The selected consolidated financial data set out below as of December 31, 2020, 2019, and 2018, and for the years ended December 31, 2020, 2019 2018 and 2017,2018, were derived from our Consolidated Financial Statements included elsewhere in this annual report. The selected consolidated financial data set out below as of December 31, 20162017 and 2015,2016, and for the years ended December 31, 20162017 and 2015, were2016, derived from our consolidated financial statements as of and for the years ended December 31, 20162017 and 20152016 that are not included in this annual report.

Selected Consolidated Balance Sheet Data

(1) For 2019 we adopted IFRS 16, but we did not adjust our results, 2018, 2017 and 2016.

(2) For 2018 we adopted IFRS 15 and IFRS 9, but we did not adjust our results for 2017.

(3) Data for the year ended December 31, 2017 and 2016 have been reclassified to reflect our distribution segment as discontinued operations.

(4) We conducted the review of the results according to the Circular Letter CVM / SNC / SEP 04/2020 by the local regulator issued specific pronouncement to standardize the accounting treatment related to the transmission activity for the year December 31, 2020, 2019 and 2018, but did not generate adjustments for the comparative year 2017 and 2016, due to the fact that the adjustments were related to IFRS 15 which was implemented in 2018.

(5) We adopted IFRS 1615 and IFRS 9 on January 1, 2019,2018, but we did not adjust our results of the comparative periods for 2017 and 2016.

(6) We revised our income statement for the year ended December 31, 2018 2017, 2016to correct an error in the classification of the provision for the CCC Account arising from inspections of previous years at the distribution companies between Operational Expenses and 2015.Profit (loss) from discontinued operations. For further details, see note 4.3.3 to our Consolidated Financial Statements.

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, subject to certain discretionary measures proposed by the Board of Directors and approved by shareholders in the Annual Meeting. 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 at least 10% higher than the dividend paid to the common shares. For further information regarding dividend payments and circumstances in which dividend payments may not be made, see “Item 3.D. Key Information—Risk Factors—Risks Relating to our Shares and ADS—Shareholders of any class may not receive dividend payments if we incur net losses or our net profitincome does not reach certain levels.”

Earnings (loss) per share

The table below shows our earnings (loss) per share and weighted average number of shares.

(1)       We revisedretrospectively adjusted our income statementfinancial statements for the years ended December 31, 2019 and 2018 as set out in note 4.3.1 and 36 to our Consolidated Financial statements regarding: (i) assets transmission - Existing Basic System Network (RBSE), until then classified as financial assets, starting to treat them as contract assets under the terms of CPC 47- Revenue from Contracts with Customers due to the fact that the adjustments were related to IFRS 15 which was implemented in 2018. As the adjustment relates to IFRS 15 which was implemented on 2018, we did not adjust the years ended December 31, 2017 and 2016.

(2)       The financial statements for the year ended December 31, 2018 as set outwere retrospectively adjusted to reflect the revision of reclassification refers to the Fuel Consumption Account (CCC) provision arising from inspections of previous years of the distribution companies mentioned in note 3.2.1 to our Consolidated Financial Statements, thus changing the earnings per share calculation.4.3.3

On March 27, 2020,19, 2021, we released our financial statements for the year ended December 31, 20192020 and, on the same date,March 24, 2021 we distributed the call notice for our 6061^th Annual General Meeting and 178^th Extraordinary General Meeting, as well as our management proposals. Dueproposal for the meeting.

Considering that our annual obligation to pay a minimum dividend to preferred shareholders pursuant to paragraphs 1 and 2 of article 10 of our bylaws was fully complied with in 2021, any distribution of dividends that may be declared and paid in 2021 must comply only with the provisions of paragraphs 3 and 4 of article 10 of our bylaws, which establish that, after the minimum dividends are assured to the COVID-19 pandemic, Provisional Measure No. 931/2020 and CVM Resolution No. 849/20, among other measures, authorized companiespreferred shares, each preferred share will be assured the right to held their annual meetings updividends, for each share, at least 10% higher than those attributed to a period of seven months from the end of the fiscal year. Considering the current restrictions on the movement and gathering of people due to COVID-19, our Board of Directors, upon the recommendation of our Executive Board, decided to postpone our Ordinary and Extraordinary General Meetings scheduled for April 30, 2020. We have not determined the new date for holding these meetings, but we expect them to be held no later than July 31, 2020.each common share.

Due to the net gainincome in the year ended December 31, 2018,2020, our dividend declared per share for the periods is presented below on the date declared.

Dividend per Share

*Values shown in U.S.$ are the average of the exchange rates of purchases and sales of the relevant date.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Summary of Risk Factors

This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. The risks described below are not the only ones we face. Our business, results of operations or financial condition could be harmed if any of these risks materialize.

Summary of Risks Relating to our Company

Summary of Risks Relating to Brazil

Summary of Risks Relating to the Brazilian Power Industry

Summary of Risks Relating to our Shares and ADS

Risks Relating to our Company

Our financial and operating performance may be adversely affected by epidemics, natural disasters and other catastrophes, such as the recent outbreak of the novel coronavirus.

Our operations couldmay be adversely affected by epidemics, natural disasters and other catastrophes, such as a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus known as COVID-19 which was first identifiedpandemic. Identified in Wuhan, Hubei Province, China. Since then the virus has spread to over 200 countries and territories, includingDecember 2019 in China, the U.S., the European Union,disease quickly spread worldwide, and Brazil and, onin March 11, 2020 the World Health Organization confirmed that its spread and severity had escalated to the point ofclassified it as a pandemic. The COVID-19 outbreak of COVID-19 has resultedprompted authorities in authorities around the world implementing numerousmany countries, including Brazil, to implement measures to trycontain it, including travel restrictions, curfews, lockdowns and the closing of commercial and industrial activities, severely impacting the global and Brazilian economies. Towards the end of 2020, after a period of partial recovery, the COVID-19 pandemic began to containgain momentum again, with several countries, including Brazil and the spreadUnited States, reporting a “second wave” of the virus, suchdisease. The start of vaccinations in December 2020 may reverse the situation in the medium term; however, as travel bansof the date of this annual report, there are still uncertainties as to whether the production and restrictions, curfews, quarantines and shut downs, which has leddistribution of vaccines will be sufficient to increased volatility and declines in financial markets and severeovercome the pandemic.

The adverse economic downturns in many countries. The response toeffects of the COVID-19 outbreak in many Brazilian states has involved declaring periods of quarantine which has resulted in restrictions on opening hours, and in many cases closures, of plants and stores, leading to prolonged closures of workplaces and reduced business activity, which will likely have a material adverse effectpandemic on the Brazilian economy.

Asglobal economy were substantial in 2020, causing GDP to shrink in virtually all economies. In Europe, GDP contracted by 5.0% in Germany, 8.2% in France, 8.9% in Italy, 9.9% in the United Kingdom and 11.0% in Spain. The United States had a result,3.5% GDP may contract this yeardecrease, compared to a 4.8% decrease in Japan. In Brazil GDP decreased by 4.1% although initial forecasts (such as those of the impacts of COVID-19 on the world economy may be significant and lasting,IMF) pointed to a 9% retraction. The major exception was China, with forecasts of a global recession. The Central Bank predicts a retraction of 3.3% in 2020. Considering the correlation between2.3% GDP growth, and electric energy consumption,which may lead the downward revisionrecovery of this estimate, or even an eventual recession, indicates potential reductionthe global economy after the COVID-19 pandemic is under control. Current forecasts for the Brazilian economy point to a growth of 3.1% in energy consumption in some sectors, such as industrial and commercial. In addition, consumers may not be able to pay their bills to distribution companies. Consumer default and decrease in demand may generate cash flow mismatches for distribution companies and lead them to suspend or delay payments to us, which in turn could lead to cash flow mismatches for us.2021.

Our revenues from power generation revenue comesare derived from businesses carried outsales on (i) the Regulated Market (including theincluding plants under thethat operate on a quota regime),basis, (ii) the Free Market and (iii) the short-term market. The COVID-19 pandemic initially had a negative impact on the energy market, with average energy consumption decreasing by 15.7% between February and the end of May 2020, primarily due to lockdowns and social isolation measures. However, as of June 2020, when restrictions started to be eased, there was an increase of 3.8% in which the differences betweenaverage consumption of energy, a trend that remained until the amounts generated, contracted and consumed are settled. Dueend of the year. In December, the average consumption of energy was 1.3% higher when compared to the reduction in economic activity, there may be instances of defaults by our counterparties.January 2020.

We are also managersDefaults on the Regulated Market and the Free Market were somewhat contained in 2020, in respect of the payment of the quotas for physical guarantees, Itaipu and Proinfa commercialization accounts. If either account becomes negative, we use our own resources to meetProinfa. The systemic solutions adopted by the obligationsMME and reestablishANEEL in the balanceRegulated Market, such as the creation of the accounts, which should be compensated through“COVID Account”, were fundamental to this framework, maintaining the tariffability of the following year (with respectdistribution companies to Itaipu) or through revised quotas (with respect to Proinfa). Anymake payments. For further information regarding the COVID Account, see “Item 4.B. Information on the Company – Business Overview – The Brazilian Power Industry.” Even though the COVID-19 pandemic had negative impacts on the energy market, there were no material defaultimpacts on our electric energy trading business, as our results were in any of these accounts could negatively impactline with our cash flows.projections.

