Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

☐

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

or

☒

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

For the fiscal year ended December 31, 20182020

or

☐

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

or

☐

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

Date of event requiring this shell company report: N/A

Commission file number1-15224

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

(Exact name of Registrant as specified in its charter)

ENERGY CO OF MINAS GERAIS

(Translation of Registrant’s name into English)

BRAZIL

(Jurisdiction of incorporation or organization)

1200, Avenida Barbacena, 1200,Barbacena; Belo Horizonte, M.G.,Horizonte/MG, Brazil CEP 30190-131

(Address of principal executive offices)

Leonardo George de Magalhães

Chief Officer for Finance and Investor Relations

ri@cemig.com.br – +55 (31) 3506-5024

1200, Avenida Barbacena; Belo Horizonte/MG, Brazil CEP 30190-131

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of each class:

Trading Symbol (s)

Name of exchange on which registered:

Preferred Shares, R$5.00 par valueCIGNew York Stock Exchange*
American Depositary Shares, each representing 1 Preferred Share, without par valueNew York Stock Exchange
Common Shares, R$5.00 par valueCIG.CNew York Stock Exchange*
American Depositary Shares, each representing 1 Common Share, without par valueNew York Stock Exchange

*Not for trading but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Table of Contents

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

None

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

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common share as of the close of the period covered by the annual report:

487,614,213566,036,634 Common Shares

971,138,3881,127,325,434 Preferred Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒No ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒No ☐

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

(Check one):

Large accelerated filer ☒Accelerated filer ☐
Non accelerated filer ☐Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†standards* provided pursuant to Section 13(a) of the Exchange Act. ☐

†* The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

U.S. GAAP  ☐

International Financial Reporting Standards as

issued by the International Accounting Standards Board ☒

☒Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act)

Yes ☐ No ☒

 

*

Not for trading but only in connection with the registrationTable of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Contents

 

 

Table of Contents

PART I

PART I

Item 1.

Identity of Directors, Senior Management and Advisers

47

Item 2.

Offer Statistics and Expected Timetable

47

Item 3.

Key Information

47

Item 4.

Information on the Company

3649

Item 4A.

Unresolved Staff Comments

96104

Item 5.

Operating and Financial Review and Prospects

96104

Item 6.

Directors, Senior Managers and Employees

136144

Item 7.

Major Shareholdersshareholders and Related Party Transactionsrelated party transactions 

146156

Item 8.

Financial Information

150158

Item 9.

Offer and Listing Details

158168

Item 10.

Additional Information

163173

Item 11.

Quantitative and Qualitative Disclosures about Market Risk

181194

Item 12.

Description of Securities Other than Equity Securities

197
182PART II 

PART II

Item 13.

Defaults, Dividend Arrears and Delinquencies

183198

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

183198

Item 15.

Controls and Proceduresprocedures

183198

Item 16A.

Financial Specialist of the Audit Committee Financial Expert

187202

Item 16B.

Code of Ethics

187202

Item 16C.

Principal Accountant Fees and Services

188203

Item 16D.

Exemptions from the Listing Standards for Audit Committees

188203

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

188204

Item 16F.

Change in Registrant’s Certifying Accountant

189204

Item 16G.

Corporate Governance

189204

Item 16H.

Mine Safety Disclosure

191205

Item 17.

Financial Statements

191205

Item 18.

Financial Statements

191205

Item 19.

Exhibits

192206

 

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i

PRESENTATION OF FINANCIAL INFORMATION

The Companhia Energética de Minas Gerais – CEMIG isa state-controlled mixed capital company (‘sociedade por ações, de economia mistamista’ (a state-controlled mixed capital company)) organized under the laws of the Federative Republic of Brazil, or Brazil. References in this annual report to “CEMIG,”‘CEMIG’, the “CEMIG Group,”‘CEMIG Group’, the “Company,” “we,” “us,” “our”‘Company’, ‘we’, ‘us’, ‘our’ and “ourselves”‘ourselves’ are to Companhia Energética de Minas Gerais – CEMIG and its consolidated subsidiaries, and references to “CEMIG Holding”‘CEMIG Holding’ are to Companhia Energética de Minas Gerais – CEMIG on an individual basis, except when the context otherwise requires. References to the “‘realReal,” “’ ‘reaisReais”’ or “R$”‘R$’ are to BrazilianreaisReais (plural) and the BrazilianrealReal (singular), the official currency of Brazil, and referencesBrazil. References to “U.S. dollars,” “dollars”‘U.S. dollars’, ‘dollars’ or “US$”‘US$’ are to United States dollars.

We maintain our books and records inreaisReais. We prepare our statutory financial statements in accordance with generally accepted accounting practices adopted in Brazil, and with International Financial Reporting Standards (or “IFRS”)(IFRS), as issued by the International Accounting Standards Board (“IASB”)(IASB). For purposes of this annual report, we prepared the consolidated statements in accordance with IFRS, as issued by the IASB. Our consolidated financial statements for the years ended December 31, 2019 and 2018 and the opening balance as of January 1, 2019 have been restated to reflect the change in accounting policy disclosed in note 2.8 of our annual consolidated financial statements.

Ernst & Young Auditores Independentes S.S. (‘EY’) audited the consolidated statement of financial position of Companhia Energética de Minas Gerais – CEMIG as of December 31, 20182020 and 2017 and2019, the related consolidated statementstatements of income, and comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2018, 2017 and 2016, inreais in accordance with IFRS, as issued by the IASB.

Ernst & Young Auditores Independentes S.S. (“EY”) audited our2020. The consolidated financial statements as of December 31, 2018 and 2017. Deloitte Touche Tohmatsu Auditores Independentes (“Deloitte Touche Tohmatsu”) audited our consolidated financial statements as of December 31, 2016. The financial statementsbalance sheets of Madeira Energia S.A.  as of December 31, 2020 and 2019, and the related consolidated statement of operations, of comprehensive (loss) income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2018, 2017 and 2016 and of Norte Energia S.A. as of and for the years ended December 31, 2017 and 20162020 were audited by PricewaterhouseCoopers Auditores Independentes (‘PWC’) whose reportsreport related to thosethis financial statements havestatement has been presented to EY and Deloitte Touche Tohmatsu and are the sole base for the opinion of EY and Deloitte Touche Tohmatsu on the financial statements of Madeira Energia S.A. and Norte Energia S.A. Madeira Energia S.A. and Norte Energia S.A. are investments, which is a significant investment of the Company accounted for under the equity method.

This annual report contains translations of certainrealReal amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, such U.S. dollar amounts have been translated fromreaisReais at an exchange rate of R$3.88045.1935 to US$1.00, as certified for customs purposes by the U.S. Federal Reserve Board as of December 31, 2018.2020. See “Item 3. Key Information – Exchange Rates” for additional information regarding exchange rates. We cannot guarantee that U.S. dollars can be converted into reais,Reais, or that reaisReais can be converted into U.S. dollars, at the above rate or at any other rate”.rate.

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MARKET POSITION AND OTHER INFORMATION

The information contained in this annual report regarding our market position is, unless otherwise indicated, presented for the year ended December 31, 2018 and2020. It is based on, or derived from, reports issued by the Brazilian National Electric Energy Agency(Agency (Agência Nacional de Energia Elétrica, or “ANEEL”‘ANEEL’), and by the Brazilian Electric Power Trading Chamber(Chamber (Câmara de Comercialização de Energia Elétrica, or “CCEE”‘CCEE’).

Certain terms are defined the first time they are used in this annual report. As used herein, all references to “GW”‘GW’ and “GWh”‘GWh’ are to gigawatts and gigawatt hours, respectively, references to “MW”‘MW’ and “MWh”‘MWh’ are to megawatts and megawatt-hours, respectively, and references to “kW”‘kW’ and “kWh”‘kWh’ are to kilowatts and kilowatt-hours, respectively.

References in this annual report to the “common shares”‘common shares’ and “preferred shares”‘preferred shares’ are to our common shares and preferred shares, respectively. References to “Preferred‘Preferred American Depositary Shares”Shares’ or “Preferred ADSs”‘Preferred ADSs’ are to American Depositary Shares, each representing one preferred share. References to “Common‘Common American Depositary Shares”Shares’ or “Common ADSs”‘Common ADSs’ are to American Depositary Shares, each representing one common share. Our Preferred ADSs and Common ADSs are referred to collectively as “ADSs,”‘ADSs,’ and our Preferred American Depositary Receipts, or Preferred ADRs, and Common American Depositary Receipts, or Common ADRs, are referred to collectively as “ADRs.”‘ADRs.’

The Preferred ADSs are evidenced by Preferred ADRs, issued pursuant to a Second Amended and Restated Deposit Agreement, dated as of August 10, 2001, as amended on June 11, 2007, by and among us, Citibank N.A., as depositary, and the holders and beneficial owners of Preferred ADSs evidenced by Preferred ADRs issued thereunder (the “Second‘Second Amended and Restated Deposit Agreement”Agreement’). The Common ADSs are evidenced by Common ADRs, issued pursuant to a Deposit Agreement, dated as of June 12, 2007, by and among us, Citibank, N.A., as depositary, and the holders and beneficial owners of Common ADSs evidenced by Common ADRs issued thereunder (the “Common‘Common ADS Deposit Agreement”Agreement’ and, together with the Second Amended and Restated Deposit Agreement, the “Deposit Agreements”‘Deposit Agreements’).

5 
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FORWARD-LOOKING INFORMATION

This annual report includes certain forward-looking statements, mainly in “Item 3. Key Information,”Information”, “Item 5,4. Information on the Compay”, “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”Risk”. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and contingencies including, but not limited to, the following:

·General economic, political and business conditions, principally in Brazil, the State of Minas Gerais (‘Minas Gerais’), as well as other states in Brazil;
·Inflation and fluctuations in exchange rates and in interest rates;
·Increases in the costs of projects and delays or the failure to successfully complete projects;
·Result in the failure of facilities to operate or generate income in accordance with our expectations;
·Existing and future governmental regulation as to energy rates, energy usage, competition in our concession area and other matters;
·Existing and future policies of the Federal Government of Brazil, which we refer to as the Federal Government;
·On-going high-profile anticorruption investigations in Brazil;
·Our expectations and estimates concerning future financial performance and financing plans;
·Our level, or maturity profile, of indebtedness;
·Our ability to comply with financial covenants;
·The likelihood that we will receive payment in connection with accounts receivable;
·Our capital expenditure plans;
·Our ability to implement our divestment program;
·Failure or hacking of our security and operational infrastructure or systems;
·Our ability to renew our concessions, approvals and licenses on terms as favorable as those currently in effect or at all;
·Our ability to integrate the operations of companies we have acquired and that we may acquire;
·Changes in volumes and patterns of customer energy usage;
·Competitive conditions in Brazil’s energy generation, transmission and distribution markets;
·Trends in the energy generation, transmission and distribution industry in Brazil, particularly in Minas Gerais;
·Changes in rainfall and the water levels in the reservoirs used to run our hydroelectric power generation facilities;
·Existing and future policies of the government of Minas Gerais (the ‘State Government’), including policies affecting its investment in us and its plans for future expansion of energy generation, transmission and distribution in Minas Gerais;
·Impacts of the Covid-19 global pandemic on our businesses and on our results of operations, financial condition and cash flows and our ability to timely and efficiently implement measures to address these impacts; and
·Other risk factors identified in “Item 3. Key Information—Risk Factors”.

 

general economic, political and business conditions, principally in Brazil, the State of Minas Gerais (“Minas Gerais”), the State of Rio de Janeiro (“Rio de Janeiro”), as well as other states in Brazil;

inflation and fluctuations in exchange rates and in interest rates;

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

existing and future policies of the Federal Government of Brazil, which we refer to as the Federal Government;

on-going high profile anticorruption investigations in Brazil;

our expectations and estimates concerning future financial performance and financing plans;

our level, or maturity profile, of indebtedness;

the likelihood that we will receive payment in connection with accounts receivable;

our capital expenditure plans;

our ability to satisfactorily serve our customers;

our ability to implement our divestment program;

failure or hacking of our security and operational infrastructure or systems;

our ability to renew our concessions, approvals and licenses on terms as favorable as those currently in effect or at all;

our ability to integrate the operations of companies we have acquired and that we may acquire;

changes in volumes and patterns of customer energy usage;

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

trends in the energy generation, transmission and distribution industry in Brazil, particularly in Minas Gerais and Rio de Janeiro;

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

existing and future policies of the government of Minas Gerais (the “State Government”), including policies affecting its investment in us and its plans for future expansion of energy generation, transmission and distribution in Minas Gerais; and

other risk factors identified in “Item 3. Key Information – Risk Factors.”

The forward-looking statements referred to above also include information with respect to our capacity expansion projects that are under way and those that we are currently evaluating. In addition to the above risks and uncertainties, our potential expansion projects involve engineering, construction, regulatory and other significant risks, which may:

delay or prevent successful completion of one or more projects;

increase the costs of projects; and

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

The words “believe,” “may,” “could,” “will,” “plan,” “estimate,” “continue,” “anticipate,” “seek,” “intend,” “expect”‘believe,’ ‘may,’ ‘could,’ ‘will,’ ‘plan,’ ‘estimate,’ ‘continue,’ ‘anticipate,’ ‘seek,’ ‘intend,’ ‘expect’ and similar words are intended to identify forward-looking statements. We do not undertake to publicly update or revise any forward-looking statements because of new information, future events or otherwise. In light ofConsidering these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not materialize as described. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

6 
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PART I

 

Item 1.

Identity of Directors, Senior Management and Advisers

Not applicable.

 

Item 2.

Offer Statistics and Expected Timetable

Not applicable.

 

Item 3.

Key Information

Selected Consolidated Financial Data

From January 1, 2018, we were required to adopt IFRS 9 – Finnacial Instruments and IFRS 15 – Revenue from contracts with customers. We are not required to retrospectively apply IFRS 9 and IFRS 15 to any periods prior to January 1, 2018. IFRS 9 introduced changes to the measurement and classification of financial instruments, as well as changes to the method for calculating impairment of financial instruments. IFRS 15 established a new method to recognize revenue from contracts with customers by applying a five-step analysis, including contract identification, performance obligation identification, transaction price determination, transaction price allocation and recognition of revenue. Our financial statements as of and for the year ended December 31, 2018 reflect the adoption of IFRS 9 and IFRS 15. We used the modified retrospective approach when adopting such standards; thus, we did not restate our financial statements as of and for the years ended December 31, 2017, 2016, 2015 and 2014 for the adoption of IFRS 9 and IFRS 15. Accordingly, our financial statements as of and for the year ended December 31, 2018 and our financial statements for the comparative periods are not directly comparable when it comes to such standards. For more information regarding the adoption of IFRS 9 and IFRS 15 and its effects on our financial statements, see note 2.4 to our Consolidated Financial Statements included in “Item 18. Financial Statements.”

The following tables present our selected consolidated financial and operating information prepared in accordance with IFRS as of the dates and for each of the periods indicated. You should read the following information together with our consolidated financial statements, including the notes thereto, included in this annual report and the information set forth in “Item 5. Operating and Financial Review and Prospects” and “Presentation of Financial Information.”Information”.

The selected consolidated financial data as of December 31, 20182020 and 20172019 and for each of the years ended December 31, 2018, 20172020, 2019 and 2016,2018, prepared in accordance with IFRS, has been derived from our audited consolidated financial statements and the notes thereto included elsewhere in this annual report. U.S. dollar amounts in the table below are presented for your convenience. Unless indicated otherwise, these U.S. dollar amounts have been translated fromreais at R$3.8804 per US$1.00, the exchange rate as of December 31, 2018. Thereal has historically experienced high volatility. We cannot guarantee that U.S. dollars can or could have been converted intoreais, or thatreais can or could have been converted into U.S. dollars at the above rate or at any other rate. The selected consolidated financial data as of December 31, 2016, 20152018, 2017 and 20142016 and for each of the years ended December 31, 20152017 and 20142016 has been derived from our audited consolidated financial statements not included in this annual report on Form20-F. 20-F, which have not been restated to reflect the change in accounting policy.

 

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Consolidated Statement of Income Data

   Year ended December 31, 
   2018  2018(4)  2017  2016  2015  2014 
   (in millions
of US$)(1)		  (in millions of R$ except per share/ADS
data or otherwise indicated)		 

Net operating revenue

   

Energy sales to final customers

   5,639   21,882   20,438   20,458   20,319   14,922 

Revenue from wholesale supply to other concession holders

   771   2,990   3,263   2,972   2,207   2,310 

CVA (compensation for changes in ‘Parcel A’ items) and other financial components in tariff increases

   508   1,973   988   (1,455)   1,704   1,107 

Revenue from use of the energy distribution systems (TUSD)

   527   2,045   1,611   1,705   1,465   855 

Transmission concession revenue

   106   411   371   312   261   557 

Transmission indemnity revenue

   64   250   373   751   101   420 

Generation indemnity revenue

   14   55   272   —     —     —   

Adjustment to expectation of cash flow from indemnifiable Financial asset of the distribution concession

   —     —     9   8   576   55 

Revenue from financial updating of the Concession Grant Fee

   83   321   317   300   —     —   

Construction revenue

   231   898   1,119   1,193   1,252   941 

Energy transactions on the CCEE

   56   217   860   161   2,425   2,348 

Supply of gas

   514   1,995   1,759   1,444   1,667   422 

Fine for violation of service continuity indicator

   (11)   (44)   —     —     —     —   

Other operating revenues

   408   1,585   1,483   1,421   1,440   1,284 

Deductions from revenue

   (3,173)   (12,312)   (11,151)   (10,497)   (11,549)   (5,626) 

Total net operating revenue

   5,738   22,266   21,712   18,773   21,868   19,595 

Operating costs and expenses

   

Energy purchased for resale

   (2,856)   (11,084)   (10,919)   (8,273)   (9,542)   (7,428) 

Charges for the use of the national grid

   (381)   (1,479)   (1,174)   (947)   (999)   (744) 

Depreciation and amortization

   (215)   (835)   (850)   (834)   (835)   (801) 

Personnel

   (363)   (1,410)   (1,627)   (1,643)   (1,435)   (1,252) 

Gas purchased for resale

   (319)   (1,238)   (1,071)   (877)   (1,051)   (254) 

Outsourced services

   (280)   (1,087)   (974)   (867)   (899)   (953) 

Post-employment obligations

   (87)   (337)   229   (345)   (156)   (212) 

Materials

   (27)   (104)   (61)   (58)   (154)   (381) 

Operating provisions, net

   (120)   (467)   (854)   (704)   (1,402)   (581) 

Employee’ and managers’ profit sharing

   (20)   (77)   (5)   (7)   (137)   (249) 

Infrastructure construction costs

   (231)   (897)   (1,119)   (1,193)   (1,252)   (942) 

Other operating expenses, net

   (105)   (405)   (393)   (155)   (426)   (651) 

Total operating costs and expenses

   (5,004)   (19,420)   (18,818)   (15,903)   (18,288)   (14,448) 

Share of (loss) profit, net, of associates and joint ventures

   (27)   (104)   (252)   (302)   393   210 

Gain on acquisition of control of investee

   —     —     —     —     —     281 

Remeasurement of previously held equity interest in subsidiaries acquired

   (31)   (119)   —     —     —    

Impairment loss on Investments

   (33)   (127)   —     (763)   —     —   

Fair value gain on shareholding transaction

   —     —     —     —     729   —   

Income before finance income (expenses) and taxes

   643   2,496   2,642   1,805   4,702   5,638 

Finance income (expenses), net

   (133)   (518)   (996)   (1,437)   (1,340)   (1,159) 

Income before income tax and social contribution tax

   509   1,978   1,646   368   3,362   4,479 

Income taxes expense

   (154)   (599)   (644)   (34)   (893)   (1,342) 

Net income for the year from continuing operations

   355   1,379   1,002   334   2,469   3,137 

Net income after tax from discontinued operations

   83   322   —     —     —     —   

Net income beforenon-controlling interests

   438   1,700   1,002   334   2,469   3,137 

Year Ended December 31,

2020

2020

2019 (4)(5)

(Restated)

2018 (3)(5)

(Restated)

2017 (6)

2016 (6)

 (in  millions of US$) (1)(in  millions of R$, except per share/ADS data or otherwise indicated) 
NET REVENUE4,85825,22825,48622,29921,71218,773
       
Operating costs and expenses      
Energy purchased for resale(2.332)(12,111)(11,286)(11,084)(10,919)(8,273)
Charges for use of the national grid(337)(1,748)(1,426)(1,479)(1,174)(947)
Depreciation and amortization(190)(989)(958)(835)(850)(834)
Personnel(246)(1,276)(1,272)(1,410)(1,627)(1,643)
Gas purchased for resale(209)(1,083)(1,436)(1,238)(1,071)(877)
Outsourced services(244)(1,265)(1,239)(1,087)(974)(867)
Post-employment obligations(84)(438)(408)(337)229(345)
Materials(15)(79)(91)(104)(61)(58)
Operating provisions (reversals)(81)(423)(2,401)(467)(854)(704)
Employee’s and managers’ profit sharing(27)(142)(263)(77)(5)(7)
Infrastructure construction costs(304)(1,581)(1,200)(897)(1,119)(1,193)
Other operating expenses, net

(57)

(297)

(494)

(405)

(393)

(155)

Total operating costs and expenses(4,127)(21,432)(22,474)(19,420)(18,818)(15,903)
       
Periodic Tariff Review, net97502----
Share of profit (loss), net, of affiliates and jointly-controlled entities69357125(104)(252)(302)
Dividends declared by investee classified as held for sale--73---
Remeasurement of previously held equity interest in subsidiaries acquired---(119)--
Impairment loss on Investments---(127)-(763)
Result of business combinations1051----
Income before finance income (expenses) and taxes9064,7063,2102,5292,6421,805
Finance income (expenses), net(174)(906)1,358(518)(996)(1,437)
Income before income tax and social contribution tax7323,8004,5702,0111,646368
Income taxes expense(180)(936)(1,600)(599)(644)(34)
Net income for the year from continuing operations5522,8642,9701,3791,002334
Net income after tax from discontinued operations--224363--
Net income for the year5522,8643,1951,7421,002334
       
Non-controlling interests:      
Non-controlling interests from continuing operations-(1)(1)(1)(1)-
Non-controlling interests from discontinued operations---(41)--
Net income for the year attributed to equity holders of the parent5512,8633,1941,7001,001334
       
Net income for the year5522,8643,1951,7421,002334
Other comprehensive income (loss)(1)(7)(1,055)(463)(302)(553)
Comprehensive income for the year5502,8572,1391,279700(219)
       
Basic earnings:      
Per common share (7)0.331.691.891.020.370.10
Per preferred share (7)0.331.691.891.020.840.35
Per ADS common share (7)0.331.691.750.830.370.10
Per ADS preferred share (7)0.331.691.750.830.840.35
       
Diluted earnings:      
Per common share (7)0.331.691.891.020.370.07
Per preferred share (7)0.331.691.891.020.840.32
Per ADS common share (7)0.331.691.750.830.370.07
Per ADS preferred share (7)0.331.691.750.830.840.32

   Year ended December 31, 
 �� 2018  2018(4)  2017  2016  2015  2014 
   (in millions
of US$)(1)		  (in millions of R$ except per share/ADS
data or otherwise indicated)		 

Non-controlling interests

       

Non-controlling interests from continuing operations

   —     1   —     —     —     —   

Non-controlling interests from discontinued operations

   10   41   —     —     —     —   

Net income

   448   1,742   1,002   334   2,469   3,137 

Other comprehensive income (loss)

   (119)   (463)   (302)   (553)   (307)   (41) 

Comprehensive income

   329   1,279   700   (219)   2,162   3,096 

Basic earnings:

   

Per common share

   0.30   1.17   0.37   0.10   1.96   2.49 

Per preferred share

   0.30   1.17   0.84   0.35   1.96   2.49 

Per ADS common share

   0.30   1.17   0.37   0.10   1.96   2.49 

Per ADS preferred share

   0.30   1.17   0.84   0.35   1.96   2.49 

Diluted earnings:

   

Per common share

   0.30   1.17   0.37   0.07   1.96   2.49 

Per preferred share

   0.30   1.17   0.84   0.32   1.96   2.49 

Per ADS common share

   0.30   1.17   0.37   0.07   1.96   2.49 

Per ADS preferred share

   0.30   1.17   0.84   0.32   1.96   2.49 

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Statement of Financial Position Data

Year Ended December 31,

2020

2020

2019 (4)(5)

(Restated)

2018 (3)(5)

(Restated)

2017 (6)

2016 (6)

 in  millions of US$ (1)(in  millions of R$ except per share/ADS data or otherwise indicated)
Assets      
Assets classified as held for sale2421,2581,25819,446--
Other current assets

2,734

14,198

9,096

8,520

8,537

8,285

Total current assets2,97615,45610,35427,9668,5378,285
Property, plant and equipment, net4632,4072,4502,6622,7623,775
Intangible assets2,27411,81011,62410,77711,15610,820
Concession financial assets7313,7993,7593,8126,6054,971
Other assets

3,969

20,611

22,339

15,122

13,180

14,185

Total assets10,41454,08350,52660,33942,24042,036
       
Liabilities      
Current loans, financing and debentures3962,0592,7472,1982,3714,837
Liabilities directly associated to assets held for sale---16,272--
Other current liabilities

1,469

7,631

5,218

4,967

6,292

6,610

Total current liabilities1,8669,6907,96523,4378,66311,447
Non-current loans, financing and debentures2,49612,96112,03012,57412,02710,342
Non-current post-employment obligations1,2596,5386,4214,7363,9544,043
Other non-current liabilities

1,428

7,416

8,007

3,507

3,266

3,270

Total non-current liabilities5,18326,91526,45820,81719,24717,655
       
Share capital1,4627,5947,2947,2946,2946,294
Capital reserves4332,2502,2502,2501,9251,925
Profit reserves1,93710,0618,7506,3625,7295,200
Equity valuation adjustments(468)(2,431)(2,407)(1,327)(837)(489)
Subscription of shares to be capitalized----1,215-
Retained earnings…………………………………………………………..--212146  
Equity attributable to non-controlling interest

1

4

4

1,360

4

4

Total equity

3,365

17,478

16,103

16,085

14,330

12,934

Total liabilities and equity10,41454,08350,52660,33942,24042,036

 

   Year ended December 31, 
   2018  2018(4)  2017  2016  2015   2014 
   (in millions
of US$)(1)		  (in millions of R$ except per share/ADS
data or otherwise indicated)		 

Assets

        

Assets classified as held for sale

   5,011   19,446   —     —     —      —   

Other current assets

   2,152   8,350   8,537   8,285   9,377    6,554 

Total current assets

   7,163   27,796   8,537   8,285   9,377    6,554 

Property, plant and equipment, net

   686   2,662   2,762   3,775   3,940    5,544 

Intangible assets

   2,777   10,777   11,156   10,820   10,275    3,379 

Concession financial assets

   1,270   4,927   6,605   4,971   2,660    7,475 

Other assets

   3,529   13,693   13,180   14,185   14,605    12,048 

Total assets

   15,425   59,855   42,240   42,036   40,857    35,000 

Liabilities

        

Current loans financing and debentures

   566   2,198   2,371   4,837   6,300    5,291 

Liabilities directly associated to assets held for sale

   4,193   16,272   —     —     —      —   

Other current liabilities

   1,269   4,924   6,292   6,610   6,774    4,832 

Total current liabilities

   6,028   23,394   8,663   11,447   13,074    10,123 

Non-current loans financing and debentures

   3,240   12,574   12,027   10,342   8,866    8,218 

Non-current post-employment obligations

   1,220   4,736   3,954   4,043   3,086    2,478 

Othernon-current liabilities

   829   3,212   3,266   3,270   2,843    2,896 

Totalnon-current liabilities

   5,289   20,522   19,247   17,655   14,795    13,592 

Share capital

   1,880   7,294   6,294   6,294   6,294    6,294 

Capital reserves

   580   2,250   1,925   1,925   1,925    1,925 

Profit reserves

   1,640   6,362   5,729   5,200   4,663    2,594 

Equity valuation reserve

   (342)   (1,327)   (837)   (489)   102    468 

Subscription of shares to be capitalized

   —     —     1,215   —     —      —   

Equity attributable tonon-controlling interests

   350   1,360   4   4   4    4 

Total equity

   4,108   15,939   14,330   12,934   12,988    11,285 

Total liabilities and equity

   15,425   59,855   42,240   42,036   40,857    35,000 
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Other data

   2018   2017   2016   2015   2014 

Outstanding shares basic:

          

Common (3)

   487,614,144    487,614,144    420,764,639    420,764,639    420,764,639 

Preferred (3)

   970,577,739    970,577,739    837,516,297    837,516,297    837,516,297 

Dividends per share

          

Common

   R$0.59    R$0.03    —    R$0.50    R$0.63 

Preferred

   R$0.50    R$0.50    R$0.50    R$0.50    R$0.63 

Dividends per ADS common

   R$0.59    R$0.03    —    R$0.50    R$0.63 

Dividends per ADS preferred

   R$0.50    R$0.50    R$0.50    R$0.50    R$0.63 

Dividends per share (2)

          

Common

   US$0.15    US$0.01    —    US$0.13    US$0.24 

Preferred

   US$0.13    US$0.15    US$0.15    US$0.13    US$0.24 

Dividends per ADS (2) common

   US$0.15    US$0.01    —    US$0.13    US$0.24 

Dividends per ADS (2) preferred

   US$0.13    US$0.15    US$0.15    US$0.13    US$0.24 

Outstanding shares—diluted:

          

Common (3)

   487,614,144    487,614,144    420,764,639    420,764,639    420,764,639 

Preferred (3)

   970,577,739    970,577,739    837,516,297    837,516,297    837,516,297 

Dividends per share diluted

          

Common

   R$0.59    R$0.03    —    R$0.50    R$0.63 

Preferred

   R$0.50    R$0.50    R$0.50    R$0.50    R$0.63 

Dividends per ADS diluted common

   R$0.59    R$0.03    —    R$0.50    R$0.63 

Dividends per ADS diluted Preferred

   R$0.50    R$0.50    R$0.50    R$0.50    R$0.63 

Dividends per share diluted (2)

          

Common

   US$0.15    US$0.01    —    US$0.13    US$0.24 

Preferred

   US$0.13    US$0.15    US$0.15    US$0.13    US$0.24 

Dividends per ADS diluted common (2)

   US$0.15    US$0.01    —    US$0.13    US$0.24 

Dividends per ADS diluted preferred (2)

   US$0.13    US$0.15    US$0.15    US$0.13    US$0.24 

 

 

2020

2019

2018

2017

2016

Outstanding shares basic:     
Common566,036,634566,036,634566,036,634487,614,144420,764,639
Preferred1,127,325,4341,127,325,4341,127,325,434970,577,739837,516,297
      
Dividends per share:     
CommonR$0.99R$0.52R$0.59R$0.03-
PreferredR$0.99R$0.52R$0.59R$0.50R$0.50
Dividends per ADS commonR$0.99R$0.52R$0.59R$0.03-
Dividends per ADS preferredR$0.99R$0.52R$0.59R$0.50R$0.50
      
Dividends per share: (2)     
CommonUS$0.19US$0.13US$0.15US$0.01-
PreferredUS$0.19US$0.13US$0.15US$0.15US$0.15
Dividends per ADS commonUS$0.19US$0.13US$0.15US$0.01-
Dividends per ADS preferredUS$0.19US$0.13US$0.15US$0.15US$0.15
      
Outstanding shares—diluted:     
Common566,036,634566,036,634566,036,634487,614,144420,764,639
Preferred1,127,325,4341,127,325,4341,127,325,434970,577,739837,516,297
      
Dividends per share diluted:     
CommonR$0.99R$0.52R$0.59R$0.03-
PreferredR$0.99R$0.52R$0.59R$0.50R$0.50
Dividends per ADS diluted commonR$0.99R$0.52R$0.59R$0.03-
Dividends per ADS diluted preferredR$0.99R$0.52R$0.59R$0.50R$0.50
      
Dividends per share diluted: (2)     
CommonUS$0.19US$0.13US$0.15US$0.01-
PreferredUS$0.19US$0.13US$0.15US$0.15US$0.15
Dividends per ADS diluted common US$0.19US$0.13US$0.15US$0.01-
Dividends per ADS diluted preferred US$0.19US$0.13US$0.15US$0.15US$0.15
       
(1)

Converted at R$3.8804 /US$5.1935/US$, the exchange rate on December 31, 2018.2020. See “– Exchange rates”‘Exchange rates’.

(2)

This information is presented in U.S. dollars at the exchange rate in effect as of the end of each year.

(3)

For the year ended December 31, 2017 new shares issued through a capital increase were included. Please See “Item 4. Information on the Company”

(4)

As of December 31,From January 1, 2018, we adopted IFRS 9 and IFRS 15. Since we used the modified retrospective approach when adopting such standards;standards, we did not restate our financial statements as of and for the years ended December 31, 2017 2016, 2015 and 2014.

2016.
(4)From January 1, 2019, we adopted IFRS 16. Since we used the modified retrospective approach when adopting such standard, we did not restate our financial statements as of and for the years ended December 31, 2018, 2017 and 2016.
(5)Data for the years ended December 31, 2019 and 2018, have been restated to reflect to retrospective application of a change in an accounting policy, as described in note 2.8 to our consolidated financial statements.
(6)We have not restated data for 2017 and 2016 to reflect retrospective application of a change in an accounting policy, as described in note 2.8 to our consolidated financial statements.
(7)For the year ended December 31, 2018, 2019 and 2020, new shares issued through a capital increase in April 30, 2021 were included. See “Item 4. Information on the Company”.

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Exchange Rates

On March 4, 2005, the National Monetary Council (Conselho Monetário Nacional, or “CMN”‘CMN’), consolidated the commercial rate exchange market and the floating rate market into a single exchange market. Such regulation, as restated in 2008, allows subject to certain procedures and specific regulatory provisions, the purchase and sale of foreign currency and the international transfer ofreaisReais by a foreign person or company, without restriction as to the amount. Additionally, all foreign exchange transactions must be carried out by financial institutions authorized by the Brazilian Central Bank (Banco Central do Brasil, or the “Central Bank”‘Central Bank’), to operate in this market.

Brazilian law provides that whenever there (i) is a significant deficit in Brazil’s balance of payments or (ii) are major reasons to foresee a significant deficit in Brazil’s balance of payments, temporary restrictions may be imposed on remittances of foreign capital abroad. In the past, the Central Bank has occasionally intervened to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Federal Government will continue to let thereaisReais float freely or will intervene in the exchange rate market. ThereaisReais may depreciate or appreciate against the U.S. dollar and other currencies substantially in the future, Exchange rate fluctuations may affect the U.S. dollar amounts received by the holders of Preferred ADSs or Common ADSs. We will make any distributions with respect to our preferred shares or common shares inreaisReais and the depositary will convert these distributions into U.S. dollars for payment to the holders of Preferred ADSs and Common ADSs. We cannot make assurances that such measures will not be undertaken by the Brazilian Government in the future, which could prevent us from making payments to the holders of our ADSs. Exchange rate fluctuations may also affect the U.S. dollar equivalent of thereaisReais price of the preferred shares or common shares on the Brazilian stock exchange on which they are traded. Exchange rate fluctuations may also affect our results of operations. For more information see “Risk‘Risk Factors—Risks Relating to Brazil—Exchange rate instability may adversely affect our business, results of operations and financial condition and the market price of our shares, the Preferred ADSs and the Common ADSs”ADSs’.

The table below sets forth, for the periods indicated the low, high, average andperiod-end exchange rates forreaisReais, expressed inreaisReais per US$1.001.00.

 

Reais per US$1.00

Year Ended December 31.

  Reais per UStd.00 
Low   High   Average   Period-end 

2014

   2.1940    2.7306    2.3498    2.6563 

2015

   2.5644    4.1638    3.3360    3.9593 
Year Ended December 31,

Low

High

Average

Period-end

2016

   3.4112    4.1299    3.4839    3.2532 3.11424.12993.48393.2532

2017

   3.0557    3.3823    3.1916    3.3121 3.05573.38233.19163.3121

2018

   3.1470    4.2016    3.6513    3.8804 3.14704.20163.65133.8804
20193.65014.25943.94404.0190
20204.03785.92045.15875.1935

 

   Reaisper US$1.00 

Month

  Low   High   Average   Period
end		 

October 2018

   3.6670    4.0059    3.7611    3.7129 

November 2018

   3.6965    3.8919    3.7860    3.8571 

December 2018

   3.8353    3.9298    3.8834    3.8804 

January 2019

   3.6501    3.8123    3.7356    3.6501 

February 2019

   3.6552    3.7650    3.7244    3.7493 

March 2019

   3.7670    3.9689    3.8407    3.8892 

April 2019

   3.8269    3.9758    3.8974    3.9367 

May 2019 (through May 10, 2019)

   3.9195    3.9847    3.9517    3.9614 

 

Reais per US$1.00

Month

Low

High

Average

Period end

October 20205.52205.77905.62535.7588
November 20205.30695.74255.44825.3785
December 20205.05385.30165.14475.1935
January 20215.23045.48095.36735.4479
February 20215.31535.57245.41325.5724
March 20215.47505.80845.63515.6590
April 2021 (through April 27, 2021)5.49715.70755.61445.5011

Source: U.S. Federal Reserve Board.

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Risk Factors

The investor should take into account the risks described below, and the other information contained in this Annual Report, when evaluating an investment in our Company.Company.

Risks Relating to CEMIG

The Covid-19 pandemic and its ongoing effects could adversely affect our business, operational results and financial condition.

The Company is closely monitoring the impacts of the Covid-19 pandemic on the Brazilian macroeconomic environment, especially in relation to its business and the market in which it operates, and deciding on actions to maintain the sustainability of its operations, mitigate economic and financial effects, and protect the health of its employees. The Company established the Coronavirus Crisis Management Committee (‘Comitê Diretor de Gestão da Crise do Coronavírus’) in March 2020, to ensure its readiness to making decisions in light of the fast-changing situation, which has become more widespread, complex and systemic. Several measures were taken to protect the Company´s liquidity, such as capital expenditure restraint and expenses reduction, payment of only minimum mandatory dividends to shareholders, and deferral of dividends and interest on equity to the end of 2020 and the negotiating of contracts with its customers on the free market.

In order to cope with the reduction in collections resulting from the economic crises, measures to support the sector have been implemented by the Grantor and regulated by ANEEL, with a view to ensure that companies maintain adequate liquidity, and are able to comply with contracts in the electricity sector supply chain. This scenario resulted in the need for internal reassessment by the Company of its Investment Program, revision of the budgets for revenue and expenses, and alteration of the assumptions used in calculating the fair and recoverable value of certain financial and non-financial assets. Among the measures implemented by ANEEL having a greater financial impact on us was the creation of the ‘Covid-account’, issued on May 18, 2020, to support the energy distribution sector, which, as the customer interface, is the basis of the energy sector financial flow, aimed either to cover the distribution agents revenue/cash flow deficit or to anticipate sector receivables. The ‘Covid-account’ increased CEMIG D cash flow by R$1.4 billion in 2020 enabling it to meet its financial obligations, in spite of the collection reduction resulting from the economic crisis.

The total load carried by the Brazilian electricity system fell by approximately 1.5%, comparing 2020 to the year before, with gradual recovery since that period. The effects for the Company in the energy Market were also observed on a similar scale to these national effects with a consequent decrease in its revenue.

The most critical period to date of the pandemic regarding the energy supply in Brazil occurred in the second and third quarters of 2020. The Company cannot foresee the duration of these effects on the economic condition arising from social isolation, and its future impact on its market and revenue, nor the effectiveness of the ongoing actions that are being implemented by the federal government, such as the beginning of the population´s vaccination program, as well as the mitigation of the effects of the crisis. The continuing duration or a worsening of the pandemic could have a material adverse effect on our business, liquity, capital resources, results of operations and financial condition.

We are not certain whether new concessions or authorizations, as applicable, will be obtained, nor that our present concessions or authorizations will be extended on terms similar to those currently in effect, nor that any compensation we receive in the event ofnon-extension will be sufficient to cover the full value of our investment.

We operate most of our power generation, transmission and distribution activities under concession agreements entered into with the Brazilian Federal Government or pursuant to authorizations granted to companies of the CEMIG Group. The Brazilian Constitution determines that all concessions related to public services must be granted through a bidding process. In 1995, in an effort to implement these constitutional provisions, the Brazilian Federal Government adopted certain laws and regulations, which are collectively known as the “Concessions‘Concessions Law,”’ which governs bidding procedures in the electric power industry.

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On September 11, 2012, the Brazilian Federal Government issued Provisional Act No. 579 (“(‘PA 579”579’), later converted into Law No. 12,783 of January 11, 2013 (“(‘Law No. 12,783/13”13’), which governs the extensions of concessions granted prior to Law No. 9,074/95. Law No. 12,783/13 determines that, as of September 12, 2012, concessions prior to Law No. 9,074/95 can be extended once, for up to 30 years, at the option ofprovided that the concession authority.

operators accept and meet certain conditions described in such Law. With respect to generation activities, the Company chose not to accept the mechanism offered to extend the generation concessions that would expire in the period from 2013 to 2017. These concessions are: Três Marias, Salto Grande, Itutinga, Volta Grande, Camargos, Peti, Piau, Gafanhoto, Tronqueiras, Joasal, Martins, Cajuru, Paciência, Marmelos, Dona Rita, Sumidouro, Poquim and Anil.

Following publication of the tender documents for Generation Auction No. 12/2015, on October 7, 2015 (“(‘Auction 12/2015”2015’), which was held under the revised regulatory structure for renewal of concessions of existing power plants as set forth in Law No. 13,203 of December 8, 2015 (“(‘Law No. 13,203/15”15’), the Company’s Board of Directors authorized CEMIG Geração e Transmissão S.A. (“CEMIG GT”)(CEMIG GT) to bid at an auction, held on November 25, 2015, in which CEMIG GT was successful. In the auction, CEMIG GT won the concessions for the 18 hydroelectrical18-hydroelectrical plants comprising “Lot D”‘Lot D’, for 30 years: Três Marias, Salto Grande, Itutinga, Camargos, Cajuru, Gafanhoto, Martins, Marmelos, Joasal, Paciência, Piau, Coronel Domiciano, Tronqueiras, Peti, Dona Rita, Sinceridade, Neblina and Ervália. The total installed capacity of these plants is 699.5 MW, and their offtake guarantee is 420.2 MW average.

In relation to the Jaguara, São Simão and Miranda power plants, which the date of the first contractual extension of their concessions fell after the issuance of PMPA 579, the Company understood that the Generation Concession Contract No. 007/1997 enables the extension of the concessions of these power plants for 20 years, i.e. until 2033, 2035 and 2036 respectively, without any restrictions.

Based on this understanding, on February 21, 2017, CEMIG GT filed for a judicial order of mandamus against the actions of the Brazilian Mining and Energy Ministry (“MME”)(MME) to safeguard its rights to an extension of the concession term for the Jaguara, São Simão and Miranda HydroelectricalHydroelectric Power Plant, under the terms of Clause 4 of the Generation Concession Contract No. 007/1997, and in accordance with the original terms and conditions of that agreement, which was signed prior to Law No. 12,783/13.

On February 21, 2017, CEMIG GT made a renewal request to the MME, renewing its administrative application for extension, for a term of 20 years, of the concessions of the Jaguara, São Simão and Miranda hydroelectrical plants pursuant to Clause 4 of Generation Concession Contract No. 007 of 1997. In this renewal request, which reaffirmed the Company’s interests in these plants, CEMIG GT also made an alternative request, in the event the application is denied, for the concession of these hydroelectrical plants to be transferred/granted to one of its subsidiaries, for the purposes specified by Paragraph1-C of Article 8 of Law 12,783/13 (as amended by Law 13,360 of November 17, 2016), which enables the Federal Government to grant a power generation concession for 30 years when associated with transfer of control of a legal entity providing this service which is under direct or indirect control of a state, the Federal District or a municipality. The Concession-granting Power (the “Grantor”) refused this request.

OnNevertheless, on September 27, 2017, the Brazilian Federal Government auctioned the concessions of theJaguara, São Simão, Jaguara, Miranda and Volta Grande hydroelectricalhydroelectric power plants formerly owned by CEMIG GT with a total capacity of 2,922 MW for a total of R$12.13 billion. In each case, the winning bidder of the concessions was a third partyis unrelated to CEMIG. The ownership of the Volta Grande power plant concession was transferred to the winning bidder on November 30, 2017, the ownership of the Jaguara and Miranda power plants wasconcession were transferred on December 30, 2017 and the ownership of the São Simão power plant concession was transferred on May 9, 2018.

The applications formandamusrelating to theJaguara andMiranda hydroelectric plants have now reached final judgment against the Company and further appeal is not possible. As a resultBecause of these judgments, the Company assesses that the chances of success in the application formandamus in relation to theSão Simão hydroelectric plant, which has not yet reached final judgment, is remote.

