ANNUAL REPORT SOCIAL and ENVIRONMENTAL RESPONSIBILITY 2017 OVERVIEW 4 | Management Message 6 | Energisa 13 | Strategy and Management
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ANNUAL REPORT SOCIAL AND ENVIRONMENTAL RESPONSIBILITY 2017 OVERVIEW 4 | Management message 6 | Energisa 13 | Strategy and management CORPORATE GOVERNANCE FRONT 22 | Governance 24 | Risk management 25 | Ethical conduct ECONOMY AND FINANCES 27 | Overview of the economy and sector 29 | Operating performance 34 | Financial performance SOCIAL AND SECTOR FRONT 42 | Employees and service providers 50 | Clients and consumers 54 | Suppliers 56 | Communities 62 | Innovation 64 | energy efficiency THE ENVIRONMENT 68 | Environmental management 74 | ibase social balance sheet 76 | Aneel indicators 166 | Corporate information OVERVIEW 4 OVERVIEW MANAGEMENT MESSAGE THE ABILITY to deliver results, even in a challenging introduce new technologies. environment such as the one that persisted in 2017, simply reaffirms our culture and the Energisa Way Despite Brazil's subdued growth, Energisa Group's of Being, which focuses on efficiency, simplicity and financial results saw continued growth in 2017. sustainable performance of our business in the last We posted consolidated net revenue of R$ 13.6 113 years. billion, up 15.5% over the previous year, consolidated Adjusted EBITDA of R$ 2.4 billion, 15.7% higher than Still affected by Brazil’s political instability, the in 2016, and record consolidated net income of R$ macro economy made a modest recovery in 2017. 572.6 million, up 192.4% from the previous year. This Gross domestic product rose by 1.0% after two supported dividend payments of R$ 269.8 million in consecutive contractions of 3.5% each, in 2015 and the year. 2016. Despite the timid recovery, per capita income closed the year relatively unchanged on 2013. The We successfully completed significant investments services and industrial segments, which contribute amounting to R$ 2.0 billion in the year and R$ 7.4 more to the economy, remain stable, but have not billion, in nominal terms, over the past five years. yet recovered the losses incurred in the largest We have continued to invest in the future of our recession in recent history. Furthermore, strong utilities, particularly in quality and in preparing for growth of 13% in the agricultural sector, driven the close of another rate-setting cycle. In 2017 we by a record grain harvest, was responsible for the made important progress on our outage frequency main contribution to the GDP growth in 2017. This and duration indicators. In April 2018 three import- provided some respite to Brazilians. Household ant utilities will undergo rate-setting reviews: consumption began rising again, if only modestly, Energisa Mato Grosso, Energisa Mato Grosso do helped by lower interest and inflation rates. Sul and Energisa Sergipe. With our recognized investment in regulatory assets, we expect to see The modest recovery therefore helped make future continued improvement in operational performance prospects more positive in a still uncertain environ- Group-wide. ment in the country. We closed the year with energy sales growth of 3.7%, outperforming the average In 2017 our shared services center—the Energisa 0.8% recorded in Brazil. The 29,620.4 GWh of energy Services Center (ESC)—began operation, an invoiced in our concessions represents the highest important milestone in the continued integration of volume ever recorded by Energisa Group, despite our acquisitions from Rede Group. Now one of the the fact we are still growing at a slower rate than largest shared service centers in Brazil, ESC handles before the economic crisis. Group-wide administrative effort and is helping to standardize processes and improve time and In legal and regulatory terms, 2017 was a year of cost efficiency to support the continued growth of intense discussion about reforming the sector Energisa Group. model. Public Consultation 33 elicited inputs from industry and society into a bill that the Federal We continued to expand and diversify our Government will present to Congress. The reforms businesses with our entry into the transmission are highly ambitious in seeking to broaden segment. Our bid was successful in an auction for consumer choice, address barriers to the proper the construction of two transmission lines in the operation of the free market, reduce subsidies and states of Goiás and Pará, which will also provide ENERGISA 2017 SOCIAL AND ENVIRONMENTAL RESPONSIBILITY REPORT 5 MANAGEMENT MESSAGE synergies to our utilities operations. These transmis- in the 500,000+ consumer category by the Brazilian sion lines should be completed by respectively 2021 Association of Electrical Utilities (Abradee) in its and 2022, and will help to improve power quality annual industry benchmarking report. This recogni- and system reliability, especially in Mato Grosso and tion has brought us a step closer the aspiration we Mato Grosso do Sul. are determined to achieve by 2020. We also opened two new buildings in Cataguases, Our ambition for excellence has also been rec- Minas Gerais, where Energisa Group was founded in ognized by our investors. Energisa shares rose by 