ConsideringHowever, with the possible decreaseworsening of the COVID-19 pandemic, issues such as high unemployment and the extension of emergency aid (financial aid granted by the government to low-income families who would not be able to support themselves during the lockdown) may result in our revenues, we might be requiredincreased consumer defaults for the distribution companies, which in turn may lead them to record an impairment, particularly in the case of SPEs that sell significant amounts of energydefault on the Free Market. Other factors thattransactions they entered into with our companies if there is no extension of the COVID Account. It is also unclear whether the amortization by the distribution companies of the loans entered into in connection with the COVID Account may contribute to us having to record impairments are the increase in certain costs (especially those indexed in foreign currency) and/or possible difficulties with material suppliers.put pressure on energy tariffs for 2021.

In addition, as of the date of this annual report, we also expect low liquidity in the energy trading market, which may lead to difficulties for transacting business on favorable terms in this market. Future energy auctions may also be postponed for an indefinite amount of time depending on the determination of the MME.

In the transmission segment,sector, our earningsrevenues are derived from fixed tariffs definedestablished by ANEEL (i.e. the RAP)(RAP), established at the time of the concession auction, with periodic reviews defined inperiodically reviewed under specific regulations. Accordingly, we currently see no indications that the outbreak of COVID-19 will have a significant impactThese revenues depend on the revenues of our transmission assets, since these are related to the availability of theour transmission assets in the Interconnected System, and not toon the flow of energy actually transmitted. Despite low historical default rates,Accordingly, while we experienced a small increase in the current adverse scenarios, magnified by over-contracting by the distribution companies and exchange rate devaluations, may lead to increasedlevel of defaults in the transmission segment.first half of 2020 as a direct effect of the COVID-19 pandemic, these losses were entirely compensated by the implementation of the COVID Account, which meant that we did not experience a decrease in revenues.

In addition,However, as certainsome of our planned transmission projectslines are in the implementation phase,still under construction, we might suffermay still experience further delays in their construction as a result of a complete shutdown the lockdown measures and/or inrestrictions on the re-deploymenttransfers and movements of construction teams. Restrictions of this nature may alsothe teams allocated to these projects. These restrictions can cause us or our contractors to miss milestones on projects and experience operational delays, delayin the delivery of electrical infrastructureequipment or other inputs purchased abroad, delays in connecting new users to the Interconnected System and other supplies that we source from around the globe, delay the connection of electric service to new customers, prolong the time period necessary to performin maintenance on our infrastructure, and significantly reduce the use of electricity by commercial and industrial customers.resulting in missed deadlines.

Further, while weRegarding our workforce, due to the COVID-19 pandemic, the risk to the health of our employees has increased significantly, especially with employees working in core activities, such as operations, maintenance and engineering. We have modified certain business and workforcevarious workplace practices, (including employeesuch as remote working, travel employee work locations,restrictions and cancellation of physical participation inattendance at meetings and events, following the official guidelines. We also adjusted work shifts and conferences) to conform to government restrictionsset up backup teams for critical functions. In addition, we adopted and best practices proposed by governmentreinforced various occupational health and regulatory authorities,safety protocols, aiming at reducing the risk of contamination, which could compromise the generation and transmission of energy. To date, we have a limited number of highly skilled operators for some of our critical power plants and our grid operations centers. Our operations would be disrupted ifnot experienced any of our employeesmaterial operational restrictions or employees of our business partners were suspected of having COVID-19, which could require quarantine of some or all such employees or closure of our facilities for disinfection. Also, as a result of these measures, our day-to-day administrative activities have been disrupted, including limiting our access to our facilities and certain technology systems and disrupting normal interactions with accounting personnel, external auditors and others involved in the preparation of this annual report. If this pandemic continues, there may also be an impact on our future reports.disruptions.

Accordingly, it is possible thatGiven the generation, transmission and commercializationuncertainties about the future impacts or duration of electric energy segments, in which we operate, willthe COVID-19 pandemic, the Brazilian electricity sector may still suffer material negative impacts. We cannot predict the duration of these restrictions on economic activity or the exact impact thatwhat impacts they will have on our business. Therefore, we currently cannot estimate the potential impactWe are also unable to our financial position, results of operations and cash flows.

Additionally, we may need to recognize material actuarial liabilities if the equity in the pension funds that we and our subsidiaries sponsor fluctuates as a result of the decrease in economic activity and its impact on the financial and capital markets.

We cannot predict what policiesactions or actionspolicies the Brazilian government mayGovernment will take in the future as a response to the COVID-19 pandemic, andsuch as the renewal of the COVID Account, or how they might affect the economy orwill impact our business oroperating performance, financial performance. The overall trend suggests that COVID-19 may affect the electricity industry as a result of lower economic activity.results and cash flows.

If we do not remedy the material weakness in our internal controls, the reliability of our financial statements may be materially affected.

Pursuant to SEC regulations, we evaluate through our internal auditors the effectiveness of our controls and procedures, including the effectiveness of our internal controls over financial reporting, aiming to ensure both the reliability of the information disclosed to the market and compliance with applicable accounting principles.

We design our internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. The internal controls department works in partnership with the managers of our business to identify the processes that are under their responsibility, and to implement controls to mitigate risks identified by the risk management department.

During the 20192020 certification process, we and our independent auditor conducted independent tests and identified deficiencies in our internal controls, which resulted in fourfive material weaknesses included in our 20192020 annual report filed on Form 20-F.

The material weaknesses in internal control over financial reporting existed as of December 31, 20192020 related to:to we did not design and maintain: (i) lack of an effective control environment and monitoring of controls, which led to: (a) a failure to monitor that control deficiencies were not remediated in a timely manner,manner; (b) a failure to maintain effective controls over the completeness and accuracy of key spreadsheets and system-generated reports used in controls,controls; and (c) a failure to design and maintain controls in response to risks of material misstatement related to business processes in scope;scope, including related to calculations and review of non-recurrent/non usual transactions; (ii) aeffective period-end financial reporting controls, including: (a) failure to design and maintain controls related to impairment calculations, review and approval; (b) failure to design and maintain controls over the period-end financial reporting, which led to: (a) the incompletenesscompleteness and accuracy of assets that should be considered for impairment analysis and inaccuracy of impairment calculations, and (b) incomplete and inaccurate accounting for deferred taxes; (iii) aand (c) failure to design and maintain controls over the review of the completeness of participants and accuracy of actuarial calculations and reserves; (iii) effective controls related to review and approval of ERP transactions that could lead to non-authorized manual journal entries; and (iv) a failure to design and maintaineffective controls related to access granting procedures and segregation of duties.duties; and (v) effective controls over completeness and accuracy of the judicial deposits and legal lawsuits, including periodic reviews/updates of them and the expected losses for accrual purposes.

These control deficiencies resulted a revision and other adjustments related mainly to contingencies, deferred taxes, impairments and actuarial reserves to our consolidated financial statements for December 31, 2020. Additionally, these control deficiencies could result in misstatements of accounts and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.

During the course of 2020,2021, we will attempt to remedy these material weaknesses by hiringimplementing an improved methodology for the certification of internal controls, aiming to ensure the adequate mapping, design assessments and testing of the internal controls for its effectiveness. This new methodology will rely on risk and control´s self – assessments by their owners, followed by independent tests and a sign-off routine; all of this supported by a systemic tool from the SAP suite – the GRC Process Control, which is already implemented. We intend to hire a consulting firm to assist us in the implementation andof this new methodology alongside the evaluation of remedial steps designed by the managers of each respective process. These action plans will be designed based on (i) controls classified as ineffective in the previous year, and (ii) tests carried out by our management.

Our internal controls department is responsible for overseeing the implementation of these action plans and reports periodically to the Board of Directors and the Audit and Risks Committee.

If our future efforts are not sufficient to remedy all the inconsistencies identified, we could continue to experience material weaknesses in our internal controls in future periods.

Our operational and consolidated financial results are partially dependent on the results of the SPEs, affiliates and consortia in which we invest.

We conduct our business mainly through our generation and transmission operating subsidiaries. In addition, we and our subsidiaries conduct some of our business through SPEs, which are created specifically to participate in public auctions for enterprises in the generation and transmission segments. Our SPEs are typically structured in partnership with other companies to exploit new energy sources and transmission lines. Also, we have an equity interest in 25 affiliates that explore generation, transmission and distribution activities. Therefore, our ability to meet our financial obligations is related, in part, to the cash flow generated by, and earnings of, our subsidiaries, affiliates and SPEs, and the distribution or other transfers of earnings to us in the form of dividends, loans or other advances and payments.

As we generally do not control the SPEs and their affiliates, accounting for them under the equity method of accounting, their practices may not be fully aligned with ours. Since the SPEs are not government-controlled, they are not required to follow operational and financial processes applicable to government-controlled entities.