CEMIG GT believes that it complied with the requirements necessary to maintain the concessions of the São Simão, Jaguara and Miranda power plants, which were each subject to automatic renewals. Several legal actions, public acts and negotiation meetings were held with the MME and ANEEL in order to seek a solution to the litigation that has extended since 2012. In the case of Volta Grande, CEMIG GT has also worked intensively to negotiate renewal terms for that concession. Despite the outcome of the auction, CEMIG GT plans to continue to assert its rights with respect to this concession in court. Following these legal actions that are in progress at the STF and the STJ, additional proceedings have been brought in the administrative and judicial sphere related to the indemnity to which the Company is entitled.

Despite the result of the auction, CEMIG plans to continue to make significant efforts to keep the concessions for theEmborcação andNova Ponte plants – which have a maturity on July 23, 2025 – and also for theSá Carvalho hydroelectric plant, the concession for which is held by Empresa Sá Carvalho S.A., a wholly-owned subsidiary of CEMIG. All the scenarios relating to continuation of commercial operation of these concessions by the Companies are being studied.

In parallel to the discussions on extension of the generation concessions, proceedings were filedbecause the concession for various plants operated by CEMIG under Concession Contract 007/1997 have expired, CEMIG GT has a right to be reimbursed for the assets not yet amortized, as set out in the administrativeconcession contract. The accounting balances corresponding to these assets are recorded as financial assets and judicial spheres relating to the indemnity to which the Company is entitled, originating from the generation concessions that have passed their maturity dates without the Company’s investments in them having been amortized. are analyzed by Brazilian Regulatory Agency (ANEEL).

On August 3, 2017, by its Ministerial Order 291,31, 2018, CEMIG received R$1,139 million as indemnification for the MME established the amountsbasic project of the indemnity owed to CEMIG GT for investments made in the São Simão and Miranda power plants. The totalThis amount ofhad been adjusted by the indemnity has been calculated at R$1.028 billion, of which R$243.59 million relates to the residual value the São Simão plant and R$784.15 million relates to the indemnity for the Miranda plant. These amounts are as of September 2015 and December 2016, respectively, and are to be adjusted,Selic rate up to the date of payment, by the IPCA inflation index and by the Selic rate.

In parallel to the proceedings in the administrative sphere, CEMIG GT filed a case against the Federal Government on November 27, 2017, in the 13th Civil Court of the SJDF (Judiciary of the Federal District) and requested an interim measure ordering the Federal Government to provide documents, and also pay the amount, already recognized through Ministerial Order 291/2017, of R $ 1.028 billion. On its contestation, on December 18, 2017, the Federal Government applied for the case to be set aside without judgment on the merits on the grounds that the matter had been the subject of a judgment against which there is no possibility of further appeal, or of the Federal Government having no standing to be sued, and, for the case to be set aside with a decision on the merits on the grounds of expiration of the statute of limitations. On January 17, 2018, CEMIG amended its writ to convert the writ into an ordinary court action for a declaration of nullity of Article 1°, §§1 and 2, and Article 2, of MME Ministerial Order 291/2017, and the consequent payment of reimbursement of all investment made in the concession by CEMIG GT, and also immediate payment of thenon-contested portion of the amount.receipt.

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In the administrative sphere, on March 13, 2018, CEMIG GT delivered correspondence to the MME requiring (i) that CEMIG GT should be informed whether the indemnity contained in MME Ministerial Order 291/2017 deals only with the Basic Plan of the hydroelectric plants, or whether it includes amounts relating to additional investments carried out after the generating plants had started operation; and (ii) that CEMIG GT should be supplied with a full copy of the proceedings on which the amounts in the Ministerial Order were defined.

In response, on March 22, 2018, the MME sent a copy of the requested proceedings, and also stated that the assets of theJaguara andVolta Grande hydroelectric plants are 100% depreciated and amortized, so that there is no value for indemnity. As to theMiranda andSão Simão plants, it stated that the amount was calculated based on the information of the Basic Plan supplied to ANEEL by the concession holder. On August 24, 2018, CEMIG GT sent to the Ministry a letter in which it stated adherence to MME Ministerial Order 291/2017, and further requested payment of the indemnity referred to in it, which took place on August 31, 2018, in the total, updated, amount of approximately R$1.14 billion.

In this situation, on November 13, 2018, in the case in progress before the federal courts, the Company filed a petition for extinction of the action. The Federal Government was served notice to give statement on CEMIG GT’s application. A possibility still remains of receipt of complementary indemnity to include the investments subsequent to the Basic Plan of theJaguara,Miranda, São Simãoand Volta Grande Plants in the administrative sphere.

On February 26, 2019, a decision to extinguish the lawsuit was published without its merits being judged. The judge of the case based his decision on the claim of supervening loss of interest by CEMIG on the action, arising from the request made on August 24, 2018. Considering that this decision allows the Company to file a new lawsuit similar to this in the future, especially for the indemnification of assets not included in the payment received on August 31, 2018, we did not appeal this decision.

Regarding transmission activities, on December 4, 2012, the Company signed the second amendment to Transmission Concession Agreement No. 006/1997, extending the concession for 30 years from January 1, 2013. The concession extension resulted in a reduction of the Permitted Annual Revenue (Receita Anual Permitida, or “RAP”), which decreased from R$ 485 million (in June 2012) to R$ 296 million (in June 2016). The Brazilian Federal Government has compensated us for the reduction of the RAP of those concessions. In our view, Law 12,783/13 states that the Federal Government is required to compensate us, using the IPCA index as a basis, RAP reductions of assets operating before 2000 within a30-year period. According to MME Ordinance No. 120/2016, as of July 2017, the transmission companies that extended their concession agreements will have their assets not yet compensated included in the Regulatory Remuneration Base and will also receive the recovery of past revenues from those assets. This applies to CEMIG.

With respect to extension of the energy distribution concession, CEMIG Distribuição S.A. (“CEMIG D”), as per Decree No. 7,805/12 and Decree No. 8,461/15, accepted the extension of its concession contracts, and signed the Fifth Amendment to its Concession Contract in December 2015 (the “Fifth Amendment”). This extends the concession for a further 30 years from January 1, 2016, but requires compliance with even more rigid rules related to the quality of service provided and the economic and financial sustainability of the Company over the 30 years of the concession.

In light of the degree of discretion granted to the Brazilian Federal Government in relation to new concession contracts or new authorizations, as applicable, and renewal of existing concessions and authorizations, and due to the new provisions established by PA 579 (and subsequent Law No. 12,783/13)13 and amendments, made to it by Law No. 13,203/15 and Law No. 13,360/16, for renewals of generation, transmission and distribution concession agreements, we cannot guarantee that: (i) new concessions and authorizations will be obtained; (ii) our existing concessions and authorizations will be extended on terms similar to those currently in effect; nor (iii) the compensation received in the event ofnon-extension of a concession or authorization will be in an amount sufficient to cover the full value of our investment. Our inability to obtain new or extended concessions or authorizations could have a material adverse effect on our business, results of operations and financial condition. For more information about the renewal of our concessions and authorizations, see “Item 8. Financial Information – Legal and Administrative Proceedings.”Proceedings”.

On September 9, 2020, the Law 14,052 was issued, changing the Law 13,203/2015 and establishing new conditions for renegotiation of hydrological risk in relation to the portion of costs incurred due to the GSF, borne by the holders of hydroelectric plants participating in the Energy Reallocation Mechanism (MRE) since 2012, when there was a serious crisis in water sources.

The compensation to the holders of hydroelectric occurs through the extension of the concession period for generation grants and will be recognized as an intangible asset in exchange for a compensation of electricity costs.

This renegotiation represents important progress for the electricity sector, reducing levels of litigation – and also for CEMIG, in that it enables extension of the periods of its generation concessions.

The periods of extension, published by the CCEE, which are still awaiting approval by ANEEL, indicate an extension of approximately two years for two of our principal power plants, Emborcação and Nova Ponte, and also extensions of seven years for the plants of Lot D – as well as extensions for the other plants where we hold an equity interest directly or through investees.

Our subsidiaries might suffer intervention by Brazilian public authorities to ensure adequate levels of service, or be sanctioned by ANEEL fornon-compliance with their concession agreements, or the authorizations granted to them, which could result in fines, other penalties and/or, depending on the severity of thenon-compliance, legal termination of concession agreements or revocation of authorizations.

We conduct our generation, transmission and distribution activities pursuant to concession agreements entered into with the Brazilian Federal Government, through ANEEL, and pursuant to authorizations granted to companies of the CEMIG Group, as the case may be.

ANEEL may impose penalties or revoke a concession or authorization if we fail to comply with any provision of the concession agreements or authorizations, including those relating to compliance with the established quality standards. Depending on the severity of thenon-compliance, these penalties could include:

fines
·Fines for breach of contract of up to 2.0% of the concession holder’s revenues in the financial year immediately prior to the date of the breach;
·Injunctions related to the construction of new facilities and equipment;
·Temporary suspension from participating in bidding processes for new concessions for a period of up to two years;
·Intervention by ANEEL in the management of the concession holder that is in breach;
·Revocation of the concession; and
·Execution of the guarantees related to the concession.

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injunctions related to the construction of new facilities and equipment;

temporary suspension from participating in bidding processes for new concessions for a period of up to two years;

intervention by ANEEL in the management of the concession holder that is in breach;

revocation of the concession; and

execution of the guarantees related to the concession.

Further, the Brazilian Federal Government can revoke any of our concessions or authorizations before the expiration of the concession term, in the event of bankruptcy or dissolution, or by legal termination, if determined to be in the public interest. It can also intervene in concessions to ensure adequate provision of the services, full compliance with the relevant provisions of agreements, authorizations, regulations and applicable law,law; and where it has concerns about the operations of the facilities of the Company.

Delays in the implementation and construction of new energy undertakingsinfrastructure can trigger the imposition of regulatory penalties by ANEEL, which, under ANEEL’s Normative Resolution No. 63846 of May 12, 2004,June 11, 2019, can vary from warnings to the termination of concessions or withdrawal of authorizations.

Any compensation we may receive upon rescission of the concession agreement or revocation of an authorization may not be sufficient to compensate us for the full value of certain investments. If we are responsible for the rescission of any concession agreement, the effective amount of compensation could be lower, due to fines or other penalties. The imposition of fines or penalties or the early termination or revocation by ANEEL of any of our concession agreements or authorizations, or any failure to receive sufficient compensation for investments we have made, may have a material adverse effect on our business, financial condition and results of operations, and on our ability to meet our payment obligations.

Rules under the Fifth Amendment to the distribution concession contract came into effect in 2016. They contain new targets for service quality, and requirements related to CEMIG D’s economic and financial sustainability. These targets must be complied with over the 30 years of the concession. Compliance with these targets is assessed annually, andnon-compliance could result in an obligation for CEMIG to inject capital into CEMIG D or a limitation on distribution of dividends or the payment of interest on capitalequity by CEMIG D to CEMIG. According to ANEEL regulations, in case of failure to comply with global annual targets for collective continuity indicators for two consecutive years, or three times in five years, or at any time in the last five years of the agreement term, distribution of dividends or payment of interest on shareholders’ equity may be limited until compliance is resumed. Furthermore, in the first five years,non-compliance with a target for two consecutive years, or with any one of the targets in the fifth year will result in legal termination of the concession.

We are subject to extensive and uncertain governmental legislation and regulation which may be subject to change, and any changes to such legislation and regulation could have a material adverse effect on our business, results of operations and financial situation.

Our operations are highly regulated and supervised by the Brazilian Federal Government, through the MME, ANEEL, the National System Operator (Operador(Operador Nacional do Sistema, or “ONS”‘ONS’), and other regulatory authorities. These authorities have a substantial degree of influence on our business. MME, ANEEL and ONS have discretionary authority to implement and change policies, interpretations and rules applicable to different aspects of our business, particularly operations, maintenance, health and safety, compensationconsideration to be received and inspection. Any significant regulatory measure implemented by such authorities may result in a significant burden on our activities, which may have a material adverse effect on our business, results of operations and financial condition.

The Brazilian Federal Government has been implementing policies that have afar-reaching impact on the Brazilian energy sector and, in particular, the energy industry.sector. As part of the restructuring, of the industry, Law No. 10,848, of March 15, 2004 introduced a new regulatory regime for the Brazilian energy industry. This regulatory structure has undergone several changes in recent years, the most recent being the changes added by PA 579 (which was converted into Law No. 12,783/2013), which governs the extension of some concessions governed by Law No. 9,074/1995. Under this law, such concessions can, from September 12, 2012, be extended only once, for up to 30 years, at the option of the concession authority.

The President of BrazilCurrently, the Law Project 232/2016 is currently consideringunder evaluation by the Congress. This draft law proposes changes in the legislation, arising from the former Public Consultation No. 33/2017, which includes some proposals for changes in the current regulatory model of the sector. These changes consist of subsidy reductions and revision of the allocation of costs, among others, creating the basis for a more open market. There is a possibility that the President may present this draft law to Congress for a vote.

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Amendments in the legislation or regulations relating to the Brazilian energy industry could adversely affect our business strategy and the conduct of our activities if we are not able to anticipate the new conditions or if we are unable to absorb the new costs or pass them on to customers. Also,In addition, we cannot guarantee that measures taken in the future by the Brazilian Federal Government, in relation to development of the Brazilian energy system, will not have a negative effect on our activities. Further, we are unable to predict to what extent such measures might affect us. If we are required to conduct our business and operations in a way that is substantially different from that specified in our business plan, our business, results of operations or financial position may be negatively affected.

Changes in Brazilian tax law or conflicts regarding its interpretation may adversely affect us.

The Brazilian Federal, state and municipal governments have regularly implementedimplement changes in tax policies that have affectedaffect us. These changes include the creation and alteration of taxes and charges, permanent or temporary, related to specific purposes of the government. Some of these governmental measures can increase our tax burden, which could affect our profitability, and consequently our financial situation. We cannot guarantee that we will be able to maintain our cash flow and profitability after an increase in taxes and charges that apply to us, and this might result in a material adverse effect on the Company.

We are subject to restrictions on our ability to make capital investments and to incur indebtedness, which could adversely affect our business, results of operations and financial condition.

We are subject to certain restrictions on our ability to make capital investments and acquisitions and raise funds from third parties, which might prevent us from entering into new contracts for financing of our operations, or for there-financing of our existing obligations, and which may adversely affect our business, results of operations and financial condition.

Our ability to carry out our capital expenditure program is dependent upon a number of factors, including our ability to charge adequate rates for our services, access to the domestic and international capital markets, and a variety of operational and other factors. Further, our plans to expand our generation and transmission capacity are subject to compliance with competitive bidding processes. These bidding processes are governed by Law 13,303/2016 (the “State‘State Companies Law”Law’).

In relation to loans from third parties: (i) as a state-controlled company, we are subject to rules and limits relating to the level of credit applicable to the public sector, including rules established by the National Monetary Council (Conselho(Conselho Monetário Nacional, or “CMN”‘CMN’), and by the Brazilian Central Bank; and (ii) we are subject to the rules and limits established by ANEEL that regulate indebtedness for companies in the energy sector. Also, although we may access both the international and local debt capital markets, we, as a state-controlled company, can only be financed with funds extended by local commercial banks if such debt is guaranteed by receivables, as well as with funds extended by Brazilian federal banks in transactions with the purpose of refinancing financial obligations contracted with entities of the Brazilian financial system.

Further, we are subject to certain contractual conditions under our existing debt instruments, and we may enter into new loans that contain restrictive covenants or similar clauses that could restrict our operational flexibility. These restrictions might also affect our ability to obtain new loans that are necessary for financing our activities and our growth strategy, and for meeting our future financial obligations when they become due, and this could adversely affect our ability to comply with our financial obligations. We have financing contracts and other debt obligations containing restrictive covenants, including Brazilian local market debentures and Eurobonds on international market and loans from Caixa Econômica Federal and Banco do Brasil.market.

We have approximately R$11.012.6 billion of outstanding debt with financial covenant restrictions, and any breach could have severe negative consequences to us. See “–‘– The Company has a considerable amount of debt, and it is exposed to limitations on its liquidity – a factor that might make it more difficult for the Company to obtain financing for investments that are planned and might negatively affect its financial condition and its results of operation.”’

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If, for example, we breach a financial covenant under the CEMIG GT’s 9.25% Senior Notes due 2024 (the “Eurobonds”‘Eurobonds’), we would be subject to an interest increase or acceleration of certain debt as a result of cross-default provisions under certain of our outstanding debt agreements. Similarly, if the Company violates a covenant under our debenture issuance, the debenture holders may accelerate the maturity of the debt in a meeting organized by the Fiduciary Agent (Trustee)(‘Trustee’), unless 75% of the debenture holders decide not to do so. Any acceleration of our outstanding debt could have a material adverse effect on our financial situation and may also trigger cross-default clauses in other financial instruments.

In the event of a default and acceleration, our assets and cash flow might be insufficient to repay amounts due, or to comply with the servicing of such debt. In the past, we have, on certain occasions, failed to comply with certain financial covenants that had conditions that were more restrictive than those currently in place. Although we were able to obtain waivers from our creditors in relation to pastnon-compliance, we cannot guarantee that we will be successful in obtaining any particular waiver in the future.

The Company might face difficulties in delivering the results described in the business plans of the companies that it has acquired, or those which may be acquired in the future, which could have a material adverse effect on our business, financial condition and results of operations.

The Company might not realizecould suffer adverse effects in connection with its minority interest in Renova Energia S.A. if such entity is unable to continue as a going concern

We have a 36.23% investment in Renova, which is currently in a court-supervised reorganization, and has reported recurring losses and equity deficit for the results expected from our acquisitions. The processyear ended December 31, 2020.

However, in view of integration for any acquired business could subjectthe investee’s equity deficit, the Company reduced the carrying value of its equity interests in Renova to certain risks, such as,zero. No further losses have been recognized, considering the non-existence of any legal or constructive obligations to the investee. Additionally, since June 30, 2019, considering Renova's financial situation the Company recorded an impairment of the full amount of credits with the jointly controlled entity in the amount of R$688 million.

On October 16, 2019, the request for example,processing the following: (i) unexpected expenses; (ii) inabilitycourt-supervised reorganization of Renova Group was granted by São Paulo Bankruptcy Court and the respective court-supervised reorganization plans were approved by Renova goup of creditors at the General Meeting of Creditors held on December 18, 2020 and ratified by the Second Bankruptcy and Court-Supervised Reorganization Court of São Paulo. The main effects of the the court-supervised reorganization plan were recorded on Renova’s financial statements at December 2020 and its measures are in progress. See Note 16 to integrateour Financial Statements.

Further, Renova is being investigated by the Civil Police of Minas Gerais State and the Brazilian Federal Police, see risk factor ‘Anti-corruption investigations currently in progress in Brazil, which have received wide public exposure, and any allegations against CEMIG or anti-corruption investigations of CEMIG, could have adverse effects on perception of Brazil and of CEMIG’.

Since the Company´s investment in Renova is fully impaired at December 31, 2020, and since no contractual or constructive obligations in relation to the investee have been assumed by the Company, it is not expected that effects resulting from the court-supervised reorganization process (the plan was approved and if its implementation is successful), or the investigations, or the operational activities of this investee can significantly impact the Company’s financial statements (refer to Note 16 to our consolidated financial statements for more detail).

Renova signed with the Company Debtor in Possession (DIP) loan agreements in the total amount of R$37 million. The funds of these loans, made under specific rules of court-supervised reorganization proceedings, were necessary to support the expenses of maintaining the activities of Renova, and were authorized by the companies acquiredsecond State of São Paulo Bankruptcy and the Court-supervised Reorganization Court. They are guaranteed by a fiduciary assignment of shares in a company owning assets of a wind power project owned by Renova, and they also have priority of receipt in the court-supervised reorganization process.

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On May 2, 2020, the State of São Paulo Bankruptcy and Court-supervised Reorganization Court issued a decision ordering that the DIP loan, in the total amount of R$37 million, with asset guarantee, already constituted and registered, would be subscribed as a view to obtaining the expected economies of scalecapital increase in Renova. Company has filed a Motion for Clarification and efficiency gains; (iii) possible delays related to integrationin a virtual and permanent session of the operations2nd Chamber of companies; (iv) exposureBusiness Law of the São Paulo Court of Justice, decided to potential contingencies; and (v) legal claims made againstuphold the acquired businessappeal. Thus, the clauses of the court-supervised plan that were unknown atdeal with the moment of its acquisition. The Company might be unsuccessful in dealing with these or other risks, or problems related to any other operation of a future acquisition, and be negatively affectedloan contracts signed by the companies acquired or which may be acquired in the future.Company are maintained.

A reduction in our credit risk rating or in Brazil’s sovereign credit ratings could adversely affect the availability of new financing and increase our cost of capital.

The credit risk rating agencies Fitch Ratings, Moody’s, and Standard and Poor’s attribute a rating to the Company and its debt securities on a Brazilian basis, and also a rating for the Company on a global basis.

Ratings reflect, among other factors, the outlook for the Brazilian energy sector, the hydrological conditions of Brazil, the political and economic conditions, country risk, and the rating and outlook for the Company’sCompany controlling shareholder, the State of Minas Gerais.

In the event of a downgrade due to any external factors, our operational performance or high levels of debt, our cost of capital could increase and our ability to comply with existing financial covenants in the instruments that regulate our debt could be adversely affected. Further, our operating or financial results and the availability of future financing could be adversely affected.

In addition, probable reductions in Brazilian sovereign ratings could adversely affect the perception of risk in relation to securities of Brazilian issuers, and, as a result, increase the cost of any future issues of debt securities. Any reductions in our ratings or Brazil’s sovereign ratings could adversely affect our operating and financial results, and our access to future financing.

Disruptions in the operation of, or deterioration of the quality of, our services, or those of our subsidiaries, could have an adverse effect onadversely affect our business, operating results and financial condition and results of operations.condition.

The operation of a complex energysystem that interconnects numerous power generation plants with large transmission lines and distribution networks and systems involves various risks, operational difficulties and unexpected interruptions, caused by accidents, damage to orequipment failure, of equipment or processes, performance below planned levels of availability and efficiency of assets,underperformance or disasters (such as explosions, fires, natural phenomena,climate events, floods, landslides, sabotage, terrorism, vandalism orand other similar events). In the event of any such occurrence, the insurance coverage for operational risks may be insufficient to fully repay the asset damage or service interruption costs incurred. In addition, National Grid Operator decisions, Regulatory Agency acts, and losses incurred as a result of damage caused to assets or interruptions of services. Also, operational decisions taken by an entity responsible for the operationEnvironmental Authority demands could adversely affect our business.

The Company's income is strongly dependent on equipment availability, service quality and regulatory compliance of the national grid, or actions or decisions taken by authorities responsible for regulation of the power industry, or for the environment or for issues that affect the energy generation, transmission and distribution businesses could have an adverse effect on the functioning and profitability of the operations of the Company’s generation, transmission and distribution systems.

The revenues that the Company generates from establishing, operating and maintaining facilities are, directly or indirectly, correlated with the availability of equipment and assets and facilities it builds, operates and maintains. Failing to comply may lead to business losses. For example, the quality ofdistribution business may be penalized in the services (continuity, and compliancetariff revision process with a higher "X-factor", reducing its expected annual revenue requirement; the regulatory requirements). Under our concession agreements, the Company is subject to: (i) a reduction of their “Parcel B” allocationtransmission business may have its annual permitted revenue reduced due to increase of the component Q in the formula for the “X Factor” at the time of the tariff review for the distributors; (ii) reduction of the Permitted Annual Revenue (RAP) of the Transmission Companies, due tonon-availability of transmission linesany asset unavailability; and substation equipment; and (iii) impacts on the revenue of the generation companies arising from the Availability Factor (Fator de Disponibilidade, or “FID”), and from reduction of the guarantee offtake levels of the plants. The hydroelectrical plants share the hydrological risk, and based on the applicable regulations and on the level of the guarantees offered previously by agents, to the extent that the plants dobusiness may have its earnings affected if a power plant does not meet a minimum availability, since that when hydro generation is less than the necessary production levels, on average agents will have to acquirepreviously contracted energy, the equivalent of the shortfall in volume of powerhas to be acquired at the spot price, (Preço de Liquidação de Diferenças – Differences Settlement Price, or “PLD”), which tends to beis highly volatile.

The generation agents are exposed to financial risks, since there may be differences in the financial accounting of the contracts in thesub-markets of the CCEE, depending on: (a) the location of the plant, which determines the PLD used in the accounting procedure for the vendors; and (b) the location of consumption of the contract, which will determine the PLD used in the accounting procedure for the consuming agent. If there is a difference between the PLD of thesub-markets, the agents will be subject to these differences.

Penalties and payments of offsetting or otherfinancial compensation are applicable depending on the scope, severity and duration of the unavailability of service or equipment.equipment unavailability. Thus, stoppagesdisruptions in our generation,power plants, transmission orand distribution facilities, substations or networks, may have a material adverse effect on our business, financial situation and operating results.

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We have a considerable amount of debt, and we are exposed to limitations on our liquidity – a factor that might make it more difficult for us to obtain financing for investments that are planned, and might negatively affect our financial condition and our results of operations.

In order to finance the capital expenditures needed to meet our long-term growth objectives, we have incurred a substantial amount of debt. As our cash flow from operations in recent years has not been sufficient to fund our capital expenditures, debt service and payment of dividends,December 31, 2020, our debt has significantly increased from 2012 to 2017. Our total loans, financing and debentures (including interest) was R$15,020 million; an increase of 1.64% compared to the R$14,777 million reported as of December 31, 2019 and an increase of 1.68% compared to R$14,772 million onreported as of December 31, 2018; R$14,398 million on December 31, 2017 and R$15,179 million on December 31, 2016 increased by 2.6% compared to 2017 and decreased by 2.7% compared to 2016.2018. Currently, 42%27.14 % of our existing loans, financing and debentures—debentures - totaling R$ 6,2234,076 million, have maturities in the next three years. To meet our growth objectives, maintain our ability to fund our operations and comply with scheduled debt maturities, we will need to raise debt capital from a range of funding sources. To service its debt after meeting the capital expenditure targets, the Company has relied upon and may continue to rely upon, a combination of cash flows provided by its operations, sale of assets, drawdowns under its available credit facilities, its cash and short-term financial investments balance and the incurrence of additional indebtedness. Any further lowering of its credit ratings may have adverse consequences on the Company’s ability to obtain financing or may impactaffect its cost of financing, also making it more difficult or costly to refinance maturing obligations. If, for any reason, the Company were to face difficulties in accessing debt financing, this could hamper its ability to make capital expenditures in the amounts needed to maintain its current level of investments or its long-term targets and could impair its ability to timely meet its principal and interest payment obligations with its creditors. A reduction in the Company’s capital expenditure program or the sale of assets could significantly and adversely affect its results of operations.

Our divestment programstrategy for maximizing value for CEMIG’s shareholdings depends on external factors that could impede its successful implementation.

Our Divestment Program was implemented in 2017CEMIG’s strategy for shareholdings is the maximization of value and contemplates the sale of a total of R$ 8,046 million in assets. This Divestment Program is intendedcapital recycling based on three pillars:

·Divestments: non-strategic or low synergy assets, and opportunistic offerings;
·Expansion: mainly through investments in our distribution and transmission concessions, greenfield projects in renewable sources and with the renewing of power generation concessions; and
·Management: synergy improvement, capital structure and distribution policy and governance enhancing.

All those pillars can be affected by external factors, especially divestment that has tore-establish our financial equilibrium, through a rapid reduction of our debt. External factors, take into consideration particular risks associated to each business such as deteriorationperformance (technical, operational, commercial and financial), market risks, sectorial risks and national and international macroeconomic risks (e.g. market volatility). Furthermore, closing of Brazilian and global economicdivestment operations will depend on favorable development of negotiations with potential investors regarding the conditions a Brazilian political crisis, or fluctuations inof the exchange rate, could adversely affect our ability to sell these assets or might reduce their fair value. The sale of assets under our Divestment Program will allow us to reduce our total indebtedness and improve our short-term liquidity position. However, such sales will result in a decrease in our cash flows from operations, which could have a material adverse effect on our long-term operating growth prospects and consequently our results of operations in the medium and long term. As of December 31, 2018, CEMIG had sold R$1,529 million of assets.possible transactions.

We might be unable to implement the strategies in our long-term strategic planning within a desired time, or without incurring unforeseen costs, which could have adverse consequences for our business, results of operations and financial condition.

Our ability to meet strategic objectives depends, to a large extent,largely, on successful, cost-effective and timely implementation of our Long-term Strategy and our Multi-year Business Plan. The following are some of the factors that could negatively affect this implementation:

·Inability to generate cash flow, or obtain the future financing, necessary for implementation of the projects;
·Inability to obtain necessary governmental licenses and approvals;
·Unexpected engineering and environmental problems;
·Unexpected delays in the processes of eminent domain and establishment of servitude rights;
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Inability to generate cash flow, or obtain the future financing, necessary for implementation of the projects;

·Unavailability of the necessary workforce or of equipment;
·Labor strikes;
·Delay in delivery of equipment by suppliers;
·Delay resulting from failings of suppliers or third parties in compliance with their contractual obligations;
·Interference by climate factors, or environmental restrictions;
·Changes in the environmental legislation creating new obligations and causing additional costs for projects;
·Legal instability caused by political issues;
·Substantial changes in economic, regulatory, hydrological or other conditions; and
·The extension of the duration and severity of the coronavirus (Covid-19) pandemic and its impacts on our business.

 

Inability to obtain necessary governmental licenses and approvals;

Unexpected engineering and environmental problems;

Unexpected delays in the processes of eminent domain and establishment of servitude rights;

Unavailability of the necessary workforce or of equipment;

Labor strikes;

Delay in delivery of equipment by suppliers;

Delay resulting from failings of suppliers or third parties in compliance with their contractual obligations;

Interference by climate factors, or environmental restrictions;

Changes in the environmental legislation creating new obligations and causing additional costs for projects;

Legal instability caused by political issues; and

Substantial changes in economic, regulatory, hydrological or other conditions.

The occurrence of the above factors, separately or in the aggregate,taken together, might lead to a significant increase of costs, and might delay or impede implementation of initiatives, and consequently compromise the execution of the strategic plan, negatively affecting our operating and financial results.

Furthermore, becauseas we are a mixed-capital company controlled by the State of Minas Gerais, we are subject to changes to our board of directors and executive officers as a resultbecause of change in the political agents of the Executive Branch of government due to the electoral process and also due to political instability. These types of changes may adversely affect the continuity of the Company’s strategy.

The operating and financial results of our subsidiaries, jointly controlled entities and affiliates, minority investees or from those companies, which may be acquired in the future, might negatively affect our strategies, operating results and financial situation.

We own equity in and do business through various subsidiaries and investees, including companies with assets in energy generation and transmission, energy and distribution.natural gas distribution and other correlated business. The future development of our subsidiaries, jointly-controlled entities and minority investees,affiliates, such as Transmissora Aliança de Energia Elétrica S.A. (“TAESA”), Light S.A. (“Light”(‘Taesa’) and Aliança Geração de Energia S.A. (“(‘Aliança”a’) as well as Renova Energia S.A. (“Renova”)(Renova), Guanhães Energia S.A., Norte Energia S.A. (‘NESA’) and Madeira Energia S.A. (“Mesa”(‘MESA’), in which the Company has significant financial commitments, could have a significant impact on our business and operating results. The Company’s ability to meet its financial obligations is correlated, in part, to the cash flow and the profits of its subsidiaries and investees, and the consequent distribution to the Company of such profits in the form of dividends or other advances or payments. If these companies’ abilities to generate profit and cash flow are reduced, this might cause a reduction of dividends and interest on capital paid to the Company, which could have a material adverse effect on our results of operations and financial position.

In addition, the investees might not reach the results expected when they were acquired. The process of integration for any acquired business could subject the Company to certain risks, such as, for example, the following: (i) unexpected expenses; (ii) inability to integrate the activities of the companies acquired with a view to obtaining the expected economies of scale and efficiency gains; (iii) possible delays related to integration of the operations of companies; (iv) exposure to potential contingencies; (v) legal claims made against the acquired business that were unknown at the moment of its acquisition, might negatively affect our strategies, operating results and financial situation, (vi) environmental licensing and liabilities, (vii) hydrological risk, (viii) power system operation and control, and (ix) general claims. The Company might be unsuccessful in dealing with these or other risks, or problems related to any other operation of a future acquisition and be negatively affected by the companies acquired or which may be acquired in the future.

Further, some of our subsidiaries and investees might, in the future, enter into agreements with creditors that could restrict dividend payments or other transfers of funds to the Company.

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Due to the Covid-19 pandemic, results of subsidiaries and investees might be affected, since the reduction on economic activity has the potential to decrease energy consumption, leading some of those companies to lose their abilities to generate profit, reducing cash flow and dividends and interest on capital paid to the Company. These subsidiaries are separate legal entities. Any right that we might have in relation to receipt of assets or other payments in the event of liquidation or reorganization of any subsidiary, will likely be in fact structurally subordinated to the demands of the creditors of such subsidiary (including tax authorities, commercial creditors and lenders to those subsidiaries).

Any deterioration in the operating results or financial conditions of these subsidiaries, and any sanctions or penalties imposed on them, could have a material adverse effect on the Company’s results of operations or financial condition.

New investments and acquisitions will require additional capital, which might not be available to us on acceptable terms.

We will need funds to finance acquisitions and investments. However, we cannot guarantee that we will have our own fundsDelayed completion of construction projects or that we will be able to raise such funds in a timely manner and in the necessary amounts, or at competitive rates (by issuancelate capitalization of debt securities, or incurrence of loans). If we are unable to obtain funds as planned, we may be unable to meet our acquisition commitments, and our investment program could suffer delays or significant changes, which could adversely affect our business, financial condition, results of operations and future prospects.

Delays in the expansion of facilities, in new investments or in capitalizations in our generation, transmission and distribution companies could adversely affect our business, operation results of operations and financial condition.

We are currentlyconstantly engaged in the construction and expansion of our plants, transmission lines, distribution lines, distribution networks and substations, and also studying other potential load expansion projects. Our capacityThe company’s capability to concludecomplete projects within deadlines and on budget, without adverse economic effects, is subject to various risks. For instance, we may encounter the following:

·Numerous complications in the planning and execution stages of load expansion projects and other new investments may occur, such as strikes, lagging suppliers of materials and services, delays in tender processes, embargos on work, unexpected geological and climate conditions, political and environmental uncertainties, financial instability of our partners, contractors and subcontractors;
·Regulatory or legal challenges that delay the date expansion projects are put into operation;
·New assets might operate below the planned capacity, or their operation/installation costs might be greater than planned;
·Difficulty to obtain adequate working capital to fund the expansion projects;
·The unintentional shutdown of the transmission assets during the execution of the load expansion projects can reduce the revenue of the Transmission business;
·ONS’s (‘Operador Nacional do Sistema’, Brazil’s ISO) refusal to authorize the execution of work on the transmission grid, due to power system restrictions;
·Environmental demands and claims by local communities during construction of power generation plants, transmission lines, distribution lines, distribution networks and substations; and
·Depletion of the outage duration indicator limit – SAIDI-i (known as Duração Equivalente de Interrupção por Unidade Consumidora - DECi) forcing construction to halt. If SAIDI-i limit is violated (either by system fault, equipment failure or construction work) for two years in a row between 2016 and 2020, or violated specifically in the year 2020, this will result in the Regulator initiating a legal process for the termination of the concession agreement. In 2020, CEMIG did not exceed the limit for the SAIDI-I limit, and in the fifth year of the concession, the Company achieved the best result in its history, 9.58 hours, compared to the limit of 10.44 hours set by the Regulator (‘ANEEL’).

 

Various problems in the phase of planning and construction of expansion projects or new investments, such as stoppages, delays by suppliers in materials and services, delays in tender processes, embargos on work, unexpected geological and meteorological conditions, political and environmental uncertainties, the liquidity of our partners, contractors and subcontractors;

Regulatory or legal challenges that delay the start date of operations of expansion projects;

New assets might operate below the planned capacity, or the costs of their operation/installation might be greater than planned;

Difficulty of obtaining adequate working capital to finance the expansion projects; and

Environmental demands and claims by local communities during construction of generation plants, transmission lines, distribution lines, distribution networks and substations; and, possibility of failure to comply with the “Duração Equivalente de Interrupção por Unidade Consumidora”—DEC (outages duration) target, resulting in risk of loss of the concession, since the contract provides thatnon-compliance with the targets for quality indicators for 2 consecutive years, or in the fifth year, will result in opening of a process of expiration of the concession.

If we facefaced with any of these problems or other problemssimilar issues related to the new investments or to the expansion of our generation, transmission or distribution capacity, wethe Company might suffer increases ofincur increased costs or perhaps, lower profitability than originally expected for the projects.

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The level of default by our customers could adversely affect our business, operating results and/or financial situation as well as those of our subsidiaries.

On December 31, 2018,2020, the total of ourpast-due receivables owed by customers, traders and power transport concession holders was approximately R$1,3811,510 million (R$1,0381,635 million in 2017)2019), corresponding to 6.20%5.99% of our consolidated net revenue in 2018 (4.78%2020 (6.42% in 2017)2019). We have recorded in 2018 a provision2020 an allowance for doubtful receivablesaccounts in the amount of R$751712 million (R$568810 million in 2017)2019). The possibility exists that we might be unable to collect amounts receivable from various customers, which are in arrears. If such debts are not totally or partially settled, we will suffer an adverse impact on our business, operation results and/or financial situation. Additionally, the amount of debts in arrears from our customers that exceeds the provision that we have madeallowance could cause an adverse effect on our business, operating results and/or financial condition.

CEMIG D’s economic and financial sustainability is directly related to the effectiveness of the actions to control energy losses, and the regulatory limits established for it. If CEMIG D does not succeedfails in successfully controlling energy loss, its business, operations, profit and financial situation could be substantially and adversely affected.

A distribution company’sThe energy losses of a distribution company comprise two types of losses: technical losses andnon-technical (commercial) losses. Technical losses are inherent into the process of transmissiontransporting and transformation of electric power and occur in the linescables and equipment of the energy system.Non-technical losses comprise powerenergy that is supplied and not invoiced, which may be the result of illegal connections (theft), fraud, metering errors or failures in internal processes.

CEMIG’s Total Losses Index as of December 31, 2018,2020, using a 12 month12-month window was 12.82%12.57%. This percentage is in relation to the total energy injected into the distribution system (the total volume of losses was 6,6076,545 GWh). Of that percentage, 8.77% comprised technical losses, and 4.05%3.80% comprisednon-technical losses. This result was 1.420.16 percentage points lower than the result for December 2017 (14.24%2019 (12.73%), and above the regulatory target set by ANEEL for 2018 (11.75%2020 (11.43%).

Since 2014, the adverse macroeconomic scenario in Brazil, with high unemployment, and the changes in the energy sector resulting from Provisional Act 579 (converted into Law No. 12,783 of 2013), affected the cash flow and situation of the distribution company. These resulted in successive tariff increases in order to compensate the negative effects caused by such facts. Additionally in our point of view these facts also contributed to an increase in fraud against the energy supply in CEMIG’s concession area, beginning in 2014.

From a regulatory point of view, ANEEL has been increasingly rigorous in establishing target caps for distribution losses. The target caps fornon-technical losses are set based on the basis of a benchmarking model that compares using an index, which measures the social-economic complexity of each concession area and how efficient the distributors are in combatingnon-technical energy losses. For the targets for technical losses, ANEEL uses metering measurements and power flow software.

In light of this complex scenario, involving regulatory uncertainties, even with the implementation of a strategy to reduce technical and commercial losses, CEMIG cannot guarantee that the target caps for losses established by ANEEL will be met in the mediumshort term, and this could affect the Company’s financial situation and operating results, since the portion of a distribution company’s power losses that exceeds the regulatory cap cannot be passed through to the customer as an expense in the form of an increase in tariffs.

Dams are part of the critical and essential infrastructure in the Brazilian energy sector. Dam failures can cause serious damage to affected communities and to the Company.

Wherever there are dams, thereThere is an intrinsic risk of dam failure, due to factors that may be internal or external to the structure (such as, for example, failure of a dam upstream from the site). The scale, and nature, of the risk are not entirely predictable. Thus, we are subject to the risk of a dam failure that could have repercussions far greater than the loss of hydroelectricalhydroelectric generation capabilities. The failure of a dam could result in economic, social, regulatory, and environmental damage and potential loss of human life in the communities downstream from dams, which could have a material adverse effect on the Company’s image, business, results of operations and financial condition.

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We might be held responsible for impacts on our own workforce, on the population and the enviroment,environment, due to electric accidents related to our generation, transmission and distribution systems and facilities.

Our operations, speciallyespecially those related to transmission and distribution lines, present risks that may lead to accidents, such as electrocutions, explosions and fires. These accidents may be caused by natural occurrences, human errors, technical failures and other factors. As a significant part of our operations is conducted in urban areas, the population is a factor to be constantly considered. Any incident that occurs on our facilities or in human occupied areas, whether regurlalyregularly or irregularly, can result in serious damages such as human losses, environmental and material damage, loss of production and liability in civil, criminal and environmental lawsuits. These events may also result in reputational damage, financial compensations, penalitiespenalties for the Company and its officers and directors, and difficulties in obtaining or mantainingmaintaining concession contracts and operating licenses.

Requirements and restrictions imposed by environmental agencies might require the Company to incur additional costs.

Our operations relating to generation, distribution and transmission of energy and distribution of natural gas are subject to various Federal, state and municipal laws and regulations, and also to numerous requirements relating to the protection of health and the environment. Delays by the environmental authorities, or the refusal of license requests by them, or any inability on our part to meet the requirements set by these bodies during the environmental licensing process, may result in additional costs, or even, depending on the circumstances, prohibit or restrict the construction or maintenance of these projects.

Anynon-compliance with environmental laws and regulations, such as construction and operation of a potentially polluting facility without a valid license or authorization, could give rise to the obligation to remedy any damages that are caused (third party liability) and result in criminal and administrative sanctions. Under Brazilian legislation, criminal penalties, such as imprisonment and restriction of rights, may be applied to individuals (including managers of legal entities), and penalties such as fines, restriction of rights or community service may be applied to companies. With respect to administrative sanctions, depending on the circumstances, the environmental authorities may: (i) impose warnings, or fines, ranging from R$50,000 to R$50 million; (ii) require partial or total suspension of activities; (iii) suspend or restrict tax benefits; (iv) cancel or suspend lines of credit from governmental financial institutions; or (v) prohibit us from contracting with governmental agencies, companies or authorities. Any of these actions could adversely affect our business, results of operations and financial condition.

We are also subject to Brazilian legislation that requires payment of compensation in the event thatif our activities have polluting effects. According to Federal Law No. 9,985/2000, Federal Decree No. 6,848/2009, and Minas Gerais State Decree No. 45,175/2009, up to 0.5% of the total amount invested in the implementation of a project that causes significant environmental impact should be used to pay for offsetting, measures in an amount to be decided by the environmental agencies, based on the project’s specific level of pollution and environmental impact. State Decree 45,175/2009 (“(‘Decree 45,175”45,175’) also indicated that the compensation rate will be applied retroactively to projects implemented prior to promulgation of the present legislation.

Among the provisions of law that can lead to operating investments and expenses, one is compliance with the Stockholm Convention on Persistent Organic Pollutants (the “Convention”‘Convention’), to which Brazil is a signatory, assuming the international commitment to withdraw the use of PCB by 2025, and its complete prohibition by 2028, through Decree No. 5,472, of June 20, 2005. The legislation to be enacted for this purpose could have a major effect on the energy industry and on CEMIG, due to the possibility of obligations to list, replace and dispose of equipment and materials containing substances included in the Convention such as Polychlorinated Biphenyls (“PCBs”)(PCBs).

If we are unable to meet the technical requirements established by the environmental agencies during the process of licensing, this might prejudice the installation and operation of our projects, or make carrying out of our activities more difficult, which could negatively affect our results of operations.

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Finally, the adoption or implementation of new safety, health and environmental laws, new interpretations of existing laws, increased rigidity in the application of the environmental laws, or other developments in the future might require us to make additional capital expenditure or incur additional operating expenses in order to maintain our current operations. They might also restrain our production activities or demand that we take other action that could have an adverse effect on our business, results of operations or financial condition.

Cyber-attacks, or violation of the security of our data might lead to an interruption of our operations, or a leak of confidential information either of the Company, or of our customers, third parties or interested parties, might cause financial losses, legal exposure, damage to reputation or other severe negative consequences for the Company.

We manage and store personal and sensitive or confidential data related to our business. Our information technology systems may be vulnerable to a variety of and cybersecurity breaches and incidents. Computer hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions, or cause shutdowns. Computer hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products.

