery is not applicable, however, to any claims relating to labor – or workplace related accidents, as well as to any claims excluded from judicial recovery. In addition, the request for court approval of an extrajudicial recovery plan will does not impose a moratorium on the rights, suits and enforcement proceedings of creditors not subject to such plan, and those creditors will still be able to request the debtor’s bankruptcy.

As mentioned above, energy concessionaires may no longer initiate judicial or extrajudicial recovery procedures.

Liquidation

The New Bankruptcy Law changed the order in which claims are classified in the context of liquidation proceedings to the following order, which is set out in order of priority: (i) labor claims in general (limited to a maximum amount of 150 times the minimum monthly Brazilian wage per creditor) and labor claims related to indemnification for workplace accidents; (ii) claims of secured creditors (limited to the amount of the guarantee); (iii) tax claims (except for tax fines); (iv) personal claims enjoying special privileges (as defined in other statutes); (v) personal claims enjoying general privileges (among others, unsecured creditors who have provided goods or services to the debtor during its judicial recovery and creditors who are so defined in other statutes); (vi) unsecured debts (creditors not provided for in the preceding items, labor creditors whose claims exceed the 150-minimum monthly wages limitation, and creditors whose claims exceed the amount of their respective guarantees); (vii) contractual fines and monetary fines arising from the disobedience of statutes; and (viii) subordinated debts (as provided for by law or in an agreement, and creditors who are partners or managers of the debtor company but not in the context of a labor relationship). The New Bankruptcy Law establishes that only a creditor claiming for an amount in excess of 40 times the minimum monthly Brazilian wage can commence liquidation proceedings. However, it is permitted for creditors to commence a class action in order to comply with the minimum amount mentioned above. The New Bankruptcy Law also extended (i) the time period in which a debtor must present its defense in connection with a request for its bankruptcy from 24 hours to ten days, and (ii) the suspension period during which no assets may be sold or liquidated from 60 to 90 days (from either the date of filing the bankruptcy petition, the request for judicial recovery or from the date of the first protest of a note due to its non-payment by the company).

C. Organizational Structure

We operate generation, transmission and distribution activities in Brazil through the following twelve regional subsidiaries:

•

Itaipu , a plant in which we and a Paraguayan governmental entity (ANDE) each hold a 50.0% interest and which we believe is one of the world’s largest hydroelectric plants by volume of energy generated;

•

Eletrobras Furnas , which engages in generation and transmission activities in the southeast and part of the midwest regions of Brazil;

•

Eletrobras Chesf , which engages in generation and transmission in the northeast region of Brazil;

•

Eletrobras Eletronorte , which engages in generation, transmission and limited distribution activities in the north and part of the midwest regions of Brazil and is the holding company of Eletrobras Distribuição Roraima ;

•

Eletrobras Eletronuclear , which owns and operates two nuclear plants, Angra I and Angra II, and is planning to construct a third, Angra III;

•

Eletrobras Amazonas Energia , which engages in generation and distribution in the State of Amazonas. Eletrobras Amazonas Energia operates in the interior of the State of Amazonas, an area that, until March, 2008, was operated by Ceam, which was previously directly held by Eletrobras but no longer exists as a standalone operating company;

•

Eletrobras Eletrosul , which engages in transmission activities in the State of Santa Catarina, Rio Grande do Sul, Mato Grosso do Sul and Paraná;

•

Eletrobras Distribuição Piauí , which engages in distribution activities in the State of Piauí;

•

Eletrobras Distribuição Alagoas , which engages in distribution activities in the State of Alagoas;

•

Eletrobras Distribuição Rondônia , which engages in distribution activities in the State of Rondônia;

•

Eletrobras CGTEE , which owns and operates thermal plants in the south region of Brazil; and

•

Eletrobras Distribuição Acre , which engages in distribution activities in the state of Acre.

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We are also the main sponsor of Cepel , the largest technological research and development center in the electricity industry in Latin America.

We also hold a majority interest in Eletrobras Eletropar, a holding company that holds minority interests in the following five Brazilian distribution companies: (i) AES Eletropaulo Metropolitana de Eletricidade de São Paulo S.A – AES Eletropaulo; (ii) Energias do Brasil S.A. – Energias do Brasil; (iii) Companhia de Transmissão de Energia Elétrica Paulista – CTEEP; (iv) Empresa Metropolitana de Águas e Energia S.A. – EMAE; and (v) Companhia Piratininga de Força e Luz – CPFL.

The following organizational chart shows our summarized shareholder structure and subsidiaries as of the date of this annual report (we also have minority shareholdings in 29 state utility companies throughout Brazil, not indicated in this chart):

LOGO

Note : IC stands for installed capacity and TL stands for transmission line.

On February 22, 2008, the Board of Directors of our subsidiary Eletrobras Eletrosul resolved to purchase 69,352,857 shares, or 51% of the total shares, of Empresa de Transmissão de Energia de Santa Catarina S.A. – SC Energia and 72,537 shares, or 51% of the total shares, of Empresa de Transmissão de Energia do Rio Grande do Sul S.A. – RS Energia, each of which focuses on the transmission of electricity. The acquisitions were approved by ANEEL in Authoritative Resolution No. 1,665 on November 18, 2008, and the acquisition was completed on February 11, 2009. This acquisition improved our transmission capacity in the southern region of Brazil by providing us with an additional 620 km of transmission lines (360 km from Energia de Santa Catarina S.A. – SC Energia, and 260km from Empresa de Transmissão de Energia do Rio Grande do Sul S.A. – RS Energia).

On January 31, 2011, the Board of Directors of our subsidiary Eletrobras Eletrosul approved the purchase of 71,264,300 shares, or 51% of the total shares, in Artemis Transmissora de Energia S.A. and 5,100,000 shares, or 26% of the total shares, in Uirapuru Transmissora de Energia S.A., each of which focuses on the transmission of electricity. The acquisitions were approved by ANEEL in Authoritative Resolution No. 2.840 on March 29, 2011. The incorporation of Artemis Transmissora de Energia S.A. was approved by the shareholders of our subsidiary Eletrobras Eletrosul on January 11, 2013.

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In addition, Eletrobras has entered into memoranda of understanding to purchase, subject to certain conditions, a majority stake in three of its partially owned subsidiaries.

D. Property, Plant and Equipment

Our principal properties consist of hydroelectric generation plants and transmission networks which are located all over Brazil. The book value of our total property, plant and equipment as of December 31, 2012, December 31, 2011 and December 31, 2010 was R$47,407 million, R$53,215 million and R$46,682 million, respectively. As a result of the existing large hydroelectric power capacity still available in Brazil, we believe hydroelectric energy will continue to have a prominent role in providing for the growth in consumption of electrical energy.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with our audited consolidated financial statements included elsewhere in this annual report.

Overview

Directly and through our subsidiaries, we are involved in the generation, transmission and distribution of electricity in Brazil. Our revenues derive mainly from:

•

the generation of electricity through our subsidiaries and its sale to electricity distribution companies and free consumers, which in 2012, 2011 and 2010 accounted for R$21,073 million, or 70.6%, R$19,093 million or 65.2% and R$18,398 million, or 74.0% of our total net revenues, respectively;

•

the transmission of electricity, which in 2012, 2011 and 2010 accounted for R$8,689 million, or 27.6%, R$7,778 million or 28.3% and R$5,894 million or 23.5% of our total net revenues, respectively; and

•

the distribution of electricity to end consumers, which in 2012, 2011 and 2010 accounted for R$4,139 million, or 15.8%, R$2,468 million or 18.4% and R$2,413 million or 13.9% of our total net revenues, respectively.

The primary drivers of our financial performance are demand for electricity (which in turn is impacted by macroeconomic conditions and external events such as electricity rationing, which occurred in 2001 and 2002) and the pricing of electricity (which is determined as set out in “Item 4.B, The Brazilian Power Industry”). Although levels of electricity consumption now exceed those that existed before the energy crisis that occurred in 2001 and 2002, that energy crisis continues to impact our recognition of revenues and, accordingly, our results of operations.

The Effects of Law No. 12,783

In 2012, the Brazilian Congress enacted MP No. 579/2012, which was converted into Law No. 12,783, which materially changed the Brazilian electricity sector. The law allowed current holders of concessions to operate electricity generation and transmission assets, which were due to expire during the years 2015 through 2017, to renew those concessions for an additional maximum period of 30 years effective January 1, 2013, but at significantly lower tariff levels. As an option under the law, Eletrobras and other concessionaires could have entered into a potentially competitive bidding process to renew their generation and transmission concessions. Law No. 12,783 also affected distribution concessions by lowering the tariffs but has not yet affected renewal of distribution concessions. Eletrobras has expressed its interest in renewing its distribution concessions at the lower tariff rates but regulations have not been promulgated yet.

Under Law No. 12,783, the Federal Government agreed to indemnify Eletrobras and other electricity concessionaires for part of the value of non-amortized investments Eletrobras and other concessionaires made during the term of their concessions. Some of these indemnity payments have been agreed and paid, while others have been estimated for purposes of the 2012 Financial Statements based on information available to Eletrobras. While some indemnities will be paid to concessionaires in installments over many years, the full amount of the agreed or estimated indemnity payments are accounted for in the 2012 Financial Statements. Accordingly, Eletrobras recorded a significant charge of R$10.09 billion in its 2012 financial statements, based on the impacts of the renewal of its concessions in accordance with Law No. 12,783. While this charge was nonrecurring, in the future Eletrobras expects that its revenues from concessions that have been renewed under the new law will be significantly lower, and the Company may incur in net losses in the 2013 fiscal year and in subsequent periods.

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The shareholders of Eletrobras approved the renewal of concessions under the new law despite the nonrecurring R$10.09 billion charge and the significant expected negative impact on revenues from the relevant concessions in subsequent periods.

Onerous Contracts

Eletrobras was party to a number of contracts for the sale of electricity in connection with concessions that were scheduled to expire in the years 2015 through 2017. With the implementation of Law No. 12,783, many of these contracts have become “onerous” to Eletrobras, as they were based on old tariff levels. At the prior tariff levels, these contracts were expected to be profitable, but based on the new reduced tariff levels, the contracts will result in further losses for Eletrobras.

Principal Factors Affecting our Financial Performance

Brazilian Macroeconomic Conditions

We are affected by conditions in the Brazilian economy. The macroeconomic scenario in Brazil has been characterized by increased economic activity and a consistent trajectory of the inflation indices. The exchange rate, however, has been volatile.

Except for 2009, which was significantly affected by the global financial crisis, Brazilian GDP has increased over the past several years. In 2007, Brazilian GDP grew 5.4% according to the Instituto Brasileiro de Geografia e Estatística (IBGE), as compared to 3.7% in 2006. In 2007, the inflation rate, as measured by the Brazilian Extended Consumer Price Index ( Índice Nacional de Preços ao Consumidor Amplo ), or IPCA, was 4.5%, which allowed for a reduction of the Selic rate to 11.25%.

The year 2008 was characterized by the negative effects of the global financial crisis. The main impact of this crisis on the Brazilian economy was reduced expectations for economic activity in 2009 and 2010. Reduced expectations for the year of 2009 triggered an increase in capital costs to third parties, a devaluation of the real , a decrease of prices in the stock market, and a reduction of industrial production.

Nevertheless, the crisis did not significantly affect the growth rate of the Brazilian economy, with GDP increasing 5.1% in 2008. Inflation, as measured by IPCA, was 5.9% for the year ended on December 31, 2008, which was within the target established by the Central Bank. The inflation rate remained within this range primarily as a result of the Central Bank increasing the base interest rate in 2008 from 11.25% to 13.75%.

In 2009, the Brazilian economy showed certain resistance to the effects of the crisis. Even so, the Brazilian economy ended the year at a level of economic growth close to zero, influenced by the weak performance of the industrial sector. Additionally, macroeconomic conditions and a stable economy allowed the Central Bank to again focus on reducing interest rates. The Selic rate reached 8.7%, its lowest level, in July 2009. Similarly, the real appreciated 34.2% against the U.S. dollar throughout 2009. According to the Central Bank, international reserves were above U.S.$200.0 billion (U.S.$239.1 billion as of December 31, 2009), demonstrating a significant increase as compared to 2008.

Following a 0.2% decrease in GDP in 2009, the Brazilian economy improved in 2010 with a growth of approximately 7.5%. This economic recovery was due in part to a strong domestic market expansion. Income transfer policies, a continuous increase in the minimum wage and growth in employment levels and credit also contributed to this recovery. Household consumption was estimated to have increased by 7.9% which, together with long-term investment, were the main factors for strong aggregate demand performance in 2010. Gross fixed capital grew 25.59% in 2010, reaching an investment rate of 18.4%.

In 2011, GDP increased 3.3% due to continued growth in domestic demand. This reduction in the rate of growth, compared to 2010, can be explained by the reduction of global growth.

In 2012, GDP increased 0.9% despite the global financial crisis. The official inflation rate, measured by IPCA, reached a high of 5.84%, which was basically influenced by internal factors. Internally, the prices of food and beverage put pressure on the inflation index.

As for monetary policy, the Central Bank, in response to the worsening of the international financial crisis, sought to raise the liquidity conditions in the economy, lowering the reserve requirements rate. Furthermore, the Selic rate decreased by 34.3% in 2011, from 10.9% to 7.2% in 2012.

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Pursuant to Brazilian Central Bank information ( Relatório de Inflação , December 2012), with regard to the Brazilian trade balance (net) in 2012, Brazil posted a surplus of U.S.$ 19.4 billion, with exports totaling U.S.$ 242.6 billion (5.3% lower than in 2011), mainly due to the moderate pace of economic activity worldwide and with the decreases in commodity prices relevant to the agenda of the country, such as iron ore. Imports amounted to U.S.$223.1 billion in 2012 compared to U.S.$226.2 billion in 2011, an decrease of 1.4%. This decrease resulted from a 0.4% increase in prices and decrease of 1.3% in volume of imports. The highlights in terms of prices were the increases in the categories of durable consumer goods (5.8%) and fuels and lubricants (3.3%), partially offset by a 1.1% reduction in raw materials and intermediate products. The decrease in volume of imports reflected, in particular, decreases in the quantities of consumer durables imported (17.9%) and fuels and lubricants (4.8%), contrasting with the 9.6% expansion in the volume of goods consumer non-durables.

The balance of payments reached a surplus of U.S.$58.6 billion in 2011 and a surplus of U.S.$18.9 billion in 2012. The current account presented a deficit of U.S.$52.5 billion in 2011 and a deficit U.S.$54.2 billion in 2012 (which equates to 2.1% and 2.4% of GDP, respectively), compared to the deficit of U.S.$47.4 billion, or 2.2% of GDP, recorded in 2010. Net inflows of foreign direct investment reached a record value of U.S.$ 68.0 billion in 2012, an increase of 0.6% compared to the previous year’s outcome of U.S.$ 67.7 billion in 2011. Foreign portfolio investment showed net inflows of U.S.$8.2 billion in 2012, 76.6% lower than in 2011.

The exchange rate in 2012 experienced low volatility, especially when compared to the period during the international financial crisis period. Thereby, the influx of capital has exerted a lower pressure on the exchange rate. As a result, the real/U.S. dollar exchange rate increased in 2012 from R$1.87 to R$2.04/1.00.

The Central Bank’s policies with respect to both the spot and futures markets have caused international reserves to grow 6.0%, totaling U.S.$373.1 billion in December 2012.

The following table shows data relating to Brazilian GDP growth, inflation and the real /U.S. dollar exchange rate for the periods indicated:


	Year Ended December 31,
	2012			2011			2010
GDP growth rate		0.9	%		2.7	%		7.53	%
Inflation (IGP-M)		7.82	%		5.1	%		11.32	%
Inflation (IPCA)		5.84	%		6.5	%		5.91	%
Appreciation (depreciation) of the real vs. the U.S. dollar		8.94	%		12.6	%		4.31	%
Period-end exchange rate – U.S.$1.00	R$	2.0435		R$	1.8758		R$	1.666
Average exchange rate – U.S.$1.00	R$	1.9544		R$	1.6746		R$	1.756

Sources : Fundação Getúlio Vargas, Ipeadata Instituto Brasileiro de Geografia e Estatística and the Central Bank.

Electric Power Market

Electricity consumption in Brazil registered an increase of 3.5% in 2012, higher than the GDP growth rate for the same period of 0.9%. All consumer classes showed growth in electricity consumption, particularly residential and commercial consumers, which increased by 4.9% and 7.9%, respectively.

After the economic downturn in 2009, 2010 showed a strong recovery in industrial production, which positively impacted industrial consumption of electricity. In 2012, industrial consumption decreased due to lower consumption in the Northeast and Southeast regions. The Mid-west region of Brazil showed the largest growth in industrial consumption, with growth rates of 11.6%.

The electric power consumption in Brazil by geographic region is presented below:

Energy Consumption in the Network (GWh):


Consumption Class									2012		2011		Variation
Region	Residential		Industrial		Commercial		Others		Total		Total		%
North		6,762		14,114		4,141		3,858		28,876		27,777		3.95
Northeast		21,294		28,796		11,598		13,592		75,280		71,914		4.68
Southeast		61,593		100,771		43,364		29,572		235,300		230,668		2.01

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Consumption Class									2012		2011		Variation
Region	Residential		Industrial		Commercial		Others		Total		Total		%
South		18,692		31,297		13,747		14,349		78,085		74,470		4.86
Mid-West		9,224		8,493		6,436		6,582		30,735		28,205		8.97

Source: Permanent Committee of Analysis and Monitoring of Electric Power Market – Copam/EPE.

Itaipu

Itaipu, the world’s largest hydroelectric plant, is jointly owned by Brazil and Paraguay and was established and is operated pursuant to a treaty between those countries. The treaty also establishes how Itaipu’s results of operation will be recorded, both by Itaipu Binacional, the company that operates Itaipu, and by us when we consolidate Itaipu Binacional’s results of operations. In compliance with the requirements of IFRS, we consolidate the results of Itaipu.

Pursuant to the Itaipu treaty, we are required to sell not only the 50.0% of electricity produced by Itaipu that, through us, Brazil owns, but also that part of Paraguay’s share of electricity not used by Paraguay. As a result we sell approximately 95.0% of the electricity produced by Itaipu. Articles 7 and 8 of Law No. 5,899 of July 5, 1973 set out the framework which distribution companies use to calculate the total amount of energy purchased from Itaipu.

While Itaipu produces a large amount of electricity, the Itaipu treaty requires that sales of Itaipu electricity be made on a no-profit basis, with no net effect on our results of operations.

In order to effect the “no profit” requirement, profits from the sale of Itaipu electricity are credited in subsequent periods to residential and rural consumers of electricity through the Interconnected Power System through their electricity bills (thus reducing our revenues from electricity sales) and losses are taken into account by ANEEL in calculating tariffs for electricity in subsequent periods (thus increasing our revenues from electricity sales).

Although the operations of Itaipu do not affect our net operating result, they significantly impact several line items in our financial statements. In particular, Itaipu’s operating results affect the “electricity purchased for resale” line item, as most of the amounts in that line item represent energy produced by Itaipu. This amount, which after consolidation represents only the Paraguayan portion of the Itaipu energy would be much higher if we did not consolidate the Brazilian portion of the energy produced by Itaipu. Additionally, because the financial statements of Itaipu Binacional are prepared in U.S. dollars and translated to reais at the exchange rate published by the Central Bank at period end, any movement in the exchange rate between the real and the U.S. dollar can have a major impact on the “Foreign exchange and monetary gain” component of the line item “Financial income (expense), net.” Royalties paid by Itaipu account for a large proportion of the line item “Financial income (expense), net” and debt related to Itaipu accounts for a significant portion of the “Financial expense” component of “Financial income (expense), net.”

Pursuant to Law No. 11,480/2007, we were able to apply an “adjustment factor” to any financial contracts entered into between us and Itaipu and any credit assignments entered into between us and the Brazilian Federal Treasury prior to December 31, 2007. The aim of this “adjustment factor” was to offset the impact of the rate of inflation in the United States on the U.S. dollar payments. Accordingly, this “adjustment factor” measures the rate of inflation by reference to the consumer price index (CPI) and another index which tracks changes in industry prices. This law was repealed and Decree No. 6,265 of November 22, 2007 came into force which determines that a rate equivalent to the previous “adjustment factor” is to be passed on to consumers on an annual basis. We apply the adjustment factor to the entire Itaipu loan even though we are only responsible for 30% of the total amount. We account for the remaining amount of the loan as offsetting “Reimbursement rights” in our income statement.

Beginning in 2010, we began to account for Itaipu as a financial asset on our balance sheet and record its income under other operating revenues to be in compliance with IFRS. For more details of the accounting treatment of Itaipu, see Notes 3.11 subsections II and IV.

Exchange Rate Variations

Fluctuations in the value of the real against the U.S. dollar, particularly devaluations and/or depreciations of the real , have had and will continue to have an effect on the results of our operations. In particular, pursuant to the Itaipu treaty, all revenues from Itaipu are denominated in U.S. dollars. Because the financial statements of Itaipu Binacional are prepared in U.S. dollars and translated to reais at the exchange rate published by the Central Bank at the period end, any movement in the exchange rate between the real and the U.S. dollar can have a major impact on our results, in particular the “Foreign exchange and monetary gain” component of the line item “Financial income (expense), net.”

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However, because pursuant to the Itaipu treaty the operation of Itaipu is not permitted to have any net effect on our operating results, any loss or gain incurred as a result of any appreciation or depreciation of the U.S. dollar against the real , among other things, will subsequently be compensated for by the tariffs we charge to our residential and rural consumers. In our income statement, the effects of Itaipu on the line items described above are netted out and recorded in the line item “Deferred loss from Itaipu.” Until that compensation takes place, the accumulated results of profits or losses from Itaipu operations, net of compensation through tariff adjustments, is carried on our balance sheet as a current asset under “Reimbursement rights.”

Eletrobras Eletronorte

For many years our subsidiary Eletrobras Eletronorte was used as a vehicle for the development of Brazil’s northern region, functioning in some ways as a development agency. In particular, it has supplied electricity pursuant to supply contracts at prices which did not cover its costs. We began to re-negotiate these supply contracts, which are mainly with companies in the aluminium smelting industry, in 2004 with the aim of revising the tariffs to cover Eletrobras Eletronorte’s operating costs and gradually pay off its debts. Eletrobras Eletronorte entered into a contract on May 11, 2004 to sell electricity to ALBRAS to provide electrical energy for ALBRAS’ industrial operations, priced on the basis of the international aluminium price. This contract came into effect on June 1, 2004. ALBRAS may terminate the contract with two years’ notice if they elect to discontinue production or start using their own resources for power generation. ALBRAS is not required to pay any amounts related to termination. The total term of this contract is 20 years and the contract includes an energy prepayment of R$876 million. See Note 21 of the Financial Statements.

One of the main sources of income of Eletrobras Eletronorte derives from the hydroelectric plant of Samuel, whose initial concession expired in September 2009. On July 18, 2006, Eletrobras Eletronorte requested from ANEEL an extension of such concession, which was granted on March 11, 2010 for an additional 20 years.

For 2012 the net losses attributable to Eletrobras Eletronorte amounted to R$738,6 million, compared to gains of R$58,3 million in 2011 and gains of R$154,2 million in 2010.

Regulated Distribution Tariffs

For 2012, 12,15% of our net revenues were derived from the distribution of electricity. The distribution companies generally produce losses, which are likely to continue as the tariffs that may be charged by distribution companies are regulated and adjusted by ANEEL only in accordance with the process set out in “Item 4.B Business Overview – The Brazilian Power Industry – Distribution Tariffs.”

Fixed Transmission Revenues

Unlike revenues from our distribution and generation segments, revenues from our transmission segment are fixed by the Brazilian Government. This applies to all electricity companies with transmission operations in Brazil. As a result of the fact that the transmission revenue fee is fixed, revenues from our transmission segment do not increase or decrease based on the amount of electricity we transmit. The Brazilian Government sets a fixed transmission revenue fee each year that end consumers must pay and this is passed on to us and recorded as revenues from our transmission segment. Thus, our net income may be affected by the fact that our costs in this sector cannot easily be passed on to our customers.

Critical Accounting Policies

In preparing the financial statements included in this annual report, we made estimates and assumptions that we consider reasonable based on our historical experience and other factors. The presentation of our financial condition and results of operations requires that our management make estimates about inherently uncertain matters, such as the book value of our assets, our liabilities and, consequently, our results of operations. Our financial presentation would be materially affected if we were to use different estimates or if we were to change our estimates in response to future events. To provide an understanding of how our management forms its judgments about future events, including the factors and assumptions underlying those estimates, we have identified the following critical accounting policies.

Investments in Associates

When necessary, the financial statements of our associates are adjusted so as to conform their accounting policies to our accounting policies and assumptions, which apply the equity method of accounting in compliance with IAS 27 and 28.

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Impairment

In compliance with IAS 36 “Impairment of Assets,” we analyze the recoverability of the book value of our assets annually, and as and when required. If we find evidence that an asset might not be recoverable, we estimate the chances of its recoverability. When the residual accounting value of the asset exceeds the recoverable value of such asset, we revaluate the asset downwards, with such resulting amount being known as an impairment. This impairment is then recognized as a provision for the period. If it is not possible to estimate the recoverable amount of an individual asset, we estimate the probability of recovery of the cash generating unit to which such asset belongs. When using this technique, we discount the estimated future cash flows to present value based on a discounted rate before tax which reflects the market conditions, current money value and specific risks related to such asset group. The recoverable value of an asset or such cash generating unit is reviewed periodically. Such reversal will have an impact on our income statement and as well as the book value of the relevant asset or cash generating unit.

Reserves for Contingencies

We are party to certain legal proceedings. Apart from the compulsory loans, we record provisions in compliance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets,” which provides that an estimated loss should be recorded when the information available before publication of our applicable financial statements indicates a probability that a future event may give rise to the devaluation of any asset or upon identification of a liability incurred and such liability can be estimated. In compliance with IAS 37, we do not record a provision if the chance of loss in a claim is “remote” or “reasonably possible.” In addition, we do not record provisions for administrative proceedings when those provisions have reached court. We account for the costs which may arise from resolving legal proceedings as discussed under “Risk Factors relating to the Company.” In calculating these accruals, we consult outside and internal counsel that represent us in these proceedings, and our estimates are based on an analysis of possible results, taking into account the applicable litigation and settlement strategies. We request quarterly an inventory of the proceedings being handled by our outside legal counsel that identifies the cases where we have potential losses. Accounting for contingencies requires significant judgment by our management concerning the estimated probabilities and ranges of exposure to potential liability. This is particularly true in the context of the impact of Brazilian tax legislation on us because such legislation has historically proved uncertain in scope and application.

Employee Benefits

We sponsor a defined benefit pension plan that covers almost all of our employees. The actuarial liabilities related to this plan are accounted for in compliance with IAS 19, “Employee Benefits” and are valued by an independent actuary. In addition, we and some of our subsidiaries have also established post retirement health care plans and subsidize whole life insurance premiums for “Post retirement Benefits other than Pensions.” Estimates of the evolution of medical attendance costs, and biometrical and economical hypotheses, as well as historical information on incurred expenses and employees’ contributions are also taken into consideration.

Recovery Costs for Environmental Damage

We incur certain costs to reduce the impact that our operational activities have on the environment. These costs includes those for decommissioning, which involves a series of measures to safely discontinue the operations of our nuclear facilities (Angra I and Angra II) with the objective of reducing residual radioactivity levels. We apply IAS 37 and IFRIC Interpretation 1 “Changes in Existing Decommissioning Restoration and Similar Liabilities,” in accounting for these costs. IAS 37 requires entities to record the fair value of a legal obligation for an asset retirement obligation in the period in which it is incurred. When a new legal obligation is incurred, the entity is required to capitalize the costs of the obligation by increasing the carrying amount of the related long lived asset. The obligation is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement, an entity settles the obligation for its recorded amount or incurs a gain or loss upon settlement. For example, in the case of nuclear decommissioning, IAS 37 requires us to record the full fair value of the decommissioning obligation and a corresponding asset, which will then be depreciated over the remaining expected service lives of each plant’s generating units. Our management must exercise considerable judgment in exercising this policy and the following factors are relevant in such decision making: (i) our estimates must cover costs that are incurred over a long period of time and so our management must consider inherent uncertainties such as changes in laws and the level of nature of our operations; and (ii) IAS 37 requires that we assume the probabilities of projected cash flows and long term positions in relation to inflation and then determine the credit adjusted to interest rate without risk and premiums on market risks not applicable to operations. In addition, possible changes in estimates may give rise to a significant impact on net income because these costs are discounted to present value over a long period of time.

Calculation basis for indemnification by the grantor of public utility concessions

Our financial statements are prepared under the assumption that our concessions are subject to forfeiture at the end of the concession contract period, while we are granted the right to receive full indemnification from the grantor for investments not yet recovered. We

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have recently evaluated the various legal and regulatory interpretations of the calculation basis for indemnifiable amounts for forfeited concessions. Based on the contractual provisions of our concessions and on legal and regulatory interpretations, we, supported by the opinion of an independent legal advisor, prepared our financial statements under the assumption that we would be indemnified for each concession at the residual book value of the concession upon its termination. This decision affected the calculation basis for assets used in our generation segment which have contractual indemnification clauses as well as any assets within our electricity transmission and distribution segments that fall within the scope of IFRIC-12.

Remuneration for Indemnifications

Pursuant to Law No. 12,783, for concessions of Eletrobras that were due to expire during the years 2015 through 2017, and which were renewed effective January 1, 2013 at lower tariff rates, the Federal Government agreed to indemnify Eletrobras for certain non-amortized investments made under such concessions. While certain of the indemnity payments have been agreed (and some amounts paid), Eletrobras has estimated the amounts of some of the other indemnity payments included in the line item “remuneration for indemnifications” in the income statement included in the 2012 Financial Statements. These estimates were based on information available at the time and may change once the amounts of those indemnity payments are agreed with the Federal Government. Any changes would be accounted for as “gains or losses on indemnification” including inflation adjustments to those gains or losses.

Effects – Law No. 12,783

Eletrobras has recorded the effects of Law No. 12,783 (other than remuneration for indemnification) in one specific line item in the income statement. This line item includes a number of estimates based on the Company’s judgment. For example, the write downs in the value of the concessions renewed as of January 1, 2013, are in part based on the amount of electricity those plants will generate or transmission lines will transmit. In addition, these amounts reflect “impairments” in cash generating units due to reduced tariff prices based on estimates of future cash flows as well as adjustments of compensable assets to have reposition values which are based in part on estimates of indemnities to be paid to concessionaires pursuant to Law No. 12, 7823.

Onerous Contracts

Eletrobras was party to a number of contracts for the sale of electricity in connection with concessions that were scheduled to expire in the years 2015 through 2017. With the implementation of Law No. 12,783, many of these contracts have become “onerous” to Eletrobras, as due to the new law, the costs of the contracts outweigh the benefits. We estimate whether or not a contract is “onerous” based on assumptions regarding costs and benefits. The actual values may be higher or lower than our estimates of costs and benefits.

Taxes on Income

We account for income taxes in compliance with IAS 12, “Income Taxes.” IAS 12 provides that we recognize the effects of deferred tax losses and temporary differences in our consolidated financial statements. We recognize a valuation allowance when we believe there is a higher probability that we will not fully recover tax credits in the future. This requires us to carry out estimates on our current tax exposure and assess the temporary differences resulting from the different treatment given to certain items for tax and accounting purposes. These differences give rise to deferred asset and liability taxes, which are presented in our consolidated balance sheet. Accordingly, we assess the probability that our deferred tax credits will be recovered from future taxable income. In the event that we believe that such recovery will not be probable, we recognize a valuation allowance and also recognize a tax expense in our income statement. Any reduction of the valuation allowance leads to recognition of a tax benefit in our income statement. The determination of our provision for income tax or deferred asset and liability income taxes requires significant estimates and judgments by our management. For each future tax credit, we assess the probability that the related tax asset will not be recovered in whole or in part.

Description of Principal Line Items

Operating Revenues

Electrical Energy Sales

We derive our revenues from the generation, transmission and distribution of electricity, as set out below:

•

revenues in our generation segment derive from the commercialization and sale to distribution companies and free consumers of electricity that we have generated (including the electricity generated by our share of the Itaipu project) and the resale of electricity from Paraguay’s share of the Itaipu project not used in Paraguay. Revenues from our electricity generation segment are recorded based on the output delivered at rates specified under contract terms or prevailing regulatory rates;

•

revenues from our transmission segment derive from the construction, operation and maintenance of transmission networks for other electricity concessionaires and certain revenues arising from applying inflation and other indexes to the

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value of our investments. Revenues received from other concessionaires using our basic transmission network are recognized in the month that the services are provided to the other concessionaires. These revenues are fixed each year by the Brazilian Government. These revenues also include as financial revenue the value calculated over receivables registered as financial assets (formerly recorded as “Property, Plant and Equipment”), based on fees calculated from the receipt of annual permitted revenues ( Receita Anual Permitida ), or RAP (which is based on gross RAP minus the amount allocated for operations and maintenance revenue) until the concession agreements for energy transmission services terminate; and

•

revenues in our distribution segment derive from the sale to end consumers of electricity that we purchase from generation companies and also some electricity that we generate in thermal plants in certain isolated areas in the north region of Brazil for distribution, as well as certain revenues from the construction, operation and maintenance of distribution networks. Electricity distribution sales to final customers are recognized when power is provided. Invoices for these sales are rendered on a monthly basis. Unbilled revenues from the billing cycle up to the end of each month are estimated based on the prior month’s billing and are accrued at the end of the month. Differences between estimated and actual unbilled revenues, if any, are recognized in the following month.

A very large proportion of our revenues, in any given year, derives from the sale or resale of electricity from Itaipu. However, the Brazil and Paraguay treaty pursuant to which Itaipu operates provides that these activities must have no effect on our net income.

Other Operating Revenues

Other operating revenues derive from charges imposed on end consumers for late payments in respect of electricity sold in our distribution segment and, to a lesser extent on other operating revenues that are not attributable to our distribution, generation or transmission segments, which we record under our “corporate” segment. These mainly include fees for the administration of the RGR Fund and other governmental funds. We also derive other operating revenues from telecommunication companies using certain parts of our infrastructure to install telecommunication lines.

Taxes on Revenues

Taxes on revenues consist of Imposto sobre a Circulação de Mercadorias e Serviços – ICMS (or VAT), a sales tax charged on gross revenues. We are subject to different VAT rates in the different states in which we operate, with the VAT rates ranging from 7.0% to 27.0%. Pursuant to applicable regulations, we are not liable for any taxes or revenues in our transmission segment.

Additionally, we are subject to two federal taxes imposed on the gross revenues of corporate entities: the Program of Social Integration ( Programa de Integração Social ) – PIS/PASEP and Contribution for the Financing of Social Security ( Contribuição para o Financiamento da Seguridade Social ) – COFINS.

Regulatory Charges on Revenues

These deductions from gross revenues comprise payments made to the CCC Account, the RGR Fund, the CDE Account, PROINFA and similar charges levied on electricity sector participants. Regulatory charges are calculated in accordance with formulas established by ANEEL, which differ according to the type of sector charges, and thus there is no direct correlation between revenues and sector charges.

Operating Costs and Expenses

Personnel, Supplies and Services

Our operating costs and expenses related to personnel, supplies and services primarily consist of daily administrative expenses for employees, equipment and infrastructure, as well as expenses related to outsourcing security, maintenance and external consultants and advisors. Due to the diverse nature of these expenses, we apply certain subjective criteria to allocate such expenses to our operational activities. These expenses do not account for raw materials used to generate power.

Electricity Purchased for Resale

Our distribution and generation segments both purchase electricity for resale. Electricity purchased in the distribution segment is purchased from other generators. Electricity purchased in the generation segment represents the Paraguayan portion of the energy from Itaipu that is not used in Paraguay and that we resell to distribution companies and free consumers.

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Fuel for Electricity Production

The cost of fuel is a significant component of our operating expenses. These costs, however, are subsequently reimbursed from the CCC Account, pursuant to Law No. 12,111.

Use of the Grid

These costs represent charges for transmission of energy over the power lines of third parties.

Interest Payments and Penalties

These costs represent interest payments in respect of our financing with third parties as well as potential penalties for late payments.

Depreciation and Amortization

This represents depreciation and amortization for our property, plant and equipment. We record property, plant and equipment as construction or acquisition costs, as applicable, less accumulated depreciation calculated based on the straight-line method, at rates that take into consideration the estimated useful lives of the assets. Repair and maintenance costs that extend the useful lives of the related assets are capitalized, while other routine costs are charged to our result of operations. Interest relating to debt obtained from third parties incurred during the construction period is capitalized.

Operating Provisions

This reflects provisions we make in respect of: (i) legal proceedings to which we are party; (ii) allowances for doubtful accounts and impairments; and (iii) decommissioning costs, which are the costs associated with decommissioning of nuclear facilities ( i.e . the safe retirement of nuclear facilities).

Deferred Loss from Itaipu

As discussed above in “ – Principal Factors affecting our Financial Performance – Itaipu,” the net effect of the results of operations of Itaipu is recorded in this line item and the accumulated effects of Itaipu operations, net of compensation through tariff adjustments, is carried on our balance sheet as a current and noncurrent asset under “Financial asset – Itaipu.”

Donations and Contributions

This reflects expenses relating to investments in new information technology and research and development, as well as investments in cultural programs and sponsorships.

Other Operating Costs

Our other operating costs comprise a number of miscellaneous costs that we incur as part of our day-to-day operations. The most significant components are: (i) costs of leasing goods such as generation units for the Isolated System; (ii) costs of operations and maintenance of our facilities that provide for electricity services; (iii) telecommunication costs comprising primarily costs incurred for telephone and internet services; (iv) insurance costs, including insurance for our facilities and property; and (v) costs of disposal of assets, primarily transformers.

Results of Equity Interests

Results arising from the equity adjustment for our interests in other companies.

Financial Income (Expenses), Net

Financial Income

This reflects interest income and commissions we receive from loans we made in accordance with the provisions of Brazilian law that permitted us to act as a lender to certain public utility companies (see “Item 4.B, Business Overview – Lending and Financing Activities” for a description of our outstanding loans to other Brazilian utility companies).

Financial Expenses

This principally reflects payments of dividends to our shareholders, as well as debt and leasing expenses. This also reflects the U.S. dollar/ real exchange rate variation relating to Itaipu.

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Foreign Exchange and Monetary Gain (Loss)

Foreign exchange gain (losses) mainly relate to Itaipu, as the financial statements of Itaipu Binacional are presented in U.S. dollars, and this represents our largest exposure to foreign currency risk. A devaluation or depreciation of the real against the U.S. dollar increases our revenues, as it increases the value of the contribution from Itaipu, although the effect of this contribution is netted out, as discussed above. An appreciation of the real decreases our revenues because it decreases the value of the contribution from Itaipu, although the effect of this contribution is similarly netted out as a depreciation of the cost of construction of Itaipu.

A. Operating Results

The following table shows our revenues and operating expenses as a percentage of net operating revenues:


	Year Ended December 31,
	2012			2011			2010

Revenues
Electricity sales:
Distribution		15.8	%		18.4	%		13.9	%
Generation		70.6	%		65.2	%		74.0	%
Transmission		27.6	%		28.3	%		23.5	%
Other operating revenues		2.0	%		4.1	%		4.5	%
Taxes on revenues		(10.70	)%		(10.2	)%		(10.3	)%
Regulatory charges on revenues		(5.3	)%		(5.8	)%		(5.7	)%
Net operating revenues		100.0	%		100.0	%		100.0	%
Expenses
Operating expenses		(95.1	)%		(86.0	)%		(86.1	)%
Financial expenses, net		1.9	%		0.8	%		(1.4	)%
Gains on results of affiliated companies		1.4	%		1.6	%		2.5	%
Income before income tax and social contribution		(21.5	)%		16.5	%		15.1	%
Income taxes		(1.1	)%		(3.7	)%		(5.6	)%
Minority interests		(0.1	)%		(0.1	)%		(1.1	)%
Net income		(20.3	)%		12.6	%		8.4	%

Consolidated Results

This section is an overview of our consolidated results of operations, which are discussed in greater detail with respect to each segment below.

Net Operating Revenues

Net operating revenues for 2012 increased R$4,531 million, or 15.3%, to R$34,064 million from R$29,533 million in 2011. This increase was due to:

•

an increase of R$695 million, or 16.0%, in revenues from our construction revenue, resulting from R$4,332 million in 2011 to R$5,027 million in 2012 due to an increase in investments in concession assets, including investments in the expansion of our transmission network and continued investment in our distribution infrastructure. These revenues were offset by the corresponding construction costs;

•

an increase of R$1,591 million, or 8.3%, in revenues from our generation operating revenues from R$19,093 million in 2011 to R$20,684 million in 2012, due to (i) a 13.3% increase in the volume of energy sales from R$20,608 million in 2011 to R$23,357 million in 2012 and (ii) an increase in the volume of energy sales from 268 MWh in 2011 to 269 MWh in 2012; (iii) an increase in the sale of energy by Itaipu and the strengthening of the U.S. Dollar in relation to the real in 2012; and (iv) a R$581 million reimbursement in 2012 related to rates billed to Eletrobras Eletronuclear;

•

an increase of R$910 million, or 11.7%, in our transmission operating revenues from R$7,779 million in 2011 to R$8,689 million in 2012, due to an adjustment in the calculation of transmission rates to appropriately reflect the contractual rate of return of the financial asset, which led to an increase of R$384 million in revenues. Additionally, there was an increase in the operational and maintenance revenues from R$1,979 million in 2011 to R$2,562 million in 2012; and

•

an increase of R$2,060 million, or 83.5%, in our distribution operating revenues from R$2,467 million in 2011 to R$4,527 million in 2012, due to (i) a 120.7% increase in the supply of energy from R$1,954 million in 2011 to R$4,312 million in 2012; (ii) an increase in the volume of energy sold from 13.6MWh in 2011 to 15.2MWh in 2012, due in part to higher electricity sales in Northern Brazil and (iii) an increase of 160,000 in the number of our distribution consumers.

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Net operating revenues for 2011 increased R$2,701 million, or 10.1%, to R$29,533 million from R$26,832 million in 2010. This increase was due to:

•

An increase of R$1,199 million, or 38.3%, from R$3,133 million in 2010 to R$4,332 million in 2011 in construction revenues, due to an increase in investments in concession assets, which include investments in our distribution and transmission infrastructure. The construction revenues were partially offset by the corresponding construction costs;

•

an increase of R$760 million, or 19.0%, from R$3,993 million in 2010 to R$4,753 million in 2011 in our transmission operating revenues, due to an increase in the transmission capacity in the national system and an increase in the financial revenue from financial transmission assets;

•

an increase of R$937 million, or 5.1%, in our generation operating revenues, due to: (i) an increase in the tariff for the electricity from Paraguay’s share of electricity from Itaipu that we sold, (ii) an increase in volume of energy sales and (iii) an increase in the prices under power purchase agreements; and

•

an increase of R$351 million, or 8.0%, from R$18,326 million in 2010 to R$19,263 million in 2011 in our distribution operating revenues, due to a 6.3% increase in sales recorded by our distribution companies in 2011 as compared to 2010. Additionally, we had an increase in the average tariff for final customers. Consumption in the industrial, residential and commercial segments increased by approximately 6.7%, principally as a result of increased consumer demand in northern Brazil.

These increases were partially offset by an increase of R$573 million, or 13.8%, from R$4,362 million in 2010 to R$4,713 million in 2011 in our deductions from operating revenues, due to an increase in the regulatory charges related to the extension of the RGR and the increase in the costs of reimbursements for CCC.

Operating Costs and Expenses

Operating costs and expenses for 2012 increased by R$7,006 million, or 27.6%, from R$25,390 million in 2011 to R$32,396 million in 2012.

The primary drivers of the increase in operating costs and expenses were:

•

a 35.1% increase in electric energy purchased for resale from R$3,386 million in 2011 to R$4,574 million in 2012. This increase is principally dues to (i) an increase in the cost of electricity in the spot market; and (ii) a large energy purchase and penalties involving UTE Candiota III (Phase C);

•

a R$748 million, or 17.5%, increase in construction costs from R$4,280 million in 2011 to R$5,027 million in 2012, mainly due to an increase in capital expenditures related to distribution infrastructure, including the expansion of our distribution networks;

•

a R$768 million, or 10.0%, increase in personnel costs from R$7,671 million in 2011 to R$8,439 million in 2012, mainly due to the awarding of increased annual bonuses to the employees;

•

a 335.7% increase in fuel costs for the production of electric energy. We had a R$709 million net expense in 2012 compared to a R$163 million net expense in 2011. This difference was due to an increase in the production of thermal gas due to our need to supplement hydroelectric generation with thermal generation, partially because of delays in the Candiota III (Phase C) plant becoming operational;

•

a R$2,478 million, or 87.0%, increase in operating provisions from R$2,849 million in 2011 from R$5,327 million in 2012 due to (i) a R$1.6 billion guarantee of the purchase of Usina de Jirau by Electrobras and (ii) a R$0.8 billion provision recognizing an actuarial provision.

•

a R$323 million, or 24.3%, increase in remuneration and reimbursements from R$1,329 million in 2011 to R$1,652 million in 2012, mainly due to increased royalty charges due to the operations of new hydroelectric plants, including Santo Antônio, Passo São João and Mauá;

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•

a R$343 million, or 24.1%, increase in grid utilization expenses from R$1,421 million in 2011 to R$1,764 million in 2012, mainly due to an increases in tariffs and third party transmission lines reflecting an increase in transmission volume; and

•

a R$952 million, or 72.9%, increase in our other operational costs and expenses from R$1,306 million in 2011 to R$2,258 million in 2012, mainly due to equipment rentals for our distribution lines as a result of the expansion of our distribution network.

Operating costs and expenses for 2011 increased by R$2,299 million, or 10.0%, to R$25,390 million in 2011 from R$23,090 million in 2010. As a percentage of net operating revenues, operating costs and expenses increased to 86.1% in 2011, from 86.0% in 2010. The primary drivers of the increase in operating costs and expenses were:

•

a R$1,326 million, or 44.9%, increase in construction expenses to R$4,280 million in 2011 from R$2,953 million in 2010, mainly due to an increase in capital expenditures relating to transmission infrastructure projects, including the Rio Madeira and Tucuruí – Manaus transmission lines;

•

a R$637 million, or 95.1%, increase in other operating costs and expenses to R$1,306 million in 2011 from R$669 million in 2010, mainly due to the lease of equipment for our distribution facilities as a result of the expansion of our distribution network;

•

a R$352 million, or 14.1%, increase in operating provisions to R$2,849 million in 2011 from R$2,497 million in 2010, mainly due (i) operating provisions made by Furnas and Eletronorte in 2011, in the amount of R$498 million, for payments to certain employees as an inducement for early retirement, (ii) further provisions for contingencies, more specifically a legal provision for the Balbina hydro plant of R$131 million – for further information refer to “Litigation – Expropriation of Lands”;

•

a R$242 million, or 22.3%, increase in remuneration and reimbursements to R$1,329 million in 2011 from R$1,087 million in 2010, as a result of increased royalty charges due to the higher volumes of energy produced in 2011;

•

a R$214 million, or 32.7%, increase in the results to offset from Itaipu to R$655 million in 2011 from R$441 million in 2010, as a result of the increase in net revenues of Itaipu;

•

a R$132 million, or 8.3%, increase in depreciation and amortization to R$1,724 million in 2011 from R$1,592 million in 2010, mainly due to the fact that new generation plants, such as Candiota III, Dardanelos, Cerro Chato and Mangue Seco, began operations in 2011;

•

a R$67 million, or 5.0%, increase in grid utilization expenses to R$1,421 million in 2011 from R$1,354 million in 2010, mainly due to the fact that we used more third party transmission lines;

•

a R$21 million, or 6.6%, increase in the participation of employees and executive officers in our results to R$317 million in 2011 from R$296 million in 2010, mainly due to an increase in salaries, which increased in line with inflation; and

•

a R$0.3 million, or 4.1%, increase in personnel, supplies and services costs to R$7,671 million in 2011 from R$7,371 million in 2010, mainly due to an increase in average salaries in line with inflation.

Increases in these costs and expenses were partially offset by:

•

a R$929 million, or 21.5%, decrease in electricity purchased for resale to R$3,386 million in 2011 from R$4,315 million in 2010, principally due to (i) the fact that Eletrobras Amazonas Energia changed the way it records costs for electricity purchased for resale as it had previously aggregated fuel costs, which no longer apply as it now mainly uses natural gas, the cost of which is invoiced to it directly; and (ii) the delay of commencement of operations of the Candiota III generation plant from early 2010 to January 2011, which led to the purchase of energy by CGTEE during 2010 to fulfill the sales contracts entered into by Candiota III; and

•

a R$90 million, or 35.7%, decrease in fuel for the production of energy to R$163 million in 2011 from R$253 million in 2010, principally due to the fact that since 2011 we largely use natural gas for the production of energy as opposed to fuel.

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Financial Income (Expenses), Net

Financial income (expenses), net resulted in income of R$633 million in 2012 compared to an income of R$234 million in 2011. This increase was mainly due to a decrease in shareholder remuneration charges from R$1,179 million in 2011 to R$572 million in 2012 as a result of (i) the payment of a small amount of the annual dividend that had been retained; (ii) a reduction in the Selic rate and (iii) the realization of R$326 million related to the indemnification of assets defined by Law No. 12,783.

Financial income (expenses), net resulted in income of R$234 million in 2011 compared to an expense of R$364 million in 2010. This increase was mainly due to the appreciation of the real against the U.S. dollar. On December 31, 2011, the exchange rate between the real and the U.S. dollar was R$1.8758, which is a 12.6% increase as compared to 2010.

Equity Investments

Equity investments decreased R$14 million, or 2.9%, from R$483 million in 2011 to R$469 in 2012 reflecting adjustments made by us to the results of certain affiliated companies as a result of Law No. 12,783.

Equity investments decreased R$187.0 million, or 27.9%, from R$670 million in 2010 to R$483 million in 2011 reflecting adjustments made by us to the results of certain affiliated companies.

Impact of Law No. 12,783

In 2012, due to Law No. 12,783, we recognized a R$10,085 million accounting loss related to impairment losses (R$1,161 million), recognition of indemnification amounts (R$5,842 million) and the assessment of concession contracts (R$3,082 million). For a further discussion of the impact of Law No. 12,783, see “– Overview –The Effects of Law No. 12,783.”

Income Taxes and Social Contribution

Income taxes and social contribution decreased by R$1,488 million from an expense of R$1,098 million in 2011 to a credit of R$390 million in 2012.

Income taxes and social contribution decreased by R$396 million, or 26.5%, to an expense of R$1,098 million in 2011 from an expense of R$1,494 million in 2010. The decrease was primarily due to the fact that we used certain tax credits in 2011, which we were able to claim as a result of payments of interest made on capital as shareholders’ compensation.

Net Income

As a result of the factors discussed above, our net income for 2012 decreased R$10,688 million, or 284.1%, to a loss of R$6,926 million in 2012 from a profit of R$3,762 million in 2011.

As a result of the factors discussed above, our net income for 2011 increased R$1,209 million or 47.4% to a profit of R$3,762 million from a profit of R$2,553 million in 2010.

Results of Generation Segment

Net Operating Revenues

Net operating revenues for the generation segment increased R$1,591 million, or 8.3%, to R$20,684 million in 2012 from R$19,093 million in 2011 due to the factors set forth below.

Net operating revenues for the generation segment increased R$437 million, or 5.1%, to R$19,093 million in 2011 from R$18,398 million in 2010 due to the factors set forth below.

Electricity Sales

Electricity sales increased R$590 million, or 3.2%, to R$19,003 million in 2012 from R$18,413 million in 2011. This increase was due to an increase in the volume of energy sold by Itaipu and the devaluation of the real against the U.S. Dollar, which had the effect of increasing the electricity sales of Itaipu in real terms.

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Electricity sales increased R$310 million in 2011, or 1.7%, to R$18,413 million in 2011 from R$18,103 million in 2010, primarily due to an increase of 5% in the volume of electricity sold in our generation segment as a result of an increase in tariffs and the fact that new generation plants commenced operations during 2011.

Other Operating Revenues

Other operating revenues decreased R$470 million, or 69.9%, to R$202 million in 2012 from R$672 million in 2011 principally due fewer generation equipment rentals to third parties during the year compared with the prior year.

Other operating revenues decreased R$74 million, or 11%, to R$672 million in 2011 from R$746 million in 2010 principally due to fewer generation equipment rentals to third parties during the year compared with the prior year.

Taxes on Revenues

Taxes on revenues increased R$72 million, or 3.6%, to R$2,085 million in 2012 from R$2,013 million in 2011 as a result of increased revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Taxes on Revenues”.

Taxes on revenues increased R$193.9 million, or 10.7%, to R$2,012.7 million in 2011 from R$1,818.8 million in 2010 as a result of increased revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Taxes on Revenues” above.

Regulatory Charges on Revenues

Regulatory charges on revenues decreased R$21 million, or 1.8%, to R$1,098 million in 2012 from R$1,119 million in 2011. Even though our revenues increased, the regulatory charges on revenues decreased as a result of a significant increase in revenues from Itaipu.

Regulatory charges on revenues increased R$111.0 million, or 11.0%, to R$1,118.8 million in 2011 from R$1,007.8 million in 2010 primarily as a result of increased revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Regulatory Charges on Revenues” above.

Operating Costs and Expenses

Operating costs and expenses for the generation segment increased R$5,131 million, or 37.5%, to R$18,822 million in 2012 from R$13,691 million in 2011. The primary components of this increase were:

•

a R$175 million, or 22.79%, increase in other operating expenses to R$943 million in 2012 from R$768 million in 2011. This increase was due to an increase in the average price of power generation equipment from third parties in the Isolated System and a decrease in the amount recovered from CCC reimbursement from excess operating costs. The decrease in CCC reimbursement, despite paying more in fuel costs in 2012, is due to a change in the level of reimbursement based in ANEEL regulations which reduced reimbursement levels for less efficient plants;

•

a R$2,817 million, or 201.0%, increase in operating provisions to R$4,218 million in 2012 from R$1,401 million in 2011. This increase was due to (i) a R$1.6 billion guarantee of the purchase of Usina de Jirau by Electrobras and (ii) a R$0.8 billion provision recognizing an actuarial provision;

•

a R$726 million, or 53.9%, increase in grid utilization expenses to R$2,072 million in 2012 from R$1,346 million in 2011. This increase was due to increased use of the third party electricity grid as the result of the increase in the volume of power generated as well as an annual tariff adjustment based on the rate of inflation;

•

a R$558 million, or 19.5%, increase in energy acquired for resale to R$3,425 million in 2012 from R$2,867 million in 2011. This increase was mainly due to (i) an increase in the cost of electricity in the spot market and (ii) increased energy purchases to meet contractual obligations based on the expected date that the Candiota III (Phase C) plant was expected to become operational (but which was delayed);

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•

a R$546 million, or 335%, increase in the fuel for energy generation to R$709 million in 2012 from R$163 million in 2011. This increase was due to an increase in the production of thermal gas due to our need to supplement hydroelectric generation with thermal generation, partially because of delays in the Candiota III (Phase C) plant becoming operational; and

•

a R$323 million, or 24.3%, increase in remuneration and reimbursements to R$1,652 million in 2012 from R$1,329 million in 2011. This increase was due to an increase in the volume of power generated and an increase in the amount paid to the states and municipalities where the Candiota III plant’s reservoir is located.

Operating costs and expenses for the generation segment increased R$421 million, or 3.2% to R$13,691 million in 2011 from R$13,270 million in 2010. The primary components of this increase were:

•

a R$545 million, or 144.4%, increase in other operating expenses to R$768 million in 2011 from R$223 million in 2010. This increase was due to an increase in the average price of power generation equipment from third parties in the Isolated System and a decrease in the amount recovered from CCC reimbursement from excess operating costs;

•

a R$242 million, or 22.3%, increase in remuneration and reimbursements to R$1,329 million in 2011 from R$1,087 million in 2010. This increase was due to an increase in the volume of power generated and an increase in the amount paid to the states and municipalities where the plant’s reservoir is located;

•

a R$214 million, or 48.5%, increase in the results to offset from Itaipu to R$655 million in 2011 from R$441 million in 2010. This increase was due to an increase in the volume of power generated in Itaipu and the respective operating costs and expenses;

•

a R$211 million, or 15.1%, increase in depreciation and amortization to R$1,598 million in 2011 from R$1,387 million in 2010. This increase was mainly due to the commencement of new generation plant operations in 2011;

•

a R$154 million, or 11.8%, increase in operating provisions to R$1,460 million in 2011 from R$1,306 million in 2010. This increase was due to a R$132 million legal provision for the Balbina plant. For further information see “Litigation – Expropriation of Lands;” and

•

a R$76 million, or 6.0%, increase in grid utilization expenses to R$1,346 million in 2011 from R$1,270 million in 2010. This increase was due to increased use of the third party electricity grid as the result of the increase in the volume of power generated.

These increases were partially offset by:

•

a R$914 million, or 24.2%, decrease in electricity purchased for resale to R$2,867 million in 2011 from R$1,953 million in 2010. This decrease was due to the increase in the volume of energy purchased in 2010 as compared to 2011 as a result of the delay in the commencement of our Candiota III and Dardanelos power plant operations; and

•

a R$80 million, 32.9%, decrease in fuel for power generation to R$163 million in 2011 from R$243 million in 2010. This decrease was mainly due to the conversion from fuel to natural gas in our Amazonas Energia thermal plants.

Results of Transmission Segment

Net Operating Revenues

Net operating revenues for the transmission segment increased R$910 million, or 11.7%, to R$8,689 million in 2012 from R$7,779 million in 2011 due to the factors set forth below.

Net operating revenues for the transmission segment increased R$1,884.1 million, or 32.0%, to R$7,778.7 million in 2011 from R$5,894.6 million in 2010 due to the factors set forth below.

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Transmission of Electricity

Transmission of Electricity increased R$968 million in 2012, or 20.4%, to R$5,711 million in 2011 from R$4,743 million in 2011 as a result of an inflation adjustment to the fixed transmission tariff set by the Brazilian Government and the operation and construction of new transmission lines in 2012.

Transmission of Electricity increased R$773.6 million in 2011, or 19.5%, to R$4,742.9 million in 2011 from R$3,969.3 million in 2010 as a result of an inflation adjustment to the fixed transmission tariff set by the Brazilian Government and the operation and construction of new transmission lines in 2011.

Other Operating Revenues

Other operating revenues for the transmission segment decreased R$45 million, or 28.8%, to R$111 million in 2012 from R$156 million in 2011 principally as a result of a decrease in leases of fixed assets, including poles used to transmit broadband.

Other operating revenues for the transmission segment decreased R$55.0 million, or 38.0%, to R$156 million in 2011 from R$251 million in 2010 principally as a result of a decrease in leases of fixed assets, including poles used to transmit broadband.

Taxes on Revenues

Taxes on revenues increased R$44 million, or 15.3%, to R$332 million in 2012 from R$288 million in 2011 primarily as a result of increased revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Taxes on Revenues”.

Taxes on revenues increased R$43.7 million, or 17.9%, to R$288.3 million in 2011 from R$244.6 million in 2010 primarily as a result of increased revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Taxes on Revenues”.

Regulatory Charges on Revenues

Regulatory charges on revenues increased R$46 million, or 10.6%, to R$482 million in 2012 from R$436 million in 2011 primarily as a result of increased revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Regulatory Charges on Revenues” above.

Regulatory charges on revenues increased R$31.3 million, or 7.7%, to R$435.5 million in 2011 from R$404.2 million in 2010 primarily as a result of increased revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Regulatory Charges on Revenues” above.

Operating Costs and Expenses

Operating costs and expenses for the transmission segment increased R$186 million, or 2.6%, to R$7,257 million in 2012 from R$7,071 million in 2011. The primary component of this increase was a R$166 million, or 6.0 %, increase in personnel expenses to R$2,932 million in 2012 from R$2,766 million in 2011. This increase was mainly due to an increase in average salaries in line with inflation.

Operating costs and expenses for the transmission segment increased R$1,513.3 million, or 27.2%, to R$7,071.4 million in 2011 from R$5,558.1 million in 2010. The primary components of this increase were:

•

a R$1,424.9 million, or 66.5%, increase in construction expenses to R$3,567.9 million in 2011 from R$2,143.0 million in 2010. This increase was due to the start of construction on a number of new transmission lines and the ongoing construction on the Rio Madeira and the Tucuruí – Manaus transmission lines;

•

a R$212.4 million, or 66.8%, increase in operating provisions to R$530.5 million in 2011 from R$318.2 million in 2010. This increase was due to operating provisions made by Furnas and Eletronorte in 2011, for payments to certain employees as an inducement for early retirement;

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•

a R$154.6 million, or 5.9%, increase in personnel, supplies and services expenses to R$2,766.2 million in 2011 from R$2,611.5 million in 2010. This increase was mainly due to an increase in average salaries in line with inflation; and

•

a R$10.7 million, or 6.6%, increase in the participation of employees and executive officers in our results to R$173.5 million in 2011 from R$162.8 million in 2010 as the participation of employees and executive officers in our results is determined by reference to salaries, which increased in line with inflation.

These increases were partially offset by a R$168.6 million, or 74.6%, decrease in other operating expenses to R$57.3 million in 2011 from R$225.9 million in 2010. This decrease was due to decreases in corporate costs and the payment of rent and equipment.

Results of Distribution Segment

Net Operating Revenues

Net operating revenues for the distribution segment increased R$2,060 million, or 83.5%, to R$4,527 million in 2012 from R$2,468 million in 2011 due to the factors set forth below.

Net operating revenues for the distribution segment increased R$54.8 million, or 2.3%, to R$2,468 million in 2011 from R$2,413 million in 2010 due to the factors set forth below.

Electricity Sales

Electricity sales increased R$2,233 million, or 70.6%, to R$5,395 million in 2012 from R$3,162 million in 2011. This increase was due to an increase of 70.6% in the volume of electricity sold as well as an increase in the number of customers (especially in the North of Brazil as a result of the “Light for All” program) and in the average tariff for final customers.

Electricity sales increased R$219 million, or 5.6%, to R$4,148 million in 2011 from R$3,929.7 million in 2010. This increase was due to an increase of 6.3% in the volume of electricity sold as well as an increase in the average tariff for final customers.

Other Operating Revenues

Other operating revenues increased R$49 million, or 29.3%, to R$216 million in 2012 from R$167 million in 2011 principally due to the fact that our distribution companies received a slight increase in rental payments from renting out its telecommunications lines to third parties, mostly for cellular stations.

Other operating revenues increased R$9.1 million, or 5.8%, to R$166.5 million in 2011 from R$157.4 million in 2010 principally due to the fact that our distribution companies received a slight increase in rental payments from renting out its telecommunications lines to third parties.

Taxes on Revenues

Taxes on revenues increased R$529 million, or 75.4%, to R$1,231 million in 2012 from R$702 million in 2011 primarily as a result of our increased gross revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Taxes on Revenues”.

Taxes on revenues decreased R$2.0 million, or 0.3%, to R$702.0 million in 2011 from R$704.0 million in 2010 primarily due to the fact that we were able to use ICMS tax credits. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Taxes on Revenues”.

Regulatory Charges on Revenues

Regulatory charges on revenues increased R$82 million, or 51.6%, to R$241 million in 2012 from R$159 million in 2011 primarily as a result of our increased gross revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Regulatory Charges on Revenues”.

Regulatory charges on revenues increased R$55.9 million, or 54.5%, to R$158.5 million in 2011 from R$102.6 million in 2010 primarily as a result of our increased gross revenues. For a description of the calculation of taxes on revenues please see “– Description of Principal Line Items – Operating Revenues – Regulatory Charges on Revenues”.

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Operating Costs and Expenses

Operating costs and expenses for the distribution segment increased R$2,219 million, or 87.6%, to R$4,752 million in 2012 from R$2,533 million in 2011. The primary components of this increase were:

•

a R$117 million, or 45.0%, decrease in operating provisions to R$377 million in 2012 from R$260 million in 2011. This decrease was mainly due to a Telenorte II contract with Eletrobras Distribuição Rondônia, a distributor which we consider onerous as the agreed sale price of electricity is less than the amount we will earn to generate the electricity under Law No. 12,783;

•

a R$628 million, or 120.8%, increase in the cost of electric energy purchased for resale to R$1,148 million in 2012 from R$520 million in 2011. This increase was due to an increase in the cost of electricity in the spot market;

•

a R$459 million, or 76.1%, increase in construction expenses to R$1,062 million in 2012 from R$603 million in 2011, as a result of an increase in capital expenditures related to construction to expand our distribution network;

•

a R$184 million, or 19.8%, increase in personnel, supplies and services expenses to R$1,112 million in 2012 from R$928 million in 2011. This increase was mainly due increase in average salaries and other charges;

•

a R$276 million, or 353.8%, increase in other operating expenses to R$354 million in 2012 from R$78 million in 2011. This increase was mainly due to an increase in rental expenses for equipment used for power generation in the Isolated System by Eletrobras Distribuição Acre; and

•

a R$72 million, or 97.3%, increase in grid utilization expenses to R$146 million in 2012 from R$74 million in 2011, due to an increase in the use of third party electricity grids.

Operating costs and expenses for the distribution segment decreased R$229 million, or 8.3%, to R$2,533 million in 2011 from R$2,762 million in 2010. The primary components of this decrease were:

•

a R$175 million, or 40.2%, decrease in operating provisions to R$260 million in 2011 from R$435 million in 2010. This decrease was mainly due to a reduction in our operating provisions for our distribution segment as we renegotiated a large number of contracts with defaulting customers;

•

a R$81 million, or 10.0%, decrease in construction expenses to R$729 million in 2011 from R$810 million in 2010, as a result of investments in our distribution infrastructure. The construction expenses were partially offset by the corresponding construction revenues; and

•

a R$10 million, or 11.9%, decrease in grid utilization expenses to R$74 million in 2011 from R$84 million in 2010, due to a decrease in the use of third party electricity grids.

These decreases were partially offset by:

•

a R$50 million, or 6.1%, increase in personnel, supplies and services expenses to R$924 million in 2011 from R$874 million in 2010. This increase was mainly due to an increase in average salaries in line with inflation; and

•

a R$43 million, or 122.8%, increase in other operating expenses to R$78 million in 2011 from R$35 million in 2010. This increase was mainly due to an increase in rental expenses for equipment used for power generation in the Isolated System.

B. Liquidity and Capital Resources

Our principal sources of liquidity derive from the cash generated by our operations and from loans received from various sources, including the RGR Fund (established to compensate electricity concessionaires for uncompensated expenses when the concessions ended), loans from third parties, including certain international agencies, and realizations of various investments we have made with Banco do Brasil S.A., with whom we are required by law to deposit any surplus cash assets. In addition, on October 20, 2011 we issued U.S.$1.75 billion 5.75% notes due in 2021.

We require funding principally in order to finance the upgrade and expansion of our generation and transmission facilities and in order to repay our maturing debt obligations. In addition, through our subsidiaries, we are bidding in auctions for new transmission lines and new generation contracts. In the event that we are successful in any of these auctions, we will need additional cash to fund investments necessary to expand the applicable operations.

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From time to time, we consider potential new investment opportunities and we may finance such investments with cash generated by our operations, loans, issuances of debt and equity securities, capital increases or other sources of funding that may be available at the relevant time. At present we have the ability to fund up to R$1.2 billion of capital expenditure out of existing resources without the need to access the capital markets. Those funds represent a portion of the revenues we have generated from our sales of electricity and the interest we have received from our lending activities.

Cash Flows

The following table summarizes our net cash flows for the periods presented:


	For the Year Ended December 31,
	2012			2011			2010
				(in R$ thousands)
Net Cash Flows:
Provided by operating activities		13,826,590			4,286,867			8,244,780
(used in) investing activities		(13,455,415	)		(10,904,111	)		(7,735,792	)
Provided by (used in) financing activities		(901,590	)		2,356,861			93,887

Total		(530,412	)		(4,260,382	)		602,875

Cash Flow from Operating Activities

Our cash flows from operating activities primarily result from:

•

the sale and transmission of electricity to a stable and diverse base of retail and wholesale customers at fixed prices; and

•

restricted deposits for legal proceedings in cases where we are a plaintiff in a proceeding and are ordered to pay a deposit to the relevant court. Cash flows from operating activities have been sufficient to meet operating and capital expenditures requirements during the periods under discussion.

In 2012, our cash flows from operating activities increased R$9.5 billion, from R$4.3 billion in 2011 to R$13.8 billion in 2012. This variation was due to (i) property acquisitions for our generation, transmission and distribution lines, (ii) R$8 billion reduction in marketable securities and (iii) R$3 billion in Special Operations.

Cash Flows from Investing Activities

Our cash flows from investing activities primarily reflect:

•

restricted investments, being the surplus cash we are required to either deposit with Banco do Brasil S.A. (or in certain other investments issued by the Brazilian Government);

•

investment acquisitions, being partnerships we enter into with third parties in the private sector in relation to the operation of new plants;

•

acquisitions of fixed assets, being primarily investments in equipment necessary for operational activities; and

•

income derived from the following:

(i)

CFT-E1 bonds issued by the Brazilian Government: these bonds are indexed to the IGP-M, bear no interest and were due in August 2012.

(ii)

NTN-P bonds issued by the Brazilian Government: these bonds are indexed by the TR, a monthly reference index published by the Central Bank, bear annual interest of 6.0% and mature on varying dates which have begun in February 2012.

(iii)

Equity participation in the following companies: (i) Rede Lajeado Energia S.A., (ii) EDP Lajeado Energia S.A., (iii) CEB Lajeado S.A., and (iv) Paulista Lajeado Energia S.A. We receive dividends from these equity interests based on the annual profits earned by each company.

In 2012, our cash flows from investing activities increased R$2.5 billion, or 23.4%, from an outflow of R$10.9 billion in 2011 to an outflow of R$13.4 billion in 2012. This variation was due to the acquisition of fixed and concession assets.

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Cash Flows from Financing Activities

Our cash flows used in financing activities primarily reflect interest income we receive from short-term and long-term loans made to non-affiliated companies that operate in the Brazilian electricity sector.

In 2012, our cash flows from financing activities decreased R$ 3.3 billion, from an inflow of R$2.3 billion in 2011 to an inflow of R$ (901) Million in 2012. This variation was mainly due to payments of (i) dividends, and (ii) loans and financings.

Relationship between Appropriated Retained Earnings and Cash Flows

As of December 31, 2012, our balance sheet reflected retained reserves of R$8,566 billion, which consisted of our statutory reserves but do not include unpaid shareholders’ remuneration (see “Item 8.A, Consolidated Financial Statements and Other Information – Policy on dividend distribution”).

Capital Expenditure

Our core business is the generation, transmission and distribution of energy and we intend to invest heavily in these segments in the next years.

Companies are now selected to construct new generation units and transmission lines by a tender process. It is, therefore, difficult to predict the precise amounts that we will invest in these segments going forward. We are, however, working to secure a significant number of new contracts either alone or as part of a consortium including the private sector.

According to the EPE 10 Year Plan, it is estimated that Brazil will have 148,969 km of transmission lines and 182,408 MW of installed generation capacity by 2021. These investments by Brazil will represent approximately R$269 billion. As the current largest player in the market based on length of transmission lines, we expect to participate in the majority of these new investments. In accordance with the Business Plan, we believe that over the next five years we will invest an average of approximately R$52.4 billion in our generation, transmission and distribution businesses. For these investments, we expect to use the funding derived from our net cash flow as well as from accessing national and international capital markets and through bank financing.

Our capital expenditures in 2012, 2011 and 2010 were R$5.9 billion, R$6.8 billion and R$5.3 billion, respectively.

C. Research and Development, Patents and Licenses

Research and Development

Our research and planning activities are carried out by Cepel, a non-profit entity created in 1974 with the objective of supporting the technological development of the Brazilian electricity sector. We are the primary sponsor of Cepel and participate in coordinating environmental planning and energy conservation programs. Cepel’s clients are our operating subsidiaries (including Itaipu and Eletrobras Eletronuclear) and other Brazilian and foreign electric utilities. Cepel’s activities aim to achieve high quality standards and productivity in the electricity sector through technological research and development. Cepel has a network of laboratories to undertake its activities, and maintains technical co-operation agreements with several international electrical energy research and development institutions. Cepel prioritizes strategic and structuring projects, with its activities concentrated in five departments:

•

Systems Automation Department : this department focuses on the development of tools to obtain data, real time operation of electric systems and analysis of disturbances;

•

Electric Systems Department : this department focuses on the development of methodologies and computer programs that provide conditions for expansion, supervision, control and operation of core systems;

•

Special Technologies Department : this department surveys the application of technologies relating to the use of materials for electric installations, energy efficiency and renewable sources, including the analysis of sustainability and economic viability;

•

Installation and Equipment Department : this department focuses on the development of technologies to refine equipment used in generation, transmission and distribution of electrical energy (computer models, testing and measuring techniques, monitoring and diagnosis systems); and

•

Energy Optimization and Environment Department : this department focuses on the development of methodologies and computer programs for the planning of expansion and operation of interconnected hydrothermal systems and on integrated evaluation of environmental issues.