Additionally, as the SPEs and the affiliates are separate legal entities, any right we may have to receive assets of any SPE or other payments upon their liquidation or reorganization will be effectively subordinated to the claims of the creditors of that SPE (including tax authorities and trade creditors).

In order to standardize the management and monitoring of the financial and operational performance of the SPEs, we have instituted internal controls and established a specific department dedicated to the management of participations in the SPEs, with the aim of improving the flow of information and management. The guidelines and the applied principles are set out in the SPEs Manual (Manual de SPEs) approved by our Board of Directors.

Due to the high level of financial leverage of our subsidiaries and the difficulties in obtaining financing, mainly as a result of our reduced cash flow following the implementation of Law No. 12,783/13, our prior and current2021-2025 Business and Management Plan (Plano Diretor de Negócios e Gestão) 2020-2024 contemplatedset as a target the salestreamlining of our shares in certain SPEs,equity ownership portfolio in order to reduce our consolidated indebtedness andfinancial leverage, increase our cash flows. In order to facilitate the sale of these SPEs, we transferred the ownership of these SPEs from our subsidiaries to our holding company. We do not haveflows and improve the control of theand management of the SPE, which may lead to operational issues. We created a specific working group to oversee the saleassets of theseour SPEs. On September 27, 2018, we sold 26 of the 71 auctioned SPEs, with a spread of 2% over the minimum price. As of the date of this annual report, we have already received R$1,330 million related to sale of 26 SPEs. Of the remaining 45 SPEs from the January 2018 auction, 39 of them, with a book value of R$1.5 billion (as of December 31, 2019), were put up for sale2016, we had a stake in 178 SPEs. Since then we have substantially reduced the number of SPEs we own through sales and other business combinations, to 94 as of December 31, 2020 and we are looking to further reduce this number to 49 SPEs by December 2021 in order to create value by increasing the Competitive Sale Procedure (Procedimento Competitivo de Alienação) No. 01/2019, supported by Decree 9,188/17, grouped into six lots, five relating to wind powerefficiency of our generation and onetransmission assets. We continue to transmission. On July 30, 2019, we commenced the sales processhold interests in 94 SPEs, and received offers from bidders on October 31, 2019. As of the date of this annual report, we have completed the negotiation phase and are awaiting the receive the fairness opinions. Although there is a possibility of retaining the value of 5% of the firm economic proposal, the COVID-19 pandemic may cause the companies that offered the bid to review their cash position and their strategic positioning in the market, possibly requesting postponement of terms or even the cancellation of the purchase transaction.

We cannot assure investors that these sales will not be contested by third parties such as the TCU or the CGU. Similarly, although we rely on the support of external advisors, we cannot ensure that the sale of the remaining SPEs will be successful, and sale prices may be lower than we expect. Further, as a result of auctioning the SPEs, we incurred a loss of R$553 million for the year ended December 31, 2018, resulting from the difference between the book value and the sale value (based on the auction price) of certain SPEs that were classified as held for sale. If any of these risks materialize, it may have a material effect on our results of operations and financial position. Additionally, with the sale of the foregoing assets, we cannot guaranteeyou that we will maintainbe able to meet our current market share in generation and transmission in Brazil.goal of 49 SPEs by year end 2021.

Given the need to make the electricity generation and transmission projects viable, we, as a state-owned company, are the guarantor of several projects structured as SPEs.  If the loans related to such projects are not paid,repaid, we may suffer material adverse financial impacts and our results of operations may be adversely affected.

Over the past severalfew years, we have acted as guarantor in respect of several SPE projects in which our subsidiaries were minority shareholders in order to support the construction of electricity generation and transmission projects.  As of December 31, 2019,2020, the aggregate value of these guarantees was R$30.630,6 billion.  Among the SPEs tofor which we currently provide guarantees are:  Norte Energia; Santo Antônio; Teles Pires; BMTE; São Manoel; Jirau; and others.Jirau.  In 2020, we sold our stake in the Campos Neutrais, Santa Vitória do Palmar Holding and Mangue Seco 2 SPEs. As of December 31, 2020, these SPEs were still in the process of replacing our guarantees in an amount of R$761 million with guarantees from the new shareholders. Once this replacement process is concluded, the amount of guarantees concerning these SPEs will be removed from the aggregate/total value of guarantees. If the loans related to these projectsguarantees are not paid,repaid, we may suffer material adverse financial impacts and our results of operations may be materially adversely affected.

If any of the SPEs default on their obligations, the guarantees we provided may be called upon, impacting our financial position. Even if a default occurs with only one lender, it may trigger cross default clauses in the financing contracts of other SPEs, which could lead to other creditors requesting the acceleration of the debts with us, whichtheir loans. That would impact the enforcement of the guarantees provided by us, and could negatively impact our financial condition.

There are certain risks associated with the sale of our six distribution subsidiaries located in the North and Northeast region of Brazil.

Through auctions on the B3 during 2018, we auctioned our participations in (i) Cepisa and Ceal to Equatorial Energia, (ii) Eletroacre and Ceron to Energisa S.A., and (iii) Boa Vista Energia and Amazonas D to the Oliveira Energia & Atem Consortium. Various labor unions initiated proceedings to stop the sales of certain of the distribution companies prior to their auctions, and we cannot ensure that similar entities will not bring further legal actions against us, the distribution companies or the purchasers in the future.

In connection with the sale of our distribution companies, we agreed to assume debt owed by the distribution companies to Petróleo Brasileiro S.A. — Petrobras (“Petrobras”) and certain of its subsidiaries, including Amazonas D (R$10.5 billion), Ceron (R$2.1 billion), Boa Vista Energia (R$0.3 billion) and Eletroacre (R$0.3 billion). We also agreed to pledge certain receivables to Petrobras as security for the debt and to assume R$0.9 billion debt of Amazonas D owed to Cigás. Currently, there are ongoing discussions with Cigás in relation to this matter aiming at formalizing such settlement.

In exchange for the assumption of the debt, we are due to receive certain credits from the CCC Account. However, the receipt of these credits is uncertain because they are credits subject to ANEEL’s approval and, to date, the amount of credits recognized by ANEEL is lower than those granted by the distribution companies.

For a further discussion, see “—Risks Relating to our Company—We may not receive the full value of receivables from the CCC Account transferred during the sale process of our distribution companies.”

In addition, the distribution companies we sold in the auction process owe us R$6.4 billion as of December 31, 2019. We cannot ensure that we will receive those amounts, even if we take legal action to enforce our rights, as it would depend on the credit worthiness of each distribution company.

We may not receive the full value of receivables from the CCC Account transferred during the sale process of our distribution companies.companies.

At our 170th Extraordinary Shareholders’ Meeting held on February 8, 2018, we ratified the decision to sell our distribution companies and approved the capitalization of these companies, in accordance with the CPPI’s guidelines. Our shareholders also approved us assuming an amount of R$8.5 billion of receivables which were assumed from the distribution companies’ balance sheets,companies, considering adjustments through June 30, 2017.  As these receivables relate to the CCC Account, they have been the subject of discussions with ANEEL.

Currently, ANEEL is examiningThe sale model of our distribution companies (Amazonas D, Ceron, Eletroacre, Cepisa, Ceal and Boa Vista Energia) required us to invest R$11.2 billion in the six distribution companies in advance of the auction, where each entity would be offered for R$50 thousand (and the purchase would assume the same existing debt obligations). To attract interested parties and to facilitate the sale, the model also required that we assume R$8.5 billion in receivables with uncertain payment risk that were recorded in the respective balance sheets of Amazonas D, Ceron, Eletroacre and Boa Vista Energia as receivables as of June 30, 2017, as well as the related debts in the same amount. As a result, we incurred R$19.7 billion in debts from the distribution companies, regarding the credits they hold in respectrelated to a credit of R$8.5 billion from the CCC Account, which is subject to ANEEL’s review. We discussed these amounts with ANEEL but their payment remains uncertain.

During the privatization of the distribution companies, we purchased Amazonas GT from Amazonas D for R$2.8 billion, which reduced the periodneed to make financial contributions to all six distribution companies from R$11.2 billion to R$8.4 billion. The amount of debt assumed by the distribution companies remained the same, the only change was our acquisition of Amazonas GT from Amazonas D for R$2.8 billion, assuming debts of Amazonas D in the same amount. Accordingly, we contributed R$8.4 billion to the distribution companies valued at R$50 thousand each, assumed debts of R$8.5 billion and credits in the same amount from the CCC Account, in addition to having acquired Amazon GT for R$2.8 billion, assuming debts of Amazonas D in the same amount. The aggregate of all these transactions reached R$19.7 billion in debts assumed during the sale process of the distribution companies.

Of the total debt of R$19.7 billion, R$13.0 billion was debt related to the purchase of oil and gas from Petrobras and BR Distribuidora, and R$0.9 billion was debt incurred with Cigás. The remainder were debts owed to us and Eletronorte. As of December 31, 2020, of the total debt incurred with Petrobras, BR Distribuidora and Cigás, we have already paid R$6.7 billion in principal and interest, leaving an outstanding balance of approximately R$8.0 billion. As a result, we have already paid a substantial part of the debts incurred by the distribution companies, but have not yet been able to receive a large part of the credits due from the CCC Account.