The costs we may incur to eliminate or address the security problems and security vulnerabilities before or after a cyber-related incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential customers that may impede our critical functions.

Successful cybersecurity attacks, breaches, employee malfeasance, or human or technological error may result in unauthorized access to, disclosure, modification, improper use, loss or destruction of data or systems, including those belonging to us, our customers or third parties; theft of sensitive, regulated or confidential data including personal information; the loss of access to critical data or systems through ransomware, destructive attacks or other means; transaction errors; business delays; and service or system disruptions. We have observed an increase in cybersecurity attacks worldwide in 2020, and the remote working arrangements that we have implemented due to the Covid-19 pandemic have increased our dependence on information technology systems and infrastructure, and they may further expand our vulnerability to this risk. In the event of such actions, we, our customers or other third parties could be exposed to risk of loss or improper use of this information, resulting in litigation and potential liability, damage to our brand and reputation, or otherwise harm our business. In addition, we rely on third-party infrastructure providers whose potential security vulnerabilities could have impact in our business.

On December 25, 2020 an anomalous behavior, related to ransomware attacks, was detected by our Security Operation Center (SOC). Due to a quick and efficient response by CEMIG Cyber Security Team (CSIRT) the Industrial Control System (ICS) related to our critical infrastructure and the main databases (customers, billing and enterprise management) were not affected and no data was exfiltrated, causing no impact to customer services this way.

The regulatory environment with regards to cybersecurity, privacy and data protection issues is increasingly complex and may have impacts on our business, including increased risk, costs and expanded compliance obligations.

Failures in the security of our databases containing customer personal data, as well as events related to non-compliance with data privacy and protection legislation may have an adverse effect on our business, results of operation and reputation.

We have databases containing collected personal data from our customers, partners and collaborators. Any improper use of this data, or failures in the correct use of our security protocols may negatively affect the integrity of those databases. Unauthorized access to information concerning our customers, or unauthorized disclosure of sensitive information, may subject us to lawsuits, and as consequence, we might incur financial liabilities, penalties and reputational damage.

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The Brazil General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or LGPD), was signed into law in August 2018 and came into effect on September 18, 2020, with the exception of the administrative sanctions, which are expected to come into effect in August 2021. This law establishes rules and obligations regarding the collection, processing, storage and use of personal data and will affect all economic sectors including the relationship between customers and suppliers of goods and services, employees and employers and other relationships in which personal data is collected, whether in a digital or physical environment. Violations of the LGPD carry financial risks due to penalties for data breach or improper processing of personal data. The new legislation establishes penalties for non-compliance that include application of fines of up 2% of revenues, limited to R$50 million, for the most serious infringements. An increased number of data protection laws around the globe may continue to result in increased compliance costs and risks. The potential costs of compliance with or imposed by new or existing regulations and policies that are applicable to us may affect our business and could have a material adverse effect on our results of operations.

Increases in energy purchase prices could cause an imbalance in CEMIG D’s cash flows.

The expense on purchase of power from the distributors is currently strongly linked to the PLD Priceprice (Availability Contracts, Physical Guarantee quotas, and Itaipu Hydroelectric Plant quotas) and to MRE’s adjustment factor (Physical Guarantee quotas, Itaipu quotas and Hydrological Risk of the plants that have been renegotiated).

In 2018, a combination of negative factors affected purchases by the distribution companies,distributors, including (i) an adverse period in terms of rainfall, resulting in high spot prices from May to October; and (ii) seasonalization of the physical guarantee of the MRE, allocating a large volume of energy in the second half of 2018, resulting in very low MRE adjustment factors between June and October. In 2019, the spot prices were not as high as in 2018.

InThe ‘Flag Account’ (Conta Centralizadora de Recursos de Bandeiras Tarifárias – CCRBT or ‘Conta Bandeira’) manages the secondfunds that are collected from captive customers of distribution concession and permission holders operating in the national grid, and are paid, on behalf of the CDE, directly to the Flag Account. The resulting funds are passed through by the CCEE to distribution agents, based on the difference between the realized amounts of costs of thermal generation and the exposure to short term market prices, and the amount covered by the tariff in force.

The first half of 2018, these factors significantly increased the distributors’ expenses on purchases of energy. The balance2019 had a smaller deficit on the Tariff Flag account went into deficit by more than R$ 3.5 billion,compared to same period in the previous year and, as of June, 2019, the account no longer presented a deficit and 2019 ended with an accumulated surplus of R$745 million for all distribution companies in Brazil. This positive result was due to the present Tariff Flag mechanismbetter hydrological conditions of the system.

In 2020, the surplus lasted for almost the entire year, but started a declining trend from October, reaching a deficit of around R$3 billion in November for all distribution companies. The reason for the deficit was not enoughthe increase in energy costs, mainly due to covera considerable increase in PLD prices in that month. Due to the mismatchactions undertaken to mitigate the impacts of the pandemic, ANEEL suspended the application of tariff flags in 2020, but with the distributors’ cash flowscenario getting worse, there was a necessity to reapply it in 2018.December 2020 at its maximum value.

The methodology of the Tariff Flag system is reviewed every year, always seeking to make improvement,improvements, but under the present methodology, when very adverse situations can occur which affectthe system cannot respond sufficiently, resulting in negative effects on the distributors’ cash position. This factor could have an adverse effect on our business, operating results and financial condition.

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Brazil’s supply of energy is heavily dependent on hydroelectricalhydroelectric plants, which in turn depend on climatic conditions to produce energy. Adverse hydrological conditions that result in lower generation of hydroelectricalhydroelectric power could adversely affect our business, results of operations and financial condition.

HydroelectricalHydroelectric generation is predominant in Brazil. The advantages of hydroelectricalhydroelectric power have also been widely publicized due to it is a renewable resource and avoids substantial expenditures on fuels in thermal generation plants. At the same time, the main difficulty in the use of this resource arises from the variability of the flows to the plants. There are substantial seasonal variations in monthly and annual flows, which depend fundamentally on the volume of rain that falls in each rainy season. Adverse hydrological conditions in the Brazilian southeast region caused drought and water scarcity in the states of São Paulo, Minas Gerais and Rio de Janeiro in the recent past. These conditions might become worse during the dry period, which occurs from April through September. This could cause rationing of water consumption and/or energy, which could have a material adverse effect on the Company’s business and results of operations.

To deal with this difficulty, the Brazilian system has a complementary component of thermoelectric generation plants, and a growing portfolio of wind farms and Photovoltaic solar farms. It also has accumulation reservoirs, the purpose of which is to secure water from the rainy to the dry period and from one year to the next. However, these mechanisms are not able to absorb all the adverse consequences of a prolonged hydrological shortage, like the one that we have seen in the recent past.

The National Energy System Operator (Operador Nacional do Sistema, or ‘ONS’) coordinates the operation of the Brazilian energy system is coordinated by the National Energy System Operator (Operador Nacional do Sistema, or “ONS”).system. Its primary function is to achieve optimal operation of the resources available, minimizing operating cost, and the risks of shortage of energy. In periods when the hydrological situation is adverse, a decision by the ONS might, for example, reduce generation by hydroelectricalhydroelectric plants and increase thermal generation, which results in higher costs for the hydroelectricalhydroelectric generating agents, as happened in 2014. In the distribution companies,distributors, this increase in costs generates an increase in the purchase price of energy that is not always passed through to the customer at the same moment, generating mismatches in cash flows, with an adverse effect on the business and financial situation of those distribution companies. Also,distributors. In addition, in extreme cases of scarcity of powerenergy due to adverse hydrological situations, the system might undergo rationing, which could result principally in reduction of cash flow.

The Energy Reallocation Mechanism (Mecanismo de Realocação de Energia, or “MRE”)MRE aims to mitigate the impact of the variability of generation of the hydroelectrical plants. This mechanism shares the generation of all the hydroelectrical plants in the system in such a way as to supplement the shortage of generation of one plant with excess generation by another. However, this mechanism is not able to eliminate the risk of the generation players, because when there is an extremely unfavorable hydrological situation, to the extent that all the plants in aggregate are unable to reach the sum of their Physical Guarantee levels of powerenergy output, this mechanism makes an adjustment to the Physical Guarantee of each plant through the Physical Guarantee Adjustment Factor (Fator(Fator de Ajuste da Garantia Física, or GSF)‘GSF’), resulting in the generating companies being exposed to the short-term (“spot”(‘spot’) market.

In 2015,The company transferred to captive customers the Federal Government proposed a system of voluntary renegotiation relating to hydrological risk. This process allows the generation company to pass on to customers its costs and revenuesrisk related to hydrological risk,Queimado and Irapé power plants (Regulated Market Contracts), in exchange for payment of a ‘risk premium’, while also receiving indemnity for the losses suffered in 2015 through, among other measures, an extension of their generation concessions (or permissions, depending on the case) for up to 15 years.

To be able to participate in the renegotiation, the companies had to waive and withdraw all the claims that they had filed and all the applications for injunction that they had made, and also waive any other rights that they might have in relation to those actions.through.

In the free market, the system didwe do not receivehave the same acceptance,process, since even with the payment of the premium, generation companies would have had to continue assuming the hydrological risk at moments of critical hydrology. Thus, no plant that sells energy in the free market signed up for any renegotiation of hydrological risk.

Those operators that did not subscribe to the renegotiation continued to have injunctions preventing charging of the hydrological risk in full. These injunctions are causing a deficit of approximately R$6.9710.030 billion in the short-term market as of January, 2019.December 2020. This position increases the level of default calculated by the CCEE, thus reducing the amounts received by creditor agents in the short-term market. To avoid this effect, some creditor agents filed for further injunctions to acquire the right to priority in receipt. This effect leads to uncertainty in the market, reduction of liquidity, increase of default, and reduction in amounts received in the short-term market, representing a risk for the Company.

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Any substantial seasonal variation in the monthly flows and in the total of flows over the year could limit hydroelectricalhydroelectric generation, making it necessary to use alternative generation systems, which could have a significant adverse effect on the Company’s costs, including court fees and expenses relating to the subject.

The draft law No. 33/2017, currently withLaw 14,052/2020 and Resolution 895/2020, proposed the Brazilian President for submission toreimbursement of agents holding the Brazilian Congress, proposes certain modifications to the MRE, which includes the exclusion from the calculationconcession of hydraulic plants in the MRE of the following items:effects: (i) generation in disregard of the merit order which means dispatching energy to the grid in disregard of the ascending price ranking for energy generation, (ii) anticipation of delivery of firm energy to the system of relevant power plants, and (iii) restriction to the supply of energy to the grid due to delay in the transmission system. Other changes mayThese effects will be includedcalculated retroactively from 2012 to 2020, updated and remunerated at the ANEEL rate of 9.63%. The amount will then be paid through extension of the plants' concession. With this new agreement, injunctions are expected to be withdrawn and market deficits to be settled. In this way, the liquidity of the market in the bill during discussionsshort term and the default in the Brazilian Congress.CCEE should return to their historical values.

The rules for energy trading and market conditions may affect the sale prices of energy.

Under applicable laws, our generation companies are not allowed to sell energy directly to distribution companies.distributors. Thus, the power generated by our companies is sold in the Regulated Market (Ambiente(Ambiente de Contratação Regulado, or ACR)‘ACR’) – also referred to as the “Pool”‘Pool’ – through public auctions held by ANEEL, or through the Free Market (Ambiente(Ambiente de Contratação Livre, or ACL)‘ACL’) through bilateral negotiations with customers and traders. The applicable legislation allows distributors that sign contracts for existing energy supply (“(‘energia existente”existente’) with generation companies in the Regulated Market to reduce the quantity of energy contracted by up to 4%, per year, in relation to the amount of the original contract, for the entire period of the contract. This exposes our generation companies to the risk of not selling thede-contracted supply at adequate prices.

We conduct trading activities through power purchase and sale agreements, mainly in the Free Market, through our generation and trading companies. Contracts in the Free Market may be entered into with other generating entities, energy traders, or mainly, with “free‘free customers.”’ Free customers are customers with a demand of 3MW1.5 MW or more: they are allowed to choose their energy supplier.supplier, this limit will be reduced to 1.0 MW in 2022 and 0.5 MW in 2023 (Ordinance 465, published by the Ministry of Mines and Energy in December 2019). Some contracts have flexibility in the amount sold, allowing the customer to consume a higher or lower amount (5% on average) from our generating companies than the original amount contracted, which might cause an adverse impact on our business, operating results and/or financial situation.

Other contracts do not allow for this kind of flexibility in the purchase of energy, but increased competition in the Free Market could influence the occurrence of this type of arrangement in purchase contracts.

In addition to the free customers referred to above, there is a category of customers referred to as “Special Customers”‘Special Customers’, which are those with contracted demand between 500kW0.5 MW and 3MW.1.5 MW. Special Customers are eligible to participate in the Free Market provided they buy energy from incentive-bearing alternative sources, such as Small HydroelectricalHydroelectric plants, biomass plants or wind farms. As envisaged by the Ordinance 465/ 2019, by 2023 the demand restriction for free consumers will suffer reduction from 3.0 MW to 0.5 MW, and consider there will be no more separation of free and special consumers. The Company has conducted sales transactions for this category of energy from specific energy resources in particular companies of the CEMIG Group and, since 2009,2009; the volume of these sales has gradually increased. The Company has formed a portfolio of purchase contracts, which now occupies an important space in the Brazilian energy market for incentive-bearing alternative power sources. Contracts for the sale of energy to these customers have specific flexibilities to serve their needs, and these flexibilities of greater or lesser consumption are linked to the historic behavior of these loads. Higher or lower levels of consumption by these customers may cause purchase or sale exposures to spot prices, which can have an adverse impact on our business, operating results and/or financial situation. Market variations, such as variations of prices for signature of new contracts, and of volumes consumed by our customers in accordance with flexibilities previously contracted, can lead to spot market positions, which can potentially have a negative financial impact on our results.

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The MRE aims to reduce the exposure of generators of hydroelectricalhydroelectric power, such as our generation companies, to the uncertainties of hydrology. It functions as a pool of hydroelectricalhydroelectric Generation Companies, in which the generation of all the plants participating in the MRE is shared in such a way as to meet the demand of the pool. When the totality of the plants generates less than the amount demanded, the mechanism reduces the assured offtake levels of the plants, causing a negative exposure to the short-term (“spot”(‘spot’) market and, as a consequence, the need to purchase power supply at the spot price. Correspondingly, when the total generation of the plants is higher than the volume demanded, the mechanism increases the guaranteed offtake level of the plants, leading to a positive exposure, permitting the liquidation of power at the PLD. In years of poor rainfall, the reduction factor, which applies to the assured energy levels, can reduce the levels of the hydroelectricalhydroelectric plants by 20% or more.

In 2015, the Brazilian Federal Government proposed a system of voluntary renegotiation relating to hydrological risk. This process enabled the generating companies to transfer their costs and revenues related to hydrological risk to customers in exchange for the payment of a “risk premium” to be deposited in theso-called tariff band deposit account (the tariff band surcharges are deposited in such account and transfers to the distribution concessionaires are made from this account as well) and would be indemnified for the losses suffered in 2015 by means of, among other measures, an extension of their power generation grants (concessions or authorizations, as the case may be) for up to 15 years. In other words, hydroelectrical power plants would recover the costs incurred with GSF deficits retroactively to January 2015, and such recovery would form a “regulatory asset” which would be amortized over the term of the concession with a postponement of the risk premium. If the remaining concession/authorization period is insufficient (i.e. not long enough to amortize the regulatory asset), then generators would have a concession/authorization extension (limited to 15 years).

In the free market, the system was not favorable enough to gain acceptance: even with the payment of the risk premium, generation companies would have been required to continue assuming the hydrological risk at moments of critical hydrology. In this environment, the system required contracting of reserve power, which has very high prices, for mitigation of the hydrological risk.

Low liquidity or volatility in future prices, due to market conditions and/or perceptions, could negatively affect our results of operations. Further, if we are unable to sell all the power that we have available (our own generation capacity plus contracts under which we have bought supply of power) in the regulated public auctions or in the Free Market, the unsold capacity will be sold in the CCEE at the PLD, which tends to be very volatile. If this occurs in periods of low spot prices, our revenues and results of operations could be adversely affected.

The PLD’s value is calculated through the results of the optimization models of the operation of the national grid used by the ONS and by the CCEE. The PLD is currently published weekly by the CCEE for three load levels (Medium, Light(light, medium and Heavy)heavy). The models depend on entry data revised by the ONS at each period of four months, monthly, and weekly. In this system, there is the possibility that errors occur during the input of data into the model, which can lead to an unexpected change in the PLD. Alteration of these models, and errors in data input, constitute risks for the trading business, because they cause uncertainty in the market, reducing liquidity, and financial losses due to the unexpected change of price. To mitigate the risk of change of the models during the current year, the National Energy Policy Council (CNPE) published a note in 2016 which established that changes in the mathematical models used in the sector will need to be approved by the CPAMP ((‘Comissão Permanente para Análise de MetodologiasMetodologias’ – Standing Committee for Methodologies Analysis and Energy Industry Computer Programs) by July 31 of each year in order to be in force in the subsequent year.

The Covid-19 pandemic has put the world on alert, prompting countries to take measures to contain people to reduce the spread of the virus. In Brazil, these measures started in Mid-March of 2020 and their impacts on the Brazilian energy market were noticed almost immediately with a reduction in the energy consumption of the National Integrated System of approximately 13% in the week following the implementation of these measures. The reduction in consumption, with the consequent deceleration of the economy, lead to an increase in the levels of the reservoirs, since less hydroelectric generation is necessary to meet the lower consumption. Thus, the combination of these factors led to a reduction in prices in the short-term market. With regard to market prices, the evolution of systemic conditions and the revision in market forecasts led to a reduction in contract prices in the medium term. In this sense, the increase or decrease in exposure will depend on the contractual position and contract flexibility at each moment.

In 2020, the frequency of changes in the PLD are expected to bewere increased to once each hour. This change was to have taken place in 2019, but the process of model validation and entering of data was not ready on July 31, 2018, so the CPAMP postponed the date for the hourly PLD model to come into effect in 2020.hourly. Having an hourly PLD improves the PLD’s adherence to the real operation of the system, which will then better capture the hourly changes in the intermittent sources (Solar(solar and Wind)wind). This better alignment of price with operation tends to reduce the System and Service Charges (ESS)(‘ESS’), and also to remunerate the thermoelectric generation plants more efficiently when they are activated. On the other hand, the quality of the entry data when input on an hourly basis, especially for solar and wind sources, introduces one more element of uncertainty to the pricing of the market.

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The anticorruption investigations currently in progress in Brazil, which have had large-scale public exposure, and any allegations against or anticorruption investigations of CEMIG, might have adverse effects on the perception of the country, and on us.

Certain anti-corruption investigations could have adverse effects on CEMIG or other companies of the CEMIG Group. Investors’ perception about Brazil has been adversely affected by investigations of public corruption in large Brazilian companies, and by political events, which might represent potential risks to the social and economic outlooks for Brazil.

Among the Brazilian companies involved in these investigations are state-controlled companies in the oil and gas, electricity and infrastructure sectors, and private companies in the construction sector,and equipment supplier sectors, which are being submitted to investigations due to accusations of corruption by the Brazilian Securities Commission (CVM)(‘CVM’), the Federal Police, the Brazilian Public Attorneys, the Federal Audit Board, the U.S. Securities and Exchange Commission (SEC)(‘SEC’) and the U.S. Department of Justice (DOJ).(‘DOJ’), among others.

In the powerenergy industry, EletrobrasEletrobrás has set up an independent internal investigation into possible non-compliances with law and/or regulations indicated by media reports that alleged illegal acts related to service providers of Norte Energia S.A. (“NESA”)(NESA) and of Madeira Energia S.A. (“MESA”)(MESA) for the construction of Belo Monte and Santo Antônio hydroelectrical plants, respectively and some other special pusposespurposes entities, in which Eletrobras holds a minority stake. There have been no direct findings against NESA or MESA nor against any of its managers or employees, and the supposed illegal acts are in fact alleged to have taken place before NESA was formed. The internal investigation, however, estimated the economic and financial impact of these alleged illegal acts, related to NESA’s service providers at R$183 million, and this was considered by Eletrobras and by NESA in accounting analyses and conclusions for the year ended December 31, 2015. This total supposedly represents amounts estimated in excess for acquisition of machines, equipment, services, capitalized charges and administrative expenses, since the alleged improper payments were not made by NESA, but by contractors and suppliers of the Belo Monte hydroelectrical plant; and this also impedes identification of the amount and precise periods of the payments.

CEMIG holds, through CEMIG GT, an 11.69% indirect minority stake in NESA, through the jointly-controlled subsidiariesentities Aliança Norte Energia Participações S.A. and Amazônia Energia S.A. and the estimated amount of losses has already been recorded in Cemig’sCEMIG’s consolidated financial statements as of and for the year ended December 31, 2015.

The independent internal investigation of MESA, concluded in February 2019, in the absence of any future developments such as any leniency agreements by third parties that may come to be signed or collaboration undertakings that may be signed by third parties with the Brazilian authorities, found no objective evidence enabling it to be affirmed that there were any supposed undue payments by MESA that should be considered for possible accounting write-off, passthroughpass-through or increase of costs to compensate undue advantages and/or linking of MESA with the acts of its suppliers, in the terms of the witness accusations and/or cooperation statements that have been made public.

Since 2017, Renova, a company in which CEMIG has an indirecta direct stake of 36.23%, is part of a formal investigation conducted by the Civil Police of Minas Gerais State in relation to certain injections of capital made by some of its controlling stockholders,shareholders, including the Company, and capital injections of capital made by Renova in certain projects under development in previous years.

On April 11, 2019, the Brazilian Federal Police commenced the ‘Operation E o Vento Levou’ as part of the Lava Jato Investigation, and executed a search and seizure warrant issued by a Federal Court of São Paulo at Renova’s head office in São Paulo, based on allegations and indications of misappropriation of funds harmful to the interests of CEMIG. Based on the allegations being investigated, these events are alleged to have taken place before 2015. On July 25, 2019, the second phase of such investigation initiated.

The ‘Operation E o Vento Levou’ and the police investigation of the Minas Gerais State Civil Police have not yet been concluded. Thus, there is a possibility that material information may be revealed in the future. If a criminal action is filed against agents who damaged Renova, Renova intends to act as auxiliary to the prosecution in any criminal proceedings, and subsequently sue for civil recovery of the damages suffered.

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In 2019, the tax authority issued infraction notices against Renova, questioning the calculation of income tax and social contribution tax, and payment of withholding income, relating to contracts of services which allegedly did not have the due perfomance, in the estimated amount of R$89 million. Based on the opinion of its legal advisors, Renova provided for this amount as contingency on its financial statements.

Due to these third party investigations, the governance bodies of Renova requested the opening of an internal investigation, conducted by an independent company with the support of an external law firm. The internal investigation was concluded on February 20, 2020, and according to a statement Renova issued at the time, no concrete evidence of acts of corruption or diversion of funds to political campaigns was identified.

However, the independent investigators identified irregularities in the conducting of business and agreement of contracts by Renova, including: (i) payments without evidence of the performance of services, in the total amount of approximately R$40 million; (ii) payments not in accordance with the company’s internal policies and best governance practices, in the total amount of approximately R$137 million; and (iii) deficiencies in the internal controls of the investee.

As a result of this issue, Renova started an internal investigation on the subject, which is being carried out by an independent investigation company. The internal investigation is still in progress and, although deficiencies on Renova’s internal controls were appointed, no evidence supporting the allegations has been uncovered so far. Additional procedures are still required to complete the last phaseanalysis of the investigation, butabove mentioned values, Renova concluded that R$35 million relates to effective assets and therefore no adjustments were recordedimpairment was necessary. The remaining amount of R$142 million was already impaired in previous years, producing no impact on the financial statements of jointly controlled Renova nor on the Company’s consolidated financial statements for the year ended December 31, 2018.2019.

In response to the irregularities found, and based on the recommendations of the Monitoring committee and legal advisers, the Board of Directors of Renova decided to take all the steps necessary to preserve the rights of the investee, continue with the measures to obtain reimbursement of the losses caused, and strengthen Renova’s internal controls. Additionally, the Executive Board of Renova hired a Chief Officer for Governance, Risk and Compliance, who will be responsible, among other duties, for ensuring the effiectiveness of Renova´s internal controls and compliance processes.

Since our investment at Renova is fully impaired at December 31, 2020, and since no contractual or constructive obligations in relation to the investee have been assumed by the Company, it is not expected that effects resulting from the investigations can significantly impact the Company’s financial statements, even if such effects may not yet be recorded by Renova.

In addition to the cases above, there are investigations being conducted by the Public Attorneys’ Office of the State of Minas Gerais (‘MPMG’)(MPMG) and by the Civil Police of the State of Minas Gerais (‘PCMG’)(PCMG), which aim to investigate possible irregularities in the investments made by CEMIG atin Guanhães Energia S.A. and also atin MESA (Santo Antônio Energia S.A. or ‘SAESA’). Additionally, on April 11, 2019 agents of the Brazilian Federal Police were in the Company’s head office in Belo Horizonte to execute a search and seizure warrant issued by a São Paulo Federal Court in connection with the ‘Operation E o Vento Levou’, as described above. These proceedings are being investigated by analysisreviewing of documents demandedrequested by the respective authorities, and by hearing of witnesses. At present, it is not possible to determine what the results of these public authorities’the MPMG and PCMG’s investigations will be.

Taking into account these investigations, we hired acontracted specialized independent companyadvisers to analyze the internal procedures related to these investments. The first phaseinvestments, as well as the Company internal proceedings related to the acquisition of Light’s interest in Enlighted (see Note 25 of the internalFinancial Statements). The specialized independent company’s investigation was subject to oversight of an independent investigation committee whose creation was approved by our Board of Directors. The specialized independent advisers’ investigation was completed in May 2020 and consideringidentified no objective evidence substantiating illegal acts made by Company in the resultsCompany’s investments that were the subjects of the investigation. Therefore, there was no effect was recordedimpact in Company’s consolidated financial statements. The investigations are expected to continue, and as such it is not yet possible to measure any effects of these analyses, nor any impacts on the consolidated financial statements as of December 31, 2020.

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By the end of 2020, CEMIG initiated internal investigations into allegations that are the subjects of inquiries conducted by the Minas Gerais State Public Attorneys´ Office, regarding certain alleged irregularities in public bidding and purchasing processes. The investigations are being conducted by a new Special Investigation Committee (Comitê Especial de Investigação – ‘CEI’), with support from specialized independent advisers.

The Executive Board determined the establishment of a disciplinary administrative process (‘Processo Administrativo Disciplinar) to verify the veracity of the Company. A separate independent internal monitoring committee was also set upallegations and to accompanypursue the internal independent investigations, jointlypreventive removal of certain personnel from the Supply and Logistics area, which aims to ensure impartiality and exemption in the investigations.

CEMIG is and has been fully cooperating with any and all investigation and inspection by competent authorities, whether in the Audit Committee. Its members are: one independent member ofUnited States or Brazil. For example, in July 2019, pursuant to the Board;DOJ’s Corporate Enforcement Policy, the Chair ofCompany disclosed the Fiscal Council;above-described investigation to the DOJ and the Chair of the Board of Directors.

On March 9, 2018, the Federal Police begun Operation Fortuna, in the 49th phase of ‘Operação Lavajato’ (‘Carwash Operation’). According to news reports, this operation investigates payment of bribes by the construction consortium of the Belo Monte power plant, comprising the companies Camargo Corrêa, Andrade Gutierrez, Odebrecht, OASSEC and J. Malucelli.

On April 11, 2019, the Federal Police, alonghas been cooperating with the Federal Revenue Service, executed a warrant for search and seizure of documents in Cemig’s files, related to the investigation known as Operação Descarte – in its phase referred to as “E o Vento Levou” (“Gone with the Wind”) – resulting from reports of misappropriation of funds causing financial loss to Cemig, in 2014, in a transaction involving Renova, allegedly followed by fictional economic transactions and alleged remittances of funds outside Brazil without basis in an economic transaction. CEMIG collaborated with the authorities in complying with said warrant.

those agencies. We have not been notified of, nor are we aware of, any investigation in progress by the SEC or the DOJ involving CEMIG. However, we cannot guarantee that CEMIG or companies of the CEMIG Group will not in the future become the target of legal actions based on these or future anti-corruption investigations, whether in the United States or Brazil.

Any future anti-corruption actions, which might find failures of conduct by the managersmanagement of the Company or by third parties, might result in fines, penalties or significant negative postings in the accounts, or intangible damage, such as damage to reputation, and/or other significant, unforeseen, adverse effects.

We may be exposed to behaviors that are incompatible with our standards of ethics and compliance, and we might be unable to prevent, detect or remedy them in time, which might cause material adverse effects on our business, results of operations, financial condition and reputation.

Our businesses, including our relationships with third parties, are oriented by ethical principles and rules of conduct. We have a range of internal rules that aim to orient our managers, employees and contractors, and to reinforce our ethical principles and rules of professional conduct. Due to the wide distribution and outsourcing of the production chains of our suppliers, we are unable to control all the possible irregularities of the latter. This means that we cannot guarantee that the financial, technical, commercial and legal evaluations that we use in our selection processes will be sufficient for preventing our suppliers from having problems related to employment law, or sustainability, or in the outsourcing of the production chain with inadequate safety conditions. We also cannot guarantee that these suppliers, or third parties related to them, will not involve themselves in irregular practices. If a significant number of our suppliers involve themselves in irregular practices, we might be adversely affected.

Further, we are subject to the risks that our employees, contractors or any person who may do business with us might become involved in activities of fraud, corruption or bribery, circumventing our internal controls and procedures, misappropriating or using our assets for private benefit to the detriment of the Company’s interests. This risk is exacerbated by the fact that there are some affiliates, such as special-purpose companies and joint ventures, in which we do not have control.

Our internal controls systems to identify, monitor and mitigate risks may not be effective in all circumstances, especially in relation to companies that are not under our control. In the case of companies we have acquired, our internal controls systems might be incapable of identifying fraud, corruption or bribery that took place prior to the acquisition. Any failing in our capacity to prevent or detectnon-compliance with the applicable rules of governance or of regulatory obligation could cause harm to our reputation, limit our capacity to obtain financing, or otherwise cause material adverse effects on our, business, results of operations, financial condition and reputation.

A member

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Two members of our board of directors and certain former members of our management are party to administrative and judicial proceedings and ongoing corruption investigations.

Brazilian authorities have been conducting anticorruption investigations in a number of governmental areas, including partnerships and equity interests held by Brazilian governmental entities in the private sector. These investigations have resulted in administrative, civil and criminal proceedings against the individuals under investigation.

One of the membersmember of our board of directors is a defendant in two “Civil Action"Civil Actions of Administrative Impropriety due to Damages to the Public Treasury” proceedings, not criminal casesTreasury" and not related to such investigations. Both actions areanother member of our board of directors is a defendant in thea ‘Tax Evasion Action’, all in pre-trial proceeding stage, and the relevant complaints have not been accepted by the Court yet.stage. For more information, see “Item 6. Significant Civil and Criminal Proceedings Involving Key Management Members.”Members”. We cannot assure you that judicial and administrative proceedings, or even the commencement of new judicial and administrative proceedings against any members of our management or board of directors, will not impose limitations or restraints on the performance of the members of our management and board of directors that are a party to these proceedings. In addition, we cannot assure you that these limitations will not adversely affect us and our reputation.

 

The multiple uses of water and the various interests related to this natural resource might give rise to conflicts of interest between CEMIG and society as a whole, which might cause losses to our business, results of operations or financial condition.

At present, taking into accountconsidering projects and companies that are jointly controlled, CEMIG has more than 8070 hydroelectric power plants, with 5,791.355,969 MW and representing 96%98.1% of our installed capacity.

Water is the main raw material for CEMIG’s production of energy, and is a resource that is sensitive to climate change and vulnerable to the consequences of exploration of other natural resources, significantly impacted by human actions and subject to a regulatory environment.

CEMIG’s operation of reservoirs for generation of hydroelectricalhydroelectric power essentially requires consideration of the multiple uses of water by other users in a river basin; and this in turn, leads to the need to take into account a range of constraints — environmental, safety, irrigation, human consumption, waterways and bridges, among others. In periods of severe drought, like those of 2013 until 2018,2019, monitoring and forecasting the levels of reservoirs and the constant dialogue with the public authorities, civil society and users were essential for ensuring the generation of energy, and also the other uses of this resource.

Finally, CEMIG uses a Risk Management System to analyze scenarios and determine the degree of financial exposure to risks, considering the probability of occurrence and its effect. In the scenarios relating to potential conflicts with other users, CEMIG evaluates both the effects arising from prolonged droughts, which can lead to an increase of competition between the energy sector and other users, and also the effects of flood events occurring due to excessive rain. While CEMIG engages with other essential users, and takes steps to analyze community input and studies on issues relating to the impact of water use, competing interests relating to water use could, subject to certain minimum limits previously established by law, affect its availability to us for use in the operations of certain of our projects, which could adversely affect our business results of operations and financial condition.

We are controlled by the government of the State of Minas Gerais, which might have interests that are different from the interests of the other investors, or even of the Company.

As our controlling shareholder, the government of the State of Minas Gerais exercises substantial influence on the strategic orientation of our business. Currently it holds 51% of the common shares of CEMIG and as majority shareholder has full powers to decide on all business relating to the Company’s objects as stated in theby-laws, and to adopt whatever decisions it deems to be necessary for the defense of its interests and development.

The government of the State of Minas Gerais can elect the majority of the members of our Board of Directorssenior management and has the competency to approve, among other subjects, matters that require a qualified quorum of shareholders. The latter include transactions with related parties, shareholding reorganizations and the date and payment of any dividends.

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The government of the State of Minas Gerais, as our controlling shareholder, has the capacity to direct us to engage in activities and to make investments that promote the controlling shareholder’s economic or social objectives, and these might not be strictly aligned with the Company’s strategy, adversely affecting the direction of our business.

Our processes of governance, risk management, compliance and internal controls might fail to avoid regulatory penalties, damages to our reputation, or other adverse effects on our business, results of operations or financial condition.

Our Company is subject to various different regulatory structures, of which the following are examples: (i)(a) laws and regulations of the Brazilian energy sector, such as Law No. 10,848/04 (on trading in energy), regulations by ANEEL; (ii)(b) the laws and regulations that apply to listed companies with securities traded on the Brazilian capital market, such as Law No. 6,404/76 (the “Corporate Law”‘Corporate Law’), regulations of the CVM; (iii)(c) laws and regulations that apply to Brazilian companies with majority state-owned shareholdings, such as Law No. 8,666/93 (the “Tenders Law”) and Law No. 13,303/2016 (the “State‘State Companies Law”Law’); and (iv)(d) laws and regulations that apply to Brazilian companies that have securities registered with the SEC, such as the Sarbanes-Oxley Act of 2002, the Foreign Corrupt Practices Act (FCPA) and regulations of the SEC,SEC; and (e) laws and regulations regarding privacy and data protection, such as Law no. 13,709/2018 (the ‘General Data Protection Law, LGPD’), among others.

Furthermore, in recent years, Brazil has intensified and improved its legislation and structures relating to maintaining competition, combat of improbity and prevention of corrupt practices. For instance, Law No. 12,846/13 (the “Anticorruption Law”‘Anticorruption Law’) established objective liabilities for Brazilian companies that commit acts against Brazilian or foreign public administration, including acts relating to tender processes and administrative contracts, and established tough penalties for those companies that are punished.

The Company has a high number of administrative contracts with high values and a large number of suppliers and customers, which increases its exposure to risks of fraud and administrative impropriety.

Our Company has structures and policies for the prevention and combat of fraud and corruption, audit and internal controls, and has adopted the recommendations for Best Corporate Governance Practices recommended by the Brazilian Corporate Governance Institute (Instituto Brasileiro de Governança Corporativa, or “IBGC”‘IBGC’) and the framework of COSO (Committeethe Committee of Sponsoring Organizations of the Treadway Commission)Commission (COSO). Furthermore, due to the majority interest held by the State Government in our shareholding structure, we are required to contract the greater part of our works, services, advertising, purchases, disposals and rentals, through competitive tenders and administrative contracts, which are ruled by the Tenders Law, State Companies Law and other complementary legislation.

However, ourdespite the Company having processes of governance, risk management and compliance, we might be unable to avoid future violations of the laws and regulations to which we are subject (regarding labor, tax, environment, energy, among others), or violations of our internal control mechanisms, our Declaration of Ethical Principles and Code of Professional Conduct, or the occurrence of fraudulent or dishonest behavior by employees, or individuals or legal entities that are contracted, or other agents that may represent the company in dealings with third parties, especially with the Public Authorities.

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We might also be unable completely to prevent accounting errors in our financial reports and to prevent the occurrence of material weaknesses in the future. Our management identified material weaknesses in our internal control over financial reporting with respect to 2016, 2017 and 2018. For more information on the material weaknesses identified by our management, see: “Item 15—Controls and Procedures—Management’s Annual Report on Internal Control over Financial Reporting”.

Furthermore, we might be incapable of reporting the results of our operations, and other material information, with precision and timeliness in future periods, and/or successfully remedying the material weakness identified, and/or filing the timely documentation and information required by the authorities, including the SEC and the CVM.Non-compliance with laws and regulations, and other rules; accounting errors with material weaknesses; and not presenting precise and timely information as required by public authorities all are risks that might result in penalties, loss of licenses, damages to our reputation, or significant financial losses.

Our management has identified material weaknesses in internal control over financial reporting, and has concluded that our internal control over financial reporting was not effective on December 31, 2016, 2017, 2018, 2019 and 2018,2020, which may have a material adverse effect on the Company’s results of operations and financial condition.

Our management identified material weaknesses in our internal control over financial reporting for 2016, 2017 and 2018.the last 5 years. For further information on the material weakness identified by our management, see “Item 15—15 - Controls and Procedures—Procedures - Management’s Annual Report on Internal Control over Financial Reporting”. As a resultBecause of the identified material weaknesses, our management concluded that our internal control over financial reporting was not effective as of December 31, 2016, 2017 and 2018.for the last 5 years. Although we have developed and implemented several measures to remedy these material weaknesses, we cannot be certain that we will remedy our existing material weaknessesweakness or that there will be no other material weaknesses in our internal control over financial reporting in the future.

If our efforts to remediate the material weaknesses are not successful, we may be unable to report the Company’s results of operations for future periods accurately and in a timely manner and make our required filings with government authorities, including the SEC. There is also a risk that there could be accounting errors inSEC and the CVM. Due to its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements, and we cannot be certain that in the future additional material weaknesses will not exist or otherwise be discovered. Any of these occurrences could adversely affect our and the Company’s business, results of operations and financial condition.

Cyber-attacks, or violation of the security of our data might lead to an interruption of our operations, or a leak of confidential information either of the Company, or of our customers, third parties or interested parties, might cause financial losses, legal exposure, damage to reputation or other severe negative consequences for the Company.

We manage and store various proprietary information and sensitive or confidential data relating to our operations. We may be subject to breaches of the information technology systems we use for these purposes. Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions, or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products.

In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system.

The costs we may incur to eliminate or address the foregoing security problems and security vulnerabilities before or after a cyber-related incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential customers that may impede our critical functions.

In addition, breaches of our security measures and the dissemination of proprietary information or sensitive or confidential data about us or our customers or other third parties could expose us, our customers or other third parties affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation, or otherwise harm our business. In addition, we rely in certain limited capacities on third-party data management providers whose potential security problems and security vulnerabilities could have similar effects on us.

Failures in the security of our databases containing customer personal data, as well as events related tonon-compliance with data privacy and protecion legislation, may have an adverse effect on our business, results of operation and reputation.

We have databases containing collected personal data from our customers, partners and collaborators. Any misuse of this data, or failures in the correct use of our security protocols may negatively affect the integrity of those databases.

Unauthorized access to information concernig our customers, or unauthorized disclosure of sensitive information, may subject us to lawsuits, and as consequence we might incur financial liabilities, penalities and reputational damage.

In 2018, Brazil approved the General Data Protection Act or Lei Geral de Proteção de Dados (“LGPD”). This law establishes rules and obligations regarding the collection, processing, storage and use of personal data and will affect all economic sectors including the relationship between customers and suppliers of goods and services, employees and employers and other relationships in which personal data is collected, whether in a digital or physical environment. The law will come into effect in August 2020. In December 2018, a provisional measure nº 869 ammended Law 13709/2018 and created the National Data Protection Authority (Autoridade Nacional de Proteção de Dados or “ANPD”). The ANPD is expected to have as main responsibilities: (i) enact rules and regulations relating to data protection; (ii) analyze and interpret, in the administrative sphere, matters relating to the LGPD; (iii) request access to information from data controllers and processors; (iv) supervise processing activities and impose sanctions; and (v) promote cooperation with international and transnational data protection authorities.

The new legislation establishes penalties fornon-compliance, that include application of fines of up 2% of revenues, limited to R$50 million.

Potential shortages of skilled personnel in operational areas could adversely affect our business and results of operations.

It is possible that we maywill experience shortages of qualified key personnel. In recent years, we have been carrying out voluntary severance incentive programs open to all of our employees. Such programs may reduce our employeesemployees’ headcount by more than our ability to hire new employeesones to fill key positions. Our success depends on our ability to continue to successfully train our personnel so they can assume key positions in the organization. We cannot assure you that we will be able to properly train, qualify or retain key staff, or do so without costs or delays. Nor can we assure you that we will be able to hire new qualified personnel, in particular in operational areas, should the need arise. Any such failure could adversely affect our results of operations and our business.

Instability of inflation rates and interest rates could adversely affect our results of operations and financial condition.

Brazil has historically experienced high rates of inflation, particularly prior to 1995. Inflation, as well as government efforts to combat inflation, had significant negative effects on the Brazilian economy. More recently, inflation rates were 3.75% in 2018, 2.95% in 2017 and 6.29% in 2016, as measured by the Amplified National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo, or “IPCA”), compiled by IBGE (Brazilian Institute of Geography and Statistics).

The Brazilian Federal Government may introduce policies to reduce inflationary pressures, such as maintaining a tight monetary policy with high real interest rates, which could have the effect of reducing the overall performance of the Brazilian economy. Some of these policies may have an effect on our ability to access foreign capital or reduce our ability to execute our business plan.

We are also exposed to losses linked to fluctuations in domestic interest rates and inflation rates, due to the existence of assets and liabilities indexed to the variations in the Selic and CDI rates, and the IPCA andIGP-M inflation index.

A significant increase in interest rates or inflation would have an adverse effect on our finance expenses and financial results as a whole. At the same time, a significant reduction in the CDI rate, or in inflation, could negatively affect the revenue generated by our financial investments, but also have the positive effect of revaluing adjustments to the balances of our concession financial assets.

Our ability to distribute dividends is subject to limitations.

Whether or not the investor receives dividends depends on whether our financial situation permits us to distribute dividends under Brazilian law, and whether our shareholders, on the recommendation of our Board of Directors, acting in their discretion, determine suspension, due to our financial circumstances, of the distribution of dividends in excess of the amount of mandatory distribution required under ourby-laws in the case of the preferred shares.

Because we are a holding company with no revenue-producing operations other than those of our operating subsidiaries, we can only distribute dividends to shareholders if the Company receives dividends or other cash distributions from its operating subsidiaries. The dividends that our subsidiaries can distribute depend on our subsidiaries generating sufficient profit in any given fiscal year and on restrictive covenant clauses in contracts for loans and financing of these subsidiaries as well as by any restriction imposed by the regulator, all of which place limits upon their payments of dividends. Similarly, we have a limitation on the payment of dividends which cannot exceed the mandatory minimum of 50% of the net income for the business year, as contained in ourby-laws, due to restrictive covenant clauses in the contracts for loans and financing of the subsidiaries in which we are guarantors. Dividends are calculated and paid in accordance with applicable Brazilian corporate law (“Brazilian Corporate Law”Law’) and the provisions of theby-laws of each of our regulated subsidiaries.

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ANEEL has discretion to establish the rates that distribution companiesdistributors charge their customers. These rates are determined by ANEEL in such a way as to preserve the economic and financial balance of concession contracts entered into with ANEEL.