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We have a central group survey center that performs scientific studies, measurements, specialist analyses and other tests and analyses that are relevant to our core operations. This center has a certification from the Instituto Nacional de Metrologia (the Brazilian National Metrology Institute) that allows it to certify electrical equipment. Cepel also focuses on the development of energy efficiency projects including those relating to the generation of electricity from renewable sources such as solar and wind power. As part of this focus, Cepel’s structure includes the following projects: (i) the Centro de Referência para Energia Solar e Eólica Sérgio de Salvo Brito (National Reference Center for Solar and Wind Powered Energy of Salvo Brito); (ii) the Casa Solar Eficiente (Solar Efficient House); and (iii) the Centro de Aplicação de Tecnologias Eficientes (Center for the Application of Efficient Technologies).

Patents and Licenses

Among others, we have registered “Eletrobras” as a trademark with the Instituto Nacional de Propriedade Industrial – INPI. Further, Cepel has twenty-seven patents, Eletrobras Eletronorte has thirty-seven patents, Eletrobras Eletrosul has two patents and Eletrobras Furnas has nine patents registered with the INPI relating to equipment and manufacturing processes. In addition, Eletrobras Furnas has one patent registered in the United States and Cepel has six patents registered outside Brazil.

Insurance

We maintain insurance for, fire, natural disasters, accidents involving third parties, certain other risks associated with the transportation and assembly of equipment, construction of plants, and multirisks. Our subsidiaries and Itaipu have similar insurance coverage. We do not have insurance coverage for business interruption risk because we do not believe that the high premiums are justified by the low risks of a major disruption, considering the energy available in the Interconnected Power System. We believe that we maintain insurance that is both customary in Brazil and adequate for the business in which we engage.

D. Trend Information

Our management has identified the following key trends, which contain certain forward-looking information and should be read in conjunction with “Cautionary Statement Regarding Forward-Looking Information” and “Item 3.A, Risk Factors.” Fundamentally, we believe these trends will allow us to continue to grow our business and improve our corporate image:

•

electricity is in constant demand : unlike certain industries which are particularly vulnerable to cyclical conditions in the market and/or seasonality, the demand for electricity is constant. We believe we will continue to have the ability to set tariffs in accordance with market conditions, particularly in the generation segment. Although tariffs in the transmission segment are set by the Brazilian Government each year, we believe that these tariffs will continue to increase;

•

participation in future auctions will allow us to grow : we expect to participate in an increasing number of future new energy auctions, as well as new transmission auctions, and will, accordingly need to invest in new power generation plants (hydroelectric, wind, biomass and thermal) and new transmission lines in order to expand the existing grid and keep our current market share. We also believe that by focusing on generation and transmission, we will be able to maximize profits by improving efficiency in our existing infrastructure and capitalizing on opportunities arising from new infrastructure;

•

a decrease in regulatory charges once infrastructure investments have been completed : in recent periods, our financial results have been impacted by regulatory charges regulated by ANEEL. The proceeds of these charges have been used by the Brazilian Government to invest in infrastructure such as the CCC and RGR. As this infrastructure is completed, we believe ANEEL will decrease the levels of regulatory charges, which will have a positive effect on our financial results. However, we do not believe there will be any changes in the short term. Moreover, we believe that the completion of these infrastructure projects will have a beneficial effect on our ability to grow our business;

•

revenues from third parties for maintenance of facilities : although the core of our business will remain the generation and transmission segments, we have successfully increased our revenues in recent periods by using our expertise to provide maintenance services for other companies in our industry. Our subsidiary Eletrobras Eletronorte has been the key conduit for this. We expect this trend to continue, thereby improving our financial position; and

•

an increasing focus on environmental, health and safety concerns : there is a trend in Brazil and globally towards increasing concerns for the protection of the environment. This impacts us in various ways, including dealing with social and political issues that may arise when we seek to construct new facilities (particularly in remote areas of Brazil) and reduced carbon emission targets from facilities that rely on fossil fuel. One of the key challenges for us will be to balance these environmental concerns against the growth of our business, as these concerns naturally can increase cost pressures. There is also an increasing trend in Brazil towards more stringent health and safety requirements with respect to operating permits for our facilities, which similarly imposes cost pressure challenges on our business.

•

effect of Law No. 12,783 : Law No. 12,783 will continue to effect the manner in which we account for our concessions. We expect to renew additional contracts for the maximum period of 30 years at significantly lower tariff levels. As a result, we believe we will continue to write down the value of our renewed concessions. Such effects reduce the Operational Cash Flow of the Company, affecting its investment capacity.

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E. Off-Balance Sheet Arrangements

None of our off-balance sheet arrangements are of the type with respect to which we are required to provide disclosure pursuant to item 5.E of Form 20-F.

F. Contractual Obligations

We set out below, on a segment basis, our long-term debt, long-term purchase obligations and long-term sale obligations for the periods presented:


	Payments due by period as of December 31, 2012
	(in R$ millions)
	2014		2015		2016		2017 and after
Long-term purchase obligations:
Generation		631		586		556		3,542
Transmission		—		—		—		—
Distribution		1,237		987		—		—


Total		1,868		1,573		556		3,542

Our leasing obligations are set as follows, as of December 31, 2012:


	As of December 31, 2012
	(in R$ millions)
Leasing obligations:
More than one year		298,231
More than one year and less than five years		1,491,157
More than five years		1,913,652
Present value of payments		299,932

Our contractual obligations related to loans and financing are as follows:


Payments due by period as of December 31, 2012
(in R$ millions)

Up to 1 year	From 1 to 2 years	From 2 to 5 years	More than 5 years	Total
4,793	3,369	9,957	35,153	53,272

In relation to the defined benefit pension obligations, the estimated annual contribution by the Company is R$1,069 million.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Board of Directors and Senior Management

We are managed by our Conselho de Administração (or Board of Directors), composed of up to ten members, and by our Diretoria (or Board of Executive Officers), which currently consists of six members. Our by-laws also provide for a permanent Conselho Fiscal (or Fiscal Council), which is made up of six members. Pursuant to our by-laws, all members of our Board of Directors, Board of Executive Officers and Fiscal Council must be Brazilian citizens.

Board of Directors

The members of our Board of Directors are elected at the general shareholders meeting for a renewable term of one year. As our majority shareholder, the Brazilian Government has the right to appoint seven members of our Board of Directors, of which six are appointed by the MME and one by the Ministério do Estado do Planejamento, Orçamento e Gestão (the Planning, Budget and Management Ministry). The minority shareholders have the right to elect one member, the holders of preferred shares without voting rights representing at least ten percent of our total capital have the right to elect one member and one director shall be elected as a representative of the employees of the company. Currently, our Board of Directors is composed of nine members. One of the members of the Board of Directors is appointed as Chairman. The address of our Board of Directors is Av. Presidente Vargas, 409 13º andar – Rio de Janeiro.

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Historically, our Board of Directors meets once a month and when called by a majority of the directors or the Chairman. Among other duties, our Board of Directors is responsible for: (i) establishing our business guidelines; (ii) determining the corporate organization of our subsidiaries or any equity participation by us in other legal entities; (iii) approving our entering into any loan agreement and determining our financing policy; and (iv) approving any guarantee in favor of any of our subsidiaries in connection with any financial agreement.

The table below sets out the current members of our Board of Directors and their respective positions. The mandate of each member of our Board of Directors expires at the next Ordinary Shareholders’ Meeting. Each member was elected by the Brazilian Government except for Thadeu Figueiredo Rocha who was elected by our minority shareholders.


Name		Position
Márcio Pereira Zimmermann		Chairman
Maurício Muniz Barreto de Carvalho		Director
Marcelo Gasparino da Silva		Director
Lindemberg de Lima Bezerra		Director
Wagner Bittencourt de Oliveira		Director
José Antonio Corrêa Coimbra		Director
José da Costa Carvalho Neto		Director
Thadeu Figueiredo Rocha		Director
Beto Ferreira Martins Vasconcelos		Director

Márcio Pereira Zimmermann – Chairman and Board Member : Mr. Zimmermann joined our Board of Directors and was immediately appointed as Chairman on April 30, 2010. He was appointed as Chairman for a second term on June 16, 2011. He was also the Minister of Brazil’s Ministry of Mines and Energy from April through December 2010, and since December 2010, he has served as the Executive Secretary of the same ministry. Mr. Zimmermann was previously the Engineering Director of Eletrobras from October 2001 through January 2003, and he was Research and Development Director of Eletrobras Cepel from 2003 to 2004. Mr. Zimmermann has a degree in Electrical Engineering from the Universidade Católica of the State of Rio Grande do Sul, a post graduate degree in Electrical Systems Engineering from Escola Federal de Engenharia de Itajubá and a masters degree in Electrical Engineering from the Pontifícia Universidade Católica of Rio de Janeiro.

Maurício Muniz Barreto de Carvalho – Board Member : Mr. Carvalho joined our Board of Directors on June 16, 2011. He currently holds the position of Brazil’s Secretary of the Growth Acceleration Program ( Programa de Aceleração do Crescimento – PAC ) having been appointed to that office in May 2011. Mr. Carvalho previously served as Principal of the Escola Nacional de Administração Pública (ENAP) in the areas of (1) Administration and Finance and (2) Managers and Servers Development from 1999 to 2002. In 2003, he was appointed as head of the Monitoring, Evaluation, Audit and Capacity Board of the Ministry of Education, and afterwards of the Educational Inclusion Programs Board. Mr. Carvalho served as Special Advisor for the Presidency from 2003 to 2004, when he was nominated Deputy Assistant Chief of Articulation and Monitoring of the Civil House of the Presidency, responsible for articulating government action and monitoring strategic projects, particularly the PAC. Mr. Carvalho has a Masters degree in Public Administration and Urban Planning and a Bachelors degree in Public Administration, both from Fundação Getúlio Vargas (FGV).

Marcelo Gasparino da Silva – Board Member : Mr. da Silva joined our Board of Directors on December 03, 2012. He previously served as president of the Advisory Board of the law firm Gasparino, Fabri, Lebarbenchon, Roman, Sachet & Marchiori , until 2006, where he specialized in tax and commercial law in Brasília, Rio de Janeiro, São Paulo and Manaus, and had a wide range of clients including Vale, CSN, Brasil Telecom, Paranapanema, Petrobrás Distribuidora e Claro. From 2007 to 2008, Mr. da Silva was an officer of the executive board at Centrais Elétricas de Santa Catarina S.A. (CELESC). He is a member of several legal and state-owned companies commissions and committees. He currently coordinates the Legal Committee of CELESC and serves as a consultant. He participated in the Executive Programme for Mergers and Acquisitions at the London School of Business. Mr. da Silva holds a degree in law from Universidade Federal de Santa Catarina (UFSC). He also holds a degree in Business Taxation Management from ESAG and is currently working towards an MBA in Controllership, Due Diligence and Finance at FGV.

Lindemberg de Lima Bezerra – Board Member : Mr. Bezerra joined our Board of Directors on June 16, 2011. Mr. Bezerra has held the position of Chief of Staff of the Secretary of the Brazilian National Treasury since July 2007. From 1997 to June 2007, Mr. Bezerra was a tax and economics assistant at the National Treasury. Mr. Bezerra holds a degree in economics from Universidade Federal do Rio Grande do Sul with a masters degree in economics from Universidade de São Paulo .

Wagner Bittencourt de Oliveira – Board Member : Mr. Oliveira has been a member of our Board of Directors since April 2007. In 1975, he undertook a public contest and was admitted to the Banco Nacional de Desenvolvimento Social – BNDES (National Bank of

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Social and Economical Development). Throughout his career at BNDES he has acted in many positions: Head of Division, Head of Department, Superintendent and, since December 2004, he has been Superintendent of Basic Supplies, which includes mining, metallurgy, cement, paper and cellulose, chemicals, petrochemicals and fertilizers. Mr. Oliveira has accumulated 20 years of executive experience having been the Secretary of the Ministry of National Integration (2001), Superintendent of SUDENE (2000 to 2001), CEO of Companhia Ferroviária do Nordeste (1998 to 2000) and Superintendent of the Industrial Area (1996 to 1998). Mr. Oliveira is a member of the Board of several companies, such as Usiminas Mecânica and CADAM. Mr. Oliveira is a metallurgical engineer with a degree from PUC-RJ, and has completed a specialized coursework in finance and capital markets.

José Antonio Corrêa Coimbra – Board Member : Mr. Coimbra has been a member of our Board of Directors since April 2009. Mr. Coimbra is currently Head of Office of the Brazil Ministry of Mines and Energy and has published several papers in Brazil and abroad. Within Eletrobras, Mr. Coimbra was previously Director of Engineering of Eletrobras Eletronorte, having worked at that company from 1977 until 2005. Mr. Coimbra is also a member of the Board of Directors of Eletrobras Eletronorte and holds the same position in Eletrobras Cepel. Mr. Coimbra holds a degree in Civil Engineering from Universidade Federal do Pará with a Master Degree in Production Engineering from Universidade Federal de Santa Catarina .

José da Costa Carvalho Neto – Board Member : Mr. Neto joined our Board of Directors on June 16, 2011. He was previously a Power Plants Professor at Pontifícia Universidade Católica -MG, from 1970 to 1977. Subsequently he was the Deputy Secretary of Mines and Energy of Minas Gerais, appointed in 1987. Mr. Neto held the position of Chief Distribution Officer at Cemig from 1991 to 1997, and held the offices of Superintendent, Department and Division Manager as well as the role of Chairman of Cemig between July 1998 and January 1999. He has also held the offices of CEO of Arcadis Logos Energia, Member of the Board of Directors of Logos Engenharia and Enerconsult and Director of Orteng Equipamentos e Sistemas. Mr. Neto holds a degree in Electrical Engineering with a Masters Degree in Electrical Engineering from Universidade Federal de Minas Gerais .

Thadeu Figueiredo Rocha – Board Member : Mr. Rocha joined our Board of Directors on May 18, 2012. He previously worked at CEMIG, from 2001 to 2002 and, in 2003, he began working at Eletrobras, where he conducted studies on the long-term market analysis of the energy sector and Eletrobras, the behavior of large industrial consumers, national and regional economic scenarios, and tax policies. He currently works at the department of commercialization of Eletrobras and is also committed to studies related to PROINFA and carbon markets. He holds a degree in Economics from Universidade Federal de Minas Gerais (UFMG), a degree in Business Administration from Centro Universitário (UNA) and a degree in Energy Management and Economics from Instituto Coppead de Administração of Universidade Federal do Rio de Janeiro and Instituto de Economia . He also holds a master and a doctorate degree in Political Sciences from Universidade Federal Fluminense . Mr. Rocha also holds an executive MBA in Leadership and Management of State-owned Companies from Fundação Coge , Franklin Covey Business and Uniceub, and participated in many workshops and courses related to the energy sector and economics in general.

Beto Ferreira Martins Vasconcelos – Board Member : Elected to our Board of Directors on August 11, 2011, and empowered on April 18, 2012, Mr. Vasconcelos holds a bachelor’s degree in law from the Universidade de São Paulo and postgraduate degrees in environmental law from the Universidade de São Paulo and Biosafety from the Universidade de Santa Catarina . He practiced private law in São Paulo from 2000 to 2003, before entering the federal government, where he held positions as Deputy Secretary for Technology Policy (2003-2004), Advisor to the Minister of Justice (2004-2005), Deputy Chief Advisor for Legal Affairs of the Presidency of the Republic (2005-2006), Executive Secretary of the National Biosafety Council (2006-July 2010) and Chief Advisor for Legal Affairs of the Presidency and President of the Center for Legal Studies of the Presidency (2007-December 2010). Since January 2011, he has served as the Deputy Chief of Staff of the Presidency.

Board of Executive Officers

Our Board of Executive Officers is currently made up of six members appointed by our Board of Directors for an indefinite term. Our Board of Executive Officers ordinarily meets every week, or when called by a majority of the officers or by the President. Our Board of Executive Officers determines our general business policy, is responsible for all matters related to our day-to-day management and operations and is the highest controlling body with regards to the execution of our guidelines. We have no control over appointments of our chief executive and chief financial officers because all such appointments are made by our controlling shareholder, which is the Brazilian Government. Our chief administrative officer is responsible for coordinating the general management of our business including supplies, employment-related issues, training insurance policies and management of our assets. The address of our Board of Executive Officers is Av. Presidente Vargas, 409 13º andar – Rio de Janeiro.

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The members of our current Board of Executive Officers were appointed by our Board of Directors and their names and titles are set out below:


Name		Position
José da Costa Carvalho Neto		Chief Executive Officer
Armando Casado de Araújo		Chief Financial and Investor Relations Officer
Valter Luiz Cardeal de Souza		Chief Generation Officer
Miguel Colasuonno		Chief Administrative Officer
Marcos Aurélio Madureira da Silva		Chief Distribution Officer
José Antonio Muniz Lopes		Chief Transmission Officer

Mr. José da Costa Carvalho Neto – Chief Executive Officer: See “ – Board of Directors.”

Mr. Armando Casado de Araújo – Chief Financial Officer and Investor Relations Officer : Mr Araújo has over 30 years of experience in the domestic electric power sector. He worked for Eletrobras Eletronorte as Budget Superintendent from 1977. He was then appointed President of the Integração Transmissão de Energia S.A . He has worked at Eletrobras since June 2008 when he became the assistant to and substitute of the Chief Financial Officer . He was appointed as Chief Financial Officer and Investor Relations Officer on March 30, 2010. Mr. Araújo holds a degree in Business Administration from Faculdade de Ciências Exatas, Administrativas e Sociais de Brasília , and has completed several post-graduate courses in Finance .

Mr. Valter Luiz Cardeal de Souza – Generation Officer : Mr. Souza has been Engineering Director of Eletrobras since January 14, 2003. He has been active in the electricity sector for over thirty-two years as an employee of Companhia Estadual de Energia Elétrica S.A. (CEEE) where, since 1971, he has undertaken important technical and management functions as director in the areas of generation, transmission and distribution. At the Departamento Nacional de Águas e Energia Elétrica (DNAEE), he was Assistant Executive to the General Manager, Coordinator for the Department of Construction and Application of Electrical Energy and Coordinator and Substitute Director for the Department of Finance and Economics. Mr. Souza also holds the position of President of the board of directors of Eletrobras Eletronorte and Eletrobras CGTEE. Mr. Souza is an electrical and electronic engineer, with a degree from the Pontifícia Universidade Católica of Rio Grande do Sul, specializing in energy engineering as well as in production engineering.

Mr. Miguel Colasuonno – Chief Administrative Officer : Mr. Colasuonno was appointed as Administrative Officer on March 6, 2008 and became Chief Administrative Officer on April 26, 2009. Mr. Colasuonno was mayor of São Paulo from 1973 to 1975, president of the Empresa Brasileira de Turismo – Embratur from 1980 to 1985, and president of the Sindicato dos Economistas do Estado de São Paulo from 1986 to 1995. He also acted as a São Paulo councilman from 1992 to 2001, where he was appointed council president. Mr. Colasuonno has been a professor at the University of São Paulo for the past seven years. Mr. Colasuonno has a PhD in International Relations from Vanderbilt University and has a post-graduate degree in economics, specializing in International Trade and Exchange, from the Universidade de São Paulo .

Mr. Marcos Aurélio Madureira da Silva – Distribution Officer : Mr. da Silva was appointed as Distribution Officer on May 12, 2011. He was previously an employee of Companhia Energética de Minas Gerais S.A. – CEMIG , where he was a Distribution Officer from 1998 to 2010. He has also acted as an Operations and Commercial Officer of Energisa Soluções and as a Director of the Operador Nacional do Sistema Electrico (ONS). Mr. da Silva holds a degree in electrical engineering and has completed post-graduate courses in business administration and economics engineering.

Mr. José Antonio Muniz Lopes – Transmission Officer : Mr. Lopes was appointed Chief Executive Officer of Eletrobras on March 6, 2008. On March 4, 2008 at the Extraordinary General Stockholders Meeting he was elected a member of our Board of Directors. Mr. Lopes has held several executive positions in companies in the Eletrobras group, such as Chief Executive Officer and Director of Planning and Engineering at Eletrobras Eletronorte from 1996 to 2003, Chief Executive Officer, Managing Director and Chief Financial Officer at Eletrobras Chesf from 1992 to 1993 and Chief Executive Officer at Eletrobras from March 2008 to February 2011. Mr. Lopes was also Deputy Director of the National Department of Energy Development – DNDE of the Ministry of Mines and Energy, where he also served as the Executive Secretary. Mr. Lopes holds a degree in Electrical Engineering from the Universidade Federal de Pernambuco . He is an expert in the Brazilian electricity sector in which he has worked for more than 30 years.

B. Compensation

The compensation of our Board of Directors, Board of Executive Officers and Fiscal Council is determined by our shareholders at the Ordinary Shareholders’ Meeting held within the first four months of the financial year. That compensation may also include a profit sharing amount at the discretion of our shareholders.

For 2012, 2011 and 2010 the aggregate compensation paid to our Directors, Officers and members of the Fiscal Council (including that paid by our subsidiaries and Itaipu, except for the distribution companies) was R$21,631,259.50, R$19,815,743.05 and R$18,417,084.63, respectively. The total aggregate amount of profit-sharing paid to our officers (including that paid by our

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subsidiaries and Itaipu) was R$2,631,834.89 for 2012, R$2,395,432.75 for 2011 and R$2,647,443.82 for 2010. The Board of Executive Officers is responsible for apportioning the compensation among its members, the members of the Board of Directors and the Fiscal Council. We have not set aside or accrued any amounts to provide pension, retirement or similar benefits.

C. Board Practices

Service Contracts

We do not have service contracts with any member of our Board of Directors, Board of Executive Officers or Fiscal Council.

Fiscal Council

Our Fiscal Council is established on a permanent basis and consists of five members and five alternates elected at the annual shareholders meeting for renewable one-year terms. The Brazilian Government has the right to appoint three of the members of our Fiscal Council, and both the minority shareholders and the holders of our preferred shares without voting rights, representing at least ten percent of our total capital, have the right to appoint one member each.

The current members of our Fiscal Council, set out in the table below, and respective alternates were elected during the general shareholders meeting held during May 18, 2012 and in which we only elected four members to the Fiscal Council. Their terms of office are due to end at the ordinary shareholder meeting scheduled for April 2013.


Member		Alternate
Jarbas Raimundo de Aldano Matos		Ricardo de Paula Monteiro
Danilo de Jesus Vieira Furtado		Jairez Elói de Souza Paulista
Charles Carvalho Guedes		Hailton Madureira de Almeida
Manuel Jeremias Leite Caldas		Fernando Cézar Maia
Fernando Pessoa Lopes

D. Employees

As of December 31, 2012, we had a total of 27,940 salaried employees compared to 28,370 and 28,310 employees as of December 31, 2011 and 2010, respectively. Eletrobras itself, excluding Itaipu and other subsidiaries, had 1,269 employees as of December 31, 2012. For the past five years we have not experienced any strikes or other form of work stoppage that have affected our operations or had a significant impact on our results.

As a mixed capital company, we cannot hire employees without a public contest. A public contest involves us placing advertisements in the Brazilian press for open positions and inviting applicants to sit an examination. The last public contest took place in 2010, as a result of which we hired approximately 35 new employees.

The following table sets out the number of employees by tenure:

Composition of Employees by Tenure


As of	Up to 5		6 to 10		11 to 15		16 to 20		21 to 25		Over 25		Total
December 31, 2012		6,802		5,263		1,331		837		4,486		9,222		27,940
December 31, 2011		7,867		4,165		1,416		609		5,510		8,802		28,370

The following table sets out the number of employees, by department:


Department	Number of Salaried Employees as of December 31,
	2012		2011
Field		15,415		17,247
Administrative		12,525		11,122


Total		27,940		28,370

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Although we are not allowed to hire outsourced employees, our subsidiaries Eletrobras Eletronorte and Eletrobras Furnas employ 2,004 outsourced employees in order to comply with the rules established by the Brazilian Government during the national privatization plan.

The following table sets out the number of outsourced employees at Eletrobras Eletronorte and Eletrobras Furnas:


Subsidiary	Number of Outsourced Employees as of December 31,
	2012		2011
Eletrobras Eletronorte		471		507
Eletrobras Furnas		1,533		1,541

Total		2,004		2,048

The majority of our employees are members of unions. The main unions that represent our employees are Federação Nacional dos Urbanitários, Federação Nacional dos Engenheiros, Federação Interestadual de Sindicatos de Engenheiros, Federação Nacional de Secretárias e Secretários, Federação Brasileira dos Administradores, Sindicato dos Trabalhadores nas Indústrias de Energia Elétrica de São Paulo, Sindicato dos Eletricitários de Furnas e DME and Sindicato dos Eletricitários do Norte e Noroeste Fluminense . Our relationship with our employees is regulated by collective bargaining agreements executed with these unions and the Associação dos Empregados da Eletrobras and renegotiated in May each year. This agreement is applicable only to employees of Eletrobras itself. Each of our subsidiaries negotiates its own collective bargaining agreement, on an annual basis, with their respective unions. We generally have a one-day strike each year regarding these collective bargaining agreements.

E. Share Ownership

No member of our Fiscal Council holds any of our shares. The following tables show current ownership of our shares by members of our Board of Directors and Board of Executive officers:

Board of Directors


Name:	Number of Common Shares held
Maurício Muniz Barreto de Carvalho		2
Lindemberg de Lima Bezerra		1
Wagner Bittencourt de Oliveira		3
Marcio Pereira Zimmermann		10
José Antonio Corrêa Coimbra		1
José da Costa Carvalho Neto		100
Marcelo Gasparino da Silva*		1
Thadeu Figueiredo Rocha		—
Beto Ferreira Martins Vasconcelos		—

*	Also holds one class “B” Preferred Share.

Board of Executive Officers


Name:	Number of Common Shares held
José da Costa Carvalho Neto		100
José Antonio Muniz Lopes		1
Marcos Aurélio Madureira da Silva		—
Valter Luiz Cardeal de Souza		—
Miguel Colasuono		—
Armando Casado de Araújo		—

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

As of December 31, 2012, the aggregate amount of our outstanding capital stock was R$31,305,331, consisting of 1,087,050,297 outstanding common shares, together with 146,920 outstanding class “A” preferred shares and 265,436,883 outstanding class “B” preferred shares. This represented 80.4%, 0.01% and 19.6% of our aggregate outstanding capital stock respectively.

As of December 31, 2012, we had 42,486 beneficial and 9 registered holders of ADSs representing common shares and 22,030 beneficial and 6 registered holders of ADSs representing preferred shares.

The following tables show information relating to beneficial ownership in our common and preferred shares as of December 31, 2012 and December 31, 2011:

As of December 31, 2012


Shareholder	Common Shares					Class A Preferred Shares					Class B Preferred Shares					Total
	(number)		%			(number)		%			(number)		%			(number)		%
Brazilian Government		591,968,382		54.46	%							2,252		0.00	%		591,970,634		43.76	%
BNDES Participações S.A.		141,757,951		13.04	%							18,691,102		7.04	%		160,449,053		11.86	%
BNDES		76,338,832		7.02	%							18,262,671		6.88	%		94,601,503		6.99	%
FND		45,621,589		4.20	%												45,621,589		3.37	%
FGHAB		1,000,000		0.09	%												1,000,000		0.07	%
CEF		8,701,564		0.80	%												8,701,564		0.64	%
FGI												8,750,000		3.30	%		8,750,000		0.65	%
FGO												468,600		0.18	%		468,600		0.03	%
Others		221,661,979		20.39	%		146,920		100.00	%		219,262,258		82.60	%		441,071,157		32.61	%
Under BM&FBOVESPA Custody		221,423,953		20.37	%		85,508		58.20	%		212,496,289		80.05	%		386,456,775		28.57	%
Resident		62,118,451		5.71	%		85,507		58.20	%		90,872,349		34.24	%		137,875,099		10.19	%
Non Resident		91,394,577		8.41	%		1		0.00	%		95,637,799		36.03	%		154,684,610		11.44	%
J.P. Morgan Chase Bank		67,910,925		6.25	%							25,986,141		9.79	%		93,897,066		6.94	%
Others		238,026		0.02	%		18,580		12.65	%		6,765,969		2.55	%		7,022,575		0.52	%
Resident		210,297		0.02	%		18,553		12.63	%		6,761,967		2.55	%		6,990,817		0.52	%
Non Resident		27,729		0.00	%		27		0.02	%		4,002		0.00	%		31,758		0.00	%

Total		1,087,050,297					146,920					265,436,883					1,352,634,100

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As of December 31, 2011


Shareholder	Common Shares					Class A Preferred Shares					Class B Preferred Shares					Total
	(number)		%			(number)		%			(number)		%			(number)		%
Brazilian Government		552,968,382		50.87	%							2,252		0.00	%		552,970,634		40.88	%
BNDES Participações S.A.		180,757,951		16.63	%							18,691,102		7.04	%		199,449,053		14.75	%
BNDES		76,338,832		7.02	%							18,262,671		6.88	%		94,601,503		6.99	%
FND		45,621,589		4.20	%												45,621,589		3.37	%
FGHAB		1,000,000		0.09	%												1,000,000		0.07	%
CEF		8,701,564		0.80	%												8,701,564		0.64	%
FGI												8,750,000		3.30	%		8,750,000		0.65	%
FGO												468,600		0.18	%		468,600		0.03	%
Others		221,661,979		20.39	%		146,920		100.00	%		219,262,258		82.60	%		441,071,157		32.61	%
Under BM&FBOVESPA Custody		221,439,414		20.37	%		84,997		57.85	%		194,510,561		73.28	%		416,034,972		30.76	%
Resident		56,490,457		5.20	%		84,996		57.85	%		49,816,612		18.77	%		106,392,658		7.87	%
Non Resident		88,700,063		8.16	%		1		0.00	%		107,309,594		40.43	%		196,009,658		14.49	%
J.P. Morgan Chase Bank		76,248,894		7.01	%							37,384,355		14.08	%		113,633,249		8.40	%
Others		222,565		0.02	%		61,923		42.15	%		24,751,697		9.32	%		25,036,185		1.85	%
Resident		194,836		0.02	%		61,896		42.13	%		24,747,695		9.32	%		25,004,427		1.85	%
Non Resident		27,729		0.00	%		27		0.02	%		4,002		0.00	%		31,758		0.00	%

Total		1,087,050,297					146,920					265,436,883					1,352,634,100

B. Related Party Transactions

We administer certain funds, including the RGR fund, CCC Account and CDE Account, on behalf of the Brazilian Government, our controlling shareholder.

We sometimes act together with other Brazilian state owned companies or governmental entities. These activities are mainly in the areas of technical cooperation and research and development. In 2000, our Board of Directors approved the execution of a Technical and Financial Cooperation Agreement between ourselves and the MME, for us to perform feasibility studies in relation to the Brazilian hydrographic base, with the purpose of identifying potential sites for the future construction of hydroelectric plants. The estimate value of this contract is R$25 million, to be paid to us by the MME.

We have entered into a joint venture agreement with Petrobras Energia S.A., which is also partly owned by the Brazilian Government, for the construction of a thermoelectric plant in Manaus. We have also entered into a framework agreement to establish the basis and the conditions for the development of energy commercialization contracts to be executed between ourselves and Petrobras in the future.

In addition, we have also made a number of loans to our subsidiaries. For further details please see the description in “Item 4. B, Information on the Company – Business Overview – Lending and Financing Activities – Loans Made by Us.”

There are also certain contractual arrangements in place between Eletrobras Eletronuclear and Eletrobras Furnas for the sale and purchase of energy produced by Eletrobras Eletronuclear, which are more closely described in “Item 4.B, Information on the Company – Business Overview Nuclear Plants.”

We believe our transactions with related parties are conducted on market terms.

For further information see Note 46 of the Financial Statements.

C. Interests of Experts and Counsel

Not applicable.

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ITEM 8. FINANCIAL INFORMATION

A. Consolidated Financial Statements and Other Information

See “Item 3.A, Selected Financial Data” and “Item 18, Financial Statements.”

Litigation

As of December 31, 2012, we were a party to numerous legal proceedings relating to civil, administrative, environmental, labor and tax claims filed against us. These claims involve substantial amounts of money and other remedies. Several individual disputes account for a significant part of the total amount of claims against us. We have established provisions for all amounts in dispute that represent a probable loss in the view of our legal advisors and in relation to those disputes that are covered by laws, administrative decrees, decrees or our court rulings that have proven to be unfavorable. As of December 31, 2012, we provisioned a total aggregate amount of approximately R$5,556 million in respect of our legal proceedings, of which R$637 million were related to tax claims, R$3,780 million were related to civil claims and R$1,139 million were related to labor claims.

Environmental Proceedings

We are required to comply with strict environmental laws and regulations that subject us to numerous environmental legal and administrative proceedings filed against us. In 2002 and 2003, two associations of the community of Cabeço brought independent class actions regarding environmental damages caused by Eletrobras Chesf. The Cabeço community is located in a river island in the estuary of the São Francisco River. Both associations alleged that the hydroelectric plants disturbed the normal flow of the river and resulted in a decline in fishing activity and the gradual disappearance of the river island. The court held that any motion filed for an interlocutory appeal must be postponed until a final judgment is delivered. On August 9, 2010, we lodged a motion requesting the clarification of this decision. This motion was rejected in September 2010. We subsequently filed a request for reconsideration of the decision that the interlocutory appeal be postponed, which was also rejected by the judge on October 18, 2010. The judge of the case scheduled a hearing among all parties and experts on May 21, 2013 to define the deadline and scope of the work to be performed by the experts. We have not made any provision in respect of this litigation as we consider the risk of an unfavorable decision on this lawsuit to be possible, and total amounts involved are of R$ 368.5 million and R$ 309.1 million.

Labor Proceedings

As of December 31, 2012, we were party to a number of labor proceedings brought by our employees, former employees and employees of some of our service providers against us, involving a total amount of R$1,139 million. Most of those proceedings relate to overtime compensation and its indirect effects, salary equalization, pension payments and payment of rescisory amounts. Although we are a party to a significant number of labor proceedings, we believe that none of those proceedings, when considered individually, could materially adversely affect our results of operations or financial condition.

In connection with successive attempts by the Brazilian Government to curb Brazil’s high inflation rates, Brazilian companies have in the past been required by law to disregard in each year part of the inflation for that year when calculating wage increases for its employees. Like most other Brazilian companies, we have been defendants in lawsuits brought before labor courts by labor unions or individual employees seeking compensation for lost wages resulting from the implementation of the Brazilian Government’s anti-inflationary plans, in particular: (i) the plan implemented in 1987 by the then Minister of Finance, Luiz Carlos Bresser Pereira (the Bresser Plan); (ii) the plan implemented in early 1989 (the Summer Plan); and (iii) the plan implemented in 1990 by the then President, Fernando Collor de Melo (the Collor Plan). Some of the collective lawsuits brought against us in respect to such plans have been definitively decided by the Federal Supreme Court in our favor. As of December 31, 2012, there were still individual lawsuits in process pending judgment, which we do not view as material. As of December 31, 2012, there were few material labor contingencies, and the probability of loss with respect to most of lawsuits is considered possible by our legal advisors. For further information, see Note 31 of our financial statements as of and for the year ended December 31, 2012.

Compulsory Loans

Pursuant to Law No. 4,156 of November 28, 1962 certain end-users of electricity were required to make “compulsory loans” to us (through collections by distributors) in order to provide funds for the development of the electricity sector. Industrial customers consuming over 2,000 kWh of electricity per month were required to pay an amount equivalent to 32.5% of each electricity invoice to us in the form of a compulsory loan, which was repayable by us within 20 years of draw-down. Interest on the compulsory loans accrues at IPCA – E plus 6.0% per annum. Law No. 7,181 of December 20, 1983, extended the compulsory loan program until December 31, 1993 and provided that such loans may, subject to shareholder approval, be repaid by us in the form of an issue of preferred shares at book value, in lieu of cash.

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We made available to eligible customers upon the first and second conversion of credits from the compulsory loan approximately 42.5 billion class “B” preferred shares and upon the third conversion of credits from the compulsory loan, about 27.2 billion class “B” preferred shares. In addition, our shareholders approved on April 30, 2008 the issuance of additional preferred shares to eligible customers at book value in repayment of our remaining compulsory loans. If additional shares are issued in the future and the book value of such shares is less than their market value, the value of existing shareholders’ shares may be subject to dilution. On December 31, 2008, we recorded approximately R$215 million for debts for compulsory loans that had not yet been converted, which, at any time, by decision of our shareholders, may be refunded to industrial consumers, through issuing class “B” preferred shares, in accordance with the proceedings described above.

As of December 31, 2012, there were 5,670 outstanding lawsuits filed by consumers against us questioning the monetary adjustments, understated inflation and interest calculations related to the repayment of the compulsory loans. Of those lawsuits, 720 have been decided against us and are currently at the execution phase. The total amount involved in these lawsuits is unadjusted for monetary correction and required expert assessment to be estimated with accuracy. The total amount plead by plaintiffs in the outstanding lawsuits is approximately R$2,592 million. In the course of execution proceedings, we have been required to pledge some of our assets, consisting mainly of preferred shares held by us in other electricity sector companies. We have provisioned R$1,085 million to cover losses arising from unfavorable decisions on these lawsuits as of December 31, 2012.

We are also involved in approximately 2,317 pending lawsuits related to the repayment of the compulsory loans, in which consumers seek to exercise the option to convert their credits presented by bonds payable to the bearer. These bonds are called “obrigações da Eletrobras.” However, we believe we have no further liability in respect of these bonds because they have an expiration date for presentation and this date has now passed.

As of the same date, there were 340 lawsuits in connection with the assignment and monetary restatement of compulsory loans credits. Eletrobras believes these assignments are null and void, as they are not expressly permitted in the relevant legislation. The Superior Court of Justice will issue a ruling that will guide all judicial decisions in these lawsuits. However, there is no assurance as to the date such judgment will occur. Eletrobras considers the likelihood of loss under these claims as possible.

Tax Proceedings

Eletrobras Furnas/COFINS – PASEP – FINSOCIAL

In 2001, we received notifications of infringement related to FINSOCIAL, COFINS and PASEP taxes as a result of the exclusion from the calculation basis of certain onlendings and transport of energy from Itaipu, over a period of ten years. The amount of the claims was R$1,099 million (adjusted for inflation from an original figure of R$792 million). On June 12, 2008, with the issuance of precedent No. 8 by the Federal Supreme Court, the period to challenge the payment of such taxes were reduced from ten to five years and, consequently, the amount of the claims decreased to R$202.2 million.

We have made a provision of R$246 million as of December 31, 2012, following the recommendations of our legal advisors. The remaining balance was not provisioned because we consider the chances of a decision favorable to us possible.

Eletrobras Chesf / PIS/PASEP – COFINS

The Federal Supreme Court – STF declared the unconstitutionality of paragraph 1 of Article 3 of Law No. 9718/98, which increased the calculation basis of PIS/PASEP and COFINS taxes and created, at that time, a new concept of invoicing, which covers the total revenues earned by the legal entity, regardless the type of activity and the accounting classification adopted. This provision lacked constitutional grounds, and it was later added to the Constitution. This declaration by the Federal Supreme Court – STF only benefits companies that are parties to previously judged extraordinary appeals.

Based on the Brazilian Tax Code, on June 9, 2005, Eletrobras Chesf filed administrative proceedings before the Brazilian Federal Revenue seeking recognition of its tax credits and a refund of any overpaid amounts as a result of an alleged unconstitutional increase of the calculation basis used for these contributions. Upon the rejection of these administrative proceedings, Eletrobras Chesf filed lawsuits in July 2006 to assert its right to claim these tax credits of PIS/PASEP and COFINS, and obtained favorable rulings. However, the STF, while analyzing the constitutionality of Complementary Law No. 118/2005, concluded that the ten year statute of limitations applies only to lawsuits or administrative proceedings started until June 8, 2005. Based on this decision, the Brazilian Federal Government challenged the amount of the tax credits and filed a termination action before the 5 ^th Region Federal Court seeking to reverse the previous ruling in favor of Eletrobras Chesf. Accordingly, based on the ruling issued by the STF, it is likely that the appeals, which are currently pending judgment, are sent back to the initial courts for review pursuant to the Supreme Court’s position. Based on its legal counsel’s opinion in connection with COFINS credits (on which an unapealleble final decision has already been issued), on the Technical Notice ( Comunicado Técnico ) No. 5 and on CVM Deliberation ( Deliberação CVM ) No. 549/2009,

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Eletrobras Chesf records, in its “tax and contributions” line item, the amount of tax credits corresponding to the probable estimated actual value (original value with a monetary restatement) of such credits, amounting to R$128.1 million, which will be offset with federal taxes owed by Eletrobras Chesf. Eletrobras Chesf is also a party to a similar lawsuit, currently pending judgment, with connection to potential tax credits of PIS/PASEP, which are not recognized in its accounting records, related to the period between February, 1999 and November, 2002, in the amount of R$14.3 million as of December 31, 2012, which shall be offset against federal taxes owed by Eletrobras Chesf in the future.

Civil Proceedings

Expropriation of Lands

Our subsidiaries are normally involved in a number of legal proceedings related to the expropriation of land used for the construction of hydroelectric plants, particularly in the northern and northeastern regions. Most of those proceedings are related to the indemnification paid to the populations affected by the construction of the reservoirs and environmental or economic damages inflicted on the affected populations and neighboring cities. The main lawsuits related to expropriation involving our subsidiaries are described below.

In northern Brazil, Eletrobras Eletronorte is involved in several proceedings related to the expropriation of lands for the construction of the hydroelectric plants of Balbina, in the State of Amazonas, and Tucuruí, in the State of Pará. The lawsuits related to the Balbina expropriation involve the value to be paid for the expropriated land and the legality of the ownership of the affected land claimed by alleged landowners. The total amount involved, which is provisioned, was approximately R$333 million. Recently, the Ministério Público Federal presented new evidence that the lands belonged to the Federal Republic, not to the State of Amazonas. The Brazilian Government has joined Eletrobras Eletronorte in the proceedings involving the Balbina hydroelectric plant.

From the 232 original lawsuits related to the Tucuruí expropriation, only 2 were still active as of December 31, 2012. Eletrobras Eletronorte has been awarded the other 8 lawsuits and expects the same result to the proceedings still in course.

Mendes Jr.

As of December 31, 2012, Eletrobras Chesf was involved in significant litigation proceedings with Mendes Jr., a Brazilian construction contractor. Eletrobras Chesf and Mendes Jr. entered into an agreement in 1981 providing for certain construction work to be performed by Mendes Jr. The agreement, as amended, provided that, in the event of delays in payments due by Eletrobras Chesf to Mendes Jr., Mendes Jr. would be entitled to default interest at the rate of 1.0% per month, plus indexation to take account of inflation. During the performance of the work, payments by Eletrobras Chesf were delayed and Eletrobras Chesf subsequently paid default interest at the rate of 1.0%, plus indexation, on such delayed payments. Mendes Jr. alleged that as it had been required to fund itself in the market in order not to interrupt the construction work, it was entitled to be reimbursed in respect of such funding at market interest rates, which were much higher than the contractual default interest rate.

The lower court judge dismissed Mendes Jr.’s claims and Mendes Jr. appealed to the Appellate Court of the State of Pernambuco (or the Appellate Court). The Appellate Court reinstated Mendes Jr.’s claims and ultimately declared Eletrobras Chesf liable to reimburse Mendes Jr.’s funding costs in respect of the delayed payments at market rates, plus legal fees of 20.0% of the amount of the dispute, with the total being indexed at market rates until the actual payment date. Eletrobras Chesf’s appeal from the Appellate Court’s order to the Federal Superior Court (or STJ) was dismissed on jurisdictional grounds. Mendes Jr. then filed a second lawsuit in a State court in Pernambuco to order Eletrobras Chesf to pay for the actual losses incurred by Mendes Jr., and to determine the amount payable. In the enforcement proceedings, the lower court ruled in favor of Mendes Jr., but the Appellate Court ruled in favor of Eletrobras Chesf, annulling the lower court’s judgment in the enforcement proceedings. Mendes Jr. appealed this ruling of the Appellate Court to the STJ and to the Federal Supreme Court, which were rejected. At the same time, the Brazilian government also requested the STJ to permit the government to participate in the proceedings as Eletrobras Chesf’s assistant. In December 1997, the STJ decided that: (i) the second proceedings should be recommenced from the trial court phase; (ii) the Brazilian government should participate in the proceedings as Eletrobras Chesf’s assistant; and (iii) the second proceedings should be heard before Brazilian federal courts instead of the state courts to which it was originally submitted. The second proceedings recommenced in the Brazilian federal courts to determine the final amount to be paid by Eletrobras Chesf to Mendes Jr. An expert was called to determine the amount of the claim, and had his finding challenged by Eletrobras Chesf. As a consequence, the court decided to reject the expert’s opinion but fixed the criteria which should be applied to determine the amount due. Mendes Jr. has appealed, requesting that the court require Eletrobras Chesf to pay the amount determined by the expert. Eletrobras Chesf and the Brazilian government have also appealed, requesting that the lawsuit should be terminated since there is no evidence Mendes Jr. obtained loans to conclude the construction. On October 25, 2010, the Regional Federal Court of the 5 ^th Region held the appeals filed by Eletrobras Chesf and the Brazilian government and ruled the lawsuit had no merit. Mendes Junior filed an appeal against this decision before the 5 ^th Region Federal Court, which was denied.

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Mendes Junior filed an appeal against such denial, which is currently pending judgment before the Brazilian Superior Court of Justice. The initial amount pleaded by the plaintiffs was of approximately R$7 billion (not considering inflation). As of December 31, 2012, we had no provisions related to this matter. Considering the decision of the Regional Federal Court of the 5 ^th Region, the risk of loss of such litigation has been assessed as remote. See Note 31 of the Financial Statements.

Xingó Plant “K Factor” Litigation

As of December 31, 2012, Eletrobras Chesf was also involved in litigation with the consortium responsible for building the Xingó plant (or the Xingó Consortium). In connection with building the Xingó plant, Eletrobras Chesf and the Xingó Consortium entered into a construction agreement that was amended in 1988 to provide that an additional inflation adjustment (referred to as the “K factor”) be added to certain monetary correction payments required to be made by Eletrobras Chesf to the Xingó Consortium under the agreement. This amendment resulted in payments by Eletrobras Chesf to the Xingó Consortium that were higher than the payments that the original Request For Proposal (or RFP) for this project indicated would be paid to the successful bidder.

In 1994, Eletrobras Chesf unilaterally ceased applying the K factor to its payments to the Xingó Consortium (and consequently reduced its payments to the Xingó Consortium to the amount that Eletrobras Chesf would have had to pay if the K factor had not been applied to such payments) and filed a lawsuit against the Xingó Consortium seeking reimbursement for the additional amounts paid pursuant to the K factor adjustment, claiming that the use of an indexation system more favorable to the Xingó Consortium than the one originally provided for by the RFP was illegal under public bidding rules. The Xingó Consortium also filed a lawsuit against Eletrobras Chesf requiring full payment of the amounts due applying the K factor. Eletrobras Chesf’s lawsuit was rejected and Xingó Consortium’s lawsuit was decided favorably to the plaintiff, ordering Eletrobras Chesf to pay the amounts corresponding to the application of the K factor. Eletrobras Chesf and the Brazilian government, which is acting as the first’s assistant on the lawsuit, have appealed to the STJ. In August 2010, the STJ upheld Eletrobras Chesf’s appeal to reduce the amount of the claim. STJ also denied the other special appeals presented by Eletrobras Chesf and upheld the decision of the TJPE which dismissed the declaratory action filed by Eletrobras Chesf and upheld the counterclaim filed by the defendants. On December 31, 2012, the parties had not been notified of this STJ decision, which is still subject to appeal. If the final ruling is against Eletrobras Chesf, it will be subject to the final execution of the judgment. In March 2012, TJPE ruled in favor of the Consortium with respect to the payment by Chesf of certain of the Consortium’s legal fees and against Chesf with respect to the payment of all legal proceeding costs. The TJPE has also accepted a motion for clarification from Chesf and the Brazilian Government to exclude the incidence of “statutory interest on arrears” added to the “contractual interest on arrears,” in order to maintain in the liquidation calculation only the “contractual interest on arrears.” Chesf has also filed a motion for clarification with respect to a few points of the TJPE decision. As of December 31, 2012, Eletrobras Chesf had provisioned R$723.3 million in relation to this proceeding, as it considers the risk of an unfavorable decision probable.

Eletrobras Chesf filed a lawsuit against Companhia Brasilieira de Projetos e Obras (CBPO) and Construções e Comércio and Mendes Júnior Engenharia S.A. (CONSTRAN), claiming the partial invalidity of a turn-key agreement entered into between the parties regarding Xingó, a hydroelectric power plant, and seeking the return of amounts paid thereunder, of approximately R$350 million.

The Federal Regional Court ruled that the Pernambuco State Court was the proper forum to hear this claim. The court found that Eletrobras Chesf’s claim did not have any legal basis. Subsequently, the defendants filed a counterclaim and obtained a favorable judgment in the Civil Court of Recife which has been upheld on appeal by the 2 ^nd Civil Chamber of the Pernambuco Court of Justice. As of April 22, 2013, a motion to clarify filed by Eletrobras Chesf was pending judgment by the Superior Court of Justice.

Eletrobras Chesf – Fazenda Aldeia Litigation

The trustees of the estate of Aderson Moura de Souza and his wife commenced a suit for damages against Eletrobras Chesf with respect to 14,400 hectares of land. A lower court determined that there were grounds for the claim and ordered Eletrobras Chesf to pay R$50 million, corresponding to the principal amount plus interest and monetary restatement. In December 2008, Eletrobras Chesf filed an appeal with Court of Justice of the State of Bahia. On March 2009, this lawsuit was transferred to the federal courts, which nullified the order for damages. The 1 ^st Region Federal Court partially affirmed the original order, but its decision has been suspended as one of the judges has requested more time to rule on the case. On September 30, 2011, a termination action was filed before the 1st Region Federal Court. On December 31, 2011, an injunction to interrupt the execution of the main proceeding was granted. As of December 31, 2012, we had not yet received the judgment of the appeal. Eletrobras Chesf has provisioned R$100 million in relation to this proceeding as the risk of an unfavorable decision is considered to be probable. For a further discussion of this suit, see Note 31 of the financial statements as of and for the year ended December 31, 2012.

For a further discussion of our pending litigation and administrative proceedings, see Note 31 to our financial statements as of and for the year ended December 31, 2012.

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Policy on Dividend Distribution

Brazilian Corporate Law and our by-laws provide that we must pay our shareholders a mandatory distribution equal to at least 25.0% of our adjusted net income for the preceding fiscal year. In addition, our by-laws require us to give: (i) class “A” preferred shares a priority in the distribution of dividends, at 8% each year over the capital linked to those shares; and (ii) class “B” preferred shares that were issued on or after June 23, 1969 a priority in the distribution of dividends, at 6% each year over the capital linked to those shares. In addition, preferred shares must receive a dividend 10% over the dividend paid to the common shares.

The following table sets out our dividends for the periods indicated:


	Year
	2012		2011		2010
Common Shares (ELET 3)		0.39		0.58		0.83
Class A Preferred Shares (ELET 5)		2.17		2.17		2.17
Class B Preferred Shares (ELET 6)		1.63		1.63		1.63

As of December 31, 2012, our balance sheet carried retained dividends from previous years of R$3.4 billion, as well as R$0.9 million of accumulated dividends we have declared but not yet paid to our shareholders as permitted under Brazilian corporate law. Our Board of Directors has discretion as regards when such dividends may be paid to our shareholders. Accordingly, our management believes that any decision to pay the related dividends would only be made when our Board of Directors believes that such payment would not cause a material liquidity event. For further information, see Note 28 to our financial statements as of and for the year ended December 31, 2012.

B. Significant Changes

None.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Offer and Listing Details – Common Shares

Our common shares commenced trading on the Brazilian stock exchanges on September 7, 1971. The following table sets forth the reported high and low closing sale prices for our common shares on the BM&FBOVESPA and the approximate average daily trading volume for the annual periods indicated.


	Nominal *reais* per Common Share				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
2008		31.25		19.64		1.338
2009		38.75		24.07		1.102
2010		42.00		21.00		1.141
2011		25.40		15.35		1.087
2012		19.36		6.16		2.052

Source: São Paulo Stock Exchange.

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The following table sets forth the reported high and low closing sale prices for our common shares on the BM&FBOVESPA and the approximate average daily trading volume for the quarterly periods indicated.


	Nominal *reais* per Common Share				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
First Quarter 2010		42.00		23.25		1.610
Second Quarter 2010		26.57		21.86		1.136
Third Quarter 2010		23.25		21.00		0.810
Fourth Quarter 2010		26.05		21.08		1.033
First Quarter 2011		24.68		22.13		1.229
Second Quarter 2011		25.40		20.34		1.141
Third Quarter 2011		20.86		15.75		1.068
Fourth Quarter 2011		18.32		15.35		0.935
First Quarter 2012		19.36		17.13		0.852
Second Quarter 2012		17.38		12.70		2.898
Third Quarter 2012		15.94		11.70		1.611
Fourth Quarter 2012		12.22		6.16		2.896

Source: São Paulo Stock Exchange.

The following table sets forth the reported high and low closing sale prices for our common shares on the BM&FBOVESPA and the approximate average daily trading volume for the periods indicated:


	Nominal *reais* per Common Share				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
June 2012		14.39		12.83		1.524
July 2012		14.68		13.12		0.784
August 2012		15.94		13.02		1.364
September 2012		13.22		11.70		2.823
October 2012		12.22		11.10		1.293
November 2012		11.58		6.16		5.025
December 2012		7.45		6.32		2.608
January 2013		8.10		6.40		3.325
February 2013		7.12		6.13		1.594
March 2013		7.44		6.25		2.022
April 2013 (through April 5, 2013)		6.95		6.45		2.202

Source: São Paulo Stock Exchange.

In the United States, our common shares trade in the form of ADSs. The following table sets forth the reported high and low closing sale prices for our ADSs representing common shares on the NYSE and the approximate average daily trading volume for the periods indicated:


	U.S.$ per ADS (common shares)				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
June 2012		7.07		6.31		1.216
July 2012		7.17		6.48		0.676
August 2012		7.95		6.50		1.039
September 2012		6.52		5.82		1.372
October 2012		6.04		5.56		1.034
November 2012		5.67		3.17		1.948
December 2012		3.46		3.01		1.229
January 2013		3.93		3.10		1.440
February 2013		3.58		3.07		0.947

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	U.S.$ per ADS (common shares)				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
March 2013		3.78		3.12		1.092
April 2013 (through April 5, 2013)		3.46		3.17		1.402

Source: New York Stock Exchange.

Offer and Listing Details – Preferred Shares

The following table sets forth the reported high and low closing sale prices for our Class B preferred shares on the BM&FBOVESPA and the approximate average daily trading volume for the annual periods indicated.


	Nominal *reais* per Preferred Share				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
2008		27.60		18.61		1.338
2009		33.90		22.30		1.000
2010		35.19		24.67		0.790
2011		31.46		20.34		0.736
2012		27.49		7.30		1.724

Source: São Paulo Stock Exchange.


	Nominal *reais* per Preferred Share				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
First Quarter 2010		35.19		28.30		0.978
Second Quarter 2010		32.56		25.91		0.751
Third Quarter 2010		27.71		24.67		0.714
Fourth Quarter 2010		30.72		24.70		0.723
First Quarter 2011		30.62		26.73		0.943
Second Quarter 2011		31.46		25.97		0.627
Third Quarter 2011		26.16		20.34		0.702
Fourth Quarter 2011		26.98		20.82		0.685
First Quarter 2012		27.49		23.31		0.694
Second Quarter 2012		24.09		17.31		2.314
Third Quarter 2012		21.2		17.74		1.064
Fourth Quarter 2012		18.25		7.30		2.891

Source: São Paulo Stock Exchange.

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	Nominal *reais* per Preferred Share				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
June 2012		19.80		17.94		0.744
July 2012		20.10		18.64		0.633
August 2012		21.20		18.55		0.862
September 2012		19.20		17.74		1.751
October 2012		18.25		15.95		0.857
November 2012		16.80		7.30		5.628
December 2012		10.48		9.15		2.489
January 2013		13.70		9.69		2.803
February 2013		12.62		11.44		1.567
March 2013		12.77		10.93		1.471
April 2013 (through April 5, 2013)		12.75		11.90		1.670

Source: São Paulo Stock Exchange.

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In the United States, our Class B preferred shares trade in the form of ADSs. The following table sets forth the reported high and low closing sale prices for our ADSs representing Class B preferred shares on the NYSE and the approximate average daily trading volume for the periods indicated:


	U.S.$ per ADS (Class B preferred shares)				Average Daily Trading Volume
	High		Low		Average Daily Trading Volume
					(millions of shares)
June 2012		9.60		8.86		0.365
July 2012		9.85		9.16		0.309
August 2012		10.45		9.20		0.308
September 2012		9.50		8.68		0.633
October 2012		9.03		8.00		0.209
November 2012		8.16		3.57		0.625
December 2012		5.03		4.34		0.499
January 2013		6.60		4.70		0.342
February 2013		6.52		5.65		0.289
March 2013		6.47		5.50		0.232
April 2013 (through April 5, 2013)		6.25		5.76		0.278

Source: New York Stock Exchange.

We have an insignificant number of Class A preferred shares, with no material effect on the trading volume on the BM&FBOVESPA.

As a result, as of December 31, 2012, our capital stock was comprised of a total of 1,352,634,100 shares, of which 1,087,050,297 are common shares, 146,920 are class “A” preferred shares and 265,436,883 are class “B” preferred shares.

There are no restrictions on ownership of our preferred shares or common shares by individuals or legal entities domiciled outside Brazil.

The right to convert dividend payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment regulations which generally require, among other things, that the relevant investments have been registered with the Central Bank. Banco Itaú S.A., as custodian for our common and class “B” preferred shares represented by the ADSs, has registered with the Central Bank on behalf of the Depositary the common and class “B” preferred shares that it will hold. This enables holders of ADSs to convert dividends, distributions or the proceeds from any sale of such common and class “B” preferred shares, as the case may be, into U.S. dollars and to remit such U.S. dollars abroad. However, holders of ADSs could be adversely affected by delays in, or a refusal to grant any, required government approval for conversions of Brazilian currency payments and remittances abroad of the common and preferred “B” shares underlying our ADSs.

In Brazil, there are a number of mechanisms available to foreign investors interested in trading directly on the Brazilian stock exchanges or on organized over-the-counter markets.

Under the regulations issued by the Resolution No. 2,689 issued by the National Monetary Council, foreign investors seeking to trade directly on a Brazilian stock exchange or on an organized over-the-counter market, must meet the following requirements:

•

investments must be registered with a custody, clearing or depositary system authorized by CVM or the Central Bank;

•

trades of securities are restricted to transactions performed on the stock exchanges or organized over-the-counter markets authorized by the CVM;

•

they must establish a representative in Brazil;

•

they must complete a form annexed to the Resolution No. 2,689; and

•

they must register with the CVM and register the inflow of funds with the Central Bank.

If these requirements are met, foreign investors will be eligible to trade directly on the Brazilian stock exchanges or on organized over-the-counter markets. These rules extend favorable tax treatment to all foreign investors investing pursuant to these rules. See “Item 10.E, Taxation.” These regulations contain certain restrictions on the offshore transfer of the title of the securities, except in the case of corporate reorganizations effected abroad by a foreign investor.

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A certificate of foreign capital registration has been issued in the name of the Depositary with respect to the ADSs and is maintained by Banco Itaú S.A., as custodian for our common and class “B” preferred shares represented by the ADSs, on behalf of the Depositary. Pursuant to such certificate of foreign capital registration, we expect that Depositary will be able to convert dividends and other distributions with respect to the common and class “B” preferred shares represented by ADSs into foreign currency and remit the proceeds outside of Brazil.

In the event that a holder of ADSs exchanges such ADSs for common or class “B” preferred shares, such holder will be entitled to continue to rely on the Depositary’s certificate of foreign capital registration for five business days after such exchange, following which such holder must seek to obtain its own certificate of foreign capital registration with the Central Bank. Thereafter, any holder of common or class “B” preferred shares may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such common and class “B” preferred shares, unless such holder qualifies under Resolution No. 2,689 or obtains its own certificate of foreign capital registration. A holder that obtains a certificate of foreign capital registration will be subject to less favorable Brazilian tax treatment than a holder of ADSs. See “Item 10.E, Taxation – Material Brazilian Tax Considerations.”

Under current Brazilian legislation, the Brazilian Government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately six months in 1989 and early 1990, the Brazilian Government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian Government directives. There can be no assurance that the Brazilian Government will not impose similar restrictions on foreign repatriations in the future.

B. Plan of Distribution

Not applicable.

C. Markets

Our common shares are traded under the symbol “ELET3” and our class “B” preferred shares are traded under the symbol “ELET6” on the BM&F BOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros (the São Paulo Stock Exchange or BM&FBOVESPA). The Rio de Janeiro Stock Exchange trades only Brazilian federal, state and municipal public debt or carries out privatization auctions. Stocks and bonds are traded exclusively on the BM&FBOVESPA. As of December 31, 2012, we had approximately 28,215 record holders.

Our ADRs are listed on the NYSE. As of December 31, 2012, we had 42,486 beneficial and nine registered holders of ADSs representing common shares and 22,030 beneficial and six registered holders of ADSs representing preferred shares.

Trading, Settlement and Clearance

Regulation of the Brazilian Securities Market

The Brazilian securities markets are regulated by the Comissão de Valores Mobiliários (the “CVM”), which was granted regulatory authority over the stock exchanges and securities markets by Brazilian Law No. 6,385, enacted on December 7, 1976 (“Brazilian Securities Law”) and Brazilian Law No. 6,404, enacted on December 15, 1976 (“Brazilian Corporate Law”), and also by Conselho Monetário Nacional (the “CMN”) and the Central Bank which possesses, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.

The Brazilian securities markets are governed by the Brazilian Securities Law and the Brazilian Corporate Law, as well as regulations issued by the CVM, the Central Bank and the CMN. These laws and regulations provide for, among other things, disclosure requirements applicable to issuers of traded securities, restrictions on insider trading and price manipulation and protection of minority shareholders. On January 3, 2002, the CVM issued Instruction No. 358 which amended the rules applicable to the disclosure of relevant facts, which became effective on April 18, 2002. The CVM has also issued several instructions regarding disclosure requirements, namely, Instructions No. 361 and No. 400 for the regulation of public offerings, Instruction No. 380 for the regulation of internet offerings and Instruction No. 381 for the regulation of independent auditors. Instruction No. 480 for the regulation of the registration of security issuers admitted to negotiation in regulated markets in Brazil, and Instruction No. 481 for the regulation of information and the public request of proxy for shareholders meetings. Instruction No. 480 also requests that publicly held companies disclose a reference form ( Formulário de Referência ) which maintains a permanently updated record containing relevant information on the issuer. We believe we are currently in accordance with all applicable Brazilian corporate governance standards.

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Under the Brazilian Corporate Law, a company is either public, a companhia aberta , or private, a companhia fechada . All public companies are registered with the CVM and are subject to reporting and regulatory requirements. A company registered with the CVM may have its securities traded either on the Brazilian stock exchange markets, including the BM&FBOVESPA, or in the Brazilian over-the-counter market. The shares of a public company may also be traded privately, subject to certain limitations. To be listed on the BM&FBOVESPA, a company must apply for registration with the BM&FBOVESPA and the CVM and is subject to regulatory requirements and disclosure requirements.

Trading on the BM&FBOVESPA

In 2000, the trading activities of shares in Brazil were reorganized through the execution of memoranda of understanding by the Brazilian regional stock exchanges. Under the memoranda, all Brazilian shares are publicly traded exclusively on the São Paulo Stock Exchange – BOVESPA ( Bolsa de Valores de São Paulo – BOVESPA ).

BOVESPA was a not-for-profit entity owned by its member brokerage firms. In 2008, BOVESPA was converted into a Brazilian publicly-held company and renamed BM&FBOVESPA, as a result of a merger between BOVESPA and the Brazilian Mercantile & Futures Exchange ( Bolsa de Mercadorias e Futuros – BM& F). BM&FBOVESPA is currently the most important Brazilian institution to intermediate equity market transactions and it is the only securities, commodities and futures exchange in the country. Trading on such exchange is carried out by member brokerage firms.

The trading of securities on the BM&FBOVESPA may be suspended at the request of a company in anticipation of material announcement. Trading may also be suspended on the initiative of the BM&FBOVESPA or the CVM based on or due to, among other reasons, a belief that a company has provided inadequate information regarding a significant event or has provided inadequate responses to inquiries by the CVM or the BM&FBOVESPA.

Trading in securities listed on the BM&FBOVESPA, including the Novo Mercado and Levels 1 and 2 Segments of Differentiated Corporate Governance Practices, may be carried out off the exchanges in the unorganized over-the-counter market in certain specific circumstances.

Although the Brazilian securities market is the largest in Latin America in terms of capitalization, it is smaller and less liquid than the major U.S. and European securities markets. Moreover, the BM&FBOVESPA is significantly less liquid than the NYSE, or other major exchanges in the world.

Although all of the outstanding shares of a listed company may be traded on the BM&FBOVESPA, fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, by government entities or by one main shareholder. The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the preferred shares at the time and price you desire and, as a result, could negatively impact the market price of these securities.

In order to reduce volatility, the BM&FBOVESPA has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes, one hour or a longer period whenever specified indices of the BM&FBOVESPA fall below the limits of 10%, 15% and 20% respectively, in relation to the index levels for the previous trading session.

When shareholders trade in shares on the BM&FBOVESPA, the trade is settled in three business days after the trade date. The delivery of and payment for shares are made through BM&FBOVESPA, which handles the multilateral settlement of both financial obligations and transactions involving securities. According to applicable regulations, financial settlement is carried out through a Central Bank system and the transactions involving the sale and purchase of shares are settled through BM&FBOVESPA. All deliveries against final payment are irrevocable.

Trading on the Brazilian stock exchanges by non-residents of Brazil is subject to registration procedures.

Corporate Governance Practices

In 2000, the BM&FBOVESPA introduced three special listing segments, known as Levels 1 and 2 of Differentiated Corporate Governance Practices and Novo Mercado , aimed at fostering a secondary market for securities issued by Brazilian companies listed on the BM&FBOVESPA, by prompting these companies to follow good practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders. Recently, the BM&FBOVESPA has revised the Levels 1 and 2 of Differentiated Corporate Governance Practices and Novo Mercado rules in two occasions. The first round of amendments to the Novo

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Mercado rules became effective on February 6, 2006, and the first round of amendments to Levels 1 and 2 of Differentiated Corporate Governance Practices became effective on February 10, 2006. The second and most recent round of amendments to the Novo Mercado rules and the Levels 1 and 2 of Differentiated Corporate Governance Practices became effective on May 10, 2011.

As of the effective date, in order to become a Nivel 1 (Level 1) company, in addition to the obligations imposed by applicable law, an issuer must agree to: (i) ensure that shares representing at least 25% of its total capital are effectively available for trading; (ii) adopt offering procedures that favor widespread ownership of shares whenever making a public offering; (iii) comply with minimum quarterly disclosure standards; (iv) follow stricter disclosure policies with respect to transactions made by its controlling shareholders, members of its board of directors and its officers involving securities issued by the issuer; (v) submit any existing shareholders’ agreements and stock option plans to the BM&FBOVESPA; (vi) make a schedule of corporate events available to its shareholders; (vii) elaborate and disclose a securities trading policy applicable to the company, its controlling shareholders, board members and management, as well as the members of other statutory bodies of the company with technical and consultancy functions; (viii) elaborate and disclose a code of conduct establishing the values and principles that shall serve as a guidelines for the company’s activities and relationship with the management, staff, service providers and other entities and individuals affected by the company; and (ix) prohibit holding dual positions as Chairman and Chief Executive Officer (or primary executive officer) of the company.

To become a Nivel 2 (Level 2) company, in addition to the obligations imposed by applicable law, an issuer must agree, among other things, to: (i) comply with all of the listing requirements for Level 1 companies; (ii) grant tag-along rights for all of its shareholders in connection with a transfer of control of the company, offering the same price paid per share for controlling block common shares; (iii) grant voting rights to holders of preferred shares in connection with certain corporate restructurings and related party transactions, such as: (a) any change of the company into another corporate entity; (b) any merger, consolidation or spin-off of the company; (c) approval of any transactions between the company and its controlling shareholder, including parties related to the controlling shareholder; (d) approval of any valuation of assets to be delivered to the company in payment for shares issued in a capital increase; (e) appointment of an expert to ascertain the fair value of the company’s shares in connection with any deregistration and delisting tender offer from Level 2; and (f) any changes to these voting rights, which will prevail as long as the agreement for adhesion to the Level 2 segment with the BM&FBOVESPA is in effect; (iv) have a board of directors comprised of at least five members, out of which a minimum of 20% of the directors must be independent, with a term limited to two years; (v) prepare annual financial statements in English, including cash flow statements, in accordance with international accounting standards, such as U.S. GAAP or International Financial Reporting Standards, or IFRS; (vi) effect a tender offer by the company’s controlling shareholder (the minimum price of the shares to be offered will be determined by an appraisal process), if it elects to delist from the Level 2 segment; (vii) adhere exclusively to the rules of the BM&FBOVESPA Arbitration Chamber for resolution of disputes between the company and its investors; (viii) cause the Board of Directors to elaborate and disclose a previous and justified opinion in relation to any and all public offers for the acquisition of shares issued by the company analyzing, among other aspects, the impacts of the offer on the company’s and shareholders’ interests, as well as on the liquidity of the shares issued by the company, and containing a final and justified recommendation for the acceptance or rejection of the offer by the shareholders; and (ix) not to include in the company’s by-laws provisions that (a) restrict the number of votes of a shareholder or of a group of shareholders to percentages below 5% (five percent) of the voting shares, except for the cases of denationalization or of limits imposed by the laws and regulations applicable to the company; and, except as otherwise provided by the law or regulations (b) require a qualified quorum for matters that shall be submitted to the general shareholders’ meeting, or (c) restrict the exercise of a favorable vote by shareholders or burden shareholders that vote in favor of a suppression or change of by-laws provisions.

To be listed in the Novo Mercado segment of the BM&FBOVESPA, an issuer must meet all of the requirements described above under Level 1 and Level 2, in addition to issuing only common (voting) shares.

On September 26, 2006 we entered into an agreement with the BM&FBOVESPA to list our preferred shares on the Level 1 segment, effective on the date immediately after the date of publication of the announcement in Brazil of the listing, pursuant to which we agreed to comply, and continue to be compliant with all of the requirements of a Level 1 listing.

Investment in our Preferred Shares by Non-Residents of Brazil

Investors residing outside Brazil, including institutional investors, are authorized to purchase equity instruments, including our preferred shares, on the Brazilian stock exchange provided that they comply with the registration requirements set forth in Resolution No. 2,689 of the CMN and CVM Instruction No. 325, from January 27, 2000, as amended. With certain limited exceptions, under Resolution No. 2,689 investors are permitted to carry out any type of transaction in the Brazilian financial capital markets involving a security traded on a stock, future or organized over-the-counter market. Investments and remittances outside Brazil of gains, dividends, profits or other payments under our preferred shares are made through the exchange market.

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In order to become a Resolution No. 2,689 investor, an investor residing outside Brazil must:

•

appoint at least one representative in Brazil that will be responsible for complying with registration and reporting requirements and procedures with the Central Bank and the CVM. If the representative is an individual or a non-financial company, the investor must also appoint an institution duly authorized by the Central Bank that will be jointly and severally liable for the representative’s obligations;

•

complete the appropriate foreign investor registration form;

•

through its representative, register itself as a foreign investor with the CVM and register the investment with the Central Bank;

•

appoint a representative in Brazil for taxation purposes;

•

obtain a taxpayer identification number from the Brazilian federal tax authorities – Receita Federal (the Brazilian Internal Revenue); and

•

securities and other financial assets held by foreign investors pursuant to Resolution No. 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading by foreign investors are generally restricted to transactions involving securities listed on the Brazilian stock exchanges or traded in organized over-the-counter markets licensed by the CVM.