1905. Designed as modern, sustainable and energy- 50.5% in 2017, the highest appreciation in the power and water-efficient facilities, the new buildings sector, significantly outperforming the IEE (10.0%) now host the head offices of Energisa Minas Gerais, and B3 (26.9%) indices. Energisa Soluções and the Energisa Services Center, providing comfort and optimal working conditions We are reaping dividends from developing and for our employees retaining talent, from exercising discipline in cost management, from anticipating trends and We also concluded the merger of five utilities in from building leadership in our industry. With a the states of São Paulo and Paraná into the newly determined spirit, we are positioned for a new cycle created Energisa Sul-Sudeste. This pioneering, of growth, confident we are on the right path and ANEEL-approved reorganization will provide signif- progressing at the right pace. We continue to rely on icant efficiency benefits both to the company and a strong system of governance and compliance, and to customers. We also continued the information our values of ethics and integrity, which reflect our systems migration initiated in 2015, unifying these commitment to the present and the future. utilities on the same platform. Lastly, we cannot neglect to acknowledge the role We remain engaged in and progressing on our that our employees, customers, suppliers, creditors digitization journey. As part of this, we launched and shareholders have played on this journey. Our “+Simples, +Ágil, +Energisa”, a transformation sincere thanks for your trust and confidence. program that will take us faster and with less com- plexity to the level of leadership and efficiency we aspire to in a world of profound and rapid change. Ivan Müller Botelho Ricardo Perez Botelho We remain relentlessly focused on our dream of Chairman of the Board CEO being a leading player in the power sector. We aspire to grow and achieve leadership in our industry across four aspects: customer satisfaction, safety, workplace climate and profitability. We are pleased to report significant achievements in 2017 on each of these four major goals: our safety performance was recognized by Eloy Chaves medals presented to seven of our utilities, with special recognition for Energisa Nova Friburgo, which to date has gone 590 days without work-related accidents leading to leave, Energisa Paraíba earned a Great Place to Work seal of approval; we achieved leadership in customer satisfaction, with the best performance among utility groups on the Perceived Quality Satisfaction Index (ISQP); and Energisa Paraíba was recognized as the best utility in Brazil 6 OVERVIEW ENERGISA A ENERGISA is engaged in energy distribution, transmission, sales, services and energy generation studies. We are the sixth largest group in Brazil in terms of energy consumption, selling 29,620.4 GWh in 2017, equal to 6.4% of overall Brazil consumption, serving 6.7 million consumers (8.1% of the total number of consumers in Brazil in 2017). It controls nine distribution companies located in the states of Minas Gerais, Paraíba, Sergipe, Rio de Janeiro, Mato Grosso, Mato Grosso do Sul, Tocantins, Paraná and São Paulo, which have concession agreements expiring between 2020 and 2045. In 2017, five distribution companies in São Paulo and Paraná, that were acquired from Rede Group in 2014, were merged into a single company, Energisa Sul-Sudeste (the new name of Caiuá Distribuidora), into which were merged the companies Bragantina, Força e Luz do Oeste, Vale Paranapanema and Nacional, as a result of the corporate reorganization autho- rized by the National Electricity Regulatory Agency (Aneel). TOTAL ENERGISA In the transmission sector the Group acquired two pieces of land in the states of Goiás and Pará in April 2017, in lines totaling a length of 864 km which are forecast to come into operation in 2021 and 2022. The two ventures will have synergies in the areas in which the company operates in the midwest and North regions of Brazil. CAPTIVE CLIENTS The Energisa Services Center (CSE) also came into operation in the year, in Cataguases (Minas Gerais state), This center centralizes the provision of transactional services and operating activities of 6,649,966 administrative departments, in order to better organize working routines and processes and support Energisa’s objective to be a leading energy group. Net revenue amounted to R$ 13.6 billion. At the end of the year 16 7 MUNICIPALITIES SERVED the Group was employing . thousand people, including internal employees and service providers. Founded in 1905 as Companhia Força e Luz Cataguazes- 788 Leopoldina, Energisa’s shares are traded in at B3, the São Paulo Stock Exchange, under the symbols ENGI3 (common shares), ENGI4 (preferred shares) and ENGI11 (Units, certificates consisting of one common share and four preferred shares). ELECTRICITY SOLD1 Its share control is exercised by Gipar S.A., whose only shareholder is Nova Gipar Holding S.A., whose major shareholders are Itacatu S.A. And Multisetor Comércio, Indústria e Participações S.A., belonging to the Botelho family, which holds 93.7%% of the voting 29,604.9 GWh capital of the holding company Nova Gipar.