Concession agreements and Brazilian law have established a mechanism that permits three types of rate adjustment: (i)(a) the Annual Adjustment; (ii)(b) the Periodic Review; and (iii)(c) the Extraordinary Review. The purpose of the Annual Adjustment (Reajuste Anual)(‘Reajuste Annual’) is to compensate for changes in costs that are beyond a company’s control, such as the cost of energy for supply to customers, the sector charges that are set by the Federal Government, and charges for use of the transmission and distribution facilities of other companies. Manageable costs, on the other hand, are adjusted by the IPCA inflation index, less a productivity and efficiency factor, known as the X Factor, which considers aspects such as distribution productivity and service quality standards. Every five years, there is a Periodic Tariff Review (Revisão Periódica Tarifária, or RTP)‘RTP’), the purpose of which is to: identify the variations in costs referred to above; provide an adequate return on the assets that the company has constructed during the period; andperiod, establish a factor based on economies of scale, which will be taken into account in the subsequent annual tariff adjustments.adjustments and define the efficient operational costs. An Extraordinary Tariff Review takes place whenever there is any unforeseen development that significantly alters the economic/financial equilibrium of the concession. Thus, although CEMIG D’s concession contracts specify preservation of their economic and financial equilibrium,balance, we cannot guarantee that ANEEL will set tariffs that do remunerate us adequately in relation to the investments made or the operating costs incurred by reason ofdue to the concession, and this might have a material adverse effect on our business, financial situation and operating results.

ANEEL has discretion in settingestablished the Permitted Annual Revenue (Receita Anual Permitida or “RAP”‘RAP’) of our transmission companies; if any adjustments result in a reduction of the RAP, this could have a material adverse effect on our results of operations and financial condition.

TheANEEL defines the RAP that we receive through our transmission companies, is determined by ANEEL, on behalf of the Federal Government. The concession contracts provide for two mechanisms for the adjustment of revenues: (i)(a) the annual tariff adjustments; and (ii)(b) the Periodic Tariff Review (Revisã(‘Revisão Tarifária Periódica)dica’). The annual tariff adjustment of our transmission revenues takes place annually in June and is effective in July of the same year. The annual tariff adjustments take into account the permitted revenues of the projects that have come into operation, and the revenue from the previous period is adjusted by the inflation index (IPCA for Contract No. 006/1997 andIGP-M for Contract No. 079/2000). The periodic tariff review previously tooktakes place every four years, but Law No. 12,783/2013 changed the tariff review period to five years. The next periodic tariff review was scheduled for July 2018, as stated in our transmission concession contract. However, the rules for the tariff review are still being discussed between ANEEL and the public via public hearings. As a result, this review was postponed to July 2019, with retroactive effects. During the periodic tariff review, the investments made by a concession holder in the period and the operating costs of the concession are analyzed by ANEEL, takingANEEL. The regulator takes into account only investments that it deems to be prudent, and operating costs that it assesses as having been efficient, using a benchmarking methodology developed by employing an efficiency model which compares the data of the various transmission companies in Brazil.methodology. Thus, the tariff review mechanism is subject to some extent to the discretionary power of ANEEL, since it may omit to include investments that have been made, and could recognize revenues for operating costs as being lower than those actually incurred. This could result in a material adverse effect on our business results of operations and financial condition.

The concession for the greater part of CEMIG’s transmission assets was extended for 30 years from January 2013, in accordance with Law 12783/13, which resulted in an adjustment of the RAP of these concessions, reducing the revenue received in relation to the revertible assets that had been totally amortized. Further, under that law, the concession-granting power is authorized to pay an amount relative to the assets considered not to have been depreciated in existence on May 31, 2000 recorded by the concession holder and recognized by ANEEL. On April 20, 2016, the MME issued Ministerial Order 120, laying down that the amounts of thenon-depreciated assets would now become part of the Regulatory Remuneration Base (BRR) of the transmission concession holders, and that the cost of capital should be added to the related Permitted Annual Revenues and recognized as from July 2017. The cost of capital corresponding to the period from January 2013 to June 2017 will be paid over a period of eight years (financial item). The Regulatory Remuneration Base (BRR), corresponding to the period from July 2017 onward, will be depreciated based on the residual useful life of the assets, and updated by the IPCA inflation index (economic item).results.

An Extraordinary Tariff Review takes place whenever there is any unforeseen development that significantly alters the economic/financial equilibrium of the concession. Thus, although our concession agreements specify that the economic and financial balance of the contract shall be preserved, we cannot guarantee that ANEEL will set tariffs that adequately compensate us in relation to the investments made or in relation to the operating costs incurred by reasonbecause of the concession, whichconcession. This may have a material adverse effect on our business, financial condition and results of operations.

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We have strict liability for any damages caused to third parties resulting from inadequate provision of energy services.

Under Brazilian law, we are strictly liable for direct and indirect damages resulting from the inefficient rendering of energy generation, transmission and distribution services. In addition, when damages are caused to final customers as a result of outages or disturbances in the generation, transmission and distribution system, whenever these outages or disturbances are not attributed to an identifiable member of the ONS or to the ONS itself, the liability for such damages is shared among generation, distribution and transmission companies. Until a party with final responsibility has been identified, the liability for such damages will be shared in the proportion of 35.7% to the distribution agents, 28.6% to the transmission agents and 35.7% to the generation agents. These proportions are established by theThe number of votes establishes these proportions that each of these types of energy concession holders receives in the general meetings of the ONS, and as such, are subject to change in the future. Consequently, our business, results of operations and financial condition might be adversely affected in the event we are held liable for any such damages.

We may incur losses and reputational damage in connection with pending litigation.

We are party to several legal and administrative proceedings relating to civil, administrative, environmental, tax, regulatory, labor and other claims. These claims involve a wide range of issues and seek indemnities and restitution in money and by specific performance. Several individual disputes account for a significant part of the total amount of claims against the Company. See “Item 8. Financial Information – Legal and Administrative Proceedings.”Proceedings”. Our consolidated financial statements includesinclude provisions for risks in a total amount of R$ 641 million,1.9 billion, as of December 31, 2018,2020, for actions in which the chancesprobability of loss have been assessed as “probable”‘probable’.

One or more unfavorable decisions against us in any legal or administrative proceeding may have a material adverse effect on us. In addition to making provisions and the costs associated with legal fees, we may be required by the court to provide collateral for the proceedings, which may adversely affect our financial condition. In the event that our provisions for legal actions are insufficient, payments for actions in excess of the amounts provisioned could adversely affect our results of operations and financial condition.

In addition, certain members of our management are involved as defendants in criminal proceedings that are currently pending, which may distract our management and negatively affect us and our reputation. See “Item 6. Significant Civil and Criminal Proceedings Involving Key Management Members”.

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

WeFor reasons of obligations imposed by Brazilian environmental law, we must conduct environmental impact studies and obtain regulatory and environmental permits and licenses for our current and future projects. We cannot assure that these environmental impact studies will be approved by environmental agencies, that environmental licenses will be issued, that public opposition will not result in delays or modifications to any proposed project, or that laws or regulations will not change or be interpreted in a manner that could materially adversely affect our operations or plans for the projects in which we have an investment. We believe that concern for environmental protection is also an increasing trend in our industry. Although we consider environmental protection when developing our business strategy, changes in environmental regulations, or changes in the policy of enforcement of existing environmental regulations, could have a material adverse effect on our results of operations and our financial condition by delaying the implementation of energy projects, increasing the costs of expansion.

Furthermore, the implementation of investments in the transmission sector has suffered delays due to the difficulty in obtaining the necessary regulatory and environmental permits and approvals. This has led to delays in investments in generation due to the lack of transmission lines to provide for the outflow of the energy generated. If we experience any of these or other unforeseen risks, we may not be able to generate, transmit and distribute energy in amounts consistent with our projections, which may have a material adverse effect on our financial condition and results of operations.

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We operate without insurance policies against catastrophes and third-party liability.

Except for use of aircraft, we do not have third-party liability that covers accidents and we do not seek proposals for this type of insurance. CEMIG has not sought a proposal for, and has not contracted, insurance coverage against disasters, such as earthquakes or floods, that might affect our facilities. Any events of this type could generate unexpected additional costs, resulting in adverse effects on our business, results of operations and financial condition.

The insurance contracted by us might be insufficient to reimburse costs of damage.

Our business is normally subject to a range of risks, including industrial accidents, labor disputes, unexpected geological conditions, changes in the regulatory environment, environmental and climatic risks, and other natural phenomena. Also,In addition, we and our subsidiaries might be found responsible for losses and damages caused to third parties as a result of failures to provide generation, transmission and/or distribution service.

We only maintain insurance for fire, risks involving our aircraft, and operational risks, as well as those types of insurance coverage that are required by law, such as transport insurance of goods belonging to legal entities.

We cannot guarantee that the insurance contracted by us will be sufficient to cover in full or at all any liabilities that may arise in the course of our business nor that these insurance policies will continue to be available in the future. The occurrence of claims in excess of the amount insured, or which are not covered by our insurance policies, might generate significant and unexpected additional costs, which could have an adverse effect on our business, results of operations and/or financial condition. Further, we cannot guarantee that will we will be able to maintain our insurance coverage at favorable or acceptable commercial prices in the future.

Strikes, work stoppages or labor unrest by our employees or by the employees of our suppliers or contractors could adversely affect our results of operations and our business.

All of our employees are represented by labor unions. Disagreements on issues involving divestments or changes in our business strategy, reductions in our personnel, as well as potential employee contributions, could lead to labor unrest. We cannot ensure that strikes affecting our production levels will not occur in the future. Strikes, work stoppages or other forms of labor unrest at any of our major suppliers, contractors or their facilities could impair our ability to operate our business, complete major projects and adversely impactaffect our ability to achieve our long-term objectives.

A substantial portion of the Company’s assets is tied to the provision of public services and would not be available for liquidation in the event of our bankruptcy for attachment as collateral for the enforcement of any court decision.

A substantial portion of the Company’s assets is tied to the provision of public services. These assets arecan not available for liquidation in the event of our bankruptcy nor can they be attached as collateral for the enforcement of any court decision because the assets revert to the concession-granting authority to ensure continuity in the provision of public services, according to applicable legislation and our concession agreements. Although the Brazilian Federal Government would be obligated to compensate us for early termination of our concessions, we cannot assure you that the amount ultimately paid by the Brazilian Federal Government would be equal to the market value of the reverted assets. These restrictions on liquidation may lower significantly the amounts available to holders of the notes in the event of our liquidation and may adversely affect our ability to obtain adequate financing.

There are uncertainties about the methodology and parameters to be adopted

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Loss by the regulatory authoritiesour subsidiary Gasmig of its concession could cause losses in the first Tariff Review cycle to be applied to our subisidiary Gasmig.Gasmig’s results.

In 1993, Gasmig obtained the concession for distributioncommercial operation of supply of piped gas to the industrial, automotive, commercial, institutional and residential sectors in the state of Minas Gerais for a period of 30 years from (‘the date of publication of State Law No. 11,021, ofConcession Contract’). The concession was extended to January 11, 1993, with the possibility of extension provided certain requirements were met. On December 26, 2014,10, 2053 under the Second Amendment to the respective Concession Contract, was signeddated December 26, 2014.

On September 19, 2019, Gasmig executed the Third Amendment to the Concession Contract, which replaced the obligation of Gasmig to build a gas pipeline from the city of Queluzito, in Minas Gerais, in the direction of the city of Uberaba, Minas Gerais, for a compensatory grant payment of R$852 million to the State of Minas Gerais, and confirmed extension of the periodConcession Contract to January 10, 2053. In addition, Gasmig committed to reach a total of 100,000 clients served by the end of 2022, and to build networks to serve the seven meso-regions of the State of Minas Gerais. Currently, Gasmig serves five of these meso-regions.

Under Article 35 of Law 8987 of February 13, 1995 (‘the Concessions Law’), the concession is subject to termination under certain circumstances, including the following: (i) expiration of the contractual term; (ii) the operation being taken over by the state; (iii) termination for other reasons, usually of time, arising from law; (iv) rescission of the contract (amicably, or by the courts); (v) annulment of the concession wascontract as a result of a failing or irregularity found in a tender or public bid procedure or in the manner of its grant; or (vi) bankruptcy or extinction of the concession holder. In any of these circumstances, the concession assets will revert to the Concession-granting Power, the state of Minas Gerais (‘the Grantor’). In the event that Gasmig loses its concession for any reason, we cannot guarantee that any indemnity payable to Gasmig will be sufficient to compensate its investments, the implicit rate of return, nor loss of future profits relating to the assets not yet totally amortized or depreciated.

The activities carried out by Gasmig are subject to interruptions, disturbances and risks in the distribution system, caused by accidents, operational difficulties, damage, failure of equipment or processes, natural causes or catastrophes (such as explosions, fires, floods, landslides, sabotage, terrorism, vandalism, and others), which might result in Gasmig having an obligation to indemnify clients that suffer damages and might expose it to administrative or court proceedings.

In addition, Gasmig may suffer the intervention of the Grantor in the event that, in the Grantor´s opinion, there is a risk of Gasmig failing to perform the services, or if Gasmig has failed to perform its obligations under the concession contract or the applicable law. In such events, the Grantor could also levy fines against Gasmig or even revoke its concession.

Early termination of the Concession contract, and penalties in connection with such termination, would generate significant impacts on Gasmig’s results, and affect its capacity to pay and comply with its financial obligations. Gasmig’s concession will expire in January 2053, and may be extended, until January 10, 2053.at the sole discretion of the Grantor.

 

Changes in the methodology and parameters adopted by the regulatory authorities in connection with the tariff review cycles of Gasmig may adversely impact our operations and financial condition

UnderThe general parameters of tariff regulation are specified in the Concession Contract, which: (i) determines the general guidelines for adjustment of tariff; (ii) guarantees pass-through of the cost of acquisition of gas and of the tariff review; and (iii) determines the distribution margin, which enables the economic and financial sustainability of Gasmig will continue itsin accordance with the best practices used by Brazilian and international regulatory agencies for the natural gas distribution sector.

The concession contract also provides that the tariff will be reviewed if events occur that put the economic and financial equilibrium of the Concession Contract at risk, in the form of and for the periods necessary to avoid losses due to tariffs becoming inadequate.

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In November 2019 the Economic Development Department of Minas Gerais State (SEDE), a division of the Minas Gerais State Government, responsible for regulating the distribution of piped gas, completed the first tariff review cycle, in which the parameters for the remuneration rate, expectations of investments, costs and volumes for determining the tariffs in the 2018-2022 cycle were determined. In addition, SEDE included the impact of the payment of the Compensatory Grant in tariffs.

Changes in the tariff review cycles could cause a material adverse effect on Gasmig’s activities, untilaffecting its financial condition and the results of its operations. These changes may also impact on market conditions and the prices of securities in Brazil, consequently adversely affecting Gasmig, and could change the price of gas or increase the costs of its activities.

Gasmig might not succeed in implementing the strategies in its long-term strategic plan at the desired moment, or might incur unexpected costs, which could have adverse consequences for its business, operational results and financial condition.

Gasmig’s capacity to comply with the strategic objectives depends, largely, on timely and successful implementation, with a good cost-benefit ratio, of its long-term strategy.

The following are some of the factors that could negatively affect this implementation:

·Substantial alterations in the economic conditions;
·Substantial alterations in regulatory matters;
·Capacity to generate cash flow, or obtain future financings, necessary for implementation of projects;
·Inability to obtain necessary governmental licenses and approvals;
·Unexpected engineering problems;
·Unexpected investments in environmental matters arising from alterations in legislation and/or incidents that demand indemnities for environment damage;
·Unexpected delays in the processes of expropriation and establishment of easements;
·Non-availability of the workforce or of the necessary equipment;
·Strikes;
·Delay in delivery of equipment by suppliers;
·Inappropriateness of the physical facilities and equipment for ensuring uninterrupted activities of the business and protecting the critical processes against failures and accidents;
·Delay resulting from failings by suppliers or third parties to comply with their contractual obligations;
·Interference by climate factors, or environmental restrictions;
·Significant variations of hydrological conditions from the historic average, that is to say, occurrence of rains in a volume or frequency not in accordance with the historic average;
·Changes in the environmental legislation, creating new obligations and causing additional costs for projects;
·Legal instability caused by political issues;
·Continuation, for a long period, of the restrictive conditions imposed by Covid-19; and
·Occurrence of any of the above factors could result in significant increases in costs, or delay or inhibit implementation of initiatives, and consequently compromise the execution of Gasmig’s strategic plan, with negative effect on the operational and financial results of Gasmig and CEMIG.

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The existence of a single supplier of natural gas in Brazil affects competitiveness in the market in which Gasmig operates.

The Brazilian gas market is undergoing a process of opening, but there are still some obstacles to be overcome. Currently, Petrobras holds the monopoly on supply and transport of natural gas. Gasmig and Petrobras entered into a Purchase Agreement for the supply of natural gas under the ‘Firm Inflexible’ regime, specifying the quantity contracted, the price of gas, and other factors. The price of gas acquired from Petrobras varies according to a contractual formula, and is adjusted in accordance with changes in the price of Brent oil, and the US dollar exchange rate. In 2020, the price of acquisition for gas other than for thermoelectric power varied significantly, decreasing by as much as 27.4%, but later increased at the end of the concession, being compensated through tariffs paidyear to a price 3.7% lower than at the end of 2019.

The contract is for the period up to 2023, and the pricing of the molecule portion may be altered only by agreement between the parties. The price of the transportation of natural gas is regulated by, and may be revised by, the usersNational Oil, Natural Gas and Biofuels Agency (ANP). If ANP changes the pricing, the difference is passed through to the distributors.

Changes in the prices and/or pricing policies of distribution services. It is expectedproducts that are substitutes for the tariffs resulting from this tariff review process will be sufficient to maintainproduct that Gasmig sells could affect the economic-financial equilibriumprice of the concession up to 2022.energy products sold by Gasmig.

Petrobras also controls the prices of the principal energy substitutes that compete with natural gas. In 2017, Petrobras revised its pricing policy for energy sources that compete with natural gas. The Minas Gerais State Department for Economic Development, Science, Technologyprices of LPG (‘Liquefied Petroleum Gas’) and Higher Education (Secretaria de Estado de Desenvolvimento Econômico, Ciência, Tecnologia e Ensino Superior, orSedectes), which is responsible for regulationFuel Oil fluctuated significantly during the last year. The prices of distribution of piped gas, expects to complete Gasmig’s first tariff review in the first half of 2019,these energy products also vary in accordance with parameters relatingthe oil price, and the US dollar exchange rate, which might result in their maintaining their competitiveness in relation to expectationsgas.

Petrobras may revise its pricing policy at any time. Any changes could influence the market´s demand for investments, costs, volumesnatural gas and other variablesits competing fuels, such as LPG, petroleum gas, and/or Fuel Oil, which could positively or negatively impact Gasmig’s operational results and financial situation.

Opening of the gas market or measures to encourage reduction of the price could affect the profitability of Gasmig.

In 2016 the Brazilian federal government launched the ‘Gás para Crescer’ (‘Gas for Growth’) program, with the objective of fostering the natural gas market in Brazil, through implementation of changes in the regulatory environment of the natural gas sector, preparing it for a reduction in the participation of Petrobras. The proposals of the Gás para Crescer program were incorporated into a draft law, which has been going through Brazil´s Congress for some years. Also because of this program, the National Oil, Natural Gas and Biofuels Agency (ANP) issued Requests for Public Contributions, with a view to receiving contributions from agents in the natural gas chain to enable the entry of new players in the market.

The ‘Gás para Crescer’ program was succeeded by the ‘Novo Mercado de Gás’ (‘New Gas Market’) program. The main directives of the program are consolidated in CNPE Resolution 16/2019, which sets principles and objectives for the promotion of free competition in Brazil’s natural gas market.

Among the directives, it is established that there should be an incentive for the States and the Federal District to adopt good regulatory practices that contribute to effective liberalization of the market, increase in transparency and efficiency, de-verticalization of the sector, and appropriate pricing in the supply of natural gas, by segment of users. This will likely also involve an incentive for the States and the Federal District to adopt reforms and structuring measures, including a possible amendment to concession contracts to reflect good regulatory practices, which include the regulatory principles for Free Consumers, independent producers and independent importers. Finally, there would be an incentive for the States to arrange for privatization of the local state piped gas concession holders.

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In July 2019, Petrobras and the Brazilian antitrust authority CADE (‘Conselho Administrativo de Defesa Econômica’, or Economic Defense Administrative Council) signed an Undertaking for Cessation (‘Termo de Compromisso de Cessação –TCC’), under which Petrobras undertook to sell the holdings that it presently owns in the transporters Nova Transportadora do Sudeste S. A. – NTS (10%), and TBG - Transportadora Brasileira Gasoduto Bolívia-Brasil S.A. (51%). Petrobras will also sell indirect equity interest in distributors, by selling either its shares in Gaspetro or Gaspetro’s equity interests in the distributors. Petrobras also made an undertaking to adopt certain measures to give more transparency to the contracts for transport, and for third parties to have access to the capacity of the existing assets.

These measures, if implemented, might affect Gasmig, and there could be a variation in the cost price of gas and in the competitiveness of natural gas compared to other energy sources, generating a possible devaluation of natural gas in the market and altering Gasmig’s operational cash flow – i.e. it might have to pay a higher price than expected for the same product, generating negative financial consequences for Gasmig.

The renewal or extension of the gas supply contracts is not guaranteed, and the growth strategy might be adversely affected.

The gas supply contracts have specific periods of validity, and Gasmig might be adversely affected if this renewal and/or extension does not take place on terms that are favorable to Gasmig’s growth strategy – this might occur in view of the possibility of entry of new agents into the gas market.

Further, Gasmig will have to comply with certain requirements for the renewal of the gas supply contract, and for this reason cannot guarantee that this contract will be renewed, or that it will be renewed on the same terms. If the supply contract is not renewed, or if it is renewed on less favorable terms, the business, whichfinancial situation and operational results of Gasmig has presented.could be negatively affected.

The volumes of natural gas supplied by Gasmig are concentrated in few sectors, and few customers.clients.

The large-scale industrial market sustains the sales volume, of sales and accounted for 91.9%constituted 77% of the volume of gas not sold to thermal energyelectricity generation plants in 2018.2020. Gasmig’s largest customersclients are in steel, metallurgy, mining, and manufacture of pulp, which accounted for an aggregate 73.7% of thenon-thermal-generation volume consumed in 2018.

After three consecutive years of significant falls in production, Brazilian industry is now showing a trend of recovery: In 2018, physical industrial production was, according to IBGE data (Monthly Industrial Survey – Physical Production, orPIM-PF), 1% higher than in 2017.

Even with this recent positive performance, the average index of industrial production in 2018 is still 13.9% below the record level achieved in 2011.wood pulp.

In 2018, the volume sold by Gasmig to the industrial sector, comprising companies in steel, metallurgy, mining and pulp, was 2.15% lower than in 2017, when there were operational adjustments in some of its principal customers. Continuation of the market structure served by Gasmig, in the event of a reversal of expectations and underand/or an adverse economic scenario, couldcontinuity of the structure of the market served by Gasmig might have a negative effect on theGasmig’s business, operatingoperational results and financial conditionssituation.

Discussions in progress on the new directives of Gasmig.

The existencepublic policies in relation to the gas market in Brazil of a sole supplier of natural gas affects competitiveness.

In January 2017, Gasmig and Petrobras signed the Seventh Amendment to their Additional Supply Contract, adjusting the contracted quantity, the price of gas, and other matters. The price of gas acquired from Petrobras follows a variation defined by a contractual formula, and is adjusted in accordance with the price of oil. In 2018, the average price of acquisition for the market, increased by approximately 38.1% compared to the prior year.could negatively affect Gasmig’s business, if implemented.

Since the second half of 2016, Petrobras has been decreasingreducing its presence in the natural gas supply chain. In 2017 it sold part90% of its transportation pipelinestockholding interest in Nova Transportadora do Sudeste S.A. – NTS, to the Canadian company Brookfield Infrastructure Partners, althoughand in June 2020, completed the sale of 100% of its interest in Transportadora Associada de Gás S.A. – TAG, to the group comprising Engie and the Canadian fund Caisse de Dépôt et Placement du Québec (CPDQ).

Even with these divestitures, Petrobras continues to have a dominant position in the market, because it retainedhas a contract for the operationtransport of gas from these assets, and continues to be the monopoly supplier in the Brazilian gas market.

In 2019 the ‘Novo Mercado de Gás’ (‘New Gas Market’) program, developed by the Mining and Energy Ministry in partnership with the Economy Ministry, ANP, CADE and EPE, was instituted, with four sectors: Promotion of competition; Integration of natural gas with the electricity and industrial sectors; Harmonization of the state and federal regulations; and Removal of tax barriers. As practical results of the program, we highlight Resolution 16 of June 24, 2019, enacted by the National Energy Policy Council (CNPE) and the signature of the Cessation Undertaking (TCC) between the monopolies authority CADE (‘Conselho Administrativo de Defesa Econômica’) and Petrobras. CNPE Resolution 16 details guidelines of energy policy to achieve the objectives of the ‘New Gas Market’, especially in relation to promotion of competition. The TCC signed by CADE and Petrobras aims to stimulate competition in the sector and prevent future occurrence of anticompetitive conduct, covering total disposal of transport assets by the dominant agent, release of excess transport capacity to the market, and negotiation of non-discriminatory access for third parties to the infrastructures of outflow and processing of natural gas.

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Finally, Draft Law 6407/2013, known as ‘The New Gas Law’ (‘Nova Lei do Gás’), which brings together some measures that are necessary for formation of an open natural gas transportation system.market, was passed by the Senate on December 10, 2020, and now requires only passage by the Chamber of Deputies (the lower house of Congress) and signature by the President.

The Brazilian Federal Government has launched the “Gás para Crescer” (Gas to Grow) initiative, which aims to foster the gas market in Brazil throughproposed changes in the regulatory environment of the Natural Gas Industry, preparing it for the reduction of Petrobras’ participation. The proposals of the “Gás para Crescer” program were incorporated into the draft law currently being analyzed by the federal Congress. Further, as a consequence of this program, the National Oil, Natural Gas and Biofuels Agency launched Public Contribution Tenders for receipt of contributions from agents incould contain negative impacts on the natural gas production chain aiming at enabling thedistribution business, and generate uncertainties on some aspects. The adoption of systems of entry of new players into the market. However, upand exit to the present moment, there has been no practical changetransport activity generates uncertainties in relation to the natural gas market.

In 2017, Petrobras also reviewed its policyfuture cost of prices in energy sources that compete with natural gas.the service of transport. The price of LPG (liquefied petroleum gas) and fuel oil underwent many variations in the last year, resulting in a decrease of 7.9%incentive for the LPG, and an increase of 25.5%States to adopt harmonized regulatory principles for fuel oil, by December 2018 comparedfree agents (independent producers, independent importers) could represent risks to the prior year. The pricesdistribution concession holders of these energy products also varyhaving to bear the burden of commitments to minimum withdrawals included in accordance withsupply contracts, or even suffer physical bypass by the price of oil, which could result in gas maintaining its competitiveness.

However, Petrobras is entitled to, at any time, review the price policy of its products, which can change the market demand, since price drives customer choice between natural gas and competing fuels, usually LPG, gas oil and/or fuel oil. If this happens, Petrobras could cause a positive or negative impact on the demand for natural gas, directly impacting Gasmig’s operating results and financial condition.large consumers.

 

The regulatory agency responsible for the distribution of piped gas distribution is controlled by the government of Minas Gerais State, Government,whose interests might conflict with the interests of which might conflict with those of economic equilibriumbalance of the concession.concession granted to Gasmig.

The Brazilian Federal Constitution establisheslays down that itthe commercial operation of local piped gas services is thea function of the States, to exploit local piped gas services, directly or through concession.concessions. Gasmig is indirectly controlled by the State of Minas Gerais, through the majority shareholdingstockholding position held by CEMIG in Gasmig. The Minas Gerais Economic Scientific, Technological and Higher Education Development Department (SEDECTES)(SEDE) is a bodydivision of the state government, and in Minas Gerais it exercisesState government, responsible for the function of regulatorregulation of piped gas distribution services. SEDECTESFurther, SEDE is also responsible for promotingthe promotion of sustainable development in the State of Minas Gerais.

The Government of the State of Minas Gerais asState.

As indirect controlling shareholder of Gasmig, and at the same time regulator of the public service, through SEDECTES,SEDE, the government of Minas Gerais State has the authority to direct the efforts and investments of the CompanyGasmig in accordance with its own interests – political, economic or social interests and thesewhich could have a negative impact on the economic equilibrium of the concession.

Risks Relating to Brazil

Political and economic instability in Brazil could have effects on the economy and affect us.

Historically, the Brazilian political environment has influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect investor confidence and that of the general public, which resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies. The Brazilian economy today continues to be subject to the effects of the process of impeachment against former President Dilma Rousseff. On August 31, 2016, after a judgment by the Senate, Dilma Rousseff, until then President, was formally impeached. The then Vice-President, Michel Temer, assumed the position of President of Brazil and was succeeded by President Jair Messias Bolsonaro, whose term commenced on January 1, 2019. The President of Brazil has power to determine the governmental policies and actions related to the Brazilian economy and, consequently, to affect the operations and financial performance of companies, including ours.

Further, Brazilian markets have experienced a high level of volatility due to the uncertainties derivedarising from theon-going “Operação Lava Jato” investigation, anti-corruption and other similar investigations which are being carried out by the Brazilian Federal Prosecutors, and their impact on the economy and on the Brazilian political environment. Such events could cause the trading value of our shares, preferred and common, of our preferred and common ADSs, and our other securities to be reduced, and could negatively affect our access to the international financial markets. Furthermore, any political instability resulting from such events, including upcoming political elections at the federal and state levels, if it affects the Brazilian economy, could cause us tore-evaluate our strategy.

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

The Brazilian Federal Government frequently intervenes in the country’s economy and occasionally makes significant changes in monetary, fiscal and regulatory policy. Our business, results of operations and financial condition may be adversely affected by changes in government policies, as well as other factors including, without limitation:

·Fluctuations in the exchange rate;
·Regulatory policy for the energy sector;
·Inflation;
·Changes in interest rates;
·Fiscal policy;
·Other political, diplomatic, social and economic developments which may affect Brazil or the international markets;
·Liquidity of the domestic markets for capital and loans;
·Development of the energy sector;
·Controls on foreign exchange and restrictions on remittances out of the country; and/or
·Limits on international trade.

 

fluctuations in the exchange rate;

inflation;

changes in interest rates;

fiscal policy;

other political, diplomatic, social and economic developments which may affect Brazil or the international markets;

liquidity of the domestic markets for capital and loans;

development of the energy sector;

controls on foreign exchange and restrictions on remittances out of the country; and/or

limits on international trade.

Uncertainty on whether the Brazilian Federal Government will make changes in policy or regulation that affect these or other factors in the future might contribute to the economic uncertainty in Brazil and to greater volatility of the Brazilian securities marketssecurities-markets and the markets for securities issued outside Brazil by companies. Measures by the Brazilian Federal Government to maintain economic stability, and also speculation on any future acts of the Brazilian Federal Government, might generate uncertainties in the Brazilian economy, and increase the volatility of the domestic capital markets, adversely affecting our business, results of operations and financial condition. If the political and economic situations deteriorate, we may also face increased costs.

Additionally, there are uncertainties regarding the federal government's capacity to promote actions in 2021 that minimize the impacts of Covid-19 and promote a faster economic recovery.

These uncertainties, together with the current economic crisis that Brazil is undergoing and other future developments in the Brazilian economy, may adversely affect our business, results of operations and financial condition.

The stability of the Brazilian realReal is affected by its relationship with the U.S. dollar, inflation and Brazilian Federal Government policy regarding exchange rates. Our business could be adversely affected by any recurrence of volatility affecting our foreign currency-linked receivables and obligations as well as increases in prevailing market interest rates.

The Brazilian currency has experienced high degrees of volatility in the past. The Brazilian Federal Government has implemented several economic plans, and has used a wide range of foreign currency control mechanisms, including sudden devaluation, small periodic devaluation during which the occurrence of the changes varied from daily to monthly, floating exchange market systems, exchange controls and parallel exchange market. From time to time, there was a significant degree of fluctuation between the U.S. dollar and the Brazilian Real and other currencies. On December 31, 2018,2020, the exchange rate between the Real and the US dollar was R$ 3.88045.1935 for US$ 1.00. There is no guarantee that the Real will not depreciate, or appreciate, in relation to the US dollar, in the future.

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The instability of the Brazilian Real/Real/U.S. Dollar exchange rate could have a material adverse effect on us. Depreciation of the Real against the United States dollar and other principal foreign countries could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy, and consequently, our growth. Depreciation of the Real could cause an increase in financial and operating costs, since we have payment obligations under financing contracts and import contracts indexed to exchange rate variations. Also,In addition, depreciation of the Real could cause inflationary pressure that might result in abrupt increases in the inflation rate, which would increase our operating costs and expenses, which might adversely affect our business, results of operations, or outlook.

We generally do not enter into derivative contracts or similar financial instruments or make other arrangements with third parties to hedge against the risk of an increase in interest rates. To the extent that such floating rates rise, we may incur additional expenses. Additionally, as we refinance our existing debt in the coming years, the mix of our indebtedness may change, specifically as it relates to the ratio of fixed to floating interest rates, the ratio of short-term to long-term debt, and the currencies in which our debt is denominated or to which it is indexed. Changes that affect the composition of our debt and cause rises in short or long-term interest rates may increase our debt service payments, which could have an adverse effect on our results of operations and financial condition.

Inflation and certain government measures aimed to control it might contribute significantly to economic uncertainty in Brazil, and could have a material adverse effect on our business, results of operations, financial condition and the market price of our shares.

Brazil has historically experienced extremely high rates of inflation. Inflation, and some of the Federal Government’s measures taken in an attempt to curb inflation, have had significant negative effects on the Brazilian economy. Since the introduction of the Real in 1994, Brazil’s inflation rate has been substantially lower than in previous periods. Brazilian annual inflation as measured by the IPCA index in the years 2016, 20172018, 2019 and 20182020 was, respectively, 6.29%3.75%, 2.95%4.31% and 3.75%4.52%. No assurance can be given that inflation will remain at these levels.

Future measures taken by the Federal Government, including increases in interest rates, intervention in the foreign exchange market or actions intended to adjust the value of the Real, might cause an increase in the rate of inflation, and consequently, have an adverse economic impact on our business, results of operations and financial condition. If Brazil experiences high inflation rates in the future, we might be unable to adjust the rates we charge our customers to offset the effects of inflation on our cost structure.

A significant increase in interest rates or inflation would have an adverse effect on our finance expenses and financial results as a whole. At the same time, a significant reduction in the CDI rate, or in inflation, could negatively affect the revenue generated by our financial investments, but also have the positive effect of revaluing adjustments to the balances of our concession financial assets. Substantially all of our cash operating expenses are denominated in Reais and tend to increase with Brazilian inflation. Inflationary pressures might also hinder our ability to access foreign financial markets or might lead to further government intervention in the economy, including the introduction of government policies that could harm our business, results of operations and financial condition or adversely affect the market value of our shares and as a result, of our preferred ADSs, common ADSs and other securities.

 

Risks Relatingrelating to the Preferred and Common Shares, and the Preferred and Common ADSs

Instability of the exchange rate could adversely affect the value of remittances of dividends outside Brazil, and also the market price of the ADSs.

Many Brazilian and global macroeconomic factors have an influence on the exchange rate. In this context, the Brazilian Federal Government, through the Central Bank, has in the past occasionally intervened for the purpose of controlling unstable variations in exchange rates. We cannot predict whether the Central Bank or the Federal Government will continue to allow the realReal to float freely or whether it will intervene through a system involving an exchange rate band, or the use of other measures.

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This being so, the realReal might fluctuate substantially in relation to the United States dollar, and other currencies, in the future. That instability could adversely affect the equivalent in US dollars of the market price of our shares, and as a result the prices of our ADSs, common and preferred, and also outward dividends remittances from Brazil. For more information, see “Item 3. Key Information – Exchange Rates.”Rates”.

Changes in economic and market conditions in other countries, especially Latin American and emerging market countries, may adversely affect our business, results of operations and financial condition, as well as the market price of our shares, preferred ADS and common ADSs.

The market value of the securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including other Latin American countries and emerging market countries. Although the economic conditions of such countries may differ significantly from the economic conditions of Brazil, the reactions of investors to events in those countries may have an adverse effect on the market value of the securities of Brazilian issuers. Crises in other emerging market countries might reduce investors’ interest in the securities of Brazilian issuers, including our Company. In the future, this could make it more difficult for us to access the capital markets and finance our operations on acceptable terms or at all. Due to the characteristics of the Brazilian power industry (which requires significant investments in operating assets) and due to our financing needs, if access to the capital and credit markets is limited, we could face difficulties in completing our investment plans and the refinancing our obligations, and this could adversely affect our business, results of operations and financial condition.

The relative volatility and illiquidity of the Brazilian securities market may adversely affect our shareholders.

Investing in Latin American securities, such as the preferred shares, common shares, preferred ADSs or common ADSs, involves a higher degree of risk than investing in securities of issuers from countries with more stable political and economic environments and such investments are generally considered speculative in nature. These investments are subject to certain economic and political risks, including, as examples, the following:

·Changes to the regulatory, tax, economic and political environment that may affect the ability of investors to receive payment, in whole or in part, related to their investments; and
·Restrictions on foreign investment and on repatriation of capital invested.

 

changes to the regulatory, tax, economic and political environment that may affect the ability of investors to receive payment, in whole or in part, related to their investments; and

restrictions on foreign investment and on repatriation of capital invested.

The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than the major securities markets in the United States. This might substantially limit an investor’s ability to sell the shares underlying his preferred or common ADSs for the desired price and within the desired period. In 2018,2020, the São Paulo Stock Exchange (Brasil, Bolsa, Balcão S.A or B3)‘B3’), the only stock exchange in Brazil on which our shares are traded, had an annual market capitalization of approximately R$ 3.495.14 trillion, and average daily trading volume of approximately R$ 12.1929.8 billion.

Holders of the preferred and common ADSs, and holders of our shares, may have different shareholders’ rights than holders of shares in U.S. companies.

Our corporate governance, disclosure requirements and accounting practices are governed by ourby-laws, by the Level 1 Differentiated Corporate Governance Practices Regulations (Regulamento(‘Regulamento de Práticas Diferenciadas de Governança Corporativa Nível 1)1’) of the B3 (the main Brazilian stock exchange) by the Brazilian Corporate Law (Federal Law No. 6,404/76) and by the rules issued by the CVM. These regulations may differ from the legal principles that would apply if our Company were incorporated in a jurisdiction in the United States, such as Delaware or New York, or in other jurisdictions outside Brazil. In addition, the rights of an ADS holder, which are derived from the rights of holders of our common or preferred shares, as the case may be, to have his interests protected in relation to decisions by our board of directors or our controlling shareholder, may be different under the Brazilian Corporate Law from the rules of other jurisdictions. Rules against insider trading and self-dealing and other rules for the preservation of shareholder interests may also be different in Brazil if compared to the United States rules, potentially establishing a disadvantage for holders of the preferred shares, common shares, or preferred or common ADSs.

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Exchange controls and restrictions on remittances from Brazil might adversely affect holders of preferred and common ADSsADSs.

The investor may be adversely affected by the imposition of restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and the conversion from reaisReais (R$) into foreign currencies. Restrictions of this type would hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of preferred shares or common shares from reaisReais (R$) into U.S. dollars (US$). We cannot guarantee that the Federal Government will not take restrictive measures in the future.

Foreign shareholders may be unable to enforce judgments given innon-Brazilian courts against the Company, or against members of its Board of Directors or Executive Board.

All of our directors and officers reside in Brazil. Our assets, as well as the assets of these individuals, are located mostly in Brazil. As a result, it may not be possible for foreign shareholders to effect service of process on them within the United States or other jurisdictions outside Brazil, or to attach their assets, or to enforce against them, or against the Company in United States courts, or in the courts of other jurisdictions outside Brazil, judgments that are predicated upon the civil liability provisions of the securities laws of the United States or the respective laws of such other jurisdictions.

In order to have a judgment rendered outside of Brazil enforced in Brazil, the party seeking enforcement would need to be recognized in the courts of Brazil (to the extent that Brazilian courts may have jurisdiction) and such courts would enforce such judgment without any retrial or reexamination of the merits of the original action only if such judgment had been previously ratified by the STJ, in accordance with Articles216-A to216-X 216- X of the Internal Regulations of the STJ (RISTJ), introduced by Regulatory AmendmentAmendments No. 18/2014.2014 and No. 24/2016. Notwithstanding the foregoing, no assurance can be given that ratification will be obtained.

Exchange of preferred ADSs or common ADSs for underlying shares may have adverse consequences.

The Brazilian custodian for the preferred shares and common shares must obtain an electronic certificate of foreign capital registration from the Central Bank to remit U.S. dollars from Brazil to other countries for payments of dividends, or any other cash distributions, or to remit the proceeds of a sale of shares.

If the investor decides to exchange his preferred ADSs or common ADSs for the underlying shares, the investor will be able to continue to rely, for five business days from the date of the exchange, on the depositary bank’s electronic certificate of registration in order to receive any proceeds distributed in connection with the shares. After that period, the investor may not be able to obtain and remit U.S. dollars abroad upon sale of our common/preferred shares, or distributions relating to our common/preferred shares, unless he or she obtains his or her own certificate of registration or registers the investment under CMN Resolution No. 4,373/2014, dated September 29, 2014, which entitles registered foreign investors (“(‘Resolution No. 4,373/2014”2014’) to buy and sell on a Brazilian stock exchange. If the investor does not obtain a certificate of registration or register under Resolution No. 4,373/2014, the investor will generally be subject to less favorable tax treatment on gains with respect to our common shares.

If an investor attempts to obtain his or her own certificate of registration, the investor may incur expenses or suffer delays in the application process, which could delay his or her ability to receive dividends or distributions relating to our common shares or the return of his or her capital in a timely manner. The custodian’s certificate of registration or any foreign capital registration obtained by an investor may be affected by future legislative changes, and additional restrictions applicable to the investor, the disposition of the underlying common/preferred shares or the repatriation of the proceeds of disposition may be imposed in the future.

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If the investor decides to exchange his preferred or common shares back into preferred ADSs or common ADSs, respectively, once he has registered his investment in preferred shares or common shares, he may deposit his preferred or common shares with the custodian and rely on the depositary bank’s registration certificate, subject to certain conditions. We cannot guarantee that the depositary bank’s certificate of registry or any certificate of foreign capital registration obtained by an investor may not be affected by future legislative or other regulatory changes, nor that additional Brazilian restrictions applicable to the investor, or to the sale of the underlying preferred shares, or to repatriation of the proceeds from the sale, will not be imposed in the future.

An investor of our common shares and ADSs might be unable to exercise preemptive rights andtag-along rights with respect to the common shares.

U.S. investors of common shares and ADSs may not be able to exercise the preemptive rights andtag-along rights relating to common shares unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act, is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to our common shares relating to these rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, an ADR investor may receive only the net proceeds from the sale of his or her preemptive rights andtag-along rights or, if these rights cannot be sold, they will lapse and the ADR investor will receive only the net proceeds from the sale of his or her preemptive rights andtag-along rights or, if these rights cannot be sold, they will lapse and the ADR holder will receive no value for them.

Judgments of Brazilian courts with respect to our shares will be payable only in Reais.

If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our common shares, we will not be required to discharge any such obligations in a currency other than Reais (R$). Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than Reais (R$) may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date the judgment is obtained, and any such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not affordnon-Brazilian investors full compensation for any claim arising out of, or related to, our obligations under our common shares.

Sales of a substantial number of shares, or the perception that such sales might take place, could adversely affect the prevailing market price of our shares, or of the preferred or common ADSs.

As a consequence of the issuance of new shares, sales of shares by existing share investors, or the perception that such a sale might occur, the market price of our shares and, by extension, of the preferred and/or common ADSs, may decrease significantly.

The preferred shares and preferred ADSs generally do not have voting rights, and the common ADSs can only be voted by proxy by providing voting instructions to the depositary.

Under the Brazilian Corporate Law and ourby-laws, holders of our preferred shares, and, consequently, holders of our ADSs representing preferred shares, are not entitled to vote at our shareholders’ meetings, except in very specific circumstances.

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Holders of our preferred ADSs may also encounter difficulties in the exercise of certain rights, including the limited voting rights. Holders of the ADSs for our common shares do not have automatic entitlement to vote in our General Meetings of Shareholders, other than by power of attorney, by sending a voting instruction to the depositary. Where there is not enough time to send the form with voting instructions to the depository, or in the event of omission to send the voting instruction, the holders of ADSs for CEMIG’s preferred and common shares may be unable to vote by means of instructions to the depository.

Future equity issuances may dilute the holdings of current holders of our common shares or ADSs and could materially affect the market price for those securities.

We may in the future decide to offer additional equity to raise capital or for other purposes. Any such future equity offering could reduce the proportionate ownership and voting interests of holders of our common shares and ADSs, as well as our earnings and net equity value per common share or ADS. Any offering of shares and ADSs by us or our main shareholders, or a perception that any such offering is imminent, could have an adverse effect on the market price of these securities.

The Brazilian Government may assert that the ADS taxation forNon- Resident Holders shall be payable in Brazil.