Significant Differences between our Corporate Governance Practices and NYSE Corporate Governance Standards

We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different to the standards applied to U.S. listed companies. Under the NYSE rules, we must comply with the following corporate governance rules: (i) we must satisfy the requirements of Rule 10A-3 of the Exchange Act, including having an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below; (ii) we must provide the NYSE with annual and interim written affirmations as required under the NYSE corporate governance rules; (iii) we must provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules; and (iv) we must provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practices required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below.

Majority of Independent Directors

The NYSE rules require that a majority of the board must consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Although Brazilian law does not have a similar requirement, Novo Mercado and Level 2 rules require that listed companies have a board of directors comprised of at least five members, out of which a minimum of 20% of the directors must be independent pursuant to the different criteria defined in the regulations (such as absence of material relationship between a director and the listed company or the controlling shareholder). The Level 1 segment of BM&FBOVESPA in which we are listed only requires the board to be comprised of a minimum of three members and does not require any participation by independent directors and, therefore, under Brazilian law and the rules of the Level 1, neither our Board of Directors nor our management is required to test the independence of directors before their election to the board. Nevertheless, both Brazilian Corporate Law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While our directors meet the qualification requirements of Brazilian Corporate Law and the CVM, as well as the Level 1 segment of BM&FBOVESPA, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence. Brazilian Corporate Law and our by-laws require that our directors be elected by our shareholders at a general shareholders’ meeting.

Executive Sessions

NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. Brazilian Corporate Law does not have a similar provision. According to Brazilian Corporate Law, up to one-third of the members of the Board of Directors can be elected to the Board of Executive Officers. The remaining non-management directors are not expressly empowered to serve as a check on management, and there is no requirement that those directors meet regularly without management. As a result, the non-management directors on our board do not typically meet in executive session.

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Nominating/Corporate Governance Committee

NYSE rules require that listed companies have a nominating/corporate governance committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. Brazilian law does not have a similar requirement.

Compensation Committee

NYSE rules require that listed companies have a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive-compensation and equity-based plans. We are not required under applicable Brazilian law to have a compensation committee. Under Brazilian Corporate Law, the total amount available for compensation of our directors and executive officers and for profit-sharing payments to our executive officers is established by our shareholders at the annual general meeting. The Board of Directors is then responsible for determining the individual compensation and profit-sharing of each executive officer, as well as the compensation of our board and committee members. In making such determinations, the board reviews the performance of the executive officers, including the performance of our chief executive officer, who typically excuses himself from discussions regarding his performance and compensation.

Audit Committee

NYSE rules require that listed companies have an audit committee that: (i) is composed of a minimum of three independent directors who are all financially literate; (ii) meets the SEC rules regarding audit committees for listed companies; (iii) has at least one member who has accounting or financial management expertise; and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we need only to comply with the requirement that the audit committee meet the SEC rules regarding audit committees for listed companies. Brazilian Corporate Law requires companies to have a non-permanent Fiscal Council composed of three to five members who are elected at the general shareholders’ meeting.

Shareholder Approval of Equity Compensation Plans

NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions. Under Brazilian Corporate Law, shareholders must approve all stock option plans. In addition, any issuance of new shares is subject to shareholder approval.

NYSE rules require that listed companies adopt and disclose corporate governance guidelines. Although applicable Brazilian law does not have a similar requirement, we have adopted corporate governance guidelines which are set forth in the Code of Corporate Governance Practices of Eletrobras (“ Código das Práticas de Governança Corporativa da Eletrobras ”). Additionally, we have also adopted and observe a disclosure policy, which requires the public disclosure of all relevant information pursuant to guidelines set forth by the CVM, as well as an insider trading policy, which, among other things, establishes black-out periods and requires insiders to inform management of all transactions involving our securities.

Code of Business Conduct and Ethics

NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. BM&F Bovespa has a similar requirement for companies that are listed under Level 1, Level 2 or in the Novo Mercado corporate governance segments, and in 2010 we have introduced the Ethics Code of Eletrobras Companies (“ Código de Ética Único das Empresas Eletrobras ”) which provides for the ethical principles to be observed by all the members of the board of directors, executive officers, employees, outsourced staff, service providers, trainees and young apprentices.

Internal Audit Function

NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control. Brazilian law does not have a similar requirement.

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D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

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ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Corporate Purpose

Our by-laws provide that our corporate purposes are:

(1)

to construct and operate power plants and transmission lines to generate and distribute electric energy and to enter into related business transactions, such as the trade of electric energy;

(2)

to cooperate with the government to establish national energy policy;

(3)

to give financial support to our subsidiaries;

(4)

to promote and support research of interest to the energy sector, connected with the generation, transmission and distribution of electric energy, as well as studies regarding the utilization of reservoirs for various purposes;

(5)

to contribute to the training of the technical personnel required by the Brazilian electric energy sector by means of specialized courses; we may also grant assistance to educational entities in Brazil or abroad; and

(6)

to cooperate technically and administratively with our subsidiaries and the government.

Our Board of Directors do not have the power to vote on compensation to themselves or to exercise borrowing powers. Only our shareholders may approve such matters. There are no prescribed age limits for retirement of members of our Board of Directors.

Description of our Capital Stock

General

We are a mixed capital company, authorized by and constituted in accordance with Brazilian Law No. 3,890-A of April 25, 1961. We are registered with the Brazilian tax authorities with CNPJ no. 00.001.180/0001-26.

Our share capital is divided into three types of shares: common shares, class “A” preferred shares (which were issued before June 23, 1969) and class “B” preferred shares (which have been issued since June 23, 1969).

In September 2006, we entered into an agreement with the BM&FBOVESPA to list our shares on the Level 1 segment of BM&FBOVESPA’s corporate governance, the effectiveness of which began on September 29, 2006. Trading in our shares on the Level 1 began on September 29, 2006.

History of our Capital Stock

In 2012, our share capital was of R$31,305 million, compared to R$31,305 million in 2011.

Treasury Shares

We hold no treasury shares and we do not have a program for repurchasing our shares.

Rights Attaching to Our Shares

Common Shares

Each of our common shares entitles its holder to one vote on all matters submitted to a vote of shareholders at an annual or special shareholders’ general meeting. In addition, upon our liquidation, holders of our shares are entitled to share all of our remaining assets, after payment of all of our liabilities, ratably in accordance with their respective participation in the total amount of the issued and outstanding common shares. Holders of our common shares are entitled to participate on all future capital increases by us.

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Preferred Shares

Our preferred shares have different attributes to our common shares as the holders of our preferred shares are not entitled to vote at annual or special shareholders’ general meetings but have preferential a right to reimbursement of capital, distribution of dividends and priority on insolvency. Our preferred shares cannot be converted into common shares.

Class “A” preferred shares, and bonus shares related to such shares, are entitled to a dividend of 8% per annum, in priority to the distribution of other dividends, to be divided equally between them. Class “B” preferred shares, and bonus shares related to such shares, are entitled to a dividend of 6% per annum, in priority to the distribution of other dividends, to be divided equally between them. An unpaid dividend is not payable in future years. The Class “A” preferred shares and the class “B” preferred shares rank equally on a liquidation.

In addition, the preferred shares are entitled to receive a dividend at least ten percent above the dividend paid to each common share.

Transfer of Our Shares

Our shares are not subject to any share transfer restrictions. Whenever a transfer of ownership of shares occurs, the finance company with which such shares are deposited may collect from the transferring shareholder the cost of any services in connection with the Brazilian transfer thereof, subject to maximum rates established by the CVM.

Pre-emption Rights

No pre-emption rights apply on the transfer of our shares.

Redemption

We cannot redeem our shares.

Registration

Our shares are held in book-entry form with J.P. Morgan Chase Bank N.A., which will act as the custodian agent for our shares. Transfer of our shares will be carried out by means of book entry by J.P. Morgan Chase Bank N.A. in its accounting system, debiting the share account of the seller and crediting the share account of the buyer, upon a written order of the transferor or a judicial authorization or order to affect such transfers.

Notification of Interests in Our Shares

Any shareholder that acquires or disposes of 5% or more of our capital stock of any class is obliged to notify the Company immediately upon completion of the transaction. Such obligation also applies to the holders of ADRs, convertible debentures and stock options. After the receipt of such notification, the Company shall inform such transaction by means of a notice which shall be uploaded in the site of CVM and duly update its corporate information in its Reference Form ( Formulário de Referência ) within seven business days of the occurrence of the transaction.

Shareholders’ General Meetings

Brazilian corporation law does not allow shareholders to approve matters by written consent obtained as a response to a consent solicitation procedure. All matters subject to approval by the shareholders must be approved in a duly convened general meeting. There are two types of shareholders’ meetings: ordinary and extraordinary. Ordinary meetings take place once a year within 120 days of our fiscal year end and extraordinary meetings can be called whenever necessary.

Shareholders’ meetings are called by our board of directors. Notice of such meetings is posted to shareholders and, in addition, notices are placed in a newspaper of general circulation in our principal place of business and on our website at least 15 days before the meeting.

Shareholders’ meetings take place at our headquarters in Brasília. Shareholders may be represented at a shareholders’ meeting by attorneys-in-fact who are: (i) shareholders of the company; (ii) a Brazilian lawyer; (iii) a member of our management; or (iv) a financial institution.

At duly convened meetings, our shareholders are able to take any action regarding our business. The following actions can only be taken by our shareholders in general meeting:

•

approving our annual accounts;

•

electing and dismissing the members of our board of directors and our fiscal council;

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•

amending our by-laws;

•

approving our merger, consolidation or spin-off;

•

approving our dissolution or liquidation as well as the election and dismissal of liquidators and the approval of their accounts;

•

granting stock awards and approving stock splits or reverse stock splits;

•

approving stock option plans for our management and employees; and

•

approving the payment of dividends.

Board of Directors, Board of Executive Officers and Fiscal Council

Our by-laws provide for a Board of Directors, composed of ten members, a Board of Executive Officers, of unlimited membership, and a permanent Fiscal Council, composed of five members.

Qualifications

All members of our Board of Directors, Board of Executive Officers and Fiscal Council must be Brazilian citizens. Our by-laws also provide that the certain people may not be appointed to the management of the company, including those who: are disqualified by the CVM, have been declared bankrupt or have been convicted of certain offenses such as bribery and crimes against the economy.

The minutes of the shareholders’ or directors’ meeting that appoints a member of the Board of Directors or the Board of Executive Officers, respectively, must detail the qualifications of such person and specify the period of their mandate.

Appointment

The members of our Board of Directors are elected at the general shareholders meeting for a renewable term of one year.

As our majority shareholder, the Brazilian Government has the right to appoint seven members of our Board of Directors, of which six are appointed by the MME and one by the Planning, Budget and Management Ministry. The other common shareholders have the right to elect one member, the holders of preferred shares without voting rights representing at least ten percent of our total capital have the right to elect one member and one member shall be elected as the representative of the employees, by means of an election organized by the company and the union entities. One of the members of the Board of Directors is appointed President of the company.

The members of our Board of Executive Officers are appointed by our Board of Directors for an indefinite term.

The Brazilian Government has the right to appoint three of the members of our Fiscal Council, and both the minority shareholders and the holders of our preferred shares have the right to appoint one member each.

Meetings

Under our by-laws, our Board of Directors shall meet at least once a year without the presence of the CEO and twice a year with the presence of our independent auditors. Historically, our Board of Directors meets once per month and when called by a majority of the directors or the Chairman. Among other duties, our Board of Directors is responsible for: (i) establishing our business guidelines; (ii) determining the corporate organization of our subsidiaries or any equity participation by us in other legal entities; (iii) determining our loans and financing policy; and (iv) approving any guarantee in favor of any of our subsidiaries on any financial agreement. Directors cannot participate in discussions or vote in relation to matters in which they are otherwise interested.

Our Board of Executive Officers ordinarily meets every week, or when called by a majority of the officers or by the President. Our Board of Executive Officers determines our general business policy, is responsible for all matters related to our day-to-day management and operations, and is the highest controlling body with regards to the execution of our guidelines. Members of our Board of Executive Officers cannot participate in discussions or vote in relation to matters in which they are otherwise interested.

The Fiscal Council meets once per month.

Disclosure Obligations

Our disclosure obligations are determined by the Manual de Divulgação e Uso de Informações Relevantes e Política de Negociação de Valores Mobiliários de Emissão da Eletrobras (Guide to Disclosure and Use of Relevant Information and Policy for the Negotiation of Securities issued by Eletrobras), a copy of which is available on our website. Information found at this website is not incorporated by reference into this annual report.

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C. Material Contracts

Our Itaipu operations are made pursuant to a treaty entered into on April 26, 1973 between the Brazilian Government and the government of Paraguay. A translation of this treaty is included as an exhibit to this annual report. The material terms of this treaty are described in “Item 5. Operating and Financial Review and Prospects.”

D. Exchange Controls

The right to convert dividend or interest payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, that the relevant investments have been registered with the Central Bank and the CVM. Such restrictions on the remittance of foreign capital abroad may hinder or prevent the custodian for our preferred shares represented by our ADSs or the holders of our preferred shares from converting dividends, distributions or the proceeds from any sale of these preferred shares into U.S. dollars and remitting the U.S. dollars abroad. Holders of our ADSs could be adversely affected by delays in, or refusal to grant any, required government approval to convert Brazilian currency payments on the preferred shares underlying our ADS and to remit the proceeds abroad.

Resolution No. 1,927 of the National Monetary Council provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. It restates and amends Annex V to Resolution No. 1,289 of the National Monetary Council, known as the Annex V Regulations. The ADS program was approved under the Annex V Regulations by the Central Bank and the CVM prior to the issuance of the ADSs. Accordingly, the proceeds from the sale of ADSs by ADR holders outside Brazil are free of Brazilian foreign investment controls, and holders of the ADSs are entitled to favorable tax treatment. See “Item 10.E, Taxation – Material Brazilian Tax Considerations.”

Under Resolution No. 2,689 of the CMN, foreign investors registered with the CVM may buy and sell Brazilian securities, including our preferred shares, on Brazilian stock exchanges without obtaining separate certificates of registration for each transaction. Registration is available to qualified foreign investors, which principally include foreign financial institutions, insurance companies, pension and investment funds, charitable foreign institutions and other institutions that meet certain minimum capital and other requirements. Resolution No. 2,689 also extends favorable tax treatment to registered investors. See “Item 10.E, Taxation – Material Brazilian Tax Considerations.”

Pursuant to the Resolution No. 2,689 foreign investors must: (i) appoint at least one representative in Brazil with the ability to perform actions regarding the foreign investment; (ii) complete the appropriate foreign investor registration form; (iii) obtain registration as a foreign investor with CVM; and (iv) register the foreign investment with the Central Bank.

The securities and other financial assets held by a foreign investor pursuant to Resolution No. 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or by the CVM or be registered in register, clearing and custody systems authorized by the Central Bank or by the CVM. In addition, the trading of securities is restricted to transactions carried out on the stock exchanges or over-the-counter markets licensed by the CVM.

Registered Capital

Amounts invested in our shares by a non-Brazilian holder who qualifies under Resolution No. 2,689 and obtains registration with the CVM, or by the depositary representing an ADS holder, are eligible for registration with the Central Bank. This registration (the amount so registered is referred to as registered capital) allows the remittance outside Brazil of foreign currency, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized through, dispositions of our shares. The registered capital per share purchased in the form of an ADS, or purchased in Brazil and deposited with the depositary in exchange for an ADS, will be equal to its purchase price (stated in U.S. dollars). The registered capital per share withdrawn upon cancellation of an ADS will be the U.S. dollar equivalent of: (i) the average price of a share on the Brazilian stock exchange on which the most shares were traded on the day of withdrawal or; (ii) if no shares were traded on that day, the average price on the Brazilian stock exchange on which the most shares were traded in the fifteen trading sessions immediately preceding such withdrawal. The U.S. dollar equivalent will be determined on the basis of the average commercial market rates quoted by the Central Bank on these dates.

A non-Brazilian holder of shares may experience delays in effecting Central Bank registration, which may delay remittances abroad. This delay may adversely affect the amount in U.S. dollars, received by the non-Brazilian holder.

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A certificate of registration has been issued in the name of the depositary with respect to the ADSs and is maintained by the custodian on behalf of the depositary. Pursuant to the certificate of registration, the custodian and the depositary are able to convert dividends and other distributions with respect to the shares represented by our ADSs into foreign currency and remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges such ADSs for shares, such holder will be entitled to continue to rely on the depositary’s certificate of registration for five business days after such exchange, following which such holder must seek to obtain its own certificate of registration with the Central Bank. Thereafter, any holder of shares may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, such shares, unless the holder is a duly qualified investor under Resolution No. 2,689 or obtains its own certificate of registration. A holder that obtains a certificate of registration will be subject to less favorable Brazilian tax treatment than a holder of ADSs. See “Item 10.E, Taxation – Material Brazilian Tax Considerations.”

If the holder does not qualify under Resolution No. 2,689 by registering with the CVM and the Central Bank and appointing a representative in Brazil, the holder will be subject to less favorable Brazilian tax treatment than a holder of ADSs. Regardless of qualification under Resolution No. 2,689, residents in tax havens are subject to less favorable tax treatment than other foreign investors. See “Item 10.E, Taxation – Material Brazilian Tax Considerations.”

Under current Brazilian legislation, the Brazilian Government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately six months in 1989 and early 1990, the Brazilian Government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors, in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian Government directives. There can be no assurance that the Brazilian Government will not impose similar restrictions on foreign repatriations in the future. See “Item 3.D, Risk Factors – Risks Relating to Brazil.”

E. Taxation

The following discussion addresses the material Brazilian and United States federal income tax consequences of acquiring, holding and disposing of our shares or ADSs.

This discussion is not a comprehensive discussion of all the tax considerations that may be relevant to a decision to purchase our shares or ADSs and is not applicable to all categories of investors, some of which may be subject to special rules, and does not specifically address all of the Brazilian and United States federal income tax considerations applicable to any particular holder. It is based upon the tax laws of Brazil and the United States as in effect on the date of this annual report, which are subject to change, possibly with retroactive effect, and to differing interpretations. Any change in such law may have an impact on the consequences described below. Each prospective purchaser is urged to consult its own tax advisor about the particular Brazilian and United States federal income tax consequences to it of an investment in our shares or ADSs. This discussion is also based upon the representations of the depositary and on the assumption that each obligation in the deposit agreement among us, J.P. Morgan Chase Bank, N.A., as depositary, and the registered holders and beneficial owners of our ADSs, and any related documents, will be performed in accordance with its terms.

Although there presently is no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. We cannot assure you, however, as to whether or when a treaty will enter into force or how it will affect holders of our shares or ADSs.

Material Brazilian Tax Considerations

The following discussion is a summary of the material Brazilian tax considerations regarding the acquisition, ownership and disposition of our shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation and which has registered its investment in such securities with the Central Bank as a U.S. dollar investment (in each case, a Non-Resident Holder). The tax consequences described below do not take into account the effects of any tax treaties or reciprocity of tax treatment entered into by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or municipality of Brazil.

Introduction

Pursuant to Brazilian law, foreign investors may invest in the shares under Central Bank Resolution No. 2,689.

Resolution No. 2,689 allows foreign investors to invest in Brazilian financial and capital markets, provided that some requirements therein described are fulfilled. In accordance with Resolution No. 2,689, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered abroad.

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Pursuant to Resolution No. 2,689, foreign investors must: (i) appoint at least one representative in Brazil with powers to perform actions relating to the foreign investment; (ii) complete the appropriate foreign investor registration form; (iii) register as a foreign investor with the CVM and register the foreign investment with the Central Bank; (iv) appoint a representative in Brazil for Taxation purposes; and (v) obtain a taxpayer identification number from the Brazilian Federal Tax Authorities (which will be requested by CVM). For more details about the requirements to be met in order to qualify as foreign investor under Resolution No. 2,689, see “Item 9.C, Markets – Investment in our Preferred Shares by Non-Residents of Brazil.”

Securities and other financial assets held by foreign investors pursuant to Resolution No. 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or organized over-the-counter markets licensed by the CVM, except for transfers resulting from a corporate reorganization, occurring upon the death of an investor by operation of law or will or as a consequence of the delisting of the relevant shares from a stock exchange and the cancellation of the registration with the CVM.

Income tax

For purposes of Brazilian taxation, there are two types of Non-Resident Holders of our shares or ADSs: (i) Non-Resident Holders that are not resident or domiciled in a “Tax Haven” jurisdiction ( i.e. , a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% or where the internal legislation imposes restrictions to disclosure of shareholding composition or the ownership of the investment), and that, in the case of holders of our shares, are registered before the Central Bank and the CVM being able to invest in Brazil in accordance with Resolution No. 2,689 (“Registered Holder”); and (ii) other Non-Resident Holders, which include any and all non-residents of Brazil who invest in equity securities of Brazilian companies through any other means and all types of investor that are located in Tax Haven. The investors mentioned in item (i) above which are registered with the Central Bank and the CVM being able to invest in Brazil in accordance with Resolution No. 2,689, are subject to a favorable tax regime in Brazil, as described below. Nonetheless, there can be no assurance that the current preferential treatment for holders of ADSs and Non-Resident Holders of preferred or common shares under Resolution No. 2,689 will continue or will not be changed in the future.

Dividends . Dividends paid by us to the depository in respect of the shares underlying the ADSs or to a Non-Resident Holder in respect of our shares currently are not be subject to Brazilian income withholding tax, to the extent that such amounts are related to profits generated as of January 1, 1996. Dividends relating to profits generated prior to December 31, 1995 may be subject to Brazilian withholding tax at variable rates, depending on the year the profits were generated.

Capital Gains. As a general rule, capital gains realized as a result of a disposition transaction are the positive difference between the amount received on the disposition of the units and the respective acquisition cost. Under Brazilian law, income tax on such gains can vary depending on the domicile of the Non-Resident Holder, the type of registration of the investment by the Non-Resident Holder with the Central Bank and how the disposition is carried out, as described below.

(a) sale of ADS

Gains realized outside Brazil by a Non-Resident Holder on the disposition of ADSs to another Non-Resident Holder are not subject to Brazilian tax. However, according to Law No. 10,833, enacted on December 29, 2003, or Law No. 10,833, the gains recognized on the disposition of assets located in Brazil by a Non-Resident Holder, whether to other Non-Resident Holders or Brazilian holders, are subject to taxation in Brazil. This rule is applicable regardless of whether the disposition is conducted in Brazil or abroad. Although we believe that the ADSs do not fall within the definition of assets located in Brazil for purposes of Law No. 10,833 because they represent securities issued and renegotiated in an offshore exchange market, considering the general and unclear scope of such provisions as well as the lack of a judicial court ruling in respect thereto, we are unable to predict whether such understanding will ultimately prevail in the courts of Brazil. It is important to note, however, that even if ADSs were considered assets located in Brazil, investors which are resident in non-Tax Haven locations could apply for exemption of capital gain tax according to article 81 of Law No. 8,981/95.

If such argument does not prevail, it is important to mention that with respect to the cost of acquisition to be adopted for calculating such gains, Brazilian law has conflicting provisions regarding the currency in which such amount must be determined. Our view is that the capital gains should be based on the positive difference between the cost of acquisition of the preferred shares or common shares registered with the Brazilian Central Bank in foreign currency and the value of disposal of those preferred shares or common shares in the same foreign currency. However, considering that tax authorities are not bound by such precedent, assessments have been issued adopting the cost of acquisition in Brazilian currency.

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(b) Conversion of shares into ADS

The deposit of our shares in exchange for ADSs may be subject to Brazilian tax on capital gains at the rate of 15%, or 25%, in the case of investors domiciled in a Tax Haven, if the acquisition cost of the shares, in the case of other market investors under Resolution No.2,689, or the amount otherwise previously registered with the Central Bank as a foreign investment in the preferred or common shares is lower than:

(i)

the average price per preferred or common share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of deposit; or

(ii)

if no preferred or common shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of preferred or common shares were sold in the 15 trading sessions immediately preceding such deposit.

In such case, the difference between the amount previously registered, or the acquisition cost, as the case may be, and the average price of the shares calculated as set forth above will be considered to be a capital gain. Although there is no clear regulatory guidance, such taxation should not apply to the case of Non-Resident Holders registered under Resolution No. 2,689 which are not located in a Tax Haven.

Although there is no clear regulatory guidance, the exchange of ADSs for shares should not be subject to Brazilian tax. Non-Resident Holders may exchange ADSs for the underlying shares, sell the shares on a Brazilian stock exchange and remit abroad the proceeds of the sale within five business days from the date of exchange (in reliance on the depositary’s electronic registration), with no tax consequences.

Upon receipt of the underlying shares in exchange for ADSs, Non-Resident Holders may also elect to register with the Central Bank the U.S. dollar value of such shares as a foreign portfolio investment under Resolution No. 2,689, which will entitle them to the tax treatment referred above.

Alternatively, the Non-Resident Holder is also entitled to register with the Central Bank the U.S. dollar value of such shares as a foreign direct investment under Law 4,131/62, in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not a registered holder.

(d) Common and Preferred shares negotiated in Brazil

Capital gains realized by Non-Resident Holder on the disposition of shares sold on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market):

•

are subject to the withholding income tax at a zero percent rate, when realized by a Non-Resident Holder that (a) has registered its investment in Brazil before the Central Bank. A Registered Holder under the regulations of Resolution 2,689 and (b) is not resident in a Tax Haven; and

•

are subject to income tax at a rate of 15% with respect to gains realized by a Non-Resident Holder that is not a Registered Holder (including a Non-Resident Holder who qualifies under Law 4,131/62) and gains earned by Tax Haven residents that are Registered Holders. In this case, a withholding income tax of 0.005% over the sale price shall be applicable and withheld by the intermediary institution (i.e., a broker) that receives the order directly from the Non-Resident Holder, which and can be later offset against any income tax due on the capital gain and which will be collected by the Non-Resident Holder’s tax representative in Brazil.

Any other gains realized on the disposition of units that are not carried out on the Brazilian stock exchange:

•

are subject to income tax at a rate of 15% when realized by any Non-Resident Holder that is not a Tax Haven resident, no matter if a Registered Holder or not; and

•

are subject to income tax at a rate of 25% when realized by a Tax Haven resident, no matter if a Registered Holder or not.

In the cases above, if the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable and withheld by the intermediary institution (i.e., a broker) that receives the order directly from the Non-Resident Holder, which can be later offset against any income tax due on the capital gain and which will be collected by the Non-Resident Holder’s tax representative in Brazil. The Non-Resident Holder will not need to file a Brazilian tax return with the Brazilian tax authorities.

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Any exercise of preemptive rights relating to the preferred or common shares or ADSs will not be subject to Brazilian withholding income tax. Any gain on the sale or assignment of preemptive rights relating to shares by the depositary on behalf of holders of ADSs will be subject to Brazilian income taxation according to the same rules applicable to the sale or disposal of shares.

Payments of Interest Attributable to Shareholders’ Equity. In accordance with Law No. 9,249, dated December 26, 1995, as amended, Brazilian corporations may make payments to shareholders characterized as distributions of interest on own capital and treat those payments as a deductible expense for the purposes of calculating Brazilian corporate income tax and, as from 1997, social contribution on net profits, as far as certain limits are observed. Such interest is limited to the daily pro rata variation of the TJLP as determined by the Central Bank from time to time and the amount of deduction cannot exceed the greater of:

•

50% of the net income (after the social contribution on net profits and before the provision for corporate income tax, and the amounts attributable to shareholders as interest on net equity) for the period in respect of which the payment is made; or

•

50% of the sum of retained profits and profits reserves as of the date of the beginning of the period in respect of which the payment is made.

Payments of interest on own capital in respect of the preferred or common shares paid to shareholders who are either Brazilian residents or Non-Resident Residents, including holders of ADSs, are subject to Brazilian income withholding tax at the rate of 15%, or 25% in case of shareholders domiciled in a Tax Haven and shall be deductible by us as long as the payment of a distribution of interest is approved by our shareholders. These distributions may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on shareholders’ equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable Brazilian withholding income tax, plus the amount of declared dividends, is at least equal to the mandatory dividend. If we pay interest attributable to shareholders’ equity in any year, and the payment is not recorded as part of the mandatory distribution, no additional amounts would be required to be paid by the Company, with respect to the mandatory dividend amount. The payment of interest on owner capital may be determined by our board of directors. We cannot assure you that our board of directors will not determine that future distributions of profits may be made by means of interest on owner capital instead of by means of dividends. Payments of interest on shareholder’s equity to Non-Resident Holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered with the Central Bank.

Discussion on Low or Nil Tax Jurisdictions

On June 24, 2008, Law 11,727 was enacted establishing the concept of a “privileged tax regime.” Under this new law, a “privileged tax regime” is considered to apply to a jurisdiction that meets any of the following requirements: (1) it does not tax income or taxes income at a maximum rate lower than 20%; (2) it grants tax advantages to a non-resident entity or individual (a) without requiring substantial economic activity in the jurisdiction of such non-resident entity or individual or (b) to the extent such non-resident entity or individual does not conduct substantial economic activity in the jurisdiction of such non-resident entity or individual; (3) it does not tax income generated abroad, or imposes tax on income generated abroad at a maximum rate lower than 20%; or (4) restricts the ownership disclosure of assets and ownership rights or restricts disclosure about the execution of economic transactions.

Although the interpretation of the current Brazilian tax legislation could lead to the conclusion that the above-mentioned concept of “privileged tax regime” should apply only for the purposes of Brazilian transfer pricing and thin capitalization rules, it is unclear whether such concept would also apply to investments carried out in the Brazilian financial and capital markets for purposes of this law. There is no judicial guidance as to the application of Law No. 11,727 of June 24, 2008 and, accordingly, we are unable to predict whether the Brazilian Internal Revenue Service or the Brazilian courts may decide that the “privileged tax regime” concept shall be applicable to deem a Non-Resident Holder as a Tax Haven resident when carrying out investments in the Brazilian financial and capital markets. In the event that the “privileged tax regime” concept is interpreted to be applicable to transactions carried out in the Brazilian financial and capital markets, this tax law would accordingly result in the imposition of taxation on a Non-Resident Holder that meets the privileged tax regime requirements in the same manner and to the same extent applicable to a Tax Haven resident.

Moreover, Law No. 12,249 of June 11, 2010, applied the privileged tax regime concept to other income remitted abroad. Although the concept of privileged tax regime should not affect the tax treatment of a Non-Resident Holder described above, it is not certain whether subsequent legislation or interpretations by the Brazilian tax authorities regarding the definition of “privileged tax regime” will extend such a concept to the tax treatment of a Non-Resident Holder described above.

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Tax on Foreign Exchange and Financial Transactions

Foreign Exchange Transactions (IOF/Exchange)

Brazilian law imposes a Tax on Foreign Exchange Transactions, or “IOF/Exchange,” triggered by the conversion of reais into foreign currency and on the conversion of foreign currency into reais .

Pursuant to Decree No. 6,306/07, as amended, IOF/Exchange may be levied on foreign exchange transactions, affecting either or both the inflow or outflow of investments. The IOF rates are set by the Brazilian executive branch, and the highest applicable rate is 25%. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%.

The rate of IOF/Exchange tax imposed on foreign exchange transactions carried out by a foreign investor for the purpose of investing in the financial and capital markets may vary from time to time as defined by the government and the rates may be different based on the type of investment as well as the time in which such investment is maintained in Brazil.

The inflow of foreign funds for the purchase of shares under Resolution No. 2,689 is subject to 0% IOF/Exchange rate and the same 0% rate levies on the remittance of dividends and payments of interest on shareholder’s equity. Although it is not clearly regulated, the conversion of reais into dollars for payment of dividends to holders of ADSs should also benefit from the 0% IOF/Exchange rate. The inflow of funds derived from the ADS cancelation for purposes of investing in shares is also subject to a 0% rate of IOF/Exchange.

Tax on Transactions involving Bonds and Securities (IOF/Bonds Tax)

Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, known as “IOF/Bonds Tax.” Currently, the rate of IOF/Bonds Tax applicable to transactions involving common or preferred shares is zero, although the Brazilian government may increase such rate at any time, up to 1.5% per day, but only in respect to future transactions.

The conversion of shares into ADRs or units into ADSs was not taxable before November 17, 2009. Following the enactment of Decree No. 7,011 of November 18, 2009, these transactions started to be taxed by the IOF/Bonds Tax at the rate of 1.5% over the transaction value (obtained by multiplying the number of shares/units converted by its closing price at the day before the conversion, or, in the case no negotiation was made on that day, by the last closing price available).

Other Relevant Brazilian Taxes

Some Brazilian states impose gift and inheritance tax on gifts or bequests made by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such states. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of our shares or ADSs.

Registered Capital. The amount of an investment in shares held by a Non-Brazilian Holder who qualifies under Resolution No. 2,689 and obtains registration with the CVM, or by the depositary, as the depositary representing such holder, is eligible for registration with the Central Bank. Such registration allows the remittance outside of Brazil of any proceeds of distributions on the shares, and amounts realized with respect to disposition of such shares. The amounts received in Brazilian currency are converted into foreign currency through the use of the commercial market rate. The registered capital for preferred or common shares purchased in the form of ADSs or purchased in Brazil, and deposited with the depositary in exchange for ADSs will be equal to their purchase price (in U.S. dollars) to the purchaser. The registered capital for shares that are withdrawn upon surrender of ADSs, as applicable, will be the U.S. dollar equivalent of the average price of preferred or common shares, as applicable, on a Brazilian stock exchange on which the greatest number of such shares, as applicable, was sold on the day of withdrawal. If no preferred or common shares, as applicable, were sold on such day, the registered capital will refer to the average price on the Brazilian stock exchange on which the greatest number of such shares, as applicable, were sold in the 15 trading sessions immediately preceding such withdrawal. The U.S. dollar value of the preferred or common shares, as applicable, is determined on the basis of the average commercial market rate quoted by the Central Bank on such date or, if the average price of such shares is determined under the last preceding sentence, the average of such average quoted rates on the same 15 dates used to determine the average price of the shares.

A Non-Resident Holder of our shares may experience delays in effecting such action, which may delay remittances abroad. Such a delay may adversely affect the amount, in U.S. dollars, received by the Non-Resident Holder.

Material United States Federal Income Tax Consequences

The following discussion describes the material United States federal income tax consequences of purchasing, holding and disposing of our shares or ADSs. This discussion applies only to beneficial owners of our ADSs or shares that are “U.S. Holders,” as defined below. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing

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final, temporary and proposed Treasury Regulations, administrative pronouncements by the United States Internal Revenue Service, or IRS, and judicial decisions, all as currently in effect and all of which are subject to change (possibly on a retroactive basis) and to different interpretations. This discussion is also based upon the representations of the depositary and on the assumption that each obligation in the deposit agreement among us, J.P. Morgan Chase Bank, N.A., as depositary, and the registered holders and beneficial owners of our ADSs, and any related documents, will be performed in accordance with its terms.

This discussion does not purport to address all United States federal income tax consequences that may be relevant to a particular holder and you are urged to consult your own tax advisor regarding your specific tax situation. The discussion applies only to U.S. Holders who hold our shares or ADSs as “capital assets” (generally, property held for investment) under the Code and does not address the tax consequences that may be relevant to U.S. Holders in special tax situations including, for example:

•

financial institutions or insurance companies;

•

tax-exempt organizations;

•

broker-dealers;

•

traders in securities that elect to mark to market;

•

real estate, investments trusts, regulated investment companies, partnership or grantor trusts;

•

investors whose functional currency is not the United States dollar;

•

United States expatriates;

•

holders that hold our shares or ADSs as part of a hedge, straddle or conversion transaction; or

•

holders that own, directly, indirectly, or constructively, 10% or more of the total combined voting power, if any, of our shares or ADSs.

Except where specifically described below, this discussion assumes that we are not a passive foreign investment company, or PFIC, for United States federal income tax purposes. Please see the discussion in “Item 10. E, Taxation – Material United States Federal Income Tax Consequences – Passive Foreign Investment Company Rules” below. Further, this discussion does not address the alternative minimum tax consequences of holding our shares or ADSs or the indirect consequences to holders of equity interests in partnerships or other entities that own our shares or ADSs. In addition, this discussion does not address the state, local and non-U.S. tax consequences of holding our shares or ADSs.

You should consult your own tax advisor regarding the United States federal, state, local and non-U.S. income and other tax consequences of purchasing, owning, and disposing of our shares or ADSs in your particular circumstances.

You are a “U.S. Holder” if you are a beneficial owner of shares or ADSs and you are for United States federal income tax purposes:

•

an individual who is a citizen or resident of the United States;

•

a corporation, or any other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

•

an estate the income of which is subject to United States federal income tax regardless of its source; or

•

a trust if a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all substantial decisions of the trust.

If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. A prospective investor who is a partner of a partnership holding our shares or ADSs should consult its own tax advisor.

Ownership of ADSs in General

For United States federal income tax purposes, if you are a holder of ADSs, you generally will be treated as the owner of the shares represented by such ADSs. Deposits and withdrawals of shares by a U.S. Holder in exchange for ADSs generally will not result in the realization of gain or loss for United States federal income tax purposes.

The U.S. Treasury has expressed concerns that parties to whom receipts similar to the ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs and that would also be inconsistent with the claiming of the reduced tax rate described below applicable to dividends received by certain non-corporate U.S. Holders. Accordingly, the analysis of the creditability of Brazilian taxes and the availability of the reduced rate for dividends received by certain non-corporate holders could be affected by actions taken by parties to whom the ADSs are released.

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Distributions on Shares or ADSs

The gross amount of distributions made to you of cash or property with respect to your shares or ADSs, before reduction for any Brazilian taxes withheld therefrom, will be includible in your income as dividend income to the extent such distributions are paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. Subject to applicable limitations, including holding period limitations, and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid to non-corporate U.S. Holders of ADSs in taxable years beginning before January 1, 2013, are taxable at a maximum rate of 15.0% and dividends paid to non-corporate U.S. Holders of ADSs in later taxable years will be taxable at a maximum rate of 20.0%. U.S. Holders, in particular U.S. Holders of shares, should consult their own tax advisors regarding the implications of this legislation in their particular circumstances.

If you are a U.S. Holder, and we pay a dividend in Brazilian reais , any such dividend will be included in your gross income in an amount equal to the U.S. dollar value of Brazilian reais on the date of receipt by you or, in the case of ADSs, the depositary, regardless of whether or when the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.

If you are a U.S. Holder, dividends paid to you with respect to your shares or ADSs will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. Subject to certain conditions and limitations, Brazilian tax withheld on dividends may be credited against your U.S. federal income tax liability. Instead of claiming a credit, you may, at your election, deduct such otherwise creditable Brazilian taxes in computing your taxable income, subject to generally applicable limitations under U.S. law. The rules governing foreign tax credits and deductions for non-U.S. taxes are complex and, therefore, you should consult your own tax advisor regarding the applicability of these rules in your particular circumstances.

Sale or Exchange or other Taxable Disposition of Shares or ADSs

A U.S. Holder generally will recognize capital gain or loss upon the sale, exchange or other taxable disposition of our shares or ADSs measured by the difference between the U.S. dollar value of the amount realized and the U.S. Holder’s adjusted tax basis in the shares or ADSs. Any gain or loss will be long-term capital gain or loss if the shares or ADSs have been held for more than one year. Long-term capital gains of certain U.S. holders (including individuals) are eligible for reduced rates of United States federal income taxation. The deductibility of capital losses is subject to certain limitations under the Code.

If a Brazilian tax is withheld on the sale or other disposition of a share or ADS, the amount realized by a U.S. Holder will include the gross amount of the proceeds of that sale or other disposition before deduction of the Brazilian tax. Capital gain or loss, if any, realized by a U.S. Holder on the sale, exchange or other taxable disposition of a share or ADS generally will be treated as United States source income or loss for United States foreign tax credit purposes. Consequently, in the case of a disposition of a share that is subject to Brazilian tax imposed on the gain (or, in the case of a deposit, in exchange for an ADS or share, as the case may be, that is not registered pursuant to Resolution No. 2,689, on which a Brazilian capital gains tax is imposed, the U.S. Holder may not be able to benefit from the foreign tax credit for that Brazilian tax unless the U.S. Holder can apply the credit against United States federal income tax payable on other income from non-U.S. sources in the appropriate income category. Alternatively, the U.S. Holder may take a deduction for the Brazilian tax if it does not elect to claim a foreign tax credit for any non-U.S. taxes paid during the taxable year.

Passive Foreign Investment Company Rules

In general, a non-U.S. corporation is a PFIC with respect to a U.S. Holder if, for any taxable year in which the U.S. Holder holds stock in the non-U.S. corporation, at least 75% of its gross income is passive income or at least 50% of the value of its assets (determined on the basis of a quarterly average) produce passive income or are held for the production of passive income. For this purpose, passive income generally includes, among other things, dividends, interest, rents, royalties and gains from the disposition of investment assets (subject to various exceptions). Based upon the nature of our current and projected income, assets and activities, we do not believe the shares or ADSs were for the preceding taxable year nor do we expect them to be, shares of a PFIC for United States federal income tax purposes. However, the determination of whether the shares or ADSs constitute shares of a PFIC is a factual determination made annually and thus may be subject to change. Because these determinations are based on the nature of our income and assets from time to time, as well as certain items that are not directly in our control, such as the value of our shares and ADSs and involve the application of complex tax rules the application of which to our business is not always entirely clear, no assurances can be provided that we will not be considered a PFIC for the current or any past or future tax year.

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If we are treated as a PFIC for any taxable year during which you are a U.S. Holder, various adverse consequences could apply to you. Neither gains nor dividends would be subject to the reduced tax rates discussed above that are applicable in certain situations. Rather, gain recognized by you on a sale or other disposition of the common shares or ADSs would be allocated ratably over your period for the common shares or ADSs. The amounts allocated to the taxable year of the sale or disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, and an interest charge would be imposed on such tax as if it had not been paid from the original due date for your tax return for such year. Further, any distribution in respect of common shares or ADSs in excess of 125 percent of the average of the annual distributions on common shares or ADSs received by you during the preceding three years or, if shorter, your holding period would be subject to taxation as described above. Certain elections may be available (including a mark to market election) to U.S. persons that may mitigate the adverse consequences resulting from PFIC status. In any case, you would be subject to additional U.S. tax form filing requirements.

Backup Withholding and Information Reporting

In general, dividends on our shares or ADSs, and payments of the proceeds of a sale, exchange or other disposition of shares or ADSs, paid within the United States or through certain United States-related financial intermediaries to a U.S. Holder are subject to information reporting and may be subject to backup withholding at a current maximum rate of 28% unless the holder: (i) establishes, if required to do so, that it is an exempt recipient; or (ii) in the case of backup withholding, provides an accurate taxpayer identification number and certifies that it is a U.S. person and has not lost its exemption from backup withholding has occurred.

You can credit amounts withheld under these rules against your United States Federal income tax liability, or obtain a refund of such amounts that exceed your United States Federal income tax liability, provided that the required information is furnished to the IRS.

Recent legislation has introduced new reporting requirements for certain U.S. Holders. The penalty for failing to comply with these, or existing, reporting requirements can be significant. You should consult their own tax advisors concerning any U.S. reporting requirements that may arise out of their ownership or disposition of ADSs or preferred shares in light of your particular circumstances.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

Statements contained in this annual report regarding the contents of any contract or other document are complete in all material respects, however, where the contract or other document is an exhibit to this annual report, each of these statements is qualified in all respects by the provisions of the actual contract or other documents.

We are subject to the informational requirements of the Exchange Act applicable to a foreign private issuer. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect reports and copy reports and other information filed with or furnished to the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. For further information, call the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website that contains filings, reports and other information regarding issuers who, like us, file electronically with the SEC. The address of that website is http://www.sec.gov.

As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and members of our Board of Directors and Board of Executive Officers and our principal shareholders are exempt from reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, as a foreign private issuer, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

We also file periodic reports and financial statements with the CVM, located at Rua Sete de Setembro, 111, Rio de Janeiro, Rio de Janeiro 20159-900, Brazil.

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I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The risks inherent in our market sensitive instruments are potential losses that may arise from adverse changes to interest rates and/or foreign exchange rates. We are subject to market risk resulting from changes in interest rates because such changes may affect the cost at which we obtain financing. We are subject to exchange rate risk with respect to our debt denominated in foreign currencies.

Interest Rate Risks

Apart from loans in the total amount of R$19,331 million linked to the LIBOR rate, we do not have any debt that is directly linked to variable interest rates. As of December 31, 2012, we had R$30,320 million of indebtedness that was indexed to the IGP-M. Variations in interest rates may impact inflation and, accordingly, we are indirectly subject to changes in interest rates that may increase the cost of financing.

As of December 31, 2012, 61.12% of our total indebtedness of R$49,651million denominated in reais was indexed to the IGP-M or other inflation indices. As a result, our exposure to Brazilian inflation risk was R$30,320 million as of December 31, 2012. Each 1.0% variation in the IGP-M rate or any other inflation index would have an impact of R$303 million on our net income.

Exchange Rate Risks

As of December 31, 2012, approximately 38.93% of our total consolidated indebtedness of R$49 billion was denominated in foreign currencies. Of our 2012 foreign currency denominated indebtedness, R$19 billion, or approximately 38.28% was denominated in U.S. dollars.

We have a foreign currency exposure affecting our assets and liabilities due to the loans we provide to Itaipu, whose financial statements are prepared in U.S. dollars. In order to protect ourselves against fluctuations in the U.S. dollar/ real exchange rate, our Board of Executive Officers approved the implementation of a hedging policy in July 2007, which was designed to reduce the exposure to these foreign currency variations through the use of derivative contracts.

In 2008, we entered into short term derivative contracts, which expired in December 2008. Since January 1, 2009, we do not have any derivative contracts outstanding and we are not proposing to enter into derivative contracts providing leverage or credit protection. Our general strategy is to focus on protection from currency fluctuations. However, we are considering broadening our hedging policy to cover others market risks, such as interest rates and indices, as well as embedded derivatives.

As a result, our actual exposure to U.S. dollar exchange rate risk was R$19 billion as of December 31, 2012. Each 1.0% variation in the U.S. dollar/Brazilian real exchange rate would have a negative impact of R$189 million on our net income.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12.D.

American Depositary Shares

Fees payable by the holders of our ADSs

J.P. Morgan Chase Bank, N.A. serves as the depositary for both of our common and preferred ADSs. ADR holders are required to pay various fees to the depositary, and the depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.

ADR holders are required to pay the depositary: (i) an annual fee of U.S.$0.02 per ADS for administering the ADR program and (ii) amounts in respect of expenses incurred by the depositary or its agents on behalf of ADR holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, facsimile transmission, or conversion of foreign currency into U.S. dollars. In both cases, the depositary may decide in its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash distributions.

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ADR holders are also required to pay additional fees for certain services provided by the depositary, as set forth in the table below:

Depositary Action		Associated fee

Issuance, delivery, reduction, cancellation or surrender of ADSs		U.S.$5.00 per 100 ADSs

Any cash distribution to registered ADS holders		U.S.$0.02 (or less) per ADSs

Transfer rates (to the extent not prohibited by the rules of the primary stock exchange upon which the ADSs are listed)		U.S.$1.50 per ADR or ADRs

Depositary reimbursements

In accordance with the deposit agreement entered between the depositary and us, the depositary reimburses us for certain expenses we incur in connection with the ADR program. From January 1 to December 31, 2012, our depositary bank reimbursed us the amount of U.S.$ 6.9 million.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

We carried out an evaluation under the supervision of, and with participation of, our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, including those defined in United States Exchange Act Rule 13a-15e, as of the year ended December 31, 2012. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective controls and procedures can only provide reasonable assurance of achieving their control objectives.

As a result of this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2012, and that the design and operation of our disclosure controls and procedures were not effective to provide reasonable assurance that all material information relating to our company was reported as required because material weaknesses in the current operation of our internal control over financial reporting were identified as described below.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “ Internal Control – Integrated Framework .” Based on this assessment, our management concluded that, as of December 31, 2012, our internal control over financial reporting was not effective because material weaknesses existed. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual financial statements will not be prevented or detected on a timely basis. The material weaknesses identified were:

1. We did not maintain effective internal controls over financial reporting based on the COSO criteria. The following material weaknesses related to our controls over financial reporting were identified: 1) we did not maintain an effective control environment, specifically internal control deficiencies were not remediated in a timely manner; 2) we did not adequately perform a risk assessment process to ensure that effective controls were adequately designed and implemented that would prevent and detect material misstatements to our financial statements, based on risks known by us; 3) we did not adequately implement and maintain effective information technology controls, including those related to segregation of duties, security and monitoring access to our financial application programs and data.

2. We did not maintain effective review, monitoring and approval processes relating to the recording of recurring and non-recurring journal entries.

3. We did not maintain effective controls to ensure the completeness/accuracy of the judicial deposits and legal lawsuits, including periodic reviews/updates of them and the expected losses for accrual purposes.

4. We did not maintain effective controls to ensure the completeness/accuracy or the review/monitoring of the post retirement benefits plans (pension plans) sponsored by us.

5. We did not adequately design and maintain effective controls with respect to the impairment calculation of assets. Specifically, there is noevidence of the analysis of financial information that was used for the impairment calculation of assets.

6. We did not maintain effective controls to ensure the appropriate review/monitoring related to the preparation of financial statements and related disclosures, and insufficient headcount of internal accounting personnel.

Notwithstanding management’s assessment that our disclosure controls and procedures were not effective and that there were material weaknesses as identified above, we believe that our financial statements contained in this annual report fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.

The effectiveness of the internal control over financial reporting, as of December 31, 2012, has been audited by PricewaterhouseCoopers Auditores Independentes , an independent registered public accounting firm, as stated in their report beginning on page F-1 of the financial statements to this Form 20-F.

Remediation of Material Weakness

In order to remedy the material weakness related to our internal controls over financial reporting, we have created leaders of internal controls in our business areas, and have established targets for the managers of such areas. We have also provided courses on risks and internal controls to certain employees at the Universidade Corporativa and organized seminars at similar seminars at our subsidiaries. In addition, we are currently implementing governance, risk and monitoring of internal controls aimed at further reducing the deficiencies.

With respect to remedies for the material weakness related to controls over the evaluation, monitoring and approval of manual entries related to recurring and non-recurring items of our period-end financial reporting, management believes the full implementation of enterprise resource planning, or ERP, software will eliminate material weakness in relation to period-end financial reporting.

Regarding the remediation of the material weakness related to completeness and accuracy of the judicial proceedings, our accounting department and the accounting departments of the subsidiaries which have presented this material weakness have been monitored in order to ensure accurate information to be reported to period-end financial reporting.

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In respect of the material weakness related to the control of the post-retirement benefit plans (pension plans), we have implemented a program designed to create effective control over processes and accuracy regarding entries in order to cure this material weakness.

Regarding the remediation of material weakness related to adequate design and operating controls with respect to accounting for property, plant and equipment, specifically, to the calculation of impairment, our management believes it strictly follows application of Law No. 12,783/13, and undertook necessary adjustments imposed by such law in our period-end reporting. We further believe this was a non-recurring weakness.

In order to remedy the material weakness regarding the preparation of our IFRS financial statements and disclosures, and the lack of internal accounting staff, we are re-assessing the need to hire further accounting staff, to potentially re-organize our accounting department and more efficient application of information technology tools.

(c) Changes in Internal Control over Financial Reporting

Other than as set forth above, there have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2012 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting as of December 31, 2012.

(d) Attestation Report of the Independent Registered Public Accounting Firm

For the report of PricewaterhouseCoopers Auditores Independentes , our independent registered public accounting firm, dated April 29, 2013, on the effectiveness of the internal control over financial reporting as of December 31, 2011, see “Item 18, Financial Statements.”

ITEM 15T. CONTROLS AND PROCEDURES

Not applicable.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Charles Carvalho Guedes, a member of our Fiscal Council, is an “audit committee financial expert” as defined by current SEC rules and meets the independence requirements of the SEC and the NYSE listing standards. For a discussion of the role of our Fiscal Council, see “Item 6.C, Board Practices – Fiscal Council.”

ITEM 16B. CODE OF ETHICS

We have adopted a code of ethics that applies to all our employees, including our chief executive officer, chief financial officer, principal accounting officer and persons performing similar functions, as well as to directors and other officers. We have posted this code of ethics on our website at: http://www.eletrobras.com/elb/data/Pages/ LUMISB877EC49ENIE.htm. Copies of our code of ethics may be obtained by writing to us at the address set forth on the front cover of this Form 20-F. We have not granted any implicit or explicit waivers from any provision of our code of ethics since its adoption.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth by category of service the total fees for services provided to Eletrobras by PricewaterhouseCoopers Auditores Independentes, during the fiscal years ended December 31, 2012, 2011 and 2010.


	2012		2011		2010
	( R$ )
Audit Fees		9,356,316.00		7,860,000.00		5,100,000.00
Audit-Related Fees		—		230,000.00		—
Tax Fees		—		—		—
All Other Fees		—		—		—

Total		9,356,316.00		8,090,000.00		5,100,000.00

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Audit Fees

Audit fees consist of the aggregate fees billed by PricewaterhouseCoopers Auditores Independentes, in connection with the audit of our annual financial statements and internal controls, interim reviews of our quarterly financial information comfort letters, procedures related to the audit of income tax provisions in connection with the audit and the review of our financial statements.

Audit-Related Fees

Audit-related fees were paid to PricewaterhouseCoopers Auditores Independentes for the fiscal year ended December 31, 2011 which related to a report in connection with a certification of sustainability

Tax Fees

No tax fees were paid to PricewaterhouseCoopers Auditores Independentes for the fiscal years ended December 31, 2012, 2011 and 2010.

All Other Fees

No other fees were paid to PricewaterhouseCoopers Auditores Independentes for the fiscal years ended December 31, 2012, 2011 and 2010.

Pre-Approval Policies and Procedures

On April 27, 2005, we adopted a code of ethics that applies to all our employees, including our chief executive officer, chief financial officer, principal accounting officer and persons performing similar functions, as well as to directors and other officers. The objective of this code is: (i) to reduce the possibility of the misinterpretation of ethical principles as a result of subjective, personal interpretation; (ii) to be a formal and institutional benchmark for the professional conduct of our employees, including the ethical handling of actual or apparent conflicts of interests; (iii) to provide a standard for our internal and external relationships with our shareholders, investors, clients, employees, partners, suppliers, service providers, labor unions, competitors and society, the government and the communities in which we operate; and (iv) to ensure that daily concerns with efficiency, competitiveness and profitability do not override ethical behavior. Our code of ethics is available free of charge by requesting a copy from our Investor Relations Department at the following address: Avenida Presidente Vargas, 409, 9th Floor, Edifício Herm. Stolz, CEP 20071-003 Rio de Janeiro, RJ, Brazil; telephone: +55 21 2514 6331 or +55 21 2514 6333; fax: +55 21 2514 5964; and e-mail: invest@eletrobras.com.

We also created, in 2008, a “whistleblower channel” in order to receive “complaints,” by any person (provided such complaint is first reported to the Fiscal Council), regarding any “dishonest or unethical conduct,” “accounting, internal accounting controls, or auditing matters” and any equally confidential and anonymous submissions of “concerns” of the same type by our employees and associates. The “whistleblower channel” can be accessed through our website or by letter sent to our headquarters marked for the attention of our Fiscal Council. Since its establishment, eight issues were reported to our “whistleblower channel,” all of which related to personal conduct and therefore did not have a financial impact on our results of operations.

ITEM 16D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

We have designated and empowered our Fiscal Council to perform the role of an audit committee pursuant to Rule 10A-3 of the Exchange Act. We are required by both the SEC and the NYSE listed company audit committee rules to comply with Rule 10A-3 of the Exchange Act, which requires that we either establish an audit committee, composed of members of our Board of Directors, that meets specified requirements or designate and empower our Fiscal Council to perform the role of the audit committee in reliance on the exemption set forth in Rule 10A-3(c)(3) of the Exchange Act. We believe that our Fiscal Council satisfies the independence and other requirements of Rule 10A-3 of the Exchange Act, which would apply in the absence of our reliance on the exemption.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

There was no change in Certifying Accountant.

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ITEM 16G. CORPORATE GOVERNANCE

See “Item 9.C, Markets – Significant Differences between our Corporate Governance Practices and NYSE Corporate Governance Standards.

PART III

ITEM 17. FINANCIAL STATEMENTS

See “Item 18, Financial Statements.”

ITEM 18. FINANCIAL STATEMENTS

Please see our consolidated financial statements beginning on page F-1.

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ITEM 19. EXHIBITS


2.1		Amended and Restated Deposit Agreement dated October 18, 2002 between Centrais Elétricas Brasileiras S.A. – Eletrobras and J.P. Morgan Chase Bank, N.A., incorporated herein by reference from our Registration Statement on Form 20-F, filed July 21, 2008, File No. 001-34129.

2.2		The total amount of long-term debt securities of our company and its subsidiaries under any one instrument does not exceed 10% of the total assets of our company and our subsidiaries on a consolidated basis. We agree to furnish copies of any or all such instruments to the SEC upon request.

3.2		By-Laws of Centrais Elétricas Brasileiras S.A. – Eletrobras (English translation), dated December 23, 2011.

4.1		Itaipu treaty signed by Brazil and Paraguay – Law No. 5,899 of July 5, 1973, incorporated herein by reference from our Registration Statement on Form 20-F, filed July 21, 2008, File No. 001-34129.

8.1		List of subsidiaries.

12.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

12.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

13.1		Section 906 Certification of Chief Executive Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

13.2		Section 906 Certification of Chief Financial Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

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Signatures

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS

By:	/s/ José da Costa Carvalho Neto

	Name:	José da Costa Carvalho Neto
	Title:	Chief Executive Officer

By:	/s/ Armando Casado de Araújo

	Name:	Armando Casado de Araújo
	Title:	Chief Financial Officer

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of and for the year ended December 31, 2012, 2011 and 2010

Contents


Report of Independent Registered Public Accounting Firm			F-1
Audited Financial Statements
Consolidated Balance Sheets			F-2
Consolidated Income Statements			F-5
Consolidated Statements of Changes in Equity			F-7
Consolidated Statements of Cash Flow			F-8
Notes to the Consolidated Financial Statements			F-10

Report of Independent Registered

Public Accounting Firm

To the Board of Directors and Stockholders of

Centrais Elétricas Brasileiras S.A.—Eletrobras

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows present fairly, in all material respects, the financial position of Centrais Elétricas Brasileiras S.A.—Eletrobras and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Also, in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), because material weaknesses in internal control over financial reporting existed as of that date, related to the following i) lack of an effective internal control environment, considering that: a) internal control deficiencies were not remediated in a timely manner; b) the Company did not adequately implement a risk assessment process to ensure that effective controls were adequately designed and implemented that would prevent and detect material misstatements to its financial statements, based on risks known by the Company; and c) the Company did not adequately implement and maintain effective information technology controls, including those related to segregation of duties, security and monitoring access to its financial application programs and data; (ii) lack of effective review, monitoring and approval processes relating to the recording of recurring and non-recurring journal entries; (iii) lack of effective controls to ensure the completeness/accuracy of the judicial deposits and legal lawsuits, including periodic reviews/updates of them and the expected losses for accrual purposes; (iv) lack of effective controls to ensure the completeness/accuracy or the review/monitoring of the postretirement benefits plans (pension plans) sponsored by the Company; (v) lack of effective controls with respect to the impairment calculation of assets, specifically, there is no evidence of the analysis of financial information that was used for the impairment calculation of assets; and (vi) lack of effective controls to ensure the appropriate review/monitoring related to the preparation of financial statements and related disclosures, and insufficient headcount of internal accounting personnel.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting”. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2012 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in management’s report referred to above. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in footnote 2.1, the Federal Government of Brazil has changed the laws and regulations regarding concessions of generation, distribution and transmission of electrical power. These changes impact both (i) the amount of tariffs the company can charge its customers which could impact the recoverability of certain assets, and (ii) the amount the company will be paid for certain assets under concession at the end of the concession period. As a result, the company recognized an impairment charge to reduce these assets to their estimated recoverable value. Some of the amounts to be received related to modernization of generation plants, transmission assets up to May, 2000 and assets related to thermal plants were determined by management based on its best estimates and interpretation of the legislation as described in footnote 4. Such amounts may change based on the final approval from the regulator.

As disclosed in Note 15 to the financial statements, the subsidiaries in the distribution segment have suffered recurring losses from operations and have a net capital deficiency in the amount of R$ 1,501,887 thousand at December 31, 2012.

As disclosed in Note 15 to the financial statements, the associated company Centrais Elétricas do Pará S.A.—CELPA has a negative net working capital in the amount of R$ 1,686,894 thousand at June 30, 2012, most recent information, Additionally, the associated company Centrais Elétricas Matogressenses S.A – CEMAT presented a negative net working capital in the amount of R$ 438,922 thousand.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We do not express an opinion or any other form of assurance on management’s statement referring to remediation of the material weaknesses included under Management´s Annual Report on Internal Control Over Financial Reporting.

Rio de Janeiro, April 30, 2013

PricewaterhouseCoopers

Auditores Independentes

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CENTRAIS ELÉTRICAS BRASILEIRAS S.A – ELETROBRAS

BALANCE SHEETS FOR THE YEARS ENDED ON DECEMBER 31, 2012 AND 2011

(In thousands of Brazilian Reais )


CURRENT	NOTE	12/31/2012		12/31/2011

CURRENT
Cash and Cash Equivalents	5		4,429,375		4,959,787
Restricted cash	5		3,509,323		3,034,638
Marketable securities	6		6,622,611		11,252,504
Accounts receivable	7		4,496,963		4,352,024
Financial asset - Concessions and Itaipu	17		579,295		2,017,949
Loans and financing	9		1,976,191		2,082,054
Fuel consumption account - CCC			1,240,811		1,184,936
Equity interest remuneration	10		118,790		197,863
Recoverable taxes	11		1,391,882		1,104,322
Income tax and social contribution	11		1,418,252		843,022
Reimbursement rights	12		7,115,200		3,083,157
Inventories			454,635		358,724
Nuclear fuel inventory	13		360,751		388,663
Indemnifications - Law 12,783/2013	8		8,882,836		—
Derivative financial instruments	44		252,620		195,536
Other receivables			1,493,008		1,607,493

TOTAL CURRENT ASSETS			44,342,543		36,662,672

NON-CURRENT
LONG-TERM ASSETS
Reimbursement rights	12		901,029		500,333
Loans and financing	9		7,747,286		7,651,336
Accounts receivable	7		1,482,946		1,478,994
Marketable securities	6		404,337		398,358
Nuclear fuel inventory	13		481,495		435,633
Recoverable taxes	11		1,934,820		2,430,761
Income tax and social contribution	11		4,996,806		3,343,525
Guarantees and restricted deposits			2,829,912		2,316,324
Fuel consumption account - CCC			521,097		727,136
Financial asset - Concessions and Itaipu	17		44,834,877		46,149,379
Derivative financial instruments	44		223,099		185,031
Advances for future capital increase	14		4,000		4,000
Indemnifications - Law 12,783/2013	8		5,554,436		—
Other			830,754		701,763

			72,746,894		66,322,573

INVESTMENTS	15		5,398,299		5,510,192

FIXED ASSETS	16		47,407,102		53,214,861

INTANGIBLE ASSETS	18		2,300,740		2,371,367

TOTAL NON-CURRENT ASSETS			127,853,035		127,418,993



TOTAL ASSETS			172,195,578		164,081,665

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CENTRAIS ELÉTRICAS BRASILEIRAS S.A – ELETROBRAS

BALANCE SHEETS FOR THE YEARS ENDED ON DECEMBER 31, 2012 AND 2011

(in thousands of Brazilian Reais)


LIABILITIES AND EQUITY	NOTE	12/31/2012		12/31/2011

CURRENT
Loans and financing	22		4,447,175		4,005,326
Debentures	23		316,899		739,237
Financial liability	17		52,862		—
Compulsory loan	24		12,298		15,620
Suppliers	20		7,490,802		6,338,102
Advance from clients	21		469,892		413,041
Taxes payable	26		886,312		815,236
Income tax and social contribution			370,704		217,285
Fuel consumption account - CCC	25		1,369,201		3,079,796
Stockholder’s compensation	28		3,977,667		4,373,773
Accounts payable to Brazilian federal treasury	29		131,047		109,050
Estimated liabilities			1,444,992		802,864
Reimbursement obligations	12		5,988,698		1,955,966
Post-employment benefits	30		118,553		451,801
Provision for contingencies	31		267,940		240,190
Regulatory fees	27		1,308,152		1,218,768
Leasing	22		162,929		142,997
Concessions payable - use of public asset	33		40,131		35,233
Derivative financial instruments	44		185,031		269,718
Other			1,808,362		900,806

TOTAL CURRENT LIABILITIES			30,849,647		26,124,809

NON CURRENT
Loans and financing	22		45,204,025		38,408,352
Accounts payable to Brazilian federal treasury	29		37,072		155,676
Debentures	23		409,228		279,410
Advance from clients	21		830,234		879,452
Compulsory Loan	24		321,894		211,554
Asset decommission obligation	32		988,490		408,712
Operational provision			1,005,908		843,029
Fuel consumption account - CCC	25		2,401,069		954,013
Provision for contingencies	31		5,288,394		4,652,176
Post-employment benefits	30		4,628,570		2,256,132
Onerous contracts	35		4,905,524		96,204
Reimbursement obligations	12		1,801,059		1,475,262
Leasing	22		1,860,104		1,775,544
Stockholder’s compensation	28		—		3,143,222
Concessions payable - use of public asset	33		1,577,908		1,534,532
Advances for future capital increase	34		161,308		148,695
Derivative financial instruments	44		291,252		197,965
Regulatory fees	27		428,501		385,724
Recoverable Taxes	26		635,269		773,500
Income tax and social contribution	26		779,615		1,129,022
Other			509,914		1,046,362

TOTAL NON-CURRENT LIABILITIES			74.065,339		60,754,538

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EQUITY
Capital stock	37	31,305,331		31,305,331
Capital reserves	37	26,048,342		26,048,342
Profit reserves	37	10,836,414		18,571,011
Equity valuation adjustments		208,672		220,915
Proposed additional dividend		433,962		706,018
Other comprehensive income		(1.748,776	)	(8,111	)

EQUITY ATTRIBUTABLE TO THE CONTROLLING SHAREHOLDERS		67,083,945		76,843,506
Non-controlling interest		196,648		358,812

TOTAL EQUITY		67,280,593		77,202,318

TOTAL LIABILITIES AND EQUITY		172,195,578		164,081,665

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CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS

STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(in thousands of Brazilian Reais)


	NOTE	12/31/2012			12/31/2011			12/31/2010

NET OPERATING REVENUE	39		34.064,477			29,211,486			26,832,085


OPERATING EXPENSES
Personnel, supplies and services	41		8,439,302			7,670,716			7,370,713
Energy purchased for resale	42		4,573,673			3,386,289			4,315,084
Charges upon use of electric network	42		1,763,953			1,420,934			1,353,839
Construction - Distribution			1,345,519			711,740			810,475
Construction - Transmission			3,681,603			3,567,868			2,143,009
Fuel to produce electricity			708,711			162,673			252,502
Remuneration and indemnity			1,651,724			1,328,994			1,087,341
Depreciation			1,658,161			1,549,988			1,498,059
Amortization			117,053			173,897			94,417
Donations and contributions			380,101			289,964			261,006
Operating provisions	43		5,326,991			2,848,749			2,497,262
Income to offset from Itaipu			491,859			655,290			441,057
Other			2,257,666			1,622,800			965,704


			32,396,316			25,389,902			23,090,468

OPERATING RESULT BEFORE FINANCIAL RESULT			1,668,161			3,821,584			3,741,617


FINANCIAL RESULT

FINANCIAL REVENUE
Revenue from interest, commissions and fees			767,534			757,450			781,872
Revenue from financial investments			1,731,870			1,664,517			1,537,435
Interest and penalty charges over electricity receivables			230,597			359,208			393,987
Monetary restatements			858,049			652,949			616,141
Exchange variation gains			421,013			669,731			—
Remuneration for indemnifications - Law 12,783/13			326,379			—			—
Other financial revenue			—			158,471			394,890

Financial Expenses
Debt charges			(2,333,643	)		(1,708,670	)		(1,675,821	)
Lease charges			(412,152	)		(350,861	)		(332,449	)
Charges on shareholders’ funds			(572,322	)		(1,178,989	)		(1,298,647	)
Exchange variation loss			—			—			(431,497	)
Other financial expenses			(384,816	)		(789,353	)		(350,033	)


			632,509			234,453			(364,122	)

INCOME BEFORE EQUITY INTEREST AND EFFECTS OF LAW 12,783/2013			2,300,670			4,056,037			3,377,495

INCOME FROM EQUITY INTEREST	40		468,584			482,785			669,755

INCOME BEFORE EFFECTS OF LAW 12,783/13			2,769,254			4,538,822			4,047,250

Effects - Law 12,783/2013	2		(10,085,380	)		—			—

OPERATING RESULTS AFTER LAW 12,783/13			(7,316,126	)		4,538,822			4,047,250


Income tax (expense)/benefit	26		244,688			(474,994	)		(1,074,606	)
Social contribution on net income (expense)/benefit	26		145,786			(301,809	)		(419,659	)


NET INCOME (LOSS) FOR THE YEAR			(6,925,652	)		3,762,019			2,552,985


AMOUNT ATTRIBUTED TO CONTROLLING SHAREHOLDERS			(6,878,915	)		3,732,565			2,247,913
AMOUNT ATTRIBUTED TO NON-CONTROLLING SHAREHOLDERS			(46,737	)		29,454			305,072
Net earnings per share			(5.09	)		2.60			2.25

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CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED IN DECEMBER 31, 2012, 2011 AND 2010

(in thousand of Brazilian Reais )


	12/31/2012			12/31/2011			12/31/2010

Net income (loss) for the year		(6,925,652	)		3,762,019			2,552,985


Other comprehensive income
Cumulative translation adjustments		7,779			15,878			(6,747	)
Actuarial gains and losses		(2,370,677	)		(280,256	)		55,300
Deferred income tax and social contribution		806,030			95,287			(18,802	)
Fair value of available-for-sale financial instruments		(240,662	)		152,385			158,697
Deferred income tax and social contribution		81,825			(51,811	)		(53,957	)
Cash flow hedges		—			—			12,862
Deferred income tax and social contribution		—			—			(4,373	)
Comprehensive income of associated companies and jointly-controlled entities		(37,818	)		(472,745	)		(888,574	)
Deferred income tax and social contribution		12,858			155,336			295,920


Other comprehensive income (loss) for the year		(1,740,665	)		(385,926	)		(449,674	)


Total comprehensive income (loss) for the year		(8,666,317	)		3,376,092			2,103,311


AMOUNT ATTRIBUTED TO CONTROLLING SHAREHOLDERS		(8,619,581	)		3,346,639			1,798,239
AMOUNT ATTRIBUTED TO NON-CONTROLLING SHAREHOLDERS		(46,736	)		29,453			305,072


		(8,666,317	)		3,376,092			2,103,311

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CENTRAIS ELÉTRICAS BRASILEIRAS S.A – ELETROBRAS

STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED ON DECEMBER 31, 2012 AND 2011

(in thousands of Reais)


	CAPITAL STOCK		TREASURY SHARES		LEGAL		STATUTORY			ADDITIONAL DIVIDENDS			EQUITY VALUATION ADJUSTMENTS EFFECTS			RETAINED EARNINGS/ ACCUMULATED LOSSES			OTHER COMPRE- HENSIVE INCOME			STOCK- HOLDERS’ EQUITY PARENT			STOCK- HOLDERS’ EQUITY NON- CONTROLLING INTEREST			CONSOLIDATED STOCK- HOLDERS’ EQUITY
On January 1, 2011		26,156,567		26,048,342		2,046,388		14,758,463			753,201			163,335			—			377,817			70,304,114			226,296			70,530,410

Payment of Capital		5,148,764																					5,148,764			103,062			5,251,826
Additional dividends								(213,862	)		(753,200	)											(967,061	)					(967,061	)
Translation accumulated adjustments																				15,878			15,878						15,878
Post-employment benefit adjustment																				(280,256	)		(280,256	)					(280,256	)
Fair value of available-for-sale financial instruments																				152,385			152,385						152,385
Deferred income tax and social contribution over other comprehensive income																				198,812			198,814						198,814
Adjustment of subsidiaries / associates														78,004						(472,746	)		(394,742	)					(394,742	)
Equity valuation adjustments														(20,424	)		20,424						—						—
Net income for the year																	3,732,565						3,732,566			29,453			3,762,020
Constitution of Reserves						186,629		1,793,393									(1,980,021	)					—						—
Dividends proposal																	(1,066,950	)					(1,066,955	)					(1,066,955	)
Approval of additional dividend by Annual General Meeting											706,018						(706,018	)					—						—

On December 31, 2011		31,305,331		26,048,342		2,233,017		16,337,994			706,018			220,915			—			(8,111	)		76,843,506			358,811			77,202,318

Additional dividends											(706,018	)											(706,018	)					(706,018	)
Adjustments accumulated in the conversion																				11,780			11,780						11,780
Post-employment benefit adjustment																				(520,677	)		(520,677	)					(520,677	)
Fair value of available-for-sale financial instruments																				(197,844	)		(197,844	)					(197,844	)
Deferred income tax and social contribution over other comprehensive income																				896,712			896,712						896,712
Adjustment of subsidiaries / associates																				(1,930,636	)		(1,930,636	)		(115,426	)		(2,046,062	)
Equity valuation adjustments														(12,243	)		12,243						—						—
Realization of Reserves								(855,681	)								855,681						—						—
Loss for the year																	(6,878,916	)					(6,878,916	)		(46,737	)		(6,925,653	)
Dividends proposal																	(433,962	)					(433,962	)					(433,962	)
Approval of additional dividend by Annual General Meeting											433,962						(433,962	)					—						—
Absorption of losses								(6,878,916	)								6,878,916						—						—

On December 31, 2012		31,305,331		26,048,342		2,233,017		8,603,397			433,962			208,672			—			(1,748,776	)		67,083,945			196,648			67,280,593

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CENTRAIS ELÉTRICAS BRASILEIRAS S.A – ELETROBRÁS

STATEMENTS OF CASH FLOWS

(In thousand of Reais)


	NOTE	12/31/2012			12/31/2011			12/31/2010
OPERATING ACTIVITIES

Income before income tax and social contribution			(7,316,126	)		4,538,822			4,047,250

Adjustments to reconcile net income to cash generated by operations:
Depreciation and amortization			1,775,214			1,723,958			1,592,476
Monetary/exchange variations, net			(1,166,958	)		(1,029,289	)		(387,617	)
Financial charges			526,646			774,140			2,008,270
Revenue from financial assets	39		(3,148,842	)		(2,774,166	)		(2,525,754	)
Income from equity interests	40		(468,584	)		(482,785	)		(669,755	)
Effects of Law 12,783/2013	2		10,085,380			—			—
Allowance for doubtful accounts	43		724,731			808,487			600,251
Provision for contingencies	43		564,909			677,998			287,821
Provision for the decrease to the recoverable value of assets/onerous contracts	43		2,666,809			434,538			379,048
Provision for post-employment benefit plan	43		438,328			172,246			280,965
Provision for investment losses	43		187,741			91,989			421,629
Charges on global reversal reserve			367,741			403,903			395,756
Present value adjustment/market value			(157,364	)		7,954			314,518
Non-controlling interest			70,814			(44,627	)		(462,230	)
Charges on stockholders’ funds			572,322			1,178,989			1,298,647
Loss/gain on divestments			126,979			—			—
Derivative financial instruments			(143,117	)		124,770			(55,200	)
Other			690,824			171,488			(741,403	)

			13,713,573			2,239,594			2,688,137


(increase)/decrease in operating assets
Accounts receivable			(46,612	)		(219,230	)		(569,962	)
Marketable securities			4,623,914			(4,106,884	)		805,850
Reimbursement rights			(4,432,739	)		(1,507,652	)		(1,213,885	)
Inventories			(95,911	)		214,603			(36,463	)
Nuclear fuel inventory			(17,950	)		(2,367	)		(9,164	)
Financial asset - public utility concessions			(434,334	)		(946,673	)		(67,145	)
Other			(91,309	)		251,503			(249,688	)

			(494,941	)		(6,316,700	)		(1,340,456	)

Increase/(decrease) in operating liabilities
Suppliers			1,045,106			1,172,337			2,086,151
Advance from clients			(47,733	)		(44,466	)		70
Leasing			(113,374	)		103,509			66,757
Estimated liabilities			653,483			30,793			99,857
Reimbursement obligations			4,418,652			1,629,649			655,723
Regulatory fees			132,161			317,452			(5,193	)
Other			302,958			111,938			(481,282	)

			6,391,253			3,321,212			2,422,083


Cash from operating activities			12,293,759			3,782,929			7,817,014


Payment of financial charges			(1,812,722	)		(1,368,244	)		(1,453,344	)
Payment of global reversal reserve charges			(257,580	)		(465,318	)		(864,871	)
Amounts received from allowed annual revenue			3,744,154			2,315,642			2,712,474
Amounts received from financial charges			723,815			739,709			468,975
Payment of income tax and social contribution			(1,010,379	)		(1,132,758	)		(890,205	)
Amount received from remuneration of investments in equity interest			636,719			689,370			600,869
Judicial deposits			(491,175	)		(274,462	)		(146,131	)

Net Cash from Operating Activities			13,826,591			4,286,866			8,244,781

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FINANCING ACTIVITIES

Long-term loans and financing		7,623,386		7,273,908		3,829,260
Payment of loans and financing		(4,156,422	)	(2,258,040	)	(1,202,294	)
Payment of Shareholders remuneration		(5,032,645	)	(4,062,839	)	(3,143,565	)
Payment of Refinancing of taxes and contributions - principal		(110,745	)	(92,375	)	(92,115	)
Compulsory loan and Global reversal reserve		885,457		1,376,452		1,049,035
Others		(110,622	)	119,755		(346,434	)

Net cash from financing activities		(901,590	)	2,356,861		93,887


INVESTING ACTIVITIES

Long-term loans and financing		(536,879	)	(347,796	)	(641,078	)
Payment of loans and financing - principal		1,834,949		1,123,886		2,871,385
Renegotiated energy credits received		313,865		277,728		342,745
Acquisition of fixed assets	16	(10,386,236	)	(8,017,773	)	(6,256,197	)
Acquisition of intangible assets	18	(144,768	)	(139,612	)	(359,219	)
Acquisition of concession assets		(4,918,121	)	(3,411,497	)	(3,105,522	)
Other		381,778		(389,045	)	(587,907	)

Net cash from investing activities		(13,455,412	)	(10,904,110	)	(7,735,792	)


Increase (decrease) in cash and cash equivalents		(530,412	)	(4,260,382	)	602,875


Cash and cash equivalents at the beginning of the year	5	4,959,787		9,220,169		8,617,294
Cash and cash equivalents at the end of the year	5	4,429,375		4,959,787		9,220,169

		(530,412	)	(4,260,382	)	602,875

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CENTRAIS ELÉTRICAS BRASILEIRAS S.A.