As of December 31, 2020, we adjusted the amount recorded in our balance sheet from R$8.5 billion related to credits due from the CCC Account to R$6.0 billion as a result of the progress of the discussions held with ANEEL to that date. The discussions were divided into phase 1, from July 2009 to June 2016, (first round inspection)and phase 2, from July 2016 to April 2017. The credits in orderthe amount of R$6.0 billion recorded on our balance sheet as of December 31, 2020 are recorded in two line items, “the right to identify any asset or liability pursuantreimbursement account” and “loans and financings.”

As of the date of this annual report, ANEEL had completed only the inspection of all the reimbursements to Resolutionthe CCC Account by Amazonas D. ANEEL approved the reimbursement related to the first and second phases (which occurred in March 2019 and March 2020, respectively) and, in the specific case of credits assigned by Amazonas D, ANEEL understood that there are no credits to be repaid by the CCC Account, but a debt to be reimbursed and returned to the CCC Account. As of December 31, 2020, the reimbursement obligation by Amazonas D was R$472 million. As we assumed the credits from the CCC Account that were subject to ANEEL’s review, the obligation to return such amount to the CCC Account and the CDE Account was transferred to us.

Notwithstanding this balance to be returned to the CCC Account, the final net balance of credits assigned by Amazonas D is positive by R$2.4 billion, as a debt assumption contract was signed with Amazonas D for the payment of R$442 million and we also understand that we are entitled to receive credits arising from the disallowances of the CCC Account in accordance with the criteria of economic and power efficiency, according to Law No. 427/11.13,299/2016, in the historical amount of R$1,358 million. We believe that these amounts are owed to us by the National Treasury and not by the CCC Account. We updated the economic and power “inefficiency” value by the Selic rate until December 31, 2020, totaling an accounting record of R$2.4 billion.

In addition, on March 10, 2020 ANEEL completed the first review period for reimbursements from the CCC Account in respect of Ceron and Eletroacre. As of December 31, 2020, Ceron has the right to receive R$2.0 billion and Eletroacre has the right to receive R$204 million. Considering the four review procedures already concluded by ANEEL, we have the right to receive R$1.8 billion from the CCC Account and the CDE Account, net of the obligation to return R$472 million, and an additional R$2.8 billion from the other sources indicated above referring to the credits of Amazonas D.

Further, ANEEL issued Technical Note 49/2020 on April 6, 2020 regarding the first review phase for refunds from the CCC Account in respect of Boa Vista Energia stating that Boa Vista Energia is entitled to receive R$108 million from the CCC Account as of December 31, 2020. Accordingly, as of December 31, 2020, we are entitled to receive an aggregate amount of R$1.9 billion in reimbursements from the CCC Account. ANEEL has already prepared anot yet published its technical note onnotes with the preliminary amounts for the second phase of the review process for Amazonas D; Eletroacre; Ceron;Ceron, Eletroacre and Boa Vista Energia. This technical note questionedSimilarly to Amazonas D’s situation, we also believe that we are entitled to receive credits arising from the amounts paid by the CCC Account to these companies and the method of processing and composition of the total generation costs to be reimbursed to these companies. We, as managersdisallowances of the CCC Account duringin accordance with the monitoring period, together withcriteria of economic and power efficiency, according to Law No. 13,299/2016, in the historical amount of R$19.6 million. This amount updated by Selic rate until December 31, 2020, resulted in an accounting record of R$41.2 million.

The R$6.0 billion of credits from the CCC Account assumed from the distribution companies challenged the decision issued by ANEEL and the criteria they applied. See note 11 torecorded on our Consolidated Financial Statements for a further description of the receivables from the CCC Account.

On March 7, 2018, the technical notes of ANEEL noted a credit of R$163 million in favor of Eletroacre, and a credit of R$1.6 billion in favor of Ceron,balance sheet as of December 31, 2017. On April 16, 2018,2020 includes: (i) R$1.9 billion from the CCC Account inspected by ANEEL and which ANEEL has made its determination or issued a technical note, already deducted from the obligation to return the R$472 million referring to Amazonas D; (ii) R$0.9 billion regarding two claims by Ceron, Eletroacre and Boa Vista which are still pending analysis by ANEEL, and which we believe ANEEL will accept; (iii) R$2.5 billion from the CCC Account assumed from the distribution companies, endorsed by Law No. 65/18 establishing13,299/2016, which gives us the right to receive reimbursements from the National Treasury for fuel expenses incurred up to April 30, 2016, which are proven and have not been reimbursed due to the requirements of economic and energy efficiency; and (iv) R$0.8 billion in current credits from the CCC Account that were originally received by the finaldistribution companies and, therefore, could not be assigned to us. Accordingly, Ceron, Amazonas D, Eletroacre and Boa Vista should enter into agreements to reimburse these amounts. Of the credits from the CCC Account related to inspection, we have a claim with ANEEL to start receiving installments regarding these credits related to the inspection in 2021, with the adjustment being made in 2022, the inspection is ongoing. The credits assigned and to be paid by the Treasury based on Law No. 13,299/2016 must be realized if the Provisional Measure for the privatization is approved by Congress, reducing the amount that we have to pay for the removal of quotas and a new concession for the plants. As for the current credits, we are required to sign a refund contract with each distribution company. We have already signed the contract for the largest amount, R$442 million, with Amazonas D. We are in negotiations to sign a contract with Boa Vista Energia, and intend to sign contracts with Ceron and Eletroacre in the first half of 2021. Only after the signing of the contracts will we begin to receive the payments in installments.

The credits from the CCC Account assumed from the distribution companies with respect to Law No. 13,299/2016 will be paid by the National Treasury with funds from the bonus payment for the grant. Provisional Measures No. 814/2017, No. 855/2018 and No. 879/2019, which have not been converted into law and have expired, provided for, among other items, the payment of compensation for economic and energy “inefficiency” to us. However, failure to convert provisional measures into law does not remove our right to be paid for “inefficiencies,” based on the original Law No. 13,299/2016. An opinion of external counsel recognizes this right, despite MP No. 879/2019, requires us to reflect this receivable on our balance sheet. In addition, in November 2019 the executive branch submitted Bill No. 5,877/19 to the National Congress, which addresses our privatization. Article 5 of this Bill provides that, from the amount to be reimbursedpaid to the Granting Authority for the new concession of the “decommissioned” plants, the amount of economic and energy “inefficiency” incurred up to June 30, 2017 (not to exceed R$3.5 billion) will be deducted. Therefore, if this bill is approved we will receive a rebate of the “inefficiency” credit assumed by the distribution companies we sold. The provision for a rebate of the “inefficiency” credit to be paid for the “decommissioned” plants included in Bill No. 5,877/19, was also included in Provisional Measure No. 1,031/2021, issued in February 2021, which provides for our privatization.

In a meeting held in February 2021, ANEEL committed to issue the technical notes on the 2nd period of inspection of Ceron, Eletroacre and Boa Vista afterby the review isend of June 2021, and to analyze the proposal of Eletrobras to include in the 2021 CDE budget payment installments for the four inspection processes already concluded, totaling R$69.6 million (as adjusted to December 31, 2017). ANEEL also affirmed that, due to the “inefficiency” cost of Boa Vista’s fuel, the Brazilian National Treasury should pay Boa Vista R$20 million, subject to adjustment.

1.8 billion. Additionally, ANEEL has not yet disclosed newalready issued a technical notesnote on the first inspection period for Boa Vista Energia. As for Ceron, on August 20, 2019, ANEEL issued a technical note No. 134/2019 for the first inspection period, incorporating some of the distributor’s and our requests and increasing the total amount to be paid to us, which is now R$1,904 million, adjusted by the IPCA index for July 2019. With respect to the first inspection period of CCC refunds to Eletroacre, ANEEL issued technical note No. 149/2019 on September 3, 2019. This technical note converted the amount to be paid into R$191.6 million, adjusted by the IPCA index for July 2019.

At the meeting held on March 10, 2020, ANEEL’sBoard of Directors decided to complete the process of inspecting refunds from the CCC Account to Eletroacre and Ceron, both in respect of the first inspection period. ANEEL acknowledged that Ceron is due to receive R$1.9 billion as of July 2019 from the from CCC Account. Eletroacre is due to receive R$192 million as of July 2019 from the CCC Account. These amounts deliberated by ANEEL are the same as those mentioned in Technical Notes No. 134/2019 and No. 149/2019, regarding the first period of the CCC Account inspection process reimbursed to Ceron and Eletroacre, respectively. The regulatory agency has not yet issued technical notes on the second inspection period for Ceron and Eletroacre.