Pursuant to Section 26 of Law No. 10,833, published on December 29, 2003, the sale of property located in Brazil involvingnon-resident investors is subject to Brazilian income tax as of February 1, 2004. Currently, the Company understands that ADSs do not qualify as property located in Brazil and, thus, should not be subject to the Brazilian withholding tax; nevertheless, the Brazilian Tax Authorities may try to assert Brazilian tax jurisdiction in such situation, incurring on the payment of tax income in Brazil for theNon-Resident Holders.

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Item 4.

Information on the Company

Organizational and Historical Background

CEMIG started its activities on May 22, 1952 in Minas Gerais, Brazil as asociedade por ações de economia mista (a state-controlled mixed capital company), pursuant to Minas Gerais State Law No. 828 of December 14, 1951 and its implementing regulation, Minas Gerais State Decree No. 3,710 of February 20, 1952. The Company’s full legal name is Companhia Energética de Minas Gerais – CEMIG and it is headquartereda state-controlled mixed capital company (‘sociedade por ações de economia mista’). CEMIG has its registered office located at Avenida Barbacena, 1200, Belo Horizonte, Minas Gerais, Brazil. The U.S. Securities and Exchange Commission (the “SEC”) maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as us, that file electronically with the SEC. Our internet address is https://www.cemig.com.br. The information posted on our website or that could be accessed through our website is not an integral part of, or attached to or incorporated by reference into, this Form 20-F.

In order to comply with legal and regulatory provisions pursuant to which we were required to unbundle our vertically integrated businesses, in 2004, we incorporated two wholly-owned subsidiaries: CEMIG Geração e Transmissão S.A., referred to as CEMIG GT, and CEMIG Distribuição S.A., referred to as CEMIG D, which were established to carry on the business of energy generation and transmission, and distribution, respectively.

Thebuilt its first three hydroelectric power plants built by CEMIG were commissioned in the 1950s- Tronqueiras, Itutinga1950s and Salto Grande.

In 1960, CEMIG commenced its energy transmission and distribution operations. Duringoperations in 1960. CEMIG was incorporated on May 22, 1952 and is organized and existing under the same period the “Canambra” consortium was formed, by a grouplaws of Canadian, AmericanBrazil and Brazilian technical experts, who between 1963 and 1966, identified and evaluated the hydroelectric potential of the State of Minas Gerais. This study, which was aligned with the concept of sustainable development, revolutionized the focus of construction of power plants in Brazil, and defined which projects could be developed to supply future electric power needs.

In the 1970s, CEMIG took over responsibility for the distribution of energy in the region of the city of Belo Horizonte, incorporated Companhia Força e Luz de Minas Gerais, and embarked on the construction of more major power plants. In 1978, CEMIG commissioned the São Simão hydroelectric power plant at that time its largest plant. Inand advanced the 1970s, the Statetransmission of Minas Gerais saw major progress in transmissionenergy with the construction of 6,000 km (3,728 miles) of power lines.

In the 1980s, a partnership between CEMIG, Eletrobrás (Centrais Elétricas Brasileiras S.A. (‘Eletrobras’) and the Brazilian Federal Government launched theMinas-Luz Program, to expand service tolow-income populations in rural areas and outer urban suburbs, including the shantytowns. The Emborcação hydroelectric power plant, onat the Paranaíba River, started operationoperating in 1982. At that time, it was the Company’s second largest power plant, and together with the São Simão plant, itthe Emborcação plant tripled the Company’s generation capacity. In 1983, CEMIG establishedcreated its Ecological Program Coordination Management Unit, which is responsible for the planning and development of andeveloping the Company’s environmental protection policy.policies. This enablednew unit fostered the research of alternative energy sources, such as wind power and solar generation, biomass and natural gas, which became a focus of ourgas. Since then, the Company has focused its research projects.projects on such alternative energy sources.

TheIn 1986, CEMIG’s subsidiary Gasmig was established in 1986, for purposes of distributing natural gas. On September 18, 1986, CEMIG changed its corporate name from Centrais ElétricasCompanhia de Minas Gerais to Companhia EnergéticaGas de Minas Gerais – CEMIG to reflect the expansion of its area of operation, including multiple sources of power.Gasmig, a natural gas distribution company, was incorporated. By the end of the 1980s, CEMIG was distributingCEMIG’s energy to 96% ofdistribution business had a market share in the State of Minas Gerais according to ANEEL, the Brazilian regulatory agency.of 96%.

In 2000, CEMIG was includedlisted in the Dow Jones Sustainability Index for the first time and it’s been part of this indexcontinues to be listed since then. CEMIG seesWe believe this as confirmation of itsto confirm our dedication to the balance between the threeeconomic, environmental and social pillars of corporate sustainability: economic, environmental and social.

sustainability. In 2001, CEMIG’s ADRs representing its preferred shares were upgraded to Level 2 on the New York Stock Exchange.

In 2004, due to new legal and regulatory requirements, CEMIG transferred its operations to two wholly owned subsidiaries: the year 2004 CEMIG: the new Brazilian regulatory framework came into force, with its main requirement being the “unbundling” of CEMIG’s distribution,energy generation and transmission activities. Beginnig in 2005, as a consequence of this “unbundling”, CEMIG operated as a holding company with two wholly-owned subsidiaries: CEMIG Distribuição S.A. and CEMIG Geração e Transmissão S.A.(‘CEMIG GT’) and the energy distribution company CEMIG Distribuição S.A. (‘CEMIG D’).

In 2006, CEMIG began to operate in other states, with the acquisition of a significant interest in Light S.A. (“Light”(‘Light’), which concession is in the state of Rio de Janeiro, and Transmissoras Brasileiras de Energia – TBE, which owned transmission lines in Northern, Midwest and Southern Brazil.

In 2008, CEMIG initiated its participation in the UHE Santo Antônio generation project at the Madeira River.

In April 2009, CEMIG GT acquired Terna Participações S.A., now called Transmissora Aliança de Energia Elétrica S.A. (“TAESA”(‘Taesa’). In May 2013, it increased its holdings in the energy transmission sector with the acquisition of equity interests in five other transmission companies. This increased CEMIG’s market share in Brazilian energy transmission from 5.4% to 12.6% at that time.

In 2011, CEMIG GT expanded its participation in relevant generation and transmission assets, including the acquisition, by Amazônia Energia S.A. (in which CEMIG and Light have, respectively, 74.5% and 25.5% of the total capital) of a 9.77% stake in Norte Energia S.A. (“NESA”(‘NESA’), the owner of the concession for the construction and operation of Belo Monte HydroelectricalHydroelectric Power Plant, in Xingu River, State of Pará. The transaction added 818 MW of generation capacity to our total activities and increased Light’s total generation capacity by 280 MW. Also in 2011, CEMIG acquired a controlling stake in Renova Energia S.A. (“Renova”(‘Renova’), which has been working with Small Hydroelectric Power Plants (“SHPs”)(SHPs) and wind farms for over a decade.

In 2015, the association between Vale S.A. (“Vale”(‘Vale’) and CEMIG GT to form Aliança Geração de Energia (“(‘Aliança”a’) was concluded. The two companies subscribed shares issued by Aliança which were paid in by means of the equity interests they held in the following energy generation assets: Porto Estrela, Igarapava, Funil, Capim Branco I, Capim Branco II, Aimorés and Candonga; plus a 100% interest in the following wind generation SPEs:Special-Purpose Entities (‘SPEs’): Central Eólica Garrote Ltda., Central Eólica Santo Inácio III Ltda., Central Eólica Santo Inácio IV Ltda. andAnd Central Eólica São Raimundo Ltda. CEMIG GT won the concession for Lot D in ANEEL’s Auction No. 012/2015, for placement of concessions for hydroelectric plants under a regime of allocation of generating capacity and physical offtake guarantees. Lot D is comprised of 13 plants that were previously owned by CEMIG, and an additional five plants which were owned by Furnas Centrais Elétricas S.A. (‘Furnas’). The aggregate installed generation capacity of these 18 plants is 699.57 MW.

The following describe certain activities relating to CEMIG subsidiaries, jointly-controlled entities and associates during 2016:

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Concession Contracts for 18 Generation Plants

On July 17, 2019, in connection with the public offering of shares by Light, the Company sold 33,333,333 shares that it held in that investee, at the price per share of R$18.75, in the total amount of R$625 million.

On January 5, 2016, CEMIG GT signed 22, 2021, the concession contracts for operationCompany sold 68,621,264 shares that it held in that investee, at the price per share of 18 generation plants (699.57 MW total installed generation capacity), acquired by CEMIG GT for R$ 2.216 billion, as a result of ANEEL Auction No. 012/2015.

Exchange of Debentures owned by AGC Energia for Shares Issued by CEMIG

On March 3, 2016, BNDES Participações (“BNDESPar”) exchanged the totality of its debentures in theNon-convertible Permanent Asset-guaranteed Exchangeable Shareholders’ Debentures of the First Series issued by AGC Energia, for 54,342,992 common shares and 16,718,797 preferred shares issued by CEMIG and previously owned by AGC Energia. After the exchange, the equity interest held by BNDESPar in CEMIG—which on March 2, 2016 comprised no common shares and 1.13% of the preferred shares—increased to 12.9% of CEMIG’s common shares and 3.13% of CEMIG’s preferred shares. This increased the interest of BNDESPar20.00, in the total equityamount of R$1,372 million. The transaction is part of the execution of CEMIG’s divestment program. With the completion of this transaction, CEMIG from 0.75%, before the exchange, to 6.4% immediately thereafter.is no longer a stockholder of Light.

Sale of Interest in Transchile2020 Capital Increase

On September 12, 2016, CEMIG signed a share purchase agreement for sale ofJuly 31, 2020, the whole of its interest in Transchile Charrúa Transmisión S.A.—corresponding to 49% of the share capital—to Ferrovial Transco Chile SpA., a company controlled by Ferrovial S.A., for US$ 57 million. This transaction was concluded on October 6, 2016.

Renova Group

On February 2, 2016, the Board of Directors of RenovaShareholders’ Ordinary General Meeting approved an increase in the Company’s capital, of Renova in which we would take part through CEMIG GT, which approved the allocation of up to R$ 240 million.

On April 1, 2016, Renova terminated the purchase and sale of shares for the sale of the ESPRA project (“ESPRA Agreement”) owned by Renova to Terraform Global, Inc. (“Terraform Global”) by an agreement between the parties, upon abreak-up fee payment in the amount of US$100.3 million, from R$7,294 million to Renova. In this way, the ESPRA projects (three SHPs) contracted under PROINFA, with 41.8MW installed capacity), would remain within Renova and return to compose Renova’s portfolio of operational assets.

On June 14, 2016, the Board of Directors of Renova approved the cancellation of the power purchase agreement entered into between Renova Comercializadora de Energia S.A. (“Renova Trading”) and CEMIG GT for supply by 25 wind farms in the region of Jacobina, in the Brazilian state of Bahia, with 676.2 MW of installed capacity, for operational startup on January 1, 2019. The Board of Directors of Renova approved an advance payment of R$ 1187,594 million, for contracted future energy supply under the agreement between Renova Trading and CEMIG GT. The agreement, signed in 2013, provides for the parties to make earlier or later payments for the power supply that is the subject of the agreement.

CEMIG increased its capital of Renova, through CEMIG GT. Such capital increase was ratified on June 21, 2016, in the total amount of R$280 million (R$ 240 million by CEMIG and R$ 40 million by Light Energia S.A.), by means of a issuance of 42,042,21960 million new shares, each with nominal value of R$5.00, comprising 20,056,076 common shares and 16539,943,924, preferred shares. The shares that were subscribed in the capital increase of July 31, 2020, were considered in full in the calculation of basic and paid updiluted profit for the issuance price of R$6.66 per share (common or preferred) and R$19.98 per unit.

Investment in Renova – Loss on impairment of assets available2020, since these new shares already had potential for sale

Put options contract

On September 18, 2015, a contract was signed providing Renova the option to sell to SunEdison, Inc. (“SunEdison”), on or after March 31, 2016, up to 7,000,000 shares in TerraForm Global.

The exercise price of this option was R$ 50.48 per share, while SunEdison, at its own discretion, had the right to pay US$15.00 per share rather than R$ 50.48. The contract also gave SunEdison an option to buy 7 million shares on the same terms.

Renova notified SunEdison and TerraForm Global of its intention to exercise its option to sell 7,000,000 shares in TerraForm Global, on the terms specifiedsubscription since that date, as decided by the contract, which was publicly stated by Renova on September 18, 2015.shareholders.

On April 21, 2016, SunEdison applied for Chapter 11 bankruptcy protection in the United States. On June 1, 2016, the period for payment of the option by SunEdison expired.

Renova priced the option using the Black-Scholes-Merton mathematical model, the future expectation for the exchange rate, and the credit risk.2021 Capital Increase

In the first half of 2016, Renova recognized a loss of R$111 million, resulting in the change in the fair value of the option, considering the credit risk. In addition, it recognized a loss of R$63 million relating to the expiration of the option, and commenced an arbitration proceeding seeking, among other items, indemnity for losses. On May 26, 2017, Renova and Terraform Global signed an agreement for the parties to terminate arbitration proceedings, upon compensation to Renova of US$15.0 million. On the same date, Renova signed a Share Purchase Agreement to sell its shares in TerraForm Global to Orion US Holding 1 L.P., a vehicle of Brookfield Asset Management (“Brookfield”). The price for the acquisition was US$92.8 million, paid to Renova in cash.

Investment in TerraForm Global – pricing of the shares

Renova also recognized a loss, in the first half of 2016, of R$272 million, reflecting the negative volatility in the share price of TerraForm in the period, in which Renova has an equity interest of 11.65%, valued on the basis of the market price of the shares.

The effect on CEMIG is proportional to its interest of 34.2% in Renova at such time, valued by the equity method, in the amount of R$93 million.

Advances to Renova under Power Purchase Agreement

In December 2015, CEMIG GT made an advance payment to Renova Trading in the amount of R$60 million to purchase future energy supply under the Power Purchase Agreement between CEMIG GT and Renova Trading in 2014 (the “Power Purchase Agreement”). The amount due would be settled by delivery of power supply, which started in January 2017, in the amounts specified in the Power Purchase Agreement.

In June 2016, CEMIG GT made another advance payment to Renova Trading of R$94 million under the Power Purchase Agreement. The funds from these two first advance payments were allocated to pay the interest on the debentures with Banco do Brasil, which is the responsibility of Renova. The amount due will be settled by delivery of energy supply, starting in January 2020, in the amounts specified in the Power Purchase Agreement.

In June 2016, Renova Trading also signed an agreement placing a security interest on 100% of the shares in Enerbrás S.A. and 100% of the shares in the special-purpose companies of Phase B of the Alto Sertão III Project on behalf of CEMIG GT. In addition, a Call Option Agreement has been signed which will enable CEMIG GT to convert the total amount advanced into a shareholding interest in 100% of the shares of Enerbrás S.A. Exercise of the call option is conditional upon approval by Banco do Nordeste do Brasil S.A., ANEEL and the Brazilian Competition Authority (CADE).

On September 6, 2016, the Renova Board of Directors approved an advance payment of R$118 million by CEMIG GT to Renova for future contracted energy supply under the Power Purchase Agreement between Renova Comercializadora de Energia S.A. and CEMIG GT, which was signed in 2013.

The agreement provided for the parties to elect to make advance payments for power. The payments were meant to be primarily allocated to the Alto Sertão III project, and also to meet other needs of Renova. The amount due would be settled by delivery of power supply, in the amounts specified in such agreement, starting in May 2021.

From January 1, 2018 until the date of this annual report, CEMIG GT made advance payments of R$ 175.8 million to Renova, in relation to future energy supply becoming due between April 2018 and November 2019. These advances are adjusted to the present value at a discount rate of 155% of the CDI (Interbank Rate for Interbank Certificates of Deposit or Certificados de Depósito Inter-bancário – CDIs, or “CDI Rate”).

Adjustment for impairment in value of investments

In 2016, CEMIG GT posted an adjustment for a reduction in value of investments of R$ 763 million related to its investment in Renova. Renova incurred losses totaling R $1,101 million for the year ended December 31, 2016, had negative working capital of R$ 3,211 million as of December 31, 2016 and presented negative cash flow generation. The main reasons for these negative financials were: (i) energy purchases Renova was forced to make to comply with previous commitments because of a delay in certain wind farms becoming operational; (ii) substantial investments Renova made in the construction of the Alto Sertão III wind farm; (iii) a delay in obtaining BNDES long-term financing; (iv) Renova’s failure to meet certain covenants and obtain creditors’ approval in 2016, which resulted in certain long-term debt being reclassified as current liabilities and (v) losses resulting from its Terraform operation. In addition, currently Renova was late on certain payments and in negotiation with creditors under several contracts. As a result, Renova’s management has been taking various measures to rebalance its liquidity and cash generation structure such as selling assets, decreasing administrative and operational structure and administrative costs, increasing shareholders’ commitment of financial support, entering into long-term financing with BNDES, starting cash flow equalization projects and seeking the consent of creditors to reclassify certain current debts as noncurrent liabilities.

TAESA

On April 13, 2016, TAESA was the winning bidder of Branch ‘P’ in Auction No. 013/2015 of Public Power Transmission Lines auction promoted by the Brazilian Electricity Regulatory Agency (“ANEEL”). Branch ‘P’ comprises 90 km of transmission lines and two substations in Tocantins state. ANEEL granted TAESA the right to explore the concessions for 30 years. TAESA did not offer a discount for Lot ‘P’ RAP defined by ANEEL at the auction notice, granting an initial revenue of R$ 56 million.

On August 31, 2016, the Board of Directors of CEMIG authorized monetization of up to 40,702,230 units in TAESA corresponding to 40,702,230 common shares and 81,404,460 preferred shares in TAESA, owned by CEMIG.

On October 24, 2016, TAESA settled its restricted offering (“Restricted Offering”) of 65,702,230 units (each unit being evidenced by Certificados de Depósito de Ações, each of which represented one outstanding ação ordinária (common share) and two outstanding ações preferenciais (preferred shares)) (“Units”) offered and sold by Fundo de Investimento em Participações Coliseu (“FIP Coliseu”) and CEMIG. The Restricted Offering was a secondary offering, with restricted placement efforts of 65,702,230 units held by the Selling Shareholders, being 25,000,000 units held by FIP Coliseu and 40,702,230 units held by CEMIG, at a price per Unit of R$19.65.

On December 27, 2016, TAESA received the notice sent by Fundo de Investimento em Participações Coliseu and Fundo de Investimento em Ações Taurus (jointly, “Sellers”), informingConsidering that a Share Purchase Agreement was executed with Interconexión Eléctrica S.A. E.S.P. (“Agreement” and “Buyer”, respectively) for the sale of the totality of their equity interests bound to the block of control of TAESA, representing, jointly, 26.03% of the common shares and 14.88% of the total capital stock of TAESA, for the total amount of R$1,056 million.

On June 13, 2017, TAESA received a notice from ISA Investimentos e Participações do Brasil S.A. (“ISA Brasil”) regarding the sale of the common shares connected to Taesa’s controlling block held by Fundo de Investimento em Participações Coliseu and by Fundo de Investimento em Ações Taurus (together, the “Sellers”), pursuant to the Agreement. Pursuant to the terms and conditions of the Agreement, the Sellers sold a total of 153,775,790 common shares representing 26.03% of the voting capital and 14.88% of the total capital of TAESA. These shares were transferred to ISA Brasil for the total amount of R$1,019 million.

The following describe certain activities relating to CEMIG subsidiaries, jointly-controlled entities and associates during 2017:

Increase in Capital of Renova

CEMIG GT increased its stake in Renova in the amount of R$56 million through a capital increase that was ratified on June 21, 2017, in the total amount of R$112.8 million by means of a issuance of 50,888,993 common shares and 5,492,938 preferred shares, subscribed and paid up to the issuance price of R$2.00 per share (common or preferred) and R$6.00 per unit.

Negotiations with Brookfield Energia Renovável S.A.concerning Renova

On July 4, 2017, Renova and Light received anon-binding offer from Brookfield Energia Renovável S.A. (“Brookfield”) for the capitalization of Renova and acquisition of the equity interest in Renova held by Light Energia S.A. (“Light Energia”), a subsidiary of Light.

On July 17, 2017, the Board of Directors of CEMIG GT approved, and also recommended to its representatives at the meeting of the Board of Directors of Renova, held on the same date, to approve, the grant of exclusivity to Brookfield for due diligence and negotiation of the final documents for a primary subscription of capital in Renova, and sale of the equity interest held by Light Energia in Renova, as proposed in anon-binding offer. This exclusivity was granted for a period of 60 calendar days from July 17, 2017, and was extended until October 17, 2017.

On November 12, 2017, Renova received a binding proposal from Brookfield for primary investment in Renova. This proposal was accepted by Renova’s board of directors on November 24, 2017.

Sale of Alto Sertão II Wind Farm Complex by Renova

On August 3, 2017, CEMIG GT’s affiliate Renova completed the sale to AES Tietê Energia (“AES Tietê”) of Renova’s entire equity interest in Nova Energia Holding S.A. (“Nova Energia”), which, through Renova Eólica Participações S.A. (“Renova Eólica”), owns the Alto Sertão II Wind Farm Complex (the “Complex”). The base value of the acquisition (“the Acquisition Price”) was R$ 600 million, and AES Tietê has also assumed the debt of the Alto Sertão II Complex, which totaled R$ 1.15 billion on December 31, 2016. The Acquisition Price was adjusted based on certain variations in working capital and net debt2020 the profit reserves, with the exclusion of the Complex. It may also be increased by up to R$ 100 million underearn-out clauses, depending onTax Incentive reserves, exceeded the performance of the Complex as measured over a period of five years from the completion of the transaction. A tranche totaling R$364.6 million of the Acquisition Price was allocated to extraordinary amortization of the debentures of Renova’s Third Issue of Nonconvertible Debentures (Unsecured, with Additional Asset Guarantee, for Public Distribution, in a Single Series, with Restricted Distribution Efforts), settling the whole of the outstanding balance of principal and remuneratory interest owed by Renova under that issue.

Disposal of TerraForm Global Inc. shares

On May 26, 2017, Renova entered into a Share Purchase Agreement to sell its equity interests in TerraForm Global Inc. to Orion US Holding 1 L.P., a vehicle of Brookfield Asset Management (“Brookfield”). The price for the acquisition was set to be US$92.8 million paid to Renova in cash. Also on the same date, Renova and Terraform Global signed an agreement for the parties to terminate certain arbitration proceedings, upon payment of compensation to Renova of US$15.0 million. The transaction closed on July 3, 2017.

Renova’s management has stated that the transaction is aligned with its new directional strategy, the goals of which are the (i) restoration of the balance of its capital structure; and (ii) sustainability of the business in the long term.

Decision on disposal of interest of Light

On June 21, 2017, the Board of Directors of CEMIG decided to begin the process to sell its entire interest in theregistered share capital of Light S.A. (“Light”), and on July 14, 2017 Rio Minas Energia Participações S.A. (“RME”) and Luce Empreendimentos e Participações S.A. (“Lepsa”) made formal decisions to startby R$1,529 million, the process to sell their entire interest in Light. This formalized the joint decision of CEMIG, RME and Lepsa to dispose of the totality of the controlling shareholding block of Light, which comprises an aggregate holding of 52.12% of the share capital of Light.

Transfer of transmission companies to TAESA

On July 13, 2017, CEMIG GT signed an agreement regarding an equity restructuring involving the transfer to TAESA of the equity interests held by CEMIG in the following public energy transmission concession holders (referred to jointly as the “Transmineiras Companies”): Companhia Transleste de Transmissão S.A. (“Transleste”), Companhia Transudeste de Transmissão S.A. (“Transudeste”) and Companhia Transirapé de Transmissão S.A. (“Transirapé”).

The initial value of the transaction was approximately R$ 76 million, payable on the date of closing. This amount was subject to adjustment for: (i) accumulated variation of the IPCA inflation index as from January 1, 2017, inclusive, up to the day immediately prior to the date of signature of the agreement; and (ii) accumulated variation resulting from application of 100% of the CDI rate, from the date of signature, inclusive, up to the day immediately prior to the date of closing and was subject to discounting of any amounts of dividends and/or interest on capital declared as from January 1, 2017 (inclusive) by the Transmineiras Companies in favor of CEMIG GT, whether paid or not, up to the date of closing, duly updated by the accumulated variation of the IPCA inflation index from the date of the payment to the day immediately prior to the date of closing.

Under the terms of the agreement, a further tranche with a maximum value of R$ 11.7 million may be divided between TAESA and CEMIG GT if the Transmineiras Companies obtain a favorable judgment in certain legal proceedings that are in progress. This amount should be updated by the accumulated variation resulting from application of 100% of the CDI rate from January 1, 2017, inclusive, to the day immediately prior to the day of payment.

Following approval by the Brazilian competition authority CADE (Conselho Administrativo de Defesa Econômica), ANEEL (the Brazilian electricity regulator), and the financing banks, on November 30, 2017, CEMIG concluded the shareholding restructuring involving transfer to TAESA of the shareholdings held by CEMIG in the Transmineiras Companies. The amount received by CEMIG in this Transaction was R$ 56 million– this being the amount resulting from monetary updating by: (i) the accumulated variation of the IPCA inflation index from January 1, 2017, inclusive, to the day immediately prior to the signature of the final closing document for the Transaction; and (ii) accumulated variation of 100% of the CDI rate from date of signature, inclusive, to the day immediately prior to date of closing, and after discounting of: any amounts of dividends and/or Interest on capital declared as from January 1, 2017 (inclusive) by the Transmineiras Companies in favor of CEMIG, whether paid or not, up to the date of closing of the transaction, with monetary updating by the IPCA from the date of payment to the business day immediately prior to the closing date.

TAESA – Columbia Consortium

On April 24, 2017, the Columbia Consortium formed by TAESA and Companhia de Transmissão de Energia Elétrica Paulista (“CTEEP”) won the bid for Branch 1 of the Transmission Auction No. 5/2016, carried out by ANEEL by offering R$267 million of Annual Allowable Revenue (RAP). The project, which requires a R$1,936 million investment, comprises (i) 525 kV Guaíra—Sarandi transmission lines, extending them 266.3 kilometers; (ii) Foz do Iguaçu – Guaíra transmission lines, extending them 173 kilometers; (iii) Londrina – Sarandi transmission lines, extending them 75.5 kilometers; and (iv) the 230 kV Sarandi—Paranavaí Norte line, extending it 85 kilometers, plus constructing and operating three substations (Guaíra, Sarandi and Paranavaí Norte), located in Paraná. The deadline for execution of the work is 60 months and the commercial operation start is scheduled for August, 2022.

CEMIG sold 34 million Units in TAESA

On November 24, 2017, CEMIG sold, by auction on the B3 exchange (the “Auction”) 34,000,000 Units in TAESA (TAEE11) for R$ 21.10 per Unit. This reduced CEMIG’s equity interest in TAESA from 31.54% to 21.68%. CEMIG now owns 218,370,005 common shares in TAESA, equal to 36.97% of TAESA’s total common shares and 5,646,184 preferred shares in TAESA, equal to 1.28% of TAESA’s total preferred shares. The controlling shareholding block of TAESA remains unchanged, since the shares sold were not bound by the Shareholders’ Agreement. The proceeds from the sale were held in an escrow account to execute the Company’s commitments in relation to the put option granted by CEMIG to the shareholders of RME and Lepsa.

CEMIG’s Bank Debt Refinancing

In 2017, CEMIG entered into negotiations with its main creditors in connection with the Bank Debt Refinancing, representing up to R$3.4 billion of debt, in order to refinance short and medium term indebtedness of CEMIG GT and CEMIG D and to balance CEMIG’s short and medium term cash flows. The reprofiling involved extending the amortization schedules of existing debt maturities, ranging from 2017 through 2020, into facilities with a principal amortization grace period in 2018 and final maturities in 2022.

In December 2017, CEMIG D concluded the reprofiling by means of a local notes issuance in the amount of R$1,575 million and amendments to debt agreements entered into with Banco do Brasil (R$500 million) and Caixa Econômica Federal – CEF (R$625 million). As to CEMIG GT, there were amendments to debt agreements entered into with Banco do Brasil (R$741 million). In the aggregate, the bank debt reprofiling reached approximately R$3.4 billion. The new debt of CEMIG D would pay interest of 146.5% of CDI (local interest rate), whereas the new debt of CEMIG GT would pay interest of 140% of CDI. The amortization of principal began in January 2019, with 36 equal monthly payments for CEMIG GT, and the amortization of principal will begin in July 2019, with 36 monthly payments corresponding to an annual distribution of 6.75% in 2019, 13.50% in 2020, 27% in 2021, 11.25% and a balloon of 41.50% in 2022, for CEMIG D.

The Bank Debt Refinancing did not involve a principal reduction and the new facilities are senior secured indebtedness. The collateral for CEMIG GT’s Bank Debt Refinancing is comprised of a cash sweep on CEMIG GT’s asset sales (35% of every asset sale), a pledge on dividends earned from some of CEMIG and CEMIG GT’s subsidiaries (TAESA, Aliança, CEMIG Geração Carmagos S.A., CEMIG Geração Itutinga S.A., CEMIG Geração Leste S.A., CEMIG Geração Oeste S.A., CEMIG Geração Salto Grande S.A., CEMIG Geração Sul S.A. and CEMIG Geração Três Marias S.A.), a fiduciary assignment (alienação fiduciária) of 34.34% of the preferred shares issued by Gasmig, a pledge on receivables (R$125 million per month for the life of the new debt facility) and an escrow account equal to the amount of the next three payments due. The collateral for CEMIG D’s Bank Debt Refinancing, shared among the local debentures, Caixa Econômica Federal – CEF and Banco do Brasil, is comprised of: (i) a cash sweep on CEMIG’s asset sales (35% of every asset sale) and (ii) a pledge on certain receivables (R$400 million per month for the life of the new debt facility with respect to the local debentures and a debt agreement entered into with Caixa Econômica Federal – CEF and other receivables with respect to the debt agreements entered into with Caixa Econômica Federal – CEF and Banco do Brasil). In addition, the collateral for the debt agreements entered into with Banco do Brasil also includes a pledge of receivables (duplicate invoice). There is also a corporate guarantee by CEMIG of both CEMIG D and CEMIG GT’s Bank Debt Refinancing.

CEMIG’s Capital Increase

On October 26, 2017, CEMIG’s Extraordinary General Meeting of Shareholders authorized anapproved on April 30, 2021, the Management´s proposal for increase of the Company’sregistered share capital to R$8,467 million, as per Article 199 of the Brazilian Corporate Law through the issuance of new shares that werethrough a stock dividend available only for subscription byto the Company’s existing shareholders, with the following terms and conditions (the “Capital Increase”‘Capital Increase’):

1.·

Amount of the Capital Increase: up toIncrease through stock dividend: R$ 1 billion873 million through the issuance of up to 199,910,947174,609,467 new shares (58,366,345 nominal common shares and 116,243,122 nominal preferred shares) each with nominal value of R$5.00, for an issue price of R$ 6.57, for both common and preferred shares. The difference between the issue price (R$ 6.57)shares; and the nominal price (R$ 5.00) was allocated to the capital reserve account;

2.·

New shares: up to 199,910,947 new nominal shares (up to 66,849,505 nominal common shares and up to 133,061,422 nominal preferred shares). The new shares have the same rights of the shares of the same class, including with respect to dividends and/or distributions on equity that may be declared by the Company.

 

3.

Subscription of the new shares: the Capital Increase was implemented through a private subscription and CEMIG’s shareholders were eligible to exercise their preemptive rights in proportion equity holdings, at the ratio of 15.89% of the number of shares of each type that they held at the close of market on October 25, 2017.

4

Preemptive right exercise term: the preemptive right for the subscription of the new shares were exercised by the shareholders between October 30, 2017 to November 29, 2017.

5.

Remaining shares: Not all the newly issued shares have been subscribed, shareholders were eligible to subscribe the remaining shares may do so at the same price and on the same conditions.

Citibank, as the Depositary Bank for the ADRs, sold the corresponding preemptive rights only in the Brazilian market and, on December 13, 2017, Citibank made a distribution of the net proceeds arising from such sale (gross revenue from the sales, less charges and expenses), in US dollars, to the holders of the ADRs.

On March 21, 2018, all the remaining shares were sold through a public auction, resulting in proceeds from the Capital Increase of R$ 1.3 billion. On April 23, 2018, the Extraordinary General Meeting of Shareholders approved the Capital Increase and, the resulting amendment of CEMIG’sby-laws to reflect the new amount of its share capital: in the aggregate amount of R$ 7,294 million, represented by 487,614,213 common shares and 971,138,388 preferred shares.CEMIG did not register the Capital Increase with the U.S. Securities and Exchange Commission (SEC).

Auction of Former CEMIG GT Generation Concessions and Indemnification

The concessions of the Jaguara, São Simão, Miranda and Volta Grande hydroelectric plants, operated by CEMIG GT, expired in August 2013, January 2015, December 2016 and February 2017, respectively.

As per the original terms of the concession contracts of Jaguara, São Simão and Miranda plants, CEMIG GT believed that it had the right for the renewal of such concessionsandconcessions and filed administrative and court proceedings requesting for the extension the contracts. These requests, however, were rejected by the MME on the view that the request was made out of time in relation to the period/rules set by Law 12,783/13.

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As part of the court decision, in March 2017 the preliminary injunctions that had maintained CEMIG GT in possession and operation of the concessions of the Jaguara and Miranda plants were revoked. CEMIG GT remained in control of the assets, and recognized revenues from the sale of energy and the operating costs of the assets through the date that the preliminary injunction was revoked. From that date onwards, CEMIG GT ceased to recognize any depreciation on the assets and began to recognize revenues relating to the provision of services of operation and maintenance of these plants in accordance with the regime of quotas specified by Law 12,783/13 (the “Quotas Regime”‘Quotas Regime’). As ordered by the MME Order 432/2015, the São Simão plant was operated under the Quotas Regime since September 2015.

Despite the ongoing court legal proceedings involving the São Simão, Jaguara and Miranda plants, on September 27, 2017, the Brazilian Federal Government tendered the concessions for the São Simão, Jaguara, Miranda and Volta Grande plants. The Volta Grande plant concession contract expired in February 2017. These plants have total generation capacity of 2,922 MW, and the concession price in the bid amounted to R$12,131 million. The parties that won these concessions are not related to CEMIG.

The new concession contracts were signed on November 10, 2017, and on this date extension of the periods in which CEMIG GT was engaged to temporarily continue to operate the assets was agreed upon as follows:

·Volta Grande plant: until November 30, 2017.
·Jaguara and Miranda plants: until December 28, 2017.
·São Simão plant: until May 9, 2018.

Volta Grande plant: until November 30, 2017.

Jaguara and Miranda plants: until December 28, 2017.

São Simão plant: until May 9, 2018.

Annual Generation Revenue (Receita Anual de Geração, or RAG) of these plants was recognized in the amount of R$ 136 million in 2018 (R$ 462 million in 2017 and R$319 million in 2016).

On August 3, 2017, the MME Order 291/17 determined the amount payable to CEMIG GT for the residual value of the infrastructure assets of the São Simão and Miranda plants at the end of the contract, at R$1,028 million, of which R$244 million relates to the residual value of the São Simão Plant, and R$784 million for the residual value of the Miranda Plant – these amounts being expressed in Reais as of September 2015 and December 2016, respectively. The amounts had beingbeen adjusted by the Brazilian Selic rate for federal securities, and the total adjustment recognized in 2018 as an operating income amounted to R$55 million (see Notes 4, 15 and 26 to our consolidated financial statements).million. On August 31, 2018, CEMIG GT received the amounts of reimbursement relating to the assets not previously amortized or depreciated in the basic plans of the São Simão and Miranda hydroelectric plants, as specified in MME Order 291/2017. The total amount received was R$1,139 million.

The MME has not yet established indemnification amounts with respect to the Jaguara and Volta Grande power plants.

As of December 31, 2018,2020, investments made after the Jaguara, São Simão and Miranda plants came into operation, in the amounts of R$174 million, R$2.7 million and R$23 million, respectively, are recorded as concession financial assets, and the final determination of the amounts to be paid to CEMIG GT are under discussions with the regulator. Management does not expect losses in the realization of these amounts.

The MME has not yet established indemnification amounts with respect to the Jaguara and Volta Grande power plants.

Wind Farms in the State of Ceará

On May 17, 2018, CEMIG GT signed an agreement with Energimp S.A. (‘Energimp’).

On December 20, 2018, following compliance with the conditions specified in the transaction agreement, CEMIG GT and Energimp signed the related Memorandum of Conclusion of Elimination of Cross-holdings. With the signature of this document: (i) the cross-holdings previously existing between the parties in Parajuru, Volta do Rio and Morgado were eliminated; (ii) all shareholding partnership between the parties was terminated; and (iii) CEMIG GT now owns 100% of the share capital of Parajuru and Volta do Rio, and Energimp owns 100% of the share capital of Morgado.

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The following describe certain activities relating to CEMIG subsidiaries, jointly controlled entities and associates during 2018:2020, 2019 and 2018 (aggregated by business):

Renova Group

Negotiations with Brookfield Energia Renovável S.A.RENOVA GROUP

On February 23, 2018, Renova received a new binding proposal from Brookfield replacing the previous offer for primary capitalization. This new proposal provided for the acquisitionChange in control of all assets of the Alto Sertão III Complex (the “ASIII Complex”), in addition to certain other wind projects under development with total planned generating capacity of approximately 1.1 GW.

On February 27, 2018, the board of directors of Renova decided to accept Brookfield’s February 23, 2018 binding offer for the acquisition of ASIII Complex and additional wind power projects under development. Renovas’s board of directors also approved a grant to Brookfiled of an exclusivity term of up to 60 days for the negotiation.

On May 10, 2018, Renova announced that it had terminated negotiations with Brookfield involving sale of the ASIII Complex since an agreement had not been reached on the final terms of the transaction.

CEMIG offer to acquire Renova’s interest in Brasil PCH / Chipley

On March 27, 2018, CEMIG made a binding offer to Renova for acquisition of 100% of the shares in Chipley SP Participações S.A. (“Chipley”) held by Renova or 51% of the shares in Brasil PCH S.A. (“Brasil PCH”) held by Chipley. On May 3, 2018, the Board of Directors of Renova decided not to accept the binding offer received from CEMIG.

Negotiations with AES Tietê Energia S.A. concerning Renova

On December 4, 2018, Renova received a binding offer (the “Offer”) from AES Tietê Energia S.A.October 15, 2019, Light sold, for acquisition of allR$1.00, the totality of its shareholdingsshares in the special-purpose companies comprising the Alto Sertão III Wind Power Generation Complex, alongside wind power projects totaling approximately 1.1 GW that are currentlyjointly controlled entity Renova, equivalent in development. At a meeting on December 28, 2018, the Board of Directors of Renova decided nottotal to approve the Offer made by AES Tietê Energia S.A.

On March 21, 2019 Renova accepted the binding proposal from AES Tietê Energia S.A. for acquisition of all its interests in the special-purpose companies17.17% of the Alto Sertão III wind power complex, which is under development. The transaction for sale to AESshare capital of the Alto Sertão III wind complex was subdivided into: Phase A, with installed capacity of 438MW, for R$ 350 million; and Phase B, with 305 MWcompany, to be built, for R$ 90 million, and a purchase option for up to 1.1 GW of wind projects in development, for up to R$ 76 million. The transaction is also subject to: (i) a potential addition in the form of anearn-out, if the performance of the wind projects of phase A exceeds the reference level assumed in the negotiation, and (ii) a reduction on the acquisition price of Phase A payable to AES in the amount of R$ 20 million per rate die in case of delay in the closing date of the transaction which was expected to occur on May 2, 2019.

On the same date, Renova informed its shareholders and the market of the following transactions, approved by its Board of Directors for the purpose of resolving its main outstanding debts:

Reprofiling of the debts to related parties: R$ 768 million with CEMIG GT and R$ 253 million with Light Energia;

Reprofiling of bank debts with Citibank and BTG Pactual, in the amounts of approximately R$ 176 million and R$ 179 million, respectively.

CEMIG GT also announced to the market on the same date that it had signed a share purchase agreement for acquisition by CEMIG GT and Light Energia from CG I Fundo de Investimento em Participações (“CG I”) and some of its related parties, of up to 7,282,036 nominal shares in Renova without par value, comprising 6,637,878 commonMultiestratégia, namely 7,163,074 shares and 644,15898 preferred shares. The closingAdditionally, Lightcom Comercializadora de Energia S.A. signed an Assignment Agreement through which it assigned all the credits held against Renova to CG I. With the expiry of the acquisitionperiod specified in the Shareholders’ Agreement of shares is subject to compliance withRenova, the conditions that are usual in this type of transaction, and to completion of the acts of financial restructuring of Renova. Also, the Board of Directors ofsubsidiary CEMIG GT has approved, subject to the closing of the acquisition of shares, a public offer to acquire shares in Renova, to be made by CEMIG GT and Light Energia, on a date to be announced, in which the stockholders of Renova will be offered equal treatment to that being offered to CG I.

TAESA

Taesa – Eletrobras Auction

On September 27, 2018, Taesa submitted bids for lots L (Brasnorte), M (Transmineiras), N (ETAU) and P (Centroeste), object of Eletrobras Auction No. 01/2018 held on such date, relating to shareholdings in the Special-Purpose Entities (“SPEs”) held by Centrais Elétricas Brasileiras S/A (“Eletrobras”).

Taesa placed the minimum bid for each lot mentioned above. For lots L, N and P, there were no higher bids. According to the rules of the auction notice, Taesa should now wait for the other shareholders of each SPE to express interest concerning their first right of refusal. Regarding lot M, considering that the winner won the lot with the same minimum price offered by Taesa, the Company may exercise, in the strict terms of the shareholders’ agreement, its first right of refusal in each of the SPEs within 60 days, as stipulated by the rules of the auction notice.

Taesa—Right of First Refusal—Lot M (Transmineiras)—Eletrobrás Notification

On October 4, 2018, Taesa notified Eletrobras that it woulddid not exercise its right of first refusal overnor its right of joint sale, and thus there has been no change in its direct equity interest in Renova.

Application by Renova for a court-supervised reorganization plan

On October 16, 2019, the SPEssecond State of São Paulo Bankruptcy and Court-supervised reorganization Court granted the application for in-court reorganization applied for by Renova, and by the other companies of the group (‘the Renova Group’), and determined, among other measures, the following: (i) Appointment of an independent company to act as judicial administrator; (ii) Suspension of actions and executions against the companies of the Renova Group for 180 days, under Article 6 of Law 11,101/2005; (iii) Presentation of accounts by the 30th of each month, while the in-court reorganization proceedings continue, on penalty of the controlling shareholders of the companies of the Renova Group being removed, and replaced by administrator, under Article 52, IV, of Law 11,101/2005; (iv) Waiver to present tax debt clearance certificates so that the companies of the Renova Group can carry on with their activities; and (v) Order to publish a list of creditors, with 15 day term for presentation of qualifications and/or divergences of credits in relation to the court-supervised reorganization.

On December 18, 2020, the General Meeting of Creditors approved the court-supervised reorganization plans submitted to the court by Renova. In this sense, the plans describe the means of recovery in detail, give details of the DIP bridge loan, identify the Isolated Production Units (UPIs) and specify the procedure for resources disposal and allocation. For more details related to lot M, objectthe court-supervised reorganization plans, see Item.3 – Risck Factors and see note 16 to our Financial Statements.

Considering the non-existence of Eletrobras Auction No. 01/2018, as stipulatedany legal or constructive obligations to the investee, the Company has concluded that the court-supervised reorganization filed by Renova does not have any additional impact on its financial statements.

LIGHT

Divestiture of Light

On June 21, 2017, CEMIG started a process to sell all its equity interest in Light S.A. (‘Light’). On July 14, 2017, Rio Minas Energia Participações S.A. (‘RME’) and Luce Empreendimentos e Participações S.A. (‘Lepsa’) also decided to start a process to sell all their interest in Light. This formalized the auction noticejoint decision of CEMIG, RME and Lepsa to divest of their aggregate 52.12% controlling interest in Light at the terms of Transmineiras’ shareholders’ agreements.

Taesa – Eletrobras ratifies Lot M (‘Transmineiras’) auctiontime.

On November 26,27, 2018, RME sold 4,350,000 of its common shares in Light, reducing its holding to 10.90% of Light, thus reducing the combined interest of CEMIG, RME and LEPSA from 52.12% to 49.99% of Light's share capital.

On July 17, 2019, Light announced the closing of the primary and secondary public offering of common, nominative and book-entry shares issued by Light, with no par value, free and unencumbered of any charges or liens. In the context of the offering, there were (i) 100,000,000 (one hundred million) newly issued shares of Light, following an increase in Light’s capital stock, and (ii) 33,333,333 (thirty-three million, three hundred thirty-three thousand, three hundred thirty-three) shares held by CEMIG at a price per share of R$18.75.