Eletrobras

(PUBLICLY-HELD COMPANY)

CORPORATE TAXPAYER ID (CNPJ) 00.001.180/0001-26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED

December 31, 2012, 2011 and 2010

(In thousands of Brazilian Reais)

NOTE 1 – GENERAL INFORMATION

Centrais Elétricas Brasileiras S.A. (Eletrobras or Company) is a corporation headquartered in Brasília – DF – Setor Comercial Norte, Quadra 4, Bloco B, 100, room 203 – Asa Norte, registered at the Brazilian Securities and Exchange (Comissão de Valores Mobiliários – CVM) and at the Securities and Exchange Commission – SEC, with shares traded in the stock exchanges in São Paulo (BOVESPA) – Brazil, Madrid (LATIBEX) – Spain and New York’s (NYSE) – United States of America stock markets. The company is a mixed capital company controlled by the Federal Government. Its business purpose is studying, projecting, building and operating generating power plants, electricity transmission and distribution lines, as well as conducting the trading transactions arising from these activities. Its purpose is also granting funding, providing guarantees, in the country and abroad, to public service electricity companies that are under its shareholding control and in favor of technical-scientific research entities; promoting and supporting research in the electricity sector, especially those connected to the activities of generation, transmission and distribution, as well as to perform studies of watersheds harnessing for multiple purposes; contributing to the education of technical staff required by the Brazilian electricity sector, as well as preparing qualified workers, through specialized courses, which may also provide assistance to schools in the country or scholarships abroad and signing contracts with entities contributing to the training of specialized technical personnel; collaborate technically and administratively with the companies in which it participates as a shareholder and with the Ministry of Mines and Energy in Brazil.

The Company operates as a holding, managing investments in shareholding interest, holding direct controlling interests in six electricity generation and/or transmission companies, listed below:

•

Furnas Centrais Elétricas S.A. – FURNAS;

•

Centrais Elétricas do Norte do Brasil S.A. – ELETRONORTE;

•

Companhia Hidro Elétrica do São Francisco – CHESF;

•

ELETROSUL Centrais Elétricas S.A.;

•

Eletrobras Termonuclear S.A. – ELETRONUCLEAR; e

•

Companhia de Geração Térmica de Energia Elétrica – CGTEE.

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In addition to controlling the companies of generation and/or transmission of electricity listed above, the Company holds direct controlling interests in five electric power distributors:

•

Boa Vista Energia;

•

Companhia de Eletricidade do Acre – Eletroacre;

•

Centrais Elétricas de Rondônia – Ceron;

•

Companhia Energética de Alagoas – Ceal; and

•

Companhia Energética do Piauí – Cepisa

The Company, also, holds the controlling interest in Amazonas Energia – AmE, still under the Company’s control, acting in Generation and Distribution and in Eletrobras Participações S.A – Eletropar. It holds equity interests in Itaipu Binacional – Itaipu (under a joint control under the International Treaty signed by the Governments of Brazil and Paraguay), in Inambari Geração de Energia S.A. and in Centrales Hidroelectricas de Centroamerica S.A. – CHC.

The Company is the parent or participates as a minority stockholder of several other companies in the segments of generation, transmission and distribution of electricity either directly or through its controlled companies. (Note 15)

The Company is authorized, directly or through its subsidiaries or controlled companies, to associate, with or without injection of funds, to constitute business consortiums in companies or hold interest, with or without controlling power, abroad, directly or indirectly destined to explore electricity production, transmission or distribution.

The Company is responsible, also, by the management of sector resources, represented by Global Reversal Reserve – RGR, Energy Development Account – CDE, Use of Public Asset – UBP and Fuel Consumption Account – CCC. These funds finance Federal Government programs of access to electricity universalization, of street lighting efficiency, of incentives to alternative sources of energy, of conservation of electricity and the purchase of fossil fuels used in isolated systems of electricity generation, which financial transactions do not affect the net income of the Company (except for the management fee in certain Funds).

The Company also operates as electricity trading agent of Itaipu Binacional and participating agents of Proinfa.

The issuance of these consolidated financial statements was authorized by the Board of Directors on March 27, 2013.

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NOTE 2 – CONCESSIONS OF ELECTRICITY PUBLIC UTILITY

The Company, through its subsidiaries, holds several concessions of electricity public utility, whose breakdown, installed capacity and maturity dates are listed below:

I – Electric Power Generation


Concessions/Permissions	Location	Installed Capacity (MW) Unaudited		Maturity Year Unaudited
UHE Paulo Afonso II	BA		443	2042
UHE Paulo Afonso III	BA		794	2042
UHE Paulo Afonso IV	BA		2,462	2042
UHE Apolônio Sales	BA		400	2042
UHE Luiz Gonzaga	BA		1,480	2042
UHE Xingó	AL/SE		3,162	2042
UHE Sobradinho	BA/PE		1,050	2022
UHE Belo Monte	PA		11,233	2045
UHE Tucuruí	PA		8,535	2024
UHE Mauá	PR		363	2042
UHE Jirau	RO		3,750	2043
UTE Presidente Médici - Candiota I and II	RS		446	2015
UTE Candiota III	RS		350	2041
UTE Mauá	AM		738	Undetermined
UTE Santa Cruz	RJ		932	2042

UHE Furnas	MG		1,216	2042
UHE Luiz Carlos Barreto de Carvalho	SP/MG		1,050	2042
UHE Marimbondo	SP/MG		1,440	2042
UHE Mascarenhas de Moraes	MG		476	2023
UHE Itumbiara	MG/GO		2,082	2020
UHE Corumbá I	GO		375	2042
UHE Serra da Mesa	GO		1,275	2038
UHE Peixe Angical	TO		452	2036
UHE Foz do Chapecó	RS		855	2036
UTN Angra I	RJ		640	Undetermined
UTN Angra II	RJ		1,350	Undetermined
UTN Angra III	RJ		1,405	Undetermined
UHE Santo Antônio	RO		3,150	2043
Others	Various		15,633	—

Electricity power generation considers the following assumptions:

a) the existence of periods, either throughout the day, or annually, in which there is higher or lower demand for electricity in the system for which the power plant, or generation system, are scaled;

b) the existence, as well, of periods in which machines are removed from operation for maintenance, either preventive or corrective, and

c) water availability in the river where it is located.

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Electricity production at the power plants is a responsibility of the Electricity Operation Planning and Programming, with spans and details ranging from annual to hourly through daily, currently prepared by ONS – the National Electric System Operation, which establishes the volumes and sources of generation required to meet the country’s demand in an optimized manner, based on the water basin’s availability and machinery in operation, as well as generation costs and feasibility of transmission of this power through the interconnected system.

II – Electric Power Transmission:


Concessions/Permissions	Location	Extension (km)		Maturity Year
		Unaudited		Unaudited
LT 230 kV - SE Ribeiro Gonçalves / SE Balsas	MA/TO/PI		95	2039
LT Coxipó-Cuiabá-Rondonópolis (MT), 230 Kv	MT		193	2034
LT Colinas, Miracema,gurupi, Peixe Nova da Serra 2 (TO/GO) em 500 kV	TO/GO		695	2036
LT Jauru-Juba-C2 (MT) e Maggi - Nova Mutum (MT), 230 kV, 30/138 kV	MT		402	2042
LT Oriximiná - Itacoatiara - Cariri (PA/AM), em 500kV	PA/AM		586	2038
LT Coletora Porto Velho (RO) - Araraquara (SP), 600kv	RO/SP		2375	2039
LT Porto Velho - Samuel Ariquemes - Ji-Paraná - Pimenta Bueno - Vilhena (RO), Jaurú (MT), com , 230 kV	RO/MT		987	2039
LT Porto Velho - Abunã (RO) - Rio Branco (AC),230 kV	RO/AC		487	2039
LT Jaurú - Cuiabá (MT), e SE Jaurú,com 500 kV	MT/SE		348	2039
LT 525 kV Campos Novos/Biguaçu/Blumenau	SC		359	2035
LT 525 kV Itá/Nova Santa Rita	SC/RS		315	2042
LT 525 kV Caxias/Itá	RS/SC		256	2042
LT 525 kV Areia/Curitiba I	PR		235	2042
LT 525 kV Areia/Bateias	PR		220	2042
LT 525 kV Campos Novos/Caxias	SC/RS		203	2042
LT 525 kV Itá/Salto Santiago	SC/PR		187	2042
LT 525 kV Areia/Campos Novos	PR/SC		176	2042
LT 525 kV Areia/Ivaiporã	PR		173	2042
LT 525 kV Ivaiporã/Salto Santiago	PR		167	2042
LT 525 kV Blumenau/Curitiba	SC/PR		136	2042
LT 525 kV Ivaiporã/Londrina	PR		122	2042
Outras LT de 525 kV	—		395	2042
LT 230 kV Presidente Médice/Santa Cruz 1	RS		237	2038
LT 230 kV Dourados/Guaíra	MS/PR		226	2042
LT 230 kV Monte Claro/Passo Fundo	RS		212	2042
LT 230 kV Anastácio/Dourados	MS		211	2042
LT 230 kV Passo Fundo/Nova Prata 2	RS		199	2042
LT 230 kV Areia/Ponta Grossa	PR		182	2042
LT 230 kV Campo Mourão/Salto Osório 2	PR		181	2042
LT 230 kV Campo Mourão/Salto Osório 1	PR		181	2042
LT 230 kV Salto Osório/Xanxerê	PR/SC		162	2042
LT 230 kV Areia/Salto Osório 1	PR		160	2042
LT 230 kV Areia/Salto Osório 2	PR		160	2042
LT 230 kV Londrina/Assis 1	PR/SP		157	2042
LT 230 kV Blumenau/Palhoça	SC		134	2042
LT 230 kV Biguaçu/Blumenau 2	SC		130	2042
LT 230 kV Areia/São Mateus do Sul	PR		129	2042
LT 230 kV Cascavel/Guaíra	PR		126	2042
LT 230 kV Lageado Grande/Siderópolis	RS/SC		122	2042
LT 230 kV Jorge Lacerda “B”/Palhoça	SC		121	2042
LT 230 kV Curitiba/São Mateus do Sul	PR		117	2042
LT 230 kV Blumenau/Jorge Lacerda “B”	SC		116	2042
LT 230 kV Campo Mourão/Apucarana	PR		114	2042
LT 230 kV Assis/Londrina	SP/PR		114	2042
LT 230 kV Atlântida 2/Gravataí 3	RS		102	2042

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Concessions/Permissions	Location	Extension (km)		Maturity Year
		Unaudited		Unaudited
Outras LT de 230 kV	—		1556	2042
LT 138 kV Jupiá/Mimoso 1	SP/MS		219	2042
LT 138 kV Jupiá/Mimoso 3	SP/MS		219	2042
LT 138 kV Jupiá/Mimoso 4	SP/MS		219	2042
LT 138 kV Jorge Lacerda “A”/Palhoça 1	SC		109	2042
LT 138 kV Campo Grande/Mimoso 1	MS		108	2042
LT 138 kV Campo Grande/Mimoso 3	MS		108	2042
LT 138 kV Campo Grande/Mimoso 4	MS		108	2042
LT 138 kV Dourados das Nações/Ivinhema	MS		95	2042
Outras LT de 138 kV	—		657	2042
LT 132 kV Conversora de frequência de Uruguaiana/Paso de Los Libres	RS		12	2042
LT 69 kV Salto Osório/Salto Santiago	PR		56	2042
LT 345 kV Furnas - Pimenta II	MG		66	2035
LT 500 kV Rio Verde Norte - Trindade; LT 500/230 kV - 1200 MVA Subestação Trindade	GO		193	2040
LT 230 kV Trindade - Xavantes	GO		37	2040
LT 230 kV Trindade - Carajás	GO		29	2040
LT Coletora Porto Velho - Araraquara 2; LT 500/±600 kV - 3.150 MW, Subestação Estação retificadora 2 CA/CC e LT ±600/500 kV - 2.950 MW, Subestação Estação Inversora 02 CC/CA	RO		2,375	2038
LT 500 kV Mesquita - Viana 2 ; LT 500/345kV 900 MVA - Viana 2	MG/ES		248	2040
LT 345 kV Viana 2 - Viana	MG/ES		10	2040
2 LT 138 kV Unidade Geradora - Sistema Interligado Nacional; LT 138 kV, Subestação Elevadora			33	2035
LT 230 kV Serra da Mesa - Niquelândia; LT 230 kV, Subestação Serra da Mesa	TO		105	2042
LT 230 kV Niquelândia - Barro Alto; LT 230 kV, Subestação Niquelândia e LT 230 kV, Subestação Barro Alto	TO		88	2042
LT 230 kV CS Barra dos Coqueiros - Quirinópolis	MS/GO/MT		ND	2039
LT 230 kV CD Chapadão - Jataí Taquari	MS/GO/MT		ND	2039
LT 230 kV CS Palmeiras - Edéia	MS/GO/MT		ND	2039
2 LT 500 kV no seccionamento da LT Campinas - Ibiúna e a SE Itatiba 500/138 kV; LT 500/138 kV, Subestação Itatiba e LT 500 kV, Subestação Campinas e SE Ibiúna	SP		1	2039
LT 345 kV Montes Claros - Irapé	MG		138	2034
LT 345 kV Itutinga - Juiz de Fora	MG		144	2035
LT 230 kV Milagres/Tauá (CE); LT 230 kV Subestação Tauá (CE)	CE		208	2035
LT 230 kV Milagres/Coremas (CE/PB)	CE/PB		120	2035
LT 230 kV Paraíso/Açu II (RN)	RN		135	2037
LT 230 kV Funi/Itapebi (BA)	BA		198	2042
LT 230 kV Ibicoara/Brumado (BA); LT 500/230 kV Subestação Ibicoara (PE)	BA/PE		95	2037
LT 230 kV Eunápolis/Teixeira de Freitas II (BA); LT 230/138 kV Subestação Teixeira de Freitas II (BA)	BA		152	2038
LT 230 kV Picos/Tauá (PI/CE)	PI/CE		183	2037
LT 230 kV Jardim/Penedo (SE/AL)	SE/AL		110	2038
LT 500/230 kV Subestações Suape II(PE); LT 230/69 kV Suape III (PE)	PE		24	2039
LT 230 kV Pau Ferro/Santa Rita II (PE/PB)	PE/PB		97	2039
LT 230 kV Paulo Afonso III/Zebu (AL); LT 230/69 kV Subestações Santa Rita II; LT 230/69 kV Zebu (AL); LT 230/69 kV Natal III (RN)	AL/PB/RN		6	2039
LT 230 kV Eunápolis/Teixeira de Freitas II (BA)	BA		152	2038
LT 500/230 kV Subestação Camaçari IV	BA		81	2040
LT 230/69 kV Subestação Arapiraca III; LT 230kV Circuito duplo rio LargoII/Penedo	AL		45	2040
LT 230 kV Paraíso/Açu (RN), circuito 3	RN		123	2040
LT 230 kV Açu/Mossoró II (RN), circuito 2	RN		69	2040
LT 230 kV João Câmara / Extremoz II; LT 230 kV Subestação João Câmara (RN); LT 230 kV Subestação Extremoz II (RN)	RN		82	2040
LT 230 kV Igaporã/Bom Jesus da Lapa II (BA); LT 230 kV Subestação Igaporã (BA)	BA		115	2040
LT 230 kV Sobral III/Acaraú II (CE); LT 230 kV Subestação Acaraú (CE)	CE		97	2040
83 subestações de transmissão; 15 subestações elevadoras			18,260	2042
LT 500 kV Teresina(PI)/Sobral/Fortaleza(CE)	PI/CE		546	2034

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Concessions/Permissions	Location	Extension (km)		Maturity Year
		Unaudited		Unaudited
LT 500 kV Colinas/Miracema/ Urupi/ Peixe 2/Serra da Mesa (TO/GO)	TO/GO		695	2036
LT 500 kV Oriximiná/Itacoatiara CD			375	2038
LT 500 kV Itacoatiara/Cariri (PA/AM); LT 500/138 kV subestações Itacoatiara e LT 500/230 kV Cariri	PA/AM		212	2038
LT +/- 600 kV Coletora Porto Velho (RO)/ Araraquara 2 (SP), 01 em CC; LT 500 kV/+/- 600kV - 3.150 MW Estação Retificadora 02 CA/CC; LT , +/- 600 kV/500kV - 2.950 MW Estação Inversora 02 CC/CA.	RO/SP		2,375	2039
LT 230 kV São Luiz II/ São Luiz III (MA); LT 500 kV Subestação Pecém II (CE) e LT 230 kV Aquiraz II (CE)	MA/CE		96	2040
SE - Campos Novos	SC		2,466	2042
SE - Caxias	RS		2,016	2042
SE - Gravataí	RS		2,016	2042
SE - Nova Santa Rita	RS		2,016	2042
SE - Blumenau	SC		1,962	2042
SE - Curitiba	PR		1,344	2042
SE - Londrina	PR		1,344	2042
SE - Santo Ângelo	RS		1,344	2042
SE - Biguaçu	SC		300	2042
SE - Biguaçu	SC		672	2035
SE - Joinville	SC		691	2042
SE - Areia	PR		672	2042
SE - Itajaí	SC		525	2042
SE - Xanxerê	SC		450	2042
SE - Jorge Lacerda “A”	SC		400	2042
SE - Palhoça	SC		384	2042
SE - Siderópolis	SC		364	2042
SE - Assis	SP		336	2042
SE - Joinville Norte	SC		300	2042
SE - Atlântida 2	RS		249	2042
SE - Canoinhas	SC		225	2042
SE - Dourados	MS		225	2042
SE - Caxias 5	RS		215	2042
SE - Passo Fundo	RS		168	2042
SE - Tapera 2	RS		166	2042
SE - Gravataí 3	RS		165	2042
SE - Desterro	SC		150	2042
SE - Missões	RS		150	2039
SE - Anastácio	MS		150	2042
SE - Ilhota	SC		100	2042
Other substations	—		405	2042

III – Electric Power Transmission:


Concessions/Permissions	Geographic Region	Municipalities served		Maturity year of the concession
		Unaudited		Unaudited
Cia. de Eletricidade do Acre - Eletroacre	State of Acre		22	2015
Centrais Elétricas de Rondônia - Ceron	State of Rondônia		52	2015
Companhia Energétca de Alagoas - Ceal	State of Alagoas		102	2015
Companhia Energética do Piauí - Cepisa	State of Piauí		224	2015
Amazonas Energia	State of Amazonas		62	2015
Boa Vista Energia	State of Roraima		1	2015

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See comments on the effects of Law 12,783/2013 in concessions held by the Company’s subsidiaries in note 2.1

2.1. Extension of electricity’s public service concessions

Eletrobras, through its subsidiaries, has 42.3 GW of installed capacity, 61.7 thousand kilometers of transmission lines, and six energy distributors which serve about 3.7 million consumers, 4 (four) of which with operations in isolated systems in northern Brazil.

On September 11, 2012, the Federal Government issued the Provisional Measure No. 579, regulated by Decree-law No. 7,805 of September 14, 2012, which deals with concessions of electricity’s generation, transmission and distribution, with reducing sectorial burden, with moderate tariffs, and other measures. Actions taken by the Federal Government also aim to benefit electric power consumers through the reduction of three tariff components: generating cost, transmission cost and sectoral burden. Such Provisional Measure was converted, on January 11, 2013, into Law No. 12,783/2013 and became regulated by Decree No. 7,891 of January 23, 2013.

Through the aforesaid Law, electricity concessions, addressed in articles 17, §5th, 19 and 22 of Law No. 9.074 of July 7, 1995, which were due to mature in 2015, were extended for another 30 years, according to the conditions set out in the Law and the respective amendments to Concession Agreements.

Therefore, Law No. 12,783/2013, when dealing with the extensions of electricity’s distribution, transmission and generation concessions, reached by the articles listed above, imposed new conditions of extension to the concessionaries, allowing the extension for a period of 30 years, with the anticipation of the maturity of these concessions and signature of Amendments to the respective Concession Agreements with the Grantor establishing the new conditions.

The extension presupposes the express acceptance of the criteria for remuneration, energy allocation and quality standards contained in the Law, considering the indemnification of the assets which have not yet been amortized or depreciated, based on the new replacement value – VNR.

The major milestones for implementing the requirements of the Provisional Measure No. 579/2012 (currently Law 12,783/2013), are presented below:


09/12/2012		Publication of Provisional Measure No. 579/2012.
09/17/2012		Edition of the Regulatory Decree No. 7,805/2012.
10/15/2012		Deadline for expressions of interest for the renewal of the concession agreements by the companies.
11/01/2012		Approval of the minutes of addenda for concession agreements generation and transmission.
11/01/2012		Publication of rates generation and of allowed revenues transmission.
11/29/2012		Edition of the Provisional Measure 591/2012, which alters the Provisional Measure No. 579/2012.
12/04/2012		Deadline for signing the generation and transmission concession contracts addenda.

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12/11/2012		Approval of the Tarifa de Uso dos Sistemas de Transmissão (Usage Rate of Transmission Systems) – TUST – values.
12/19/2012		Provisional homologating resolution of energy quotas for the distributors.
01/01/2013		Beginning of the new revenue allowed from transmitters, TUST, and generating rates.
01/11/2013		Provisional Measure No. 579/2012 is turned into Law No. 12,783/2013.
01/20/2013		Final homologating resolution of energy quotas for the distributors.
02/05/2013		Extraordinary tariff review from distributors for rates perception by consumers.

On October 31, 2012, the Ministry of Mines and Energy – MME – published the Ordinance that defined:

(i) initial tariffs for hydropower plants established in section 1 of the Provisional Measure (Ordinance No. 578); and

(ii) annual allowed revenues from concessions of transmission integrant installations established in section 6 of the Provisional Measure (Ordinance No. 579).

Additionally, MME and the Treasury Department issued, on November 1, 2012, the Interministerial Ordinance No. 580, which established the compensation values of generation and transmission assets affected by the Provisional Measure, referenced to prices from June 2012 and October 2012, respectively, causing the compensation values of generation assets to be adjusted on November 29, 2012, through the Interministerial Ordinance No. 602.

The legislation provides that concessions of generation, transmission and distribution of electrical energy that are not renewed through the acceptance of the conditions presented by the Granting Authority, certified by the signature of the Amendment to existing concession contacts, under Law No. 12,783/2013, will be auctioned when they terminate on the current deadline (2015 – 2017), in the form of an auction or competition, for up to thirty years.

Impacts on business of generation directly affected by Law No. 12,783/2013

Receiving the compensation for not amortized generation assets by values defined in Ordinance No. 580 and No. 602 mentioned above. The amount of compensation will be adjusted by the Extended Consumer Price Index – I PCA (Article 3 ^rd of Ordinance No. 580 aforesaid) until the date of its effective payment. The payment method requested by the Company’s subsidiaries, as provided by Article 4th of Ordinance No. 580 aforesaid, is described in Note 45.

In Article 2 of Decree No. 7,850, previously mentioned, until December 31, 2013, the generation concessionaire shall submit to ANEEL (Brazilian Electricity Regulatory Agency), in the form defined by that Agency, any additional information (post-Basic Project) needed for the calculation of the investments share linked to reversible assets performed up to December 31, 2012, not yet amortized or depreciated (modernizations and improvements). Subsequently, the values found will be subject to indemnification or tariff based recognition if the Granting Authority so authorizes. Regarding thermal generation, the indemnity values are yet to be disclosed by the regulatory body.

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Amendment of the price for tariff regime, with periodic rate review in the same models as those already applied to the transmission activity hitherto. The tariff will be calculated based on the operation and maintenance costs, plus the rate of 10%. Additionally, in the future there may be included a share of assets not yet amortized or depreciated, as long as agreed by ANEEL.

New investments (modernizations and improvements) occurring after December 31, 2012, as long as formally approved, shall be addressed in future tariffs, considering that its remuneration criterion is yet to be defined.

Allocation of physical energy guarantee and of hydroelectric power plants potency quotas to public service concessionaires of electricity distribution from the National Interconnected System – SIN, to be set by ANEEL, which will be destined to the regulated market.

Reduction or elimination of the following regulatory charges: Global Reversion Reserve – RGR, Energy Development Account – CDE and Fuel Consumption Account – CCC.

Impacts on business of transmission directly affected by Law No. 12,783/2013

Receiving of indemnity of unamortized transmission assets acquired after May 31, 2000 (RBNI), by values defined in the Ordinance No. 580 previously mentioned. The amount of compensation will be adjusted by the Extended Consumer Price Index – IPCA (Article 3rd of Ordinance No. 580 aforesaid) until the date of its effective payment. The payment method requested by the Company’s subsidiaries, as provided by Article 4th of Ordinance No. 580 aforesaid, is described in Note 45.

Transmission concessionaires should send to ANEEL all information relating to assets acquired before May 31, 2000 (RBSE), not yet depreciated or amortized, needed for the calculation of complement indemnity within a period to be set by the grantor, as § 8th of article 15 of Law No. 12,783/2013, which, when agreed, will be paid in 30 years, updated in the form of regulation.

The tariff (new Allowed Annual Revenue – RAP) will be calculated to cover the costs of operation and maintenance, initially 10%.

Additionally, in the future there may be included a share of assets not yet amortized or depreciated, as long as agreed by ANEEL.

New investments (reinforcements and improvements) occurring after December 31, 2012, as long as formally approved, shall be addressed in future tariffs, considering that its remuneration criterion is yet to be defined.

Elimination of Global Reversion Reserve – RGR and Fuel Consumption Account – CCC and reduction of Energy Development Account – CDE to 25% of the current rate.

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Impacts on business of distribution in general

•

Extraordinary Tariff Review of Parcel A, with impacts from February 1, 2013, to capture the cost reduction resulting from the generation and transmission extended concessions.

•

Reduction or elimination of regulatory charges (CDE, CCC and RGR).

•

Elimination of exchange variation impacts on the purchase of energy from Itaipu to consumers, considering that the National Treasury will assume that cost.

•

The components: power purchasing, regulatory fees and energy transport costs form Parcel A – non-manageable costs by the concessionaire, in the redefinition of the tariff that is made on every concession contract anniversary (annually). Therefore no alterations are expected in the margin of these concessionaires.

•

Possible energy purchasing cost impact due to the quotas allocation of physical energy guarantee and of hydroelectric power plants potency to the regulated market (captive-distributors), considering the need to purchase power on the open market to cover the demands of consumers hitherto.

According to article 27 of Law 12,783/13 amending article 3rd § 16 of Law No. 12.111/2009: “§ 16 – the amount of energy to be considered for service of the public system of electricity distribution in isolated systems will be limited to efficient levels of losses, according to ANEEL’s regulation”. To this end, the Public Hearing ANEEL No. AP-107/2012, which has the aim of obtaining grants and additional information for setting the budget of the Fuel Consumption Account – CCC, for the year of 2013, is with its contribution period, due to document exchange, not yet ended.

Uncertainties in the distribution business directly affected by Law No. 12,783/13

On October 15, 2012, distributors whose concessions will expire in 2015 had the right to express their interest in extending their concessions for an additional period of 30 years, which they did. Until the present moment, the criteria for extension of such contracts have not been regulated by the Public Authority and, therefore, the signing of the concession contract for the distributors that have expressed interest did not occur in October 15, 2012, which will only occur with the expiration of the current concession.

There are no guarantees that the Grantor will approve an extension in accordance with the new conditions, depending on several criteria, which will be reviewed by the Grantor. There is a forecast of not amortized asset indemnity at the end of the concession.

The Company had as deadline for reviewing and accepting the conditions of indemnity and rates, the date stipulated by the Public Authority for signing the addenda to the generation and transmission concession contracts, scheduled for December 4, 2012, being the contractual amendments signed on that date.

The extension presupposed the express acceptance of these conditions by the concessionaires:

I – remuneration for calculated rate by the National Electricity Regulatory Agency – ANEEL for each hydropower plant;

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II – allocation of physical energy guarantee and hydroelectric power plant quotas to public service concessionaires of electricity distribution of the National Interconnected System – SIN, to be defined by ANEEL, according to regulation of the grantor; and

III – submission to the service standards of quality set by ANEEL.

Concessions for generation of thermoelectric energy with maturity by 2015 may be extended, at the discretion of the grantor, only once, for a period of up to twenty years, if they have not yet been extended.

Concessions for electricity transmission achieved by § 5 of art. 17 of Law No. 9.074 of 1995, may be extended, at the discretion of the grantor, only once, for a period of up to thirty years. The extension presupposed the express acceptance of the following conditions by the concessionaires:

I – fixed revenue according to criteria established by ANEEL; and

II – submission to the service standards of quality set by ANEEL.

Given its importance, this matter was referred to the deliberation of the 160th Extraordinary General Meeting held on December 3, 2012, which decided to approve the extension of the Concession Agreements Nos. 062/2001 – ANEEL and 004/2004 – ANEEL (Eletrobras Furnas); Nos. 058/2001 – ANEEL and 02/2012 – ANEEL (Eletrobras Eletronorte); Nos. 061/2001 – ANEEL and 006/2004 – ANEEL (Eletrobras Chesf); and No. 057/2001 – ANEEL (Eletrobras Eletrosul) under the Provisional Measure No. 579 of 09/11/2012, Decree No. 7,805 of 09/14/2012, Ordinance No. 578/MME of 10/31/2012, Ordinance MME No. 579 of 10/31/2012 and Interministerial Ordinance No. 580/MME/MF of 11/01/2012.

The effects from these changes in the Law 12,783/2013 are as follows:

Effects on income statement in 2012


	Total

Generation		(7,337,859	)

Profit (loss) with indemnifications of extended concessions		(1,802,402	)
Adjustment to the New Value of Replacement of the Indemnifiable Assets		(2,825,060	)
Onerous Contract		(1,591,200	)
Installment of non recoverable assets - impairment		(1,119,198	)
Transmission		(3,106,703	)

Profit (loss) with indemnifications of extended concessions		(1,242,395	)
Adjustment to the New Value of Replacement of the Indemnifiable Assets		(331,602	)
Onerous Contract		(1,491,195	)
Installment of non recoverable assets - impairment		(41,511	)
Distribution		359,182

Adjustment to the New Value of Replacement of the Indemnifiable Assets		359,182

Total		(10,085,380	)

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Equity effects in 2012


	Balance on 12/31/2012 - before Law 12,783/2013												Effects on the 2012 statement of income by Law 12,783/2013			Monetary Restatement of Indemnification		Total of assets after the impacts of Law 12,783/2013
	Fixed Assets		Intangible		Financial Assets		Onerous Contracts			Provision/ Impairment			Effects on the 2012 statement of income by Law 12,783/2013			Monetary Restatement of Indemnification		Total of assets after the impacts of Law 12,783/2013
Generation		51,269,690		1,221,929		—		(1,691,928	)		(1,682,718	)		(7,337,859	)		195,419		41,974,533
Transmission		—		160,288		29,433,205		—			(60,283	)		(3,106,703	)		150,785		26,577,291
Distribution		1,410,976		837,779		4,236,765		(131,200	)		—			359,182			—		6,713,502

Total		52,680,666		2,219,996		33,669,970		(1,823,128	)		(1,743,001	)		(10,085,380	)		346,204		75,265,326


	Total of assets (liabilities) after the impacts of Law 12,783/2013		Balance on 31/12/2012 - after the effects of Law 12,783/2013
			Fixed Assets		Intangible		Financial Asset		Indemnification Receivable		Onerous Contracts
Generation		41,974,533		36,398,730		1,221,929		1,483,540		6,153,462		(3,283,128	)
Transmission		26,577,291		—		160,288		19,624,390		8,283,810		(1,491,196	)
Distribution		6,713,502		1,410,976		837,779		4,595,947		—		(131,200	)

Total		75,265,326		37,809,706		2,219,996		25,703,877		14,437,272		(4,905,524	)

For presentation purposes, the administrative assets were allocated to the activities of generation and distribution.

Assets of extended concessions whose indemnity have not yet been approved by the Grantor


Generation
Modernizations and Improvements			1,483,540
Thermal Generation			1,684,047

Transmission
Modernizations and Improvements (RBNI)			841,814
Basic Network - Existent Services (RBSE)			7,490,046

Total			11,499,447

Tariffs of Concession of Generation of Electrical Power For 2013 – Ordinance MME 578/2012


Concessionary	Hydroeletric Power Plant	Installed capacity (MW)		Tariff (R$/kW.)
CHESF	Complexo Paulo Afonso		4,279.60		29.92
CHESF	Xingó		3,162.00		35.61
CHESF	Luiz Gonzaga (Itaparica)		1,479.60		42.67
Furnas	Marimbondo		1,440.00		39.22
Furnas	Furnas		1,216.00		40.60
Furnas	Estreito		1,048.00		41.58
Furnas	Corumbá I		375.30		57.59
Furnas	Porto Colômbia		319.20		60.94
CHESF	Boa Esperança		237.30		66.74
Furnas	Funil		216.00		66.59
Eletronorte	Coaracy Nunes		76.95		100.25
CHESF	Funil		30.00		103.71
CHESF	Pedra		20.01		82.65
CHESF	Araras		4.00		38.86

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Annual revenue permitted of Transmission Concession of Electrical Energy For 2013 – Ordinance MME 579/2012


Concessionary	Concession Contract	Indemnification
CHESF	061/2001-ANEEL		517,607
Eletronorte	058/2001-ANEEL		276,252
Eletrosul	057/2001-ANEEL		406,109
Furnas	062/2001-ANEEL		629,803

			1,829,771

* Indemnification amounts of Generation Concession Contracts, Ordinance 580/MME/MF, altered by Ordinance MME/MF 602

Concessionary

Hydroeletric Power Plant

Potential
(MW)

Indemnification

Beginning
of the
Operation

CHESF

Xingó

3,162.00

2,929,832

12/16/94

CHESF

Paulo Afonso IV

2,462.40

360,473

12/1/79

CHESF

Luiz Gonzaga (Itaparica)

1,479.60

1,730,602

6/13/88

Furnas

Marimbondo

1,440.00

64,368

10/25/75

CHESF

Apolônio Sales (Moxotó)

400.00

84,613

4/15/77

Furnas

Corumbá I

375.00

679,880

4/1/97

CHESF

Boa Esperança (Castelo Branco)

237.30

72,783

4/7/70

Eletronorte

Coaracy Nunes

67.98

35,492

12/30/75

Total

5,958,043

* Indemnification amounts of Transmission Concession Contracts, Ordinance 580/MME/MF


Concessionary	Concession Contract	Indemnification
CHESF	061/2001-ANEEL		1,587,161
Eletronorte	058/2001-ANEEL		1,682,268
Eletrosul	057/2001-ANEEL		1,985,568
Furnas	062/2001-ANEEL		2,878,028

			8,133,025

* Refer to original amounts and do not include interest or monetary variation

NOTE 3 – SUMMARY OF MAIN ACCOUNTING POLICIES

The main accounting policies applied in the preparation of these financial statements are defined below. These policies have been applied consistently in all reported years, unless otherwise stated.

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3.1. Basis of preparation

The preparation of financial statements requires the usage of certain critical accounting estimates and also the Company’s Management judgment on the process to apply the accounting policies. Those areas which require a higher level of judgment and which are more complex, as well as areas in which assumptions and estimates are relevant for the consolidated financial statements, are disclosed in Note 4.

The financial statements were prepared based on the historical cost, except for certain financial instruments measured by their fair values, as described in the following accounting practices. Generally, the historical cost is based on the fair value of consideration paid in exchange of assets.

(a) consolidated financial statements

Consolidated financial statements have been prepared and are being presented in compliance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

(b) changes in the accounting policies and disclosures

(b.1) New and revised rules adopted without significant effects on consolidated financial statements

Amendments to IFRS 7 – Disclosures – Transfer of financial assets

The amendments to IFRS 7 – Financial Instruments: An increase in evidence required increases the disclosure requirements for transactions involving financial assets. These changes aim to provide more transparency to risk exposures when a financial asset is transferred, but the transferor still retains some level of exposure in the asset. The amendments also require the disclosure of financial assets transfer when they are not equally distributed over the period.

This rule came into force on January 1, 2012 and had no impact on the Company’s individual and consolidated financial statements.

Amendment to IAS 12 – Deferred tax: underlying assets recovery

Amendments to IAS 12 – Income Taxes present an exception to the general principles of IAS 12 in the sense that the measurement of the deferred tax assets and liabilities should reflect the tax effects resulting from the way in which the entity expects to recover the carrying value of an asset. Specifically, according to the amendments, it is expected that investment property measured at the fair value model in accordance with IAS 40 – Investment Property are recovered through sale for purposes of measuring the deferred taxes, unless the premise is invalid under certain circumstances. This rule came into force on January 1, 2012 and had no individual impact on the financial statements of the Company and its subsidiaries.

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(b.2) New and revised rules and interpretations already issued but not yet adopted

New regulations and reviews about consolidation, participation agreements, affiliated and disclosures

In May 2011, a package of five consolidation rules, participation agreements, and related disclosures was issued, including IFRS 10, IFRS 11, IFRS 12, IAS 27 (revised in 2011) and IAS 28 (revised in 2011).

IFRS 10 replaces parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements. SIC-12 Consolidation – Specific Purpose Entities will be removed with the application of IFRS 10. According to IFRS 10, there is only one base of consolidation, i.e., the control. Additionally, IFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement in the investee, and (c) ability to use its power over the investee to affect the value of the investor’s returns. Comprehensive guidance have been included in IFRS 10 to approach complex scenarios.

IFRS 11 replaces IAS 31 Participation in Joint Ventures. IFRS 11 deals with situations where a participation agreement with two or more parties that have joint control must be classified. SIC-13 Joint Ventures – Investor’s Non-Monetary Contributions will be removed with the application of IFRS 11. According to IFRS 11, participation agreements are classified as joint operations or joint ventures, according to the rights and obligations of the parties to the agreements. On the other hand, in accordance with IAS 31, there are three types of participation agreements: jointly controlled entities, jointly controlled assets and jointly controlled operations. Additionally, in accordance with IFRS 11, joint ventures should be accounted for under the equity method, while jointly controlled entities, in accordance with IAS 31, can be accounted for by the equity method or the proportionate method of accounting.

IFRS 12 is a rule of disclosure applicable to entities that have interests in subsidiaries, participation agreements, consolidated and/or unconsolidated structured entities. In general, the requirements for disclosure in accordance with FRS 12 are broader than current standards.

In June of 2012, amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transition rules in applying the IFRSs for the first time.

These five rules, along with the respective changes related to the transition rules are applicable for annual periods beginning on or after January 1, 2013.

Management expects that the implementation of these five rules have a significant effect on the values reported in the financial statements. For example, the adoption of IFRS 10 may affect the accounting of investments in the companies listed in note 14.b, currently classified as Company’s colligated. Given the new definition of control and additional control guidelines set out in IFRS 10, due to the adoption of IFRS 10, some of these companies may be considered Company’s subsidiaries. If any of these companies is consolidated as a Company subsidiary, its net assets, as well as revenues and expenses, are presented separately in the consolidated balance sheet and in the consolidated statement of income or other comprehensive income, respectively, instead of being presented in a single account in the Company’s consolidated financial statements. Management will conduct a detailed review to determine the effects of adopting IFRS 10 on the date of its adoption.

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The adoption of IFRS 11 will result in changes in the accounting of investments kept by the Group’s jointly controlled entities in accordance with IAS 31, listed in the explanatory note 3.2 and currently accounted for under the proportionate consolidation method. According to IFRS 11, these jointly controlled entities are classified as joint venture and recorded by the equity method, resulting in the recording of proportionate share of net assets, net income, and other comprehensive income of the Entity under a single account that will be presented in the consolidated balance sheet, as well as in the consolidated statement of income and comprehensive income as “investment in joint venture” and “participation in profits (losses) of joint venture”, respectively.

Based on preliminary assessment made by the Company and, if rules IFRS 10 and IFRS 11 had been adopted in the preparation of these consolidated financial statements, it is estimated that the total assets and liabilities would be R$ 141,320,515 and R$ 74,053,384, respectively, on December 31, 2012 (compared to the amounts of R$ 172,195,578 and R$ 104,914,985, respectively, presented in these consolidated financial statements), that the net operating income would be R$ 26,954,473 on December 31, 2012 (compared to the amount of R$ 34,064,477 presented in these consolidated financial statements), and that the net income and equity would not be affected.

Other new and revised rules and interpretations already issued and not yet adopted


Rule	Key requirements	Effective date

Amendment to IAS 1 – “Presentation of Financial Statements” regarding other comprehensive incomes	The main change resulting from these addenda was the requirement that entities must group the items reported in other comprehensive incomes based on the possibility of becoming or not potentially reclassifiable into profit or losses, subsequently (reclassification adjustments). The amendments do not establish which items must be reported in other comprehensive incomes.	Fiscal years beginning after July 1, 2012

IFRS 9 – “Financial Instruments”	IFRS 9 is the first rule issued as part of a larger project to replace IAS 39. IFRS 9 maintains, but simplifies, the combined measurement model and establishes two main measurement categories for financial assets: amortized cost and fair value. The basis of	Fiscal years beginning after January 1, 2015

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Rule	Key requirements	Effective date

	classification depends on the entity’s business model and the characteristics of the financial asset’s contractual cash flows. IAS 39 guidance on impairment of financial assets and hedge accounting remains applicable.

IFRS 13 – “Fair Value Measurement”	The objective of IFRS 13 is to improve the consistency and reduce the complexity of fair value measurement, providing more accurate definition and a single source of fair value measurement and its reporting requirements under the IFRS. The requirements, which are highly in line between IFRS and US GAAP, do not increase the use of accounting at fair value, but provide guidance on how to apply it when its use is already required or allowed by other IFRS or US GAAP rules.	Fiscal years beginning after January 1, 2013

Amendment to IFRS 7 and IAS 32 – Compensation financial assets and liabilities and related disclosures	Amendments to IAS 32 clarify existing adoption issues concerning the demands of assets and liabilities compensation. Specifically, these amendments clarify the meaning of “now it has the legal right to compensate” and “simultaneous realization and settlement.” The amendments to IFRS 7 requires entities to disclose information about the compensation rights and related agreements (such as requirements for guarantees) for financial instruments subject to compensation or similar contracts.	Fiscal years beginning after January 1, 2013 (IFRS 7 – disclosure items) and after January 1, 2014 (IAS 32)

Annual improvements to IFRSs cycle 2009 – 2011 (May 2012)	Amendments to IAS 16 Amendments to IAS 16 clarify that the replacement parts,	Fiscal years beginning after January 1, 2013

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Rule	Key requirements	Effective date

	spare equipment and service equipment shall be classified as if immobilized according to the definition of immobilized of IAS 16 or, otherwise, as stock. Amendments to IAS 32 Amendments to IAS 32 clarify that the income tax relating to distributions to holders of equity instruments and the costs of equity transactions should be accounted for in accordance with IAS 12 – Income taxes.

The Company is assessing the impact of these Pronouncements and Orientations over its Financial Statements.

There are no other IFRS rules or IFRIC interpretations not effective yet that could adversely affect the Group.

3.2. Basis of consolidation and investments in subsidiaries

The following accounting policies apply to the preparation of consolidated financial statements.

(a) Subsidiaries

The consolidated financial statements include the financial statements of the Company and its subsidiaries, including specific purpose entities. Control is obtained when the Company has the power to control the financial and operational policies of an entity in order to receive benefits from its activities. The Financial Statements of jointly controlled subsidiaries are consolidated proportionally to their shareholding.

The profit of operations of subsidiaries acquired or sold during the year are included in the consolidated statements of operations and comprehensive income from the date of effective acquisition until the date of effective sale, as applicable.

Whenever necessary, the financial statements of investees are adjusted to adapt their accounting policies to those adopted by the Company. All transactions, balances, revenues and expenses between subsidiaries of the Company’s are fully eliminated in the consolidated financial statements.

The consolidated financial statements reflect the balances of assets and liabilities of December 31, 2012 and 2011, and of operations for the years ended on December 31, 2012 and 2011 of the parent company, its directly and indirectly controlled subsidiaries and jointly controlled subsidiaries. The financial statements prepared in a functional currency different from the one used by the parent company are converted to the presentation currency used in Brazil, for equity and consolidation purposes, and the exchange differences are accounted for as accumulated conversion adjustments.

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The parent company and the subsidiaries are substantially located in Brazil.

The Company adopts the following main consolidation practices:

a) Elimination of investments of the investing company in investees, in consideration of its interest in their respective stockholders’ equity;

b) Elimination of intercompany accounts receivable and payable;

c) Elimination of intercompany revenues and expenses;

d) Highlighting other non-controlling interest in the Stockholders’ Equity and in the Income Statement of consolidated investees.

The Company uses full and proportional consolidation criteria, as described in the table below. Interest is stated on total capital of the subsidiary:


	12/31/2012						12/31/2011
Subsidiaries	Interest						Interest
(Full consolidation)	Direct			Indirect			Direct			Indirect

Amazonas Energia		100	%		—			100	%		—
Ceal		100	%		—			100	%		—
Cepisa		100	%		—			100	%		—
Ceron		100	%		—			100	%		—
CGTEE		100	%		—			100	%		—
Chesf		100	%		—			100	%		—
Eletroacre		94	%		—			93	%		—
Eletronorte		99	%		—			99	%		—
Eletronuclear		100	%		—			100	%		—
Eletropar		84	%		—			84	%		—
Eletrosul		100	%		—			100	%		—
Furnas		100	%		—			100	%		—
RS Energia		—			100	%		—			100	%
Porto Velho Transmissora		—			100	%		—			100	%
Boa Vista Energia		100	%		—			—			100	%
Estação Transmissora		—			100	%		—			100	%
Artemis		—			100	%		—			100	%
Rio Branco Transmissora		—			100	%		—			100	%
Cerro Chato I		—			90	%		—			90	%
Cerro Chato II		—			90	%		—			90	%
Cerro Chato III		—			90	%		—			90	%
Sul Brasileira		—			80	%		—			80	%
Uirapuru		—			75	%		—			75	%

Jointly-controlled entities
(Proportional consolidation)
Itaipu		50	%		—			50	%		—
Inambari		29	%		20	%		29	%		20	%
Norte Energia		15	%		35	%		15	%		35	%
CHC		50	%		—			50	%		—
Amazônia Eletronorte		—			49	%		—			49	%
Baguari		—			31	%		—			31	%

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Brasnorte	—	50	%	—	50	%
Bransventos Eolo Geradora de Energia	—	25	%	—	25	%
Brasventos Miassaba 3	—	25	%	—	25	%
Caldas Novas Transmissão	—	50	%	—	50	%
Centro Oeste de Minas	—	49	%	—	49	%
Chapecoense	—	40	%	—	40	%
Cia de Transm. Centroeste de Minas	—	49	%	—	49	%
Construtora Integração	—	49	%	—	49	%
Costa Oeste	—	49	%	—	49	%
Cerro dos Trindades	—	49	%	—	49	%
Chui	—	49	%	—	49	%
Chui I	—	49	%	—	49	%
Chui II	—	49	%	—	49	%
Chui IV	—	49	%	—	49	%
Chui V	—	49	%	—	49	%
Enerpeixe	—	40	%	—	40	%
Cerro Chato IV	—	49	%	—	49	%
Cerro Chato V	—	49	%	—	49	%
Cerro Chato VI	—	49	%	—	49	%
Ibirapuitã	—	49	%	—	49	%
Integração Transmissora	—	49	%	—	49	%
Interligação Elétrica Garanhuns	—	49	%	—	49	%
Energia Sustentável do Brasil	—	40	%	—	40	%
Interligação Elétrica do Madeira	—	49	%	—	49	%
Empresa de Transm. do Alto Uruguai	—	27	%	—	27	%
Goiás Transmissão	—	49	%	—	49	%
Linha Verde Transmissora	—	49	%	—	49	%
Livramento Holding	—	49	%	—	49	%
Madeira Energia	—	39	%	—	39	%
Manaus Construtora	—	20	%	—	20	%
Manaus Transmissora	—	50	%	—	50	%
Marumbi	—	20	%		20	%
MGE Transmissão	—	49	%	—	49	%
Minuano I	—	49	%	—	49	%
Minuano II	—	49	%	—	49	%
Norte Brasil Transmissora	—	49	%	—	49	%
Pedra Branca	—	49	%	—	49	%
Rei dos Ventos 3 Geradora	—	25	%	—	25	%
Retiro Baixo	—	49	%	—	49	%
São Pedro do Lago	—	49	%	—	49	%
Serra do Facão	—	50	%	—	50	%
Santa Vitória do Palmar Holding	—	49	%	—	49	%
Sete Gameleiras	—	49	%	—	49	%
Sistema de Transmissão Nordeste	—	49	%	—	49	%
Teles Pires	—	49	%	—	49	%
Transleste de Transmissão	—	24	%	—	24	%
Transmissão Delmiro Gouveia	—	49	%	—	49	%
Transenergia Goiás	—	49	%	—	49	%
Transenergia Renovável	—	49	%	—	49	%
Transenergia São Paulo	—	49	%	—	49	%
Transirapé de Transmissão	—	25	%	—	25	%

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Transudeste	—	25	%	—	25	%
Verace I	—	49	%	—	49	%
Verace II	—	49	%	—	49	%
Verace III	—	49	%	—	49	%
Verace IV	—	49	%	—	49	%
Verace V	—	49	%	—	49	%
Verace VI	—	49	%	—	49	%
Verace VII	—	49	%	—	49	%
Verace VIII	—	49	%	—	49	%
Verace IX	—	49	%	—	49	%
Verace X	—	49	%	—	49	%

The consolidated financial statements include balances and transactions from exclusive funds of which the only stockholders are the Company and its subsidiaries, comprised by public and private securities and debentures of companies rated as low risk and high bond liquidity.

The exclusive funds, whose financial statements are regularly reviewed/audited, are subject to liabilities restricted to the payment for asset management services, attributed to the operation of investments, and there are no relevant financial obligations.

(b) Investments in associates

Associates are those entities over which the Company has significant influence but not control, usually through an interest of 20% to 50% of voting rights. Jointly-controlled entities are all those entities over which the Company has shared control with one or more parties. Significant influence is the power to participate in decisions on financial and operational policies of the investee, without exercising individual or joint control over these policies.

Investments in associates and jointly-controlled entities are stated by the equity method and are, initially, recognized by their fair value. Investment in associates and jointly-controlled entities includes goodwill identified on the acquisition, net of any accumulated impairment losses.

Investments in associates are proportionally adjusted to the Company’s share in profits or losses and other comprehensive income of the associate. When the Company’s share in the losses of an associate exceeds its interest in that associate (including any long-term interest that, essentially, is included in the associate’s net investment), the Company no longer recognizes its share in additional losses. Additional losses are recognized solely if the Company has incurred legal or constructive obligations or has made payments on behalf of the associate.

(c) Interest in joint ventures

A joint venture is a contractual agreement through which the Company and other parties exercise an economic activity subject to joint control; a situation in which the decisions on financial and operational strategic policies related to the activities of the joint venture requires the approval of all parties sharing control.

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Whenever a subsidiary of the Company directly performs its activities through a joint venture, the interest of the Company on jointly controlled assets and any liabilities jointly incurred with the other controlling stockholders is accounted for in the Financial Statements of the respective subsidiary and classified according to its nature. Incurred liabilities and expenditures directly related to interest in jointly controlled assets are accounted for on an accrual basis. Any gains from the sale or usage of the interest of the Company in yields from jointly controlled assets and its participation in any expenses incurred by the joint venture are recognized when it is probable that the economic benefits associated to the transactions will be transferred to/from the Company and its value can be reliably measured.

The Company discloses its interest in jointly-controlled entities in its consolidated financial information, using the method of proportional consolidation. Company’s share in the assets, liabilities and income of jointly-controlled entities are combined with corresponding items in the consolidated financial information of the Company, line by line.

3.3 Group’s companies with different functional currency

a) Proportional consolidation procedures of jointly-controlled entity Itaipu Binacional

The Financial Statements of the jointly-controlled entity Itaipu Binacional are originally prepared in U.S. dollars (functional currency). Assets and liabilities were converted into reais at the exchange rate on December 31, 2012 – US$1.00 – R$2.0435, published by the Brazilian Central Bank (December 31, 2011 – US$1.00 – R$1.8758), and income statements accounts at the monthly average exchange rate.

The income/loss to offset from Itaipu Binacional is stated as financial asset.

Return on capital (dividends as established by the Bilateral Treaty Brazil – Paraguay) paid by Itaipu Binacional is accounted for as a revenue in the parent company and is eliminated in the consolidation; and

All results generated by Itaipu Binacional in the consolidated statements, proportional to the shareholding interest of the Company (50%) is eliminated in the consolidation as corresponding entry of Result to Offset from Itaipu Binacional.

b) Foreign currency translation

(b.1) Functional and reporting currency

The items included in the financial statements of each company of the Group are measured using the currency of main economic environment in which the company operates (“the functional currency”).

The functional currency of the jointly-controlled entity Itaipu Binacional between Brazil and Paraguay is the U.S. dollar.

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The functional currency of the Special Purpose Entity, which operates in the international economic environment, is generally the currency of the country where the mentioned SPE operates.

The statements of income and cash flows of investees that operate with a functional currency different from the parent company are converted into reais by the monthly average exchange rate. Assets and liabilities are converted by the final rate, and other items of stockholders’ equity are converted by the historical rate.

Exchange variations on investments with a functional currency different from the parent company are recorded in the stockholders’ equity as accumulated adjustment of conversion, being transferred to the income for the year when investments are made.

The Consolidated Financial Statements are presented in reais (R$), which is the parent company’s functional and reporting currency.

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(b.2) Transactions and balances

When preparing the financial statements of each company, the transactions in foreign currency, i.e., any currency different from the functional currency of each company, are accounted for in accordance with the exchange rates in force on the date of each transaction. At the end of each fiscal year, monetary items in foreign currency are reconverted by the exchange rates in force at the year-end. Non-monetary items measured at historical cost in a foreign currency must be translated, using the exchange rate in force on the date of the transaction.

The exchange gains and losses on monetary items are accounted for in the income statement of the year in which they incur, except for exchange rate changes arising from loans and financing in foreign currency related to assets in construction for future productive use, which are included in the cost of these assets whenever considered to be adjustments to interest costs of the referred loans.

For reporting purposes, in the consolidated financial statements, assets and liabilities of the Company’s overseas operations are translated into reais, using the exchange rates in force at the year-end. The income statement accounts are converted at the average exchange rate for the year, unless the exchange rates have floated significantly during the year; in this case the exchange rates on the date of transaction are used. Exchange rate changes resulting from these conversions, if any, are classified as comprehensive income and accumulated in the stockholders’ equity, being assigned to non-controlling interest as appropriate.

3.4. Cash and cash equivalents

Cash and cash equivalents include cash, bank deposits, other highly liquid short-term investments with original maturities of up to three months and with insignificant risk of change in value.

3.5. Clients and allowance for doubtful accounts

The accounts receivable from clients (consumers and resellers) are comprised of credits arising from electricity provision and supply, including those related to traded energy in the scope of the Electricity Trading Chamber – CCEE, and are initially recognized at fair value and, subsequently, measured at amortized cost less the allowance for doubtful accounts.

The accounts receivable are normally settled within a period of 45 days, which is a reason why the carrying amounts substantially represent the fair values on the fiscal year closing dates.

The balance includes the power supply not yet invoiced, arising substantially from distribution activities measured by estimates, based on historical MW/h consumption.

If the receipt term corresponds to one year or less, accounts receivable are classified as current assets. Otherwise, they are stated as non-current assets (Note 8).

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3.6. Fuel Consumption Account – CCC

Under Law No. 8.631, from March 4, 1993, the Company manages the amounts related to tax payments made by the electricity public utility concessionaires, for credit in the Fuel Consumption Account – CCC, corresponding to annual quotas allocated to expenditures with fuel for electricity generation. The amounts registered as current assets and compensation for current liability, correspond to the availability of resources, maintained in a linked bank account, and to the quotas not paid by the concessionaires. The amounts registered as current assets are updated by the profitability of the investment and they represent restricted cash, not available to be used for other purposes.

The operations with CCC do not affect the Company’s income for the year.

3.7. Guarantees and Restricted Deposits

The recorded amounts are allocated to legal and/or contractual compliance. They are measured by the acquisition cost plus interest and monetary restatement based on legal provisions and adjusted for impairment where applicable. These assets are considered loans and receivables, and their redemption is conditional upon the conclusion of legal proceedings to which these deposits are connected.

3.8. Warehouse (storeroom)

Warehouse materials, classified in current assets, are registered at average acquisition cost, which does not exceed their replacement costs or net realization value. The inventories costs are determined by the average cost method. The net realization value represents the estimated selling price for inventories less all estimated costs for the conclusion and necessary costs to make the sale.

3.9. Nuclear fuel inventory

It is composed of uranium concentrate in the inventory. The related services and other elements of nuclear fuel used in the thermonuclear power plants Angra I and Angra II are recorded based on their acquisition costs.

In its initial phase of formation, uranium ore and services necessary to its manufacturing are acquired and accounted for as non-current assets – long-term assets, stated under the Nuclear Fuel Inventory rubric. After concluding the manufacturing process, the portion related to the consumption forecast for the next 12 months is classified in current assets.

The consumption of nuclear fuel elements is allocated to the income in proportional manner, considering electricity effectively generated per month in relation to the total electricity forecasted to each fuel element. The Company performs periodic inventory counting and evaluations of nuclear fuel elements that passed through the electricity generation process and are stored in the used fuel warehouse.

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3.10. Fixed Assets

The Company has evaluated that part of its generation assets, including nuclear generation and certain assets of corporate use that do not qualify as being within the scope of IFRIC 12 – Service Concession Arrangements (Note 3.13). Until December 31, 2011, these assets were demonstrated at value cost, deducted from depreciation and by the loss on reduction in accumulated recoverable amount. As of December 31, 2012, supported by its concession agreements and the rules applied for indemnity asset established by Law 12,783/2013 (see note 2.1), the Company considered the reversion of residual net assets to the Granting Authority at the end of the public service of electricity generation concession. Thus, for non extended assets, it started to adopt the premise that they will be indemnified by the New Replacement Value (VNR) depreciated, calculated based on the methodology, the parameters and basic criteria used by the Energy Research Company – EPE in the calculation of indemnification from the concessionaires directly affected by the Provisional Measure 591/2012 and subsequent Law 12,783/2013, keeping the lower value between the net book value and the estimated NRV. Borrowing costs are recorded, in the case of qualifying assets, capitalized in accordance to the Company’s accounting policy. These fixed assets are classified in adequate categories of fixed assets when they are concluded and ready for their intended use. Depreciation of these assets starts when they are ready for the intended use in the same basis as other fixed assets.

Depreciation is calculated based on the estimated useful life of each asset, by the linear method, so that the cost value less its residual value, after its useful life, is fully written off (except for land and constructions in progress). The Company considers that the estimated useful life of each asset is similar to the depreciation rates established by ANEEL, which are deemed as acceptable by the market as they appropriately express assets’ useful life. Additionally, in connection with the Company’s understanding of the current regulatory framework for concessions, including those mentioned above MP and Law, it has been considered the indemnification at the end of the concession based on the lower value between the VNR or net book value, this factor being considered in measurement of fixed assets (see details in Note 16).

Assets held through financial leasing are depreciated by the expected useful life, as assets owned by the Company, or for a shorter period, where applicable, under the terms of the respective leasing contract.

A fixed asset item is written off after sale or when there are no future economic benefits resulting from continuous use of the asset. Any gains and losses in sales or write-off of fixed asset items are determined by the difference between the amounts received from the sale and the carrying amount and are recognized in the income statement of the year.

3.10.1. Borrowing costs

The acquisition cost of fixed assets in progress is monthly added by interest and, if applicable, the exchange variation incurred on loans and financing considering the following criteria for capitalization:

The capitalization period occurs when the qualifying asset is under construction, and interest capitalization is ceased when the item is available for use;

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Interest is capitalized based on the weighted average rate of the loans and financing outstanding on the capitalization date or rates of specific loans, or for those assets in which there have been obtained specific loans, the rates of these specific loans;

Interest monthly capitalized does not exceed the amount of interest expenses incurred in the capitalization period;

Capitalized interests are depreciated under the same criteria and estimated useful life established for the item to which they have been incorporated.

Gains on investments arising from temporary application of resources from specific loans and financing, not yet spent with the qualifying asset, are deducted from borrowing costs and financing eligible for capitalization, whenever the effect is material.

All other borrowing costs and financing are recognized in the income statement of the year they are incurred.

3.11. Concession contracts

The Company has concession contracts in the segments of generation, transmission and distribution of electricity, signed with the granting power (Brazilian Federal Government), for periods ranging from 20 years to 35 years, being all contracts, by segment, very similar in terms of rights and obligations of the concessionaire and of the grantor. The terms of the main concessions are described in note 2, and the alterations and effects arising from Law 12,783/2013 are demonstrated in note 2.1.

I – Tariff System

The electricity distribution tariff system is controlled by the National Electricity Regulatory Agency – ANEEL, and such tariffs are annually adjusted, and reviewed at the end of each four year period, aimed at maintaining the economical-financial balance of the concessionaire, considering conservative investments made and the cost and expense structure of the reference company. The services are charged directly to the users, based on the volume of the consumed electricity and the authorized tariff.

The electricity transmission tariff system is regulated by ANEEL and there are periodic tariff reviews, being established an Allowed Annual Revenue – RAP, annually updated by the inflation rate and subject to periodic reviews to cover new investments and occasional issues of economic-financial balance of the concession contracts. It is emphasized that this charging system will be changed from the renewal of concessions directly affected by Law 12,783/2013 (see note 2.1).

The electricity generation tariff system was, in general, based on a regulated tariff until 2004, and after this date, in connection with the changes in regulations for this sector, it changed from a tariff basis to a price system. The electricity generation companies are free to participate in electricity auctions for the regulated market, with, in this case, a base price, and the final price is established in a competition between the participants in the auction. Additionally,

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electricity generation companies may sign bilateral sale agreements with consumers qualifying in the free consumers category (definition based in demanded power in MW). It is emphasized that this charging system will be changed from the renewal of concessions directly affected by Law 12,783/2013 (see note 2.1).

II – Transmission and Distribution Concessions

Concession contracts regulate the exploration of electricity distribution and transmission public utilities by the Company, where:

1) Electricity distribution

a) The contract establishes which services the operator shall render and to whom (consumer class) the services shall be rendered;

b) The contract establishes performance standards for public utilities, related to maintaining and improving service quality to the consumers, and the concessionaire is required, at the end of the concession, to return the infrastructure in the same condition it received it when signing these contracts. To comply with this obligation, constant investments are made during the term of the concession. Thus, assets linked to the concession might be replaced, sometimes, until the end of the concession;

c) At the end of the concession, assets linked to infrastructure must revert to the grantor through the payment of an indemnity determined by the depreciated new replacement value (VNR).

2) Electricity transmission

a) The price (tariff) is regulated and denominated Allowed Annual Revenue (RAP). The electricity transmission company cannot negotiate prices with users. For some contracts, RAP is fixed and monetarily updated by price indexes once a year. For the remaining contracts, RAP is monetarily updated by a price index once a year, and is reviewed every five years. Generally, RAP for any electricity transmission company is subject to annual review due to increasing assets and operational expenses arising from modifications, improvements and enlargement of facilities. Tariffs level(RAP) will be changed from the renewal of concessions directly affected by Law 12,783/2013 (see note 2.1).

b) Assets are reversible at the end of the concession, entitled to indemnification (cash) from the grantor on investments not yet amortized, determined by the new replacement value – VNR.

II.1 Adoption of IFRIC 12 – Service Concession Arrangements, applicable to public-private concession contracts in which the public entity:

a) Controls or regulates the type of services that may be rendered, with resources to the underlying infrastructure;

b) Controls or regulates the price for the services rendered;

c) Controls/holds significant interest in the infrastructure at the end of the concession.

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A public-private concession presents, typically, the following characteristics:

a) An infrastructure underlying to the concession, which is used to render services;

b) An agreement/contract between grantor and operator;

c) The operator renders a set of services during the concession;

d) The operator receives compensation throughout the term of the concession agreement, either directly from the grantor, or from users of the infrastructure, or from both;

e) Infrastructures are transferred to the grantor at the end of the concession, usually free of charge or also by payment.

According to IFRIC 12, concession infrastructures qualifying under the rule are not recognized by the concessionaire as fixed assets, once the operator is deemed not to be in control of such assets, being then recognized according to one of the following accounting models, depending on the type of compensation commitment assumed by the grantor within the scope of the contract:

Financial asset model

This model is applicable when the concessionaire has an unconditional right to receive certain monetary amounts regardless of the level of usage of the infrastructures under the concession and it results in registering a financial asset, which was classified as loans and receivables (generation or transmission) or available to sell (distribution).

Intangible asset model

This model is applicable when the concessionaire, within the scope of the concession, is

compensated based on the degree of infrastructures usage (credit risk and demand) related to the concession, and it results in registering an intangible asset.

Mixed model

This model is applied when the concession includes simultaneously compensation obligations guaranteed by the grantor and compensation obligations depending on usage level of the concession infrastructure.

Based on the characteristics established in the electricity distribution concession contracts of the Company and its subsidiaries and in the requirements of the rule, the following assets are recognized on the electricity distribution business:

Estimated share of the non amortized or depreciated investments made until the end of the concession classified as a financial asset for being an unconditional right to receive cash or other financial asset directly from the grantor; and

Remaining portion of the financial asset (residual value) shall be classified as an intangible asset due to its recovery being subject to the use of the public service, in this case, electricity consumption by consumers.

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The infrastructure received or built for the distribution activity is recovered through two cash flows, as follows:

Partly through electricity consumption by consumers (monthly invoicing based on the measure of electricity and power consumed/sold) during the term of concession; and

Partly as an indemnification of the reversible assets at the end of the concession, to be received directly from the grantor or from whom it delegates this task to.

This indemnification shall be based on the proportion of investments made in reversible assets, not yet amortized or depreciated, that have been made aiming at assuring the continuity and updating of the services.