On March 19, 2019, ANEEL concluded its process of inspection and processing of the benefits reimbursed by the CCC Account to Amazonas D, for the period between July 30, 2009 and June 30, 2016, partially complying with the litigation and administrative processes filed by us and Amazonas D. Pursuant to ANEEL’s technical note No. 60/2019-SFF-SFG-SRG/ANEEL, as of April 18, 2019, the CCC Account owed Amazonas D R$1,621.9 million. These credits were transferred by Amazonas D to us during the privatization. Additionally, ANEEL will determine the value of the “fuel inefficiency” with the Ministry of Economy that was calculated to be R$1,357.8 million (historical cost) between July 2009 to April 2016 (already accounted for), to be paid by the Brazilian National Treasury. Even though Provisional Measure No. 855/18 and Provisional Measure No. 879/19 have not been converted into law, we understand that Laws No. 13,299/2016 and No. 13,360/2016 maintain Amazonas D and Boa Vista’s rights to receive the “inefficiency” rates from the Brazilian National Treasury for the period from July 2009 to April 2016.

In addition, Bill No. 5,877/2019, which discusses the proposal for our privatization, recognizes our right to use the “fuel inefficiency” values to offset the payment amount of any new power generation concessions granted to our companies in the process of not taxing our plants. For more information on the risks involving this matter, see “—Risks Relating to our Company—We are controlled by the Brazilian Government, the policies and priorities of which directly affect our operations and may conflict with the interests of our investors.”

There has been no decision on how the amount of the “fuel inefficiency” may be adjusted. However, if it is adjusted by the SELIC rate, as is typical, the adjusted amount would be R$2,394.2 million (adjusted to December 2019) for Amazonas D and R$40.1 million (as of December 31, 2019) for Boa Vista, for the period from July 2009 to April 30, 2016. In our financial statements for the year ended December 31, 2019, we considered the adjustment by the SELIC rate as a credit to be paid by the Brazilian Government.

Regarding the second period of inspection of reimbursements from the CCC Account to Amazonas D (from July 2016 to April 2017), ANEEL decided, at a Board Meeting held on March 10, 2020, to returnBoa Vista in the amount of R$2.1 billion (as108 million, which has not yet been voted on by ANEEL. Adding the inspection of March 2019)Boa Vista to the CCC Fund. Accordingly, Amazonas D has finalized its entire inspection process, as ANEEL’sBoard of Directors hadfour processes already deliberated, on March 19, 2019,completed, we expect R$1.9 billion to be paid by the result of the first inspection period of reimbursements fromCDE Account and the CCC Account to Amazonas D, with the company being entitled to receive the amount of R$1.6 billion (as of September 2018).us.

As of December 31, 2019, we recorded R$9.1 billion as refunding rights in respect of credits from the CCC and CDE Accounts acquired through the sale of the distribution companies. However, due to the inspections and partial results, we recorded provisions of R$3.7 billion associated with these credits, resulting in a net value of R$5.4 billion. Of this amount, R$2.4 billion are credits related to “fuel inefficiency” adjusted by the SELIC rate and should be paid by the Brazilian National Treasury or offset by granting values that we have to pay to the Brazilian National Treasury. The remaining balance should be paid by the CCC Account; however, we cannot predict the timing of payments since these refunds are dependent on ANEEL’s discretionary approval. While management has recorded its best estimate, the conclusion of the discussions with ANEEL regarding thestill discussing credits from the CCC Account is crucial forwith ANEEL, and the provision of an amount to be received by us and our subsidiaries from the CCC Account.

In view of the above, considering that we are still discussing the credits of the CCC Account with ANEEL,discussions have not yet been completed, we may receive an amount that is lower than the one we originally assumed.R$8.5 billion in credits from the CCC Account that the distribution companies incurred originally. That may result in new provisions that might further reduce the R$6.0 billion in credits from the CCC Account, as recorded in our balance sheet as of December 31, 2020. In addition, the amount relatedamounts relating to “fuel inefficiency” dependseconomic and energy “inefficiency” depend on the budget forecast of the Brazilian Government to be paid or compensated with granting bonuses,the bonus grant, which has not yet occurred. We cannot specify when and under what circumstances we will receive credits from the CCC Account in respect of the amounts already decided by ANEEL. In addition, the amounts from the CCC Account to be reimbursed by the distribution companies still depend on the signing of the respective contracts and are subject to the risk of default. Any further reduction in the credits we expect to receive from the CCC Account may adversely affect our financial condition.

We are exposed to mismanagement claims for managing certain sectorialsectoral funds and governmental programs.

We were responsible for the management of the financing agreements granted with funds frommanaged the RGR Fund until May 2017 and sectoral funds such as the CDE Account and the CCC AccountsAccount until April 30, 2017, when the management of boththese funds was transferred totaken on by the CCEE. However, we will remain responsible for managing the financing arrangements entered into prior to November 17, 2016 under article 28 of Decree No. 9,022/17, and to reimburse the RGR Fund for funds received as amortization payments, interest payments and reserve rate credit.

Due to ANEEL’s inspections, we are liable for the recovery of debt and resources of the RGR Fund pursuant to article 21-A of Law No. 12,783/13, of R$1.6 billion as of December 30, 2019.

We are also the managers of certain governmental programs:government programs, including Luz para Todos,, Proinfa, Procel, and, more recently,Mais Luz para a Amazônia,, introduced by Decree No. 10,221/2020 and MME OrdinanceDirective No. 86/2020. These programs are subject to the regulationsregulation of ANEEL, and the MME, and are subjectinspection agencies.

ANEEL is currently auditing the benefits paid by the CCC Account during our management between July 30, 2009 and April 30, 2017. In 2016, Amazonas D was the first beneficiary to have its reimbursements audited. According to ANEEL, as manager of the CCC Account, we were not correctly applying Normative Resolution No. 427/2011 (revoked by Normative Resolution No. 801/2017). In the first technical notes released by ANEEL on the first inspection period (July 2009 – June 2016), in early 2017, Amazonas D received almost R$4.0 billion more from the CCC Account than it was entitled to. As Amazonas D belonged to us and we were the manager of the sectoral fund, ANEEL initially requested us to return the amount overpaid to Amazonas D to the supervisory bodies.CCC Account. However, as the inspection progressed, ANEEL accepted the arguments presented by us and Amazonas D.

As the audits of Amazonas D and other beneficiaries progressed, ANEEL no longer took the position that we would have to return the overpaid amount to the beneficiaries of the CCC Account. If any company has received more than the amount due under ANEEL regulations, it would be up to the beneficiary to make this payment to the sectoral fund.

Similarly, ANEEL’s inspection and reprocessing of the benefits of the CDE Account, managed by us, with respect to the cost of mineral coal and secondary fuels, is underway. The period audited is from January 1, 2011 until April 30, 2017, when the CCEE managed the sectoral fund. If any beneficiary received excess funds from the CDE Account, it would be up to the beneficiary company to return that excess to the sectoral fund.

Accordingly, we believe the risk of ANEEL requiring us to reimburse amounts to the CCC Account and CDE Account for the amounts overpaid to each beneficiary, during the time of our management of these funds, to be low.

On the other hand, we are also the managers of certain governmental programs: Luz para Todos, Mais Luz para a Amazônia, Proinfa incorporatedand Procel.  We receive resources associated with the contracts executed to cover the administrative costs incurred in operating the Luz para Todos and Mais Luz para a Amazônia programs, and this may lead to a mismatch between revenues and expenses in a given year.

Specifically, the Proinfa program, established by Article 3 of Law No. 10,438/02, and regulated by Decree No. 5,025, dated March 30, 2004, was developed to increase the participation of electric power generated by Independent and Autonomous Producers (Produtor Independente Autônomo) - PIA(PIA) from sources such as wind, small hydroelectric power plants and biomass in theInterconnected Power System.  Pursuant to Article 13 of Decree No. 5,025/2004, Proinfa’s costs and generated power will be apportioned in a manner that does not treat us unfairly.  If funds in the Proinfa account are insufficient to cover the program’s costs, we will review Proinfa’s annual plan and forward it to ANEEL to reestablish the quotas.

As managers of the CCC Account until April 2017, we questioned how the amounts were calculatedAny mismatches may have a negative effect on our operations and the methodology applied by ANEEL. Additionally, the CDE sectoral fund commenced an inspection process related to the reimbursement of coal for the period from January 2011 to April 2017. We were the manager of this fund. Accordingly, we may be liable for possible failures in the management of the CCC Account or the CDE Account, as well as other sectorial funds, in which could negatively impact our financial condition and reputation.

On July 20, 2018, ANEEL initiated the process of inspection and reprocessing of the benefits paid by the CDE Account, for the period from January 2011 to April 2017, when we were the manager of the sectorial fund. Three companies benefiting from the coal refund were subject to inspection: Copel, Engie and CGTEE, the latter being one of our companies. The regulatory agency also investigated the coal stock at April 30, 2017.

On January 23, 2020, ANEEL issued technical note No. 05/2020 with the preliminary result of the inspection of the coal costs reimbursed to CGTEE, determining the amount of R$118.9 million to be returned by CGTEE to the sectorial fund. CGTEE and we, as former manager of the sectorial fund have the right to comment on the methodology, information and results determined by ANEEL. In the case of CGTEE, almost the entire difference between the amount reimbursed by the sectorial fund and the amount set out by ANEEL as part of the inspection relates to the treatment given by ANEEL to the Candiota III Plant.condition.