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With the settlement of the restricted offering, the Company’s equity interest in the total share capital of Light was reduced from 49.99% to 22.58%, limiting its voting rights in Shareholders’ Meetings and, as a result, its ability to direct the relevant activities of the investee.

Thus, as from that date, the Company no longer had power that gave it control of this investee. In accordance with IFRS 10 – Consolidated financial statements, the investee was no longer considered a subsidiary, and therefore was no longer consolidated in the Company’s financial statements.

On January 22, 2021, in the public offering of common shares of Light, CEMIG sold its entire remaining holding of shares in Light at R$20.00 (twenty Reais) per share for a total of R$1,372 million. With the completion of this transaction, CEMIG is no longer a stockholder of Light.

TAESA

Acquisition of 11.624% of the shares of Brasnorte Transmissora de Energia S.A. (‘Brasnorte’)

On August 30, 2019, Taesa received notificationconcluded the acquisition of 11.624% of Brasnorte increasing its equity interest from 88.376% to 100.00%. For the acquisition, Taesa will pay to the seller R$18,024 million.

Acquisition by Taesa of 100% of the shares of Rialma Transmissora de Energia 1 S.A. (‘Rialma’)

On March 13, 2020, Taesa concluded the acquisition of 100% of the shares of Rialma. The asset located in the State of Rio Grande do Norte, interconnected with one of Taesa’s substations – SE Lagoa Nova of Paraíso Açu Transmissora de Energia S.A., will allow operational advantages in maintaining the new asset, and consequently contributing to Taesa´s growth plan and its consolidation in the Brazilian transmission sector. Rialma comprises the transmission line LT Lagoa Nova II – Currais Novos II, voltage of 230 kV, double circuit, with an extension of 28km and Annual Permitted Revenues (RAP) of R$12.6 million (2019-2020 cycle).

For the acquisition, Taesa will pay to the seller R$60,482 million, subject to positive or negative adjustments resulting from the Disposals Committee of Eletrobras Auction 01/2018 stating thatvariation between the Executive Board of Eletrobras decided unanimously, without reservations, to ratify award of Lot M ofnet debt and the Auction toworking capital between the external shareholder Taesa, which exercised its first refusal right, onbase date and the whole of Eletrobras’s shareholding, in accordance withclosing date, as well as other adjustments after the Shareholders’ Agreement of the SPEs.closing.

Taesa – Closing of Eletrobras Auction Process

On January 15, 2019, Taesa was informed about the formal closing of the process of Eletrobras Auction No. 01/2018, regarding the lots L, N and P, for which it placed the minimum bid. Through a notice, the Sale Committee of the Eletrobras Auction No. 01/2018 stated that, on January 14, 2019, Eletrobras’s Executive Board unanimously approved, without any reservations the ratification of Eletrobras Auction No. 01/2018, referring to lot L (Brasnorte),(‘Brasnorte’) and lot N (ETAU) and lot(‘ETAU’). Concerning Lot P (Centroeste). (‘Centroeste’), CEMIG, which was already a shareholder along with Eletrobras, exercised its right of first refusal, as detailed along this document.

On April 29, 2019, Taesa concluded the acquisition of shares of ETAU, with the payment of R$32.9 million.

On May 31, 2019, Taesa concluded the acquisition of Brasnorte with payment of R$75.6 million and of Transmineiras, with payment of R$77.5 million.

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Taesa wins dispute for Lot 12

On December 20, 2018, Taesa won the dispute for the lot 12 related to the Transmission Auction 004/2018, promoted on this date by ANEEL. The volume of investments (CAPEX) and the construction period mentioned above are based on the call notice of the auction published by ANEEL. However, Taesa expects a reduction in the estimated volume of investments as well as in the period to conclude and energize the project.

 

Taesa signs ana SPA for the acquisition of four operational transmission assets

On December 17, 2018, Taesa entered into a Sales and Purchase Agreement with Âmbar Energia Ltda. (“(‘Âmbar”mbar’) and Fundo de Investimento em Participações Multiestratégia Milão (“FIP”(‘FIP’ and, together with Âmbar, the “Sellers”‘Sellers’), for the acquisition by Taesa of (a)(i) all shares representing the total and voting capital of São João Transmissora de Energia S.A. (“SJT”(‘SJT’) and São Pedro Transmissora de Energia S.A. (“SPT”(‘SPT’), and (b)(ii) of 51% of the shares representing the total and voting capital of Triangulo Mineiro Transmissora de Energia S.A. (“TMT”(‘TMT’) and Vale do São Bartolomeu Transmissora de Energia S.A. (“VSB”(‘VSB’).

For the acquisition, Taesa would pay R$942.5 million subject to: (i) monetary adjustment by the variation of the Interbank Deposit Certificate (CDI) rate from the base date until the closing date, (ii) to positive or negative adjustments resulting from, among others, the variation between the net debt and the working capital between the base date and the closing date, and (iii) other adjustments after the closing. The agreement provides for the possibility of different closing dates under certain conditions.

On January 3, 2019, Taesa’sTaesa´s Extraordinary General Meeting approved the acquisition of SJT, SPT, TMT and VSB. The completion of the acquisition is subject to certain conditions precedent, including, among others, (a)others: (i) regulatory authorizations of ANEEL and CADE; (b)(ii) thenon-exercise of the preemptive right by Furnas Centrais Elétricas S.A. (Furnas)(‘Furnas’) in relation to shares issued by TMT and thenon-exercise of the preemptive right by Furnas and CELG Geração e Transmissão S.A. in relation to shares issued by VSB; (c)(iii) confirmation of fulfillment of the obligations set forth in the Leniency Agreement signed by J&F Investimentos S.A. and the Sellers, including the commitment that no indemnifying or sanctioning measures be proposed against the purchaser; and(d) (iv) non-occurrence of any material adverse effect.

On February 14, 2020, Taesa completed the acquisitions of SJT and SPT for an adjusted amount of R$753.2 million. The acquisitions of TMT and VSB were cancelled due to the failure to obtain the consent by the creditors.

Taesa wins dispute for Lot 12CEMIG SIM

Launch of CEMIG Soluções Inteligentes em Energia – CEMIG SIM

On December 20, 2018, Taesa wonOctober 08, 2019, CEMIG Soluções Inteligentes em Energia – CEMIG SIM was launched. It comprises the disputeactivities developed by Efficientia and CEMIG Geração Distribuída – CEMIG GD. Efficientia's by laws were modified in order to adapt to the new object of CEMIG SIM and change of corporate name. On October 19, 2020, a CEMIG’s Extraordinary General Meeting of Shareholders approved the merger of Geração Distribuída – CEMIG GD (wholly-owned subsidiary), at book value, and as a result the investee ceased to exist and the Company took over of all its rights and liabilities.The proposal is for CEMIG SIM to act, in this first moment, but not limited, in the following segments: distributed generation, account services, cogeneration, energy efficiency (with PEE resources), and supply and storage management.

On November 25, 2020, the Company’s wholly-owned subsidiary CEMIG Sim acquired 49% of interest in seven special-purpose companies operating in photovoltaic solar generation for the lot 12 related todistributed generation market (‘geração distribuída’), with total installed capacity of 29.45MWp, for R$55 million. On August 19, 2020 and on September 30, 2020, this wholly-owned subsidiary also acquired 49% of interest in two others SPCs operating in the Transmission Auction 004/2018, promoted on this date by ANEEL:same market segment for R$8 million and R$10 million, respectively, with total installed capacity of 11.62 MWp.

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Lot 12

Winning RAP

R$ 58,956,000.00

Discount

38.8%

Location

StateTable of Rio Grande do Sul

Extension

587 km

Substations

5

CAPEX ANEEL

R$ 610 million

Construction Period (month)

48 monthsContents

The volume of investments (CAPEX) and the construction period mentioned above are based on the call notice of the auction published by ANEEL. However, Taesa expects a reduction in the estimated volume of investments as well as in the period to conclude and energize the project.

CentroesteCENTROESTE

On December 20, 2018, CEMIG notified Eletrobras stating its interest in exercising its right of first refusal right to acquire the interest held by Eletrobras in Companhia Transmission Centroeste de Minas Gerais S.A.— - Centroeste, which constituted Lot P of Eletrobras Auction 01/2018.

As officially reported by Eletrobras on October 22, 2018, the winning bid was for the amount of R$43.2 million.

The first refusal right will bewas exercised on the same terms as contained in the Auction Announcement. The amount stated above will be adjusted by the accumulated variation in the Selic rate over the period from the reference date to the closing date of this transaction, less dividends and/or interest on capital paid or declared in favor of Eletrobras in the period.

On January 15, 2019, CEMIG announced that it had been informed of the acceptance and ratification by Eletrobras of the exercise by CEMIG of its right of first refusal right forrefusal.

On January 13, 2020, Centroeste became a wholly own subsidiary of the Company through the acquisition of the remaining equity interest of 49% held by Eletrobras.

Centroeste operates in Centroeste.

Light

Put Option Amortizationconstruction, operation and Reprofilingmaintenance of the transmission facilities of the Furnas-Pimenta transmission line – part of the national grid.

The put option grantedcash consideration paid amounts to R$45 million, which was the price in 2011the Tender Announcement, adjusted by CEMIGthe accumulated variation of the Selic rate up to the date of conclusion of the transaction and adjusted by the dividends and/or Interest on Equity paid or declared by Centroeste in favor of the unit holders of FIP Redentor, initially scheduled to be exercised on May 31, 2016 was postponed and divided into three separate exercise dates:

a) First option exercise window: up to, and including, September 23, 2016, only with respect to preferred shares, up to a limit of 153,634,195 preferred shares in RME and Lepsa, representing 1.46% of the total shares in Light held by the other direct shareholders. With respect to shares put within this exercise window, CEMIG paid on November 30, 2016.

b) Second option exercise window: up to, and including, September 23, 2017, and not restricted to preferred shares in RME and Lepsa, and may include the totality of the common shares in Lepsa, representing 5.49% of the total shares in Light held by the other direct shareholders, regardless of the exercise of the put optionEletrobras in the first payment window. With respect to shares put within this exercise window, CEMIG paid on November 30, 2017.period.

c) Third option exercise window: up to, and including, September 23, 2018, only with respect to common shares in RME, representing 3.26% of the total shares in Light held by the other direct shareholders, regardless of the exercise of the put option in the first or second payment window. With respect to shares put within this exercise window, CEMIG paid on November 30, 2018.

Decision on disposal of interest holding in Light

On June 21, 2017, the Board of Directors of CEMIG decided to begin the process to sell its entire interest in the share capital of Light S.A. (“Light”), and on July 14, 2017 RME and Lepsa made formal decisions to start the process to sell their entire interest in Light. This formalized the joint decision of CEMIG, RME and Lepsa to dispose of the totality of the controlling shareholding block of Light, which comprises an aggregate holding of 52.12% of the share capital of Light.

CEMIG has receivednon-binding proposals related to its process of disinvestment, as a result of the first phase of accessPrior to the documentsacquisition above and information contained in the data room made available to potential investors in relation to the Light group. CEMIG is analyzing these proposals for possible selection for inclusion in the next phase. If a selection is made, conclusionas of the disinvestment process will also be subject to: a phase of due diligence, including technical visits; submission of binding proposals; negotiations; final approvals for signature of definitive agreements for the transaction referred to; and approvals of conditions precedent that are usual in this type of transaction.

On November 27, 2018, RME sold 4,350,000 of its common shares in Light, reducing its holding to 10.90% of Light, thus reducing the combined interest of CEMIG, RME and LEPSA from 52.12% to 49.99% of Light’s share capital.

Light S.A.—Business combination

Until November 27, 2018,December 31, 2019, the Company had, through RME and Lepsa, an aggregate direct and indirect equity position of 48.9% in the shares of Light.

On that date, RME soldheld a portion totaling 2.13% of its equity interest in Light, for R$ 65 million and, as a result, RME recognized a loss of R$ 7 million.

a)

Acquisition of additional equity interest in RME, and control of Light.

On November 30, 2018,BB-Banco de Investimento S.A., BV Financeira S.A. – Crédito, Financiamento e Investimento and Banco Santander (Brasil) S.A. exercised their put option to sell the remaining interests in the shares of RME, equivalent to 25%51% share of the investee, and did not control the entity according to its shareholders agreement, therefore, the investments in Centroeste was accounted for R$ 659 million, in accordance withunder the calculation of the exercise price of the option.

With this acquisition Cemig became holder of 100% of the share capital of RME.

Of the total amount paid, R$104 million was the fair value of the shares of RME acquired, and R$556 million correspondedequity method. See more information on Note 16 to the loss already recognized by the Company upon valuation of the put option given to the other shareholders of RME, as disclosed in Note 32 to the Consolidated Financial Statements.

b)

Acquisition of control of Light

Considering the disposal of the shares in RME by the other shareholders, the Shareholders’ Agreement on jointly control of the investee became null and without effect, and Cemig became holder of an aggregate direct and indirect equity interest of 49.99% in Light.

Due to the considerations above and the provisions of IFRS 10 – Consolidatedour consolidated financial statements, the Company concluded that it now has the control of Light.

Additionally, since the Company had jointly control, exclusively together with Light, in the investees Lightger, Axxiom, Guanhães Energia and Itaocara, those investees also became subsidiaries.

As described in Note 33 to the Consolidated Financial Statements, on November 30, 2018, the Company began to classify its investment in Light, Lightger, Axxiom, Guanhães Energia and Itaocara as Assets held for sale, as management believe they have achieve all the requiremets to classify these investments as available for sale and discontinued operations.

CEMIG Telecomunicações S.A.

The merger of CEMIG Telecomunicações S.A. by CEMIG

On January 12, 2018 in a meeting, CEMIG’s Board of Directors decided to submit a proposal to an Extraordinary General Meeting of Shareholders that CEMIG should merger its wholly-owned subsidiary CEMIG Telecomunicações S.A. (“CEMIG Telecom”). The merger would provide gains from optimization of assets and synergies, and reduce financial, operational and administrative costs through concentration of existing administrative structures, while improving options for use of available funds.

An Extraordinary General Meeting of Shareholders of CEMIG, and an Extraordinary General Meeting of Shareholders of CEMIG Telecom, both held on February 28, 2018, approved and authorized the signature of the Protocol of Merger and Justification establishing the terms and conditions governing merger of CEMIG Telecom into CEMIG.

The merger of CEMIG Telecom by CEMIG was completed on March 31, 2018.

Since this is a merger of a wholly-owned subsidiary, there was no capital increase or issue of new shares by CEMIG. The shares in the subsidiary were canceled, on the merger date, and the necessary accounting records made.

Following the merger of CEMIG Telecom, on May 25, 2018, CEMIG announced an auction for the sale of the telecommunications assets not within its core business, as well as the assignment of the contractual positions associated with those assets.

On August 8, 2018 CEMIG held a Public Auction in order to sell its telecommunications assets not within scope of primary business, as specified in Tender Announcement500-Y12121.statement - Investments.

 

The winning bid for Lot 1, presented by American Tower do Brasil – Internet das Coisas Ltda., was for R$571 million, 70.41% above the minimum sale value specified in the Tender Announcement.

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The winning bid for Lot 2, presented by Algar Soluções em TIC S.A., was for R$77.9. 139.86% above the minimum sale value specified in the Tender Announcement.

Following compliance with the suspensive conditions, including approval by the Brazilian Monopolies Authority (“CADE”), on November 1, 2018, CEMIG concluded all these sale transactions.

CEMIG GT

Wind Farms in the State of Ceará

On May 17, 2018, CEMIG GT signed a private transaction agreement with Energimp S.A. (“Energimp”). This transaction has the objective of eliminating the cross holdings between CEMIG GT and Energimp in the following companies: Central Eólica Praias de Parajuru S.A. (“Parajuru”), Central Eólica Volta do Rio S.A. (“Volta do Rio”) and Central Eólica Praias do Morgado S.A. (“Morgado”), as well as to terminate the corporate partnership between CEMIG GT and Energimp.

On December 20, 2018, following compliance with the conditions specified in the transaction agreement, CEMIG GT and Energimp signed the related Memorandum of Conclusion of Elimination of Cross-holdings. With the signature of this document: (i) elimination is completed of the cross-holdings previously existing between the parties in Parajuru, Volta do Rio and Morgado; (ii) all shareholding partnership between the parties no longer exists; and (iii) CEMIG GT now owns 100% of the share capital of Parajuru and Volta do Rio, and Energimp owns 100% of the share capital of Morgado.

The companies incorporated in Brazil described below are our major subsidiaries and affiliates. The subsidiary companies were recorded under the equity method:method (*):

 

LOGO

* As of March 31, 2021 the only change in our major subsidiaries and affiliates from December 31, 2020 to March 31, 2021 was the sale of the interest on Light which was already configured as an asset held for sale. For more information, see “Divestment of Light."

CEMIG’s main subsidiaries and jointly-controlled investeesjointly controlled entities and affiliates include the following:

·CEMIG Geração e Transmissão S.A. (‘CEMIG GT’) – 100% owned: operates in energy generation and transmission;
·CEMIG Distribuição S.A. (‘CEMIG D’) – 100% owned: operates in energy distribution;
·Companhia de Gás de Minas Gerais (‘Gasmig’) – 99.57% owned: acquires, transports, distributes and sells natural gas;
·SPEs of Lot D – 100% owned: Geração Camargos S.A., CEMIG Geração Itutinga S.A., CEMIG Geração Leste S.A., CEMIG Geração Oeste S.A., CEMIG Geração Salto Grande S.A., CEMIG Geração Sul S.A. and CEMIG Geração Três Marias S.A.; Lot D is comprised of 13 plants, previously owned by CEMIG, and an additional 5 plants, which belonged to other companies. The aggregate installed generation capacity of these 18 plants is 699.57 MW;
·SPEs – Wind Energy - 100% owned: Central Eólica Praias de Parajuru S.A. and Central Eólica Volta do Rio S.A., wind farms with 47 wind turbines with 71.20 MW;
·CEMIG SIM - 100% owned: distributed generation, account services, cogeneration, energy efficiency, and supply and storage management;
·Centroeste – 100% owned: operates in construction, operation and maintenance of the transmission facilities of the Furnas-Pimenta transmission line – part of the national grid;
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CEMIG Geração e Transmissão S.A. (“CEMIG GT”) – 100% owned: operates in energy generation and transmission.

·Transmissora Aliança de Energia Elétrica S.A. (‘Taesa’) – jointly-controlled entity, with ownership of 36.97% of the voting stock and 21.68% of the total stock: construction, operation and maintenance of energy transmission facilities in 17 states of Brazil and in the Federal District;
·Aliança Geração de Energia S.A. (‘Aliança’) – jointly controlled entity, with direct ownership of 45% of the voting and total share. Aliança is privately owned and operates as a platform for consolidation of generation assets and investments in future generation projects;
·Investment in the Belo Monte Plant through Amazônia Energia S.A. and Aliança Norte: Amazônia Energia S.A. and Aliança Norte are shareholders in Norte Energia S.A.-NESA, which holds the concession to operate the Belo Monte Hydroelectric Plant, on the Xingu River, in the State of Pará. Through the jointly controlled entities referred to above, CEMIG GT owns an indirect equity interest in NESA of 11.69%. After its completion, with the installation of its 18th turbine, on November 2019, the installed capacity of the dam complex is 11,233 megawatts (MW). Belo Monte Hydroelectric Plant is the largest 100% Brazilian hydroelectric plant and one of the largest in the world; and
·Investment in the Santo Antônio Plant through Madeira Energia S.A (‘MESA’) which owns 100% of Santo Antônio Energia S.A., hydroelectric plant in the Madeira River in the state of Rondônia with an installed capacity of 3,568 megawatts (MW). CEMIG GT's holds 15.51% of MESA´s total shares.

 

CEMIG Distribuição S.A. (“CEMIG D”) – 100% owned: operates in energy distribution;

Companhia de Gás de Minas Gerais (“Gasmig”) – 99.57% owned: acquires, transports, distributes and sells natural gas;

Transmissora Aliança de Energia Elétrica S.A. (“TAESA”) – jointly-controlled entity, with ownership of 36.97% of the voting stock and 21.68% of the total stock: construction, operation and maintenance of energy transmission facilities in 18 states of Brazil; and

Light S.A. (“Light”) – subsidiary, with a direct holding of 26.06% and an indirect holding of 23.93% of total stock, totaling 49.99%: energy generation, transmission, trading and distribution, and other related services; direct or indirect holding of interests in companies operating in these areas.

Aliança Geração de Energia S.A. (“Aliança”) – jointly-controlled entity, with direct ownership of 45% of the voting and total share. Aliança is privately owned and operates as a platform for consolidation of generation assets and investments in future generation projects.

SPEs of Lot D – 100% owned: Geração Camargos S.A., CEMIG Geração Itutinga S.A., CEMIG Geração Leste S.A., CEMIG Geração Oeste S.A., CEMIG Geração Salto Grande S.A., CEMIG Geração Sul S.A. and CEMIG Geração Três Marias S.A.. Lot D is comprised of 13 plants that were previously owned by CEMIG, and an additional five plants which were owned by Furnas Centrais Elétricas S.A. The aggregate installed generation capacity of these 18 plants is 699.57 MW.

Investment in the Belo Monte Plant through Amazônia Energia S.A. and Aliança Norte

Amazônia Energia S.A. and Aliança Norte are shareholders in Norte Energia S.A.-NESA, which holds the concession to operate the Belo Monte Hydroelectric Plant, on the Xingu River, in the State of Pará.

Through the jointly-controlled entities referred to above, CEMIG GT owns an indirect equity interest in NESA of 11.7%. NESA will still require significant funds for organizational, developmental,pre-operational and operating costs for the completion of the plant. According to estimates and forecasts, these costs will be repaid by the revenues from future operations.

For more details see Note 1 to our financial stements - Operating Context.

Long-Term Strategic Plan

The long-term strategy and the multiannual business plan, reviewed and approved by the Board of Directors in 2018, defined that our mission is to provide integrated solutions for clean power, accessible to society, in an innovative, sustainable and competitive way.

Additionally,In 2021, the Board of Directors stablish that our visionapproved a revision of the strategic plan for 2021 – 2030. The principal guidelines and directives include the following:

·Transform the customer experience to become one of the top companies in customer satisfaction;
·Execute the program of disinvestment of non-core assets, assets that do not provide returns, assets in which holdings are non-material in scale, and assets with liquidity, to leverage new investment;
·Investing to modernize core businesses, expand operations and develop new line of businesses for the future creating superior value;
·Redesign and digitize internal processes as well as customer interactions;
·Ensure operational efficiency of the businesses;
·Consolidate competencies, increase productivity and optimize personnel costs;
·Consolidate Health and Safety as a value;
·Be innovative in the quest for technological solutions for the businesses;
·Comply with the regulatory requirements; and;
·Reinforce the practices of environmental, social, and governance – ESG.

A process of evaluation of structures for disinvestment of the Company’s equity interest in the share capital of TAESA is to be amongin progress, within the three best-integrated groups in electric power in Brazil as for governance, financial health, asset performance and customer satisfaction.

The long-term strategic guidelines focus onoverall concept of optimization of the following main cornerstones:Company’s allocation of capital.

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Credit and Capital Markets;

 

Energy Market—Generation, Transmission, Distribution, Distributed Generation, Marketing and Innovation;

Governance and Management;

Capital Expenditures

Capital expenditures for the years ended December 31, 2018, 20172020, 2019 and 20162018 in millions ofreaisReais, were as follows:

   Year ended December 31, 
   2018   2017   2016 

Distribution network

   861    1,083    1,460 

Power Generation(1)

   479    308    3,133 

Transmission network(2)

   96    25    54 

Others

   79    104    219 
  

 

 

   

 

 

   

 

 

 

Total capital expenditures(3)

   1,515    1,520    4,866 

 Year ended December 31,

2020

2019

2018

Distribution network1,319986861
Power Generation (1)5826479
Transmission network (2)15322396
Others

68

68

79

Total capital expenditures (3)1,5991,3031,515
(1)

Includes borrowing costs, capitalized in the amount of R$3155 million, R$7123 million and R$14231 million in 2020, 2019 and 2018, 2017 and 2016.respectively. Includes the consideration paid for a 51% interest in Parajuru and Volta do Rio in the amount of R$166 million in 2018, and additions in generation financial assets in the amount of R$ 2,217 million in 2016.

2018.
(2)

Includes additions in transmission financial assets in the amount of R$96153 million, R$25223 million and R$5496 million in 2020, 2019 and 2018, 2017 and 2016.

respectively.
(3)

The capital expenditures are presented in our Consolidated Statement of Cash Flow mainly on account lines related to Contract Assets, Acquisitioncontract assets, acquisition of equity investees, capital contributions in investees, PP&E, acquisition of subsidiaries and intangible assets.

In 2019,

For 2021, we plan to make capital investments in relation to our fixed assets in the amount of approximately R$ 1,3672,347 million, corresponding to our basic program. We expect to allocate these expenditures primarily to the expansion of our distribution system. We will also allocate R$ 372196 million for injection of capital into subsidiaries in 2019,2021, to meet specific capital needs.

The amounts planned for 20192021 do not include investments in acquisitions, and other projects, that are not remunerated by the concession-granting power – which are not recognized in the calculations of tariffs made by ANEEL.

WeANEEL and we expect to fund our capital expenditures in 20192021 mainly from the cash flow from operations and, to a lesser extent, through financing. We expect to finance our expansion and projects from commercial bank loans through debt rollover and from the issuance of promissory notes and debentures in the local market.

Business Overview

General

Our business involves the generation, transmission, distribution and sale of energy, gas distribution telecommunications and to provide of energy solutions.

CEMIG

We are engaged in transactions to buy and sell energy through our subsidiaries. The total volume of energy resourced in December 31, 20182020 was 80,190 GWH82,552 GWh or 2.9 % less than in 2017 of 82,479 GWH or 2.1 %0.7% more than in 2016.2019 of 81,993 GWh or 2.9% more than in 2018 of 80,190 GWh. The amount of energy produced by us in 20182020 was 4,8719,080 GWh or 26.3% less34.4% more than the 6,6066,756 GWh produced in 2017, which was 30.0% less2019 or 86.5% more than 2016.the 4,871 GWh produced in 2018. The amount of energy purchased by us in 20182020 was 75,31973,471 GWh or 0.7%2.3% less than the 75,87375,237 GWh purchased in 2017, which was 6.4%2019 or 2.5%, less than the 75,319 GWh purchased in 2016.2018. These figures include 5,7385,835 GWh purchased from Itaipu in 2018 and 6,2302020, 5,659 GWh in 2017,2019; and 5,738 GWh in 2018, and through the Energy Trading Chamber (Câ(Câmara de Comercialização de Energia Elétrica, or CCEE) and from other companies, we purchased 67,601GWh in 2020; 69,577 GWh in 2019 and 69,581 GWh in 2018 and 69,632 GWh in 2017.2018.

The energy traded in 20182020 totaled 80,19082,552 GWh, an amount 2.9% lower0.7% more than 2017. 53%2019 in which, 47% of that volume (42,707GWh)(39,026 GWh), was traded to final customers, both captive and free.

Total losses of energy in the core and distribution networks in 20182020 totaled 6,8817,012 GWh, which corresponds to 8.6%8% of total resources and 3.5%7.2% less than the 7,1217,554 GWh loss in 2017.

2019. The table below presents the breakdown of resources and power requirements by CEMIG traded in the last three years:

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CEMIG’S ELECTRIC ENERGY BALANCE

(GWh)

2020

2019

2018

RESOURCES82,55281,99380,190
Energy generated by CEMIG7,1325,5333,770
Energy generated by Sá Carvalho420295326
Energy generated by Horizontes534861
Energy generated by CEMIG PCH7596481
Energy generated by Rosal Energia389192182
Energy generated by SPE1,011592451
Energy bought from Itaipu5,8355,6595,738
Energy bought from CCEE and other companies67,63769,57769,581

 

(GWh)

  2018   2017   2016 
   (in GWh) 

RESOURCES

   80,190    82,479    80,774 

Energy generated by CEMIG

   3,770    5,708    8,852 

Energy generated by Sá Carvalho

   326    214    238 

Energy generated by Horizontes

   61    64    69 

Energy generated by CEMIG PCH

   81    94    94.2 

Energy generated by Rosal Energia

   182    128    134 

Energy generated by SPE

   451    398    —   

Energy bought from Itaipu

   5,738    6,230    5,921 

Energy bought from CCEE and other companies

   69,581    69,643    65,392 

(GWh)

  2018   2017   2016 

REQUIREMENTS

   80,190    82,479    80,744 

Energy delivered to final customers

   42,707    40,147    45,322 

Energy delivered by Barreiro

     —      8 

Energy delivered by Cachoeirao

     —      133 

Energy delivered by Sá Carvalho

   472    461    473 

Energy delivered by Horizontes

   87    79    76 

Energy delivered by CEMIG PCH

   124    65    82 

Energy delivered by Rosal Energia

   235    213    202 

Energy delivered by SPEs

   882    788   

Energy delivered to the CCEE and other companies

   28,802    33,605    27,754 

Losses(1)

   6,881    7,121    6,723 

REQUIREMENTS82,55281,99380,190
Energy delivered to final customers39,02642,39742,707
Energy delivered by Sá Carvalho522472472
Energy delivered by Horizontes858987
Energy delivered by CEMIG PCH121121124
Energy delivered by Rosal Energia249213235
Energy delivered by SPEs940706882
Energy delivered to the CCEE and other companies34,59730,44128,802
Losses (1)7,0127,5546,881
(1)

Discounting the losses attributed to generation (82(184 GWh in 2018)2020) and the internal consumption of the generating plants.

Generation

The electric power generation business consists of the generation of energy through the use ofusing renewable energy sources (water, wind, sun and biomass), ornon-renewable sources (fossil and nuclear fuels).

According to ANEEL, asAs of December 31, 2018,2020, we were one of the fourth largest energy generation groupgroups in Brazil, by total installed capacity. As of that date, we were generating energy at over 80 hydroelectrical89 hydroelectric plants (small hydroelectric power plants (“PCH”(‘PCH’) and hydroelectric power plants (“UHE”(‘UHE’)), thermoelectricwind plants wind and solar plants, with total installed capacity of over 6,000 MW, with plants present in 10 states of Brazil. The vast majority of our capacity is generated at hydroelectricalhydroelectric plants (96.6%(98.1% of installed capacity), with the remaining being generated by thermalwind plants and wind plants. a solar plant.

Our top five power plants accounted for over 61.4%66% of our installed energy generation capacity in 20182020 are:

Rank (Installed Capacity)

Generation Power Plant

CEMIG Group Company Holding Stake

Restricted / Unrestricted Group

Installed Capacity (MW)(*)

Start of Comm. Operations

Expiration of Concession or Authorization

Type of Power Plant

CEMIG´s Stake

1stBelo MonteNorte EnergiaUnrestricted1,376201608/26/2045UHE12.25%
2ndEmborcaçãoCEMIG GTRestricted1,192198207/23/2025UHE100%
3rdSanto AntônioSAESAUnrestricted553201206/12/2043UHE15.51%
4thNova PonteCEMIG GTRestricted510199407/23/2025UHE100%
5thIrapéCEMIG GTRestricted

399

200602/28/2035UHE100%
Sub-Total (Top 5)

4,030

    
Total (All Plants)6,086    

(*) the installed capacity presented refers to the CEMIG’s stake

 

Rank
(Installed
Capacity)

  

Generation Power Plant

  

CEMIG Group Company
Holding Stake

  Restricted /
Unrestricted
Group in This
Offering		  Installed
Capacity
(MW)		   Start of
Comm.
Operations		   Expiration of
Concession or
Authorization		   Type
of
Power
Plant		  CEMIG´s
Stake		 
1  

Emborcação

  

CEMIG GT

  Restricted   1,192.0    1982    23/07/2025   UHE   100% 
2  

Belo Monte

  

Norte Energia

  Unrestricted   976.5    2016    26/08/2045   UHE   11.69% 
3  

Santo Antônio

  

SAESA

  Unrestricted   646.9    2012    12/06/2043   UHE   15.51% 
4  

Nova Ponte

  

CEMIG GT

  Restricted   510.0    1994    23/07/2025   UHE   100% 
5  

Irapé

  

CEMIG GT

  Restricted   399.0    2006    28/02/2035   UHE   100% 
  

Sub-Total: Top 5

       3,724         
  

Total (All Plants):

       6,068         
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Transmission

The transmission business consists of transporting energy power from the facilities where it is generated to points of consumption, distribution networks and free customers (which are customers with demand equal to or greater than 3 MW, or customers with demand equal to or greater than 500 kW0.5 MW from alternative energy sources, such as wind, biomass or small hydroelectrical plants).hydroelectric plants. In 2021, this range will start from 1.5 MW, reaching 1.0 MW in 2022. Its revenue depends directly on the availability of its assets. The transmission network comprises energy transmission lines and substations with voltage of 230kV230 kV or more, and is part of the Brazilian Grid regulated by ANEEL and operated by the ONS. See “The‘The Brazilian Power Industry.”Industry’. On December 31, 2018,January 27, 2021, CEMIG GT and other CEMIG transmission networks had approximately 4,1344,374 miles of lines, as follows:

CEMIG GT and other CEMIG transmission networks lines in miles

Classification

CEMIG GT

Other CEMIG Group Companies (1)

> 525 kV Lines-70
500 kV Lines1,355740
440 kV Lines-68
345 kV Lines1,23067
230 kV Lines477367
220 kV Lines

-

-

Total3,0621.312
(1)

Classification

CEMIG GT

Other CEMIG Group Companies (proportional
Proportional to CEMIG’s stake in the relevant concession)

> 525kv Lines

—59 miles

500kv Lines

1,355 miles654 miles

440kv Lines

—68 miles

345kv Lines

1,231 miles31 miles

230kv Lines

478 miles258 miles

220kv Lines

——
Total3,064 miles1,070 milesconcession

Distribution

Within the CEMIG Group, energy distribution activities are conducted by a wholly owned subsidiary, CEMIG Distribution (“(‘CEMIG D”D’), in addition to Light S.A. (“Light”), in which CEMIG has a 49.99% interest..

CEMIG D has four public service energy distribution concession contracts in the State of Minas Gerais, granting rights to the commercial operation of services related to the supply of energy to customers in the regulated ACR market (Ambiente de ContrataçãoRegulada-ACR, the “Regulated Market”) in municipalities in its concession area, including customers that may be eligible, under the legislation, to become customers in the free market (Ambiente de ContrataçãoLivre-ACL, the “Free Market”‘Free Market’).

CEMIG D’s concession area covers approximately 219,104 square miles, or 96.7% of the territory of the State of Minas Gerais. On December 31, 2018,2020, CEMIG D’s energy system comprised 333,391339,086 miles of distribution lines, through which it supplied 25,27124,240 GWh to 8,407,9068,695,421 regulated customers and transported 19,28620,078 GWh to 1,1381,774 free customers that use our distribution networks. The total volume of energy distributed was 44,55744,318 GWh, of which 45.7%45.6% was distributed to regulatedregulate and free industrial customers, 14.3%12.8% to regulatedregulate and free commercial customers, 23.0%24.8% to regulated residential customers, and 17.0%16.8% to other regulated and free customers.

Light has a concession for areas in 31 municipalities of the State of Rio de Janeiro, totaling 4,366 square miles. This is a region with more than 11 million people and has approximately 4.5 million customers. Consumption in the concession area of Light SESA in 2018 was 28,027 GWh, of which 18,455 GWh was sold in the captive market, 6,906 GWh sold in the Free Market, and 2,666 GWh sold to other concession holders. The residential customer category consumed 30.7% of the total billed market, followed by the commercial segment with 27.7%, other categories with 13.6%, other concession holders with 9.5%, and the industrial category with 18.5%.

Other Businesses

While our main business consists of the generation, transmission and distribution of energy, we also engage in the following businesses: (i) distributed generation, account services, cogeneration, energy solutions consulting business for both Brazilianefficiency (with PEE resources), supply and international customers,storage management, through our subsidiary Efficientia S.A.CEMIG Soluções Inteligentes em Energia-CEMIG SIM; (ii) exploitation of natural gas, through five consortia; (iii) sale and trading of energy, through structuring and intermediation of purchase and sale transactions, trading energy in the Free Market, through our wholly-owned subsidiaries CEMIG Trading S.A. and Empresa de Serviços de Comercialização de Energia Elétrica S.A. and CEMIG Comercializadora de Energia Incentivada S.A.; (iv)(iii) acquisition, transport and distribution of gas and its subproductssub products and derivatives through Companhia de Gás de Minas Gerais (Gasmig)(‘Gasmig’); (iv) cloud solution, IT infrastructure, IT management services and cybersecurity through Ativas Data Center; and (v) technology systems and systems for operational management of public service concessions, including companies operating in energy, gas, water and sewerage and other utility companies, through Axxiom Soluções Tecnológicas S.A.; and (vi) distributed generation, through CEMIG Geração Distribuída S.A.

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Revenue Sources

The following table illustrates the revenues attributable to each of our principal revenue sources, in millionsmillion ofreaisReais, for the periods indicated:

Year ended December 31,

2020

2019

(Restated)

2018

(Restated)

Energy sales to final customers23,01824,05221,882
Revenue from wholesale supply to other concession holders3,4142,8762,990
CVA (compensation for changes in ‘Parcel A’ items ) and other financial components455581,973
Financial component arising from PIS/Pasep and Cofins taxes refunded to customers– realization266--
Revenue from use of the energy distribution systems – TUSD3,0222,7222,045
Transmission operation and maintenance revenue280352343
Interest revenue arising from the financing component in the transmission contract asset438328311
Adjustment to expectation of cash flow from the indemnifiable financial asset of the distribution concession1618-
Revenue from financial adjusting of the Concession Grant Fee347318321
Construction revenues1,6371,292940
Transactions with energy on the CCEE154432217
Mechanism for the sale of surplus234--
Supply of gas2,0112,2981,995
Fine for violation of service continuity indicator(51)(58)(44)
Recovery of PIS/Pasep and Cofins taxes credits over ICMS-1,428-
Other1,7091,7211,640
Deductions from revenue

(11,722)

(12,351)

(12,314)

Total net revenues

25,228

25,486

22,299

   Year ended December 31, 
   2018  2017  2016 

Energy sales to final customers

   21,882   20,439   20,458 

Revenue from wholesale supply to other concession holders

   2,990   3,263   2,972 

CVA (compensation for changes in ‘Parcel A’ items) and other financial components

   1,973   988   (1,455) 

Revenue from use of the energy distribution systems – TUSD

   2,045   1,611   1,705 

Revenue from use of the concession transmission system

   411   371   312 

Transmission indemnity revenues

   250   373   751 

Generation indemnity revenue

   55   271   —   

Adjustment to expectation of cash flow from the indemnifiable financial asset of the distribution concession

   —     9   8 

Revenue from financial adjusting of the Concession Grant Fee

   321   317   300 

Construction revenues

   898   1,118   1,193 

Transactions with energy on the CCEE

   217   860   161 

Supply of gas

   1,995   1,759   1,444 

Fine for violation of service continuity indicator

   (44)   —     —   

Other operating revenues

   1,585   1,484   1,421 

Deductions from revenue

   (12,312)   (11,151)   (10,497) 
  

 

 

  

 

 

  

 

 

 

Total net operating revenues

   22,266   21,712   18,773 
  

 

 

  

 

 

  

 

 

 

Power Generation and Trading

Overview

CEMIG’s top five power plants accounted for over 61.4%66% of its installed energy generation capacity as of December 31, 2018.

On September 27, 2017, the Brazilian Federal Government auctioned to third parties the concessions of four of CEMIG’s top ten power plants (São Simão, Jaguara, Miranda and Volta Grande power plants) with a total capacity of 2,922MW.2020.

CEMIG’s market consists of sales of energy to:

(i)·

Regulated customers in CEMIG’s concession area in the State of Minas Gerais;

(ii)·

Free customers both in the State of Minas Gerais and other States of Brazil, through the Free Market;

(iii)·

Other agents of the energy sector – traders, generators and independent power producers, also in the Free Market;

(iv)·

Distributors in the Regulated Market; and

(v)·

CCEE (eliminating transactions between companies of the CEMIG Group).

The total volume of transactions in energy in 20182020 was 80,19082,552 GWh, a decreasean increase of 2.8%0.7% in comparison to the 82,47981,993 GWh in 2017.2019.

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Generation Assets

As noted above, on September 27, 2017, the Brazilian Federal Government auctioned to third parties the concessions of four of CEMIG’s power plants with a total capacity of 2,922 MW: São Simão, Jaguara, Miranda and Volta Grande. As a result, as of the date of this annual report, the subsidiaries, jointly controlled entities and jointly-controlled subsidiariesaffiliates of CEMIG operated more than 80 hydro plants, totaling 6,068 MW (excluding the São Simão, Jaguara, Miranda and Volta Grande power plants).5,937.07 MW.

We have incorporated subsidiaries in the State of Minas Gerais and other states in Brazil to operate certain of our generation facilities and to hold the related concessions.

The following are companies in which CEMIG GT owns 100% of the equity:

·CEMIG Geração Camargos S.A., CEMIG Geração Itutinga S.A., CEMIG Geração Leste S.A., CEMIG Geração Oeste S.A., CEMIG Geração Salto Grande S.A., CEMIG Geração Sul S.A. and CEMIG Geração Três Marias S.A.; CEMIG GT incorporated these companies in 2016 to hold the concession contracts for 18 hydroelectric plants won in the auction the year before. The total installed generation capacity secured to CEMIG GT’s portfolio was 699,6 MW;
·CEMIG PCH S.A. – Independent power producer, operating the Pai Joaquim small hydroelectric power plant;
·Horizontes Energia S.A. – An independent power producer, operating the Machado Mineiro and Salto do Paraopeba SHPs in Minas Gerais; and the Salto do Voltão and Salto do Passo Velho hydroelectric plants, in the State of Santa Catarina;
·Rosal Energia S.A. – Concession holder operating the Rosal hydro plant, on the border between the States of Rio de Janeiro and Espírito Santo;
·Sá Carvalho S.A. – Production and sale of energy as a public energy service concession holder, through the Sá Carvalho hydroelectric power plant.

 

CEMIG Geração Camargos S.A., CEMIG Geração Itutinga S.A., CEMIG Geração Leste S.A., CEMIG Geração Oeste S.A., CEMIG Geração Salto Grande S.A., CEMIG Geração Sul S.A. and CEMIG Geração Três Marias S.A.. These companies were incorporated by CEMIG GT in 2016 to hold the concession contracts for 18 hydroelectrical plants won in the auction the year before. The total installed generation capacity secured to CEMIG GT’s portfolio was 699 MW.

CEMIG PCH S.A. – Independent power producer, operating the Pai Joaquim small hydroelectrical power plant.

Horizontes Energia S.A. – An independent power producer, operating the Machado Mineiro and Salto do Paraopeba SHPs in Minas Gerais; and the Salto do Voltão and Salto do Passo Velho hydroelectrical plants, in the State of Santa Catarina.

Rosal Energia S.A. – Concession holder operating the Rosal hydro plant, on the border between the States of Rio de Janeiro and Espírito Santo.

Sá Carvalho S.A.– Production and sale of energy as a public energy service concession holder, through the Sá Carvalho hydroelectrical power plant.

Barreiro S.A. Thermal Power Plant – An independent power producer which operated the 12.9 MW Barreiro thermoelectric plant, on the premises of the metal products company V&M do Brasil S.A. (“Vallourec & Mannesmann”), in Belo Horizonte, Minas Gerais. UTE Barreiro ended its production of energy in the second semester of 2016 and, by the end of the year, it was sold to Vallourec & Mannesmann.