The electricity distribution concessions of the Company and its subsidiaries are not costly. Therefore, there are no fixed financial obligations nor payments to be made to the granting authority.

For the electricity transmission activity, the Allowed Annual Revenue – RAP is received from companies that use its infrastructure through the tariff for transmission system use (TUST). This tariff results from dividing some specific values amongst transmission users; (i) the RAP of all transmission companies; (II) services rendered by the National Electric System Operator – ONS; and (III) regulatory charges.

The granting authority has delegated to generation companies, distribution companies, free consumers, export and import companies the monthly payment of RAP, which can be granted by the transmission of the regulatory framework, constituting an unconditional contractual right to receive cash or other financial asset, thus the credit risk is low.

Considering that the Company is not exposed to credit risks and the demand and revenue is earned based on the availability of transmission lines, the whole infrastructure was registered as financial assets.

The financial asset includes the indemnification that shall be paid based on parts of investments linked to reversible assets, not yet amortized or depreciated, which have been made aiming at assuring continuity and updating of the services.

In the electricity generation business, except for Itaipu and Amazonas Energia, IFRIC 12 is not applicable, and the infrastructure remains classified as fixed assets. However, the rule is applicable to electricity distribution and transmission, and these businesses qualify in the mixed model (divided) and in the financial model, respectively.

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III. Generation Concessions

Hydraulic and thermal generation – the concessions, not directly affected by Law 12,783/2013 (see note 2.1), are not in the scope of IFRIC 12, in view of price characteristics instead of regulated tariff. The only exception refers to generation at Amazonas Energia, which is destined exclusively to the distribution operation and which has a specific tariff mechanism. As from January 1, 2013, the concessions directly affected by Law 12,783/2013, hitherto outside the scope of IFRIC 12, become part of the scope of such regulations, considering the change in the price system, becoming a regulated tariff for these concessions, along the already applied models to distribution concessions hitherto.

Nuclear generation – It has a defined tariff system. However, it differs from other generation contracts for being a permission instead of a concession, without an established term for the end of the permission as well as the characteristics of significant control of the assets by the grantor at the end of the permission period.

Itaipu Binacional – the infrastructure was classified as being in the scope of IFRIC 12, due to the following specific facts.

IV. Itaipu Binacional

a) Itaipu Binacional is ruled by a Bilateral Treaty signed in 1973 in which were established the tariff conditions, considering the basis of tariff formation as being determined exclusively to cover expenses and the debt service of this Company;

b) Tariff basis and trading terms are in force until 2023, which corresponds to a significant part of the useful life of the power plant.

The infrastructure has been classified as a financial asset taking into consideration the following aspects:

c) The financial flow was established mainly to enable payment of the debt service, with final maturity in 2023;

d) The trading of electricity from Itaipu was subrogated to the Company, however it was arising from previously signed contracts with distribution companies, under previously defined payment conditions.

e) Under Law 10,438, of April 26, 2002, the commitments of acquisition and transfer to distribution concessionaires of electricity services from Itaipu Binacional signed so far by Furnas and Eletrosul, subsidiaries of Eletrobras, with electricity distribution concessionaires were transferred to the Company. Debt arising from trading electricity from Itaipu Binacional was renegotiated with the Company, originating financing contracts. These contracts were initially accounted for at fair value, and, subsequently, measured at amortized cost using the effective interest method.

f) The terms of the treaty guarantee the reimbursement of the Company even in events of lack of generating capacity or operational problems with the power plant.

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V. Financial asset – Public Utility Concessions

The Company recognizes a receivable credit from the grantor (or from whom the grantor has granted it to) when it has an unconditional right to receive cash in the end of the concession as an indemnification for investments made by electricity distribution, transmission and generation companies and not recovered through services related to the concession. These financial assets are accounted for at fair value of the rights and are calculated based on the estimated part of investments made and not amortized or depreciated until the end of the concession. Assets related to electricity distribution are compensated based on the WACC regulatory remuneration, being this factor included in the tariff basis and assets related to electricity transmission are compensated based on the internal rate of return of the enterprise. In the case of generation, only the assets related to concessions directly affected by Law 12,783/2013 (see note 2.1) and formed from the abovementioned law, are considered financial assets to be paid in the same manner from transmitters, provided that the acquisition of such assets is approved by MME and ANEEL.

These accounts receivable are classified as current and non-current considering the receiving expectation of these amounts, based on the termination date of the concessions.

3.12. Intangible Assets

The Company recognizes as an intangible asset the right to charge users for providing electricity distribution services (for the generation, the infrastructure of Amazonas Energia, which has exclusive relation with distribution activity of this same company, is also classified as an intangible asset). The intangible asset is determined as the residual value of the construction revenue earned for the construction or acquisition of infrastructure made by the Company and the amount of the financial asset related to the unconditional right to receive cash at the end of the concession as an indemnification.

The asset is presented net of accumulated amortization and impairment losses, when applicable.

The amortization of the intangible asset reflects the pattern in which the future economic benefits of the asset are expected to be consumed by the Company, or the final term of the concession, whatever occurs first. The consumption pattern of the assets is related to its economic useful life in which the assets built by the Company comprise the calculation basis for measuring the tariff for rendering the services of the concession.

The amortization of the intangible asset starts when it is available for use, in its location and under the conditions necessary to be capable of operating in the expected manner by the Company. The amortization ceases when the asset has been fully consumed or written off, no longer comprising the calculation basis of the tariff for rendering the services of the concession, whichever occurs first.

The Company performs annually the recoverability test on their assets, using the method of present value of future cash flows generated by the assets (see Note 19).

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Intangible assets are basically comprised of usage rights of the concession, but also include goodwill on the acquisition of investments and specific expenditures associated to the acquisition of rights, plus the respective implementation costs, where applicable.

Intangible assets with defined useful life acquired separately are registered at cost less accumulated amortization and impairment losses. The amortization is accounted for by the linear method based on the estimated life cycle of the assets. The estimated useful life and the amortization method are reviewed at the end of each fiscal year and the effects of any changes are timely accounted for.

Intangible assets with indefinite useful life, acquired separately are registered at cost, deducted from accumulated impairment losses.

3.12.1. Costly Concessions (Use of Public Asset – UBP)

The company and some subsidiaries have costly concession contracts with the Union for usage of public property for electricity generation in certain power plants.

The amounts identified in the contracts are presented at future prices and, therefore, the Company and these subsidiaries have adjusted these contracts to present value based on the discount rate calculated for the maturity date.

The liability updating due to the discount rate and monetary restatement is being capitalized in the assets during the construction of the power plants and will be, from the date of startup, recognized directly in the income statement.

These assets are recorded in intangible assets as a corresponding entry of non-current liability.

3.12.2 Expenditures with Studies and Projects

The amounts spent on studies and projects, including feasibility and hydroelectric utilization and transmission lines inventories, are recognized as operating expenses when incurred, until the economic feasibility of their exploration or the bestowal of concession or authorization are effectively proved. From the concession and/or authorization of the exploration of the electricity public utility, or the confirmation of the project’s economic feasibility, the expenses incurred are capitalized as project development costs. Currently, the Company does not have capitalized amounts referring to expenses with studies and projects.

3.13. Impairment of non-financial assets, excluding goodwill

At the end of each fiscal year, the Company evaluates if there is any evidence that its non-financial assets have suffered any impairment losses. In case there is such evidence, the recoverable amount of the asset is estimated, in order to measure the amount of this loss, if any. When it is not possible to individually estimate the recoverable amount of an asset, the Company calculates the recoverable amount of the cash generating unit to which the asset belongs.

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When a reasonable and consistent allocation basis can be identified, corporate assets are also allocated to individual cash generating units or to the smallest group of cash generating units to which a reasonable and consistent allocation basis can be identified.

The recoverable amount is the highest between fair value less costs to sell or the value in use. In the evaluation of the value in use, future estimated cash flows are discounted at present value at a discount rate which reflects an updated appraisal of the money value in time and specific risks related to the asset for which the estimated future cash flows were not adjusted.

If the calculated recoverable amount of an asset (or cash generating unit) is lower than its carrying amount, the book equity value of the asset (or cash generating unit) is reduced to its recoverable amount. The loss corresponding to the reduction of the recoverable amount is immediately recognized in the income statement.

When the impairment loss is subsequently reversed, there is an increase in the carrying amount of the asset (or cash generating unit) to the reviewed estimate of its recoverable amount, given that it does not exceed the carrying amount that would have been determined if no impairment loss was accounted for the asset (or cash generating unit) in previous fiscal years. The reversal of the impairment loss is immediately recognized in the income statement.

Due to historical operational losses on distribution companies of Eletrobras, the Company annually performs the recoverability test using the method of the present value of future cash flows generated by the assets, resulting in an amount lower than the amount recorded in distribution companies (see explanatory note 18). Additionally, considering that the company’s equity value is higher than the market value, the impairment test is also annually conducted for other business units through the discounted cash flow, and this assessment is made individually for each concession contract.

3.14. Goodwill

Goodwill resulting from a business combination is presented at cost on the date of the business combination, net of the accumulated impairment loss, if applicable.

For impairment test purposes, goodwill is allocated to each of the cash generating units of the Company (or groups of cash generating units) that will benefit from the synergies arising from the combination.

Considering that the investing operations of the Company are linked to operations under concession contracts, goodwill arising from the acquisition of such entities represents the concession right with defined life cycle, being recognized as an intangible asset of the concession, and the amortization is calculated according to the concession term.

3.15. Business combinations

In consolidated financial statements, business acquisitions are accounted for under the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated by the sum of the fair values of the assets transferred by the Company, the liabilities assumed by the Company on the date of

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acquisition with the former owners of the acquiree and the equity issued by the Company in exchange for control of the acquiree. The acquisition related costs are generally recognized in the income statement, when incurred.

On the acquisition date, the identifiable acquired assets and assumed liabilities are recognized at fair value at the acquisition date, except for:

•

assets or deferred tax liabilities and assets and liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12 – Income Taxes and IAS 19 – Employee Benefits, respectively;

•

liabilities or equity instruments related to the acquiree’s share-based payment agreements or Group share-based payment arrangements concluded in place to the acquiree’s share-based payment agreements are measured in accordance with IFRS 2 –Share-Based Payment at the acquisition date; and

•

assets (or disposal groups) classified as kept for sale according to IFRS 5 – Non-Current Assets Kept for Sale and Discontinued Operations are measured by this Rule.

Goodwill is measured as the excess of the sum of the consideration transferred, the value of the noncontrolling interest in the acquiree and the fair value of the acquirer’s previously owned interest in the acquiree (if any) over the net values of the acquisition date of the identifiable acquired assets and assumed liabilities. If, after evaluation, the net value of identifiable acquired assets and assumed liabilities at the acquisition date are greater than the sum of the consideration transferred, the value of the noncontrolling interest in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is immediately recognized in the income statement as a gain.

Non-controlling interests that match current interests and grant their holders the right to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured at fair value or based on the proportionate share from non-controlling interests in the recognized amounts of the acquiree’s identifiable net assets. The measurement method selection is made transaction by transaction. Other kinds of non-controlling interests are measured at fair value or, when applicable, as described in other IFRSs.

When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at fair value at the acquisition date and included in the consideration transferred in a business combination. Changes in the fair value of contingent consideration classified as measurement period adjustments are retroactively adjusted with corresponding adjustments to goodwill. The measurement period adjustments represent adjustments resulting from additional information obtained during the “measurement period” (which may not exceed one year from the date of acquisition) relating to existing facts and circumstances at the date of acquisition.

The subsequent accounting from changes in fair value of contingent consideration not classified as measurement period adjustments depends on the classification of the contingent. The contingent consideration classified as equity is not remeasured at the subsequent financial statements dates and its corresponding settlement is accounted for

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in equity. The contingent consideration classified as asset or liability is remeasured at subsequent dates of the financial statements in accordance with IAS 39, or IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, as applicable, with the corresponding gain or loss recognized in the income statement.

When a business combination is achieved in stages, the previous interest held by the Company in the acquiree is remeasured at fair value at the acquisition date (i.e. the date on which the Company acquires control) and the corresponding gain or loss, if any, is recognized in the income statement. Values of acquired shares before the acquisition date which have previously been recognized in “Other comprehensive income” are reclassified in the income statement, to the extent in which such treatment is appropriate in case such participation is alienated.

If the initial accounting for a business combination is incomplete at the end of the period in which the combination occurred, the Company records the provisional figures of the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets and liabilities are recognized to reflect new information relating to existing facts and circumstances at the acquisition date which, if known, would have affected the amounts recognized at that date.

Business combinations that occurred before December 31, 2008 were accounted for in accordance with the CVM instruction 247/1996. Goodwill and discounts ascertained on acquisition of non-controlling interests after January 1, 2009, date of the initial IFRS usage, are fully allocated to the concession contract and recognized in intangible assets.

3.16. Taxation

Expenses for income tax and social contribution represent the sum of current and deferred taxes and the option of calculating taxes on the Company’s income is made through the taxable income method.

3.16.1. Current taxes

Provision for income tax (IRPJ) and social contribution (CSLL) is based on the taxable income of the year. Taxable income differs from the net income presented in the income statement, since it excludes taxable or deductible revenues or expenses in other years, in addition to excluding nontaxable or non-deductible items permanently. Provision for income tax and social contribution is individually calculated to each subsidiary of the Company based on the rates in force at the end of the fiscal year.

3.16.2. Deferred taxes

Deferred income tax and social contribution are recognized based on temporary differences at the end of each reporting period between the balances of assets and the liabilities recognized in the financial statements and the corresponding tax basis used in the calculation of the taxable income, including the balance of tax losses, where applicable. Deferred tax liabilities are generally recognized on all taxable temporary differences and deferred tax assets are recognized on all deductible temporary differences, only when it is likely that the company will present future taxable income in a sufficient amount to use such deductible temporary differences.

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The recovery of deferred tax assets is reviewed at the end of each reporting period and, when it is no longer likely that future taxable income will be available to allow the recovery of the full asset, or part of it, the balance of the asset is adjusted by the amount expected to be recovered.

Deferred tax assets and liabilities are measured by applicable tax rates in the period in which it is expected that the liability is settled or the asset is accomplished, based on tax rates established by tax legislation in force in the end of each reporting period, or when new legislation has been substantially approved. Measurement of deferred tax assets and liabilities reflects tax consequences resulting from the manner in which the Company expects, in the end of each reporting period, to recover or settle the carrying amount of these assets and liabilities.

Current and deferred taxes are recognized in the income statement, except when they correspond to items registered in Other Comprehensive incomes, or directly in stockholders’ equity, in which case current and deferred taxes are also recognized in Other Comprehensive incomes or directly in stockholders’ equity, respectively. Where current and deferred taxes are derived from the initial accounting of a business combination, the tax effect is considered in accounting for the business combination.

3.17. Financial instruments

Financial assets and liabilities are recognized whenever an entity of the Company is part of the contractual provisions of the instrument.

Financial assets and liabilities are initially measured at fair value.

Transaction costs directly attributable to the acquisition or issuance of financial assets and liabilities (except for financial assets and liabilities accounted for at fair value in the income statement) are added to or deduced from the fair value of financial assets or liabilities, if applicable, after initial recognition. Transaction costs directly attributable to acquisition of financial assets or liabilities at fair value through profit or loss are immediately recognized in the income statement.

3.17.1. Financial assets

Financial assets are classified in the following specific categories: financial assets at fair value through profit and loss, investments held to maturity, financial assets available for sale and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined on the date of the initial recognition.

(a)	Financial assets at fair value through profit and loss

A financial asset is classified as held for trading if:

•

it is purchased primarily to be sold in the short term; or

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•

on initial recognition it is part of a portfolio of identified financial instruments that the Group jointly manages and it has a recent actual pattern of obtaining short-term profits; or

•

it is a derivative that is not designated as an instrument of effective “hedge”.

A financial asset beyond those held for negotiation can be designed at fair value through the income in the initial recognition if:

•

such designation significantly eliminates or reduces an inconsistency or measure of recognition that would otherwise arise; or

•

the financial asset is part of a group of managed assets or financial liabilities or both; and

•

its performance is evaluated based on fair value, in accordance with the documented strategy of risk management or Company’s investment, and when the information about the grouping is provided internally on the same basis; or

•

it is part of a contract containing one or more embedded derivatives, and the IAS 39 – Financial Instruments: Recognition and Measurement allows the combined contract (asset or liability) to be fully designated at fair value through profit and loss.

The financial assets are classified at fair value through profit and loss when they are held for negotiation with sales purpose in the short term or designed at fair value through profit and loss.

The financial assets measured at fair value through profit and loss are demonstrated at fair value and any resulting gains or losses are recognized in the income statement. Net gains and losses recognized in the income statement incorporate other financial income and expenses in the income statement.

(b)	Held-to-maturity investments

Held-to-maturity investments correspond to non-derivative financial assets with fixed or determinable payments and fixed maturity date that the Company has the positive intention and ability of keeping until maturity. After initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method, less possible loss impairment.

(c)	Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including accounts receivable from clients and others, cash and cash equivalents, and others) are measured at amortized cost using the effective interest method, deducted from any impairment losses.

Interest revenue is recognized through application of the effective interest rate.

(d)	Available-for-sale financial assets

Available-for-sale financial assets correspond to non-derivative financial assets designated as available for sale, or not, classified as:

1) financial assets at fair value through profit and loss,

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2) investments held to maturity, or

3) loans and receivables, which are initially recorded by their acquisition value, which is the fair value of the price paid including transaction expenses. After initial recognition, they are reevaluated at fair value by reference to their market value, without any deductions related to transaction costs that might be incurred until its sale.

Changes in the carrying value of monetary financial assets available for sale due to fluctuation in exchange rates (see below), the interest income calculated using the effective interest method and the dividends on stock investments available for sale are recognized in the outcome. Other changes in the carrying value of financial assets available for sale are recognized in Other comprehensive incomes. When the investment is alienated or presents impairment, the cumulative gain or loss previously accounted in the Other comprehensive incomes is reclassified to the income statement.

3.17.2.

Impairment of financial assets

Financial assets, except those designated at fair value through profit or loss, are evaluated by impairment indexes at the end of each reporting period. Impairment losses are recognized if, and only if, there is objective evidence of impairment of the financial asset resulting from one or more events that have occurred after its initial recognition, with impact on the estimated future cash flows of this asset.

In the case of capital investments classified as available for sale, a significant or large fall in the fair value of a security below its cost is also evidence that the assets have deteriorated. If there is any evidence of this type of financial assets available for sale, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the financial asset previously recognized in the income statement) shall be removed from the balance sheet and recognized in the consolidated income statement. Impairment losses recognized in the income statement in equity instruments are not reversed in the scope of the consolidated income statement. If, in a subsequent period, the fair value of a debt instrument classified as available to increase sales, and this increase can be objectively related to an event occurred after the impairment loss have been recognized in the income statement, the impairment loss is reverted through the income statement.

For certain categories of financial assets, such as accounts receivable, assets are collectively evaluated, even if there is no evidence that they are registered for a higher value than the recoverable one when evaluated individually. Objective evidence of impairment for a credit portfolio may include the Company’s past experience in the collection of payments and the increasing in number of late payments after the average collection period, as well as observable changes in the national or local economic conditions related to default of receivables.

For financial assets carried at amortized cost, the amount of impairment recorded is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate of the financial asset.

For financial assets carried at cost, the amount of loss on impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted by the current rate of return for a similar financial asset. This loss on impairment is not reversed in subsequent periods.

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The carrying amount of the financial asset is directly reduced by the loss on impairment for all financial assets, with the exception of accounts receivable, where the carrying amount is reduced through the use of an allowance. Subsequent recoveries of amounts previously accrued are credited to the allowance. Changes in the carrying amount of the allowance account are recognized in the outcome.

For financial assets carried at amortized cost, if in a subsequent period the amount of loss from the impairment decreases, and the decrease can be objectively related to an event occurring after the impairment has been recognized, the previously recognized loss is reversed through the outcome, as long as the carrying value of the investment at the date of this reversal does not exceed the possible amortized cost if the impairment had not been recognized.

3.17.3.

Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from this asset expire or are transferred together with all the risks and benefits of ownership. If the Company does not transfer or does not hold substantially all risks and benefits of ownership of the financial asset, but remains controlling the transferred financial asset, the Company recognizes the interest held and the respective liability in the amounts it shall pay. If it holds substantially all risks and benefits of ownership of the transferred financial asset, the Company continues to recognize this asset, as well as a guaranteed loan for the revenue earned.

Upon the derecognition of a financial asset, the difference between the carrying amount of the asset and the sum of the consideration received and receivable and the accumulated gain or loss recognized in Other Comprehensive Income and accumulated in equity, is recognized in the income statement.

3.17.4.

Financial liabilities and equity instruments

Instruments of debt and equity issued by a group entity are classified as financial liabilities or equity in accordance with the nature of the contractual arrangement and the definitions of a financial liability and equity instrument. An equity instrument is a contract that evidences a residual interest in the assets of a company after deducting all its liabilities. Equity instruments issued by the Group are recognized when the resources are received, as net of direct issue costs.

Financial liabilities are classified as financial liabilities at fair value through profit or loss or other financial liabilities.

(a)	Financial liabilities at fair value through profit or loss

Financial liabilities are classified at fair value through profit or loss when they are held for trading in the short term or designated at fair value through profit or loss. Financial liabilities at fair value through profit or loss are stated at fair value, and the respective gains or losses are recognized in the income statement.

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(b)	Other financial liabilities

Other financial liabilities, which include loans and financing, suppliers and other accounts payable, are measured at amortized fair value using the effective interest method.

The effective interest method is used to calculate the amortized cost of a financial liability and to allocate its interest expense throughout the respective period. The effective interest rate is the rate discounting exactly the estimated future cash flows (including fees and points paid or received, constituting a part of the effective interest rate, transaction costs and other premiums or discounts) throughout the estimated life of the financial liability or, when appropriate, for a shorter period, for initial recognition of the net carrying amount.

3.17.5.

Derecognition of financial liabilities

The Company derecognizes financial liabilities only when the Company’s obligation are extinct and canceled or when they expire. The difference between the carrying amount of the reduced financial liability and the paid and payable consideration is recognized in the income statement.

3.17.6.

Financial guarantee agreements

Financial guarantee agreements consist of contracts that require the issuing company to make specified payments in order to reimburse the holder for losses arising from the circumstance when the specified debtor does not pay on the maturity date, according to the initial or amended conditions of the debt instrument.

Financial guarantees are initially recognized in the financial statements at fair value on the date of issuance of the guarantee. Subsequently, liabilities related to guarantees are measured by the highest initial value less amortization of the recognized rates and the best estimate of the amount required to settle the guarantee.

These estimates are established based on experience with similar transactions and on the history of past losses together with judgment by the Company’s management. The rates received are recognized based on the linear method throughout the life of the guarantee. Any increase in liabilities related to guarantees is stated, when incurred, in operating expenses (see Note 22).

3.17.7.

Derivative financial instruments

The Company has derivative financial instruments to hedge its exposure to interest rate and exchange rate risks, including exchange contracts, interest rate and currency swaps. Note 44 includes detailed information regarding derivative financial instruments. Certain jointly controlled companies entered into derivative agreements, and, in some cases, the hedge accounting policy has been applied.

Initially, the derivatives are recognized at fair value on the date a derivative agreement is entered into and, subsequently, are re-measured to their fair value at the end of the fiscal year. Occasional gains or losses are immediately recognized in the income statement, except when the derivative has been designated as, and effectively is, a cash flow hedge instrument; in this case, the moment of recognition in the income statement depends on the nature of the hedge relationship.

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3.17.8.

Embedded derivatives

Embedded derivatives in non-derivative contracts are treated as a separate derivative when their risks and characteristics are not strictly related to the respective contracts and these are not measured at fair value through profit or loss.

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3.17.9.

Hedge accounting

The Company has a hedge accounting policy, however, except for operations of certain SPEs, currently it does not have transactions classified as such. Derivative financial instruments designated in hedge operations are initially recognized at fair value on the date the derivative agreement is signed, being subsequently restated, also at fair value. Derivatives are presented as financial assets when the fair value of the instrument is positive and as financial liabilities when the fair value is negative.

At the beginning of the hedge relationship, the Company documents the relationship between the hedge instrument and the object item of the hedge with its risks management objectives and its strategy to assume various hedge operations. Additionally, in the beginning of the hedge and continuously, the Company records if the hedge instrument used in a hedge operation is highly effective at offsetting changes in the fair value or in the cash flow of the object item being hedged, attributable to the risk inherent to the hedge.

For hedge accounting purposes, the Company uses the following classifications:

(a)	fair value hedges

Changes in the fair value of derivatives designated and qualified as fair value hedge are accounted for in the income statement, with any changes in the fair value of the object items being hedged attributed to protected risk. Changes in the fair value of hedge instruments and in the object item being hedged attributable to hedge risk are recognized in the income statement.

Hedge accounting is prospectively discontinued when the Company cancels the hedging relationship, the hedging instrument expires or is sold, terminated or executed, or when it no longer qualifies for hedge accounting. The adjustment to fair value of the hedged item, arising from risk hedge, is recorded in the income thereafter.

(b)	cash flow hedges

The effective part of the changes in the fair value of derivatives that is designated and qualified as cash flow hedge is recognized in other comprehensive income. Gains or losses related to the ineffective part are immediately recognized in the income statement.

The amounts previously recognized in other comprehensive incomes and accumulated in the balance sheet are reclassified to the income statement in the year when the object item being hedged is recognized in the income statement.

Hedge accounting is discontinued when the Company cancels the hedging relationship, the hedging instrument expires or is sold, terminated or executed, or when it no longer qualifies for hedge accounting. Any gains or losses recognized in other comprehensive outcomes and accumulated in equity at that time remains in equity and are recognized when the forecasted transaction is finally recognized in the income statement. When no one expects that the forecasted transaction occurs, the gains or losses accumulated and deferred in equity are recognized immediately in the income.

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3.18. Post-employment benefits

3.18.1. Retirement liabilities

The Company and its subsidiaries sponsor a number of pension plans, which are generally funded by contributions to insurance companies or trust funds, determined by periodic actuarial calculations. The Company sponsors defined benefit and also defined contribution plans. A defined contribution plan is a pension plan under which the Company pays defined contributions to a separate entity and has no legal or constructive obligation to pay contributions if the fund does not possess sufficient assets to pay, to all employees, benefits related to the services rendered by the employees in the current and previous years linked to this type of plan. A defined benefit plan is different from a defined contribution plan, given that such defined benefit plans establish the value of a postemployment benefit an employee will receive upon retirement, usually depending on one or more factors, such as age, time of service and remuneration.

The liability recognized in the Balance Sheet related to defined benefit plans is the fair value of the defined benefit liability on the date of the balance sheet, less the fair value of the plan assets, with unrecognized adjustments of past service costs. The defined benefit liability is calculated annually by independent actuaries, using the projected credit unit method. The present value of the defined benefit liability is determined by discounting the estimated future cash outflow, using interest rates consistent with market yields, which are denominated in the currency in which the benefits will be paid and that have maturities close to those of the respective pension plan liability.

Actuarial gains and losses arising from adjustments based on experience and changes in actuarial assumptions are accounted for in other comprehensive income.

Past service costs are immediately recognized in the income statement, unless the changes to the pension plan are conditioned to the employee’s continuity in the job, for a specific period of time (the period in which the right is earned). In this case, past service costs are amortized by the linear method during the period in which the right has been earned.

Regarding defined contribution plans, the Company pays contribution to public or private pension plans on a compulsory, contractual or voluntary basis. As soon as the contributions have been made, the Company has no additional payment-related obligations. The contributions are recognized as pension plan expenses, when incurred. Pre-paid contributions are recognized as assets since a cash reimbursement or a reduction of future payments is available. The Company adopts the practice of fully accounting for actuarial gains and losses in other comprehensive incomes.

3.18.2 Other post-employment liabilities

Some subsidiaries of the Company offer post-retirement medical assistance benefits to their employees, as well as life insurance for active and inactive employees. The right to these benefits is usually conditional upon the employee’s continuity in the job until retirement age and conclusion of a minimum service time. The expected costs of these benefits are accumulated during the employment period, under the same accounting methodology used for defined benefit pension plans. Actuarial gains and losses, arising

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from adjustments based on experience and in changes to actuarial assumptions, are charged or credited in other comprehensive income in the remaining expected service period of the employees. These liabilities are measured, annually, by qualified independent actuaries.

3.18.3 Profit sharing

The Company recognizes a liability and a participation expense of employees and management in the profits based on profit attributable to the Company’s stockholders after certain adjustments. The Company recognizes a provision when it is contractually bound or when there is a past practice that created a non-formalized liability (constructive liability).

3.19. Provisions

Provisions are recognized as present liabilities (legal or presumed) resulting from past events, in which it is possible to reasonably estimate the values in a reliable way and which settlement is probable. The amount recognized as provision is the best estimate of the requirements to settle a liability at the end of each reporting period, considering the risks and uncertainties related to the liability. When the provision is measured based on the estimated cash flows to settle the liability, its carrying amount corresponds to the present value of these cash flows (where the effect of time value of money is relevant).

When some or all the economic benefits required to settle a provision are expected to be recovered from a third party, an asset is recognized if, and only if, the reimbursement is virtually certain and the value can be reliably measured.

3.19.1. Provision for asset decommission

As provided for in the pronouncement IAS 37 – Provisions, Contingent Liabilities and Contingent Assets, a provision is recorded throughout the economic useful life of thermonuclear power plants, aiming at allocating, to the respective operating period, the costs to be incurred with their technical-operational deactivation, at the end of their useful life, estimated in forty years.

The values are appropriated to the income statement of the fiscal year at present value, based on yearly quotas fixed in U.S. dollars, at the ratio of 1/40 of the estimated expenses, immediately registered and converted at the exchange rate at the end of each competence period. (see Note 32).

3.19.2. Provision for legal liabilities linked to legal proceedings

Provisions for legal contingencies are recorded when the loss is considered to be probable, causing a probable outflow of resources to settle the liability and when the amounts involved are safely measurable, considering the opinion of legal counsel, nature of proceedings, similarity with previous proceedings, complexity and the court opinion.

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3.19.3. Costly contracts

Current liabilities resulting from costly contracts are recognized and measured as provisions. A costly contract exists when the unavoidable costs incurred to comply with the provisions of the contract exceed the economic benefits expected to be earned throughout the same contract.

3.20. Advances for future capital increase

Advances of proceeds received from the controlling stockholder and intended for capital investment are irrevocably granted. They are classified as non-current liabilities and initially recognized at fair value and subsequently restated at the SELIC interest rate.

3.21. Share stock

Common and preferred shares are classified in stockholders’ equity.

Incremental costs attributable to the issue of new shares are stated in stockholders’ equity as a deduction of the amount received, net of taxes.

When the Company buys its own shares (treasury stock), the amount paid, including any additional costs directly attributable (net of income tax), is deducted from the capital attributable to the stockholders of the Company until these shares are cancelled or reissued. When these shares are subsequently reissued, any amount received, net of any additional transaction costs directly attributable, and of the respective effects of income tax and social contribution, is included in the capital attributable to the stockholders of the Company.

3.22. Interest on capital and dividends

The interest on capital is added to the dividends of the fiscal year, calculated having a percentage on the stockholders’ equity as a limit, using the Long-Term Interest Rate – TJLP, established by the Brazilian Government, as per legal requirement, limited to 50% of the fiscal year net profit or 50% of the profit reserves, before including the profit of the fiscal year itself, whichever is higher.

The amount of dividends above the minimum mandatory dividend established by Law or other legal instrument, not yet approved by the General Meeting, are stated in the Stockholders’ Equity, in a specific account referred to as additional proposed dividends.

3.23. Other comprehensive incomes

Other comprehensive incomes are comprised of revenue and expense items that are not recognized in the income statement. Components of other comprehensive income include:

Actuarial gains and losses on defined benefit pension plans;

Gains and losses from conversion of financial statements of operations abroad;

Equity valuation adjustment related to gains and losses in the restatement of financial assets available for sale; and

Equity valuation adjustment related to the effective share of gains and losses from hedge instruments on cash flow hedge.

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3.24. Revenue recognition

Revenue is measured at a fair counterpart value received or receivable, less any estimates of returns granted to the buyer and other similar deductions.

3.24.1. Sale of electricity and services

a) Generation and Distribution

Revenue is measured at a fair value of the consideration received or receivable, less taxes and occasional discounts on it. Revenues from sales of electricity and services is recognized when it is likely that the economic benefits associated with the transactions will flow to the Company; the value of the revenue can be measured with reliability; the risks and benefits related to the sale have been transferred to the buyer; the costs incurred or to be incurred related to the transaction can be reasonably measured; the Company no longer holds control or responsibility over the electricity sold. It also includes revenue from construction linked to the segment of electricity distribution and part of generation within the scope of IFRIC 12.

b) Transmission

1) Financial revenue arising from remuneration of the financial assets until the end of the period of concession earned proportionally and that takes into account the average rate of investments.

2) Revenue to cover operating and maintenance costs based on incurred costs.

3) Revenue from construction for expansions which generate additional revenue. Considering that these services are rendered by third parties, the Company does not calculate margins on constructions.

3.24.2. Dividends and interest revenues

Dividend revenue from investments in subsidiaries is recognized when the stockholder’s right to receive such dividends is established and given that it is probable that the future economic benefits shall flow to the Company and the value of the revenue can be measured with reliability.

Revenue from interest financial assets is recognized when it is probable that the future economic benefits shall flow to the Company and the value of the revenue can be measured with reliability. Interest revenue is recognized by the linear method based on the time and effective interest rate over the outstanding principal amount, the effective interest rate being that which discounts exactly the estimated future cash received during the estimated life of the financial asset related to the initial net carrying amount of this asset.

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3.25. Leasing

Leasing is classified as financial whenever the terms of the leasing agreement transfer substantially all ownership risks and benefits to the tenant. All other leasing agreements are classified as operational.

Payments related to operational leasing are recognized as expenses by the linear method throughout the period the agreement is in force, except when another basis is more representative to reflect the moment when the economic benefits of the leased asset are consumed. Contingent payments arising from operational leasing agreements are recognized as expenses in the year they are incurred.

Assets acquired through financial leasing agreements are depreciated based on the useful life of assets.

3.26. Government Grants

Government grants are not recognized until there is reasonable assurance that the Company will meet the related conditions and that the grants will be received. Government grants are systematically recognized as income during the years in which the Company recognizes as expenses the related costs that the grants intended to compensate. Government grants receivable as compensation for expenses already incurred for the purpose of providing immediate financial support to the Company, without corresponding future costs, are recognized within the period in which they are received and appropriated to retained earnings, and they are not intended for distribution of dividends.

3.27. Scheduled downtimes

The costs incurred before and during the scheduled downtimes of power plants and transmission lines are accounted for in the income statement for the period they are incurred.

3.28. Net income for the year

The income is determined by the accrual basis of accounting years.

3.29. Basic earnings and diluted earnings

Basic earnings per share are calculated by dividing the income attributable to the stockholders of the Company by the weighted average number of outstanding shares (total shares less treasury stock). Diluted earnings per share are calculated adjusting the weighted average number of outstanding shares, to presume the conversion of all shares potentially diluted, according to IAS 33.

3.30. Presentation of business segment reports

Operational segments are defined as business activities where it is possible to earn revenues and incur expenses, which operating reports are provided to the main operational decision maker. The main operational decision maker, responsible for allocating resources and for appraising the performance of operational segments is the Board of Directors, which is also responsible for the Company’s strategic decision making, which adopts the following segments:

(I)

Generation;

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(II)

Transmission;

(III)

Distribution; and

(IV)

Management.

The results from trading activities are stated together with the generation segment.

3.31. Reclassifications

Beginning in 2011, the Company adopted certain changes in the presentation of the financial statements in an effort to make the presentation of the financial statements of each company within our group more consistent. Accordingly, the Company added and deleted a limited number of line items in the balance sheet, income of statement and cash flow statement as of and for the years ended December 31, 2011 and 2010.

With respect to the income statement, the subsidy of fuel account (“CCC”) was previously presented as an other operating expense, but is now presented as other operating revenue, which resulted in an R$82,683 million decrease in operating expenses and a corresponding increase in operating revenues. In the cash flow statement, for the year ended December 31, 2010 the dividends received were originally classified as investing activities. Since December 31, 2011 financial statements, as a result of the Company’s activity as a investing company in the energy sector, dividends of R$600,869 in 2010 were classified as operating activity in accordance with paragraph 14 of IAS 7, which permits classification as investing or operating activity. As part of this process, we determined that R$236,076 that was historically presented as a long term liability should have been presented as a short term liability. While the impact in 2010 is immaterial, we changed the presentation to be consistent with the current period.

In 2012, the Company reclassified an amount of R$ 843,029 million related to operational provisions in equity investments, presented in prior year as a deduction of the investments, to a specific line item in non-current liabilities.

NOTE 4 – ACCOUNTING ESTIMATES AND JUDGMENTS

In applying the accounting policies, the Company’s management shall make judgments and make estimates about the amounts of revenues, expenses, assets and liabilities as well as disclose the explanatory notes, on the date of the financial statements, to clarify information not readily available from other sources. The estimates and associated assumptions are based on historical experience and other factors considered relevant. The estimates and underlying assumptions are reviewed continuously. The effects of revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or also in subsequent periods if the revision affects both this period and future periods.

Although these estimates and assumptions are continually monitored and reviewed by the Company’s management and its subsidiaries, the materialization of the book value of revenues, expenses, assets and liabilities is inherently uncertain because it requires the use of judgment.

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The following are the key assumptions of accounting estimates assessed as most critical by the Company’s management and its subsidiaries concerning the future and other key sources of uncertainty that can lead to significant adjustments to the carrying amounts of assets and liabilities within the next periods:

I. Deferred tax assets and liabilities

Deferred tax assets and liabilities are calculated and recognized by using the tax rates applicable to the taxable profit in the years in which those temporary differences and tax losses for income tax and the accumulated negative social contributions should be realized. The tax loss does not expire and its compensation is limited to a maximum of 30% of taxable income generated in a given fiscal year. The estimates of taxable income are based on annual budgets and strategic plan, both reviewed periodically. However, future taxable income may be higher or lower than estimates made by management when the need to register or not the deferred tax asset amount was defined (see note 11).

II. Impairment of long-lived assets

The Management of the Company adopts variables and assumptions in determining test recovery of long-lived assets in order to determine the recoverable amount of assets and recognition of impairment when necessary. In this practice they apply judgments based on historical experience in the management of the asset, of the group of assets or of the cash-generating unit that eventually cannot be verified in the future, including the estimated useful life of assets, which represents the practices determined by ANEEL as applicable on assets linked to the concession of power, which may vary due to the periodic analysis of the economic useful life of assets, in force.

They also impact on the determination of variables and assumptions used by the Management of the Company and its subsidiaries in the determination of future cash flows, discounted for recognition of impairment of long-lived assets, various events inherently uncertain. Among these events stand out maintenance levels of energy consumption, the growth rate of economic activity in the country, availability of water resources, in addition to those inherent at the end of the concession period of electric power, especially as the value of its reversion to the end of the concession period. At this point, we adopted the premise of contractual indemnity provided by the new replacement value (VNR), which is the expected values of indemnity at the end of the term of the concession’s generation, transmission and distribution of electricity (see accounting policy footnote 3.11 and footnote 52)

III. Basis of determination of indemnification by the grantor on public utility concessions

Provisional Measure 579, of September 11, 2012, converted into Law 12,783/2013, on January 11, 2013, defined the new replacement value (VNR) as the basis for determining damages by the grantor on public service concessions. The Company adopts, for the concessions not yet extended, the premise that the assets are reversible at the end of the concession contracts, with the right to receive indemnification from Grantor on investments not yet amortized at the lower net book value and the new estimated replacement value. Following this premise, there was also maintained the receivables related to the grantor Rede Básica do Sistema Existente – RBSE and the

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investments after the basic design of power plants and transmission lines (modernization and improvements) and thermal generation assets, which will still be subject to approval by ANEEL (as disclosed in Note 2.1). Until December 31, 2011 the premise that such assets would be compensated by the net book value at the end of the concession was adopted.

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IV. Useful life of fixed assets

The Management of the Company adopts the criteria defined in ANEEL Resolution 367 of June 2, 2009, in determining the estimated useful life of fixed assets, understanding that they fairly represent such lifespan (see note 15).

V. Provision for decommission of assets

The Company recognizes decommissioning liabilities for the assets related to their thermonuclear power plants. In order to calculate the amount of the provision, assumptions and estimates are made regarding the discount rates, the expected decommissioning cost and removal of the entire power plant from the location and the expected period of the referred costs (see note 32). The cost estimate is based on legal and environmental requirements for decommission and removal of the entire plant, as well as the prices of goods and services to be used at the end of the useful life.

VI. Actuarial liabilities

Actuarial liabilities are determined by actuarial calculations prepared by independent actuaries based on the life expectancy of the participant (board AT-2000), average retirement age and inflation. However, the actual future results of the accounting estimates used in this financial information may be different from those existing and registered in the financial statements (see Note 30)

VII. Provision for labor, tax and civil claims

Provisions for labor, tax and civil claims, where applicable, are made for contingent tax, labor and civil risks expected as probable loss based on the opinion of Management and legal counsel inside and outside the Company. The accrued amounts are recorded based on the estimated cost of the outcomes of the utilized processes and procedures. Contingent risks with the expectation of possible loss are disclosed by the Management, but they are not accounted (see note 31).

VIII. Allowance for doubtful accounts – PCLD

The Company records a provision for receivable accounts that means having uncertainty over their receipt. This provision is calculated based on the assumptions set out and described in Note 7, which are based on the criteria of the standards of ANEEL.

IX. Measurement of financial instruments

As described in note 44, the Management of the Company uses valuation techniques that include information that are not based on observable market data to estimate the fair value of certain types of financial instruments. The note 44 presents information on key assumptions used in determining the fair value of financial instruments, as well as the sensitivity analysis of these assumptions. The Management of the Company and its subsidiaries believe that the selected valuation techniques and assumptions used are appropriate for determining the fair value of financial instruments.

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X. Costly contracts

The present obligations arising from costly contracts are recognized and measured as provisions. A costly contract exists when the unavoidable costs to fulfill the obligations under the contract exceed the economic benefits expected to be received over the same contract. The Company and its subsidiaries use the assumptions related to economic costs and benefits of each contract to determine the existence or not of an onerous contract. The critical estimate in determining the amount of provision for the future sale of the contract is the historical average PLD approved by Management of the Company as a basis for the calculation of the provision for onerous contract, exclusively for accounting purposes and the discount rate applied to the cash flows. The actual values of the PLD over the years may be higher or lower than the assumptions used by the Company. Additionally, the Company may have costly contracts on concessions where the current expected cost for operation and maintenance is not fully covered by the revenues (see note 35).

NOTE 5 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH


	12/31/2012		12/31/2011
I - Cash and cash equivalents
Cash and banks		535,145		389,191
Financial Investments		3,894,230		4,570,596

		4,429,375		4,959,787

II - Restricted cash:
Resources of CCC (Fuel Consumption Account)		2,099,394		2,194,946
Trading - Itaipu		619,206		176,940
Trading - PROINFA		790,723		662,752

		3,509,323		3,034,638

		7,938,698		7,994,425

Cash and cash equivalents are held with Banco do Brasil S.A., according to specific laws for mixed capital corporations under Federal Government control, enacted by Decree-law No. 1.290, of December 3, 1973, and amendments from Resolution 2.917 of December 19, 2001 of the Brazilian Central Bank, which set forth new mechanisms for companies under indirect federal administration.

The highly-liquid financial investments are extra-market investment funds, whose yield is based on the average SELIC interest rate.

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NOTE 6 – MARKETABLE SECURITIES

The Company and its subsidiaries classify their short-term securities as trading investments. The Company has a short-term investment program indicating the need to trade these securities before maturity.

Regarding the long-term investments, those are primarily considered as held to maturity, adjusted by its related present value and with the related accrual based on pro-rata methodology.

The breakdown of marketable securities is done as follows:

CURRENT

Securities

Custodian Agent

Maturity

Index

12/31/2012

12/31/2011

LFT

Banco do Brasil

Up to 90 days

Prefixed

1,240,345

9,751,563

LTN

Banco do Brasil

Up to 90 days

Prefixed

3,066,625

563,120

NTN-B

Banco do Brasil

Up to 90 days

Prefixed

51,914

69,762

NTN-F

Banco do Brasil

Up to 90 days

Prefixed

1,486,130

19,751

CFT-E1

Banco do Brasil

08/01/12

IGP-M

—

263,450

NTN-P: 741536

Banco do Brasil

03/01/12

—

86,583

NTN-P: 741566

Banco do Brasil

06/01/12

—

62,708

NTN-P: 741806

Banco do Brasil

02/26/12

—

17,032

Fixed Income Bonds

130,129

129,078

OTHERS

647,468

289,457

TOTAL CURRENT

6,622,611

11,252,504

NON-CURRENT

Securities

Custodian Agent

Maturity

Index

12/31/2012

12/31/2011

LFT

Banco do Brasil

Prefixed

155

—

NTN-B

Banco do Brasil

Prefixed

200

—

NTN-P

Banco do Brasil

12/28/15

440

332

NTN-P

Banco do Brasil

07/09/14

185

178

NTN-P

Banco do Brasil

12/28/14

—

NTN-P: 740100

Banco do Brasil

01/01/25

—

NTN-P: 740100

Banco do Brasil

01/01/24

—

NTN-P: 741536

Banco do Brasil

03/21/18

NTN-P: 741566

Banco do Brasil

12/28/15

—

NTN-P: 741806

Banco do Brasil

12/28/24

—

NTN-P: 760199

Banco do Brasil

05/15/17

—

127

FINOR/FINAM

1,602

3,064

RETURN ON PARTNERHIPS

146,728

163,740

FOUNDERS’ SHARES

246,888

212,419

OTHERS

8,134

18,353

TOTAL NON CURRENT

404,337

398,358

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a) NTN-P – Government bonds received as payment for transfer of equity investments within the scope of the Privatization National Program – PND. These bonds have a remuneration equivalent to the Referential Rate – TR variation, disclosed by the Brazilian Central Bank, with 6% annual interest on the updated value with redemption dates starting February 2012 (until 2024).

b) INCOME FROM PARTNERSHIPS – Refer to income earned from partnership investments, corresponding to an average yield equivalent to the IGP-M (General Market Price Index) variation plus annual interests of 12% and 13% on the capital transferred, as shown below:


	12/31/2012		12/31/2011
Tangará		146,728		117,770
Guascor		—		45,970

		146,728		163,740

c) FOUNDERS’ SHARES – Securities acquired due to restructuring of Eletrobras’ investment in INVESTCO S.A. These assets ensure annual yields equivalent to 10% of the profit of the companies mentioned below, paid along with the dividends, and will be redeemed at maturity estimated for October 2032, by means of its conversion into preferred shares of the aforementioned companies’ capital stock, as shown below:


	12/31/2012			12/31/2011
Lajeado Energia		451,375			451,375
Paulista Lajeado		49,975			49,975
Ceb Lajeado		151,225			151,225

Gross amount		652,575			652,575

Adjustment to present value		(405,688	)		(440,156	)

Present value		246,887			212,419

d) FINOR/FINAM – Substantially refers to investment certificates arising from tax incentives destined to projects in the operating area of the subsidiaries Chesf and Eletronorte. The Company maintains a provision for losses in its realization, established based on market value, in the amount of R$ 246,924 (December 31, 2011 – R$ 292,456), and stated as respective asset reduction.

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NOTE 7 – ACCOUNTS RECEIVABLE


	CONSOLIDATED
	12/31/2012															12/31/2011
CURRENT	Outstanding			Up to 90 days			More than 90 days			Renegotiated Credit			Total			Total

AES ELETROPAULO		115,767			2,464			—			—			118,231			104,400
AES SUL		27,849			1,256			—			—			29,105			13,011
AMPLA		42,481			1,829			10			—			44,320			41,908
ANDE		63,659			—			—			—			63,659			52,115
CEA		344,535			—			—			—			344,535			1,093,641
CEB		13,499			638			106			—			14,243			14,925
CEEE-D		38,938			187			—			—			39,125			37,366
CELESC		49,627			2,784			—			—			52,411			37,422
CELG		56,373			409			—			72,535			129,317			98,968
CELPA		60,457			119			12,453			9,405			82,434			80,764
CELPE		45,982			379			56			—			46,417			39,903
CEMAR		35,712			951			—			—			36,663			32,021
CEMIG		80,377			3,367			8			—			83,752			113,081
CESP		4,529			—			—			—			4,529			3,524
COELBA		74,007			1,758			58			—			75,823			72,858
COELCE		41,987			1,612			—			—			43,599			34,437
COPEL		112,444			1,759			—			—			114,203			102,247
CPFL		42,054			981			165			—			43,200			64,826
EBE		27,019			637			—			—			27,656			25,620
ELEKTRO		56,426			232			—			—			56,658			52,614
ENERGISA		21,211			296			12			—			21,519			63,484
ENERSUL		20,366			272			—			—			20,638			20,534
ESCELSA		26,232			1,009			60			—			27,301			26,395
LIGHT		91,463			1,311			452			—			93,226			89,994
PIRATININGA		6,126			—			54			—			6,180			8,538
RGE		7,353			659			—			—			8,012			7,698
National Treasury		—			—			—			—			—			—
States’ Debt Rollover		—			—			—			112,427			112,427			187,625
Muncipalities’ Debt Rollover		—			—			—			—			—			—
Trading CCEE		93,668			23,535			295,650			—			412,853			433,440
Clients of Distribution		—			—			—			—			—			—
Use of Electricity Network		505,615			3,393			56,841			30,141			595,990			608,415
PROINFA		412,944			7,741			56,419			—			477,104			579,428
Consumers		659,470			341,318			445,669			198,379			1,644,836			1,172,474
Public Power		125,378			57,661			388,846			144,553			716,438			465,335
Others		758,558			13,281			139,546			168,424			1,079,809			1,151,156

(-) Allowance		(745,727	)		(46,213	)		(1,024,445	)		(352,865	)		(2,169,250	)		(2,578,143	)

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	CONSOLIDATED
	12/31/2012														12/31/2011
CURRENT	Outstanding			Up to 90 days		More than 90 days			Renegotiated Credit			Total			Total
		3,316,379			425,625		371,960			382,999			4,496,963			4,352,024

NON CURRENT

CELG		—			—		—			161,313			161,313			66,368
CELPA		—			—		—			70,669			70,669			—
CEA		—			—		—			399,302			399,302			—
Agreement of reestructure of External Debt - Warranty		—			—		—			—			—			—
National Treasury		—			—		—			—			—			—
States’ Debt Rollover		—			—		—			1,029,710			1,029,710			1,005,383
Muncipalities’ Debt Rollover		—			—		—			—						—
Others		258,827			—		7,956			310,939			577,722			407,243
(-) Allowance		(334	)		—		(7,956	)		(747,480	)		(755,770	)		—

		258,493			—		—			1,224,453			1,482,946			1,478,994



		3,574,872			425,625		371,960			1,607,452			5,979,909			5,831,018

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I – Electricity trading – PROINFA

The electricity trading within the scope of PROINFA (Brazilian Renewable Energy Incentive Program) generated a loss in 2012 of R$ 60,122 (December 31, 2011 – loss of R$ 48,906), not causing any effect on the income statement of Eletrobras. This amount was included under the item “Reimbursement Obligations”. The amount of R$ 477,104 (December 31, 2011 – R $ 579,428) of Proinfa, referring to the Parent Company, is recorded in the balance of reseller consumer.

II – Operations at the Electricity Trading Chamber – CCEE

The amounts related to the operations practiced within the scope of CCEE are recorded based on information made available by the referred Chamber.

The subsidiary Furnas maintains credits in the amount of R$ 293,560, related to electricity trading within the scope of the extinguished MAE (former Electricity Trading Chamber), referring to the period from September 2000 to September 2002, whose financial settlement is suspended due to restraining orders granted in lawsuits filed by electricity distribution concessionaires against ANEEL and MAE, currently known as CCEE. Given the uncertainty of its realization, the subsidiary Furnas maintains Allowances for Doubtful Accounts, in an amount equivalent to the total credit, established in 2007.

According to the rules established in the Electricity Sector General Agreement, the resolution of these disputes would imply a new calculation, which would be purpose of settlement between the parties without CCEE’s intervention. In this regard, the Management plans to maintain negotiations, with ANEEL’s and CCEE’s participation, aiming at leveling credits, so as to enable a negotiated solution for its settlement.

III – Debt rollover with states – Law 8.727/1993

The amount receivable from the debt rollover with states is R$ 1,142,137.

The subsidiary Eletrosul owns 50% of the total credits from the Union, which when updated by the IGP-M plus interest of 12.68% per annum, amounted to R$ 578,654 at December 31, 2012 (December 31, 2011 – R$ 607,391), of which R$ 438,586 is non-current assets (December 31, 2011 – R$ 479,752) arising from the acquisition of assets in which the Company had state power utilities. The Union assumed and refinanced the debt, and rescheduled it in 240 installments, maturing from April 1994. On expiration of 20 years and remaining with the balance payable, since the Union passes only the funds received from the states which, in turn, are limited by law in commitment levels of income, the installment will be extended by 120 months.

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IV – Allowance for doubtful accounts – PCLD

The Subsidiaries record and maintain provisions, adopting the criteria of ANEEL rules, based on the analysis of the amounts of past due accounts receivable and losses track record, the amount of which is deemed by the management as sufficient to cover eventual losses on the realization of these assets. The balance is composed as follows:


	12/31/2012		12/31/2011

Consumers		856,030		792,962
Resellers		1,031,593		397,980
CEA		743,837		1,093,641
CCEE - Electricity Trading Chamber		293,560		293,560

		2,925,020		2,578,143

Changes in the allowance for doubtful accounts of electricity clients in the consolidated accounts are as follows:


	12/31/2012

Balance on December 31, 2010		2,130,896


(+) Constitution		666,480
( - ) Reversal		(219,233	)

Balance on December 31, 2011		2,578,143


(+) Constitution		1,050,795
( - ) Reversal		(703,918	)

Balance on December 31, 2012		2,925,020

Recording and reversions of the PCLD were stated in the income statement as Operating Provisions (Note 43). The amounts recognized as PCLD are registered as definitive loss when there is no expectation to recover these funds. The reversal occurred in 2011 basically refers to the installment payment program with the municipalities and public authorities by distribution companies.

In 2012, the subsidiary Eletronorte made reversions of a low final value amounting to R$ 492,025, due to the renegotiation done with the receivables of the Electricity Company of Amapá (CEA).

The main constitution accrual in the period refers to R$ 204,049 that Furnas is entitled to receive from CELG, due to the non-recognition of this part of the debt with Furnas (and that is being discussed).

For tax purposes, the surplus provision established in relation to the provisions of Law No. 9.430/1996 has been added to the taxable income for the purposes of Income Tax – IRPJ and also the calculation basis for the Social Contribution on the Net Income – CSLL.

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NOTE 8 – INDEMNIFICATIONS – LAW 12,783/2013

Amount related to indemnification receivable from the grantor in relation to changes of Law 12,783/2003, according to note 2.1:


	12/31/2012

Generation - Basic Project		6,153,462
Transmission - Basic Network - new business (RBNI)		8,283,810

		14,437,272


Current Assets		8,882,836
Non-Current Assets		5,554,436

		14,437,272

See note 47.4.

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NOTE 9 – LOANS AND FINANCING


	31/12/2012
	CONSOLIDATED
	INTEREST
	CURRENT					PRINCIPAL
	Average Tx.		Value			CURRENT			NO Average Tx.

Subsidiary jointly-controlled

ITAIPU		7.45		—			635,640			5,185,677

				—			635,640			5,185,677


CEMIG		7.12		2,134			85,068			315,893
COPEL		8.39		1,399			51,431			180,383
CEEE		6.57		341			5,821			42,745
AES ELETROPAULO		10.39		324,055			108,978			1,321
CELPE		6.13		211			9,911			31,048
CEMAT		6.27		21,953			344,384			—
CELTINS		6.26		9,885			112,212			—
ENERSUL		6.17		508			12,786			64,421
CELPA		6.68		52,374			66,288			411,820
CEMAR		5.89		2,247			77,605			396,921
CESP		9.36		12			47,008			110,681
COELCE		6.08		460			13,939			75,577
COSERN		6.00		60			3,080			8,852
COELBA		6.00		920			24,241			155,929
CER		8.76		3,848			13,873			10,491
CELG		5.71		542			7,178			93,657
ESCELSA		6.01		395			13,202			65,668
GLOBAL		6.00		61,330			44,100			—
CELESC DIST.		7.41		1,242			41,201			146,806
OUTRAS		6.36		50,679			126,763			449,396
(-) PCLD				(140,086	)		(263,027	)		—

				394,509			946,042			2,561,609


				394,509			1,581,682			7,747,286

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	31/12/2011
	CONSOLIDATED
	INTEREST
	CURRENT					PRINCIPAL
	Average Tx.		Value			CURRENT			NO CURRENT

Subsidiary jointly-controlled

ITAIPU		7.45		—			540,249			5,342,343

				—			540,249			5,342,343


CEMIG		7.12		2,352			78,124			373,241
COPEL		8.39		1,616			49,164			215,900
CEEE		6.57		865			21,990			127,568
AES ELETROPAULO		10.39		311,636			108,851			2,329
CELPE		6.13		292			11,035			43,676
CEMAT		6.27		1,875			358,578			—
CELTINS		6.26		617			100,918			—
ENERSUL		6.17		461			13,413			71,360
CELPA		6.68		11,279			408,629			—
CEMAR		5.89		1,995			62,289			414,612
CESP		9.36		233			41,190			149,636
COELCE		6.08		506			16,420			84,245
COSERN		6.00		75			3,224			11,732
COELBA		6.00		922			28,527			154,570
CER		8.76		941			7,881			13,117
CELG		5.71		40,310			57,248			12,681
ESCELSA		6.01		443			13,032			76,318
GLOBAL		6.00		—			44,100			—
CELESC DIST.		7.41		—			63,626			86,429
OUTRAS		6.36		95,511			107,245			471,581
(-) PCLD				(130,475	)		(395,133	)		—

				341,454			1,200,351			2,308,993


				341,454			1,740,600			7,651,336

The financing and loans granted are made with the Company’s own funds, in addition to sector funds, as well as foreign funds raised by means of international development agencies, financial institutions, as well as those arising from the offering of securities on the international financial market.

All the financing and loans are supported by formal contracts executed with borrowers. The amounts receivable are mostly repayable in monthly installments, within a ten-(10) year average term, and the average interest rate weighed by the portfolio balance is 6.15% p.a.

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The financing and loans granted with a currency adjustment clause, account for nearly 43% of the total portfolio (48% on December 31, 2011). Those providing for adjustment based on indexes that represent domestic price – levels account for 57% of the portfolio balance (52% on December 31, 2011).

The market values of these assets are equivalent to their carrying amount, since these are specific operations of the sector and are partly funded with resources from Sector Funds, and which do not find similar conditions as valuation parameter.

The long-term amount of loans and financing granted with ordinary and sectoral funds, including transfers, based on the cash flow established contractually, mature in variable installmentes, as shown below:


2014		2015		2016		2017		2018		After 2018		Total
	1,092,437		964,967		824,459		783,693		749,750		3,331,981		7,747,286

I – Eletropaulo / CTEEP – Lawsuit

In November 1986, Eletropaulo Eletricidade de São Paulo S.A., obtained a loan through Credit Facility Agreement ECF 1.046/1986.

During the preparation of this agreement, the debtor raised doubts about the periodicity of monetary restatement incurred on the loan and Eletropaulo filed a payment suit in court, in December 1988.

In December 2010, Eletrobras requested to initiate the liquidation process and for this reason, the proceeding was submitted to analysis by 5th Civil Court. In July 2011, the 5th Civil Court sentenced AES Eletropaulo and CTEEP to reply to the motion for liquidation by articles, which was replied by both companies. The 5th Civil Court shall require Eletrobrás to submit its considerations on said material.

In December 2012, the 5th Civil Court dismissed the settlement articles based on the facts adduced before the Court and, immediately recognized the ELETROPAULO as the debtor of all debt.

Against this decision was handled interlocutory appeal by the Eletropaulo distributed to the 9th Civil Chamber in January 2013, with the primary application to the realization of the need for expert evidence.

In February 2013 decision was rendered ruling for the need to conduct forensic evidence, and revoking the decision of the Judge of the 5th Circuit Court.

Therefore, due to current phase of proceedings and reasons exposed, we estimate that expert works, if the Company does not appeal the decision, should begin during the second quarter of 2013.

It is noteworthy that in addition to the above decision, there was issued a warrant of payment to the Company as to the uncontroversial part, which is on the verge of being received.

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Once legal Liquidation Procedure of Award has ended and after verifying the amounts to be paid by AES Eletropaulo and CTEEP, it will restart the enforcement action against said companies.

In the event of unfavorable final decision to AES Eletropaulo and/or CTEEP, the Company will have a credit of R$1,735,861, adjusted until December 31, 2012, R$ 434,354 (R$ 422,816 on December 31, 2011) already recognized in its assets, under loans and financing, corresponding to the amount considered as undisputed by the Company.

On March 18, 2013 the Company received R$ 97,463 relating to the undisputed portion of the amount due to the consignment action filed by Eletropaulo questioning at the time the value understood as due on account of the debt agreed with Eletrobras.

II – Allowance for Doubtful Accounts – PCLD

The Company recognizes allowances for doubtful accounts in the amount of R$ 403,113 (December 31, 2011 – R$ 525,608) corresponding to the principal and the servicing of the debt of defaulting debtors.

The amount of the provision is deemed as sufficient by the Company’s Management to cover losses on these assets, based on the portfolio trend analysis.

The Company recognized allowance for credits with Celpa, Rede Energia’s subsidiary, in the amount of R$ 37,704. This provision was deemed necessary considering the recovery process of judicial Celpa.

In addition, the Company recognized in 2011 an allowance for credits with Cemat and Celtins, also Rede Energia’s subsidiaries, in the amount of R$ 74,626 and R$ 20,527. These allowances were necessary considering the current scenario of both entities which have been going through significant economic and financial hardship (see note 15).

Changes in the allowance for doubtful accounts on financing and loans granted by the Company are as follows:


Balance on December 31, 2010	228,477

(+) Additions	358,984
(-) Reversals	(61,853	)

Balance on December 31, 2011	525,608

(+) Additions	181,048
(-) Reversals	(303,543	)

Balance on December 31, 2012	403,113

The recording and the write-off of the PCLD were accounted in the income statement as Operating Provisions (see note 43). The amounts recognized as PCLD are those which raise doubts as to their realization, when there is no expectation to recover the funds, are recognized as definite loss.

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NOTE 10 – SHAREHOLDING REMUNERATION

The amounts below refer to dividends and interest on capital receivable, net of withholding tax, where applicable, resulting from permanent investments held by the Company.


	12/31/2012		12/31/2011
CTEEP		—		79,644
CEMAR		25,491		15,706
Others		93,299		102,513

		118,790		197,863

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NOTE 11 – RECOVERABLE TAXES AND TAX AND SOCIAL CONTRIBUTIONS – ASSETS

I.	Recoverable taxes:


	12/31/2012		12/31/2011
Current Assets:
Withholding Taxes		1,071,204		893,706
PIS/PASEP/COFINS to offset		113,427		80,433
ICMS credit		21,659		17,150
Others		185,592		113,033

		1,391,882		1,104,322


Non current Assets:
ICMS credit		1,091,949		1,655,413
PIS/COFINS credit		842,871		775,348

		1,934,820		2,430,761

II.	Income Tax and Social Contribution


	12/31/2012		12/31/2011
Current Asset

Advancement of IRPJ and CSLL		1,418,252		843,022


Non current Asset:

Deferred income taxes		4,996,806		3,343,525

III.	Tax composition and deferred social contribution


	12/31/2012		12/31/2011
Temporary differences of IRPJ/CSLL:
Passive exchange rate variations		386,223		530,647
Interest on capital		147,547		331,290
Provision for Contingencies		941,128		782,587
Allowance for doubtful accounts		483,520		191,824
Provision for market value adjustment		148,253		187,617
Operational Provision		2,265,844		404,077
Restatment of Law 11.638/2007 - RTT (IFRS)		311,286		436,295
Others		313,005		479,188

		4,996,806		3,343,525

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IV – Recoverable ICMS, PIS/PASEP and COFINS on Fuel Purchase

These amounts are recorded in non-current assets on the lines of recoverable PIS and COFINS and recoverable ICMS.

The Company expected to realize these claims, and in accordance with § 8 of the Act 12.111/2009, levies and contributions shall be reimbursed to the CCC when realized, is thus maintained a liability of equal value under Refund Obligations.

V – PIS/PASEP and COFINS unconstitutionality

The Federal Supreme Court – STF declared the unconstitutionality of Paragraph 1 of Article 3 of Law No. 9.718/98, which increased PIS/PASEP and COFINS calculation basis and created, at that time, a new concept of billing, which then covered the total revenues earned by the legal entity, regardless of the type of activity and the accounting classification adopted. Such provision did not have any constitutional ground to support it, later being subject-matter of constitutional amendment.

Based on the Brazilian National Tax Code – CTN, Eletrobras system companies seek recognition of their credit rights and the refund of the amount overpaid as a result of the unconstitutional increase of these contributions calculation basis. Until the conclusion of these financial statements, there was not a final decision on such issue.

Eletrobras System companies have, therefore, potential tax credits for PIS/PASEP and COFINS, which are still being determined and, accordingly, are not recognized in these Financial Statements, since the declaration of unconstitutionality only benefits the companies that are claimant of the judged extraordinary appeals.

NOTE 12 – REIMBURSEMENT RIGHTS


	12/31/2012		12/31/2011

a. Isolated Systems of CCC		7,435,134		3,583,490
b. Nuclear Energy		581,095		—

		8,016,229		3,583,490


Current assets		7,115,200		3,083,157
Non current assets		901,029		500,333

		8,016,229		3,583,490

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a) Fuel Consumption Account (CCC) of isolated systems

Law No. 12.111/2009 and Decree No. 7.246/2010 have changed the subsidy system of electricity generation at isolated systems. The CCC subsidy, which only subsidized fuel costs, now reimburses the difference between the total cost of electricity generation and the valuation of the corresponding amount of electricity at the average cost of power and energy traded in the Regulated Contracting Environment – ACR, of the National Interconnected System – SIN.

The following related costs are included in the total cost of electricity generation at Isolated Systems:

i.	procurement of energy and power associated;

ii.	own generation to meet the electricity distribution;

iii.	charges and taxes, and

iv.	investments.

Other costs related to electricity services rendered at Isolated Systems remote regions, characterized by a high distribution of consumers and lack of economy of scale, are also included in the total cost of generation.

It refers to amounts received from the CCC (parts in advance) in the respective periods. As ANEEL regulations relating to Law No. 12.111/2009 are not yet fully established, the amounts actually received are not being write-off the Assets, and a heading under Current Liabilities denominated Refund Obligations was created. With this, the Company has a receivable of R$ 7,435,134 (R$ 3,583,490 on December 31, 2011) and a liability of R$ 7,789,757 (R$ 3,431,228 on December 31, 2011) bond repayment.

b) Nuclear power

Pursuant to paragraph 4 of article 12 of Law 12.111/2009, and art. 2 of the Ratifying Resolution 1406 by ANEEL, at December 21, 2012, the difference observed between 2010 and 2012, between the variation of the rate billed by ELETRONUCLEAR and reference tariff (defined in Paragraph 1 of the said Act) to be transferred for FURNAS will be prorated by public utilities served by distribution Auction Purchase Energy from Existing Enterprises on December 7, 2004, in proportion to the quantities in the contract met with supply starting in 2005. Accordingly, the Company has a right to reimbursement of R$ 581,095 in December 2012, with an offsetting revenue of energy supply.

According to the provisions of paragraph 1 of Resolution ANEEL 1.406/2012, that amount will be paid on a monthly basis by utilities to ELETRONUCLEAR in the years 2013 to 2015.

NOTE 13 – NUCLEAR FUEL INVENTORY

Below, a breakdown of the long-term nuclear fuel inventory destined for the operations of UTN Angra I and UTN Angra II thermonuclear power plants:


	12/31/2012		12/31/2011
CURRENT
Ready elements		360,751		388,663

		360,751		388,663
NON CURRENT
Ready elements		143,116		133,894
Uranium concentrate		109,153		130,575
In progress - nuclear fuel		229,226		171,164

		481,495		435,633

		842,246		824,296

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Inventories are stated at cost or net realization amount, whichever is the shortest, divided as follows:

a) Uranium concentrate and works in progress (to transform uranium concentrate into nuclear fuel elements) are recorded at their acquisition costs;

b) Nuclear fuel elements – these are available in the reactor core and inventories of Spent Fuel Pool – SFP, and appropriated to income for the year in view of its utilization in the electricity generation process;

c) Warehouse, classified in current assets and recorded at the average acquisition cost, which must not exceed the market value.

NOTE 14 – ADVANCES FOR FUTURE CAPITAL INCREASE

The Company states in non-current assets, the amounts corresponding to advances for future capital increase in investees:


	12/31/2012		12/31/2011
Non-current		4,000		4,000

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NOTE 15 – INVESTMENTS


	12/31/2012			12/31/2011
Stated at the equity method
Celpa		94,673			171,370
CEEE-GT		738,009			701,628
Cemat		420,787			436,150
Emae		263,331			312,150
CTEEP		753,358			653,280
Cemar		411,463			323,433
Lajeado Energia		540,819			532,459
Ceb Lajeado		79,672			76,155
Paulista Lajeado		27,425			27,654
CEEE-D		343,875			391,988
Águas da Pedra		176,504			157,112
Amapari		39,191			34,105

		3,889,107			3,817,484

SUBTOTAL		3,889,107			3,817,484


Measured at fair value

Celesc		112,012			150,432
Cesp		124,380			203,580
Coelce		232,140			182,640
AES Tietê		713,398			812,853
Energisa		82,070			77,215
CELPE		24,159			54,854
CGEEP		30,201			22,607
COPEL		38,575			50,546
CEB		6,206			6,485
AES Eletropaulo		35,207			76,491
Energias do Brasil		18,556			20,552
Tangara		21,738			21,738
CPFL Energia		36,457			44,327
CEA		20			20
CER		102			102
Others		156,156			139,638

		1,631,378			1,864,078

SUBTOTAL		5,520,484			5,681,562


Provision for losses in investments		(122,185	)		(171,370	)

TOTAL		5,398,299			5,510,192

In view of the reorganization process of investee Celpa and the resulting uncertainty about its ability to continue as a going concern, the Company recognized as reserve for losses the entire investment on Celpa of R$ 94,673 (December 31, 2011 – R$ 143,857) and loss of the amounts of dividends declared and not paid until December 31, 2012 in the amount of R$ 27,513 (December 31, 2011 – R$ 27,513), both allowances restricted to the Company’s interest in the share capital of Celpa of 34, 24%.

15.1 – Provisions for investments losses


	12/31/2012		12/31/2011
CELPA		122,185		171,370

		122,185		171,370

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15.2 – Accounting policies adjustments in associates


	12/31/2012		12/31/2011
CEMAT		86,464		86,464
CTEEP		1,047,648		956,630
CEEE-GT		—		4,961
CEEE-D		—		7,539

		1,134,112		1,055,594

The Company, when preparing the consolidated financial statements, made adjustments in investees’ profits, in order to standardize the accounting policies of these companies with those of the Company. The majority of these adjustments were to the accounting policies for the provision of doubtful accounts, pension plan and estimates of the present value of long-term assets.