The amount of any payments to be received following the renewal of our transmission concessions may not be sufficient to cover our investments in these concessions. Further, we cannot estimate when and on what terms we will receive indemnity payments for our generation concessions noror if the amount will be sufficient to cover our investments in these concessions.

By agreeing to the renewal of our generation and transmission concessions, which were due to expire between 2015 and 2017, we agreed to receive certain payments as compensation for the unamortized, undepreciated portion of our assets that relate to the renewed concessions. Based on the provisions of Law No.12,783/13, we have filed claims with ANEEL for our renewed transmission concessions, the RBSE assets and the RBNI assets. The indemnification relating to the RBNI assets was paid in installments between 2013 and 2015 (at thea book value of approximately R$8.1 billion as of December 31, 2012). Between 2015 and 2016, ANEEL reviewed the appraisal reports and approved the indemnity payment in respect of the RBSE’s assets at thea book value of approximately R$17.6 billion as of December 31, 2012.

MME Ordinance No. 120/16 established the conditions for receipt of this unamortized and/or undepreciated remuneration related to theThe RBSE assets. According to ANEEL, the order stipulates that the cost of capital of the concessionaires referring to these assets will beamounts were included in the respective RAP,transmission tariff as of July 1, 2017, with two components:

Certain associations2017. Part of energy consumers have argued that these adjustments should not be passed onthis amount has been challenged in court, which has delayed the timing of payment to consumers. On April 10, 2017, ANEEL partially adjusted the position of these associations asus. As a result, of a preliminary judicial injunction and reducedquestion about the additional RAP accordingly. Asindex that should be used to update the amount of the date of this annual report, ANEEL is contesting the preliminary injunction. Since November 2019, the Brazilian courts have been rendering decisions in order to dismiss the legal proceedings that discuss RBSE and revoke the majority of injunctions that were previously granted. As a consequence, the transmission companies will receive full paymentoverdue installment was raised. In 2017, part of the compensation was excluded by ANEEL due amount, including the remuneration. It should be noted thatto court injunctions. However, these legal proceedings are subject to a mandatory double degree of jurisdiction (duplo grau de jurisdição obrigatório),injunctions were subsequently revoked and the appeals were received only with devolutive effect (efeito devolutivo). For this reason, the Brazilian Association of Electric Power Transmission Companies (Associação Brasileira das Empresas de Transmissão de Energia Elétrica, “ABRATE”) is leading discussions with ANEEL so that transmission companies should receive the amounts starting from the tariff review of July 2021.

Pursuant to Resolution No. 2,258, of June 27, 2017 ANEEL provided an additional RAP for the 2017/2018 cycle of approximately R$6.8 billion, related to RBSE, of which R$3.2 billion is the financial component and R$3.6 billion is the economic component. Therefore, in that cycle, the decision would reduce the additional RAPcompensation started to be received by our subsidiaries by 13.4%.

In relation toincorporated in the 2018/2019 cycle, ANEEL identified issues that require further analysis and remain undetermined. Accordingly, ANEEL published Resolution No. 2,408, of June 28, 2018, that postponed the revision of the tariff to June 2019 and established a provisional RAP, with retroactive effect to June 2018 and compensation in equal installments until the next tariff review. The provisional tariff establishes that: (i) for the RBSE economic component, the relevant criteria will be depreciation, demobilization, monetary adjustment and amortization of the income; and (ii) for the other components (such as the financial component), the criteria will only be the monetary adjustment.

During the 2019/2020 cycle, ANEEL decided to again delay the final tariff revision for the extended transmission concession agreements, pursuant to Law No. 12,783/13.

In April 2020, ANEEL initiated public consultations in order to consolidate the final values from the tariff reviewrevenue of the transmission companies with retroactive effectas of 2020, and the RBSE payment is expected to 2018. The initial revised RAP proposal for our companies is R$9,763 million, which corresponds to an increase of 4.15% as a result of the June 2018 tariff cycle review. The retroactive amount corresponding to the period of provisional revenues for our companies is R$1,089 million, and will be diluted over the next three cycles of the tariff review (approximately R$363 million per year) and will increase revenues from July 2020 to June 2023. These amounts are preliminary and ANEEL could adjust them retroactively as ANEEL expenses the regulatory remuneration base of companies.concluded in 2028.

In lightANEEL’s Executive Board Meeting that took place on April 22, 2021, a proposal for the re-profiling of the COVID-19 pandemic, ANEEL prepared short and medium term proposals for all segments of the electricity sector, contained in Technical Note No. 01/2020-GMSE/ANEEL. For the Transmission segment, the main measures proposed by ANEEL in Technical Note No. 42/2020-SRT/SGT/ANEEL consist of the acceleration of the adjustment portion of the 2019-2020 cycleRBSE’s financial component was approved. This decision foresees a reduction in the amountpayment curve of R$485 millionthese amounts between July/2021 and June/2023, and an increase in respectthe flow of all transmission companies, including our sharepayments after July/2023, extending these installments until July/2028; other changes can happen and impact the flow of R$210 million. This amount corresponds to a collection surplus from the transmission companies and would be returned in twelve installments by July 2020. ANEEL’s proposal is to accelerate these payments in April, May and June 2020. Thisrevenue we receive. The new payment scheme will impact our short-term cash flows, but will not otherwise affect our financial position. In this way, ANEEL seeks to provide immediate financial relief to distribution companies and mitigate default risks in the sector. The matter was approved at a board meeting and the decision was published through Order No. 1,106/20.flow by approximately R$8 billion.

Regarding the generation concessions renewed under Law No.12,783/13, certain of our subsidiaries petitioned ANEEL for an additional generation indemnity payment of approximately R$6.0 billion in accordance with Decree No. 7,850/2012 and Normative Resolution ANEEL No. 596/2013. However, ANEEL has not yet calculated the indemnification payments and may not recognize the value claimed.

As part of ANEEL’s regulatory agenda for 2018-2019, in January 2019, ANEEL commenced Public Hearing No. 03/19 regarding the revision of Normative Resolution No. 596/13, to define the regulation on how to calculate the remaining value of the indemnification for generation assets related to concessions renewed in accordance with Law No. 12,783/13.of such concessions. ANEEL has not confirmed what amounts, ifany, will be paid. Currently, the regulation sets forth that the indemnity, when determined and if paid through the tariff, should be discounted from the amount of investments (GAG Melhoria) which is part of the tariff charged to consumers (Annual Generation Revenue (Receita Anual de Geração, “RAG”)) of the specific hydroelectric plants. Although Public Hearing No. 03/19 has not yet been concluded, yet, a technical note has already been made available in the process (technicaltechnical note 96/2019-SRG-SFF-SCG / ANEEL, dated December 31, 2019),2019, which did not accept any contribution from us in respect of what was being discussed. If the understanding of the note prevails, our companies would not receive the indemnity, which, having a lower value when compared towith the total amount of the GAG Melhoria, would be fully deducted from it.

The accounting practice applied in relation to the GAG Melhoria may be revised whenever new facts and/or new estimates of associated expenses and/or revenues arise. We have been receiving the GAG Melhoria, but the amount received may not be sufficient for all new investments that are necessary to maintain regulatory levels of services throughout the concession period. AsThe GAG Melhoria is a portion of RAG, established to provide resources for improvements in assets in order to maintain regulated levels of service. RAG will be subject to review every five years, and a change in the calculation methodology could reduce the amount of the GAG Melhoria.Melhoria.

As an effort to analyze and mitigate the effects of COVID-19 for the electricity sector, ANEEL elaborated Technical Note No. 01/2020-GMSE/ANEEL, which proposes several measures, such as the use of sectoral funds and the renegotiation of regulated contracts. Among those measures, it indicates the possibility of postponing the payment of the GAG Melhoria in respect of generation companies (such as us), that had their concession agreements amended in accordance with Law No. 12,783/13, preserving the portion that agents may already have allocated to obligations related to improvements. The Technical Note sets out that the GAG Melhoria would be reevaluated in the future and be adjusted with those generation companies, in accordance with the principles defined in the Technical Note.

In addition, both Bill No. 5,877/2019 and Provisional Measure No. 1,031, which relatesrelate to our proposed privatization, contemplatescontemplate the de-entitlementloss of entitlement (descotização) of our plants extended by Law No. 12,783/13. If de-entitlementloss of entitlement (descotização) occurs, the commercialization regime for these concessions will be changed to independent production (produção independente) and we will lose our entitlement to receive the GAG Melhoria. In 2017, we received no payments related to GAG Melhoria. In 2018, 2019, and 2019,2020 we received R$0.5 billion, and R$1 billion, and R$1.3 billion, respectively, in payments related to the GAG Melhoria.  If we do not continue to receive these payments, our cash flows, financial condition and results of operations may be adversely affected.

Under the current rules for the tariff review for generation and transmission concessions, we might not receive the full amount to compensate us for costs incurred in the operation and maintenance of these concessions and any expenses in relation to these assets.