The generation companies in which CEMIG GT has joint control are:

·Aliança Geração de Energia S.A. (45%) – Platform of growth and consolidation of generation assets held by CEMIG GT and Vale (55%). The assets involved in the formation of the Aliança include the Aimorés and Funil hydroelectric plants and the following generation consortia: Porto Estrela, Igarapava, Capim Branco I, Capim Branco II and Candonga. In addition to the hydroelectric plants in operation, there are four wind plants, which compose the Complexo Eólico Santo Inácio in northeastern Brazil. The company has installed capacity of 1,257 MW in operation, and will be responsible for investments in future projects of energy generation;
·Aliança Norte Energia Participações S.A. (49%) – Together with Vale (51%), the company holds participation of 9% of Norte Energia S.A., holder of the concession to operate the Belo Monte hydroelectric plant, corresponding to an indirect equity interest of 4.41% and representing an installed capacity of 495 MW;
·Amazônia Energia Participações S.A. (49% of voting share, 74.5% of total capital) – Owned jointly with Light (25.5%), holds 9.77% of Norte Energia S.A., representing an installed capacity of 818 MW indirectly held by CEMIG GT;
·Renova (48.21% of voting stock, 36.23% of total capital) –As of December 31, 2020, Renova had generation supply contracts totaling 627.8 MW of generation capacity, of which 190.5 MW were already in commercial operation;
·Baguari Energia S.A. (69.39%) – The Company operates the Baguari Hydroelectric Plant through the Baguari Hydro Plant Consortium, together with Furnas Centrais Elétricas S.A. (30.61%). Baguari Energia S.A. owns 49% of the plant in partnership with Neoenergia, which owns the remaining 51%, through Baguari I Geração de Energia Elétrica;
·Retiro Baixo Energética S.A. (49.9%) – Holds the concession for the operation of the hydroelectric power plant Retiro Baixo, located in the lower course of the Paraopeba River in the State of Minas Gerais, which has installed capacity of 82 MW and assured energy of 36.6 MW;
·Hidrelétrica Cachoeirão S.A. (49%) – An independent power producer operating the Cachoeirão SHP, located at Pocrane, in the State of Minas Gerais. The other 51% is held by Santa Maria Energética;
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Aliança Geração de Energia S.A. (45%) – Platform of growth and consolidation of generation assets held by CEMIG GT and Vale (55%). The assets involved in the formation of the Aliança include the Aimorés and Funil hydroelectrical plants and the following generation consortia: Porto Estrela, Igarapava, Capim Branco I, Capim Branco II and Candonga. In addition to the hydroelectrical plants in operation, there are four wind plants, which will compose the Complexo Eólico Santo Inácio in northeastern Brazil, in implementation phase. The company has installed hydro capacity of 1,170 MW in operation, among other generation projects, and will be responsible for investments in future projects of energy generation.

·Hidrelétrica Pipoca S.A. (49%) – An independent power producer that built and operates the Pipoca SHP, on the Manhuaçu River, in the municipalities of Caratinga and Ipanema, in the State of Minas Gerais. The other 51% is held by Asteri Energia S.A.;
·Lightger S.A. (49%) – Independent power producer, formed to build and operate the Paracambi SHP (or PCH), on the Ribeirão das Lages river in the county of Paracambi, in the state of Rio de Janeiro. The remaining 51% shareholding is owned by Light;
·Guanhães Energia S.A. (49%) – Guanhães Energia S.A. is jointly-controlled entity, which has four wholly-owned subsidiaries – PCH Dores de Guanhães S.A., PCH Senhora do Porto S.A., PCH Jacaré S.A. and PCH Fortuna II S.A.. Guanhães Energia S.A. is engaged in commercial operation of these four SHPs. Three of them – Dores de Guanhães, Senhora do Porto and Jacaré – are in the municipality of Dores de Guanhães; and one, Fortuna II, is in the municipalities of Virginópolis and Guanhães, all in the State of Minas Gerais. In July 2019, the project reached its 44MW aggregate installed capacity;
·Madeira Energia S.A (‘MESA’) (8.54%) – MESA owns 100% of Santo Antônio Energia S.A., hydroelectric plant in the Madeira River in the state of Rondônia. CEMIG GT´s indirect holding in MESA amounts to 6.97% and takes place through the following companies: SAAG, FIP Melbourne (33.12%), Parma (56.75%) and FIP Malbec (49.92%); and
·Queimado Hydroelectric Power Plant – CEMIG GT holds an 82.5% interest in this entity and our partner in this project is CEB Participações S.A. (‘CEBPar’), a subsidiary of Companhia Energética de Brasília (‘CEB’), which owns 17.5% equity interest in the plant.

 

Aliança Norte Energia Participações S.A. (49%) – Together with Vale (51%), the company holds participation of 9% of Norte Energia S.A., corresponding to an indirect equity interest of 4.41% and representing an installed capacity of 495 MW.

Amazônia Energia Participações S.A. (49% of voting share, 74.5% of total capital) – Owned jointly with Light (25.5%), holds 9.77% of Norte Energia S.A., holder of the concession to operate the Belo Monte hydroelectrical plant, on the Xingu river, in the State of Pará, representing an installed capacity of 818 MW directly held by CEMIG GT.

Renova (45.83% of voting stock, 36.23% of total capital) – This company is the group’s vehicle for growth in generation from alternative generation and the group’s Small Hydroelectrical Plants (SHPs). As of December 31, 2018, Renova had generation supply contracts totaling 627.6 MW of generation capacity, of which 190.2 MW were already in commercial operation. CEMIG also has an indirect interest in Renova through Light (21.72% of voting stock, 17.17% of total capital).

Baguari Energia S.A. (69.39%) – The company operates the Baguari Hydroelectrical Plant through the Baguari Hydro Plant Consortium, together with Furnas Centrais Elétricas S.A. (30.61%). Baguari Energia S.A. owns 49% of the plant in partnership with Neoenergia, which owns the remaining 51%, through Baguari I Geração de Energia Elétrica.

Retiro Baixo Energética S.A. (49.9%) – Holds the concession for the operation of the hydroelectrical power plant Retiro Baixo, located in the lower course of the Paraopeba River in the State of Minas Gerais, which has installed capacity of 82 MW and assured energy of 36.6 MW.

Hidrelétrica Cachoeirão S.A. (49%) – An independent power producer operating the Cachoeirão SHP, located at Pocrane, in the State of Minas Gerais. The other 51% is held by Santa Maria Energética.

Hidrelétrica Pipoca S.A. (49%) – An independent power producer that built and operates the Pipoca SHP, on the Manhuaçu River, in the municipalities of Caratinga and Ipanema, in the State of Minas Gerais. The other 51% is held by Asteri Energia S.A.

Lightger S.A. (49%) – Independent power producer, formed to build and operate the Paracambi SHP (or PCH), on the Ribeirão das Lages river in the county of Paracambi, in the state of Rio de Janeiro. The remaining 51% shareholding is owned by Light.

Madeira Energia S.A (“MESA”) (8.54%) – MESA owns 100% of Santo Antônio Energia S.A., hydroelectric plant in the Madeira River in the state of Rondônia. CEMIG GT’s indirect holding in MESA amounts to 6.97% and takes place through the following companies: SAAG, FIP Melbourne (33.12%), Parma (56.75%) and FIP Malbec (49.92%).

CEMIG also controls the following entity that operate generation assets:

Light (26.06%) – Owns 25.5% of Amazônia Energia Participações S.A, 51% of Lightger S.A. (other 49% owned by Cemig GT), 100% of Itaocara Energia Ltda. Light Energia has investments in severaljointly-controlled entities – for example 51% of Guanhães Energia S.A. (other 49% owned by Cemig GT); 21.72% of the voting stock and 17.17% of the total stock, of Renova; and 100% of Lajes Energia S.A., São Judas Tadeu and Fontainha. Light has a total installed generation capacity of 1,119 MW, and an assured energy of 686 average MW, including proportional stakes in associates. In December 2018 Cemig became the holder of the shareholding control of Light, with an equity interest of 49.99% and consolidates it in its financial statements. See more information in Notes 17.1 and 33.

In addition, CEMIG GT has the following interests in consortium, as of December 31, 2018:

Queimado Hydroelectrical Power Plant – We hold an 82.5% interest in this entity and our partner in this project is CEB Participações S.A. (“CEBPar”), a subsidiary of Companhia Energética de Brasília (“CEB”), a state-controlled energy company, which owns 17.5% equity interest in the plant.

CEMIG GT has joint participation in the following company with plants under construction:

Guanhães Energia S.A. (49%) – This company owns 100% of PCH Dores de Guanhães S.A., PCH Senhora do Porto S.A., PCH Jacaré S.A. and PCH Fortuna II S.A. These companies are responsible for construction and commercial operation of four SHPs. Light owns the remaining 51% equity interest in Guanhães Energia S.A.

Usina Hidrelétrica Itaocara S.A. (49%) – Independent power producer, formed to build and operate the Itaocara I hydroelectrical plant. Itaocara Energy Ltd. (100% owned by Light) owns the remaining 51%. On July 5, 2016, the concession contract (Concession Contract No. 01/2015) of Itaocara I hydroelectrical plant was transferred from the Consortium UHE Itaocara to Usina Hidrelétrica Itaocara S.A.

The following consortia were established to develop future projects:

·Tapajós Consortium – The Tapajós Consortium was created to develop technical and environmental feasibility studies of hydro plants in the Tapajos river basin. Technical studies have already been finished and sent to ANEEL for analysis while environmental studies depend on certain licenses to be concluded. In December 2020, due to lack of predictability of a bidding process to be conducted by ANEEL, CEMIG GT formalized its withdrawal from the Consortium; and
·Davinópolis Hydroelectric Plant (49%) – Consortium formed with Neoenergia (51%) to study the project's feasibility. Due to the lack of predictability regarding the holding of the ANEEL Auction and considering the economic and financial unfeasibility of the project with data previously collected, CEMIG GT intends to formalize its withdrawal from the Consortium in 2021.

 

Tapajós Consortium – The Tapajós Consortium was created to develop technical and environmental feasibility studies of hydro plants in the Tapajos river basin. Technical studies have already been finished and sent to ANEEL for analysis while environmental studies depend on certain licenses to be concluded.

Davinópolis Hydroelectric Plant – This consortium (CEMIG has a 49% interest) was established with Neoenergia (51%) to conduct a feasibility study of the project.

Wind Farms

Wind farms have become one of the most promising power generation sources in Brazil. In addition to their low environmental impact, this source of energy is completely renewable and widely available in Brazil, according to numerous studies of potential wind power. Its rapid technical development over recent decades has successfully reduced costs per MWh in comparison to other power generation sources. CEMIG has monitored and observed the rapid evolution of wind energy and its inclusion in the range of Brazilian energy supply sources.

CEMIG GT owns 100% of the equity in the following companies with wind farms investments:

Central Eólica Praia de Parajuru S.A and Central Eólica Volta do Rio—Rio - Wind farms located in the State of Ceará with a total installed capacity of 70.8 MW.

CEMIG GT has joint participation in the following companies with wind farms investments:

Renova (45.83%(48.21% of voting share and 36.23% of total capital) –CEMIG also has indirect participation- The Alto Sertão III Phase A Wind Complex, currently under implementation and approximately 85% completed, will consist of 26 wind farms located in Renova through Light which has 21.72%the State of voting share and 17.17%Bahia with a generation capacity of total capital.432.6 MW.

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Aliança Geração de Energia S.A. (45%) – Four wind farms, which compose the Santo Inácio Wind Project. The project, located at Icapuí, in the State of Ceará, started its commercial operation in December of 2017 and has an installed capacity of 98.7 MW. There are also two projects under construction: Projeto Eólico Acauã and Central Eólica Gravier. The latter is located at the State of Ceará, it will have a total installed capacity of 71.4 MW and its commercial operation is estimated to start at the beginning of 2022. The former is composed of Acauã I, Acauã II and Acauã III wind farms, it is located at the State of Rio Grande do Norte and has a total installed capacity of 109.2 MW. Its commercial operation is also estimated to start in 2022.

Expansion of Generation Capacity

We are involvedPoço Fundo

On February 5, 2019, Brazilian electricity regulatory agency ANEEL approved an expansion of installed capacity of Poço Fundo, a Small Hydroelectric Power Plant located on the Machado River, in the constructionstate of hydroelectrical plants – Belo MonteMinas Gerais, from 9.16MW to 30MW. Additionally, the concession was extended until May 29, 2045. Upon completion of expansion, the plant will consist of two generating units of 15MW each.

On January 6, 2020, expansion works started and four SHPs: Dores de Guanhães, Senhora do Porto, Fortuna II and Jacaré. These plants will increase our total installed hydroelectrical generation capacity by 437 MW (proportional stake) over the coming year.

Guanhães Project: Guanhães Energia S.A. is subsidiary, which has four wholly-owned subsidiaries – PCH Dores de Guanhães S.A., PCH Senhora do Porto S.A., PCH Jacaré S.A. and PCH Fortuna II S.A.. Guanhães Energia S.A. is engaged in construction and commercial operation of these four SHPs. Three of them – Dores de Guanhães, Senhora do Porto and Jacaré – are in the municipality of Dores de Guanhães; and one, Fortuna II, is in the municipalities of Virginópolis and Guanhães, all in the State of Minas Gerais. They will have an aggregate installed capacity of 44 MW. Construction was halted on December 2015 due to delays in implementantion of the project which resulted in the termination of the contract with the construction consortium. In November 2017, the construction was resumed, andits first generation unit of Senhora do Porto started operating in May 2018. In November 2018 two plants, Senhora do Porto e Dores de Guanhães, were fully operating, and the remaining 5 generation units, of Fortuna II and Jacaré, areis expected to be operating untilbegin by June 2019.21, 2022.

Belo Monte Project: Norte Energia S.A. (NESA) is

CEMIG SIM

CEMIG SIM, a special-purpose company which holds the concession to build, operatewholly owned subsidiary of CEMIG that operates in distributed generation and maintain the Belo Monte hydroelectrical plant, located on the Xingu River,energy solutions, invested in its first year of activity (2020), approximately R$73.5 million in the Amazon Region,acquisition of 49% stakes in nine photovoltaic plants. Currently CEMIG SIM has reached 3,000 customers in the North of Brazil.commercial and industrial low voltage segments, which consume 6.2 GWh monthly.

In 2021, CEMIG GT has an indirect interestSIM plans to invest R$113 million in NESA of 11.7% through Amazônia Energia S.A.the commercial and Aliança Norte Energia Participações S.A., shareholders of Norte Energia S.A.. NESA will still require significant funds to complete the electromechanical assembly of the remaining 6 generation units, in addition to funds to cover organizational, development andpre-operating costs for the completion of the plant. According to estimates, these costs will be repayed by revenues from future operations. When fully completed—scheduled for 2020, it will have a total capacity of 11,233 MWindustrial segments and will be one of the largest hydroelectrical power plantsalso operate in the world.residential segment.

Also, on April 30, 2015, the Consortium UHE Itaocara (“Consortium”), in which CEMIG GT has 49% and Itaocara Energia Ltda., a SPC owned by Light, has 51%, won the concession of Itaocara I, a150-MW hydroelectrical plant, to be constructed on the Paraíba do Sul River, between the municipalities of Itaocara and Aperibé, in the State of Rio de Janeiro. The energy of this power plant is to be delivered on January 1, 2020 and the concession period is 35 years. On July 5, 2016, ANEEL transferred the concession of Itaocara I power plant from the Consortium to Usina Hidrelétrica Itaocara S.A., a special purpose company held by CEMIG GT (49%) and Itaocara Energia Ltda (51%). Due to the worsening of Brazilian macroeconomic conditions in recent years, construction has not started yet and the project is currently being reevaluated.

Transmission

Overview

The transmission business consists of the transfer of energy from generation power plants to customers directly connected to the basic transmission grid, free customers and distribution companies.distributors. The transmission system comprises transmission lines and step-down substations with voltages ranging from 230 kV to 500 kV.

All the basic transmission grid users, including generators, distributors, free customers, and others, execute contracts for the use of the transmission system – CUST with the ONS, and make payments to the transmission companies for making available the use of their basic transmission grid equipment. See “The‘The Brazilian Power Industry”Industry’ and “Item 5. Operating and Financial Review and Prospects.”Prospects”.

The following tables give operating information on our transmission capacity for the dates indicated:

 

Circuit Length of Transmission Lines in Miles as of December 31,

Voltage of Transmission Lines

2020

2019

2018

500 kV1,3551,3551,355
345 kV1,2301,2311,231
230 kV

477

478

478

Total3,0623,0643,064

 

   Circuit Length
of Transmission Lines in Miles		 
   As of December 31, 

Voltage of Transmission Lines

  2018   2017   2016 

500 kV

   1,355    1,355    1,355 

345 kV

   1,231    1,231    1,228 

230 kV

   478    478    478 
  

 

 

   

 

 

   

 

 

 

Total

   3,064    3,064    3,061 
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   Transformation Capacity(1)
of Transmission Substations		 
   As of December 31, 

Substations

  2018   2017   2016 

Number of transmission substations(2)

   38    38    37 

MVA

   17,615    17,615    17,573 

 

 

Transformation Capacity (1) of Transmission Substations as of December 31,

Substations

2020

2019

2018

Number of transmission substations (2)393838
MVA18,854.6518,104.6517,615
(1)

Transformation capacity refers to the ability of a transformer to receive energy at a certain voltage and release it at a reduced voltage for further distribution.

(2)

Shared substations are not included.

The tables below present operational information on the transmission capacity of the joint venture (subsidiaries and affiliates transmission CEMIG), proportional to the equity interest held by the CEMIG Group in each case, on the dates indicated:

 Transmission Network Extension in Miles as of December 31,

Voltage of Transmission Lines

2020

2019

2018

>525 kV705959
500 kV740685654
440 kV686868
345 kV676731
230 kV

367

307

258

Total1,3121,1861,070

 

   Transmission Network
Extension in Miles		 
   As of December 31, 

Voltage of Transmission Lines

  2018   2017   2016 

>525 kV

   59    59    86 

500 kV

   654    674    856 

440 kV

   68    68    98 

345 kV

   31    31    66 

230 kV

   258    263    486 

220 kV

   —      —      —   
  

 

 

   

 

 

   

 

 

 

Total

   1,070    1,095    1,592 

Subsidiaries and Affiliates of CEMIG – Transmission

Company

Number of transmission substations

TAESA

37 (6 private and shared 31)

ATE III

4 (1 private and shared 3)

EATE

5 (1 private and shared 4)

Lumitrans

2 shared

EBTE

7 (2 private and shared 5)

ERTE

3 (1 private and shared 2)

STC

4 (2 private and shared 2)

ENTE

3 shared

ECTE

2 shared

ETSE

2 private

ETEP

2 shared

ESDE

1 private

São Gotardo

1 shared

Brasnorte

4 (2 private and shared 2)

ETAU

4 (2 private and shared 2)

Transleste

2 (1 private and shared 1)

Transirapé

2 (1 private and shared 1)

Transudeste

2 shared

Centroeste

2 shared

Transmission assets

LT2 345 kVTheFurnas–PimentaTransmission Line(CompanhiaLine (Companhia de Transmissão Centroeste de Minas – ‘Centroeste’)– In September 2004, a consortium formed by Furnas and CEMIG, holding 49% and 51%, respectively, won the bid for the concession of theFurnas–Pimenta transmission line. As required by the tender rules, the partners formed a company,Companhia de Transmissão Centroeste de Minas S.A., which is responsible for the construction and operation of the transmission line. This345-kV transmission line extending for approximately 39 miles connects the substation of the Furnas hydroelectricalhydroelectric plant to a substation at Pimenta, a city in the Center-West region of Minas Gerais. It began commercial operation in March 2010 and the concession expires in March 2035. On January 13, 2020, the Company concluded the acquisition of 49% of the share capital held by Eletrobras in Centroeste, becoming the sole owner of the investee since then.

Transmissora Aliança de Energia Elétrica S.A. – TAESATaesa is a private company jointly controlled by CEMIG, which holds 36.97% of the voting capital and 21.68% of the total capital of TAESA,Taesa, and by ISA Investimentos e Participações do Brasil S.A. (14.88%S.A. which holds 14.88% of the total capital). TAESAcapital. Taesa has led CEMIG’s growth vector in the transmission segment, dedicated to the construction, operation and maintenance of transmission lines in all regions of the country.

This table presents It represents the percentage holdingsmain interest that we have in one Transmission Company in the transmission companies as of December 31, 2018:Brazilian electric sector.

 

Subsidiary and affiliate transmission companies

  % equity interest
(Direct and Indirect)		 
   CEMIG   TAESA 

TAESA

   21.68    —   

ATE III

   21.68    100.00 

EATE

   10.84    49.98 

Lumitrans

   8.67    39.98 

EBTE

   16.15    74.49 

ERTE

   10.84    49.99 

STC

   8.67    39.98 

ENTE

   10.84    49.99 

ECTE

   4.14    19.09 

ETSE

   4.14    19.09 

ETEP

   10.84    49.98 

ESDE

   10.84    49.98 

ESTE

   10.84    49.98 

EDTE

   10.84    49.99 

São Gotardo

   21.68    100.00 

Brasnorte

   8.38    38.66 

Subsidiary and affiliate transmission companies

  % equity interest
(Direct and Indirect)		 
   CEMIG   TAESA 

ETAU

   11.40    52.58 

Mariana

   21.68    100.00 

Transleste

   6.50    30.00 

Transirapé

   6.40    29.50 

Transudeste

   6.29    29.00 

Centroeste

   51.00    —   

Miracema

   21.68    100.00 

Janaúba

   21.68    100.00 

Aimorés

   10.84    50.00 

Paraguaçu

   10.84    50.00 

ERB1

   10.84    50.00 

The Itabirito 2–Vespasiano 2 Transmission Line – TAESA was awarded this concession (Lot ‘A’) at ANEEL Auction No. 013/2013 in December 2013 – to build, operate and maintain the52-mile,500-kVItabirito 2–Vespasiano 2 transmission line, in Minas Gerais. Annual Permitted Revenue (RAP) is R$11 million. The project construction is scheduled for completion in 2019.

In April 2017, TAESA, as part of the Consortium Columbia (50% TAESA and 50% CTEEP), was the winning bidder of Branch 1 in Auction 005/2016 of Public Power Transmission Lines auction promoted by ANEEL. Branch 1 comprises 600 dual circuit kms totaling 1200 kms in Parana State. ANEEL granted TAESA the right to explore the concessions for 30 years. RAP is R$ 267.3 million.

Distribution and Purchase of Electric Power

Overview

Our distribution operation consists of transfers of energy from distribution substations to final customers. Our distribution network comprises a widespread network of overhead and underground lines and substations with voltages lower than 230 kV. We supply energy to small industrial customers, at the higher end of the voltage range, and to residential and commercial customers at the lower end of the range.

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In 2018,2020, we invested approximately R$ 7681,273 million in the construction and acquisition of the property, plant and equipment needed to supply energy to our customers, expand and to increase the capacity of our distribution system.

The following tables provide certain operating information pertaining to our distribution system, on the dates indicated:

Circuit length of distribution lines in miles – High voltage (from distribution substations to final customers) as of December 31,

Voltage of distribution lines

2020

2019

2018

 
161 kV30.2530.2530.25 
138 kV7,946.627,970.987,945.68 
69 kV2,223.912,221.782,221.78 
34.5 kV + 230 kV

633.78

633.75

633.75

 
Total10,834.5510,856.7610,831.46 

 

   Circuit length of distribution lines in
miles – High voltage
(from distribution substations to final customers)		 
   As of December 31, 

Voltage of distribution lines

  2018   2017   2016 

161 kV

   30.25    30.12    28.84 

138 kV

   7,945.68    7,879.51    7,635.47 

69 kV

   2,221.78    2,228.23    2,250.22 

34.5 kV + Others

   633.75    606.59    522.13 
  

 

 

   

 

 

   

 

 

 

Total

   10,831.46    10,744.45    10,436.66 

Circuit length of distribution lines in miles – Medium and low voltage (from distribution substations to final customers)

 

As of December 31,

Voltage of distribution network

2020

2019

2018

 
Overhead urban distribution lines.67,527.3066,223.5065,999.52 
Underground urban distribution lines1,524.161,539.701,535.05 
Overhead rural distribution lines

259,200.32

256,819.88

255,024.50

 
Total328,251.78324,583.08322,559.07 

 

   Circuit length of distribution lines in miles –
Medium and low voltage
(from distribution substations to final customers)		 
   As of December 31, 

Voltage of distribution network

  2018   2017   2016 

Overhead urban distribution lines

   65,999.52    65,734.68    61,969.21 

Underground urban distribution lines

   1,535.05    1,530.63    1,351.94 

Overhead rural distribution lines

   255,024.50    251,925.70    241,325.01 
  

 

 

   

 

 

   

 

 

 

Total

   322,559.07    319,191.01    304,646.16 

   Step-down transformation capacity(1)
of distribution substations		 
   As of December 31, 
   2018   2017   2016 

Number of substations

   405    404    393 

MVA

   10,681.35    10,585.91    10,279.18 

Step-down transformation capacity (1) of distribution substations as of December 31,

 

2020

2019

2018

Number of substations414409405
MVA10,884.0510,742.0010,681.35
(1)

Step-down transformation capacity refers to the ability of a transformer to receive energy at a certain voltage and release it at a reduced voltage for further distribution.

Light – Power Distribution

The power distribution activity of Light comprises the transport of power supply from the frontier with the national grid up to the point of delivery to final consumers. Light SESA has a distribution network comprising 2,514 lines, of which 34 lines are at 6kV, 2,314 are at 13.8 KV, and 166 are at 25 KV, mostly above ground, although Light SESA has one of the largest underground distribution systems in Brazil. Large industrial and commercial consumers receive electricity at high voltage; smaller industrial and commercial customers and residential customers, receive power at lower voltages. On December 31, 2018, Light had 85,080 distribution transformers above ground, 7,328 subterranean distribution transformers, and 221 fixed distribution substations (10,522.3 MVA), with a total distribution network of approximately 48,407 miles (44,835 miles above ground, 3,572 miles underground), of which 14,761 miles carry power at medium voltage, and 33,646 miles at low voltage.

Expansion of Distribution Capacity

Our distribution expansion plan for the nextperiod of five years, comprising from 2018/ 2022, is based on projections of market growth. In the next five years, we anticipate an increase of approximately 920,000 new urban customers and approximately 35,000 rural customers. In order to accommodate this growth, we expect that we will needplan to add 198,709medium-voltage poles, 1,292on distribution lines, up to 7,389 miles of distribution linesmedium and 53low-voltage, and 1,838 miles of high-voltage; 80 step-down substations, adding 1,0762,150 MVA to our distribution network.

Purchase of Electric Power

During the year ended December 31, 2018,2020, we purchased 5,7385,835 GWh of energy from Itaipu, which represented approximately 13%15% of the energy we sold to final users, and 624610 GWh (1.5%(1.6%) of energy from PROINFA. We also purchased 1,0761,091 GWh under Nuclear Energy Quota Contracts (- Contratos de Cotas de Energia Nuclear,or “CCENs”) (2.5%‘CCENs’. (2.8%) and 7,5497,507 GWh of energy under Assured Energy Quota Contracts (- Contratos de Cota de Garantia Física,or “CCGFs”) (18%‘CCGFs’. (19%). In addition to this compulsory purchase, we have two other types of supply arrangements: (i) purchases through public auctions, which accounted for approximately 23%24% of the energy purchased for resale during the year ended December 31, 2018;2020; and (ii) long-term agreements existing prior to the New Industry Model Law, which represented approximately 2% of the energy purchased in 2018.2020.

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Itaipu — Itaipu is one of the largest operational hydroelectricalhydroelectric plants in the world, with an installed capacity of 14,000 MW. Centrais Elétricas Brasileiras S.A. (‘Eletrobras’), or Eletrobrás, a holding company controlled by the Federal Government, owns a 50% interest in Itaipu, while the remaining 50% is owned by the government of Paraguay.Paraguay owns the remaining 50%. Brazil, pursuant to its 1973 treaty with Paraguay, has the option to purchase all of the energy generated by Itaipu that is not consumed by Paraguay. Brazil generally purchases more than 95% of the energy generated by Itaipu.

We are one of the power distribution companiesdistributors operating in the south, southeast and west-central regions of Brazil that are jointly required to purchase all of Brazil’s portion of the energy generated by Itaipu, in accordance with the Law No. 5,899/1973. The Federal Government allocates Brazil’s portion of Itaipu’s power among these energy companies in amounts proportionate to their respective historical market share of total energy sales. ANEEL enacted Resolution No. 2,178/2016, which set 10.39% as the percentage of Itaipu’s power production bestowed upon CCEE that CEMIG D would have to purchase in 2017. For 2018, Resolution No. 2355/2,355/2017 set it at 10.09% and for 2019 it was set at 10.03% (Resolution No. 2500/2,500/2018). For 2020 the Resolution no 2,642/2019 set it at 10.32% for CEMIG-D. These rates are fixed to defray Itaipu’s operating expenses and payments of principal and interest on Itaipu’s dollar-denominated borrowings and the cost inreaisReais of transmitting such power to the Brazilian grid. These rates are above the national average for bulk supply of power and are calculated in U.S. dollars. Therefore, fluctuations in the U.S. dollar/realReal exchange rate affect the cost, in realReal terms, of energy we are required to purchase from Itaipu. Historically, we have been able to recover the cost of such energy by charging supply rates to customers. According to our concession contract, increases in the supply rates may be transferred to the final customer upon approval by ANEEL.

Since 2007, ANEEL publishes at the end of each year the amount of energy to be purchased from Itaipu by each of the electric power distribution companiesdistributors for the following year, as guidance for the five subsequent years. Based on this, the distribution companiesdistributors can estimate their remaining energy needs in advance of the next public auctions.

CCENs: These are contracts that formalize the purchase of energy and power as established in Law No. 12,111/09 and ANEEL Resolution No. 530/12 between distributors and Electronuclear for the energy produced by the Angra I and Angra II plants.

CCGFs: Decree No. 7,805/12 regulated Provisional Act No. 579/12 and created contractual arrangements governing contracting of energy and power from the plants whose concessions were extended under Law No. 12,783/13.

Auction Contracts: We have purchased energy in public auctions on the CCEE. These contracts are formalized between CEMIG and the various vendors in accordance with the terms and conditions in the invitation to bid. The following table gives the amounts of energy contracted, and average original tariff and prices related to the CCEAR contracts for energy acquired by CEMIG. See “The Brazilian Power Industry” for more information on CCEEs and CCEARs.

Average Tariff (R$/MWh)

  Energy Contracted
(MW —average per year)		   Term of the
Contract		 

138.85

   61.23    2010 to 2039 

134.67

   431.17    2010 to 2039 

120.86

   24.71    2010 to 2024 

137.44

   23.24    2010 to 2024 

128.42

   63.89    2010 to 2024 

129.14

   56.57    2011 to 2040 

128.37

   126.34    2011 to 2025 

78.87

   122.83    2011 to 2025 

77.97

   457.75    2012 to 2041 

102.00

   52.76    2012 to 2026 

80.10

   336.40    2012 to 2041 

262.00

   27.00    2015 to 2044 

270.81

   69.03    2014 to 2044 

99.48

   46.80    2014 to 2033 

67.31

   136.73    2015 to 2044 

129.70

   25.09    2015 to 2044 

121

   15.68    2016 to 2035 

133.29

   32.13    2018 to 2047 

117.51

   16.27    2018 to 2037 

135.58

   19.30    2018 to 2047 

96.28

   16.41    2018 to 2037 

119.03

   2.62    2018 to 2042 

121.00

   15.68    2017 to 2046 

129.96

   32.13    2017 to 2036 

161.89

   3.20    2019 to 2048 

205.19

   311.11    2019 to 2043 

136.00

   56.06    2019 to 2038 

183.66

   4.94    2020 to 2049 

278.46

   23.21    2020 to 2044 

205.01

   0.535    2018 to 2047 

212.75

   0.701    2018 to 2037 

181.14

   3.843    2018 to 2037 

219.20

   6.81    2023 to 2052 

168.35

   188.51    2023 to 2046 

108.28

   66.08    2023 to 2042 

138.85

   61.23    2010 to 2039 

134.67

   431.17    2010 to 2039 

120.86

   24.71    2010 to 2024 

137.44

   23.24    2010 to 2024 

128.42

   63.89    2010 to 2024 

129.14

   56.57    2011 to 2040 

“‘Bilateral Contracts”Contracts’ — CEMIG D entered into ‘bilateral contracts’ with various suppliers prior to the enactment of the New Industry Model Law in 2004. Such agreements are valid under their original terms but cannot be renewed. During the year ended December 31, 20182020 CEMIG D didn’t enter into new bilateral contracts.

Other Businesses

Natural Gas Distribution

Gasmig was established in Minas Gerais, Brazil, in 1986, for the purpose of developing and implementing the distribution of natural gas in the State of Minas Gerais. CEMIG holds 99.57% of the shares of Gasmig and the Municipality of Belo Horizonte owns the remaining shares.

In July 1995, the State Government granted Gasmig an exclusive30-year concession (as from January 1993) for distribution of piped gas covering the entire State of Minas Gerais and customers located within it. On December 26, 2014, the Second Amendment to the Concession Contract was signed. This document extended Gasmig’s concession for commercial operation of piped gas services for industrial, commercial, institutional and residential use in the State of Minas Gerais for 30 years. As a result, the expiration of this concession was extended from January 10, 2023, to January 10, 2053.

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Gasmig’s marketing efforts focus on its ability to provide a more economically efficient and environmentally friendly alternative to oil products, like diesel and liquefied petroleum gas (“LPG”(‘LPG’), wood, wood products and charcoal. From January to December 2018,2020, Gasmig supplied approximately 3.032,584 million cubic meters of natural gas per day to 42,30161,414 customers in thirty sixforty cities: 10995 large andmedium-sized industrial plants, 7561,121 small industrial plants and commercial customers, 5357 retail distribution stations supplying compressed natural gas (“CNG”(‘CNG’) to vehicles, 2 gas fired power generation plants,4 5 co-generation projects, 24 distributors of CNG to industrial customers and vehicular retail stations, and 41,377 homes.60,128 homes, 2 thermoelectric plants.

From January to December 2018,2020, Gasmig registered an expense for the acquisition of gas of R$1,2381,083 million compared to an expense of R$ 1,0701,436 million in the period from January to December 2017, an increase2019, a reduction of 15.7%24.58%. Although the number of customers has increased 18.18% (mainly residential), the volumes have declined by 16.3%, the expense has increaseddecreased 4% and 28% for industrial plants and retail distribution stations supplying Compressed Natural Gas (‘CNG’) to vehicles respectively mainly due to 38.3% increasepandemic negative side effects in the average cost.that sector.

Many energy-intensive industries, such as cement, steel, iron-alloys and metallurgical plants, operate at significant volume in Minas Gerais. Gasmig’s principal strategy is expansion of its distribution network to cover the part of demand that has not yet been met. Gasmig dedicates efforts to development of new projects for expansion of its natural gas distribution system, to supply customers in other areas of Minas Gerais, especially those densely industrialized.

From January to December 2018,2020, capital expenditures totaled R$ 50.142.6 million and 45.667.68 kilometers were added to our natural gas network. In 2018, Gasmig began to supply the residential market in the city of Juiz de Fora, built the pipeline for supplying a new large industrial plant at the city of Jacutinga and acquired the site in which the operational center is located.

In the city of Belo Horizonte, the main projects developed were those aimed at serving the Urban Market. High Density Polyethylene (‘HDPE’) densification networks were implemented in the São Pedro, Santo Antônio, Luxembourg, Prado and Cidade Nova neighborhoods.

Gas distribution concessions

The concessions for distribution of natural gas are granted by each Brazilian state. In the state of Minas Gerais the tariffs for natural gas are set by the regulator, the State’s Economic Development Secretariat, sets the tariffs for natural gas by market segment. The tariffs are comprised of a portion for the cost of gas and a portion for the distribution of gas. Each quarter the tariffs are adjusted to pass through the cost of gas, and once a year they are adjusted to update the portion allocated to cover the costs relating to the provision of the distribution service – remuneration of invested capital and to cover all the operating, commercial and administrative expenses of the concession holder.

In addition to these adjustments, in April 2015, the Economic Development Secretariat sent to our subsidiary Gasmig an Official Letter, SEDE/GAB/Nº303/2014 stating the timetable set for the first Tariff Review cycle. Due to delays, the methodology of the first Tariff Review cycle was decided in July 2017, and the public consultation on Required Revenue was opened in December 2018; the contributions were sent in February 2019. Ratification of the tariff for this tariff cycle is expected to take place in 2019. TheseThe rate reviews occur every five years, from the end of the first cycle, from 2018 to 2022, to evaluate the changes in the costs of Gasmig, and to adjust the tariffs. The concession contract also specifies the possibility of an extraordinary review of tariffs if any event occurs that puts the economic-financial balance of the concession at risk.

On December 14, 2018, the Minas Gerais State Department for Economic, Scientific, Technological and Higher Education Development (‘Sedectes’ actually ‘SEDE’) or (‘the grantor power’grantor’) presented a study, prepared by Fundação Getulio Vargas Business school (“FGV”(‘FGV’), related to financial economic rebalancing of the Gasmig concession agreement, also supported by consultation from General Attorney’s Office of the State. The rebalancing that has been requested by the grantor is based on the contractual obligation to build a gas pipeline to serve the Nitrogen Fertilizers Unit (UFN), which should have been built by Petrobras. Due to this reason Gasmig was requested to pay the State of Minas Gerais the amount of which Sedectes estimates at R$852 million. Based on the study, SEDECTES requested a response from Gasmig and began discussion for solution related to imbalance referred to, considering that one of its conditions for extension of the concession contract (from 2023 to 2053, as specified in the second amendment to the contract) was execution of investments for construction of the gas pipeline.

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In this context, Gasmig contracted specialized consultants

On September 19, 2019, the Company entered into, with the State of Minas Gerais, as Grantor, the Third Amendment to prepare an independent financial-economic valuationthe Concession Agreement for Industrial, Institutional and legal opinion, to establishResidential Exploration of Piped Gas Services in the fair valueState of Minas Gerais, which represents the conclusion of the considerationeconomic and financial rebalancing process of the concession contract, upon payment of a grant fee in the amount of R$852 million, updated from January 1, 2019 to the date of its payment at by the DI rate (Interbank Deposits, extra group) and ensures that Gasmig maintains the extension of the term of its concession until the year 2053.

On September 26, 2019, the Company issued Commercial Promissory Notes, in a single series, totaling R$850 million with a maturity of 12 months and interest of 107% of the DI rate, without any guarantees or endorsement. The proceeds from this issue were fully used, on September 26, 2019, to pay the granting bonus due to the Granting Authority updated by the variation of the DI rate since January 1, 2019 in the amount of R$891.2 million.

Also under Third Amendment to the Concession Agreement, the total amount paid for the compensatory grant will be added to the Company's asset remuneration base and considered in the tariff review process by the grantor as an intangible asset to be paid toamortized until the State, for the purpose of enabling the rebalancingend of the concession. Weconcession contract, with immediate effects on the setting and review of tariffs.

With the conclusion of Gasmig's First Periodic Tariff Review (1st RTP), in November 2019, SEDE confirmed the inclusion of the grant bonus in the regulatory asset base. The review resulted in guidance on investment and quality goals, service expansion and definition of the new tariff design, offered by Gasmig, are accompanyingin the development2018 to 2022 cycle.

Among the approved changes is the creation of these discussionsnew tariff classes, new consumption ranges, absorption of customers from other classes and changes in the collection cascades, in order to meet market demands and simplify the classification of customers in the respective categories. The proposed new tariff design includes the following categories: Industrial, Commercial and Industrial with the grantor power.

lower consumption, Individual Residential, Residential Collective, Cogeneration, Thermoelectric, Compressed Natural Gas Exploration

CEMIG, in partnership with other companies, won in the 10th Brazilian Round, promoted by the National Agency of Oil,or Liquefied Natural Gas and Biofuels (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis, or“ANP”) –, in December 2008, the concession rights for natural gas exploration in four blocks in the São Francisco Basin, one block in the Recôncavo Basin, and one block in the Potiguar Basin, located in the states of Minas Gerais, Bahia and Rio Grande do Norte, respectively.

BlockPOT-T-603 in the Potiguar Basin was given back to ANP after the conclusion of all planned activities, which demonstrated the absence of hydrocarbon that could be commercially produced.

CEMIG has a stake in the following consortia:Gas.

 

BlocksSF-T-104 andSF-T-114 (São Francisco Basin): CEMIG (24.5%), Codemig (24.5%) and Imetame (51%);

BlocksSF-T-120 andSF-T-127 (São Francisco Basin): CEMIG (24.5%), Codemig (24.5%), Cemes (51%), being the last company formed by Imetame, Sipet and Orteng; and

BlockREC-T-163 (Recôncavo Basin): CEMIG (24.5%), Codemig (24.5%) and Imetame (51%).

These consortia were included by CEMIG as assets that are part of the divestment program.

Consulting and Other Services

CEMIG SIM was created in October 2019, as before the company Efficientia S.A., createdto operate in the markets of: distributed generation, energy efficiency and energy solutions. As well as the branding and marketing strategy focused on the retail sector, and on digital transformation of the electricity sector, the organizational culture of SIM, which has a wholly-owned subsidiarystrong character of innovation and technology, is being constructed so that clients are always at the center of decisions.

In 2019, CEMIG SIM sold supply totaling 2,656 MWh/month, generated by three photovoltaic plants (the Janaúba, Corinto, Manga, Mirabela, Porteirinha I and Porteirinha II plants). CEMIG SIM achieved 810 clients as of December 31, 2019.

In 2020, CEMIG SIM sold supply totaling 3,962 MWh/month, generated by ten photovoltaic plants (the Janaúba, Corinto, Manga, Bonfinópolis II, Lagoa Grande, Lontra, Mato Verde, Mirabela, Porteirinha I and Porteirinha II plants). CEMIG SIM achieved 2,024 clients as of December 31, 2020.

In energy solutions, CEMIG SIM will operate in 2002, implemented its own business model, launching an2021 in implementation of projects based on performance contracts, with reflects an innovative approach to the implementation of projectsphotovoltaic plants at medium-voltage clients, and also in the Brazilian market. The principal source of revenue for Efficientia has been the implementation of energy efficiency projects through performance contracts. Sixty projects have already been implemented.

In 2017, Efficientiaprojects. Business models are also being developed consulting projects for four hospitals at Belo Horizonte. The funds to finance these projects were invested by the Energy Eficiency Program of CEMIG D.markets of: energy storage, electric vehicles, and cogeneration.

 

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Hospital da Baleia: Retrofit of the lightining system, using LED technology (savings of 272.9 MWh / year); Investment: R$ 305,092

 

Hospital Evangélico: Retrofit of the lightining system, using LED technology, and implemantation of a solar heat system for baths (savings of 26.9 MWh /year); Investment: R$ 214,302

Hospital Mário Penna: implemantation of a solar heat system for baths (savings of 31.84 MWh / year); Investment: R$ 104,984

Hospital Risoleta Neves: Retrofit of the lightining system, using LED technology (savings of 357.08 MWh / year); Investment: R$ 340,929

Sale and Trading of Energy

We provide services related to the sale and trading of energy in the Brazilian energy sector, such as evaluation of scenarios, representation of customers in the CCEE, structuring and intermediating of energy purchase and sale transactions, and consultancy and advisory services, besides services related to the purchase and sale of energy in the Free Market through our wholly-owned subsidiary companies CEMIG Trading S.A., ESCEE and Empresa de Serviços de Comercialização de Energia Elétrica S.A. (“ESCEE”) and CCEICEMIG Comercialização de Energia Incentivada S.A. (“CCEI” (‘ESCEE’).

Energy Losses

CEMIG

The total recorded by CEMIG as energy losses has two components: (i) an allocated portion of the losses arising in the National Grid; and (ii) the total of technical andnon-technical losses (commercial losses) in the local distribution network of CEMIG D.

The total energy losses recorded by CEMIG in the year of 20182020 was 6,8817,012 GWh, a 7.2 % decrease of 3.4% in comparison to 2017.2019 (7,554 GWh). The CCEE apportioned losses in the national grid totaling 500467 GWh to CEMIG D. Other energy losses, totaling 6,3816,545 GWh, include technical andnon-technical losses in the local distribution system.

Technical losses were approximately 70.27%70% of the total losses related to CEMIG D for the year ended December 31, 2018.2020. Losses in distribution are inevitable as a resultbecause of transport of energy and its transformation into different levels of voltage. We seek to minimize technical losses by rigorous and regular assessments of the operational conditions of the distribution facilities, and investment to expand distribution capacity, for the purpose of maintaining quality and reliable levels, thus reducing technical losses; we also operate the system in accordance with certain specific voltage levels, to reduce the level of losses. Technical losses are not strictly comparable: longer distribution distances (for example, in rural areas), naturally have higher technical loss levels.

Non-technical losses were approximately 29.73%30% of CEMIG D’s total energy losses in 2018.2020. Such losses are caused by customer fraud, illegal connections to the distribution network, and errors in metering and defects in meters. To minimizenon-technical losses, preventive actions are taken regularly: customers’ meters and connections are inspected; meter readers are trained; metering systems are modernized; procedures for installation and inspection of meters are standardized; meters with quality control guarantees are installed; and the database of customers is updated.

Thenon-technical losses of different distribution companiesdistributors can be partially comparable, taking into account the social complexities in the concession area and the effectiveness of efforts to prevent losses.

Light

For the year ended December 31, 2018, Light’s total losses amounted to 8,827 GWh, or 23.95% of the total load, an increase of 10.3% compared to the year ended December 31, 2017.