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15.3 Information about market value and investee’s revenue

PUBLICLY-HELD COMPANY


					*Market Value ()**				Net Operating Revenue
Publicly-Held Company	Valuation Method	Participation			2012		2011		2012		2011

CEEE-D	Equity Accounting		32.59	%		244,628		315,468		2,188,950		2,028,501
CEEE-GT	Equity Accounting		32.59	%		268,884		329,138		952,863		762,484
CELPA	Equity Accounting		34.24	%		23,613		177,667		Not available		2,433,800
CEMAR	Equity Accounting		33.55	%		534,769		140,094		Not available		1,912,105
CEMAT	Equity Accounting		40.92	%		206,254		290,582		2,344,799		2,009,768
CTEEP	Equity Accounting		35.23	%		1,846,752		3,093,881		2,818,988		2,900,805
EMAE	Equity Accounting		39.02	%		106,681		99,040		Not available		164,093
CELESC	Market value		10.75	%		141,779		150,431		Not available		4,191,414
CESP	Market value		2.05	%		153,571		203,581		Not available		2,957,525
COELCE	Market value		7.06	%		226,711		182,639		Not available		2,627,212
AES Tiete	Market value		7.94	%		713,399		812,853		2,112,435		1,885,956
CGEEP - DUKE	Market value		0.47	%		30,162		22,607		Not available		958,003
ENERGISA S.A	Market value		2.90	%		77,740		77,215		2,919,079		2,426,613
CELGPAR	Market value		0.07	%		391		322		Not available		2,211,465
CELPE	Market value		1.56	%		35,212		54,853		3,546,861		2,914,113
COPEL	Market value		0.56	%		37,856		50,546		8,532,277		7,776,165
CEB	Market value		3.29	%		6,000		6,485		Not available		1,377,619
AES Eletropaulo	Market value		1.25	%		35,206		76,491		9,959,198		9,835,578
CPFL Energia	Market value		0.31	%		36,456		44,327		15,055,147		12,764,028
Energias do Brasil	Market value		0.18	%		18,556		20,552		6,567,283		5,401,662

(*)	Based on share quotation on December 31.

PRIVATE COMPANY


					Market Value				Net Operating Revenue
Private Company	Valuation Method	Participation			2012		2011		2012		2011

Guascor	Market value		4.41	%		Not available		3,300		Not available		Not available
EATE	SOLD IN 2011											Not available
TANGARÁ	Market value		25.47	%		19,932		21,738		Not available		Not available
CDSA	Market value		0.13	%		367		11,802		Not available		Not available
CEA	Market value		0.03	%		26		20		Not available		Not available
CERR	Market value		0.01	%		18		102		Not available		700,689
Ceb Lajeado	Equity Accounting		40.07	%		58,364		58,364		110,661		97,114
Lajeado Energia	Equity Accounting		40.07	%		303,276		303,276		518,859		485,622
Paulista Lajeado	Equity Accounting		40.07	%		22,532		22,532		47,829		42,207
Brasventos Eolo	Equity Accounting		49.00	%		Not available		2,232		—		—
Rei Dos Ventos 3	Equity Accounting		49.00	%		Not available		2,196		—		—
Brasventos Miassaba 3	Equity Accounting		49.00	%		Not available		3,335		—		—
Baguari	Equity Accounting		30.61	%		Não divulgado		82,172		13,249		12,308
Águas da Pedra	Equity Accounting		49.00	%		89,796		125,089		165,080		171,012
Chapecoense	Equity Accounting		40.00	%		Not available		57		229,767		453,825
Amapari	Equity Accounting		49.00	%		39,190		27,997		35,200		37,924

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I – Distribution Subsidiaries Companies:

a) Distribuição Alagoas – It holds the concession for electricity distribution in all municipalities of the State of Alagoas by the Concession Agreement 07/2001-ANEEL, and it signed its first amendment, respectively, on May 15, 2005 and June 08, 2010 with validity until July 7, 2015. Its main objective is to design, build and operate the public service delivery to final consumers of electricity. The investee has negative net working capital of R$ 39,531 (December 31, 2011 – R$ 72,831) and accumulated losses of R$ 374,151 (December 31, 2011 – R$ 290,323) and relies on the financial support of the Company.

b) Distribuição Rondônia – It holds the concession for electricity distribution in all municipalities in the State of Rondônia by the Concession Agreement 05/2001-ANEEL and its amendments concluded, respectively, on February 12, 2001 and November 11, 2005, maturing on July 7, 2015. Its main objective is to design, build and operate the public service delivery to final consumers of electricity. The investee has net working capital of R$ 24,541 and accumulated losses of R$ 1,190,628 (December 31, 2011 – R$ 993,423) and it relies on the financial support of the Company.

c) Distribuição Piauí – It holds the concession for electricity distribution in all municipalities in the state of Piaui through the Concession Agreement 04/2001 of February 12, 2001, with ANEEL, maturing on July 7, 2015. The main activity is the distribution of electricity. The investee has negative net working capital of R$ 54,248 (December 31, 2011 – R$ 8,322) and accumulated losses of R$ 999,171 (December 31, 2011 – R$ 962,683) and it relies on the financial support of the Company.

d) Amazonas Energia – Its main activities are the generation, distribution and sale of electricity in the State of Amazonas. Amazonas Energia has its own generation (1,600.60 MW) and it supplements its needs for assistance to consumers by buying energy from independent producers. The investee has negative net working capital of R$ 1,949,330 (December 31, 2011 – R$ 1,000,238). It has accumulated losses of R$ 5,445,438 (December 31, 2011 – R$ 4,617,006) and it relies on financial support of the Company.

e) Distribuição Roraima – controlled directly by the Company since the year 2012 (previously it was an indirect subsidiary whose shareholder was Eletronorte), operating in the city of Boa Vista, its main functions are the exploitation of the services of electricity. The Distribution Roraima holds concession through Contract 21/2001 – ANEEL, dated March 21, 2001 and 1st Amendment dated October 14, 2005 for distribution of electricity in Boa Vista, in force until the year 2015. The investee reports negative net working capital of R$ 41,725 (December 31, 2011 – R$ 294,931) and accumulated losses of R$ 715,355 (December 31, 2011 – R$ 590,033) and relies on the financial support of the Company.

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f) Distribuição Acre – it owns the concession for distribution and trading for the entire state of Acre, through a concession contract 06/2001, entered into by the National Electric Energy Agency – ANEEL on February 12, 2001, effective until 07 July 2015. The electricity supply to the capital, Rio Branco, and six locations connected to the White River System, is made by ELETRONORTE. The inland of the state, since 1999, through a contract Lending, has been supplied by GUASCOR of Brazil Ltda., as Energy Independent Producer – PIE, through Generation Isolated Systems. It should be noted that the supply of electricity to the entire state, is made through Diesel Thermoelectric Power Plants (100%). The investee reports negative net working capital of R$ 39,422 (December 31, 2011 – gain of R$ 9,359) and accumulated losses of R$ 306,761 (December 31, 2011 – R$ 256,260) and relies on the financial support of Eletrobras.

II – Generation and Transmission Subsidiaries Companies:

a) Eletrobras Thermonuclear S.A. – subsidiary wholly owned by the Company, is engaged in the construction and operation of nuclear power plants, and rendering engineering similar services, under regulation and supervision by ANEEL. The Company has been basically working in the activities of operation Angra 1 and Angra 2 power plants, with nominal power of 1,990 MW, as well as Angra 3 power plant. The electricity generated by the Company is provided exclusively to the subsidiary FURNAS, by means of an electricity purchase and sale agreement.

b) Eletrosul Centrais Elétricas S.A. – its main purpose is transmission and generation of electricity directly or through participation in Specific Purpose Companies. The Company carries out studies, projects, construction, operation and maintenance of transmission systems and power generation, and these activities are regulated. The Company holds a controlling stake of wholly owned subsidiaries Artemis, RS Energia and Porto Velho Transmissora, as well as control of Uirapuru.

c) Itaipu Binacional – binational entity created and ruled, with equal rights and obligations, the International Treaty signed on April 26, 1973, between the Federative Republic of Brazil and the Republic of Paraguay, with its capital owned in equal parts by Eletrobras and ANDE.

Its purpose is the use of the water resources of the Paraná River, belonging to the two countries as a condominium, from Salto de Guaíra to the outfall of Iguaçu River, and the building and operation of a Hydroelectric Central, with total capacity of 12.6 million available kW.

d) Companhia Hidro Elétrica do São Francisco – electricity public utility concessionaire whose purpose is to generate, transmit and sell electricity. Its generation system is hydrothermal, predominantly in hydropower power plants, responsible for a percentage higher than 97% of its total production. Chesf’s transmission system is comprised of 18,723 km of transmission operating transmission lines, of which 5,122 km are 500 kV transmission circuits, 12,792 km 230 kV of transmission circuits, 809 km are low tension transmission circuits, 100 substations with voltages higher than 69 kV and 762 transformers effectively operating in all voltage levels, totaling a transformation capacity of 44,181 MVA, plus 5,683 km of optic fiber cables.

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e) Centrais Elétricas do Norte do Brasil S.A. – an electricity public utility concessionaire, controlled by the Company, mainly operating in the states of Acre, Amapá, Amazonas, Maranhão, Mato Grosso, Pará, Rondônia, Roraima and Tocantins. The operations of the Company with electricity generation comprise four hydroelectric power plants with an installed capacity of 8,694.00 MW and 7 power plants with a capacity of 600.33 MW, totaling an installed capacity of 9,294.33 MW. Electricity transmission is done through a system composed of 9,192.13 km of transmission lines, 43 substations in the National Interconnected System – SIN, 695.89 km of transmission lines, 10 substations in the isolated system, totaling 9,888.02 km of transmission lines and 53 substations.

The Company holds a controlling interest of wholly-owned subsidiaries Estação Transmissora de Energia S.A. and Rio Branco Transmissora de Energia S.A., and equity interest in several electricity generation and transmission Special Purpose Entities – SPE.

f) Furnas Centrais Elétricas S.A. – subsidiary of the Company, engaged in generation, transmission and trading predominantly in the region covered by the Federal District and the States of São Paulo, Minas Gerais, Rio de Janeiro, Paraná, Espírito Santo, Goiás, Mato Grosso and Tocantins, besides holding interest in Special Purpose Entities. It also operates as electricity trading agent, generated by Angra I and Angra II. The electricity production system of FURNAS consists of 8 exclusively owned hydroelectric power plants, 2 in partnership with the private sector with an installed capacity of 8,662 MW, and 2 power plants with 796 MW of capacity, totaling 9,458 MW.

III – Other Companies

a) Companhia Energética do Maranhão – public service concessionaire of electricity, aimed at designing, building and operating the systems of sub-transmission, distribution and sale of electricity.

The company holds the concession to distribute electricity in 217 municipalities in the State of Maranhão, regulated by Concession Contract No. 60 of 28 August 2000, signed with ANEEL, which remains in force until August 2030, with a possibility of extension for another 30-year period.

b) Eletrobrás Participações S.A. – controlled by the Company, and its business purpose is holding equity interests in the capital stock of other companies.

c) Companhia Estadual de Geração e Transmissão de Energia Elétrica – CEEE-GT – a publicly-held corporation with controlling shareholder being the State of Rio Grande do Sul, through the Companhia Estadual de Energia Elétrica – CEEE-Par, which holds 65, 92% of its total capital. The Concessionaire’s purpose is exploring electricity production and transmission systems.

d) Companhia Estadual de Distribuição de Energia Elétrica – CEEE-D – a publicly-held corporation with controlling shareholder being the State of Rio Grande do Sul, through the Companhia Estadual de Energia Elétrica – CEEE-Par, which holds 65, 92% of its total capital. The Concessionaire is engaged in the distribution of electricity in 72 districts of Rio Grande do Sul, serving approximately 1.5 million consumer units.

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e) Companhia Transmissão de Energia Elétrica Paulista – publicly-held company, authorized to operate as a public utility electricity, having as main activities the planning, construction and operation electricity transmission systems.

f) Centrais Elétricas do Pará S.A. – publicly-held company with controlling shareholder being Equatorial Energia S.A., which operates in the distribution and generation of electricity in the State of Pará, serving consumers in 143 municipalities. According to Concession Agreement 182/1998, signed on July 28, 1998, the concession period is 30 years, maturing on July 28, 2028, renewable for an equal period. In addition to the distribution agreement, the Company has Concession Contract Generation 181/98 of 34 thermoelectric power plants, with 11 owned and 23 from third parties, for exploring electricity generation, for a term of 30 years, maturing on July 28, 2028, renewable for an equal period. The investee presented on June 30, 2012 (latest published information) negative net working capital of R$ 1,686,894 (December 31, 2011 – R$ 1,191,873).

As announced to the market in the Material Fact published on February 28, 2012, the investee, pursuant to CVM Instruction 358/2002, indicated that it filed for reorganization before the courts of the Capital of the State of Pará, in accordance with Articles 47 and following Law 11.101/2005, with the purpose of helping to overcome their situation of economic-financial crisis, in order to allow the continued production source, workers employment and the creditors interests, thereby promoting the preservation of the company, its social function and stimulating economic activity. The bankruptcy filing was granted on February 29, 2012.

All existing claims against the investee until the date this motion was filed, even if not overdue, observing the legal exceptions, are subject to reorganization, pursuant to Article 49 of Law 11.101/2005, and shall be paid pursuant to the reorganization plan. On September 1, 2012 CELPA announced to the market, at a general meeting of creditors, that the judicial reorganization plan of the Company was approved.

Through announcement of Material Fact published on November 1, 2012 CELPA reported to shareholders and to the general public that pursuant to the Purchase and Sale of Shares and Other Covenants signed between Equatorial Energia S.A. and its controllers, Rede Energia S.A. and QMRA Participações S.A., with the intervention of the Companhia and Jorge Queiroz de Moraes Junior, which after approval by ANEEL and the Conselho Administrativo de Defesa Econômica – CADE, the sale was completed, the total amount of R$ 1.00, of 39,179,397 shares of the Company held by its controlling shareholders, corresponding to 65.18% of the voting capital and 61.37% of the total share capital of the Company.

g) Empresa Metropolitana de Águas e Energia S.A. – the concessionaire of a hydroelectric complex located on Alto Tietê, based on Hydroelectric Power Plant Henry Borden. EMAE also owns UHE Rasgão and UHE Port Goes, both in Tietê River. At the Paraíba Valley, city of Pindamonhangaba is located HPP Isabel, currently not operational.

h) Lajeado Energia S.A. – a privately-held corporation, controlled by EDP Energias do Brasil S.A., whose main purpose is the generation and sale of electricity. The Company holds 73% of the total capital of Investco S.A., whose main purpose is the exploration of UHE Luís Eduardo Magalhães and Associated Transmission System in the State of Tocantins, under the terms of Concession Contract for Use of Public Asset 05/97 – ANEEL, effective until 2033.

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i) Centrais Elétricas Matogrossenses S.A. – a publicly-held company, under share control of Rede Energia S.A., operating in the electricity distribution segment, in addition to its own electricity generation through thermoelectric power plants for serving isolated systems in its concession area comprising the State of Mato Grosso, and serving consumers in 141 municipalities. According to Concession Contract 03/1997, signed on December 11, 1997, the concession period is 30 years, maturing on December 11, 2027, renewable for an equal period. In addition to the distribution agreement, the Company has Concession Contract Generation 04/1997, of 7 thermoelectric plants with their associated substations, maturing on December 10, 2027 (see Note 2). The investee reports on December 31, 2012 negative net working capital of R$ 438,922 (December 31, 2011 – R$ 82,136).

j) Norte Energia SA – a special purpose company, privately held, for the purpose of conducting all activities necessary for the implementation, operation and maintenance of the Hydroelectric power plant of Belo Monte (UHE Belo Monte), on the Xingu River, located in Para State and transmission facilities of restricted interest to the powerhouse. The Company holds 49% of the capital of Norte Energia. This spending has been invested heavily in organizational costs, development and pre-operation, which, according to the estimates and projections, should be absorbed by income from future operations. The investee will require financial resources of its shareholders and third parties of a significant amount, for the completion of its Hydroelectric Plant.

k) Madeira Energia SA – a privately held corporation, incorporated on August 27, 2007, aims to build and operate the Santo Antônio Hydroelectric Plant located on a stretch of the Madeira River, in the city of Porto Velho, Rondonia, and its Associated Transmission System. The Company holds 39% of the capital of Madeira Energia. The investee is incurring expenses of constitution related to the development of the construction project of Santo Antônio, which, according to the financial projections prepared by the management, should be absorbed by future revenues from operations. On December 31, 2012, the charge had negative net working capital of R$ 1,166,329 (December 31, 2011 – R$ 1,279,002).

The investee is facing difficulties in attracting and renewing its loans and financing, which has resulted in difficulties in liquidating the debt service, amortization and settlement of other short-term operational commitments.

As announced to the market by notice of Material Fact published on August 31, 2012, ANEEL declared that it would intervene in CEMAT, which is ruled by Provisional Measure 577, published on August 30, 2012. Additionally, the Company announced to the market on December 19, 2012 the postponement of the payment of interest on equity declared at the Annual General Meeting held on April 30, 2012. This payment is suspended until the financial strength of the Company has been restored.

IV – Specific Purpose Entities

Throughout recent years, the companies of Eletrobras System invested in project partnerships with private companies, where the Company is a non-controlling stockholder, holding preferred shares. These enterprises have the aim of operating in the electricity generation and transmission segments, whose values are classified as Assets – Investments.

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Similarly, considering the need to expand investments in the Electricity Segment, companies controlled by the Company participate, as minority stockholders with common shares, in companies with concessions of electricity public utility services, classified as Assets – Investments. The relevant investments involving participation by the Company and its controlled companies with specific purpose are the following:

1 – Sistema de Transmissão Nordeste – STN

Partners – 1 – Chesf 49%; 2 – Alusa 51%

Purpose – LT 500 Hv, 546 vKm – Teresina/Fortaleza – operational

2 – Artemis Transmissora de Energia

Partners – Eletrosul 100%

Purpose – LT 525 Km – Salto Santiago /Cascavel – operational

3 – Empresa Transmissora do Alto Uruguai – ETAU

Partners – 1 – Eletrosul 24,4%; 2 – Terna Participações 52,6%; 3 – DME Energética 10%; 4 – CEEE-GT 10%

Purpose – LT 230 Kv, 187 Km – Campos Novos /Santa Marte – operational

4 – Enerpeixe S.A.

Partners – 1 – Furnas 40%; 2 – EDP 60%

Purpose – UHE Peixe Angical 452 MW – operational

5 – Manaus Construtora Ltda.

Partners – 1 – Eletronorte 30,0%; 2 – Chesf 19,5; 3 – Abengoa Holding 50,5%

Purpose – LT 500KV Oriximá/Cariri, SE Itacoatiara 500/138KV e SE 500/230KV – operational

6 – Uirapuru Transmissora de Energia

Partners – 1 – Eletrosul 75%; 2 – Elos 25%

Purpose – LT 525KV, Ivaiorã/Londrina

7 – Energia Sustentável do Brasil

Partners – 1 – Chesf 20%; 2 – Eletrosul 20%; 3 – Energy South America Participações LTDA 10,1%; 4 – Camargo Correa Investimentos em Infraestrutura S.A. 9,9%

Purpose – UHE Jirau, com 3.300 MW – start up estimated for 2013

8 – Norte Brasil Transmissora de Energia

Partners – 1 – Eletrosul – 24,5%; 2 – Eletronorte 24,5%; 3 – Andrade Gutierrez Participações 25,5%; Abengoa Concessões Brasil Holding S.A. – 25,5%

Purpose – LT Porto Velho/Araraquara, stretch 02, 600KV

9 – Estação Transmissora de Energia

Partners – Eletronorte 100%

Purpose – Rectifier Station – alternating current/direct current, and Inverter Station – direct current/alternating current, 600/500 KV—2950 MW

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10 – Porto Velho Transmissora de Energia

Partners – Eletrosul 100%

Purpose – LT Porto Velho (RO), Collector Substation Porto Velho (RO), em 500/230 KV, and two ConverterCA/CC/CA Back-to-Back, em 400 MW

11 – Amazônia Eletronorte Transmissora de Energia

Partners – 1 – Eletronorte 49%; 2 – Bimetal 24,50%; 3 – Alubar 13,25%; 4 – Linear 13,25%

Purpose – 2 transmission lines in 230 KV, Coxipó / Cuiabá, with extension of 25 km and Cuiabá / Rondonópolis, with extension of 168 km – operational

12 – Intesa – Integração Transmissora de Energia

Partners – 1 – Chesf 12%; 2 – Eletronorte 37%; 3 – FIP 51%

Purpose – LT 500kV, in the stretch Colinas/ Serra da Mesa 2, 3rd circuit – operational

13 – Energética Águas da Pedra

Partners – 1 – Chesf 24,5%; 2 – Eletronorte 24,5%; 3 – Neoenergia S.A. 51%

Purpose – UHE Rio Aripuanã 261KW – operational

14 – Amapari Energia

Partners – 1 – Eletronorte 49%; 2 – MPX Energia 51%

Purpose – UTE Serra do Navio 23,33MW

15 – Brasnorte Transmissora de Energia

Partners – 1 – Eletronorte 49,71%; 2 – Terna Participações 38,70%; 3 – Bimetal Ind. e Com. de Produtos Metalúrgicos LTDA 11,62%

Purpose – LT Juba/Jauru 230 KV, with extension of 129 Km; LT Maggi/Nova Mutum 230 KV, with extension of 273 Km; SE Juba, 230/130 KV and SE Maggi, 230/138 KV

16 – Manaus Transmissora de Energia

Partners – 1 – Eletronorte 30%; 2 – Chesf 19,50%; 3- Abengoa Concessões Brasil Holding 50,50%

Purpose – LT Oriximiná/Itacoatiara, double circuit, 500KV, with extension of 374 KM, LT Itacoatiara/Cariri, double circuit 500KV, with extension of 212 Km, Itacoatiara Substation in 500/230 KV, 1.800MVA.

17 – Transleste

Partners – 1 – Furnas 24%; 2 – Alusa 41%; 3 – Cemig 25%; 4 – Orteng 10%

Purpose LT Montes Claros/Irapé, 345 kV – operational

18 – Transudeste

Partners – 1 – Furnas 25%; 2 – Alusa 41%; 3 – Cemig 24%; 4 – Orteng 10%

Purpose – LT Itutinga/ Juiz de Fora, 345 kV – operational

19 – Transirapé

Partners – 1 – Furnas 24,50%; 2 – Alusa 41%; 3 – Cemig 24,50%; 4 – Orteng 10%

Purpose – LT Irapé / Araçuaí, 230 kV – operational

20 – Chapecoense

Partners – 1 – Furnas 49%; 2 – CPFL 51% (Consócio Chapecoense 40% e CEEE-GT 9%)

Purpose – UHE Foz do Chapecó, Rio Uruguai, 855MW – operational

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21 – Serra do Facão Energia

Partners – 1 – Furnas 49,47%; 2 – Alcoa Alumínio S.A. 34,97%, 3 – DME Energética S.A 10,09% e 4 – Camargo Corrêa Energia S.A. 5,46%.

Purpose – UHE Serra do Facão, 212,58 MW – operational

22 – Retiro Baixo

Partners – 1 – Furnas 49%; 2 – Orteng 25,5%; 3 – Logos 15,5%; 3 – Arcadis Logos 10%

Purpose – UHE Retiro Baixo, 82 MW – operational

23 – Baguari Energia

Partners – 1 – Furnas 30,61%; 2- Cemig 69,39%

Purpose – UHE Baguari, 140 MW – operational

24 – Centroeste de Minas

Partners – 1 – Furnas 49%; 2 – Cemig 51%

Purpose – LT Furnas/Pimenta (MG), 345 kV – operational

25 – Santo Antonio Energia

Partners – 1 – Furnas 39%; 2 – Odebrecht Investimentos 17,6%; 3 – Andrade Gutierrez Participações 12,4%; 4 – Cemig 10%; 5 – Fundos de Investimentos e Participações da Amazônia 20%; 6 – Construtora Norberto Odebrecht (1%).

Purpose – UHE Santo Antônio

26 – IE Madeira

Partners – 1 – Furnas 24,50%; 2 – Chesf 24,50%; 3 – CTEEP 31%

Purpose – LT Coletora Porto Velho/Araraquara, trecho 01, com 2.950 Km

27 – Inambari

Partners – 1 – Furnas 19,60%; 2 – Eletrobras 29,40%; 3 – OAS 51%

Purpose – Construction of UHE Inambari (Peru), and the Exclusive Use Transmission system, interconnecting Peru and Brazil, as well as the import and export of goods and services – in the pre-operational stage.

28 – Transenergia

Partners – 1 – Furnas 49%; 2 – Delta 25,5%; 3 – J. Malucelli 25,5%

Purpose – construction, deployment, operation and maintenance of transmission line power core network of the Sistema Elétrico Interligado Nacional Lote C

29 – Norte Energia S.A.

Partners – 1 – Eletrobras 15,00%; 2 – Chesf 15%; 3 – Eletronorte 19,98%; 4 – Petros 10%; 5 – Bolzano 10%; 6 – Other 30,02%

Purpose – UHE Belo Monte, at Xingu river

30 – Eólicas Junco I, Junco II, Caiçara I e Caiçara II

Partners – 1 – Chesf: 49%; 2 – Empresa francesa Votalia: 51%.

Purpose – purchase of energy from new wind generation projects. The plants Junco I and II of 30 MW each, will be built in the city of Jijoca de Jericoacoara, and power plants Caiçara I and II of 30 MW and 21 MW, respectively, will be built in the municipality of Cruz in the State of Ceará and will total 111 MW of installed power – pre-operational stage.

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31 – Extremoz Transmissora do Nordeste – ETN S.A

Partners : 1 – Chesf 49%; 2 – CTEEP: Companhia de Transmissão de Energia Elétrica Paulista: 51%.

Purpose : construction, installation, operation and maintenance of transmission facilities of electricity of the Rede Básica do Sistema Interligado Nacional, specifically the LT Ceará Mirim – João Câmara II, CS, 500 kV, with 64 km; LT Ceará Mirim – Campina Grande III, CS, 500 kV, with 201 km; LT Ceará Mirim – Extremoz II, CS, 230 kV, with 26 km; LT Campina Grande III – Campina Grande II, CS, 230 kV, with 8,5 km; LT Secc. J. Camara II/Extremoz/SE Ceará Mirim, CS, 230 kV, with 6 km; LT Secc. C. Grande II/Extremoz II, C1 and C2, CS, 230 kV, with 12,5 km; SE João Câmara II, 500 kV; SE Campina Grande III, 500/230 kV; SE Ceará Mirim, 500/230 kV – pre-operational stage.

32 – TDG – Transmissora Delmiro Gouveia S.A

Partners – 1 – Chesf: 49%; 2 – ATP Engenharia Ltda.: 51%.

Purpose – construction, implementation, operation and maintenance of transmission facilities of the electricity transmission line São Luiz II, 230 Kv, with 156 Km de extensão – Maranhão, the substations Pecém III in 500/230 Kv (3.600 MVA), and Aquiraz II, in 230/69 kV (450 MVA)- Ceará – pre-operational stage.

33 – Pedra Branca, São Pedro do Lago e Sete Gameleiras

Partners – 1 – Chesf: 49%; 2 – Brennand Energia 51%.

Purpose – hiring, in the regulated environment, alternative sources of energy generation, in the form of energy availability, capacity to generate 30.0 MW each, in pre-operational stage.

34 – Interligação Elétrica Garanhuns S.A

Partners – 1 – Chesf: 49%; 2 – CTEEP: Companhia de Transmissão de Energia Elétrica Paulista 51%.

Purpose – construction, installation, operation and maintenance of facilities for electricity transmission, LT Luis Gonzaga – Garanhuns, 500 kV, with 224 km; LT Garanhuns – Campina Grande III, 500 kV, with 190 km; LT Garanhuns – Pau Ferro, 500 kV, with 239 km; LT Garanhuns – Angelim I, 230 kV, with 13 Km; SE Garanhuns, 500/230 kV; SE Pau Ferro, 500/230 kV, in pre-operational stage.

35 – Rio Branco Transmissora de Energia S.A

Partners – 1 – Eletronorte: 100%.

Purpose – construction, operation and maintenance of transmission lines between Porto Velho – Abunã and Abunã – Rio Branco, Loop 2, with 230 kV and extension of 487 km, in the states of Rondônia and Acre – operational.

36 – Cerro I, II e III

Partners – 1 – Eletrosul: 100%.

Purpose – wind generation, with installed capacity of 30MW each, operational

37 – Chuí

Partners – 1 – Eletrosul: 49%; 2 – Rio Bravo Investimentos: 51%.

Purpose – windpower, in pre-operational stage.

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38 – Livramento

Partners – 1 – Eletrosul: 49%; 2 – Rio Bravo Investimentos: 41%; 3 – Fundação Elos: 10%.

Purpose – windpower, in pre-operational stage.

39 – Santa Vitória do Palmar

Partners – 1 – Eletrosul: 49%; 2 – Rio Bravo Investimentos: 51%.

Purpose – windpower, in pre-operational stage.

40 – TSBE

Partners – 1 – Eletrosul: 80%; 2 – Copel: 20%.

Purpose – LT 230 Kv – Nova Santa Rita – Camaquã 3 – LT 230 Kv Camaquã 3 – Quinta; LT 525 Kv Salto Santiago – Itá; LT 525 Kv Itá – Nova Santa Rita, in pre-operational stage.

41 – TSLE

Partners – 1 – Eletrosul: 51%; 2 – CEEE: 49%.

Purpose – LT 525 Kv Nova Santa Rita – Povo Novo; LT 525 Kv Povo Nova – Marmeleiro; LT 525 Kv Marmeleiro – Santa Vitória do Palmar. Seccion of LT 230 Kv Camaquã 3. In pre-operational stage.

42 – Marumbi

Partners – 1 – Eletrosul: 20%; 2 – Copel: 80%.

Purpose – LT 525 Kv Curitiba – Curitiba Leste (PR). In pre-operational stage.

43 – RS Energia

Partners – 1 – Eletrosul: 100%.

Purpose – LT 525 Kv Campos Novos(SC) – Nova Santa Rita(RS). LT 230 Kv Monte Claro – Garibaldi (RS). Operational.

44 – Costa Oeste

Partners – 1 – Eletrosul: 49%; 2 – Copel: 51%.

Purpose – LT 230 Kv Cascavel Oeste – Umuarama(PR). In pre-operational stage.

45 – Teles Pires Participações

Partners – 1 – Eletrosul: 24,70%; 2 – Neoenergia: 50,60%; 3 – Furnas: 24,70%.

Purpose – hydraulic generation, UHE Teles Pires, in pre-operational stage.

46 – Linha Verde Transmissora de Energia

Parceiro – 1 – Eletronorte: 49%; 2 – Abengoa Concessões Brasil Holding S.A.: 51%.

Purpose – LT Porto Velho – Samuel – Ariquemes – Ji-Paraná – Pimenta Bueno – Vilhena (RO), Jaurú (MT), with extension of 987 Km, 230 kV.

47 – Transmissora Matogrossense

Partners – 1 – Eletronorte: 49%; 2 – Alupar Investimentos S.A. – 46%; 3 – Mavi Engenharia e Construções Ltda. – 5%

Purpose – LT Jaurú – Cuiabá (MT), with extension of 348 Km and SE Jaurú, with 500 kV.

48 – Construtora Integração

Partners – 1 – Eletronorte: 24,50%; 2 – Eletrosul: 24,50%; 3 – Abengoa Concessões Brasil Holding S.A.: 51%

Purpose – Company formed for the construction of the project Norte Brasil Transmissora de Energia S.A.

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49 – Transorte

Partners1 – Eletronorte: 49%; 2 – Alupar Investimento S.A.: 51%

Purpose – LT Lechuga (AM) – Equador – Boa Vista (RR), with 500 kV.

50 – Brasventos Eolo Geradora Energia

Partners – 1 – Eletronorte: 24,50%; 2 – Furnas: 24,50%; 3 – J. Malucelli: 51%

Purpose – Parque Eólico Rei dos Ventos 1 with 48,6 MW of installed capacity, located in the municipality of Galinhos, Rio Grande do Norte.

51 – Brasventos Miassaba 3 Geradora

Partners – 1 – Eletronorte: 24,50%; 2 – Furnas: 24,50%; 3 – J. Malucelli: 51%

Purpose – Parque Eólico Miassaba 3, with 50 MW of capacity installed, located at the municipality of Macau, in Rio Grande do Norte.

52 – Rei dos Ventos 3 Geradora

Partners – 1 – Eletronorte: 24,50%; 2 – Furnas: 24,50%; 3 – J. Malucelli: 51%

Purpose – Parque Eólico Rei dos Ventos 3, with 48,6 MW of capacity installed, located at the municipality of Galinhos, in Rio Grande do Norte.

53 – Luziana – Niquelândia Transmissora

Partners – 1 – Furnas: 49%; 2 – State Grid Corporation of China: 51%.

Purpose – Transmission facilities composed by substation Niquelândia, in 230/69 kV – (3+1) x 10 MVA, and substation Luziânia, in 500/138 kV – (3+1) x 75 MVA.

54 – Energia dos Ventos I a X

Partners – 1 – Furnas: 49%; 2 – Alupar 50,99%; 3 – Companies holding the rights of the studies: 0,01%.

Purpose – Concession for construction and exploitation of 10 Windpower Generating Power Plants and its transmission facilities. Windpower Generating Power Plants, totaling 230 MW installed, municipalities of Fortim and Aracatí – Ceará.

55 – Caldas Novas

Partners – 1 – Furnas: 49,90%; 2 – Desenvix: 25,5%; 3 – Santa Rita: 12,525%; CEL Engenharia: 12,525%.

Purpose – Transmission Facilities of the basic network, composed by Substation Corumbá, in 345/138 kV – 150 MVA – Caldas Novas – GO.

56 – Goiás Transmissão

Partners – 1 – Furnas: 49%; 2 – Desenvix: 25,5%; 3 – J. Malucelli Energia: 25,5%.

Purpose – construction, installation, operation and maintenance of the transmission lines Rio Verde Norte – Trindade; Trindade – Xavantes; Trindade – Região Centro Oeste.

57 – Madeira Energia S.A

Partners – 1 – Furnas: 39%; 2 – Odebrecht Energia: 18,6%; 3 – Andrade Gutierrez Participações S.A.: 12,4%; 4- CEMIG: 10%; 5 – FIP: 20%.

Purpose – construction and operation of the UHE Santo Antônio – Porto Velho – RO.

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58 – MGE Transmissão

Partners – 1 – Furnas: 49%; 2 – Desenvix: 25,5%; 3 – J. Malucelli Energia: 25,5%.

Purpose – construction, installation, operation and maintenance of the LTs Mesquita – Viana 2 – Viana 2 – Viana e da SE Viana 2.

NOTE 16 – FIXED ASSETS

The fixed item assets refer to the infrastructure for electricity generation.


	12/31/2012
	Cost		Accumulated Depreciation			(-) Special Obligation			Impairment			Residual amount
In service
Generation		44,954,872		(17,166,530	)		(291,602	)		(2,082,854	)		25,413,886
Management		2,012,186		(1,093,267	)		—			—			918,919

		46,967,058		(18,259,797	)		(291,602	)		(2,082,854	)		26,332,805

In progress
Generation		19,196,699		—			—			—			19,196,699
Management		1,877,598		—			—			—			1,877,598

		21,074,297		—			—			—			21,074,297

		68,041,355		(18,259,797	)		(291,602	)		(2,082,854	)		47,407,102


	12/31/2011
	Cost		Accumulated Depreciation			(-) Special Obligation			Impairment			Residual amount
In service
Generation		560,323,895		(24,385,487	)		(349,052	)		(635,869	)		34,953,487
Management		2,272,380		(1,353,630	)		(32,712	)		—			886,038

		62,596,275		(25,739,117	)		(381,764	)		(635,869	)		35,839,525

In progress
Generation		16,906,190		—			—			—			16,906,190
Management		469,146		—			—			—			469,146

		17,375,336		—			—			—			17,375,336

		79,971,611		(25,739,117	)		(381,764	)		(635,869	)		53,214,861

Assets comprising the fixed assets of the Company, associated and identified as public utility concession assets, cannot be sold or pledged as guarantee to third parties.

Special Obligations correspond to the resources received from consumers aiming at contributing to the execution of expansion projects necessary to answer electricity supply requests and are allocated to corresponding projects. The assets acquired with corresponding funds are recorded at the Company’s fixed assets, according to ANEEL’s provisions. In view of their nature, these contributions do not represent effective financial liabilities, as they will not return to consumers.

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Changes in fixed assets


	Balance on 12/31/2011			Additions			Transfer In progress / service			Disposals			Depreciation			Effects of Law nº 12,783/13			Balance on 12/31/2012

Generation/Trading

In service		58,958,508			557,498			4,934,490			(156,493	)		—			(20,457,903	)		43,836,100
Accumulated Depreciation		(24,185,487	)		(94,027	)		(323,001	)		78,576			(1,586,847	)		8,944,256			(17,166,530	)

In progress		16,906,190			7,375,893			(4,439,013	)		(206,722	)		—			(439,649	)		19,196,699

Leasing		1,165,388			—			—			—			(46,616	)		—			1,118,772
Provision for adjustments value recovery of assets - impairment		(836,208	)		—			—			(846,511	)		—			(400,135	)		(2,082,854	)


		52,008,391			7,839,364			172,476			(1,131,149	)		(1,633,463	)		(12,353,431	)		44,902,188


Administration

In service		2,272,380			8,094			(209,789	)		(58,499	)		—			—			2,012,186
Accumulated Depreciation		(1,353,630	)		(9,366	)		260,911			36,364			(27,546	)		—			(1,093,267	)

In progress		469,145			2,548,125			(334,125	)		(87,054	)		—			(718,493	)		1,877,598


		1,387,895			2,546,853			(283,003	)		(109,189	)		(27,546	)		(718,493	)		2,796,516


(-) Special Obligations Connected to the Concession
Accumulated Reintegration		14,053			—			—			—			2,824			—			16,877
Consumer Contribution		(147,894	)		—			—			—			—			—			(147,894	)
Federal Government Participation		(47,584	)		—			—			—			24			—			(47,560	)

Investment Credits		—			19			—			—			—			—			19

Others		—			—			—			—			—			(113,044	)		(113,044	)


		(181,425	)		19			—			—			2,848			(113,044	)		(291,602	)




TOTAL		53,214,861			10,386,236			(110,527	)		(1,240,339	)		(1,658,161	)		(13,184,968	)		47,407,102

Effects of the Law 12,783/2013 on the changes of the fixed assets of 2012


Generation
Reclassification for receivable indemnifications (basic project)	(5,954,768	)
Adjustment to the New Value of Replacement of the compensable assets	(2,825,060	)
Gain (loss) with indemnifications of the extended concessions	(1,802,402	)
Reclassification of financial assets (upgrades and improvements)	(1,483,540	)
Installment of assets not recoverable - impairment	(1,119,198	)

Total effect on fixed assets	(13,184,968	)

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	12/31/2012					12/31/2011
	Average depreciation rate			Accumulated Depreciation		Average depreciation rate			Accumulated Depreciation
Generation
Hydraulice		2.39	%		11,728,578		2.44	%		19,856,370
Nuclear		3.32	%		3,080,265		3.30	%		2,501,816
Therma		2.61	%		2,245,169		5.77	%		2,027,301
Aeolic		2.29	%		21,749					—
Trading		7.85	%		54,170					—

					17,129,931					24,385,487

Management		6.92	%		1,129,866		7.46	%		1,353,630

					1,129,866					1,353,630

Total					18,259,797					25,739,117

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NOTE 17 – FINANCIAL ASSETS


	12/31/2012			12/31/2011
Transmission Concessions
Financial Asset - Allowed Annual Revenue		8,526,270			9,276,285
Financial Asset - Indemnifiable Concessions		11,098,119			17,273,525

		19,624,389			26,549,810
Distribution Concessions
Financial Asset - Indemnifiable Concessions		4,595,947			3,025,366

		4,595,947			3,025,366
Generation Concessions
Financial Asset - Indemnifiable Concessions		1,483,540			—

		1,483,540			—

Itaipu Financial Asset (item I)		19,657,434			18,592,152

		19,657,434			18,592,152

Total		45,361,310			48,167,328


Financial Assets - Current		579,295			2,017,949
Financial Liabilities - Current		(52,862	)		—
Financial Assets - Non Current		44,834,877			46,149,379

Total		45,361,310			48,167,328

Effects of Law 12,783/2013 on the financial assets.


Generation
Reclassification of assets to financial assets (upgrades and improvements)	1,483,540

Effect on financial asset	1,483,540


Transmission
Reclassification to receive indemnification	(8,133,025	)
Adjustment to the New Value of Replacement of the indemnifiable assets	(331,602	)
Gain (loss) with indemnifications of extended concessions	(1,242,395	)
Installment of non-recoverable assets - impairment	(41,511	)

Effect on financial asset	(9,748,533	)


Distribution
Adjustment to the New Value of Replacement of the compensable assets	359,182

Effect on financial asset	359,182



Effect in the total financial asset	(7,905,811	)

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I – Itaipu Financial Assets


	12/31/2012			12/31/2011

Accounts Receivable		1,459,221			2,278,404
Indemnity Right		849,724			611,508
Energy Suppliers - Itaipu		(734,252	)		(586,994	)
Reimbursement Obligations		(1,627,555	)		(1,404,965	)

Total assets (liabilities) current		(52,862	)		897,953


Accounts Receivable		894,847			139,563
Indemnity Right		4,919,758			3,936,511
Reimbursement Obligations		(2,999,085	)		(2,352,065	)

		2,815,520			1,724,009

Itaipu Fixed Assets
Generation
In service		15,753,106			14,931,693
In progress		56,756			50,557

		15,809,862			14,982,250

Management
In service		862,196			797,093
In progress		222,718			190,847

		1,084,914			987,940



Total non-current assets		19,710,296			17,694,198



Total financial asset of Itaipu		19,657,434			18,592,152

The effects arising from Itaipu’s financial assets are listed above and detailed below:

a – Amounts arising from Electricity Trading of Itaipu Binacional

a.1 – Adjustment Factor

According to Law No. 11,480/2007, the adjustment factor of loan agreements signed with Itaipu Binacional, and credit assignment agreements signed with the National Treasury, was removed since 2007, assuring the Company full preservation of its flow of receivables.

Consequently, Decree No. 6,265 of November 22, 2007 was issued, regulating the trade of electricity from Itaipu Binacional, defining the difference to be applied in the transfer tariff, creating an asset related to the partial annual difference calculated equivalent to the annual adjustment factor removed from financing to be annually included in the transfer tariff, as of 2008, practiced by Eletrobras and preserving the flow of resources originally established.

Therefore, as of 2008, the difference arising from the removal of the annual readjustment factor, whose values are annually defined by a joint ministerial ordinance

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from the Ministries of Treasury and Mines and Energy, started to be included in the tariff for the transfer of power from Itaipu Binacional. This transfer tariff, in force in 2011, includes an amount equivalent to US$214,989, which will be received by the Company through charges to consumers, granted by Ordinance MME/MF 398/2008.

The balance deriving from the trading of electricity generated by Itaipu Binacional, represented by the item Reimbursement Rights, stated in Non-Current Assets, amounts to R$ 4,919,758 on December 31, 2012, equivalent to US$ 2,407,516 (December 31, 2011 – R$ 3,936,511, equivalent to US$ 2,098,577), of which R$ 2,999,085, equivalent to US$ 1,467,621, will be transferred to the National Treasury by 2023 represented by reimbursement obligations, as a result of credit assigned between the Company and the National Treasury, in 1999.

These amounts will be realized through their inclusion in the transfer tariff to be charged until 2023.

a.2 – Electricity trading

Law No. 10,438 of April 26, 2002, attributed to ELETROBRAS the responsibility for the acquisition of all electricity generated by ITAIPU to be consumed in Brazil, and for trading this electricity.

Therefore, in 2012, the equivalent of 83,847 GWh was sold, the energy supply tariff (purchase) practiced by ITAIPU was US$22.60/kW and the transfer tariff (sale) was US$24.88/kW.

The results from the trading of Itaipu’s electricity, in accordance with Decree No. 4,550 of December 27, 2002, observing the amendments introduced by Decree No. 6,265 of November 22, 2007, have the following allocation:

1) if positive, results will be allocated, by means of prorating to the individual consumer, through a bonus credit in the consumers’ electricity bills of the Brazilian Interconnected Electric System, for the residential and rural classes with monthly consumption lower than 350 kWh.

2) if negative, results are incorporated by ANEEL in the calculation of the transfer tariff of electricity contracted in the year subsequent to the formation of result.

This trading operation does not affect the Company’s results, and under the current regulation, negative results represent an unconditional receivable right and an effective obligation if negative.

In 2012, the activity had a surplus of R$ 280,029 (R$ 638,977 on December 31, 2011), and the resulting obligation is included under the item of financial asset.

II – Financial Asset – Electricity public utility concession

The item financial asset – the concession, in the amount of R$ 23,677,532 (December 31, 2011 – R$ 29,575,176) refers to the unrealized financial asset owned by companies of Eletrobras System, which as verified in distribution concessions by adopting a mixed model, and in transmission concessions by adopting a financial model, both provided for IFRIC 12.

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NOTE 18 – INTANGIBLE ASSETS


	Balance on 12/31/2011			ADDITIONS			DISPOSALS			AMORTIZATIONS			TRANSFERS PROGRESS/ SERVICE			Balance on 12/31/2012
Linked to Concession - Generation		1,172,736			63,766			(845	)		(45,896	)		(13,665	)		1,176,096

In service		944,973			15,242			(844	)		(45,896	)		94,448			1,007,923

Intangible Asset		1,020,331			15,226			—			—			94,448			1,130,005
Accumulated Amortization		(75,358	)		(34	)		(844	)		(45,896	)		—			(122,132	)
Special Obligations		—			50			—			—			—			50

In progress		227,763			48,524			(1	)		—			(108,113	)		168,173

Intangible Asset		227,763			48,524			(1	)		—			(108,113	)		168,173

Linked to Concession - Distribution		794,148			52,714			17,851			(101,149	)		518			764,082

In service		689,369			(41,523	)		18,742			(101,149	)		78,742			644,181

Intangible Asset		2,076,075			93,539			(105,114	)		—			152,312			2,216,812
Accumulated Amortization		(931,659	)		(112,232	)		81,767			(152,749	)		—			(1,114,873	)
Special Obligations		(455,047	)		(307	)		19,868			51,600			(73,570	)		(457,456	)
Impairment		—			(22,523	)		22,221			—			—			(302	)

In progress		104,779			94,237			(891	)		—			(78,224	)		119,901

Intangible Asset		209,476			115,297			(5,611	)		—			(149,518	)		169,644
Special Obligations		(104,697	)		(3,870	)		4,720			—			69,225			(34,622	)
Impairment		—			—			—			—			2,069			2,069
Onerous Concession Contract		—			(17,190	)		—			—			—			(17,190	)

Linked to Concession - Transmission		—			745			—			(34	)		—			711

In service		—			689			—			(34	)		—			655

Intangible Asset		—			689			—			—			—			689
Accumulated Amortization		—			—			—			(34	)		—			(34	)

In progress		—			56			—			—			—			56

Intangible Asset		—			56			—			—			—			56

Not Linked to Concession (Other intangible fixed asset)		404,483			27,543			(52,446	)		(19,927	)		198			359,851

Management
In service		499,380			15,804			(67,655	)		(9,037	)		26,894			465,386
Accumulated Amortization		(193,930	)		(13,039	)		17,318			(10,890	)		(16	)		(200,557	)
In progress		99,033			24,754			(2,109	)		—			(12,845	)		108,833
Others		—			24			—			—			(13,835	)		(13,811	)

Total		2,371,367			144,768			(35,440	)		(167,006	)		(12,949	)		2,300,739

The intangible asset is appropriated during its concession term.

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NOTE 19 – IMPAIRMENT OF LONG-LIVED ASSETS

The Company defined the recoverable amount of its long-lived assets based on the value in use, as there is no active market for the infrastructure linked to the concession. The value in use is calculated based on the present value of the estimated future cash flow.

The amounts allocated to the assumptions represent the appraisal of the Management of the Company on future trends of the electricity sector and are based not only on external sources of information but also on historical data. The cash flow was projected based on the Company’s operating results and projections until the end of the concession, under these main assumptions:

a) Organic growth compatible with historic data and the Brazilian economy growth prospects;

b) Discount rate (after taxes) specific to each segment (4.98% for generation, 4.73% for transmission and 4.61% for distribution) calculated by a methodology usually applied by the market, taking into account the weighted average cost of capital;

c) The growth rate does not include inflation.

d) The Company has treated as independent cash generating units all its endeavors, no longer considering them as integrated due to the changes introduced by Law 12,783/2013.

The analysis established the need to constitute a provision for losses in the following projects in the year 2012:

a) Eletrosul – the Company recognized, in 2012, impairment of R$ 149,672 (R$ 107,664 in 2011). The accrued amounts refer to: R$ 44,377 from UGC John Borges, R$ 44,329 from UGC Rio do Chapéu; discontinuity of the projects PCHs Pinheiro (R$ 3,829) and PCH Itararé (R$ 4,256); impairment of financial assets in the UGC transmission line Presidente Médice – Santa Cruz (R$ 27,117) and substation Missões (R$ 4,998), and other assets of R$ 20,766.

b) Amazonas Energia (segmento de distribuição) – In the year 2010, ANEEL established a new tariff adjustment methodology that includes, among other factors, the reduction in asset remuneration (regulatory WACC). These factors lead to the need to recognize impairment over distribution assets of R$ 573.209 (December 31, 2011 – R$ 573,731), being R$ 522 registered as reversion in that year (2011 – reserve of R$ 69,546). Plus, in 2012 a loss of R$ 92,528 over tax credits was recognized.

c) Furnas – The Company recognized impairment over UHE Batalha and UHE Simplício amounting to R$ 1,028,266 (December 31, 2011 – R$ 693,335), over assets recovery, being R$ 334,931 this year (2011 – R$ 349,444) in view of increase in the costs of the structure imposed by delay in hydroelectric power plants construction.

d) Eletronorte – the following provisions were recognized in 2012: R$ 482,334 consisting of: R$ 344,104 on generating fixed assets of UHE Samuel; R$ 64,103, equivalent to the total assets of UTEs Floresta, Rio Acre, Rio Branco and Rio Madeira;

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R$ 27,389 related to the fixed assets of the UTE Balbina; R$ 28,168 related to fixed assets of RBSE, R$ 6,503 on other generation fixed assets and R$ 12.067 on other fixed assets of transmission.


Balance on December 31, 2010	989,525

(+) Additions	460,661
(-) Reversals	(27,474	)

Balance on December 31, 2011	1,422,712

(+) Additions	1,059,462
(-) Reversals	(522	)

Balance on December 31, 2012	2,481,652

The impairment losses are recognized in the income statement as Operating Provisions. The impairment losses by segment are as follows:


	12/31/2012
	Generation		Transmission		Distribution		Total
Fixed assets		1,727,701		40,235		—		1,767,936
Intangible assets		1,740		32,115		587,333		621,188
Tax Credits		—		—		92,528		92,528

Total		1,729,441		72,350		679,861		2,481,652

NOTE 20 – SUPPLIERS


	12/31/2012		12/31/2011
CURRENT
Goods, Supplies and Services		5,479,412		4,740,332
Energy Purchased for Resale		1,841,910		1,544,536
CCEE - Electricity Trading Chamber		169,480		53,234

		7,490,802		6,338,102

NOTE 21 – ADVANCES FROM CLIENTS


	12/31/2012		12/31/2011
CURRENT
Advanced electricity sale - ALBRAS		45,583		44,098
Advances from clients - PROINFA		424,309		368,943

		469,892		413,041

NON CURRENT
Advanced electricity sale - ALBRAS		830,234		879,452

		830,234		879,452

TOTAL		1,300,126		1,292,493

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I – ALBRÁS

The subsidiary Eletronorte executed the sale of electricity with ALBRÁS, in 2004, for a 20-year supply period, at an average of 750 MW/month until December 2006 and 800 MW/month between January 2007 and December 2024, setting the UHE Tucuruí break-even tariff as a parameter, plus a premium calculated according to the aluminum price on the London Metal Exchange (LME) – England. This price-setting constitutes an embedded derivative (see Note 44).

Based on these conditions, ALBRÁS made an energy pre-purchase offering with advance payment, comprising energy credits which will be amortized during the supply period in fixed monthly installments in average MW, according to the tariff effective in the billing month, as detailed below:


	Date of Agreement
Client	Inicial	Final	Volume in Average Megawatts (MW)

Albrás	7/1/04	12/31/24	750 until 31/12/2006 and 800 as of 01/01/2007
Alcoa	7/1/04	1/1/24	from 304 to 328
BHP	7/1/04	1/2/24	from 353,08 to 492

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II – PROINFA

PROINFA, enacted by Law No. 10.438/2002 as amended, aims at diversifying the Brazilian energy grid with the utilization of renewable energy sources, by means of economic utilization of available inputs and applicable technologies.

The Company ensures the purchase of electricity generated for a period of 20 years, as of 2006, and transfers this electricity to distribution concessionaires, free consumers and self-producers, excluding low-income consumers proportionally to consumption.

The transmission and distribution concessionaires pay to the Company the amount of electricity in quotas, equipment at cost corresponding to captive customers, free consumers and self-producers connected to its facilities, in twelve monthly installments, in the month before the reference date of energy consumption.

The operations related to PROINFA’s sale and purchase of electricity do not affect the Company’s results.

NOTE 22 – LOANS AND FINANCING

I – Company’s Agreements – Financial Institutions and Bonds

a) The Company has loan agreements executed with multilateral agencies, such as IDB, IRDB, KFW and EXIMBANK/JBIC, guaranteed by the Federal Government. These agreements follow a standard of covenants applicable to agreements with multilateral agencies, which are usually agreed upon in negotiations with this type of entity. In 2011, an agreement was signed with IBRD in the amount of US$ 495,000,000 destined to investments in distribution companies of Eletrobras System, mainly with a view to reducing levels of losses. Of this amount, only US$ 1,237,500 was withdrawn in May 2011 to pay loan fees and the remaining balance will be withdrawn.

In the A/B syndicated loan agreements between CAF and commercial banks, the Company has given covenants commonly used in the market, among which: existence of corporate guarantees, change of corporate control, compliance with licences and authorizations, and restriction to significant disposal of assets. In addition, according to market practices, there are two loan agreements coordinated by BNP and CDB, signed in 2007, in the amount of US$ 149,000 and of US$ 281,000, without federal guarantee, but that became effective only in 2008. The funds from these two contracts were designated to financing the Usina Termelétrica de Candiota II, Fase C, of CGTEE.

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On 1 November 2012, the second tranche of the loan contracted from KfW in the amount of EUR 45,900, with federal guarantee, with 5 year grace period and a total term of 30 years and interest rate average of 2.93% per annum was signed. The funds will be designated to the project Complexo de São Bernardo belonging to Eletrosul, which aims to implement the 4-PCH in the state of Santa Catarina. The loan agreement relating to Tranche 1 was signed on December 12, 2008, in the amount of EUR 13,294.

On December 21, 2012, the financing contract with Caixa Economica Federal in the amount of R$ 3.8 million was also signed, and its proceeds will go towards the purchase of machinery and services imported from the nuclear plant Angra III. This contract has a federal guarantee, interest rate of 6.5% per annum and period of 25 years for repayment (with 5-year grace period).

Besides the bonds issued in 2005, of US$ 300,000, with former Dresdner Bank AG, and the bonds issued with Credit Suisse in 2009, of US$ 1,000,000, the Company raised funds through the issue of US$ 1,750,000,000 bonds in a joint operation between Santander and Credit Suisse, in October 2011. The proceeds obtained in the international market are set aside for the Partnership Investment Program.

In October 2012, Furnas entered into a financing agreement with Banco do Brazil, worth R$ 750,000, with total payment term of six (6) years, amortized via bullet on the last day of the contract, with compensation interest of 107.3% on the average of the Interbank Deposit Certificate – CDI. The funds will be designated for the investment program of the subsidiary and are guaranteed by the Company.

There were two (2) financing contracts entered into between RS Energy – a company that has 100% of its share capital owned by Eletrosul – and BNDES, in order to finance the construction and operation of Transmission Lines and substations located in the state of Rio Grande do Sul – the object of the concession through the auction ANEEL n° 008/2010.

The first financing agreement was signed on April 4, 2012, in the amount of R$ 41,898, at an average interest rate of 1.96% per annum plus the TJLP, it being the amortization done via SAC held for a period of 168 months. The second loan agreement was signed on April 30,2012, in the supplemental amount of R$ 9,413, with the same conditions of interest and financing term as before. It is noteworthy that both contracts have the Company’s intervention and corporate bail.

II – Global Reversion Reserve (RGR)

The Company is authorized to withdraw RGR resources, while not used for the purposes for which they are destined, applying them in the granting of financing for the expansion of the Brazilian electricity sector, improvement of the service and implementation of Federal Government programs.

Thus, the Company withdraws funds from RGR, recognizing a debt with this Fund and invests in specific investment projects, financed by the Company, with the purpose of:

a) expansion of electricity distribution services;

b) development of alternative electricity sources;

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c) inventory and feasibility studies for the development of hydroelectric projects;

d) implementation of power generation units of up to 5,000 kW, exclusively for public utility in communities assisted by an isolated electric system;

e) efficient public lighting;

f) electricity conservation by means of improved quality of products and services;

g) universalization of access to electricity;

The remuneration resources withdrawn from RGR and used in the granting of loans to the Brazilian electricity sector, with annual interest of 5%. On December 31, 2012, the balance withdrawn from the Fund amounted to R$ 8,870,838 (December 31, 2011 – R$ 8,931,891) and was included under loans and financing, in liabilities.

The funds composing RGR are not an integral part of these financial statements, which is a separate entity from the Company.


	31/12/2012
	CONSOLIDATED
	CURRENT
	CHARGES					PRINCIPAL
	Avg. Rate			Amount		CURRENT		NON CURRENT
Foreign Currency
Financial Institutions

Interamericano Development Bank - IDB		4.40	%		2,194		38,021		301,977
Corporación Andino de Fomento - CAF		2.51	%		12,978		330,237		1,862,530
Kreditanstalt fur Wiederaufbau - KFW		3.86	%		2		—		35,832
Eximbank		2.15	%		1,346		52,067		234,296
BNP Paribas		1.53	%		330		70,769		595,628
Other					672		30,502		33,970

					17,522		521,596		3,064,233

Bonus
Maturity 30/11/2015		7.75	%		4,675		—		613,050
Maturity 30/07/2019		6.87	%		68,687		251		2,043,538
Maturity 27/10/2021		5.75	%		42,431		—		3,576,125

					115,793		251		6,232,713

Other
National Treasuryl - ITAIPU					5,579		475,031		8,849,631
CAJUBI - Fundação Prev ITAIPU PY					—		2,400		44,787
LLOYDS					—		38		991

					5,579		477,469		8,895,409


					138,894		999,316		18,192,355

Domestic Currency
Global Reversal reserve					—		—		8,870,838
Other Financial Institutions					49,830		1,868,668		3,871,825
Banco do Brasil					9,253		21,220		1,253,141
Caixa Econômica Federal					24,307		321,605		1,089,597
BNDES					84,282		929,800		11,926,269

					167,672		3,141,293		27,011,670


					306,566		4,140,609		45,204,025

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	31/12/2012
	CONSOLIDATED
	CURRENT
	CHARGES					PRINCIPAL
	Avg. Rate			Amount		CURRENT		NON CURRENT
Foreign Currency
Financial Institutions

Banco Interamericano de Desenvolvimento		4.40	%		2,400		34,901		191,957
Corporación Andino de Fomento - CA		2.40	%		11,763		165,997		2,012,817
Kreditanstalt fur Wiederaufbau - KFW		3.87	%		39		23,116		32,631
Dresdner Bank		6.25	%		41		23,386		—
Eximbank		2.15	%		1,635		53,362		293,487
BNP Paribas		1.82	%		269		64,962		611,709
Other					1,244		12,088		17,367

					17,391		377,812		3,159,968

Bônus
Due Date 30/11/2015		7.75	%		4,292		—		562,740
Due Date 27/10/2021		5.75	%		36,845		—		3,282,650
Due Date 30/07/2019		6.87	%		63,050		—		1,875,800

					104,187		—		5,721,190

Others
National Treasury - ITAIPU					3,922		416,325		8,561,657
CAJUBI - Fundação Prev ITAIPU PY					389		566		26,860

					4,311		416,891		8,588,517


					125,889		794,703		17,469,675

Domestic Currency
Global Reversal Reserve					—		—		8,946,901
Fundo de Investimento em Direitos Creditórios					—		—		—
Other financial institutions					52,040		1,075,795		3,084,264
Banco do Brasil					17,369		460,428		386,771
Caixa Econômica Federal					9,882		191,972		183,797
BNDES					49,127		1,228,122		8,336,944

					128,418		2,956,317		20,938,677


					254,307		3,751,020		38,408,352

a) The debts are guaranteed by the Federal Government and / or by Eletrobras.

b) The total debt in foreign currency, including costs relating to the consolidated group of R$ 19,300,565, equivalent to US$ 9,459,538. The percentage distribution by currency is as follows:


	US$			EURO			YEN
Consolidated		98.33	%		0.19	%		1.49	%

c) Loans and financing are subject to charges, whose annual average rate for 2012 is 5.04% and in 2011 was R $ 4.97%.

d) The portion of long-term loans and financing expressed in thousands of U.S. dollars, has maturity dates as following:


2014	2015	2016	2017	2018	After 2018	Total
374.184	834.628	361.399	360.955	202,823	19,986,895	22,120,883

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II – Financial lease operation:

In the subsidiary Amazonas Energia, leasing is classified as financial lease when the terms of respective contracts substantially transfer all the risks and benefits of asset ownership to the leaseholder. All other leases are classified as operating leases.

The assets acquired through financial lease are depreciated based on assets’ useful lives.

The face value adopted when calculating assets and liabilities originated by said agreements was found using as benchmark the amount defined to contract monthly power, multiplied by installed capacity (60 to 65 MW) and by the months of agreement’s effectiveness.

The conciliation between minimum future payments of the financial leasing of the Company and their present value is presented in the table below:


	12/31/2012			12/31/2011

Less than one year		298,231			283,831
More than one year and less than five years		1,491,157			1,419,154
More than five years		1,913,652			2,105,079
Charges of future financing over financial leasing		299,932			202,636

Gross liabilities of financial leasing - leasing minimum payments		4,002,972			4,010,700

Adjustment to presente value		(1,979,939	)		(2,092,159	)

Total minimum payments of financial leasing		2,023,033			1,918,541

III – GUARANTEES

The Company participates as intervening guarantor in several projects, of which the guaranteed amounts, projections and paid amounts are set forth in the table below.


													Projected Outstanding Balance
Company	Project	Bank	Type	Company Share			Financing Amount (*)		Outstanding Balance on 12/31/2012		Eletrobras Guaranteed Balance		2013		2014		2015		To be released after 2015		Guarantee Maturity Date
Eletrobras	Norte Energia	Promissory Notes	SPE		15.00	%		150,000		154,271		1,543		—		—		—		—	01/15/2023
Eletrobras	Norte Energia	Lawful Fulfillment	SPE		15.00	%		156,915		156,915		1,569		109,841		109,841		109,841		109,841	04/30/2019
Eletrobras	Norte Energia	BNDES	SPE		15.00	%		3,375,000		470,966		4,710		513,353		559,555		609,915		664,807	01/15/2042
Eletrosul	ESBR	BNDES	SPE		20.00	%		1,909,000		1,665,135		16,651		1,759,219		1,671,305		1,653,757		—	01/15/2034
Eletrosul	Cerro Chato I, II and II	Banco do Brasil	SPE		100.00	%		223,419		210,730		2,107		182,965		155,191		127,396		—	07/15/2020
Eletrosul	RS Energia	BNDES	SPE		100.00	%		126,221		100,523		1,005		90,256		75,985		68,386		—	06/15/2021
Eletrosul	Artemis Trans. se Energia	BNDES	SPE		100.00	%		170,029		82,337		823		67,766		53,486		39,132		—	10/15/2018
Eletrosul	Norte Brasil Transmissora	BNDES	SPE		24.50	%		257,250		223,954		2,240		278,945		240,100		222,950		—	01/15/2029
Eletrosul	Porte Velho Trans. Energia	BNDES	SPE		100.00	%		283,411		304,571		3,046		311,372		297,557		267,801		—	08/15/2028
Eletrosul	UHE Mauá	BNDES	SPE		49.00	%		89,384		90,789		908		84,682		78,684		72,655		—	01/15/2028
Eletrosul	UHE Mauá	BNDES/ Banco do Brasil	SPE		49.00	%		89,384		90,865		909		84,709		78,711		72,697		—	01/15/2028
Eletrosul	UHE Passo de São João	BNDES	Corporate		100.00	%		183,330		177,880		1,779		164,818		151,750		138,620		—	07/15/2026
Eletrosul	SC Energia	BNDES/ Banco do Brasil	Corporate		100.00	%		50,000		27,686		277		23,399		19,105		14,783		—	05/15/2019
Eletrosul	SC Energia	BNDES/ BDRE	Corporate		100.00	%		50,000		27,639		276		23,338		19,034		14,722		—	05/15/2019
Eletrosul	SC Energia	BNDES	Corporate		100.00	%		103,180		55,982		560		47,269		38,552		29,818		—	05/15/2019
Eletrosul	SC Energia	BNDES	Corporate		100.00	%		67,017		46,860		469		41,188		35,514		29,826		—	03/15/2021
Eletrosul	UHE São Domingos	BNDES	Corporate		100.00	%		207,000		22,048		220		214,552		199,793		184,993		—	06/15/2028
Eletrosul	RS Energia	BNDES	SPE		100.00	%		41,898		32,094		311		39,653		36,661		32,995		—	03/15/2027
Eletrosul	RS Energia	BNDES	SPE		100.00	%		9,413		5,099		51		9,354		9,144		8,413		—	08/15/2027
Eletrosul	UHE Passo de São João	BNDES	Corporate		100.00	%		14,750		14,701		147		13,621		12,541		11,465		—	07/15/2026
Eletrosul	UHE Teles Pires	BNDES LP	SPE		24.50	%		199,758		188,154		1,882		—		—		—		—	02/15/2036
Eletrosul	UHE Teles Pires	FI - FGTS	SPE		24.50	%		160,680		168,339		1,683		—		—		—		—	05/31/2032
Eletronorte	São Luis II and III	BNDES	Corporate		100.00	%		13,653		11,621		116		10,646		9,671		8,695		8,695	11/15/2024

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Eletronorte	Miranda II	BNDES	Corporate	100.00	%	47,531	34,878	349	3,099	27,320	23,541	23,541	11/15/2024
Eletronorte	Ribeiro Gonç. / Balsas	BNB	Corporate	100.00	%	70,000	70,000	700	68,065	64,167	60,278	60,278	06/03/2031
Eletronorte	Lechuga/J. Teixeira	BASA	Corporate	100.00	%	25,720	1,896	19	1,801	1,681	1,562	1,562	01/10/2029
Eletronorte	UHE Tucurí	BNDES	Corporate	100.00	%	931,000	381,522	3,815	279,783	178,043	76,337	76,337	09/15/2016
Eletronorte	Norte Brasil Transmissora	BNDES	SPE	24.50	%	257,250	223,954	2,240	278,945	240,100	222,950	—	01/15/2029
Eletronorte	Linha Verde Transmissora	BTG Pactual	SPE	49.00	%	147,000	155,213	1,552	—	—	—	—	01/10/2013
Eletronorte	Manaus Transmissora	BASA	SPE	30.00	%	75,000	83,445	834	91,911	101,236	108,604	—	07/10/2030
Eletronorte	Manaus Transmissora	BASA	SPE	30.00	%	45,000	46,689	467	49,208	49,840	48,600	—	07/15/2032
Eletronorte	Manaus Transmissora	BNDES	SPE	30.00	%	120,000	130,034	1,300	137,776	127,178	116,569	—	12/31/2026
Eletronorte	Estação Trans. de Energia	BNDES	SPE	100.00	%	505,477	523,255	5,233	506,921	472,746	438,572	—	11/30/2038
Eletronorte	Estação Trans. de Energia	BASA	SPE	100.00	%	221,789	222,599	2,226	232,868	219,625	206,381	—	07/30/2031
Eletronorte	Estação Trans. de Energia	BASA	SPE	100.00	%	221,789	70,890	709	227,133	230,621	233,308	—	10/15/2030
Eletronorte	Rio Branco Transmissora	BNDES	SPE	100.00	%	138,000	144,531	1,445	138,907	128,424	117,940	—	03/15/2027
Eletronorte	Trans Matogrossense Energia	BASA	SPE	49.00	%	39,200	39,817	398	39,819	36,515	32,924	—	02/01/2025
Eletronorte	Trans Matogrossense Energia	BNDES	SPE	49.00	%	42,777	41,134	411	38,077	35,019	31,952	—	05/15/2026
Eletronorte	Norte Energia	BNDES LP	SPE	19.98	%	4,495,500	627,327	6,273	683,786	745,327	812,406	885,523	01/15/2042
Eletronorte	Rei dos Ventos 1 Eolo	Votorantin	SPE	24.50	%	30,851	26,329	263	32,952	30,893	28,965	—	11/15/2029
Eletronorte	Brasventos Miassaba 3	Votorantin	SPE	24.50	%	32,533	27,716	277	34,698	32,529	30,496	—	11/15/2029
Eletronorte	Rei dos Ventos 3	Votorantin	SPE	24.50	%	30,984	76,448	264	33,150	31,079	29,136	—	11/15/2029
Eletronuclear	Angra III	BNDES	Corporate	100.00	%	6,146,256	1,349,674	13,497	5,250,360	6,444,450	7,378,916	—	06/15/2036
Chesf	ESBR	BNDES	SPE	20.00	%	1,909,000	1,665,135	16,651	1,759,219	1,671,305	1,653,757	—	01/15/2034
Chesf	Manaus Transmissora	BASA	SPE	19.50	%	48,750	54,239	542	59,742	65,804	70,593	—	07/10/2030
Chesf	Manaus Transmissora	BASA	SPE	19.50	%	29,250	30,348	303	31,985	32,396	31,590	—	06/15/2032
Chesf	Manaus Transmissora	BNDES	SPE	19.50	%	78,000	84,522	845	89,555	82,666	75,770	—	12/31/2026
Chesf	Norte Energia	BNDES	SPE	15.00	%	3,375,000	470,966	4,710	513,353	559,555	609,915	664,807	01/15/2042
Chesf	IE Madeira	BNDES LP	SPE	24.50	%	377,535	377,535	3,775	377,535	454,031	423,971	—	03/15/2030
Chesf	IE Madeira	Itaú Debentures	SPE	24.50	%	105,350	14,983	150	—	—	—	—	03/15/2013
Chesf	IE Madeira	Bradesco - Hedge	SPE	24.50	%	3,901	3,901	39	3,901	—	—	—	09/30/2013
Chesf	IE Madeira	HSBC - HEDGE	SPE	24.50	%	4,001	4,001	40	4,001	—	—	—	09/30/2013
Chesf	IE Madeira	Itaú BBA - NP	SPE	24.50	%	71,050	71,973	720	—	—	—	—	03/18/2030
Chesf	IE Madeira	BASA FNO	SPE	24.50	%	65,415	50,363	504	50,363	69,190	72,623	—	07/10/2032
Chesf	Pedra Branca Wind Power Plant	Itaú BBA	SPE	49.00	%	33,026	31,875	319	—	—	—	—	07/03/2013
Chesf	São Pedro Lago Wind Power Plant	Itaú BBA	SPE	49.00	%	36,603	31,700	317	—	—	—	—	07/03/2013
Chesf	Sete Garreleiras Wind Power Plant	Itaú BBA	SPE	49.00	%	27,881	27,975	280	—	—	—	—	07/03/2013
Chesf	TDG	BNB	SPE	49.90	%	29,940	38,095	381	39,293	—	—	—	05/17/2013
Chesf	TDG	BNB	SPE	49.90	%	34,930	29,364	294	31,045	33,994	37,223	—	05/17/2031
Furnas	UHE Batalha	BNDES	Corporate	100.00	%	224,000	166,829	1,668	154,001	141,198	128,362	—	12/15/2025
Furnas	UHE Simplício	BNDES	Corporate	100.00	%	1,034,410	797,138	7,971	738,456	679,897	621,201	—	07/15/2026
Furnas	UHE Baguari	BNDES	Corporate	15.00	%	60,153	51,162	512	47,295	43,436	39,567	—	07/15/2026
Furnas	UHE Santo Antônio	BNDES	SPE	39.00	%	2,392,717	3,220,161	32,202	3,244,919	3,270,508	3,172,368	8,221	03/15/2034
Furnas	UHE Santo Antônio	BASA	SPE	39.00	%	196,334	307,728	3,077	234,199	244,057	243,841	—	12/15/2030
Furnas	UHE Foz do Chapecó	BNDES	SPE	40.00	%	657,271	770,441	7,704	718,364	666,264	614,008	—	09/15/2027
Furnas	Centroeste de Minas	BNDES	SPE	49.00	%	13,827	12,194	122	10,539	9,221	—	—	04/15/2023
Furnas	Serra do Facao	BNDES	SPE	49.47	%	257,357	274,864	2,749	268,950	250,294	231,639	—	06/15/2027
Furnas	Goiás Transmissão	BNDES	SPE	49.00	%	97,020	97,608	976	98,185	94,593	91,000	—	12/01/2031
Furnas	MGE	BNDES	SPE	49.00	%	58,359	56,685	576	53,303	49,229	45,155	—	01/01/2027
Furnas	Transenergia São paulo	BNDES	SPE	49.00	%	18,963	19,538	195	18,737	17,936	17,134	—	08/15/2026
Furnas	Transenergia Renovável	BES	SPE	49.00	%	77,910	75,055	751	73,771	68,392	63,013	—	11/15/2026
Furnas	Rei dos Ventos 1 Eolo	Votorantin	SPE	24.50	%	30,851	26,329	263	32,952	30,893	28,962	—	11/15/2029
Furnas	UEE Miassaba 3	Votorantin	SPE	24.50	%	32,533	27,716	277	34,698	32,528	30,496	—	11/15/2029
Furnas	UEE Rei Dos Ventos 3	Votorantin	SPE	24.50	%	30,984	27,448	264	33,150	31,079	29,136	—	11/15/2029
Furnas	IE Madeira	BNDES LP	SPE	24.50	%	377,535	377,535	3,775	377,353	454,031	423,971	—	03/15/2030
Furnas	IE Madeira	Itaú Debentures	SPE	24.50	%	105,350	14,983	150	—	—	—	—	03/15/2013
Furnas	IE Madeira	Bradesco - Hedge	SPE	24.50	%	3,901	3,901	39	3,901	—	—	—	09/30/2013
Furnas	IE Madeira	HSBC - HEDGE	SPE	24.50	%	4,001	4,001	40	4,001	—	—	—	09/30/2013
Furnas	IE Madeira	Itaú BBA - NP	SPE	24.50	%	71,050	71,973	720	—	—	—	—	03/18/2013
Furnas	IE Madeira	BASA FNO	SPE	24.50	%	65,415	50,363	504	50,363	69,190	72,623	—	07/10/2032
Furnas	UHE Teles Pires	BNDES LP	SPE	24.50	%	199,758	188,154	1,882	—	—	—	—	02/15/2036
Furnas	UHE Teles Pires	FI - FGTS	SPE	24.50	%	160,680	168,339	1,683	—	—	—	—	05/31/2032
Other						349,800	359,761	3,598	—	—	—	—	Various

Total						34,304,163	18,911,394	189,114	21,385,510	22,170,660	22,546,183	2,503,612

(*)	Quote of the controlled part

The Company accrued under provisions, in non-current liabilities, the fair value of the amounts guaranteed by the Company on resources already released by the financing banks. The provision is recorded based on the fair value of the guarantees, set forth below:


	Accrued amount

Guarantee owed on 12/31/2010		79,776
Changes in 2011		80,452

Guarantee owed on 12/31/2011		160,228
Changes in 2012		28,885

Guarantee owed on 12/31/2012		189,113

a) UHE Simplício – Project of subsidiary Furnas, with an installed capacity to generate 337.7 MW. 100% of the project interest is held by Furnas. Therefore, the Company guarantees 100% of its financing.