In Brazil, the regulatory model for transmission companies is based on the price/revenue cap model. Under this model, ANEEL establishes the revenues to be charged by the companies, which must consider any reasonable costs of capital, operation and maintenance. Transmission companies use these regulatory mechanisms to revise the tariff review that occurs every five years, and the annual tariff readjustment, which is a monetary adjustment of the tariffs charged. These mechanisms depend on the concession agreement of each company. At the time of the tariff review, ANEEL’s goal is to recalculate the costs for the efficient operation and maintenance of the system managed by the transmission company.

ANEEL is also responsible for determining the revenues to be charged by the generation companies with concession agreements renewed in accordance with Law No. 12,783/13. The RAG is the amount that the generation companies are entitled to receive as consideration for supplying energy produced at hydroelectric plants.

Resolution No. 818/18 establishedA monetary readjustment is applied to the RAG annually and is subject to review every five years. A change in the calculation methodology forcould reduce the periodic revisionamount of the RAG, based on a level of investments needed to ensureincluding the provision of an adequate service (GAG Melhoria). The RAG is monetarily readjusted annually and reviewed every five years and includes an annual monetary readjustment.GAG Melhoria.

For transmission companies, the extended concession contracts provide for a tariff review for the 2018/2019 cycle. On July 31, 2017, ANEEL started the first phase of Public Hearing No. 41/17 to receive comments and suggestions related to the periodic review of the RAP for transmission assets, specifically regarding the rules for the BRR and other income. On September 26, 2017, ANEEL commenced the second phase of this public hearing to receive comments and suggestions related to the rules regarding the Operating Costs (Custos Operacionais) and the Weighted Average Cost of Capital (Custo Médio Ponderado de Capital, “WACC”). On August 15, 2018, ANEEL started the third phase of Public Hearing No. 41/2017 to obtain subsidies to improve the regulatory proposal for the periodic review of the RAPs of transmission facilities, regarding the issues of operating costs and investments in small improvements.

On April 7, 2020, ANEEL completed the analysis of contributions sent during the third phase of Public Hearing No. 41/2017, approved the final figures for operational costs considering a gradual transition mechanism for the new costs and defined the investments foreseen for small improvements. In April 2020, ANEEL initiated public consultations in order to consolidate the final values from the tariff review of the transmission companies, with retroactive effect to 2018. The initial revised RAP proposal for our companies is R$9,763 million, which corresponds to an increase of 4.15% as a result of the June 2018 tariff cycle review. The retroactive amount corresponding to the period of provisional revenues for our companies is R$1,089 million, and will be diluted over the next three cycles of the tariff review (approximately R$363 million per year) and will increase revenues from July 2020 to June 2023. These amounts are preliminary and ANEEL could adjust them retroactively as ANEEL expenses the regulatory remuneration base of companies.

The concession agreements that may be affected in respect of the operational costs as a result of Public Hearing No. 41/2017 are the concessions extended according to the terms of MP No. 579/2019 (Law No. 12.783/2013), namely the following agreements: Chesf - CC No. 061/2001, Furnas - CC No. 062/2001, Eletrosul - CC No. 057/2001 and Eletronorte - CC No. 058/2001.

In March 2019, ANEEL commenced Public Hearing No. 09/19 to discuss a revision of the WACC, which continued under Public Hearing No. 26/19 and culminated in the publication of Resolution No. 874/2020 that established the new WACC to be applied to the investment for revenues from (i) our transmission assets, hydroelectric plants subject to the physical guarantee and power quota regime (Law No. 12,783/13), and (ii) Eletronuclear. In March 2020, as a result of Public Hearing No. 09/2019 and Public Consultation No. 26/2019, ANEEL approved the new WACC as 7.66% for 2018 and 7.39% for 2019.

Depending on ANEEL’s decision on the review of the tariffs to be charged by our generation and transmission companies, we may not be adequately compensated for the costs and expenses of our investments in our generation and transmission assets, which could negatively impact our financial condition and results of operations.

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

We carry out our transmission and certain generation activities pursuant to concession agreements entered into with the Brazilian Government through ANEEL. The Brazilian Government may renew any existing transmission concessions that were not renewed pursuant to Law No. 12,783/13 or Law No. 13,182/15, for an additional period of 30 years without the need to carry out a new public bidding process.

Pursuant to articles 1, 2 and 5 of Law No. 12,783/13, the concessions of hydroelectric power generation granted pursuant to article 19 of Law No. 9,074 of July 7, 1995, the concessions for thermal generation and the concessions and authorizations for the use of hydroelectric plants with a potential greater than 5,000 kW (five thousand kilowatts) and less than or equal to 50,000 kW (fifty thousand kilowatts), may be extended, provided that the concession has not been extended and remains in effect at the time of publication of the law. The extension depends on the criteria of the granting authority and the specific framework established by the law.

Hydropower concessions granted between February 14, 1995 and December 11, 2003, may be renewed for up to 20 years pursuant to article 4, second paragraph, of Law No. 9,074/1995. There is currently no legal basis for renewal of other concessions. Should the Brazilian Government decide to renew the concessions, it may offer to do so on less favorable terms, which we may or may not accept.

There is currently no other legal provision regarding the extension of hydroelectric concessions except in the event of a privatization, where a new concession or an extension of an existing concession may be granted, as provided in article 27 of Law No. 9,074/15.

In relation to our generation assets, if the concession for our Tucuruí plant is renewed under the terms ofpursuant to Law No. 12,783/13 (considering the quota allocation system), our income from the Tucuruí plant will decrease significantly, affecting our results of operations. Eletronorte expressed to ANEEL its interest in extending the Tucuruí hydroelectric power plant concession, subject to the terms of an extension. The renewal of the Tucuruí concession will depend on the interest of the granting authority and the contractual conditions disclosed by the granting authority. If Provisional Measure No. 1,031/21 dated February 23, 2021 concerning our privatization process, is converted into law, one of the conditions for the privatization is the granting of a new concession for power generation to the Tucuruí plant for a period of thirty years in the independent production regime. In addition, the conversion into law would authorize the Brazilian Government to grant new electric power generation concessions to the plants that already operate under the quota regime established by Law No. 12,783/13, also for a period of thirty years under the independent production regime.

The Authorization for Permanent Operation (“AOI”) of Angra I expires in September 2024. The AOI of Angra II expires in June 2041. In order to prevent the expiration of the Angra I AOI, Eletronuclear presented an initial request for Long Term Operation of Angra I to CNEN in October 2019 in order to extend operations.

Other generation assets like wind and thermal plants are subject to authorization. There is currently no legal or regulatory provision that entitles these assets to obtain an extension.

We cannot assure you that our concessions will be renewed on similar terms or at all. Given the Brazilian Government’s discretion in relation to the renewal of concessions, we may face competition during the renewal process. Consequently, we cannot assure you that we will maintain our concessions.

We cannot predict on what terms the Itaipu Treaty will be revised.

The Itaipu Treaty, entered into between the Governmentsgovernments of Brazil and Paraguay, regulates the activities of Itaipu. Annex C of the Itaipu Treaty, which regulates the financial arrangement of the plant, will be revised in 2023.

Paraguay has signaled its intention to propose changes to the Itaipu Treaty, which could happen at the same time as the Annex C revision.

The treaty provides that both countries have priority in purchasing the portion of energy produced and not consumed by the other party. Also defined in the treaty are the payment of royalties, the payment of capital income, the cost of energy produced and the conditions for the transfer of energy.

We are now responsible for the commercialization of the portion of energy produced that belongs to Brazil, as well as of the surpluses ceded by Paraguay. However, we cannot say on what terms the treaty will be renegotiated by the two governments and there is no certainty as to the terms of the sale of energy for the Brazilian market. In addition, if the Eletrobras privatization proposal is approved, we will not continue to trade energy from Itaipu.

Every five years the physical guarantees for our hydroelectric plants can be revalued and we may incur additional costs having to purchase energy to comply with existing agreements.

Decree No. 2,655/98 establishes that the physical guarantees in place for hydroelectric plants must be revised every five years. Any potential reduction in the value of the physical guarantee is limited to 10% of the original amount of the concession agreement. In addition, at each review, the reduction of the physical guarantee of the plant may not exceed 5% in relation to the previous review.

MME Ordinance No. 178/17 specifies the revised amounts for physical guarantees in effect as from 2018. Based on these revised amounts, the physical guarantee for our plants decreased inon average by 4% in relation to the original amount of the plants’each plant’s physical guarantee, including those of our plants in respect of which the concessions were renewed pursuant to Law No. 12,783/13, Itaipu and some of our SPEs. As there are further revision cycles, the amounts attributable to our physical guarantees may be reduced in the future.

With respect to some of our plants, there was no recalculation of their physical guarantees as part of this ordinary review. However, a recalculation of the physical guarantees of these plants could occur in the next review cycle.

The reduction of the physical guarantee for those plants could impact our revenues and expenses due to the need to purchase energy to comply with sale and purchase agreements already in effect. Although there is a smaller risk with plants that are governed by the quota allocation system, we cannot assure you that a reduction of the physical guarantee would not adversely impact our revenues and expenses in respect of the quota allocation system.

There is a possibility of a reduction of the physical guarantee of the plants in respect of which the concessions were renewed pursuant to Law No. 12,783/13 and Itaipu, in values above the limits established by Decree No. 2,655/98, in accordance with the recommendations of the Public Consultation Closing Report of the Ministry of Mines and Energy No. 36 from 2017 (Relatório de Fechamento da Consulta Pública do Ministério de Minas e Energia – MME). In addition, the final recommendation of theEnergy Industry Monitoring Committee (Comitê de Monitoramento do Setor Elétrico, “CMSE”) regarding the discussions on Itaipu’s physical guarantee will be coordinated in the future during the negotiations for the revision of ANNEX C of the Itaipu Treaty and during the discussions of physical guarantees of plants renewed by Law No. 12,783/13 in the de-entitlementloss of entitlement (descotização) process.

MME Ordinance No. 124/2019 established a working group to coordinate the development of studies to support the process of revising Annex C to the Itaipu Treaty. Additionally, both Bill No. 5,877/2019 and Provisional Measure No. 1,031, which relatesrelate to our proposed privatization, currently under discussion in the Brazilian Congress (Câmara dos Deputados), contemplates de-entitlementcontemplate loss of entitlement (descotização) of our plants renewed by Law No. 12,783/13. In this case, new concession contractsagreements would be signed for a new period of 30 years, under an independent power generation regime, with the possibility of revising the physical guaranteeguarantees of these plants, without the limitation set out in Decree No. 2,655/98. Specifically in the case of Provisional Measure No. 1,031, in addition to the plants renewed by Law No. 12,783/13, the Provisional Measure No. 1,031 also included the HPP Tucuruí to be granted with a new concession agreement with a tenor of 30 years. We cannot assure whether this process of de-entitlementloss of entitlement (descotização) and granting of a new concession agreement to HPP Tucuruí would cause an adverse revision of the physical guaranteeguarantees and, thus, negatively impact our financial condition and results of operations.

We are controlledcannot predict the financial and operational impacts of the privatization bill proposed by the Brazilian Government, the policies and priorities of which directly affect our operations and may conflict with the interests of our investors.Government.

The Brazilian Government, as our controlling shareholder, exercises substantial influence on the strategy of our business.  The Brazilian Government also has the power to appoint eight out of the eleven members of our Board of Directors and, through them, influence the choice of a majority of the executive officers responsible for our day-to-day management. Additionally, it 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 and affiliates; (ii) increase our capital stock (which could dilute the Brazilian Government’s interest); (iii) determine 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 policies promoted by the Brazilian Government, and the Brazilian Government may, subject to certain limitations, pursue certain of its macroeconomic and social objectives through us. Therefore, we may, subject to legal and by-laws limitations, engage in activities that give preference to the objectives of the Brazilian Government rather than to our own economic and business objectives, which may incur costs or engage in transactions that may not necessarily meet the interest of our other investors.

On November 5, 2019, the Brazilian Government sentsubmitted a new bill to the Brazilian Congress (PL No. 5,877/2019), maintaining format for the privatization format previously presented to the Brazilian Congress by increasing theour share capital with a waiver of subscription rights by the government,Brazilian Government, which would lead to the dilution of its stake in us. The bill is still under discussion by the Brazilian Congress and may also pass through the scrutiny of external control entities. We cannot assure you that privatization will continue as described and we have no control over the timeline of such approval.

The bill for our privatization provides that theour subsidiaries Itaipu and Eletronuclear government programs must be segregated from us and, depending on the segregation model, we may lose revenues from these assets and about 8,9909,000 MW, equivalent to 5%17.7% of our installed capacity, andcapacity. This may result in events of default under various financing arrangements with our creditors. The bill, if approved, also establishes that we will have to assume certain obligations along ten years in thean amount of approximately R$3.5 billion in respect toof the area surrounding the São Francisco river. However, theseThese obligations may still be amended by the Brazilian Congress.

The bill presumes the process of de-entitlementloss of entitlement (descotização) of our plants that were renewed pursuant to Law No. 12,783/13 and our subsidiaries will pay new grants to theBrazilian Government to change these plants’the contracting regime of these plants and enter into new contracts withas independent power generators, for a period of 30 years, andyears. The amount of the amountgrants will be calculated by the CNPE and should be equivalent to two thirds of the value added of the economic benefit withadded following the change in the concession regime. In addition, one third of the value added will be paid annually to the CDE Account, in twelve installments.installments throughout the 30-year period of the new concession. These plants may have their physical guarantees reviewed by the Brazilian Government, together with EPE and ANEEL, as well as the assumption of hydrological risk under Law No. 13,203, of December 8, 2015.

On February 23, 2021, the President of the Republic issued Provisional Measure No. 1,031, maintaining, in general terms, the conditions set out in Bill No. 5,877/2019, and including other obligations to be paid in a ten-year period, such as the amount of approximately R$2.95 billion for the program for the structural reduction of energy generation costs in the Amazon, and of R$2.30 billion for the program to revitalize water resources in hydrographic basins in the area of influence of the reservoirs of the Furnas hydroelectric plants. In addition, the Provisional Measure included a provision for a special veto power (“golden share”) for the Brazilian Government, which will grant it the power to veto certain matters provided for in the Provisional Measure. According to the Provisional Measure, the golden share would allow the Brazilian Government to veto changes to a provision of our bylaws that prohibits any shareholder or group of shareholders to vote in concert or enter into shareholder agreements in respect of shares representing more than 10% of our voting capital.

Provisional Measure No. 1,031 also changed the division of the value added to the new concession agreements, with 50% now being transferred to CDE along thirty years and 50% to the Brazilian Government, as a grant. It also extended the possibility of renewing the concession of the Tucuruí plant, which is owned by Eletronorte, for a further 30 years.

The Provisional Measure is effective immediately, according to article 62 of the Federal Constitution, and must be approved by the Brazilian Congress within 60 days, extendable for a further 60 days. If rejected, it loses its effectiveness immediately. It is not possible to guarantee that this Provisional Measure will be converted into law, which depends on the Brazilian Congress. The Provisional Measure is still under discussion by the Brazilian Congress and, if converted into law, may also undergo scrutiny by external control entities, such as the Brazilian Federal Court of Accounts (TCU), Public Prosecutor’s Office and the Judiciary. We cannot assure you that privatization will continue as described above and we have no control over the timeline for its approval or potential implementation.

We cannot predict the financial and operational consequences of the proposed capital dilution. We also cannot guarantee that the terms to be presented for renewal will be attractive for us, or that our Board of Directors will accept such terms. Additionally, our privatization could distract our management and result in less government support for us.  Certain groups could challenge the proposal, which could lead to time consumingtime-consuming political and legal issues for us.  It could also increase our debt costs (due to the possibility that the Brazilian Government would control less than 50% of our common shares) and could constitute an event of default under our loans, which, if not waived, could allow certain of our creditors to accelerate the debt. In addition, any change of control may require the approval of the NYSE for our ADSs to remain listed on the NYSE.  Under our outstanding bonds, we are required to make an offer to purchase the bonds at a price equal to 101% of their principal amount outstanding plus interest accrued and additional amounts if the Issuer ceases to be owned, directly or indirectly, as to at least 51 per cent.51% of our voting share capital by the Brazilian Government and such change of control results in a ratingratings withdrawal or ratingsa rating decline by two or more rating agencies (if the notes are then rated by three rating agencies) or ratingsa rating decline by one rating agency (if the notes are then rated by two rating agencies or less)fewer), if any such rating decline is, in whole or in part, in connection with such change of control. We cannot assure you that we will have sufficient financial resources at such time to make the change of control offer under the bonds, which could lead to an acceleration of the bonds, which, in turn, could trigger cross-default clauses under our outstanding loans.  In addition, depending on the chosen model, chosen, we cannot assure you that there will be no dilution of the participation of minority shareholders that do not fully comply with any capital increase.

We may not be able to maintain our market share unless we make a change to our capital structure.

For the year ended December 31, 2019,2020, we invested R$3.2 billion3,122 million in capital expenditures for expansion, modernization, research, infrastructure and environmental projects. For 2020,2021, our budget includesfor CAPEX is R$5.38.245 billion. However, we may have to review the planned investments set out in our business plans as a result of the economic uncertainties and impacts on the financial markets caused by the current pandemic and theor a potential suspension of auctions. Also the recent rescheduling of the RBSE payment flow may force us to postpone investments in the short term. In addition, our capitalization process can also impact the market share, as we will no longer receive generation from Itaipu and Eletronuclear. To maintain our current market share (as of December 31, 2019)2020) of 30.1%29% in the generation segment and 45.3%43.5% in the transmission segment, we will need to undertake additional investments in capital expenditures. As we and our principal shareholder, the Brazilian Government, may not have resources available to make additional capital expenditures, the Brazilian Government is considering the alternatives described in “—We are controlled by the Brazilian Government, the policies and priorities of which directly affect our operations and may conflict with the interests of our investors” that would allow us to raise enough capital to make the requisite investments. However, we cannot assure investors that the Brazilian Congress will approve any changes to our capital structure or business model and, accordingly, we might lose some of our market share in the generation and transmission segments.