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b) UHE Mauá – Project with installed capacity of 361 MW, in partnership with Eletrosul (49%) and Copel (51%). This hydroelectric power plant ( Usina Hidrelétrica de Energia , UHE) has two agreements with BNDES, one direct and one indirect, the Company guarantees 49% in both agreements.

c) UHE Jirau – SPE Energia Sustentável do Brasil , established by subsidiaries Eletrosul, CHESF, GDF Suez Energy and Camargo Corrêa, with installed capacity of 3,450MW. For this project, two financing agreements were signed with BNDES, one direct and one indirect, through onlending banks, to be paid in 240 months. The Company is a guarantor of the participation held by its subsidiaries – Eletrosul (20%) and CHESF (20%).

d) UHE Santo Antônio – SPE Santo Antônio Energia, established by Furnas, CEMIG, Fundo de Investimentos em Participação Amazônica Energia – FIP, Construtora Norberto Odebrecht S/A, Odebrecht Investimentos em Infraestrutura Ltda. And Andrade Gutierrez Participações S/A, with installed capacity of 3,150 MW. The Company acts as a garantor in loans with BNDES and Banco da Amazônia. This is limited to the ratio of Furnas’ participation (39%) in this undertaking.

e) UHE Foz do Chapecó – SPE Foz do Chapecó Energia, whose power plant has an installed capacity of 855MW, has the Company as guarantor of contracts with BNDES, with amounts limited, in replacement of bank guarantees previously contracted, to Furnas interest in the SPE (40%).

f) UHE Baguari – Corporate project of Furnas, with installed capacity of 140MW. The Company is the guarantor of 15% of the BNDES loan agreement.

g) UHE Serra do Facão – SPE Serra do Facão, established by Furnas (49.5%), Alcoa Alumínio S.A.(30,5%), DME Energética (10%) and Camargo Corrêa Energia S.A (10%), with installed capacity of 210MW. The guarantee rendered by the Company on the loan agreement with BNDES refers to the participation of Furnas in the project.

h) Eólicas Cerro Chato I, II and III – SPEs Eólicas Cerro Chato I, II and III are established by Eletrosul (90%) and Wobben (10%), with installed capacity of 30MW each. The project has 80% financing payable in 10 years, with 2 years of grace period. Eletrobras’ guarantee represents 90% of the loan agreement.

i) Norte Brasil Transmissora de Energia – SPE, with interest of Eletronorte (24.5%) and Eletrosul (24.5%), aimed at implementing, operating and maintaining the transmission line LT Porto Velho/Araraquara, with 2,375 km of extension.

j) Manaus Transmissora de Energia – SPE, that has the participation of Eletronorte (30%) and Chesf (19.5%) as the objective of operating 4 substations and one transmission line of 586 km (LT Oriximiná/Itacoatiara/Cariri). The Company is the guarantor in two loan agreements in this project (BASA and BNDES).

k) Mangue Seco 2 – SPE with a 49% participation owned by Eletrobras and 51% participation owned by Petrobras for the construction and operation of three wind power plants in Guararé, in the state of Rio Grande do Norte. In this project, the guarantee is tendered by the Company, proportional to its participation in the long-term loan agreement with BNB.

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l) UHE Batalha – Corporate project of Furnas with the capacity of generating 52.5MW, which has entered into a loan agreement with BNDES. The Company acts as guarantor of the referred contract.

m) RS Energia – Guarantee to Eletrosul in the loan agreement with BNDES and onlending banks upon the purchase of equity interest from companies Schahin Engenharia S/A and Engevix Engenharia S/A in transmission companies. Eletrosul holds a 100% participation in RS.

n) IE Madeira – SPE Interligação Elétrica do Madeira, with equity interest of Furnas (24.5%) and Chesf (24.5%). In this project, there is a counter-guarantee tendered by Eletrobras in the Financial Guarantee Contracts, as collateral for the short-term loan with BNDES, limited to the equity interest of its subsidiaries. There is also a short-term loan with BNDES, in which the Company has the role of intervenient party, proportional to its subsidiaries.

o) UHE Belo Monte – SPE Norte Energia, with installed capacity of 11,233 MW, of Chesf (15%), Eletronorte (19,98%) and Eletrobras (15%), in addition to other partners. Guarantee provided by the Company on behalf of the SPE for the liabilities, with JMALUCELLI insurance company, within the scope of surety insurance contract. The Company is also intervening party in a short-term loan contract signed with BNDES.

p) Angra III – The Company is guarantor in the financing of Eletronuclear by BNDES, for the construction of the UTN Angra III corporate project.

NOTE 23 – DEBENTURES

On December 31, 2012, the breakdown of balance of outstanding debentures is as set forth below:


Interest Rate	Maturity			12/31/2012		12/31/2011

106.5% CDI		09/15/2012			—		210,984
IPCA + 6.5% per year		09/30/2012			—		279,387
IPCA + 6.5% per year		12/30/2012			—		248,866
IPCA + 6.5% per year		09/30/2013			314,390		279,410
106.5% CDI		02/28/2014			12,364		—
0.9875%		11/14/2017			22,325		—
IPCA + 6.5% per year		(	*)		307,728		—
15% per year		07/10/2031			69,320		—

					726,127		1,018,647

(*)	15 installments as of 2023

The amount of R$210,984 refers to the issuing of 420 debentures, Single Series, due on September 15, 2012, with 106,5% CDI interest rate, with a R$1,000 individual unit value, executed by SPE Interligação Elétrica do Madeira S.A, with 400 debentures issued on September 15, 2011 and the remaining 20 debentures issued on October 03, 2011. These debentures were redeemed in their totality with resources deriving from the contract of a long-term loan agreement with BNDES.

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NOTE 24 – COMPULSORY LOAN

The Compulsory Loan over the consumption of electricity, enacted by Law number 4,156/1962 with the objective of generating resources for the expansion of the Brazilian energy sector, was extinguished by Law number 7,181, of December 20, 1983, which established December 31, 1993 as the final deadline for collection.

In the first phase of such Compulsory Loan, terminated by the enactment of Decree-Law 1,512/1976, the collection of taxes included several classes of energy consumers, and taxpayers credits were represented by Bearer Bonds issued by the Company.

Subsequently, observing the dispositions of this Decree-Law, such Compulsory Loan was charged solely from industries with monthly energy consumption exceeding 2,000 kwh, and taxpayers’ credits were no longer represented by the bonds, but rather in book-entry form by the Company.

The remaining balance of the Compulsory Loan, after the 4 ^th conversion into shares, which happened on April 30, 2008, refererring to credits constituted from 1988 to 2004, is recorded in the current and non-current liabilities, maturing as of 2008, and accruing at an interest rate of 6% per year, plus monetary adjustment based on the IPCA-E variance, and corresponding, on December 31, 2012, to R$334,192 (December 31, 2011 – R$ 227,174), of which R$ 321,894 is non-current (December 31, 2011 – R$ 211,554).

I – Bearer Bonds Issued by the Company

The Bearer Bonds, issued as a result of the Compulsory Loan, are not marketable securities, are not negotiable in stock markets, are not quoted and are unenforceable. Therefore, the Company Management clarifies that Eletrobras does not have outstanding debentures.

The issuing of such bonds was a legal imposition and not a corporate decision by the Company. In the same manner, acceptance thereof by the bondholders was not the result of an act of will, but was a legal duty, by force of Law number 4,156/1962.

CVM, in a decision by its Collegiate body, published in the administrative proceeding CVM RJ 2005/7230, filed by the holders of such bonds, states that “the bonds issued by the Company as a result of Law number 4,156/1962 cannot be deemed as securities”.

It is also the understanding of the CMV that there is neither irregularity in the procedures adopted by the Company in its Financial Statements, in the matter of the above-mentioned bonds, nor in the disclosure of the existence of lawsuits.

The unenforceability of such Bearer Bonds was reinforced by decisions of the Supreme Court of Justice, which confirmed the understanding that such bonds are expired and cannot provide guarantee for tax foreclosures.

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Therefore, the Bearer Bonds issued during the first phase of Compulsory Loan, per decision of the CVM, cannot be considered as debentures. In addition, by force of section 4, paragraph 11 of Law number 4,156/1962 and in section 1 of Decree 20,910/1932, they are unenforceable – a condition which was confirmed in Informational Bulletin 344 of the Supreme Court of Justice ( Superior Tribunal de Justiça , STJ), where it is stated that such Bonds cannot be used as guarantees for tax foreclosures, since they have no net value and are not debentures.

In this manner, the liability relating to the Compulsory Loan refers to residual credits, constituted between 1988 and 1994, from industrial consumers with consumption exceeding 2,000 kW/h, regarding the second phase of the Compulsory Loan, as well as unclaimed interest relating to such credits, as set forth below:


	CONSOLIDATED
	12/31/2012		12/31/2011
CURRENT
Interest Payable		12,298		15,620

		12,298		15,620


NON-CURRENT
Collected credits		321,894		211,554

TOTAL		321,894		211,554

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NOTE 25 – FUEL CONSUMPTION ACCOUNT ( CONTA DE CONSUMO DE COMBUSTÍVEL , CCC)

The Fuel Consumption Account (CCC), created by Decree number 73,102, dated November 7, 1973, has the purpose of grouping the allocation of costs related to the consumption of fuel for the generation of thermoelectric energy, particularly in the Northern Region of the country.

Pursuant to Law No. 8,631 of March 04, 1993, the Company manages the amounts relating to tax payments made by the electricity public utility concessionaires, for credit in the Fuel Consumption Account – CCC, corresponding to annual quotas allocated to expenditures on fuel for electricity generation. The amounts recorded in the current assets against current liabilities correspond to the availability of resources, maintained in restricted cash, and to the quotas not paid by the concessionaires.

NOTE 26 – SOCIAL CONTRIBUTION AND TAXES – LIABILITIES

a)	Taxes payable :


	12/31/2012		12/31/2011
PASEP e COFINS		338,200		219,257
ICMS		230,575		124,662
PAES / REFIS		589,090		833,469
INSS/FGTS		129,977		79,105
Other		233,740		332,242

Total		1,521,581		1,588,735


Current Liabilities		886,312		815,236
Non-current liabilities		635,269		773,500

b)	Tax and social security contribution


	12/31/2012		12/31/2011
Current Liabities
Current income tax		277,459		95,376
Current Social Contribution		93,245		121,909
		370,704		217,285

Non-current liabilities
Deferred income tax and social contribution		779,615		1,129,022

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c)	Conciliation of expenses with taxes and social security contributions


	12/31/2012						12/31/2011						12/31/2010
	IRPJ			CSLL			IRPJ			CSLL			IRPJ			CSLL
Income (loss) before IRPJ and CSLL		(7,316,126	)		(7,316,126	)		4,538,822			4,538,822			4,047,250			4,047,250
Losses on subsidiaries that do not record deferred tax assets		4,412,788			4,412,788			891,499			891,499			1,411,911			1,411,911
Adjusted basis		(2,903,338	)		(2,903,338	)		5,430,321			5,430,321			5,459,161			5,459,161
Total of IRPJ and CSLL calculated as the rates of 25% and 9%, respectively		(725,835	)		(261,300	)		1,357,580			488,729			1,364,790			491,324

Effects of additions and (exclusions)
Dividend revenues		—			—			(172,341	)		(62,043	)		(150,217	)		(54,078	)
Equity accounting		(117,146	)		(42,173	)		(120,696	)		(43,450	)		(167,439	)		(60,277	)
Provision of JCP – Interest on Capital		(108,490	)		(39,057	)		(485,361	)		(174,729	)		(92,689	)		(33,368	)
Provision for reduction to market value		—			—			67,964			24,467			165,410			59,548
Other additions (exclusions)		(255,511	)		(34,284	)		(172,152	)		68,835			(45,248	)		16,510



Income tax and social contribution		(244,688	)		(145,786	)		474,994			301,809			1,074,606			419,659

d)	Tax Incentive – SUDENE

Provisional Measure number 2,199-14, dated August 24, 2001, amended by Law number 11,196, of November 21, 2005, allows companies that are located in the Northeast Region and have projects in the infrastructure sector considered a priority for regional development by act of the Executive branch, to reduce the amount of income tax for the purpose of investment in projects of installation, expansion, modernization or diversification.

In concession contracts number 006/2004 for generation and number 061/2001 for transmission, the right to incentive reduction of 75% of taxes includes the years 2008 to 2017. For transmission contracts number 008/2005 and 007/2005 the right to incentive reduction was granted for the period of 2011 to 2020. For contracts containing tax incentives, the 25% income tax rate is reduced to 6,25%.

In the year 2012, CHESF did not use the 75% reduction in income tax incentive, due to not recording a tax profit. In 2011, the tax incentive mentioned above totalled R$ 317,812, recorded in the income statement for the fiscal year as a reduction of income tax, in accordance with IAS 20 – Government Grants.

e)	Special Installment Program – PAES

Subsidiaries Furnas, Eletrosul, Eletronorte, Amazonas Energia and Distribuição Alagoas chose the refinancing of tax debt. The term of the financing is limited to 180 months and the outstanding balance is corrected by the Long Term Interest Rate – TJLP and SELIC.

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NOTE 27 – REGULATORY FEES


	12/31/2012		12/31/2011
CURRENT LIABILITIES
RGR Quota		124,763		181,868
CCC Quota		32,494		50,081
CDE Quota		10,498		13,168
PROINFA Quota		23,012		60,643
Compensation for the Use of Water Resources		724,447		584,816
Electricity Services Inspection Fee		16,957		11,116
Research and Development ( Pesquisa e Desenvolvimento , P&D)		353,753		274,722
Energy Efficiency Program ( Programa de Eficiência Energética , PEE)		18,369		32,937
Others		3,858		9,417

		1,308,152		1,218,768

NON-CURRENT LIABILITIES
RGR Quota		32,177		15,010
Research and Development - P&D		369,026		340,132
Energy Efficiency Program - PEE		27,298		30,582

		428,501		385,724



TOTAL		1,736,653		1,604,492

a) Global Reversion Reserve ( Reserva global de Reversão , RGR)

The contribution to establish the RGR was the responsibility of the Electricity Public Utility Companies, based on a quota called Reversal and Expropriation of Electricity Services, of up to 2.5% of the value of investments of concessionaires and licensees, limited to 3% of the annual revenue. The value of the quota was calculated as a service cost component for the concessionaires.

Concessionaires would pay their annual quotas to the Fund, not controlled by the Company, into an escrow bank account managed by the Company, which operates the account within the limits set forth in Law number 5,655/1971 and all amendments thereto. This is not reflected in the Company’s Financial Statements, since it is an entity autonomous to the Company.

With the amendment of Law 12,783/2013, as of January 1, 2013, the following are no longer obligated to collect the annual RGR quotas:

I – concessionaires and licensees of electricity distribution public utility;

II – concessionaires of electricity transmission public utility contracted as of September 12, 2012; and

III – concessionaires of electricity transmission and generation public utility prorogated or contracted under the terms of Law number 12,783/2013.

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b) Fuel Consumption Account – CCC

Sectoral fund amended by Law number 12,111/2009, created in the 1970s, has the purpose of reimbursing part of the total generation cost to meet the electricity public utility in the Isolated Systems, maintaining the coverage for subrogated projects.

This total cost of generation of electricity to meet the Isolated Systems takes into account costs related to the price of energy and the power contracted by the distribution agents as well as the costs relating to the distribution agents’ own generation of power, including the need to hire machines, import energy and their associated potential transmission expenses. It also takes into account the charges and taxes not recovered, investments made in generation, the price of electricity services provided in remote regions, including the installation, operation and maintenance of decentralized generation systems with associated networks, and, in addition, the contracting of capacity reserve to ensure the supply of electricity.

Of the verified cost, the CCC will reimburse the difference relating to the average cost of power and energy traded in the Environment of Regulated Contracting ( Ambiente de Contratação Regulada , ACR) of the National Interconnected System ( Sistema Interligado Nacional , SIN).

The resources of the CCC derive from collecting quotas by distribution companies, licensees and transmission companies in the entire country, in proportion and at amounts determined by ANEEL. As of the enactment of Law No. 12.111/2009, there is no longer an estimated date for the termination of activities by this sectoral fund, and its management does not affect the income of the Company.

c) Energy Development Account ( Conta de Desenvolvimento Energético , CDE)

The Energy Development Account (CDE) is destined to promote the energy development of Brazilian state electricity services universalization projects, a subsidy program for low-income consumers and expansion of a natural gas network to serve states without a pipe network.

Created on April 26, 2002, the CDE has a 25-year duration and is managed by the Company, in compliance with a schedule defined by the Ministry of Mines and Energy, and does not affect the Company’s income.

The CDE is also used to ensure competitiveness of the energy produced from alternative sources (wind, small hydroelectric power plants and biomass) and the domestic mineral coal.

As of the 2013 fiscal year, as one of the instruments to make feasible the reduction in energy bills, this contribution was reduced to 25% of the current rate.

d) PROINFA

Federal Government Program for the development of projects to diversify the Brazilian energy grid and incentivize the development of alternative sources of electricity, enacted by Law number 10,438 of April, 2002. It is managed by the Company and seeks regional solutions for the use of renewable energy sources.

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PROIFA predicts the operation of 144 plants, totaling 3,299.40 MW of installed capacity. The program’s power plants are responsible for the generation of approximately 12,000 GWh/year – a quantity capable of supplying approximately 6,9 million households and equivalent to 3.2% of the country’s total annual consumption. The contracted 3,299.40 MW are divided into 1,191.24 MW from 63 Small Water Plants ( Pequenas Centrais Hidrelétricas , PCHs), 1,422,92 MW from 54 wind power plants, and 685.24 MW from 27 biomass-based plants. This energy has guaranteed contract for 20 years. The operations within the scope of PROINFA do not affect the Company’s income (being the Company responsible for the payment).

e) Financial compensation through the utilization of water resources

The Financial Compensation through the Utilization of Water Resources for the purpose of generating electricity was enacted by the 1988 Federal Constitution. It is a percentage that the hydroelectric power concessionaires pay for the utilization of water resources. ANEEL manages the collection and distribution of resources among beneficiaries: States, Municipalities and agencies directly managed by the Federal Government.

As per Law 8,001, of March 13, 1990, with amendments issued by Laws number 9,433/1997, 9,984/2000 and 9,993/2000, 45% of funds are allocated to the Municipalities encompassed by UHEs reservoirs, while the States are entitled to another 45%. The Federal Government receives 10% of the total. Generation companies characterized as Small Hydroelectric Power Plants (PCHs), are exempted from paying financial compensation.

The concessionaires pay 6.75% of the value of the energy produced for the purpose of Financial Compensation.

f) Electricity Services Inspection Fee

The Electricity Services Inspection Fee was created by Law number 9,427 of December 26, 1996, and regulated by Decree 2,410 of November 28, 1997, with the purpose of creating revenue from the National Electricity Regulatory Agency to cover its administrative and operational expenses.

The TFSEE is equivalent to 0.5% of the economic value added by the concessionaire, licensee or authorized company, including the case of independent production and self-production, in the exploration of electricity services and facilities.

The TFSEE has been payable from January 1, 1997, being annually established by ANEEL and paid in twelve monthly quotas.

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NOTE 28 – SHAREHOLDERS REMUNERATION


	12/31/2012		12/31/2011
Current
Interest on capital		433,962		1,066,951
Unclaimed dividends		100,826		109,398
Dividends retained from previous fiscal years		3,416,545		3,147,364
		3,951,333		4,323,713

Non-current
Dividends retained from previous fiscal years		—		3,143,222

Total		3,951,333		7,466,935

I – Relating to the Fiscal Year

The Company’s Bylaws establish as minimum mandatory dividend, 25% of the net income, adjusted according to Brazilian Corporation law, observing the minimum compensation for preferred classes of shares A and B, of 8% and 6%, respectively of the face value related to these types and classes of shares, predicting the possibility of interest payment over own capital.

Grounded in doctrinal understanding on the subject, the Management believes that: (1) given the existence of retained earnings that exceeds the absorption of losses for the year, they should make the payment of dividends provided for in Article 8 of the Bylaws regarding preferred class “A” and “B” shares and (2) remaining booked profits after payment to the preferred shareholders, is also allowed to be paid to the common shares and, therefore, we propose the allocation of dividends to the holders of common shares. The management made a provision for the obligation associated with the dividends on the preferred shares, on December 31, 2012.

The Company calculated losses, proposing, therefore, only dividends attributed to preferred shares of classes A and B under the terms of Section 8 of its Bylaws.

In 2012, the Company attributed compensation to shareholders in the form of interest on capital – JCP in the amount of R$ 433,962 (R$ 433.962 in 2011), imputed in the dividends of the fiscal year, according to the statutory dispositions, of which the compensation per share is as follows:

Compensation per share – Expressed in reais


				12/31/2012		12/31/2011

Common shares	1,72% of capital	(2011 - 2.51	%)		0.39		0.58
Preferred class A shares	9.41% of capital	(2011 - 9.41	%)		2.17		2.17
Preferred class B shares	7.06% of capital	(2011 - 7.06	%)		1.63		1.63

Remuneration to shareholders of common shares will be held in the form of interest on capital in the amount of R$ 433,962 (R$ 632,989 in 2011), attributed to dividends for the year reflected in equity.

According to the current tax legislation, there is Income Tax Withholding (IRRF) over the amount of the compensation proposed to shareholders, for purpose of JCP.

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There is monetary restatement over the proposed compensation as of January 1, 2012 until the date of the effective commencement of the payment, a date which shall be decided by the Annual General meeting, which will examine the Financial Statements and the proposal for allocation of the net income for this fiscal year. There is withholding of income tax over a proportion referring to the monetary correction by the SELIC rate, according to current legislation.

Observing what was established during the 52nd Ordinary General Assembly, which took place on April 30, 2012, the payment of compensation to shareholders for the 2011 fiscal year, in the form of the JCP, commenced on May 18, 2012.

II – Withheld Dividends from Previous Fiscal Years

The Company’s Board of Directors opted, in January of 2012, to pay out the balance from the Special Reserve of Non-Distributed Dividends in four annual installments, as of and including the 2010 fiscal year.

Individuals and companies who are shareholders of the Company on January 29, 2010 are entitled to the above mentioned payments, with the June 2013 (last) installment remaining to be liquidated, in the amount of R$ 3,416,545 (R$ 6,290,586 on December 31, 2011).

Credits will be compensated by the variation of the SELIC Rate, up to the date of the effective payment of each installment, and income taxes are withheld from this compensation, according to current legislation.

III – Expired Dividends

The balance of stockholders’ compensation, set forth in the current liability, contains the installment of R$ 100,826 (R$ 109,398 on December 31, 2011), referent to unclaimed compensations from the 2009, 2010 and 2011 fiscal years. Compensation referent to the 2008 and earlier fiscal years is expired, according to the terms of the Company’s Bylaws.

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NOTE 29 – ACCOUNTS PAYABLE TO BRAZILIAN FEDERAL TREASURY


	CURRENT				NON-CURRENT
	12/31/2012		12/31/2011		12/31/2012		12/31/2011
Acquisition of CEEE-GT and CEEE-D shares		122,905		101,448		33,105		144,753
Other		8,142		7,602		3,967		10,923
		131,047		109,050		37,072		155,676

NOTE 30 – POST-EMPLOYMENT BENEFITS

Companies from the Eletrobras System sponsor pension plans for their employees, as well as post-employment life insurance and health care plans in certain cases. Such benefits are classified as defined benefits (BD) and of defined contribution (CD).

Due to the decentralized structure of the Eletrobras System, each segment sponsors their own employee benefit package. Overall, the Group offers benefits such as pension, health care and post-employment life insurance to its current and future retirees and their dependents, as set forth in the table below:


Types of post-employment benefits sponsored by the Eletrobras System
Company	Pension Plans			Other post- employment benefits
Company	Defined Benefit Plan	Settled Plan	Defined Contribution Plan	Life Insurance	Health Care
Eletrobras	X		X	X
Amazonas	X		X
Boa Vista	X		X		X
Ceal	X		X		X
Cepisa	X
Ceron			X
CGTEE	X
Chesf	X	X	X	X
Eletroacre			X
Eletronorte	X		X	X	X
Eletronuclear	X			X	X
Eletrosul	X		X		X
Furnas	X		X	X	X
Itaipu BR	X			X	X
Itaipu PY	X			X	X

The following tables set forth the reconciliation of the current value of defined benefit obligations, as well as the fair value of assets recorded in the balance sheet for pension benefits and all other remaining post-employment benefits. Consolidated income of the Eletrobras group are presented below. The most recent actuarial assessment of plan assets and the current value of the defined benefits obligation was performed on December 31, 2012.

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a) Conciliation of the liability of pension plans and other benefits


	2012			2011			2010
Pension defined benefit plans – Values recognized in the balance sheet and statement of results from the fiscal year
Current value of partially or entirely covered actuarial obligations		24,421,763			21,094,165			18,435,641
Fair value of plan assets (-)		(21,303,217	)		(22,091,512	)		(20,382,068	)

Compensation of quotas – DC Plan		—			283,863			362,950

Current value of obligations in excess over the fair amount of the assets		3,118,546			(713,485	)		(1,583,477	)
Maximum value of actuarial asset subject to year-end recognition		99,690			—			—
Actuarial debt contracted between sponsor and plan		564,766			815,598			1,172,135
Financial debt contracted between sponsor and plan		109,324			111,006			119,833

Value of liability/(asset) of post-employment benefits		3,347,094			1,838,409			1,656,415

Current service cost		194,513			235,694			313,682
Cost of interest over actuarial liabilities		1,735,611			1,788,036			1,436,169
Expected participant contributions (-)		(93,228	)		(317,876	)		(234,853	)
Expected asset return (-)		(1,930,427	)		(2,116,135	)		(1,494,994	)

Actuarial expense/(revenue) recognized in the fiscal year		(93,531	)		(410,281	)		20,004

Other post-employment benefits – Values recognized in the balance sheet and statement of results from the fiscal year	Consolidated
	2012			2011			2010
Current value of unfunded actuarial liabilities		1,400,029			869,525			741,116
Fair value of plan assets (-)		—			—			—

Current value of obligations in excess over the fair amount of the assets		1,400,029			869,525			741,116

Value of liability/(asset) of post-employment benefits		1,400,029			869,525			741,116

Current service cost		15,818			64,433			13,273
Cost of interest over actuarial liabilities		113,442			65,865			44,474

Actuarial expense/(income) recognized in the fiscal year		129,260			130,298			57,747

b) Disclosure of Pension Defined Benefits

Consolidated results of pension defined benefits – conciliation of current value and liabilities of defined benefit:


	2012			2011
Table b.1 – Pension defined benefits plan – Changes of current value of actuarial liabilities
Value of actuarial liabilities in the beginning of the year		21,094,165			18,435,641
Current service cost		194,513			235,694
Benefits paid during the year (-)		1,735,611			1,788,036
Purchase of quotas – CD Plan		(1,069,384	)		(1,025,614	)
Compensation of quotas – DC Plan		—			602,934
(Gain)/Loss over actuarial liabilities		2,466,859			1,057,474
Current value of actuarial liabilities at the end of the year		24,421,763			21,094,165

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Consolidated results of pension defined benefits – conciliation of the fair value of plan assets:


	2012			2011
Table b.2 - Pension defined benefits plan - Changes and composition of the fair value of assets
Fair value of assets in the beginning of the year		22,091,512			20,382,068
Benefits paid during the fiscal year (-)		(1,069,384	)		(1,025,614	)
Participant contribution paid during the fiscal year		142,750			303,565
Employer contribution paid during the fiscal year		250,222			360,790
Compensation of quotas – DC Plan		—			230,205
Expected asset return during the year		1,930,427			2,114,589
(Gain)/Loss over plan assets		(2,042,310	)		274,092

Fair value assets at the end of the year		21,303,217			22,091,512



Effective asset return during the year		4,301,417			1,842,043

Consolidated results of pension defined benefits – Amounts recognized in Other Comprehensive Results:


	2012		2011
Other accrued Comprehensive Results ( Outros Resultados Abrangentes , ORA)
Pension Plan		2,620,423		1,147,673

	2012		2011
Actuarial profit (loss) recognized in the fiscal year’s ORA
Pension Plan		1,472,750		702,021

c) Disclosure of Other Post-Employment Benefits

Consolidated results of other post-employment benefits – conciliation of the current value of the defined benefits liabilities:


	2012			2011
Table c.1 - Other post-employment benefits - Changes of current value of actuarial liabilities

Value of actuarial liabilities in the beginning of the year		869,525			741,116
Current service cost		15,818			64,433
Interest over actuarial liabilities		113,442			65,865
Benefits paid during the year (-)		(36,560	)		(58,226	)
(Gain)/Loss over actuarial liabilities		437,805			56,337

Current value of actuarial liabilities at the end of the year		1,400,029			869,525

Consolidated results of other post-employment benefits – Amounts recognized in Other Comprehensive results:


	2012		2011
Other Comprehensive Results (ORA) accumulated Pension Benefits Plan
		317,904		226,187

	2012		2011
Actuarial profit (loss) recognized in the fiscal year’s ORA
Pension Plan		91,717		56,337

d) Actuarial and Economic Hypothesis

The actuarial premises presented below were used in the determination of the liability of defined benefit and of the expenses of the fiscal year.

Economical Assumptions


	2012	2011
Actuarial annual interest rate (i)	3.20% to 3.72%	5.38% to 5.61%
Projected annual inflation rate	4.89% to 4.90%	4.50%
Actual annual return over asset rate (ii)	3.20% to 3.72%	10.1% to 10.4%

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	2012	2011
Actual annual salary increase rate	2.00%	2.00%
Actual annual medical costs evolution rate	3.50%	1.00%
Actual benefit evolution rate	0.00%	0.00%
Actual benefit evolution rate in the general regime	0.00%	0.00%
Capacity factor (benefits and salaries)	98%	100%

(i)	Long term interest rate and does not include inflation.

(ii)	Represents the maximum and minimum rates of return over plan assets and does not include inflation.

Actuarial Assumptions


	2012			2011
Turnover rate		0.00	%		0.00	%
Mortality rate of assets and liabilities		AT-2000			AT-2000
Mortality rate of disabled people		AT-83			AT-83
Disabled rate		Light			Light
% of married people		95	%		95	%
Age difference between men and women		4 years			4 years

The definition of this rate took into consideration the market practice for Federal Government bonds, according to the criteria recommended by national and international regulations, for terms similar to those of the flow of liabilities in the benefit program, in what is known as the Duration concept. In 2012, there was a reduction of approximately 2% in the discount rate used by the Company, resulting in a significant increase in the actuarial obligation.

The expected global return rate corresponds to the average calculated based on the expected return from the several asset categories of the plan. The assessment of the expected return performed by the Company Management is based on historical result trends and forecasts by market analysts for the assets, during the existence of such obligation. The current return over assets of the BD plan was R$ 4,301,417 (R$ 1,454,353 in 2011).

e) Employer contributions

On December 31, 2012, the contributions made by the Company, to establish mathematical provisions of benefits for the CD Plan, reached R$172,006 (31.12.2011 – R$ 159,514).

On December 31, 2012, the contributions made by the Company, to establish mathematical provisions of benefits for the BD Plan, reached R$ 250,222 (31.12.2011 – R$ 201,276).

The Parent Company expects to contribute with R$193,106 for the defined benefit plan during the next fiscal year.

f) Effects of one percent variation of trend rates for medical costs

The table below sets forth the effects on the current value of the obligation of defined benefit, and on current service cost and interest by occasion of one percent increase and decrease in trend rates for medical costs.

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Changes in trend rates of health costs on December 31, 2012 and 2011:


	12/31/2012			12/31/2011
Changes in health costs fees
Effect on the Cost of Service and Interest - 1% increase		17,136			6,875
Effect on the Cost of Service and Interest - 1% decrease		(14,374	)		7,503
Effect on the defined benefit liability - 1% increase		180,217			54,570
Effect on the defined benefit liability - 1% decrease		(165,112	)		62,351

g) Amounts included in the fair value of plan assets

g.1) On December 31, 2012


Asset Category in 2012
Immediate Available Amount	5,727
Pension Realizable	349,428
Investment in Government Bonds	4,552,990
Investment in Shares	702,866
Investment in Funds	14,514,568
Real Estate Investments	647,068
Loans and Financings	604,282
Other	83,368
Pension Enforceable (-)	(153,623	)
Investment Enforceable (-)	(3,457	)

Total Plan Assets	21,303,217

g.2) On December 31, 2011


Asset Category in 2011
Immediate Available Amount	9,543
Pension Realizable	1,437,941
(-) Contracted Debt	(1,027,366	)
Investments in Public Securities	5,124,937
Investments in Shares	1,772,567
Investments in Funds	12,474,124
Investments in Real Estate	805,028
Loans and Financings	822,764
Other	1,332,197
(-) Pension Payable	(551,532	)
(-) Investment Payable	(108,690	)

Total Plan Assets	22,096,521

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h) Adjustment history

The history of adjustments by experience of the defined benefit plan is set forth below:


	2012			2011			2010			2009
Current value of the defined obligation		24,421,764			21,094,165			15,276,726			14,199,435
Fair value of plan assets		(21,303,217	)		(22,091,512	)		(16,860,205	)		(14,723,536	)
Compensation of quotas		—			283,863			—			—

Deficit /(Surplus)		3,118,546			(713,485	)		(1,583,480	)		(524,101	)
Adjustments by experience in plan liabilities		1,581,878			154,842			523,539			251,036
Effect of the Discount Rate Alteration		4,557,140			902,632			—			—
Adjustments by experience in plan assets		2,370,990			(274,092	)		1,445,124			1,675,743

NOTE 31 – PROVISION FOR CONTINGENCIES

The Company and its subsidiaries are parties to a series of legal proceedings,, especially labor and civil claims, which are in various different stages of proceedings.

The Company’s Management adopted a policy to classify lawsuits filed against the Company according to the risk of loss, based on the opinion of its legal consultants, as follows:

For cases in which an unfavorable ruling against the Company is considered probable, provisions are established;

For cases in which an unfavorable ruling against the Company is considered, possible, no provisions are established and corresponding information is released in Explanatory Notes, when relevant; and

For cases in which an unfavorable ruling against the Company is considered unlikely, no provisions are established and only information which, at the discretion of the Management, is deemed relevant for the full understanding of the Financial Statements, shall be released in Explanatory Notes.

Therefore, to face occasional losses, provisions are made for contingencies, judged by the administration of the Company and its subsidiaries, supported by its legal consultants, in the amounts deemed sufficient to cover occasional losses in lawsuits.

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As of the date of this Financial Statements, the Company has the following contingencies for liabilities, by nature:


	12/31/2012		12/31/2011
CURRENT
Labor		67,836		67,544
Tax		78,840		76,477
Civil		121,263		96,169
		267,939		240,190

NON-CURRENT
Labor		1,071,442		786,040
Tax		557,693		297,721
Civil		3,659,259		3,568,415
		5,288,394		4,652,176



		5,556,333		4,892,366

These provisions have had, in this fiscal year, the following evolution:


Balance on 12/31/2011	4,892,366


Establishment of provisions	2,126,433
Reversal of provisions	(969,749	)
Payments	(492,717	)

Balance on 12/31/2012	5,556,333

A relevant part of the reversal that happened in 2012 is due to changes in the parameters for the determination of provisions, particularly the asset value of the lawsuit and the Company’s market value.

a) The main lawsuits filed against the Company and its subsidiaries considered of probable loss:

a.1) Civil lawsuits

Civil lawsuits have the objective of applying monetary correction criteria over Compulsory Loan book-entry credits, established as of 1978.

The claims have the objective of challenging the system of calculation of monetary correction determined by the legislation that governs the Compulsory Loan and applied by the Company. The credits have been fully settled by the Company by means of conversion into shares, using the current legislation as correction basis. Currently there are 2,296 lawsuits with this object in proceedings in several court levels. The Company maintains provisions for civil contingencies, in the parent company, in the amount of R$ 1.085.127 (December 31, 2011 – R$ 1,446,397) for such processes.

These lawsuits are not mistaken by the filings which intend to redeem the Bearer Bonds, currently unenforceable, issued as a result from the Compulsory Loan.

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2) The Company is the plaintiff in a lawsuit in which it requests the partial annulment of amendment (K Factor of the analytical price correction) to the contract of construction of Hydroelectric Power Plant Xingó, signed with the Consortium, formed by Companhia Brasileira de Projetos e Obras – CBPO, CONSTRAN S.A. – Construções e Comércio e Mendes Júnior Engenharia S.A., and the return of payments made, for K Factor, in the approximate amount of R$ 350 million, doubled, that is, R$700 million.

The court of the State of Pernambuco judged the claim filed by the Company as groundless and the reconvention presented by the defendants as grounded.

The Company and the Federal Government, the Company’s assistant in this lawsuit, filed special and extraordinary appeals to the Supreme Court of Justice (STJ). This higher court, in August of 2010, accepted one of these appeals by the Company, reducing the value of the lawsuit, which implicates in substantial reduction in fees eventually paid in the principal lawsuit. The same STJ denied the remaining appeals filed by the Company and the Federal Government, maintaining, therefore, the decision by the court of the State of Pernambuco, who ruled groundless the declaratory action filed by the Company and ruled grounded the reconvention presented by the defendants. The parties have not yet been notified of these decisions, and may still appeal against them. On December 31, 2012, the parties still waited for notification as to the decisions ruled by the STJ.

The Management, based on the opinion of its legal consultants and on calculations that took into consideration the suspension of the payment of installments related to K Factor and its respective monetary adjustments, maintains provisions, in the Non-Current Liability, which amount to, updated as of December 31, 2012,R$ 723,256 (December 31, 2011 – R$ 460,887), in order to face occasional losses resulting from this matter.

3) Claim for Indemnification for 14,400 acres of land in the Aldeia Farm, filed with the court circuit of Sento Sé (BA), by the Estate of Anderson Moura de Souza and his wife. The decision in first degree ruled the claim founded, ordering the Company to pay the amount of R$50,000, corresponding to the principal plus interest and monetary restatement. The Company appealed to the Court of the State of Bahia and the process has been transferred to the Federal Justice due to intervention of the Federal Government in the assistant capacity. As of December 31, 2012, there have been no relevant changes in the proceedings, a request to annul the proceedings and decision is still pending judgment. The Management, based on the opinion of its legal consultants, understands that there is a probable loss in this case and therefore has recorded in its non-current liabilities provisions of R$ 100,000 (December 31, 2011 – R$ 100,000).

4) Public Civil Action filed by the Public Prosecution Office of Pernambuco, claiming resettlement rights of rural workers affected by the construction of UHE Itaparica (UHE Luiz Gonzaga). The plaintiff states the agreement signed with the Federation of Rural Workers on December 06, 1986 is non-existing, due to lack of legitimacy, and requests the difference in temporary maintenance funding paid during that period, giving the process a corrected amount of approximately R$ 87,000. The claim is currently with the Supreme Court of Justice – STJ and it is concluded and sent to the reporting judge. The Management, based on the opinion of its legal consultants, understands that loss is probable in this case and therefore has recorded in its non-current liabilities a provision in the amount of R$ 87,000 (December 31, 2011 – R$ 87,000).

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5) Several Civil Class Actions claiming financial compensation for delays in payments to suppliers and expropriations of areas flooded by reservoirs of Hydroelectric Power Plants. Given that the likelihood of loss of this claim is considered probable, the Management, based on the opinion of its legal consultants, has recorded in its non-current liabilities a provision in the amount of R$608.320 (December 31, 2011 – R$ 703,988) for the processes.

6) The Finance Department of the State of Rondônia issued notices of deficiency refererring to discrepancies in the ICMS rate in the period from 2001 to 2002. The Management, based on the opinion of its legal consultants, understands the loss is probable in this case and therefore has in its non-current liabilities a provision in the amount of R$ 12.919 (December 31, 2011 – R$ 12,083).

a.2) Labor

1) Several cases filed, in which the claim for hazard pay, on the understanding that the total and not proportional percentage must be paid to all employees who perform roles subject to electricity risk. The Management, based on the opinion of its legal consultants, has recorded in its non-current liabilities a provision in the amount of R$ 231,054 (December 31, 2011 – R$ 227,567) for the proceedings in which the loss is considered probable.

2) Several legal labor lawsuits, the majority of which derive from lawsuits relating to hazard pay, the Bresser Plan, overtime pay, calculations of FGTS severance pay and alignment of wage curve. The amount estimated for probable loss is of R$ 312,953 (December 31, 2011 – R$ 177.329).

3) The Alagoas State Urban Industries Workers Union, in the role of procedural representative, filed a labor claim for the Company’s employees, seeking the payment of supposed salary discrepancies resulting from the implementation of the said “Bresser Plan” (Law number 2,335/87).

The claim was supported by the Illustrious Second Board of Conciliation and Judgment of Maceió-AL – a decision which has been confirmed by the Regional Labor Court of the 19 ^th District, and has been yield final.

However, at the time of the enforcement of the ruling, the understanding of the 2 ^nd Labor Court of Maceió was that there should be no limitation to the reference date of the category, which would be a disproportional burden on the enforcement.

Therefore, the risk of loss is considered probable as to the assessment of loss with limited to the reference date, since the judgment of the limitations of such base date for the category shall happen with the continuation of the execution.

According to OJ/TST (SDI i) Number 262, there is no offense to “the matter under judgment, the limitation of the base date for the category, during the enforcement procedure, for the sentencing for payment of salary discrepancies resulting from economic plans”.

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The payment of salary discrepancies was limited to the reference date through Pronouncement 322 of the High Labor Court (Tribunal Superior do Trabalho – TST), which sets forth that wage adjustments resulting from the so called “triggers” and URPs, legally predicted as advances, are due only up to the reference date of each category.

It important to highlight that among applicable legal remedies, appeals against the enforcement proceedings have been filed, which would allow the evaluation of the limitation of calculations to the reference date of the category, a procedure also adopted by the Federal Attorney’s Office.

In addition, the union has joined the proceedings in the capacity of assistant, which reinforces the Company’s defense in the quest to obtain the limitation of the reference date, as well as the decision dated March 15, 2011 by the Labor Court of 2 ^nd Instance of the 19 ^th District, proceedings number 251900.68.5.19.1989.0002, of the Water Supply and Sanitation Company of Alagoas ( Companhia de Abastecimento de Águas e Saneamento de Alagoas , CASAL), in which there was limitation of the reference date. The Company has recorded provisions for contingencies relating to this matter in the amount of R$ 3.583.

The lawsuit is in its first phase of enforcement proceedings, with official approval of the calculations by the first degree court in the amount of R$ 722.000. The calculations have been challenged by Ceal with the presentation of two thesis: one with the restricted to the date and the other contesting the amounts presented by the Union, without the limitation of the base date.

a.3) Tax

The main lawsuit filed refers to the notices of deficiency issued against the Company on May 3, 2001, relating to Finsocial, Cofins and Pasep, in deriving from exclusions in the relative bases of calculation, especially the transfer and transportation of energy from Itaipu, for a period of ten years. The corrected amount of the process is of R$ 246.204. The Management, based on the opinion of its legal consultants, understands that the loss is considered probable and therefore has recorded in its non-current liabilities a provision for this claim.

b) Lawsuits filed against the Company and its subsidiaries considered of possible loss

Furthermore, the Company has lawsuits for which the prognosis of loss are classified by the Management its legal consultants as possible. The amounts of such cases are set forth below, by nature:


	12/31/2012		12/31/2011
Labor		1,395,265		687,246
Tax		9,099,220		5,956,119
Civil		16,711,365		13,515,165
Total		27,205,849		20,158,530

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For all the proceedings described below, the Management of each company mentioned and of the Company, based on the opinion of its legal consultants, understand the loss is considered possible without having the need to record provisions.

b.1) Civil

1) The value of possible cases in the parent company is substantially comprised by those relating to the Compulsory Loan, of which claims are not contained in the judicial decision from August of 2009. The description of the nature of the Compulsory Loan is found in Note 24.

2) Indemnification lawsuit filed by the Consortium formed by the companies CBPO/CONSTRAN/Mendes Júnior, in which it is requested the company be sentenced to pay additional financial compensation, due to the delay in the payment of invoices of the Xingó Hydroelectric Plant contract. The courts have ruled in favor of the plaintiff and the Company has been ordered to pay the plaintiffs the amount of R$23,766, at prices of September, 2004 (R$ 51,568, according to the calculations of Chesf, as of March 31, 2010). The Company has appealed from the decision, to be judged in the Pernambuco Court of Justice, but due to intervention by the federal government, the proceedings have been forwarded to the Federal Justice, where they currently are.

3) Public Civil case filed against the Company by the Community Association of the Cabeço Village and Adjacencies, in the State of Sergipe, in the amount of R$ 100,000 with the object of obtaining financial compensation due to alleged environmental damages caused to fishermen by the construction of UHE Xingó.

4) Lawsuit filed by AES Sul Distribuidora Gaúcha de Energia, seeking the contabilization and liquidation of the amount of R$ 110,000 by Aneel for market transactions, related to profit verified due to non-option of relief (insurance) made in December of 2000. The Company has joined the process in the capacity of necessary liable coplaintiff and has contested the case.

5) Declaratory action with claim for indemnification by Carbomil Química S.A., seeking indemnification for the installation of an electricity transmission line in the area of the Lajedo do Mel mine, located in the municipalities of Jaguaruana and Quixeré, in the State of Ceará, and Baraúna, in the state of Rio Grande do Norte. The estimated amount for such claim is R$ 70,000.

c) Processes of unlikely risk, non-provisioned

Undergoing debt collection lawsuit filed by Construtora Mendes Júnior S.A., hired for the construction of Itaparica Hydroelectric Power Plant, for alleged financial losses resulting in the delay in payments of invoices by the Company. The action is considered by the Company’s management and supported by its legal consultants as an unlikely loss.

In this collection case, Construtora Mendes Júnior S.A. obtained judgment from the 4 ^th Civil Court, subsequently voided, which sentenced the Company to pay the amount which, including legal fees and monetary correction up to the month of August of 1996, calculated through criteria determined by the court, it would be of approximately R$7,000,000, and the amount has not been updated since then. The Federal

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Prosecution Office filed request to void the entire process and, requested the proceedings to be dismissed, including the merits. Construtora Mendes Junior S.A appealed to the Supreme Court of Justice – ARESP, and on December 31, 2012, in such instance, the Federal Prosecution Office issued an opinion challenging the appeals.

NOTE 32 – DECOMMISSION OBLIGATION

The Company recognizes liabilities for the decommissioning the thermonuclear power plants, which comprise the program of activities required by the Brazilian Commission of Nuclear Energy ( Comissão Nacional de Energia Nuclear , CNEN), to safely dismantle these nuclear facilities with minimum impact on the environment, at the end of their operating cycle.

Given the specific operation and maintenance characteristics of the thermonuclear power plants, whenever there are changes in the estimated cost for decommissioning, resulting from new studies due to technological advances, the decommissioning quotas must be altered, so as to adjust the liability balance to the new reality.

The liability balance, recorded at present value as of December 31, 2012 is of R$988,490 (December 31, 2011 – R$408,712).


Liability Balance at Present Value on 12/31/2010			375,968

Present Value Adjustment / Exchange Rate Variation in the Year			32,744
Liability Balance at Present Value on 12/31/2011			408,712

Constituted in the Period			517,997
Present Value Adjustment / Exchange Rate Variation in the Year			61,781

Liability Balance at Present Value on 12/31/2012			988,490

Change in discount rate

This year there was an accounting adjustment to the present value, due to a change in the rate from 5.49% per annum to 4.98% per annum on the Liabilities to the Decommissioning of the power plants Angra 1 and Angra 2. The value of R$ 39,344 was recorded as a complement to the Liabilities Noncurrent as a Fixed Asset.

Tailings of low and medium activity and spent nuclear fuel

In 2012, Eletronuclear calculated that the estimated costs for the long term management of the operational waste of low and medium activity level and used fuel elements used amounted to R$517,997, relating to the following activities:

1) For transportation and disposal of final operational waste of low and medium activity relating to the accumulated amount until 2020 to the National Radioactive Waste Repository for Low and Medium Activity Level ( Repositório Nacional de Rejeitos Radioativos de Baixo e Médio Nível de Atividade , RBMN), to be implemented by the CNEN, entity legally responsible for the final storage of such waste.

2) For initial storage of fuel elements used until the end of the 2070s, when Angra 3 is expected to reach the end of its operational cycleand, therefore, the end of CNAAA itself, the amounts spent for the implementation of the Radioactive Fuel Storage Facility (UFC) and the respective system for the transportation of fuel elements from power plants for such facility, which is currently under construction and should be commissioned by 2020.

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NOTE 33 – CONCESSIONS PAYABLE – USE OF PUBLIC ASSET

The Company has entered into costly concession contracts with the Federal Government for the use of public assets for the generation of electricity, substantially in projects through Special Purpose Entities ( Sociedades de Propósito Específico , SPEs). The characteristics of the business and contracts demonstrate the conditions and intentions of the parties to execute them in full.

Seeking to adequately reflect, in the balance sheet, the costly concession granted and the respective obligations unto the Federal Government, the hydroelectric power plants concessions have been recorded in intangible assets against liabilities

The values set forth in concession contracts are at future prices and, therefore, the Company adjusted these liabilities to present value.

The update of liability due to the discount rate and monetary variation has been capitalized in the assets during the construction of the power plants and, as of the date the operation commenced, is directly recognized in the results.

The Company adopts, as an accounting policy, the recognition of the liability on the date the environmental license for installation (LI) is granted.

UBP payments are made in monthly installments as of the commencement of commercial operation until the end of the concession term, and are composed as set forth below:


	Current
	12/31/2012		12/31/2011
Foz do Chapecó		20,852		19,498
Peixe Angical		7,178		6,627
Retiro Baixo		131		123
Serra do Facão		4,046		3,856
Santo Antonio		6,054		5,129
Passo São João		285		—
São Domingos		731		—
Mauá		854		—

Total		40,131		35,233

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	Non current
	12/31/2012		12/31/2011
Jirau		44,872		39,776
Belo Monte		76,880		72,593
Passo São João		4,122		4,069
Mauá		12,547		12,357
São Domingos		9,838		4,774
Teles Pires		39,848		34,928
Batalha e Simplicio		44,673		42,230
Foz do Chapecó		245,930		236,560
Peixe Angical		81,201		77,029
Retiro Baixo		3,631		3,563
Serra do Facão		660,937		635,722
Santo Antonio		74,037		70,825
Balbina		279,391		300,106

Total		1,577,908		1,534,532


		Original Face Value				Updated Amounts
UHE	years	Annual Payment		Total Payment		Annual Payment		Total Payment

Passo São João	29		200		5,944		285		8,170
Mauá	30		618		18,855		854		25,264
São Domingos	25		260		6,717		730		18,250
Jirau	30		3,150		96,840		4,036		124,134
Teles Pires	32		6,866		235,248		7,557		258,947
Batalha	35		309		8,725		431		8,321
Simplício	35		1,187		34,036		1,657		35,923
Foz do Chapecó	35		19,261		504,000		42,128		662,946
Peixe Angical	35		6,800		197,200		17,037		220,947
Retiro Baixo	35		238		6,902		267		7,743
Serra do Facão	35		40,618		1,073,000		98,136		1,335,935
Santo Antônio	35		12,132		379,267		15,384		481,267

			91,639		2,566,734		188,502		3,187,847

NOTE 34 – ADVANCES FOR FUTURE CAPITAL INCREASE


	12/31/2012		12/31/2011
Acquisition of equity interest in CEEE / CGTEE		144,574		133,270
Banabuí transmission line - Fortaleza		2,441		2,250
UHE Xingó		6,857		6,321
Transmission line in the State of Bahia		1,073		989
Federal Fund for Electricity - Law number 5073/66		6,363		5,865

Total		161,308		148,695

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NOTE 35 – COSTLY CONTRACTS


	12/31/2012		12/31/2011
Transmission
Contract number 061/2001		84,139		—
Contract number 062/2001		1,407,057		—
Generation
Itaparica		1,018,534		—
Jirau		1,607,869		—
Camaçari		357,043		—
Termonorte II		131,200		96,204
Funil		83,158		—
Mauá-Klabin		48,576		—
Complexo Paulo Afonso		34,107		—
Coaracy Nunes		21,553		—
São Domingos		13,930		—
Other		98,358		—

TOTAL		4,905,524		96,204

The amount provisioned for costly contracts recognized in 2012, R$3,082,395 derive from extended concession contracts according to Law number 12,783/13, due to the fact that the determined rate is not balanced with current costs. Therefore, the liability of such agreement for each contract has been recognized and measured as provision, and may be reverted due to adjustments in the structure of the costs. Itaparica Reallocation Program

Due to the construction of the Hydroelectric Power Plant of Itaparica and the formation of the Itaparica reservoir, 10,500 families were moved, of which 6,100 were small farming families. Among these were 200 indigenous families from the Tuxá tribe, which resulted in the creation of the Itaparica Reallocation Program, that has the objective of relocating the families moved from the area flooded by the power plant’s reservoir, currently Luiz Gonzaga, located between the States of Pernambuco and Bahia.

In an extraordinary meeting on January 30, 2013, the Federal Court of Auditors ( Tribunal de Contas da União , TCU) issued Ruling number 101/2013-TCU-Plenary, in which it was determined that the Civil House, the entity responsible for the coordination and integration of Government actions with the Ministries of Mining and Energy and National Integration, together with Chesf and Codevasf, supported by section 43, paragraph I of Law number 8,443/1992, combined with section 250, paragraph II of the TCU’s Internal Regiment must, collectively, within a period of 180 (one hundred and eighty) days, elaborate and submit to the Court a plan for the execution of the Itaparica Reallocation Program, including activities, deadlines and responsible individuals, focused on the implementation of necessary measures of immediate or progressive transference of the public assets in the irrigated public areas in Itaparica to Codevasf and the management of such areas for those who have been reallocated, including the implementation of necessary measures for the regularization of proceedings filed with the Municipal Government of Santa Maria da Boa Vista, Tacaratu and Belém do São

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Francisco, in Pernambuco State, and of Curaçá, Rodelas and Glória, in Bahia State, so that such municipalities may assume these public utilities in their authority.

Therefore, the provision for the costly contract related to UHE Itaparica may be reviewed, by occasion of the implementation of this relocation plan.

NOTE 36 – LONG-TERM OPERATING COMMITMENTS

The Company’s long-term commitments, related, mainly, to purchase agreements for electricity and fuel are as follows:

1. Purchase of Electricity


Companies	2014		2015		2016		After 2016

Amazonas		2,700		2,836		—		—
Chesf		433,277		364,345		307,597		3,212,902
Distribuidora Alagoas		155,486		173,233		—		—
Distribuidora Piauí		290,945		294,100		—		—
Distribuidora Rondônia		724,581		382,350		—		—
Distribuidora Acre		63,471		136,955		—		—
Eletronorte		68,720		180,238		207,385		220,827
Eletrosul		8,279		8,279		8,279		8,278
Furnas		120,875		33,220		33,220		99,660

Total		1,868,334		1,575,555		556,481		3,541,667

2. Nuclear Fuel (Eletronuclear)


Companies	2013		2014/2015		2015 Onward

Eletronuclear		370,000		571,279		6,403,772

Contracts signed with Indústrias Nucleares Brasileiras – INB for acquisition of Nuclear Fuel for the production of electricity, destined to reload UTN Angra I and UTN Angra II thermonuclear power plants.

3. Purchase of Energy from Independent Producers – Proinfa

The Company supports the development of projects for the diversification of the Brazilian energy grid, through the program of incentive to alternative sources of electricity, enacted by Law number 10,438 from April of 2002. This aims to provide local solutions for the use of renewable energy and encourage the growth of the domestic industry.

Proinfa predicts the operation of 144 power plants, totalizing 3,299.40 MW of installed capacity. The program’s power plants will be responsible for generating approximately 12,000GWh/year, equivalent to 3.2% of the total annual consumption in the country. The contracted 3,299.40 MW are divided in 1,191.24 MV from 63 Small Hydroelectric Power Plants (PCH’s), 1,422.92 MW from 54 wind power plants and 685.24 MW from 27 biomass based power plants. In 2006, the Company agreed to purchase electricity

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produced by PROINFA for a period of 20 years and transfer such electricity to the transmission and distribution concessionaires, who, in turn, transfer the electricity to free consumers and self-producers, excluding lower income consumers, in the proportion of their consumption. The transmission and distribution concessionaires pays the Company the total annual cost of electricity supplied to its consumers, free consumers, and self-producers connected to their facilities, in twelve monthly installments, each one in advance for the month in which the energy should be consumed.

4. Energy trade


Companies	2014		2015		2016		After 2016

Chesf		2,014,587		1,255,379		485,051		2,544,962
Eletronorte		5,485,002		4,251,382		2,926,102		14,632,250
Eletrosul		5,853,610		8,049,723		8,278,569		16,557,138
Furnas		1,543,770		1,455,666		1,443,730		3,409,480
Itaipu		3,362,592		3,370,031		3,396,813		20,215,722

Total		18,259,560		18,382,181		16,530,264		57,359,551

Contracts entered into by the above-listed companies and other companies of the electricity sector for the supply/sale of electricity. In case the Company does not have sufficient quantities of electricity for a given period, it can resort to the purchase of electricity from the Electricity Trading Chamber (CCEE) to honor the energy supply agreement. However, in such case, the company is susceptible to period value of the Difference Liquidation Price (PLD), which may be higher than the amounts set forth in the contracts above, subjecting the Company to financial losses in such operations.

5. Social and environmental commitments


Companies	2013		2014/2015		After 2015

Eletronuclear		20,598		11,554		127,085

A) Angra III

Agreements signed with the Municipalities of Angra dos Reis, Rio Claro and Paraty, in which ELETRONUCLEAR commits to enter into specific social and environmental contracts.

B) CGTEE – Presidente Médici Thermoelectric Power Plant

On April 13, 2011, the Conduct Adjustment Agreement ( Termo de Ajustamento de Conduta , TAC) was signed by CGTEE, IBAMA, Eletrobras, Ministry of Mines and Energy, Ministry of Environment and the Federal Government, through the Federal Attorney’s Office, for the environmental adequation of Phases A and B of the Presidente Médici Power Plant, located in Candiota – RS. The TAC sets forth several obligations for the CGTEE up to August 31, 2014 and counts with an estimated investment by the company in the amount of R$241.835. After termination of the TAC, IBAMA is expected to renew the operational permit for the Presidente Médici Thermoelectric Power Plant.

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CGTEE has assumed several commitments, such as: international open bidding process for the implementation of the SO2 and Particulate Matter Abatement System in Phase B, Restoration of 1000 acres of riparian forests and/or degraded areas, located in the watershed areas of the Jaguarão and Arroio Candiota rivers, as well as reforestation of the permanent preservation area in the Barragem’s storage basin.

6. Purchase of equipment


Companies	2013		2014/2015		2015 Onward

Eletronuclear		197,746		245,158		86,890

Contracts signed with several suppliers for acquisition of equipment to replace fixed assets in Angra I and Angra II power plants, necessary for the operational maintenance of such assets.

NOTE 37 – SHAREHOLDERS’ EQUITY

I – Capital Stock

The Company’s capital stock on December 31, 2012 was R$31,305,331 (December 31, 2011 – R$31,305,331) and its shares have no par value. Preferred shares do not have the right to vote and cannot be converted into common shares, however, they have priority in the reimbursement of capital and distribution of dividends at the annual rates of 8% for class “A” shares (subscribed until June 23, 1969) and 6% for class “B” shares (subscribed as of June 24, 1969), calculated over capital corresponding to each share class.

The capital stock is represented by 1,352,634.100 book-entry shares and is distributed, by main shareholders and by classes of share, on December 31, 2012, as set forth in the table below:


	COMMON				PREFERRED						TOTAL CAPITAL
SHAREHOLDER	QUANTITY		%		CLASS A		CLASS B		%		QUANTITY		%

Federal Government		591,968,382		54.46		—		2,252		—		591,970,634		43.79
BNDESPAR		141,757,951		13.04		—		18,691,102		7.04		160,449,053		11.86
BNDES		76,338,832		7.02		—		18,262,671		6.88		94,601,503		6.99
FND		45,621,589		4.20		—		—		—		45,621,589		3.37
FGHAB		1,000,000		0.09		—		—		—		1,000,000		0.07
FGI		—		—		—		8,750,000		3.30		8,750,000		0.65
FGO		—		—		—		468,600		0.18		468,600		0.03
Others		230,363,543		21.19		146,920		219,262,258		82.60		449,772,721		33.25
		1,087,050,297		100.00		146,920		265,436,883		100.00		1,352,634,100		100.00

From of the total of 393,479,350 shares (already deducted the 526 common shares held by Company Directors and Members of the Board) held by non-controlling shareholders, 248,613,434 shares, that is, 63.18% are owned by non-resident investors, of which 152,860,563 are common shares, 28 are Class A Preferred shares and 95,752,843 are Class B preferred shares.

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The shareholders residing abroad hold: 67,910,925 common shares and 25,986,141 Class B preferred shares, held under custody, backing the American Depository Receipts Program – ADRs.

II – Capital Reserves


	12/31/2012		12/31/2011
Compensation for insufficient remuneration - CRC		18,961,102		18,961,102
Goodwill on issue of shares		3,384,310		3,384,310
Special - Decree-law 54936/1964		387,419		387,419
Monetary adjustment to the 1978 opening balance sheet		309,655		309,655
Monetary adjustment of the Compulsory Loan - 1987		2,708,432		2,708,432
Donations and subsidies - FINOR, FINAM and other		297,424		297,424
		26,048,342		26,048,342

III – Revenue Reserves

The Company’s Bylaw provides for the allocation of 50% of net income for the year to create an Investment Reserve and 1% for the Studies and Projects Reserve, limited to 75% and 2% of the capital stock.


	12/31/2012		12/31/2011
Legal (art. 193 - Law 6.404/1976)		2,233,017		2,233,016
Bylaw (art. 194 - Law 6.404/1976)		9,037,359		16,862,806

		11,270,376		19,095,822

NOTE 38 – EARNINGS PER SHARE

(a) Basic

The basic earnings per share are calculated by dividing the net income attributable to the Company Shareholders, by the weighted average quantity of common shares issued during the fiscal year, excluding common shares acquired by the Company and held as treasury shares.


12/31/12
Numerator	Common			Preferred A			Preferred B			Total
Net income attributable to each class of shares		(5,528,270	)		(748	)		(1,349,899	)		(6,878,916	)


		(5,528,270	)		(748	)		(1,349,899	)		(6,878,916	)

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Denominator	Common			Preferred A			Preferred B			Total
Weighted average amount of shares in thousand		1,087,050			147			265,437			1,352,634
% of shares in relation to the total		80.37	%		0.01	%		19.62	%		100.00	%

Basic earnings per share (R$)		(5.09	)		(5.09	)		(5.09	)

12/31/11
Numerator	Common			Preferred A			Preferred B			Total
Net income attributable to each class of shares		2,831,333			383			691,358			3,523,074
Preferred dividends					116			209,375			209,491

		2,831,333			383			691,358			3,523,074

Denominator	Common			Preferred A			Preferred B			Total
Weighted average amount of shares in thousand		1,087,050			147			265,437			1,352,634
% of shares in relation to the total		80	%		0	%		20	%		100	%
Basic earnings per share (R$)		2.60			2.60			2.60

12/31/2010
Numerator	Common			Preferred A			Preferred B			Total
Net income attributable to each class of shares		1,544,746			251			387,775			1,932,771
Preferred dividends					272			314,87			315,142


		1,544,746			522			702,645			2,247,913



Denominator	Common			Preferred A			Preferred B			Total
Weighted average quantity of shares		905,024			147			227,187			1,134,357


		905,024			147			227,187			1,134,357
% of shares in relation to the total		80	%		0.01	%		20	%		100	%

Diluted earnings per share (R$)		1.71			3.55			3.09			1.98

(b) Diluted

Diluted earnings per share are calculated by adjusting the weighted average quantity of outstanding common shares, to presume conversion of all potentially diluted common shares. The Company has only one category of potentially diluted common shares: convertible debt (compulsory loan). It is assumed that the convertible debt was converted into common shares and that net income is adjusted to eliminate financial expense net of tax effect.

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12/31/2011
Numerator	Common			Preferred A			Preferred B			Total

Net income attributable to each class		2,831,333			383			691,358			3,523,074
Preferred dividends		—			116			209,375			209,491


		2,836,333			499			900,733			3,732,565

Denominator	Common			Preferencial A			Preferred B			Total
Weighted average amount of shares		1,087,050			147			265,437			1,352,487
% of shares in relation to the total		80	%		0.01	%		20	%		100.00	%

Diluted earnings per share (R$)		2.60			2.60			2.60			2.78

12/31/2010
Numerator	Common			Preferred A			Preferred B			Total

Net income attributable to each class of shares		1,544,625			251			391,308			1,936,183
Preferred dividends					272			314.87			315,142


		1,544,625			522			706,178			2,251,325

Denominator	Common			Preferred A			Preferred B			Total
Weighted average amount of shares		905,024			147			229,274			1,134,445
% of shares in relation to the total		80	%		0	%		20	%		100	%

Basic earnings per share (R$)		1.71			3.55			3.08			1.98

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NOTE 39 – NET OPERATING REVENUE


	12/31/2012			12/31/2011			12/31/2010
Generation

Supply		21,547,527			18,426,812			18,110,039
Itaipu Transfer		414,178			836,488			215,989

		21,961,705			19,263,300			18,326,028

Transmission

Rate of return adjustments - Transmission		3,148,842			2,774,166			2,525,754
Operation and maintenance revenue		2,562,155			1,978,618			1,466,929
Construction revenue		3,681,603			3,603,492			2,322,937

		9,392,600			8,356,276			6,315,620

Distribution

Supply		6,142,586			4,712,716			4,62,529
Construction revenue		1,345,519			729,064			810,475

		7,488,105			5,441,780			5,173,004



Other revenue		696,451			865,877			1,299,817

		39,538,861			33,927,233			31,114,469

(-) Operating Revenue Deductions

(-) Sector charges		(1,797,922	)		(1,712,669	)		(1,514,504	)
(-) ICMS		(1,361,535	)		(1,086,209	)		(1,040,163	)
(-) PASEP and COFINS		(2,290,415	)		(1,901,838	)		(1,711,238	)
(-) Other deductions		(24,511	)		(15,031	)		(16,479	)

		(5,474,383	)		(4,715,747	)		(4,282,384	)


Net operational revenue		34,064,477			29,211,486			26,832,085

NOTE 40 – INCOME FROM EQUITY INVESTMENTS


	12/31/2012		12/31/2011			12/31/2010

Equity accounting		271,550		290,693			467,647
Return over investment - ITAIPU		43,812		36,637			38,735
Interest on own capital		23,520		19,243			16,038
Dividends		112,018		139,728			101,847
Return over investment in associates		17,684		(3,516	)		45,488

		468,584		482,785			669,755

NOTE 41 – PERSONNEL, SUPPLIES AND SERVICES


	12/31/2012		12/31/2011		12/31/2010
Personnel		5,716,768		5,233,826		4,845,246
Supplies		321,484		303,347		399,299
Services		2,401,050		2,133,543		2,126,168

		8,439,302		7,670,716		7,370,713

NOTE 42 – ENERGY PURCHASED FOR RESALE AND USE OF ELECTRIC GRID


	12/31/2012		12/31/2011		12/31/3010
Supply		1,935,330		1,281,766		1,736,667
Use of network		1,763,953		1,420,934		1,353,839
CCEE Trading (Electricity Trading Chamber)		317,096		128,979		706,852
Proinfa		2,302,020		1,955,328		1,844,835
Other		19,227		20,216		26,730

		6,337,626		4,807,223		5,668,923

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NOTE 43 – OPERATING PROVISIONS


	12/31/2012			12/31/2011			12/31/2010
Guarantees		28,885			70,596			(653	)
Contingencies		564,909			691,042			287,821
PCLD - Consumers and Resellers		862,226			511,356			564,006
PCLD - Financings and Loans		(137,495	)		297,131			36,245
Costly contracts		1,607,869			96,204			421,629
Investment losses		187,741			9,183			—
Voluntary resignation program		(50,968	)		498,114			—
Actuarial liability		446,308			(410,281	)		20,004
Impairment		1,058,940			434,538			379,048
Market Value Adjustment		(144,661	)		5,956			—
Other		903,237			644,910			789,162

		5,326,991			2,848,749			2,497,262

NOTE 44 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

1 – Capital Risk Management

The Company’s objectives in the management of its capital are to safeguard its capability for continually offering returns to the shareholders and benefits to other stakeholders, in addition to pursuing an ideal capital structure to decrease the cost for such. Acquisitions and sales of financial assets are recognized on the date of trade.

In order to maintain or adjust the capital structure, the Company may review the dividend payment policy, return capital to shareholders, issue new shares or sell assets to reduce, for example, its level of debt.

Consistent with other companies in the sector, the Company monitors its capital based on the financial leverage index. Such index corresponds to net debt divided by total capital. In this case, net debt corresponds to total loans (including short and long-term loans, as presented in the consolidated balance sheet), minus the amount of cash and cash equivalents. Total capital is calculated through a sum of net assets, as shown in the consolidated balance sheet, with net debt.


	12/31/12			12/31/11
Loans and financing		49,651,200			42,413,678
(-) Cash and Cash Equivalent		4,429,375			4,959,787

Net Debt		45,221,825			37,453,891
(+) Total of Net Assets		67,083,945			77,202,321

Total of Capital		112,305,770			114,656,212

Index of financial leverage		40	%		33	%

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2 – Classification of Financial Instruments by Category

The Company’s financial instruments are classified in categories of financial assets and liabilities, which also comprehend derivative instruments, as follows:


	12/31/2012		12/31/2011
FINANCIAL ASSETS (CURRENT/NON CURRENT)

Loans and Receivables		78,975,112		67,315,226

Customers		5,979,909		5,831,018
Loans and financings		9,723,477		9,733,390
Reimbursement Rights		8,016,229		3,583,490
Financial Assets - Concessions		40,818,225		48,167,328
Indemnifications - 12,783/2013		14,437,272		—

Maintained until Maturity		247,371		212,903

Marketable securities		247,371		212,903

Measured at Fair Value through profit and loss		11,684,671		16,778,313

Cash and cash equivalents		4,429,375		4,959,787
Marketable Securities		6,779,577		11,437,959
Derivative Financial Instruments		475,719		380,567

Available for sale		6,108,986		1,702,902

Investments (Interest in equity)		1,513,039		1,702,902
Financial Asset - Concessions		4,595,947		—

FINANCIAL LIABILITIES (Current / Non-Current)

Measured at Amortized Cost		69,298,959		56,689,961

Suppliers		7,490,802		6,338,102
Loans and financings		49,651,200		42,413,678
Debentures		726,127		1,018,647
Reimbursement liabilities		7,789,757		3,431,228
Commercial Lease		2,023,033		1,918,541
UBP Concessions Payable		1,618,039		1,569,765

Measured at Fair Value through profit and loss		476,283		467,683

Derivative Financial Instruments		476,283		467,683

2.1 – Financial Assets

a) Cash and cash equivalents: held for short-term negotiations and measured at fair value, their effects being directly recognized in the income statement.

b) Marketable Securities – Short and Long Term – usually maintained for trading and designated in the initial recognition at fair value, their effects being directly recognized in the income statement.

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c) Consumers and Resellers: recorded by their face value, similar to fair value and probable realization value. Renegotiated credits are recorded assuming the intention of maintaining them until maturity, by its probable realization value, similar to fair value.

d) Granted financings and loans: financial assets with fixed or determinable income, their value being measure at the amortized cost, based on the utilization of the effective interest rate method.

Granted financings are restricted to electricity public utility concessionaires and, therefore, the market rate (or opportunity cost of the Company’s capital) is defined by taking into consideration the risk premiums compatible with the activities of this sector. If it is not possible to seek alternatives other than the electricity sector itself, the fair value of these loans correspond to their carrying amount.

By the end of this fiscal year, the consolidated portfolio of granted loans and financings totalized R$ 9,723,477 (R$ 9,737,390 on December 31, 2011), as set forth below in currency:


	12/31/2012						12/31/2011
Currency	US$ (equivalents)		%		R$		US$ (equivalents)		%		R$

US$		2,848,699		59.87		5,821,317		3,211,422		61.89		6,023,985
R$		1,909,548		40.13		3,902,160		1,977,506		38.11		3,709,405
		4,758,247		100.00		9,723,477		5,188,928		100.00		9,733,390

e) Concession financial assets: financial assets that represent the unconditional right to receive a certain amount at the end of the concession term. They are classified as loans and receivables, in the case of assets related to generation and transmission, and as available for sale in the case of distribution.

f) Derivative Instruments: are measured at the fair value and their effects are directly recognized in the income statement, depending on the type of designated hedge (if cash flow or fair value), according to the IAS 39.

2.2 – Financial Liabilities – classified in the following categories :

a) Suppliers: measured at known or calculable value, with added corresponding charges, monetary corrections and/or exchange rate variation incurred until the date of the balance sheet, when applicable, and their carrying amount is approximately the same as the fair value.

b) Loans and financings: measured at amortized cost, using the effective interest rate method. In this classification of financial liability we highlight loans and financings obtained from financial institutions, particularly abroad, and from sectorial funds, especially the Global Reversion Reserve ( Reserva Global de Reversão , RGR). The carrying amount of loans and financings obtained are similar to their fair value.

Obtained financings are comprised of financings contracted from multilateral international agencies (BID, BIRD, CAF), and it is not possible to discount them at a rate different from that established in the agreement of the Brazilian debt. All remaining loans are captured at market rates, making their accounting value approximately the same as their current value.

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The Company ended the 2012 fiscal year with liability contracts, among loans, financings and bonuses, which totaled R$ 49,651,200 (R$ 42,413,678 on December 31, 2011), as set forth in the table below:


	12/31/2012						12/31/2011
Currency	US$ (equivalents)		%		R$		US$ (equivalents)		%		R$

US$		9,301,210		38.28		19,007,022		9,575,952		42.35		17,962,570
REAL		14,837,600		61.07		30,320,635		12,807,023		56.64		24,023,411
YEN		140,792		0.58		287,709		185,779		0.82		348,484
EURO		17,536		0.07		35,834		42,229		0.19		79,213
		24,297,137		100.00		49,651,200		22,610,983		100.00		42,413,678

c) Compulsory Loan: extinguished by Law number 7,181 from December 20, 1993, its deadline for collection was December 31, 1993. Currently, the Company manages the residual amount of the collected Compulsory Loan, restating it based on the IPCA-E and remunerating it at a rate of 6% per year, with defined deadline for redemption.

d) Remaining financial liabilities: are measured by the amortized cost, using the effective interest rate method, and its fair value is similar to the carrying amount.

3 – Financial Risk Management:

In its operation, the Company is impacted by events and risks that may compromise its strategic objectives. The main objective of risk management is to anticipate and minimize adverse effects of such events in the financial results of the Company.

For the management of financial risks, the Company established operational and financial policies and strategies, approved by internal committees and by the Management, with the purpose of granting liquidity, security and profitability to its assets, as well as maintaining its levels of indebtedness and the profile of the debt as defined in the economical-financial flow.

The main identified financial liabilities in the process of risk management are:

3.1 – Foreign Exchange Rate Risk

This risk derives from the possibility of the Company having its financial statements affected by fluctuations in the foreign exchange rate. The Company is subject to financial risks that cause volatility in its accounting statements, as well as its cash flow. The Company is significantly subject to exposure between assets and liabilities indexed by the foreign currency, particularly the American dollar. Such exposure is especially true for the financing contracts with Itaipu Binacional. In addition, there is exposure to the Libor interest rate, related to external capture contracts.

In this context, the Company’s Financial Hedge Policy was approved. The objective of this policy is to monitor and mitigate the exposure to market variables that affect assets and liabilities of the Company and its subsidiaries, thus reducing the effect of undesired fluctuation of these variables in Accounting Statements.

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In this manner, the above-mentioned policy has the objective of assisting Company results to faithfully reflect its real operational performance and the cash flow reduced its volatility.

Along with this policy, the creation of a Financial Hedge Committee within the Financial Management, was approved. The main function of such committee is to define which hedge strategies and instruments should be presented to the Company’s Board of Executive Officers.

Taking into consideration the different ways in which hedge operations may be conducted by the Company, the approved policy employs a priority scale. First, the structural solution and, only in residual cases, operations with derivative financial instruments will be adopted.

Operations with financial derivatives aim to hedge the Company’s and its subsidiaries’ indexed liabilities that present a descrepancy, therefore, preventing it to characterize financial leverage or the granting of credits to third parties.

The Company has been conducting studies and discussing, through its Financial Hedge Committee, the conduction of hedge operations. In 2011, the Operational Program with Derivative Instruments was expanded, and now comprehends, as well as discrepancies in currency up to the period of December, 2012, exposure to existing interest rate in the given period.

In this manner, according to the table below, the company performed operations to lock the Libor interest rate with the intent to neutralize the volatility of contracts of capture at 6-month Libor. In addition to the Libor swap operation, foreign exchange hedge strategies were analyzed in 2011 and are being implemented, prioritizing structural solutions, in line with the Company’s Financial Hedge Policy. This strategy considers not only the total amount of the discrepancy, but also its disposition over time, with the purpose of hedging the Company’s balance sheet, as well as its cash flow.

Below is the position of these operations of swap of Libor tax by fixed fee on December 31, 2012:


12/31/2012
Transaction	Contracted Amounts (Domestic)		Contractual Rates			Due Date		Fair Value

01/2011		20,192		2.4400	%		11/25/2015		(1,139	)
02/2011		20,192		2.4900	%		11/25/2015		(1,169	)
03/2011		50,000		3.2780	%		08/10/2020		(8,929	)
04/2011		100,000		3.3240	%		08/10/2020		(18,694	)
05/2011		50,000		2.1490	%		08/10/2015		(2,357	)
06/2011		100,000		2.2725	%		08/10/2015		(5,088	)
07/2011		100,000		2.1790	%		08/10/2015		(4,836	)
08/2011		100,000		2.1500	%		08/10/2015		(4,683	)

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12/31/2012
Transaction	Contracted Amounts (Domestic)		Contractual Rates			Due Date		Fair Value
09/2012		25,000		1.6795	%		11/27/2020		(1,459	)
10/2012		25,000		1.6295	%		11/27/2020		(1,360	)
11/2012		75,000		1.6285	%		11/27/2020		(4,074	)
12/2012		75,000		1.2195	%		11/29/2017		(2,607	)
13/2012		75,000		1.2090	%		11/29/2017		(3,009	)
14/2012		50,000		2.2245	%		11/29/2017		(2,060	)
15/2012		50,000		1.1670	%		11/29/2017		(1,920	)
16/2012		50,000		1.1910	%		11/29/2017		(2,003	)
17/2012		50,000		1.2105	%		11/29/2017		(2,070	)
18/2012		25,000		1.1380	%		11/29/2017		(695	)


Total		1,040,384							(68,152	)

Operations with derivatives, when performed in over the counter market, have counterpart risks which, in face of the issues presented by financial institutions in 2008 and 2009, prove to be relevant. With the objective of mitigating such risk, the Company adopted a policy for accrediting of financial institutions, for the purpose of performing operations with derivatives. This policy defines criteria relating to comprehension, rating and expertise on the derivative market, to select institutions that may perform such operations with the Company. Each semester the Company selects the 20 best financial institutions based on criteria such as the institution’s credibility to perform derivative operations. In addition, the Company has developed a method to control the exposure to accredited companies which defines limitations to the volume of operations to be performed with each one of them.

The Company has determined that all derivative operations to be carried by Eletrobras must be classified in the protection hedge concept, thus ratifying the single and exclusive intent of hedging these positions. This measure mitigates the risk of unmatched liquidation of hedge positions and their respective objects, since the financial flows of both will always be matched

3.1.1 – Operation in other entities

The following subsidiaries and associates carried out derivative operations in the year and the resulting impact is as follows:

•

ESBR Participações S.A – carried out NDF operations classified as cash flow hedge. These operations resulted in a comprehensive negative impact during the fiscal year in the amount of R$ 231.

•

Madeira Energia S.A. – carried out swap operations to protect itself from exposure to the Euro. On December 31, 2012, the contract was liquidated in full (2011 – gain of R$2,410 recorded in the current assets and balance sheet). Additionally, other non-accounting hedged contracts totalized R$ 923, in contrast to the financial results.

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3.2 – Interest risk rate

This risk is associated to the possibility that the Company may account for losses due to fluctuations in market interest rates, impacting its statements by increasing financial expenses related to foreign funding agreements, mainly referred to Libor and contracts derivative operations to mitigate such exposure, as mentioned above.

The Company’s exposure to financial assets and liabilities interest rate is detailed in the sensitivity item of this explanatory note.

3.3 – Commodity risk

Eletronorte

The subsidiary Eletronorte has signed, in the 2004 fiscal year, long-term contracts for the supply of electricity with three of its major customers. These long-term contracts are associated to the international price of aluminum, quoted at London Metal Exchange (LME), as a basic asset for purposes of defining the monthly values of the contracts.

The details of the contracts are as follows:


	Contract Dates
Customer	Initial	Maturity	Average megawatt volume
			750 MW - until 12/31/2006
Albrás	07/01/2004	12/31/2024	800 MW - as of 01/01/2007
Alcoa	07/01/2004	12/31/2024	From 304.92 MW to 328 MW
BHP	07/01/2004	12/31/2024	From 353.08 MW to 492 MW

These contracts include the cap and floor band concept, related to the price of aluminum quoted at the LME. The maximum and minimum price limits of the LME is set at US$ 2,773.21/ton and US$ 1,450.00/ton, respectively.

Considering that the premium is associated with the price of the aluminum commodity traded on the LME, it is possible to attribute fair value to such contracts. The LME value for the month of December 2012 was quoted at US$ 2,098.00/ton, that is, 3.1% greater than the value observed in December 2011 when the price of this commodity reached US$ 2,034.00/ton. Such variation, in addition to the depreciation of the Real in 2012 when the value of the dollar went from R$ 1.79 to R$ 2.05, a 14.52% variation during 2012, allowed an improvement in the expectation of the fair value for the derivatives. Another important matter in this context was the policy adopted by the Federal Government to reduce the basic interest rate of the economy, established by the SELIC rate, through governmental banks. This resulted in an average reduction of the SELIC rate (24 months in advance) from 9.90% to 7.25% per year.

The impact of the derivative embedded in the result was positive in 2012 in the amount of R$ 133,804 and a negative impact of R$ 124,770 in 2011 and the presented current asset situation is of R$ 472,364 in 2012 and R$ 376,950 in 2011.

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3.4 – Credit risk

This risk derives from the possibility that the Company and its subsidiaries may incur in losses resulting from difficulties to realize their receivables from customers, as well as from default by financial institutions acting as counterparties in operations.

The Company, through its subsidiaries, operates in the markets of electricity generation and transmission, supported by agreements signed in a regulated framework. The Company seeks to minimize its credit risks by means of sureties mechanisms involving receivables from their customers and, when applicable, bank guarantees. In the distribution segment, the Company, through its subsidiaries, follows the default levels through the analysis of the particularities of its customers. Additionally, there are negotiations to enable it to receive past due credits.

Cash availabilities are applied in an exclusive extra-market fund, according to specific regulation by the Central Bank of Brazil. Such fund is fully comprised by public bonds indexed by Selic, there being no exposure to counterparty risk.

In occasional relations with financial institutions, the Company has the policy of solely performing operations with institutions evaluated as low-risk by rating agencies, which are also in compliance with equity requirements previously defined and formalized. Additionally, credit limits are defined and periodically reviewed.

The concentration of credit risk relating to any individual counterpart was not superior to 8% of the gross monetary assets on December 31, 2012.

3.5 – Liquidity risk

The Company’s liquidity needs are the responsibility of the treasury and funding departments, which operate in conjunction, permanently monitoring the short, medium and long-term cash flows, forecasted and realized, seeking to prevent possible discrepancies and consequent financial losses and ensuring the liquidity requirements for operational needs.

The due dates of derivative financial instruments are disclosed in item 3.1 of this explanatory note. The table below analyses non-derivative financial liabilities of the Group by maturity, corresponding to the remaining period in the balance sheet until the contractual maturity date. The amounts disclosed in the table are the non-discounted contracted cash flows. The tables include cash flow of principal and interest to incur. As interest cash flow are post-fixed, the non-discounted value was obtained based on the interest curve at the end of the fiscal year. Contractual maturity date is based on the most recent date on which the Group must liquidate the respective liabilities.

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	CONSOLIDATED 12/31/2012
	Up to 1 year		From 1 to 2 years		From 2 to 5 years		More than 5 years		Total
FINANCIAL LIABILITIES (Current / Non-Current)

Measured at Amortized Cost		18,813,729		5,628,118		11,100,818		37,399,741		72,942,406

Suppliers		7,512,083		—		—		—		7,512,083
Loans and financings		4,792,990		3,369,497		9,956,605		35,153,071		53,272,163
Debentures		316,899		17,593		345,509		47,330		727,331
Reimbursement liabilities		5,988,698		1,801,059		—		—		7,789,757
Commercial Lease		162,929		325,858		488,786		1,045,460		2,023,033
Concessions Payable - UBP		40,131		114,110		309,918		1,153,880		1,618,039

Measured at Fair Value through profit and loss		185,031		291,252		—		—		476,283

Derivative Financial Instruments		185,031		291,252		—		—		476,283

	CONSOLIDATED 12/31/2011
	Up to 1 year		From 1 to 2 years		From 2 to 5 years		More than 5 years		Total
FINANCIAL LIABILITIES (Current / Non-Current)

Measured at Amortized Cost		15,264,773		4,811,219		9,357,358		33,181,096		62,614,446

Suppliers		6,503,957		—		—		—		6,503,957
Loans and financings		5,887,383		2,794,041		8,508,684		30,866,130		48,056,238
Debentures		739,237		279,410		—		—		1,018,647
Reimbursement liabilities		1,955,966		1,475,262		—		—		3,431,228
Commercial Lease		142,997		259,034		388,551		1,127,959		1,918,541
Concessions Payable - UBP		35,233		3,472		460,123		1,187,007		1,685,835

Measured at Fair Value through profit and loss		269,718		197,965		—		—		467,683

Derivative Financial Instruments		269,718		197,965		—		—		467,683

4 – Sensitivity Analysis of Financial Instruments

In the following charts, scenarios for indexes and rates were considered with their respective impacts on the Company’s results. For the sensitivity analyses, forecasts and/or estimates fundamentally based on macroeconomic premises from the Focus Report, disclosed by the Central Bank and Economic Outlook 86, published by OECD were used as a likely scenario for the end of 2012.

4.1 – Granted Loans

The sensitivity analysis of the loan and financing contracts granted was carried out from four different perspectives: two scenarios consider an increase of the outstanding balance’s currency indexing and two scenarios consider a reduction of such currency indexing. The analysis was limited to granted contracts that present exposure to the foreign exchange rates and prices indexes.

4.1.1 – Index Depreciation – Granted Loans (in cents and percentages)

CONSOLIDATED


Contracts Granted - Negative Variation 4th qtr 2012					Indexing									Balance R$ thousand
Currency (Risk)	Balance US$ thousand		Balance R$ thousand		Probable 2013			Scenario I (-25%)			Scenario II (-50%)			Scenario I (-25%)		Scenario II (-50%)
Dollar		2,848,699		5,821,317		2.080			1.664			1.387			4,740,236		3,950,196
IGP-M		1,911,830		3,906,824		5.31	%		4.25	%		3.54	%		81,215		67,679

TOTAL		4,760,529		9,728,141											4,821,450		4,017,875

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4.1.2 – Index Appreciation – Granted Loans (in cents and percentages)

CONSOLIDATED


Contracts Granted - Positive Variation 4th qtr 2012					Indexing									Balance R$ thousand
Currency (Risk)	Balance US$ thousand		Balance R$ thousand		Probable 2013			Scenario I (+25%)			Scenario II (+50%)			Scenario I (+25%)		Scenario II (+50%)
Dollar		2,848,699		5,821,317		2.080			2.600			3.120			7,406,618		8,887,942
IGP-M		1,911,830		3,906,824		5.31	%		6.64	%		8.30	%		126,898		158,622

TOTAL		4,760,529		9,728,141											7,533,516		9,046,564

4.2 – Obtained Loans

The sensitivity analysis of the loan and financing contracts was carried out from four different perspectives: two scenarios consider an increase of the outstanding balance’s currency indexing and two scenarios consider a reduction of such currency indexing. The analysis was limited to granted contracts that present exposure to the foreign exchange rates and prices indexes.

4.2.1 – Index Depreciation – Obtained Loans (in cents and percentages)


Contracts Granted - Negative Variation 4th qtr 2012					Indexing								Balance R$ thousand
Currency (Risk)	Balance US$ thousand		Balance R$ thousand		Probable 2013			Scenario I (-25%)			Scenario II (-50%)		Scenario I (-25%)		Scenario II (-50%)
Dollar		9,289,405		18,982,899		2.080			1.664			1.387		15,457,570		12,881,308
IGP-M		14,837,600		30,320,635		5.31	%		4.25	%		0.035		630,301		525,251
EURO		17,536		35,834		2.643			2.114			1.762		37,077		30,897
YEN		140,792		287,709		0.026			0.021			0.017		2,951		2,459

TOTAL		24,285,333		49,627,077										16,127,898		13,439,915

4.2.2 – Index Appreciation – Obtained Loans (in cents and percentages)

CONSOLIDATED


Contracts Granted - Positive Variation 4th qtr 2012					Indexing									Balance R$ thousand
Currency (Risk)	Balance US$ thousand		Balance R$ thousand		Probable 2013			Scenario I (+25%)			Scenario II (+50%)			Scenario I (+25%)		Scenario II (+50%)
Dollar		9,289,405		18,982,899		2.080			2.600			3.120			24,152,453		28,982,943
IGP-M		14,837,600		30,320,635		5.31	%		6.64	%		7.97	%		984,846		1,181,815
EURO		17,536		35,834		2.643			3.304			3.964			57,932		69,519
YEN		140,792		287,709		0.026			0.033			0.039			4,610		5,532

TOTAL		24,285,333		49,627,077											25,199,841		30,239,809

4.3 – Itaipu Binacional Financial Asset

Sensitivity analysis of the regulatory asset deriving from the trading of electricity by Itaipu Binacional was carried out. The analysis was limited to the variation in the real – dollar exchange rate, including two scenarios in which there is currency appreciation of 25% and 50% and two scenarios in which there is currency depreciation of 25% and 50%.

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4.3.1 – Depreciation of Indexes of Itaipu Binacional Financial Asset:

Itaipu Financial Asset – Negative Variation 4th qtr 2012

Indexing

Balance R$ thousand

Currency (Risk)

Balance
US$
thousand

Balance
R$ thousand

Probable
2013

Scenario I
(-25%)

Scenario II
(-50%)

Scenario I
(-25%)

Scenario II
(-50%)

Dollar

9,645,362

19,710,296

2.080

1.664

1.387

16,049,882

13,374,901

4.3.2 – Appreciation of Indexes of Itaipu Binacional Financial Asset:

C Itaipu Financial Asset – Positive Variation 4th qtr 2012

Indexing

Balance R$ thousand

Currency (Risk)

Balance
US$
thousand

Balance
R$ thousand

Probable
2013

Scenario I
(+25%)

Scenario II
(+50%)

Scenario I
(+25%)

Scenario II
(+50%)

Dollar

9,645,362

19,710,296

2.080

2.600

3.120

25,077,940

30,093,528

4.4 – Embedded derivatives indexed by the price of Aluminum

Sensitivity analysis was conducted for contracts of electricity supply for electric-intensive consumers Albras and Alumar, subdivided into Alcoa and BHP, due to contractual clause referring to premiums by the variation in the price of in the international market (see item 3.3 – Commodity Risks in the explanatory note above).

Therefore, a variation over price of premium earned was considered for these hybrid agreements, as seen in the table below. The volatility components of premiums basically are: the price of primary aluminum at LME, foreign exchange rate and CDI. Below, it is possible to see the impact of each scenario on the company’s results.


Balance on 12/31/2012	Scenario I (-25%) Indexes and Prices		Scenario II (-50%) Indexes and Prices		Scenario I (+25%) Indexes and Prices		Scenario II (+50%) Indexes and Prices
472,364		98,206		—		985,655		1,196,920

For scenario II (50% decrease) the expected price of aluminum per ton offered by the LME is below the minimum price range for the contractual premium (US$ 1,450.00), therefore, the value is zero, impacting the value at embedded derivative market.

As for the variation obtained in scenarios III and IV (25% and 50% increases) the large variation presented refers to the application of said percentages to the values of foreign exchange, aluminum price and CDI.

The sensitivity analyses were elaborated according to CVM Rule No. 475/2008, with the objective of measuring the impact of the changes in the market variables on each of the Company’s financial instruments. Therefore, the projections are based on the assessment of macroeconomic scenarios, not meaning that the transactions will have the values presented in the considered analyses terms.

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5 – Fair Value Estimate

It is assumed that the balances of accounts receivable from customers and accounts payable to suppliers at carrying amount, less PCLD, are close to their fair values. The fair value of financial liabilities, for the purpose of disclosure, is estimated by discounting the future contractual cash flows by the current market interest rate, available to the Company from similar financial instruments.

The Company uses the following hierarchy to determine and disclose the fair value of financial instruments by the evaluation technique:


	12/31/2012
	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
FINANCIAL ASSETS (Current / Non-Current)

Available for sale		1,513,039		4,595,947		—		6,108,986

Investments (Participation in Equity)		1,513,039		—		—		1,513,039
Financial Asset - Concessions		—		4,595,947		—		4,595,947

Measured to Fair value through profit and loss		11,208,952		475,719		—		11,684,671

Cash and cash equivalent		4,429,375		—		—		4,429,375
Marketable securities		6,779,577		—		—		6,779,577
Derivative financial instrument		—		475,719		—		475,719

LIABILITIES (Current/Non-current)

Measured to Fair value through profit and loss		—		476,283		—		476,283

Derivative financial instrument		—		476,283		—		476,283


	12/31/2011
	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
FINANCIAL ASSETS (Current / Non-Current)

Available for sale		1,702,902		—		—		1,702,902

Investments (Participation in Equity)		1,702,902		—		—		1,702,902

Measured to Fair value through profit and loss		16,397,746		380,567		—		16,778,313

Cash and cash equivalent		4,959,787		—		—		4,959,787
Marketable securities		11,437,959		—		—		11,437,959
Derivative financial instrument		—		380,567		—		380,567

LIABILITIES (Current/Non-current)

Measured to Fair value through profit and loss		—		467,683		—		467,683

Derivative financial instrument		—		467,683		—		467,683

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Financial assets and liabilities recorded at fair value were classified and disclosed according to the following levels:

Level 1 – quoted prices (non-adjusted) in active markets, liquid and visible for identical assets and liabilities accessible on the date of measurement;

Level 2 – quoted prices (may be adjusted or not) for similar assets or liabilities in active markets, other entries not observable in level 1, directly or indirectly, in the terms of the asset or liability; and

Level 3 – assets and liabilities for which prices do not exist or for which these prices or valuation techniques are supported by a small or non-existing market, not observable or liquid. At this level, the fair value estimate becomes highly subjective.

The fair value of financial instruments negotiated in active markets (such as securities held for trading and available for sale) is based on market prices, quoted on the balance sheet date. A market is seen as active if the quoted prices are readily and regularly available from a Stock Exchange, a distribution company, a broker, an industry group, a pricing service or regulatory agency, and such prices represent real market transactions that occur regularly in purely commercial basis.

The market price quoted used for financial assets maintained by the Company is the current competing price. These instruments are included in Level 1. Instruments included in that level comprehend, mainly, equity investments of FTSE 100 classified as negotiable securities or available for sale.

The fair value of financial instruments not negotiated on active markets (for example, OTC derivatives) is determined by valuation techniques. These techniques maximize the use of data adopted by the market where it is available and trust as least as possible in the entity’s specific estimates. If all relevant information required for the fair value of an instrument is adopted by the market, the instrument will be included in Level 2.

If one or more relevant information is not based on data adopted by the market, the instrument will be included in level 3.

Specific valuation techniques used to value financial instruments include:

Market prices quoted or quotations from financial institutions or brokers for similar instruments.

The fair value of interest rate swaps is calculated by the present value of the estimated future cash flows based on the yield curves adopted by the market.

The fair value of future foreign exchange contracts is determined based on future foreign exchange rates on the date of the balance sheet, with the resulting value discounted at present value.

Other techniques, such as analysis of discounted cash flows, are used to determine the fair value for the remaining financial instruments.

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NOTE 45 – BUSINESS SEGMENT INFORMATION

Operational segments are defined as business activities from which it is possible to obtain revenues and incur expenses, on which operational decisions are made. The main operational decision maker, responsible for allocating resources and for appraising the performance of operational segments is the Board of Directors, which is also responsible for the Company’s strategic decision making. The operating segments of the Company are Management, Generation, Transmission and Distribution (there are no aggregation of operating segments in these financial statements).

The Board of Directors assesses the performance of operational segments based on the measurement of net income.

Business segment information, corresponding to the fiscal year ended on December 31, 2012, 2011 and 2010, are as follows:


	12/31/2012
	Management			Generation			Transmission			Distribution			Total
Net Operating Revenue		163,953			20,684,447			8,688,595			4,527,483			34,064,477
Operating Expenses		(1,565,822	)		(18,821,973	)		(7,256,879	)		(4,751,641	)		(32,396,316	)

Operating Result Before Financial Results		(1,401,870	)		1,862,473			1,431,716			(224,158	)		1,668,162

Financial Result		2,017,342			(911,592	)		(482,098	)		8,856			632,509
Results of Investments in Subsidiaries		—			(7,226,581	)		(3,134,874	)		276,074			(10,085,381	)
Income tax / Social contribution		468,584			—			—			—			468,584
Non-Controlling Interest		(644,209	)		258,476			801,669			(25,462	)		390,474
Net Profit (loss) in the Fiscal Year		46,737			—			—			—			46,737

Net Operating Revenue		486,585			(6,017,223	)		(1,383,587	)		35,310			(6,878,916	)


12/31/2011
	Management			Generation			Transmission			Distribution			Total
Net Operating Revenue		192,963			19,093,367			7,778,698			2,467,716			29,532,744
Operating Expenses		(2,094,716	)		(13,690,743	)		(7,071,445	)		(2,532,998	)		(25,389,902	)

Operating Result Before Financial Results		(1,901,753	)		5,402,624			707,253			(65,282	)		4,142,842

Financial Result		1,909,379			(1,218,314	)		(436,152	)		(20,460	)		234,453
Results of Investments in Subsidiaries		482,785			—			—			—			482,785
Income tax / Social contribution		(189,200	)		(696,752	)		(198,294	)		(13,815	)		(1,098,061	)
Non-Controlling Interest		(29,454	)		—			—			—			(29,454	)

Net Profit (loss) in the Fiscal Year		277,757			3,487,558			72,807			(99,557	)		3,732,565


12/31/2010
	Management			Generation			Transmission			Distribution			Total
Net Operating Revenue		126,478			18,398,128			5,894,556			2,412,923			26,832,085
Operating Expenses		(1,500,234	)		(13,270,258	)		(5,558,101	)		(2,761,874	)		(23,090,467	)

Operating Result Before Financial Results		(1,373,756	)		5,127,870			336,455			(348,951	)		3,741,618

Financial Result		732,722			(937,998	)		(109,589	)		(49,258	)		(364,123	)
Results of Investments in Subsidiaries		641,740			520			27,495			—			669,755
Income tax / Social contribution		(215,596	)		(1,096,289	)		(171,673	)		(10,707	)		(1,494,265	)
Non-Controlling Interest		(305,072	)		—			—			—			(305,072	)

Net Profit (loss) in the Fiscal Year		(519,962	)		3,094,103			82,688			(408,916	)		2,247,913

NOTE 46 – RELATED-PARTY TRANSACTIONS

The parent company of Eletrobras is the Federal Government, who holds 54.46% of the Company’s common and preferred shares (see Note 37).

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The Company’s transactions with its subsidiaries, controlled companies and special purpose entities are carried out at prices and conditions compatible with those practiced on the market. Among the main related-party transactions, we highlight loans and financing granted under the same conditions as those practiced in the market and/or according to matter-specific legislation. All other transactions were also established under normal market conditions.


		12/31/2012								12/31/2011								12/31/2010
COMPANY	NATURE OF THE TRANSACTION	ASSETS		LIABILITIES			PROFIT LOSS			ASSETS		LIABILITIES			PROFIT LOSS			PROFIT LOSS

FEDERAL GOVERNMENT	Consumers and reseller		13,539		—			—			9,901		—			—			—
	Accounts receivable		3,008		—			—			—		—			—			—
	Eletricity supply		—		—			—			14,801		—			—			76,563
	Other revenue		—		—			81,975			—		—			55,011			11,615

			16,547		—			81,975			24,702		—			55,011			88,178

BNDES	Loans and financing payable		—		10,849,335			—			—		8,173,793			—			—

			—		10,849,335			—			—		8,173,793			—			—

REAL GRANDEZA	Accounts receivable		5,411		—			—			1,927		—			—			—
	Social security contribution		—		5,138			—			—		4,740			—			—
	Suppliers		—		80			—			—		—			—			—
	Accounts payable		—		(267,534	)		—			—		(438,949	)		—			—
	Actuarial debt agreements		—		24,374			—			—		56,762			—			—
	Other liabilities		—		197,440			—			—		24,261			—			—
	Debt’s charge / indexation		—		—			—			—		—			—			13,425
	Regular sponsor contributions		—		—			(16,198	)		—		—			(15,011	)		11,929
	Financial revenue		—		—			279			—		—			—			—
	Actuarial asset - low and actuarial provision		—		—			(19,812	)		—		—			—			(11,277	)
	Financial expenses		—		—			4			—		—			—			(98,490	)
	Other expenses		—		—			(79,464	)		—		—			(62,048	)		(148,207	)
	Other revenues		—		—			—			—		—			—			155
	Actuarial provision		—		—			—			—		—			40,134			—
	Contributions - administrative expenses		—		—			—			—		—			(2,517	)		2,899
	Reversal of contributions		—		—			19,914			—		—			—			—

			5,411		(40,502	)		(95,277	)		1,927		(353,186	)		(39,442	)		(229,566	)

NUCLEOS	Social security contributions		—		2,942			—			—		1,788			—			—
	Reversal of contributions		—		—			20,733			—		—			—			—
	Actuarial provision		—		—			—			—		—			(15,734	)		(6,472	)
	Regular sponsor contributions		—		—			(20,733	)		—		—			(11,704	)		8,657

			—		2,942			—			—		1,788			(27,438	)		2,185

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RS ENERGIA	Accounts receivable	1	—	—	3,503	—	—		—
	Interest on Capital / Dividends Receivable	2,332	—	—	773	—	—		—
	Advance for capital increase	—	—	—	142,046	—	—		—
	Permanent equity interest	221,325	—	—	—	—	—		—
	Retained earnings from equity method	—	—	8,182	—	—	3,253		—
	Permanent equity interest	10,594	—	—	4,158	—	—		—
	Other assets	1	—	—	—	—	—		—
	Services revenue	—	—	1,330	—	—	1,957		—
	Revenues from eletric grid usage	—	—	4	—	—	—		—
	Equity expense	—	—	—	—	—	—		(490	)
	Other revenues	—	—	15	—	—	13		—

		234,253	—	9,531	150,480	—	5,223		(490	)

UIRAPURU	Accounts receivable	1	—	—	17	—	—		—
	Interest on Capital / Dividends Receivable	1,908	—	—	1,382	—	—		—
	Permanent equity interest	33,111	—	—	33,011	—	—		—
	Accumulated equity method	7,271	—	—	6,238	—	—		—
	Gains on equity method	—	—	7,935	—	—	3,680		3,474
	Gains on use of electrical network	—	—	2	—	—	55		—
	Services revenues	—	—	2,289	—	—	2,091		—
	Other revenues	—	—	16	—	—	13		—

		42,291	—	10,242	40,648	—	5,839		3,474

ARTEMIS	Accounts receivable	2	—	—	501	—	—		—
	Interest on Capital / Dividends Receivable	15,945	—	—	4,863	—	—		—
	Permanent equity interest	148,578	—	—	148,578	—	—		—
	Accumulated equity method	16,809	—	—	10,402	—	—		—
	Gains on equity method	—	—	26,989	—	—	11,983		7,317
	Other assets	537	—	—	—	—	—		—
	Services revenue	—	—	5,606	—	—	—		—
	Revenue from eletric grid usage	—	—	9	—	—	5,984		—
	Other revenues	—	—	—	—	—	84		—

		181,871	—	32,604	164,344	—	18,051		7,317

PORTO VELHO	Accounts receivable	2	—	—	5	—	—		—
	Interest on Capital / Dividends Receivable	1,351	—	—	—	—	—		—
	Permanent equity interest	297,793	—	—	190,293	—	—		—
	Accumulated equity method	3,238	—	—	1,904	—	—		—
	Other revenues	—	—	60	—	—	—		—
	Equity method expenses	—	—	—	—	—	(1,330	)	—
	Revenue from equity method	—	—	2,685	—	—	58		3,034

		302,384	—	2,745	192,202	—	(1,272	)	3,034

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NORTE BRASIL	Permanent equity interest	189,640		—	—		23,530		—	—		—
	Interest on Capital / Dividends Receivable	805		—	—		250		—	—		—
	Accumulated equity method	3,984		—	—		(7,411	)	—	—		—
	Revenue from equity method	—		—	3,414		—		—	1,164		186

		194,429		—	3,414		16,369		—	1,164		186

ETAU	Accounts receivable	—		—	—		55		—	—		—
	Interest on Capital / Dividends Receivable	535		—	—		2,055		—	—		—
	Permanent equity interest	9,567		—	—		9,567		—	—		—
	Accumulated equity method	14,129		—	—		10,732		—	—		—
	Revenue from equity method	—		—	4,793		—		—	5,413		8,367
	Other assets	16		—	—		—		—	—		—
	Revenue from eletric grid usage	—		—	1		—		—	—		—
	Services revenues	—		—	219		—		—	664		—
	Other revenues	—		—	2		—		—	7		—

		24,247		—	5,015		22,409		—	6,084		8,367

ESBR	Permanent equity interest	952,342		—	—		562,342		—	—		—
	Accumulated equity method	(12,518	)	—	—		(7,934	)	—	—		—
	Equity method expenses	—		—	(4,352	)	—		—	(3,646	)	(7,937	)
	Other expense	—		—	—		—		—	—		(1,235	)

		939,824		—	(4,352	)	554,408		—	(3,646	)	(9,172	)

CERRO CHATO I	Accounts receivable	5		—	—		5		—	—		—
	Permanent equity interest	86,940		—	—		180		—	—		—
	Accumulated equity method	(440	)	—	—		2,095		—	—		—
	Other assets	1		—	—		—		—	—		—
	Revenue from eletric grid usage	—		—	57		—		—	15		—
	Equity method expenses	—		—	(261	)	—		—	—		(180	)
	Other revenues	—		—	9		—		—	7		—

		86,506		—	(195	)	2,280		—	22		(180	)

CERRO CHATO II	Accounts receivable	5		—	—		5		—	—		—
	Permanent equity interest	81,090		—	—		180		—	—		—
	Accumulated equity method	(1,084	)	—	—		(180	)	—	—		—
	Other assets	1		—	—		—		—	—		—
	Equity method expenses	—		—	(904	)	—		—	—		(180	)
	Revenue from eletric grid usage	—		—	57		—		—	23		—
	Other revenues	—		—	9		—		—	7		—

		80,012		—	(838	)	—		—	—		(180	)

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CERRO CHATO III	Accounts receivable	5		—	—		5		—	—		—
	Interest on Capital / Dividends Receivable	176		—	—		652		—	—		—
	Permanent equity interest	74,970		—	—		180		—	—		—
	Accumulated equity method	849		—	—		(180	)	—	—		—
	Other assets	1		—	—		—		—	—		—
	Earnings from equity method	—		—	—		—		—	2,927		—
	Equity method expenses	—		—	(1,721	)	—		—	—		(180	)
	Revenue from eletric grid usage	—		—	57		—		—	30		—
	Other revenue	—		—	8		—		—	7		—

		76,001		—	(1,656	)	657		—	2,964		(180	)

TELES PIRES	Permanent equity interest	184,194		—	—		187,928		—	—		—
	Accumulated equity method	—		—	—		(828	)	—	—		—
	Other accounts receivable	—		—	—		—		—	—		—
	Equity method expenses	—		—	(3,734	)	—		—	(828	)	—
	Earnings from equity method	—		—	(3,734	)	—		—	—		—
	Services revenues	—		—	196		—		—	—		—

		184,194		—	(7,272	)	187,100		—	(828	)	—

INTEGRAÇÃO	Interest on Capital / Dividends Receivable	—		—	—		2,060		—	—		—
	Accumulated equity method	20,155		—	—		8,898		—	—		—
	Earnings from equity method	—		—	9,197		—		—	8,646		4,624

		20,155		—	9,197		10,958		—	8,646		4,624

COSTA OESTE	Permanent equity interest	1,390		—	—		—		—	—		—
	Accumulated equity method	(252	)	—	—		—		—	—		—
	Equity method expenses	—		—	(252	)	—		—	—		—

		1,138		—	(252	)	—		—	—		—

TBSE	Permanent equity interest	6,408		—	—		—		—	—		—
	Accumulated equity method	(107	)	—	—		—		—	—		—
	Services revenues	—		—	105		—		—	—		—
	Equity method expenses	—		—	(106	)	—		—	—		—

		6,301		—	(1	)	—		—	—		—

LIVRAMENTO	Permanent equity interest	36,055		—	—		—		—	—		—
	Accumulated equity method	(775	)	—	—		—		—	—		—
	Services revenues	—		—	119		—		—	—		—
	Equity method expenses	—		—	(775	)	—		—	—		—

		35,280		—	(656	)	—		—	—		—

SANTA VITÓRIA	Permanent equity interest	97,551		—	—		—		—	—		—
	Accumulated equity method	(492	)	—	—		—		—	—		—
	Equity method expenses	—		—	(492	)	—		—	—		—
	Other revenues	—		—	119		—		—	—		—

		97,059		—	(373	)	—		—	—		—

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MARUMBI	Permanent equity interest	622		—	—		—	—		—		—
	Accumulated equity method	(52	)	—	—		—	—		—		—
	Equity method expenses	—		—	(52	)	—	—		—		—

		570		—	(52	)	—	—		—		—

CHUI	Permanent equity interest	33,887		—	—		—	—		—		—
	Accumulated equity method	(281	)	—	—		—	—		—		—
	Equity method expenses	—		—	(281	)	—	—		—		—

		33,606		—	(281	)	—	—		—		—

AMAPARI ENERGIA	Permanent equity interest	39,191		—	—		34,105	—		—		—
AMAPARI ENERGIA	Earnings from equity method	—		—	7,355		—	—		6,109		768

		39,191		—	7,355		34,105	—		6,109		768

FACHESF	Suppliers	—		2,160	—		—	7,181		—		—
	Socia security contributions	—		—	—		—	9,317		—		—
	Contracts of actuarial debts	—		2,523	—		—	381,560		—		—
	Regular contribution	—		11,001	—		—	—		—		—
	Actuarial expenses	—		—	(30,650	)	—	—		44,101		—
	Financial expenses	—		—	(31,363	)	—	—		—		(41,637	)
	Operating expenses	—		—	(18,581	)	—	—		(16,381	)	(94,311	)

		—		15,684	(80,594	)	—	398,058		27,720		(135,948	)

TDG	Permanent equity interest	45,183		—	—		15,235	—		—		—
	Services revenues	—		—	875		—	—		—		—
	Earnings from equity method	—		—	—		—	—		2,217		—
	Equity method expenses	—		—	(4,352	)	—	—		—		(261	)

		45,183		—	(3,477	)	15,235	—		2,217		(261	)

MANAUS TRANSMISSÃO	Permanent equity interest	187,758		—	—		122,268	—		—		—
	Payable accounts	—		—	—		—	112		—		—
	Other comprehensive results	—		—	—		—	(467	)	—		—
	Services revenues	—		—	—		—	—		1,722		—
	Equity method expenses	—		—	(5,452	)	—	—		(8,041	)	(8,981	)

		187,758		—	(5,452	)	122,268	(355	)	(6,319	)	(8,981	)

IEMADEIRA	Permanent equity interest	514,112		—	—		359,756	—		—		—
	Services revenues	—		—	—		—	—		5,028		—
	Other credits	—		—	—		—	—		260		—
	Financial revenue	—		—	—		—	—		—		2,065
	Earnings from equity method	—		—	19,116		—	—		10,872		2,066

		514,112		—	19,116		359,756	—		16,160		4,131

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MANAUS CONSTRUÇÃO	Interest on Capital / Dividends Receivable	2,970	—		—		8,432	—		—		—
	Permanet equity interest	15,410	—		—		6,392	—		—		—
	Earnings from equity method	—	—		3,556		—	—		8,874		5,948

		18,380	—		3,556		14,824	—		8,874		5,948

STN	Accounts receivable	177	—		—		174	—		—		—
	Permanet equity interest	188,861	—		—		195,267	—		—		—
	Suppliers	—	1,226		—		—	1,271		—		—
	Earnings from equity method	—	—		17,615		—	—		28,314		33,262
	JCP Revenue / Dividends	—	—		7,494		—	—		5,872		—
	Services revenues	—	—		2,134		—	—		2,055		1,854
	Charges of electrical network	—	—		(11,321	)	—	—		(10,869	)	(10,410	)

		189,038	1,226		15,922		195,441	1,271		25,372		24,706

INTESA	Interest on Capital / Dividends Receivable	762	—		—		609	—		—		—
	Permanent equity interest	35,646	—		—		31,692	—		—		—
	Suppliers	—	924		—		—	929		—		—
	Earnings from equity method	—	—		4,107		—	—		3,095		2,844
	Charges of eletric network	—	—		(8,696	)	—	—		(8,429	)	(8,045	)

		36,408	924		(4,589	)	32,301	929		(5,334	)	(5,201	)

EAPSA	Consumers and resellers	242	—		—		244	—		—		—
	Interest on Capital / Dividends Receivable	3,090	—		—		4,252	—		—		—
	Permanent equity interest	261,301	—		—		157,112	—		—		—
	Earnings from equity method	—	—		40,404		—	—		38,792		(1,029	)

		264,633	—		40,404		161,608	—		38,792		(1,029	)

ESBR Part.	Permanent equity interest	939,825	—		—		554,408	—		—		—
	Other comprehensive results	—	(231	)	—		—	(3,253	)	—		—
	Equity method expenses	—	—		(4,352	)	—	—		(3,646	)	—

		939,825	(231	)	(4,352	)	554,408	(3,253	)	(3,646	)	—

SETE GAMELEIRAS	Accounts receivable	15	—		—		—	—		—		—
	Permanent equity interest	19,810	—		—		1,850	—		—		—
	Services revenues	—	—		56		—	—		—		—
	Equity method expenses	—	—		(88	)	—	—		(157	)	(3	)

		19,825	—		(32	)	1,850	—		(157	)	(3	)

S. PEDRO DO LAGO	Permanent equity interest	14,098	—		—		1,803	—		—		—
	Accounts receivable	15	—		—		—	—		—		—
	Services revenues	—	—		56		—	—		—		—
	Equity method expenses	—	—		(117	)	—	—		(143	)	(4	)

		14,113	—		(61	)	1,803	—		(143	)	(4	)

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PEDRA BRANCA	Permanent equity interest	13,504	—		—		1,737		—		—		—
	Consumers and resellers	15	—		—		—		—		—		—
	Services revenues	—	—		56		—		—		—		—
	Equity method expenses	—	—		(118	)	—		—		(179	)	(3	)

		13,519	—		(62	)	1,737		—		(179	)	(3	)

BRASVENTO MIASSABA	Advance for capital increase	22,885	—		—		10,685		—		—		—
	Permanent equity interest	9,534	—		—		(352	)	—		—		—
	Earnings from equity method	—	—		(799	)	—		—		—		—

		32,419	—		(799	)	10,333		—		—		—

BRASVENTO EOLO	Advance for capital increase	16,691	—		—		8,112		—		—		—
	Permanent equity interest	6,938	—		—		(550	)	—		—		—
	Earnings from equity method	—	—		(623	)	—		—		—		—

		23,629	—		(623	)	7,562		—		—		—

ANDE	Clients	63,659	—		—		52,115		—		—		—
	Other assets	23,791	—		—		18,102		—		—		—
	Other liabilities	—	(38,078	)	—		—		(33,582	)	—		—
	Services revenues	—	—		239,834		—		—		195,336		179,121
	Financial income	—	—		479		—		—		2,371		4,461
	Financial expenses	—	—		622		—		—		508		20
	Other expenses	—	—		(42,932	)	—		—		(35,296	)	(32,353	)

		87,451	(38,078	)	198,002		70,217		(33,582	)	162,919		(151,250	)

FIBRA	Payable accounts	—	(42,610	)	—		—		(43,031	)	—		—
	Pension contributions	—	(2,888	)	—		—		(2,811	)	—		(17,298	)
	Financial expenses	—	—		(4,800	)	—		—		(4,253	)	(4,400	)
	Socia security contributions	—	—		(20,434	)	—		—		(17,336	)	—

		—	(45,499	)	(25,234	)	—		(45,842	)	(21,589	)	(21,698	)

CAJUBI	Payable accounts	—	(47,187	)	—		—		(26,421	)	—		—
	Regular pension contributions	—	(6,190	)	—		—		(4,534	)	—		(16,845	)
	Outros passivos	—	887,445		—		—		(686,480	)	—		—
	Financial expenses	—	—		(622	)	—		—		(508	)	(20	)
	Actuarial expenses	—	—		(90,708	)	—		—		(144,970	)	(320,751	)
	Socia security contributions	—	—		(27,269	)	—		—		(19,284	)	—

		—	834,068		(118,599	)	—		(717,435	)	(164,762	)	(337,616	)

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ENERPEIXE	Accounts receivable	536		—		—		—	—		—		—
	Consumers and resellers	—		—		—		545	—		—		—
	Interest on Capital / Dividends Receivable	29,640		—		—		—	—		—		—
	Permanent equity interest	514,735		—		—		536,651	—		—		—
	Other assets	—		—		—		87	—		—		—
	Earnings from equity method	—		—		76,524		—	—		—		—
	Financial revenue	—		—		—		—	—		—		47,321
	Services revenues	—		—		3,046		—	—		—		6,581
	Revenues from eletric grid usage	—		—		4,914		—	—		—		4,319

		544,911		—		84,484		537,283	—		—		58,221

TRANSLESTE	Interest on Capital / Dividends Receivable	(1,652	)	—		—		—	—		—		—
	Permanent equity interest	25,687		—		—		23,630	—		—		—
	Other assets	—		—		—		375	—		—		—
	Suppliers	—		(126	)	—		—	(132	)	—		—
	Services revenues	—		—		—		—	—		2		—
	Earnings from equity method	—		—		4,041		—	—		—		—
	Financial revenue	—		—		—		—	—		—		4,298
	Charges of use of electrical network	—		—		(1,193	)	—	—		(1,146	)	(1,010	)

		24,035		(126	)	2,848		24,005	(132	)	(1,144	)	3,288

TRANSUDESTE	Interest on Capital / Dividends Receivable	(379	)	—		—		—	—		—		—
	Accounts receivable	23		—		—		11	—		—		—
	Permanent equity interest	13,871		—		—		13,894	—		—		—
	Other assets	—		—		—		2,830	—		—		—
	Suppliers	—		(79	)	—		—	(81	)	—		—
	Financial revenue	—		—		—		—	—		—		2,449
	Services revenues	—		—		132		—	—		123		115
	Earnings from equity method	—		—		2,035		—	—		—		—
	Other expenses	—		—		138		—	—		—		—
	Charges of use of electrical network	—		—		(734	)	—	—		(709	)	(626	)

		13,515		(79	)	1,571		16,735	(81	)	(586	)	1,938

TRANSIRAPÉ	Interest on Capital / Dividends Receivable	(460	)	—		—		—	—		—		—
	Permanent equity interest	11,360		—		—		10,713	—		—		—
	Other assets	—		—		—		2,432	—		—		—
	Suppliers	—		(45	)	—		—	(56	)	—		—
	Financial income	—		—		—		—	—		—		1,796
	Earnings from equity method	—		—		1,969		—	—		—		—
	Charges of use of electrical network	—		—		(501	)	—	—		(492	)	(426	)

		10,900		(45	)	1,468		13,145	(56	)	(492	)	1,370

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CENTROESTE	Advance for capital increase	3,527		—		—		3,527		—		—		—
	Accounts receivable	52		—		—		6		—		—		—
	Permanent equity interest	20,268		—		—		17,191		—		—		—
	Other assets	—		—		—		44		—		—		—
	Suppliers	—		(54	)	—		—		(55	)	—		—
	Services revenues	—		—		542		—		—		511		360
	Earnings from equity method	—		—		3,963		—		—		—		—
	Other expenses	—		—		74		—		—		—		—
	Charges of use of electrical network	—		—		(506	)	—		—		(482	)	(247	)

		23,847		(54	)	4,073		20,768		(55	)	29		113

BAGUARI	Clients	40		—		—		84		—		—		—
	Advance for capital increase	82,632		—		—		82,632		—		—		—
	Permanent equity interest	6,608		—		—		7,713		—		—		—
	Other assets	—		—		—		9		—		—		—
	Interest on Capital / Dividends Receivable	9,729		—		—		—		—		—		—
	Earnings from equity method	—		—		8,623		—		—		—		—
	Revenues from eletric grid usage	—		—		382		—		—		1,418		—

		99,009		—		9,005		90,438		—		1,418		—

RETIRO BAIXO	Accounts receivable	11		—		—		—		—		—		—
	Empréstimos e financiamentos	2,550		—		—		—		—		—		—
	Advance for capital increase	58		—		—		58		—		—		—
	Permanent equity interest	110,020		—		—		106,010		—		—		—
	Other assets	—		—		—		2,605		—		—		—
	Service revenues	—		—		—		—		—		—		4,431
	Financial income	—		—		1,524		—		—		—		600
	Earnings from equity method	—		—		4,010		—		—		—		—

		112,639		—		5,534		108,673		—		—		5,031

SERRA FACÃO	Permanent equity interest	—		—		—		145,464		—		—		—
	Accounts receivable	—		—		—		(841	)	—		—		—
	Other assets	—		—		—		987		—		—		—
	Services revenues	—		—		—		—		—		433		1,578
	Financial expenses	—		—		(3,885	)	—		—		—		(40,334	)
	Energy purchase	—		—		—		—		—		(129,207	)	—
	Other expenses	—		—		34		—		—		—		(59,690	)

		—		—		(3,851	)	145,610		—		(128,774	)	(98,446	)

CHAPECOENSE	Interest on Capital / Dividends Receivable	(2,773	)	—		—		—		—		—		—
	Clients	794		—		—		—		—		—		—
	Other accounts receivable	1,113		—		—		—		—		—		—
	Permanent equity interest	303,627		—		—		276,365		—		—		—
	Earnings from equity method	—		—		32,762		—		—		—		—
	Financial expenses	—		—		—		—		—		(828	)	(6,287	)
	Revenues from eletric grid usage	—		—		7,227		—		—		—		—
	Services revenues	—		—		5,943		—		—		—		—

		302,761		—		45,932		276,365		—		(828	)	(6,287	)

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MADEIRA ENERGIA	Permanent equity interest	1,669,041	—		—		645,738	—		—		—
	Accounts receivable	3,073	—		—		—	—		—		—
	Other accounts receivable	1,903	—		—		—	—		—		—
	Suppliers	—	—		—		—	(420	)	—		—
	Earnings from equity method	—	—		(100,459	)	—	—		—		—
	Revenues from eletric grid usage	—	—		15,191		—	—		—		—
	Financial expense	—	—		—		—	—		—		(79,733	)
	Services revenues	—	—		25,406		—	—		—		—

		1,674,017	—		(59,862	)	645,738	(420	)	—		(79,733	)

INAMBARI	Other assets	—	—		—		252	—		—		—
	Permanent equity interest	6,640	—		—		6,937	—		—		—
	Financial expenses	—	—		—		—	—		—		(1,076	)
	Service revenues	—	—		—		—	—		—		1,008
	Earnings from equity method	—	—		(919	)	—	—		—		—

		6,640	—		(919	)	7,189	—		—		(68	)

TRANSENERGIA RENOVÁVEL	Advance for capital increase	24,556	—		—		31,360	—		—		—
	Accounts receivable	17	—		—		13	—		—		—
	Permanent equity interest	83,308	—		—		39,461	—		—		—
	Suppliers	—	(8	)	—		—	—		—		—
	Payable accounts	—	—		—		—	(9	)	—		—
	Earnings from equity method	—	—		4,214		—	—		—		—
	Services revenues	—	—		(8	)	—	—		1,550		251
	Financial expenses	—	—		—		—	—		—		(926	)
	Charges of use of electrical network	—	—		(106	)	—	—		(78	)	—

		107,881	(8	)	4,100		70,834	(9	)	1,472		(675	)

MGE TRANSMISSÃO	Permanent equity interest	35,991	—		—		10,696	—		—		—
	Interest on Capital / Dividends Receivable	201	—		—		—	—		—		—
	Advance for capital increase	27,440	—		—		23,520	—		—		—
	Other accounts receivable	257	—		—		110	—		—		—
	Other assets	—	—		—		176	—		—		—
	Other expenses	—	—		(74	)	—	—		—		—
	Earnings from equity method	—	—		1,975		—	—		—		—
	Financial expenses	—	—		—		—	—		—		(562	)
	Services revenues	—	—		2,042		—	—		1,001		—

		63,889	—		3,943		34,502	—		1,001		(562	)

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GOIÁS TRANSMISSÃO	Permanent equity interest	44,806	—	—		16,040		—	—		—
	Advance for capital increase	56,840	—	—		24,500		—	—		—
	Interest on Capital / Dividends Receivable	300	—	—		—		—	—		—
	Other accounts receivable	38	—	—		—		—	—		—
	Earnings from equity method	—	—	4,567		—		—	—		—
	Financial expenses	—	—	—		—		—	—		(1,087	)
	Services revenues	—	—	870		—		—	1,848		—

		101,984	—	5,437		40,540		—	1,848		(1,087	)

REI DOS VENTOS	Advance for capital increase	12,894	—	—		10,036		—	—		—
	Permanent equity interest	8,914	—	—		(348	)	—	—		—
	Earnings from equity method	—	—	(775	)	—		—	—		—

		21,808	—	(775	)	9,688		—	—		—

SEFAC ENERGIA	Interest on Capital / Dividends Receivable	—	—	—		—		—	—		—
	Permanent equity interest	104,098	—	—		145,464		—	—		—
	Accounts receivable	—	—	—		(841	)	—	—		—
	Other assets	—	—	—		987		—	—		—
	Earnings from equity method	—	—	(40,360	)	—		—	—		—
	Services revenues	—	—	91		—		—	433		—
	Energy purchase	—	—	—		—		—	(129,207	)	—

		104,098	—	(40,269	)	145,610		—	(128,774	)	—

TRANS SÃO PAULO	Advance for capital increase	7,987	—	—		7,987		—	—		—
	Permanent equity interest	23,328	—	—		16,615		—	—		—
	Interest on Capital / Dividends Receivable	566	—	—		—		—	—		—
	Other accounts receivable	333	—	—		179		—	—		—
	Services revenues	—	—	755		—		—	604		—
	Financial expenses	—	—	—		—		—	—		(50	)
	Earnings from equity method	—	—	2,378		—		—	—		—
	Revenue from eletric grid usage	—	—	(24	)	—		—	—		—

		32,214	—	3,109		24,781		—	604		(50	)

TRANS GOIÁS	Permanent equity interest	2,513	—	—		2,786		—	—		—
	Services revenues	—	—	—		—		—	5		—
	Financial expenses	—	—	—		—		—	—		(87	)
	Earnings from equity method	—	—	(273	)	—		—	—		—

		2,513	—	(273	)	2,786		—	5		(87	)

CALDAS NOVAS	Advance for capital increase	6,417	—	—		—		—	—		—
	Other accounts receivable	98	—	—		—		—	—		—
	Permanent equity interest	50	—	—		50		—	—		—
	Other expenses	—	—	684		—		—	—		—

		6,565	—	684		50		—	—		—

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IE GARANHUS	Permanent equity interest	14,956		—	—		980	—	—	—
IE GARANHUS	Earnings from equity method	—		—	255		—	—	—	—

		14,956		—	255		980	—	—	—

LUZITÂNIA NIQUELÂNDIA	Permanent equity interest	931		—	—		—	—	—	—

		931		—	—		—	—	—	—

TSLE	Permanent equity interest	5,100		—	—		—	—	—	—
	Accumulated equity method	(5,100	)	—	—		—	—	—	—
	Equity method expenses	—		—	(564	)	—	—	—	—
	Services revenues	—		—	52		—	—	—	—

		—		—	(512	)	—	—	—	—

Energia dos Ventos I	Permanent equity interest	167		—	—		—	—	—	—

		167		—	—		—	—	—	—

Energia dos Ventos II	Permanent equity interest	123		—	—		—	—	—	—

		123		—	—		—	—	—	—

Energia dos Ventos III	Permanent equity interest	152		—	—		—	—	—	—

		152		—	—		—	—	—	—

Energia dos Ventos IV	Permanent equity interest	216		—	—		—	—	—	—

		216		—	—		—	—	—	—

Energia dos Ventos V	Permanent equity interest	157		—	—		—	—	—	—

		157		—	—		—	—	—	—

Energia dos Ventos VI	Permanent equity interest	206		—	—		—	—	—	—

		206		—	—		—	—	—	—

Energia dos Ventos VII	Permanent equity interest	216		—	—		—	—	—	—

		216		—	—		—	—	—	—

Energia dos Ventos VIII	Permanent equity interest	157		—	—		—	—	—	—

		157		—	—		—	—	—	—

Energia dos Ventos IX	Permanent equity interest	167		—	—		—	—	—	—

		167		—	—		—	—	—	—

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Energia dos Ventos X	Permanent equity interest	137	—	—		—	—	—	—

		137	—	—		—	—	—	—

JUNCO I	Permanent equity interest	106	—	—		—	—	—	—
JUNCO I	Equity method expenses	—	—	(38	)	—	—	—	—

		106	—	(38	)	—	—	—	—

JUNCO II	Permanent equity interest	111	—	—		—	—	—	—
JUNCO II	Equity method expenses	—	—	(33	)	—	—	—	—

		111	—	(33	)	—	—	—	—

CAIÇARA I	Permanent equity interest	114	—	—		—	—	—	—
CAIÇARA I	Equity method expenses	—	—	(30	)	—	—	—	—

		114	—	(30	)	—	—	—	—

CAIÇARA II	Permanent equity interest	67	—	—		—	—	—	—
CAIÇARA II	Equity method expenses	—	—	(29	)	—	—	—	—

		67	—	(29	)	—	—	—	—

EXTREMOZ	Permanent equity interest	53	—	—		—	—	—	—
	Advance for capital increase	34,525	—	—		—	—	—	—
	Earnings from equity method	—	—	53		—	—	—	—

		34,578	—	53		—	—	—	—

Key Personnel Compensation

The compensation of key personnel of the Company (directors and board) is as follows:


	12/31/2012		12/31/2011		12/31/2010
Compensation of Executive Officers and Board Members		35,685		30,457		24,545
Salaries and social contribution		6,670		6,371		4,821
Other		4,190		4,146		3,051

		46,545		40,975		32,417

NOTE 47 – SUBSEQUENT EVENTS

1 – CEA

The Company signed, on November 12, 2012, a letter of intent, focused on the participation in the financial recovery proceedings of the Companhia de Eletricidade do Amapá, CEA. These proceedings aim to enable the Company to become the controlling shareholder of CEA.

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The Company and Amapá’s State Government shall initially sign a Shareholders Agreement and a Management Agreement, seeking the economic-financial recovery of CEA which, after the implementation of all the terms contained therein, provides for the the Company to acquire CEA’s share control. For that purpose, after the signature of such Agreements, the Company will assume the executive management of CEA, by means of its majority representation in the Administrative Council and nomination of members of the Executive Board of CEA, who shall later be replaced by professionals from the market.

In the proceedings, Amapá’s State Government will receive financing from the Federal Government, for the purpose of liquidating debts owed by CEA to the Eletrobras System and other suppliers, in addition to a Contingency Plan, which will be subject to ANEEL’s approval.

The execution of the above-mentioned transaction depends on several authorizations and initiatives in different fields and cannot, therefore, be detailed at this time – its effects being predicted for 2013.

2 – CERR

On November 26, 2012, the Company signed, , a letter of intent, aiming the participation in the financial recovery proceedings of the Companhia Energética de Roraima, (CERR). This process aims to enable the Company to assume control of CERR through the acquisition of its share control.

The Company and Roraima’s State Government shall initially sign a Shareholders Agreement and a Management Agreement, observing the necessary authorizations, enabling the economic-financial recovery of CERR which, after the implementation of all the terms contained therein, plans for an acquisition by the Company of a controlling shareholding CERR. For this purpose, after the signature of such Agreements, the Company will assume the executive management of CERR by means of its majority participation in the Administrative Council and nomination of members of the Executive Board of CEA, who shall later be replaced by professionals from the market.

During the proceedings, Roraima’s State Government will receive financing from the Federal Government, for the purpose of liquidating debts owed by CERR to the Eletrobras System and other suppliers, in addition to a Contingency Plan which will be forwarded to the approval of ANEEL.

The execution of the above-mentioned transaction depends on several authorizations and initiatives in different scopes and cannot, therefore, be detailed at this time, its effects being predicted for 2013.

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3 – Angra III Financing

The Company obtained, on December 21, 2012, a R$3,800,00 loan from Caixa Econômica Federal, with the purpose of acquiring machinery, imported equipment and hiring foreign services for the construction of the Thermonuclear Power Plant Angra III, a responsibility of subsidiary Eletronuclear. The withdrawals from this financing agreement shall begin in 2013, with the following characteristics:

•

Amortization System – SAC

•

Grace period – 5 years

•

Amortization – 20 years

•

Nominal interest – 6.5% per year

•

Federal Government Surety

4 – Indemnifications Received

On January 28, 2013, the Company’s subsidiaries received part of the indemnification amount regarding the extension of concessions for Generation and Transmission of electricity, approved by the 160 ^th Extraordinary Shareholders Meeting.

Subsidiaries Chesf, Eletronorte and Eletrosul opted for receiving 50% of the amount as immediate down payment and the remainder divided in installments, and subsidiary Furnas chose to receive the majority of its indemnification amount in installments, observing the terms of Inter-ministerial Ordinance 580/MME/MF, from November 1, 2012.

As set forth in the legislation, the installments will be received monthly, until the original completion date of the extended concession, restated by the IPCA, added to the compensation for weighted average capital cost (WACC) of actual 5.59% per year, as of December 4, 2012, date on which the amendment to the concession contract was signed.


	ORIGINAL INDEMNIFICATION AMOUNT
	TRANSMISSION		GENERATION		TOTAL		RECEIVED AMOUNT		1st INSTALLMENT
Chesf		1,587,161		5,178,303		6,756,464		3,492,000		163,000
Furnas		2,878,028		744,248		3,622,276		67,000		187,000
Eletrosul		1,985,568		—		1,985,568		1,015,000		50,000
Eletronorte		1,682,268		35,492		1,717,760		897,000		42,000
Total		8,133,025		5,958,043		14,091,068		5,471,000		442,000

5 – Trading of electricity from Itaipu and Proinfa in the CCEE – seasonal adjustment of physical guarantees

ANEEL’s Resolution 3,572/2012 approves the CCEE’s Trading Procedure – submodule 3.3, which describes the process of seasonal adjustment of physical guarantee of generating companies, allowed to generating companies to which generation projects have been granted, modeled at the CCEE, with physical guarantee as defined in relevant regulation.

The seasonal adjustment of physical guarantees is carried out annually, in the month of December. At the time of the adjustment, the CCEE discloses the schedule through an

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official notice, setting forth deadlines of related activities. Generating companies cannot file amounts that surpass the monthly power limits attributed to each plant as monthly seasonally adjusted physical guarantees, considering the number of hours in each month.

The seasonal adjustment of physical guarantees of a given power plant is the conversion of average annual values (MWméd), as defined in relevant regulation, into monthly values, expressed in terms of electricity, for the purpose of, among others, accounting calculations of the Short Term Market (MCP) and of penalties of insufficient reserve for the trading of electricity by the generating companies according to the Trading Rules.

Aneel’s Resolution 335/2013 has allowed the deadline for seasonal adjustment of physical guarantees to change to the period from February 07 to February 15, 2013. In this manner, the seasonal adjustment of physical guarantees of 2013 did not happen in advance, as set forth by the CCEE’s Market Procedure, creating conditions for the retroactive seasonal adjustment of physical guarantees for January and February of 2013.

Within the scope of MRE, the seasonal adjustment for the Itaipu Power Plant is flat, since its guarantees equals its electricity quotas. A flat seasonal adjustment is the even distribution of the physical guarantee over the 12 months in the year, and therefore has no volatility.

PROINFA’s Small Hydroelectric Plants (PCHs) are seasonally adjusted by Eletrobras, as per information to entrepreneurs submitted in September of the previous year.

In this context, market agents have estimated their seasonally adjusted physical guarantees on a month-to-month basis for the year 2013, in the period from February 7 to February 15, 2013, when the whole month of January and half of February had passed and the PLD value was known, allowing certain agents to overestimate their seasonally adjusted physical guarantee for these months.

The liquidation of the short term market in January and February 2013 was challenged by Eletrobras and ANEEL, and supported by ANEEL Resolution 627/2013, as being considered harmful to ITAIPU and to PROINFA, since by the characteristics of their flat seasonal adjustments, these institutional agents will suffer greater exposure in the Short Term Market. The amount of the above mentioned liquidation is of R$567,900, being R$514,900 related to Itaipu and R$53,000 to Proinfa.

Resuming of financial liquidation in the CEEE, therefore, depends on the result of Public Hearing 0118/2013 – open by Aneel in the period from March 13 to March 22.

It is fitting to highlight that given the institutional characteristics of energy trading for Itaipu and Proinfa, by Eletrobras, occasional resources of Eletrobras used to cover outstanding operational balances, shall be reimbursed in compensation with their own resources, based on interest rate equivalent to that which would be obtained with the investment of such, in equal period of utilization.


José da Costa Carvalho Neto		Armando Casado de Araújo
Chief Executive Officer		Chief Financial and Investor Relations Officer

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Valter Luiz Cardeal de Souza		Miguel Colasuonno
Engineering Officer		Administrative Officer


Marcos Aurélio Madureira da Silva		José Antônio Muniz Lopes
Distribution Officer		Transmission Officer

João Vicente Amato Torres

Accountant

CRC-RJ-057.991/O-S-DF

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TABLE OF CONTENTS

Part I Item 1. Identity Of Directors, Senior Management and Advisers Item 2. Offer Statistics and Expected Timetable Item 3. Key Information Item 4. Information on The Company Item 4A. Unresolved Staff Comments Item 5. Operating and Financial Review and Prospects Item 6. Directors, Senior Management and Employees Item 7. Major Shareholders and Related Party Transactions Item 8. Financial Information Item 9. The Offer and Listing Item 10. Additional Information Item 11. Quantitative and Qualitative Disclosures About Market Risk Item 12. Description Of Securities Other Than Equity Securities Part II Item 13. Defaults, Dividend Arrearages and Delinquencies Item 14. Material Modifications To The Rights Of Security Holders and Use Of Proceeds Item 15. Controls and Procedures Item 15T. Controls and Procedures Item 16A. Audit Committee Financial Expert Item 16B. Code Of Ethics Item 16C. Principal Accountant Fees and Services Item 16D. Exemption From The Listing Standards For Audit Committees Item 16E. Purchases Of Equity Securities By The Issuer and Affiliated Purchasers Item 16F. Change in Registrant S Certifying Accountant Item 16G. Corporate Governance Part III Item 17. Financial Statements Item 18. Financial Statements Item 19. Exhibits Note 12/31/2012 12/31/2011 12/31/2010 Note 1 General Information Note 2 Concessions Of Electricity Public Utility Note 3 Summary Of Main Accounting Policies Note 4 Accounting Estimates and Judgments Note 5 Cash, Cash Equivalents and Restricted Cash Note 6 Marketable Securities Note 7 Accounts Receivable Note 8 Indemnifications Law 12,783/2013 Note 9 Loans and Financing Note 10 Shareholding Remuneration Note 11 Recoverable Taxes and Tax and Social Contributions Assets Note 12 Reimbursement Rights Note 13 Nuclear Fuel Inventory Note 14 Advances For Future Capital Increase Note 15 Investments Note 16 Fixed Assets Note 17 Financial Assets Note 18 Intangible Assets Note 19 Impairment Of Long-lived Assets Note 20 Suppliers Note 21 Advances From Clients Note 22 Loans and Financing Note 23 Debentures Note 24 Compulsory Loan Note 25 Fuel Consumption Account ( Conta De Consumo De Combust Vel , Ccc)Note 25 Fuel Consumption Account (Note 26 Social Contribution and Taxes Liabilities Note 27 Regulatory Fees Note 28 Shareholders Remuneration Note 29 Accounts Payable To Brazilian Federal Treasury Note 30 Post-employment Benefits Note 31 Provision For Contingencies Note 32 Decommission Obligation Note 33 Concessions Payable Use Of Public Asset Note 34 Advances For Future Capital Increase Note 35 Costly Contracts Note 36 Long-term Operating Commitments Note 37 Shareholders Equity Note 38 Earnings Per Share Note 39 Net Operating Revenue Note 40 Income From Equity Investments Note 41 Personnel, Supplies and Services Note 42 Energy Purchased For Resale and Use Of Electric Grid Note 43 Operating Provisions Note 44 Financial Instruments and Risk Management Note 45 Business Segment Information Note 46 Related-party Transactions Note 47 Subsequent Events

1,087,050,297

Common Shares

Class A Preferred Shares

Class B Preferred Shares