The success of the program to combat theft of power supply is measured in practice by the level of reduction of losses, however, it also affects the figures for revenue and the expected provision for doubtful receivables. In 2018, the main pillar of the program’s strategy was its actions of inspection and normalization of customers. In a range of actions in the field, approximately 420 teams visited locations where the rates of losses were highest. The priority focus of the current strategy is on what are referred to as ‘possible areas’ – the areas of Light’s concession where there are minimum conditions of safety for Light to operate. Total losses at Light over 12 months, through December 2018 were 8,827 GWh – representing 23.95% of the system’s total load. In 2018 the program’s target parameter were losses totaling 1,074 GWh – of which 705 GWh were classified as recovery of energy (‘REN’), 268 GWh were classified as inclusion (IEN), and 101 GWh referred to reduction of load. These figures overall represent 16.5% less than in 2017.

As progress is made in disciplining the market, the tendency is for REN volumes to be gradually reduced, and the incremental consumption incorporated into billing (IEN) to increase progressively, since customers will remain normalized and integrated into the base.

In the program to combat power theft, field inspections prioritize customers that are already connected, thus including potential for payment of debt. Also, intensification of inspection of the field services and the quality of inspections, jointly with production of Formal Inspection Reports (TOIs) are expected to contribute to reduction of legal proceedings, and standardization of actions, as per the orientation from the regulator.

Light currently has 898,400 electronic meters installed, which allows to control approximately 64% of billing remotely, through the metering control center. This monitoring is of fundamental importance for disciplining the market and to minimize future recurrences of theft of power.

Quality indicators – DEC and FEC (SAIDI and SAIFI)

At the end of 2018,2020, the indicators that measure the quality of supply by CEMIG D – (i) System Average Interruption Duration Index (“SAIDI”(‘SAIDI’), expressed as a figure per customer, in hours per year; and (ii) System Average Interruption Frequency Index (“SAIFI”(‘SAIFI’), also expressed as a customer-experienced average, were 10.069.64 and 5.06,5.05, respectively. In 2017,2019, the figures with respect to CEMIG D for SAIDI and SAIFI were 10.8310.64 and 5.43,5.06, respectively. AtThe indicator calculation process is certified according to ISO Quality Standard 9001.

The result achieved in 2020 shows the endefficiency in the application of 2018,resources, as well as the SAIDIcommitment to continuous improvement and SAIFIcustomer service.

In December 2015, CEMIG D signed the contractual amendment that unified its concession contracts for Light were 7.78the provision of public electricity distribution services, which extended the concessions from January 1, 2016 until December 31, 2045. The contract defined limits for the internal portion of the continuity indicators, Internal System Average Interruption Duration Index (‘SAIDI-i’) and 4.44, respectively,Internal System Average Interruption Frequency Index (‘SAIFI-i’), and since 2016 CEMIG has been complying with the contract limits, as shown in the table below.

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SAIDI-i (hours)

SAIFI-i. (Interruption)

Year

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

Limit11.6211.3211.0310.7310.448.127.767.397.036.67
Performed11.5711.1810.4210.569.585.375.445.134.854.86

In 2020, CEMIG did not exceed the limit for the SAIDI-i and SAIFI-i limit, and in the fifth year of the concession, the Company achieved the best result in its history, 9.58 hours, compared to 9.14 the limit of 10.44 hours set by the Regulator (‘ANEEL’).

The concession contracts has limitation of in the distribution of dividends and/or payment of Interest on Equity to the minimum established by law, in the envent of non-compliance with the annual indicators for outages (SAIDI and 5.26SAIFI) for two consecutive years, or three times in 2017.a period of five years, until the regulatory parameters are restored. CEMIG D was non-complaint for three times in the past five years, and, in such circumstances, CEMIG D limited the amount of dividend and interest on equity, to 25% of net income.

Customers and Billing

Customer base

The CEMIG Group sells energy through the companies CEMIG D, CEMIG GT and other wholly-owned subsidiaries – Horizontes Energia, Sá Carvalho, CEMIG PCH, Rosal Energia, CEMIG Geração Camargos, CEMIG Geração Itutinga, CEMIG Geração Salto Grande, CEMIG Geração Três Marias, CEMIG Geração Leste, CEMIG Geração Oeste, and CEMIG Geração Sul.Sul, CE Praias de Parajuru and CE Volta do Rio.

This market comprises sales of energy to:

(i)·

regulatedRegulated customers in CEMIG’s concession area in the State of Minas Gerais;

(ii)·

freeFree customers both in the State of Minas Gerais and other states of Brazil, through the Free Market;

(iii)·

otherOther participants of the energy sector – traders, generators and independent power producers, also in the Free Market; and

(iv)·

distributors,Distributors, in the Regulated Market.

In 20182020, we sold a total of 55,55553,309 GWh, or 0.50% more-1.52% less than in 2017,2019, while the total of power we transported for free customers was 8.72%3.8% higher, at 19,28620,078 GWh.

Sales of energy to final customers plus our own consumption in 20182020 totaled 43,56339,402 GWh, or 2.5% more6.7% less than in 2017.

2019. Sales to distributors, traders, other generating companies and independent power producers in 2018 totaled 11,9912020-totaled 13,907 GWh – or 6.15% less16.7% higher than in 2017.2019.

In December 2018,2020, CEMIG Group invoiced 8,409,5358,698,095 customers – a growth of 0.74%1.9% in the customer base in the year since December 2017.2019. Of these, 8,409,1838,697,714 are final customers, including CEMIG’s own consumption; and 352381 are other agents in the Brazilian energy sector.

Sales to Final Customers

Residential

The residential customer category accounted for 18.5%20.6% of CEMIG’s energy sales in 2018,2020, totaling 10,26610,981 GWh – or 2.58%4.2% more than in 20172019 and average monthly consumption per customer in 20182020 was 125.5128.6 kWh/month, or 1.37%2.0% more than in 2017 (123.82019 (126,1 kWh/month);.

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This higher consumption by the residential customer category wascan be explained by the resultgrowth of 2.1% in the following factors:number of customers and also because people stayed at home more in 2020 due to the social distancing measures due to the Covid-19 pandemic.

 

a)

Increase of 52,164 customers;

b)

The billing calendar in 2018 had 1.1 more days than in 2017 (365.3 days, compared to 364.2 days in 2017);

c)

The growth of the Brazilian economy in 2018 (GDP was 1.1% higheryear-on-year for Brazil and 1.2% higheryear-on-year for Minas Gerais).

Industrial

Energy billed to regulated and free industrial customers in the State of Minas Gerais and other states was 31.8%23.9% of the total volume of energy traded by us in 2018,2020, at 17,68912,731 GWh, or 0.4%14.4% less than in 2017.2019.

This decline is the result of a 0.85%25.6% reduction in the captive market, and a 0.33%12.3% reduction in the Free Market.

The segment ofThis category was strongly affected by the crisis caused by the Covid-19 pandemic.

In the captive customers was affected bymarket the number of customers being 2.02%was 1.2% lower than in 2017,2019, a reduction of 1,492350 customers.

In the free customer segment, the result was This reduction is due to the lower amountmigration of energy suppliedcustomers to the Free Customersfree market and a reclassification of CEMIG GT in 2018 than in 2017.    customers to other classes (registration adequacy process).

Commercial and Services

Energy sold to regulated and free customers in this category in Minas Gerais and other states was 15.08%16.1% of the total volume of energy traded by us in 2018,2020, at 8,3808,571 GWh, 11.63% higher8.2% less than in 2017. The increase of consumption in this category is associated with the growth of the Brazilian economy in 2018 (GDP was 1.1% higheryear-on-year for Brazil and 1.2% higheryear-on-year for Minas Gerais).2019. This reflects a reductiondecrease of 1.19%15.9% in the volume billed to regulated customers of CEMIG D, and an increase of 41.5%1.6% in the volume billed by CEMIG GT and its wholly-ownedwholly owned subsidiaries to free customers in Minas Gerais and other Brazilian states.

The reductionmain factor that explains the behavior of consumption inthe commercial category is the reflection of the restrictions and measures of social distancing caused by the Covid-19 pandemic. In the captive market is associated with the migration of regulated customers to the Free Market.free market and to distributed microgeneration also contributed to the reduction. The increased consumptionfree market grew due to the increase in the Free Market is associated with an increase of 82 customers billed in 2018.customers.

Rural Customers

Energy consumed by the rural customer category in 2018,2020, at 3,6153,766 GWh, was 0.99%0.8% less than in 2017,2019, and was 6.5%7.1% of the total traded by us in 2018. Consumption for irrigation was 6.77% lower, and use in agriculture and the raising of livestock was 2.98% higher. There was a higher volume of rainfall in 2018 than in 2017, affecting the total consumption of rural customers.2020.

Other customer categories

Supply to other categories – government, public lighting, public services, and our own consumption – totaled 3,5713,353 GWh in 2018,2020 or 1.04% more8.7% less than in 2017.2019. In the public lighting category, there was an impact of an adjustment made in the billing calendar (ANEEL – Resolution nº 888/2020) and the insertion of LED lamps is some cities.

Sales in the Free Market, and ‘Bilateral Contracts’

In 2018,2020, total sales of energy were 9,65811,808 GWh, or 7.27% less20.3% higher than in 2017.In 2017,2019.

At CEMIG GT soldthere was a higher volume of short-term sales to energy traders. Sales and trading transactionstraders in energy with other agentsthe first months of 2020, aiming redeeming part of the energy sectorhigh credit that a company has at CCEE. In addition, there were also sales acquired with supply in the Free Market often results from taking previously-created selling opportunities, which lead to short-term sales contracts.

second half of 2020, with the expectation of recovering part of the reduction caused by the drop in consumption by free customers.

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Sales in the Regulated Market

Sales in the Regulated Market in 20182020 totaled 2,3332,099 GWh or 1.2%0.4% less than in 2017 due to reductions in contracts. 2019.

The table below presents CEMIG Group’s market in more detail, itemizing transactions in 20182020 compared to 2017:2019:

Type of Sale20202019Variation YoY
CustomersEnergyCustomersEnergyCustomersEnergy

Amount

(un)

Participation

(%)

Amount

(GWh)

Participation

(%)

Amount

(un)

Participation

(%)

Amount

(GWh)

Participation

(%)

Variation

(%)

Variation

(%)

Traded Energy8,698,095100.0053,309100.008,537,540100.0054,134100.001.88-1.52
Sales to final customers8,697,00699.9939,36873.858,536,45999.9942,17679.131.88-6.66
Residential7,113,83781.7910,98120.606,966,69681.6010,53819.142.114.20
Industrial30,6300.3512,73123.8830,6570.3614,87329.11-0.09-14.40
- Captive29,5250.341,7733.3329,8750.352,3834.33-1.17-25.61
- Free1,1050.0110,95820.567820.0112,49024.7841.30-12.26
Commercial778,1198.958,57116.08806,6029.459,33517.38-3.53-8.19
- Captive776,9428.934,3848.22805,8119.445,2149.47-3.58-15.93
- Free1,1770.014,1877.857910.014,1217.9148.801.61
Rural688,2127.913,7667.06647,0667.583,7956.906.36-0.76
- Captive688,2017.913,7497.03647,0647.583,7926.896.36-1.13
- Free110.00170.0320.0030.01450.00453.45
Other Categories86,2080.993,3196.2385,4381.003,6346.600.90-8.67
Own Consumption7080.01340.067150.01380.07-0.98-9.88
Wholesale sales3810.0013,90726.093660.0011,92020.804.1016.67
- Contracts in Regulated Market270.002,0993.94270.002,1083.830.00-0.44
- Free and bilateral contracts3540.0011,80822.153390.009,81216.974.4220.35

 

Type of Sale

 2018  2017  Variation YoY 
 Customers  Energy  Customers  Energy  Customers  Energy 
 Amount  Participacion  Amount  Participacion  Amount  Participacion  Amount  Participacion  Variation  Variation 
 ( u n )  (%)  ( GWh )  (%)  ( u n )  (%)  ( GWh )  (%)  (%)  (%) 

Traded Energy

  8,409,535   100.00   55,555   100.00   8,347,483   100.00   55,277   100.00   0.7   0.5 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Sales to final customers

  8,408,481   99.99   43,522   78.34   8,346,349   99.99   42,463   76.82   0.7   2.5 

Residential

  6,817,365   81.07   10,266   18.48   6,765,201   81.04   10,008   18.11   0.8   2.6 

Industrial

  73,003   0.87   17,689   31.84   74,497   0.89   17,761   32.13   -2.0   -0.4 

Captive

  72,341   0.86   2,588   4.66   73,833   0.88   2,611   4.72   -2.0   -0.8 

Free

  662   0.01   15,101   27.18   664   0.01   15,150   27.41   -0.3   -0.3 

Comercial

  721,149   8.58   8,380   15.08   718,520   8.61   7,508   13.58   0.4   11.6 

Captive

  720,535   8.57   5,190   9.34   717,988   8.60   5,253   9.50   0.4   -1.2 

Free

  614   0.01   3,190   5.74   532   0.01   2,255   4.08   15.4   41.5 

Rural

  712,793   8.48   3,615   6.51   705,541   8.45   3,652   6.61   1.0   -1.0 

Captive

  712,792   8.48   3,614   6.51   705,541   8.45   3,648   6.61   1.0   -1.0 

Free

  1   0.00   1   0.00   1   0.00   4   0.48   0.0   -75.0 

Other Categories

  84,171   1.00   3,571   6.43   82,590   0.99   3,534   6.39   1.9   1.0 

Own Consumption

  702   0.01   41   0.07   751   0.01   37   0.07   -6.5   10.1 

Wholesale sales

  352   0.00   11,991   21.58   383   0.00   12,777   23.12   -8.1   -6.2 

Contracts in Regulated Market

  28   0.00   2,333   4.20   46   0.00   2,362   4.27   -39.1   -1.2 

Free and bilateral contracts

  324   0.00   9,658   17.38   337   0.00   10,415   18.84   -3.9   -7.3 
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This table presents the CEMIG’s Group’s sales to the Industrial user category as a whole in 2018,2020, by sector of activity:

Sector of activity

Volume invoiced (GWh)

(%)

Mining1,94015.2
Foods1,76913.9
Metallurgy1,65013.0
Nonmetallic minerals1,46911.5
Chemicals1,0148.0
Plastic Products9987.8
Automotive8086.4
Textile6545.1
Cellulose and Paper4253.3
Other sectors

2,002

15.7

Total, industrial customers12,731100.0

 

Sector of activity

  Volume invoiced, (GWh)   % 

Metallurgy

   4,078    23.1 

Mining

   2,688    15.2 

Non metallic minerals

   1,868    10.6 

Foods

   1,805    10.2 

Chemicals

   1,097    6.2 

Machinery and equipment

   510    2.9 

Automotive

   906    5.1 

Textile

   776    4.4 

Plastic Products

   934    5.3 

Other sectors

   3,026    17.1 
  

 

 

   

 

 

 

Total, industrial customers

   17,689    100.0 

The ten largest industrial customers served by the CEMIG Group, located in Minas Gerais and other states of Brazil, in terms of revenue, are:

Customer

Activity

USIMINASMetallurgy and Mining
CSNMetallurgy
VALLOURECMetallurgy
SAINT GOBAINCARBETO DE SILICIO SIKA BRASILChemicals Non metallic mining
ARCELORMITTALMetallurgy
KINROSS BRASILMining
FIATAutomotive
ANGLO AMERICANMining
HOLCIMNon metallic mining
NOVELIS DO BRASILMetallurgy
COMPANHIA BRAS DE METALURGIA E MINERACAOMetallurgy and Mining
HOLCIMNon-metallic mineral product manufacturing
WHITE MARTINSChemicals
SAINT GOBAINNon-metallic mineral product manufacturing
ANGLOGOLD ASHANTIMetallic Mining
ANGLO AMERICAN MINERIO FERRO BRASILMetallic Mining
CIMENTO TUPINon-metallic mineral product manufacturing

Billing

Billing

Normative Resolution 414/2010, published by the ANEEL, regulates billing of customers who have active supply contracts with CEMIG D, is regulated, among other instruments, by Normative Resolution 414/2010, published by the National Energy Agency (ANEEL).instruments.

According to the Resolution, consumption of energy, and other items charged, are billed monthly, based on the basis of the voltage level delivered to the customer unit and the installed load at that unit. ‘Installed load’ means the sum of the nominal potentials of the electrical equipment installed in the customer unit that is in a condition to operate, expressed in kilowatts (kW)(‘kW’). ‘Customer unit’ means the group of items comprising installations, facilities, branch connection, electrical equipment, cables and accessories (including the substation, in cases of supply at primary voltage), with receipt of energy at only one point of delivery, and individualized metering corresponding to a single customer located in one single property or in contiguous properties.

CEMIG D’s customers are divided into Low, Medium and High Voltage.

Invoices of High voltage customers, which are connected directly to the transmission network, are payable five working days after reading of the meter. These customers receive the payment document – the energy invoice – by email.

Medium Voltage customers are those that receive supply at a voltage of 2.3 kV or more, which amount to about 13,82813,570 customers, which are billed within two business days after the meter reading. They receive invoices both in printed form and by email, payable five business days from the date of delivery at the customer’s address. Due to modernization and automation of the meter reading of these customer units, by using remote metering, CEMIG D now has approximately 86%96.34% of its billing automated. This enables the customer unit to be metered in realReal time – so that CEMIG D records and updates consumption of energy at regular intervals.

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Low Voltage customers are billed in cycles, which vary between 27 and 33 days. The bill is delivered simultaneously with the meter reading. A total of 7.77,983 million customer units are billed using this technology, which is known as “On‘On Site Billing”Billing’. These bills are payable five business days from the date of their delivery (or 10 business days for the establishments of public entities and bodies). The great majority of the amounts billed to this category of customers are for energy actually consumed. Only 0.8%0.97% of these customers are billed based on estimated consumption (i.e., on the arithmetic mean of the amounts recorded for the 12 months prior to the consumption that is not measured).

In addition to the implementation of “On‘On Site Billing”Billing’, CEMIG D has invested to increase the number of bills sent by email, which grew by 63.28%54% in 2018,2020, with approximately 220,000471 thousand customers now receiving their billing online. CEMIG intends to intensify campaigns to incentivize customers to choose this way of receiving their monthly bills. The reduction in the volume of printed paperprinted-paper used for billing helps reduce its global cost to the Company and contributes to environmental sustainability for the planet.

In 2018,2020, CEMIG D saved approximately R$4 million with the procedures of simultaneous reading and printing and about R$500918 thousand with the electronic invoices sent monthly. Modernization of the billing system and the distribution network has significantly contributed to customers’ satisfaction and the quality of CEMIG’s energy supply. CEMIG intends to continue with improvement in this and related fields.

Seasonality

CEMIG’s sales of energy are affected by seasonality. Historically, consumption by industrial and commercial customers increases in the fourth quarter due to their increase in activity. The seasonality of rural consumption is usually associated with rainfall periods. During the dry season between the months of May and November, more energy is used to irrigate crops. The table below presents quarterly figures for energy billed by the CEMIG Group to final users, regulated customers and free customers from 20162018 to 2018,2020, in GWh:

Year

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

202010,1199,2679,75410,227
201910,34310,33910,65610,838
201810,30911,09011,01411,110

 

Year

  First Quarter  Second Quarter  Third Quarter  Fourth Quarter 
 2018   10,309   11,090   11,014   11,110 
 2017   10,364   10,712   10,607   10,817 
 2016   10,580   10,778   10,845   10,942 

Competition

Contracts with Free Customers

On December 31, 20182020 CEMIG GT had a portfolio of contracts with 1,2572,693 free customers. Of this total, 6401,664 customers were located outside of the State of Minas Gerais, amounting to 45.6 %59% of the total volume of energy sold by CEMIG GT in 2018.2020.

The strategy adopted by CEMIG in the Free Market is to negotiate and enter into long-term contracts, thus establishing and maintaining a long-term relationship with customers. We seek to differentiate ourselves in the Free Market from our market competitors by the type of relationship we have with our customers and the quality of our services, which have added value for CEMIG GT. This strategy, together with a sales strategy that seeks to minimize exposure to short-term prices and contracts with a minimum demand on atake-or-pay basis, translates into lower risk and greater predictability of our results.

Raw Materials

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Fluvial water is the main raw material used by CEMIG for hydroelectrical generation of energy. As of December 31, 2018, 80 of CEMIG’s 88 plants use this source and provide 96.6% of our generation.

The cost of the water may be considered as nil, since water is a natural resource that comes from rivers and rain. In a smaller proportion, the Company also produces energy from wind (also with a nil cost) and in thermoelectric plants, burning fuel oil (the cost varies with the price of oil on the international market).

Environmental Matters

Overview

Our generation, transmission and distribution of energy and our distribution of natural gas are subject to federalfederal and statestate legislation relating to preservation of the environment. The Brazilian Constitution gives the Federal Government states, states and municipalitiesmunicipalities powers to enact laws designed to protect the environment and issue enabling regulations under these laws. Generally, while the Federal Government has the power to promulgate general environmental regulations, state governmentsstate governments have the power to enact specific and even more stringent environmental regulation and municipalitiesmunicipalities also have the power to enact laws in their local interest. As of the day of this annual report, we believe that we are in complianceWe have complied with the relevant environmental laws and regulations in all material aspects.

In accordance with our environmental policy, we have established various programs to prevent and minimize damage, aiming to limit our risks related to environmental issues.

Management of vegetation in the energy system

The Environmental Management Unit of CEMIG D, among other activities, develops methods and procedures for dealing with urban trees that are adjacent to the electric power system. Vegetation management is necessary due to the obligation to ensure the operational security of the system, and from the high number of interruptions in supply of energy caused by trees. In 2018,2020, trees were the cause of 32,967approximately 33,010 energy supply outages, in both urban and rural areas, and were the sixth largest cause of unscheduled outages in the Company’s distribution system.

Investments have been directed towards technical improvements in tree pruning, so that the process can take place in such a way as to reduce risks to the employee, the system or third parties. The interventions are carried out by directional pruning, a technique considered to be more appropriate for coexistence between large trees and energy distribution networks.

Through working partnerships between its own staff and external agents, CEMIG has been developing digital applications to improve management of the process of handling vegetation and to reduce supply outages in urban areas. CEMIG also has an initiativenew contracts to improve the handling of vegetation in power line pathways (its Integrated Vegetation Handling methodology) to reduce costs, improve the performance of the system and help improve environmental quality.

Environmental Licensing

The purpose of environmental licensing is to establish conditions, restrictions and environmental control measures that should be complied with by entities and individuals to install, expand and operate entities or activities that use environmental resources or have the potential to cause damage to the environment.

Brazilian law requires thatobtaining licenses be obtained for severalvarious activities, including construction, installation, expansion and operation of any facility that utilizesuses environmental resources, causes significant environmental degradation, or pollutespolluting degradation or has the potential to cause environmental degradation or pollution or to harm historical,historic, cultural and archaeological heritage.

Failure to obtain and comply with the requirements of an environmental license to construct, implement, operate, expand or enlarge an entity that causes environmental impact, such as the energy plants operated and in implementation by CEMIG, is subject to administrative sanctions, such as fines, suspension of operations, as well as criminal sanctions, such as fines and imprisonment for individuals and restriction of rights for legal entities.

We have projects licensed at both the federalfederal and statestate levels.

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Environmental Operating Licensing

Federal Law No. 9,605, enacted on February 12, 1998, stipulates penalties for facilities that operate without environmental licenses. In 1998, the Federal Government issued Provisional Act No. 1,710 (currently Provisional ActNo. 2,163-41/01), which allows project operators to enter into agreements with the relevant environmental regulators in order to comply with Federal Law No. 9,605/98. Accordingly, we have been negotiating with (i) IBAMA; and (ii) the Regional Environmental Management Units (“Suprams”(‘Suprams’), which is the environmental authority of the State of Minas Gerais to obtain the environmental operating licenses for all our plants and transmission lines that began operating prior to February 1986.

For the generation facilities located in the State of Minas Gerais, which are subject to the environmental licensing under statestate level, we have agreed withSupramand IBAMA to bring our facilities into compliance on a gradual basis.

For those facilities of CEMIG GT that started operations before February 1986, although we have not yet obtained an operating license, we have prepared the required environmental assessments, filed applications before the appropriate environmental bodies, and submitted them for analysis.

To manage compliance Under the applicable law, the Company is allowed to operate while awaiting the requisition appreciation. In order to comply with the conditional requirements,conditions, we useused the Environmental RequirementsNon-compliance Risk ReductionCondition Compliance Index (Índice de Redução do Risco de Não Cumprimento das Condicionantes Ambientais, or “IRDC”)– ‘ICC’.

In 2018, 192020, 9 licenses and authorizations for regularization of projects of CEMIG D were obtained, in the category of Authorizing Documents for Environmental Interventions (Documentos Autorizativos para Intervenção Ambiental, or “DAIAs”).Interventions. All the above projects have been regularized in theSuprams IEFs agencies (State Institute of Forests – Minas Gerais State Environmental Agencies) spread out over the State of Minas Gerais.

Distribution of natural gas by Gasmig through pipelines throughout Minas Gerais is also subject to environmental control. All licenses necessary for the regular operation of Gasmig’s activities have been issued byIn most cases the environmental authority of the State of Minas Gerais (Secretaria de Estado de Meio Ambiente e Desenvolvimento Sustentável(Secretary of State for Environment and Sustainable Development – SEMAD‘SEMAD’). has issued all licenses necessary for the regular operation of Gasmig’s activities.

Environmental licenses and authorizations issued by relevant municipal, statemunicipal, state and federalfederal bodies usually impose conditions relating to environmental impacts inherent to our activities, which must be complied with in order for the environmental licenses to remain valid. They have to be complied with as long as the license is in force. To this end, CEMIG is taking appropriate steps for full compliance, and to provide evidence of compliance to the relevant environmental authorities, in each case to avoid any subsequent administrative or criminal penalties, which can include fines, suspension of operations or revocation of licenses.

Environmental Legal Reserves

Under Article No. 12 of Federal Law No. 12,651, of May 25, 2012 (the new “Brazilian‘Brazilian Forest Code”Code’), a Legal Reserve (Reserva Legal) is an area located inside a rural property or holding that is necessary for the sustainable use of natural resources, conservation or rehabilitation of ecological processes, conservation of biodiversity or for shelter or protection of native fauna and flora. As a general rule,Generally, all owners of rural properties have to preserve an area as a Legal Reserve. However, Article 12, §7 of the new Brazilian Forest Code establishes that a Legal Reserve will not be required for areas acquired or expropriated by the holder of a concession, permission or authorization to exploit hydroelectricalhydroelectric power potential, in which projects for electric power generation, or energy substations or transmission or distribution lines are operating.

In Minas Gerais, State Law No. 20,922, enacted on October 16, 2013, made provisions in the Forest Policy and the Biodiversity Protection Policy in the state, adapting the environmental legislation to the provisions of the Forest Code. This had the effect of revoking the requirement for a Legal Reserve in the case of hydroelectricalhydroelectric generation projects, enabling the processes of the Corrective Environmental Licensing that had been held up in the previous year for this reason to be resumed. In the federal sphere, IBAMA’s technical licensing team, in the corrective licensing of CEMIG’s plants, expressed an opinion, in correspondence sent to us on July 29, 2008, stating that in CEMIG’s case there was no need for the constitution of Legal Reserves.

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The approval of the new Brazilian Forest Code and the exclusion of the hydropower projects from the need to register a Legal Reserve settled this issue allowing for the continuation of the process of the environmental licensing of the several projects of the company, with the acquisition of the pending operating licenses and the maintenance of its legal compliance.

Permanent Preservation Areas

The vegetation surrounding the reservoir is statutorilystatutorily classified as Permanent Preservation Area (Área dePreservação PermanenteAreas or “APPs”).APPs. The length of the APP varies depending on whether the reservoir is located in rural or urban areas. In rural areas, at least 30 meters should be preserved, while in urban areas, at least 15 meters should be preserved. Preservation of APPs is mandatory, being the intervention allowed in specific situations.

Lack of preservation of vegetation in APPs or unauthorized suppression of vegetation in APPs may lead to administrative sanctions, such as fines ranging from R$5,000 to R$50,000 per hectare, limited to R$50 million and criminal liability.

Law 12,651/12 regulates that the APPs of artificial reservoirs should be subject to a specific program created to regulate the use and conservation measures of the area surrounding the reservoir. Such program is called Environmental Plan for Use and Conservation of the Reservoir Surrounding Area ((Plano Ambiental de Conservação e Uso do Entorno do Reservatório or“PACUERA” ‘PACUERA’) and should be prepared according to the minimum requirements determined by the competent environmental authority in the environmental licensing proceeding.

With the new Forest Policy Law of Minas Gerais State, the requirement above was incorporated into state legislation and the preparation and approval of the PACUERA should to be in a condition for the grant of operating licenses.

We have now incorporated the performance of PACUERA into the proceedings for obtaining the operating licenses of the projects subject to environmental licensing on the state level. CEMIG GT prepared and filed applications before the environmental bodies relating to all the required environmental assessments, including PACUERA, in respect to all facilities using artificial reservoir as required by law.

Compensation Measures

According to Federal Law No. 9,985, enacted on July 18, 2000, and to Decree No. 4,340, enacted on August 22, 2002, companies whose activities result in major environmental impacts are required to invest in and maintain conservation units in order to mitigate those impacts. Conservation units are areas that are subject to special protection and include ecological stations, biological reserves, national parks and relevant ecological interest areas. The environmental authority that is competent to license the project stipulates the environmental compensation for each company depending on the specific degree of pollution or damage to the environment.

Federal Decree No. 6,848/2009, enacted on May 14, 2009, and Minas Gerais State Decree No. 45,175, enacted on September 17, 2009, regulate the methodology for deciding these compensation measures, requiring that up to 0.5% of the total amount invested in the implementation of a project that causes significant environmental impact must be applied in compensation measures.

State Decree No. 45,175/2009 was amended by Decree No. 45,629/2011, which established the reference value of projects that cause significant environmental impact, as follows:

•

For projects executed before the publication of Federal Law No. 9,985, enacted in 2000, the net book valueFor projects executed before the publication of Federal Law No. 9,985, enacted in 2000, the net book value (Valor Contábil Líquido or“VCL”Valor Contábil Líquido or ‘VCL’) will be used, excluding revaluations or, in its absence, the value of the investment made to the project; and

Compensation for environmental projects executed after the publication of Federal Law No. 9,985, enacted in 2000, will use the reference established in Item IV of Article 1 of Decree No. 45,175, enacted in 2009, calculated at the time of execution of the project, and updated based on an inflation-linked adjustment index.

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Due to the impact of the 2013 Energy Concessions Law (Law No. 12,783, enacted on January 11, 2013) on the business of CEMIG GT, the Company filed a consultation with the Minas Gerais State Forests Institute (Instituto Estadual de Florestas, or “IEF”),IEF, to be informed about the environmental compensation payable in relation to the Transmission System. The IEF submitted the inquiry to the Federal General Attorneys’ Office (Advocacia Geral da União, or “AGU”‘AGU’). As of the date of this annual report, the Company has not received a reply to this consultation.

In addition to the environmental compensation referred to above, forest compensations for cleaning of energy tower paths and accesses in which vegetation has been suppressed are routine.

Other environmental requirements can become applicable due to the impacts of various projects; such requirements could include the structuring and operation of programs to monitor fauna and flora of regions surrounding facilities of the energy system, environmental education programs, and programs for recovery of degraded areas (Programas de Recuperação de Áreas Degradadas, or “PRADs”‘PRADs’).

Fish Management –The Peixe Vivo Program

Construction of hydroelectricalhydroelectric plants canmay create a risk for fish that inhabit rivers, due to various changes in the aquatic environment caused by the useoperation of dams.plants. One of our environmental area’s principalthe main activities of CEMIG’s Environmental Management Department is to ensure thatprevent and mitigate environmental accidents involving the native fish population do not take place at our hydroelectricalits hydroelectric power plants. Further, to mitigate the impacts caused by the operation of our plants, CEMIG has developed a methodology for evaluating the risk of fish mortality at the plants to mitigate the impacts caused by the operation of its plants. WeThe company also carrycarries out research projects in partnership with universities and research centers to develop scientific knowledge to serve as a basis for more effective fish population conservation programs to be implemented by CEMIG.

In June 2007, we created theFish Alive (“Peixe Vivo” Program (‘Programa Peixe Vivo’) program as a result of members of senior management believing that it was necessary to take more effective measures to preserve fish populations of the rivers where the company has operations. The program’s main activities are summed up in its mission, which is: “To‘To minimize the impact on fish species, seeking handling solutions and technologies that will integrate energy generation by CEMIG with conservation of native fish species, promoting involvement of the community”community’. Since its creation, the program has been operating on two fronts – one seeking preservation of fish populations in the State of Minas Gerais, and the other focusing on forming protection strategies to avoid and prevent fish deaths at CEMIG’s hydroelectricalhydroelectric plants. The adoption of scientific criteria for decision-making, establishment of partnerships with other institutions and modification of practices adopted as a resultbecause of the information generated are the principles that guide the work of the Peixe Vivo team.

Since 2018, the members of Peixe Vivo Program develop the fish death risk assessment program (Programa de Avaliação do Risco de Morte de Peixes – ‘PARMP´) aiming to mitigate potential risks related to maintenance and operation of hydroelectric plants. Fish fauna monitoring executed periodically and before operational procedures of plants is the main action of Peixe Vivo Program team to reach the goal of PARMP. Biologists evaluate fish density and environmental conditions based on monitoring data. The PARMP has been developed and validated during two consecutive research projects and is now implemented as a continually optimizing program of the Company. So far, a 77.7% reduction of mean monthly fish biomass impacted by operation of plants has been observed since the beginning of PARMP.

On average, over the period 2007 to 20182020 CEMIG spent R$6.06 million per year in activities and research projects in relation to thePeixe Vivo program. We invested a further R$6.6 million in physical barriers to prevent fish from entering the draft tube at Três Marias Hydroelectrical Power Plant.

ThePeixe Vivo program runs five scientific projects in partnership with research institutions, involving more than 3264 students and researchers.

These partnerships, which have been operating since 2007, have resulted in more than 364656 technical publications up to today’s date, and have also been referenced nationally and internationally for the practices of fish conservation and dialog with the community, presenting CEMIG’s work in several countries, and various states of Brazil. These academic results, jointly with the involvement of the community, have been used to create more efficient and practical conservation programs that make it possible for fish to coexist with generation plants in Brazilian rivers.

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Urban Occupation of Rights of Way and Reservoir Banks

Gas Pipelines — GASMIG’sGasmig’s natural gas distribution networks are underground and runand run through rural and urban areas. Pipes are usually installed on public roads near pluvial drainage, sanitation, energy and telecommunications, among other utilities. Installation of the networks in the urban subsoil presents risks of damage to the pipelines from third party maintenance workers. However, all of our gas networks are flagged according to national standards and internal procedures. In addition to security signaling, the presence of the GASMIG network in roads, streets and other areas is shown on the Company’sCompany’s website, where the network map is made available in a complete andup-to-date manner. Gasmig provides free on- site guidance services for third parties excavations through its Dig Safely (“(‘Escave com Segurança”’) program. Guidance and support for safe execution of their work can be requested through Gasmig’s24-hour helpline.

GASMIGGasmig also has network inspection plans, in order to verify the security conditions of the system and prevent illegal intrusions, constructions or erosions nearby the pipelines.

In 2018, due to the effectiveness of the preventive actions2019, mitigation measurements adopted by GASMIG therereduced third parties’ damages flaws comparing prior numbers. The efficiency of third parties’ damages prevention was about 99.5%, considering the total number of interventions executed near the pipelines. The loss of natural gas was reduced because of the low pressure used on damages ducts and because of the short time response to leak containment. In collaboration to shorten the response of incidents, safe zones (blockades) were created, making the attendance more effective. Gasmig also implemented a very low frequencyManagement Plan of damage caused by third parties. Losses were reduced duethe Integrity of Metallic Gas Pipeline. From that plan, appropriate techniques are being used to low operating pressurea direct assessment threats to external and internal corrosion of any damaged nets and short response times forgas pipelines. In parallel, Gasmig is preparing to perform the containmentinternal inspection via PIGs electronics from Linha Tronco Vale do Aço, one of leaks.the main gas pipelines of the Company.

Transmission LinesIrregular occupation of high-voltage overhead lines — We– we have easements for our transmission and distribution networks over land with approximately 26,966 Km in length.subject to restrictions. A significant portion of such land isareas, however, has been occupied by unauthorized construction, includingmajority residential constructions. This type of activity causes risks of electric shock and accidents involving local residents, and constitutes an obstacle to the maintenance and operation of our energy system. We are currently seeking solutions for these problems, which will involve either removalresettlement of these occupants or improvements that would make it possible to maintain our energy system safely and efficiently.

The Committee for the Equation and Prevention of Human Occupation under Transmission and Distribution Lines was created toTo mitigate these risks, bywe have been monitoring and recording invasions and by taking action to prevent invasions on the paths of the transmission and subtransmissionsub transmission lines. A number of measures have been adopted to preserve the security of these lines, including: contracting of a company for systematic inspection, and implementation of security measures and works to minimize the risks of accidents; education of communities about the risks of accidents involving electric shocks arising from the invasion of sites and the building of homes; creation of community vegetable gardens; and removal of occupation of the transmission line pathways through agreements with local residents and other authorities, and/or through court actions.partnerships with the municipalities in our concession area.

Reservoir AreasIrregular occupation in Generation assets — We have implemented safety– security measures are adopted to protect our energypower generation facilities against invasions, using observation posts and mobile patrols to control the banks of reservoirs. Electronic security systems to monitor the generation power plant installations are also planned. Any invadersinvasions. Invaders found inside the facility are included by the surveillance team and removed from the site, which occurs without resistance or violence.

The plants are marked with fences and warning signs, indicating that the property is private, that hunting, fishing and swimming are prohibited on site.

In order to optimize security at the plants, the implementation of electronic security systems is planned.

In the risk areas of hydroelectric generation facilities, are detained and taken to police stations, where police complaints are filed. Therethere are signs indicating ownership of the prohibition on fishing and swimming, due to the possibility of a sudden rise in the water level causing fatal accidents. The use of nautical signaling buoys close to large dams indicates a safe area and prohibits the entry of vessels.

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The Company maintains a team to carry out periodic inspections in its areas, advising the community on the banksprohibition of construction and removal of irregular occupants, before the reservoirs of our hydroelectrical generation facilities, indicating ownership. Periodic inspections by the mobile patrol units operating on the reservoir areas report any invaders of reservoir banks. We frequently have to takecompany takes legal action for repossession.

The Company is implementing in its inspection methodology the use of satellite images to recover possession of invaded areas. Due to the vast area and number of reservoirs, we are continually subject to new trespasses and occupation of the banks of the reservoirs by unauthorized construction. However, we are making our best efforts to prevent these invasions, and prevent any environmental damage to APPs, around the reservoirs. To patrol the reservoir areas, during 2018 we drove approximately 166,622 Km in vehicles, spent 722 hours navigating on reservoirs and waterways and made over 7,853 surveys. We have recently added more inspection posts for monitoring reservoir banks, since São Simão, Volta Grande, Jaguara e Miranda plants ceased to be part of CEMIG’s operations.identify irregular occupations.

The Carbon Market—

We believe that Brazil has a significant potential to generate carbon credits from clean energy projects that observe the Clean Development Mechanism, or “CDM”‘CDM’, or the Voluntary Markets. Every year, we seek to quantify our emissions and publish our main initiatives in reducing the emission of carbon dioxide, for example through the Carbon Emission Project.

The CEMIG Group participates in CDM projects registered in the United Nations Framework Convention on Climate Change (UNFCCC), which includes seven SHPs with a capacity of 116 MW and two hydroelectricalhydroelectric power plants with a combined generation capacity of 3,708 MW and a solar power plant with capacity of 3 MW. The process of verification and emission of part of the carbon credits of Cachoeirão SHP and UHEs Baguari and Santo Antônio has been completed, corresponding to approximately 1,402 tons of CO2 emissions avoided through this program.

Management of equipment and waste contaminated with Polychlorinated Biphenyls, or “PCBs” — ‘PCBs’

Brazil has signed and ratified the Stockholm Convention (‘SC’) that includes goals related to the management of PCBs within electrical equipment. Brazil has prohibited the production, import and sale of PCBs since 1981 and it has been making efforts towards the goals of the SC.

At CEMIG, mostalmost all of the large equipment contaminated with PCBs wasPCB were removed from the electrical system and sent for incineration in 2002. Since then, the remaining mass of PCB identified has been progressively eliminated. Brazilian legislation prohibits the sale of PCBs since 1981, but permits their use in equipment that is still in operation.incineration. The Stockholm Convention (EC), which Brazil is a signatory and has been ratified by Decree No. 5472/2005, provides for the withdrawal of operation offew large equipment contaminated with PCBs until 2025 and its final disposal by 2028.

Two proposals for managementPCB still under operation are going to be properly disposed of PCBs are atwithin the preparation stage: Draft Law No.1075/2011, and Conama SubmissionNo. 02000.001745/2012-63. Some provisions in the text of both these proposed regulations have demands that go beyond the requirementsdeadlines of the Stockholm Convention and the practices adopted in several developed countries. Thus, depending on what regulations are approved, management of PCBs could have an effect on the concession contract, and a technical and economic effect on CEMIG and all concession holders in the Brazilian power industry, especially the distributors.SC.

CEMIG participates activelyhas been maintaining its historical good practices in the discussion on these regulations through the Brazilian Energy Distributors’ Association, and the Power Industry Environment Forum.order to avoid further contamination.

Operational Technologies – CEMIG

We continue to investCEMIG invests in automated monitoring and control equipment, in connection with ourthe strategy of increasing efficiency and further modernizing and automating ourthe generation, distribution and transmission grids. CEMIG has developedkeeps developing and completed a project to migrate its main data center to a company specialized in providing services of this nature,implementing new systems, with the purpose of optimizing its internal activities and increasing the availability of its infrastructure and applications that support CEMIG’s business.

Load Dispatch Center

CEMIG’s System Operation Center (Centro de Operação do Sistema, or “COS”‘COS’), located at ourthe head office in Belo Horizonte, is the nerve center of ourthe transmission and generation operations. With twoa modern control rooms,room, it coordinates the operations of ourthe entire energy system, in realReal time, providing operational integration of the generation and transmission of energy.power. It also operates the interconnectioninterconnections with other generation, transmission and distribution companies. The supervision and control executed by the COS now extends to more than 50 high and51 extra high voltage substations, more than 16 major generating power plants, 14 SHPs, one thermal15 minor generating power plantplants and one1 wind farm.

Through its activities, the COS permanently guarantees the security, continuity and quality of ourthe energy supply of energy.to its clients and to the system. The activities of the COS are supported byup-to-date telecommunications, automation and information technology resources, and executed by highly qualified personnel. The COS has a Quality Management System, with ISO 9001:2015 certification.

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Distribution Operation Center

Our distribution network is managed by a Distribution Operation Center (Centro de Operações de Distribuição, or “COD”‘COD’), located in Belo Horizonte. The COD monitors and coordinates our distribution network operations in realReal time. The COD isThey are responsible for the supervision and control of 405414 distribution substations, 322,531328,252 miles of medium and low voltage distribution lines, and 10,83110,835 miles ofsub-transmission lines and 8.378.71 million customers and operates in 774 municipalities of Minas Gerais.

We provided an average of 14,76915,158 operating services in the field a day in 2018. The COD is certified according to ISO Quality Standard 9001:2000.2020. There are various systems in use to automate and support the COD’s processes, including:including trouble call, field crew management, distribution substation supervision and control, restoration of power, emergency switching, network disconnection, and inspection. Technologies, including a geographic information systemGeographic Information System and satellite data communication helplineSatellite Data Communication Helpline, to reduce customer service restoration time and provide better customer service. These are devices, installed along our distribution network, that sense and interrupt fault currents, and automatically restore service after momentary outages, improving operational performance and reducing restoration time and costs.

Geoscience Information System

The Atlantis Project aims at modernizing and unifying CEMIG’s system of geoprocessing of distribution lines and Networks.networks. The new system enables management of resources with a geospatial vision, allows the planning of expansions, records electrical equipment to the analysis of electrical networks, and also assists in compliance with ANEEL’s normative resolutions.

The GIS (GeographicGeographic Information System)System (‘GIS’) will enable us to give support to the processes of registry and design, as well as supporting the following corporate processes: network expansion and maintenance, protection of revenues, planning and supplies, property services and management of assets through full integration with the ERP (EnterpriseEnterprise Resource Planning)Planning (‘ERP’) system, besides supporting the operation. operations.

Additionally, it provides support to engineering through integration with the electrical and mechanical calculations system that offers network analysis and suitable network sizing. The Atlantis project began in 2015 and part of the solution was deployed in August 2017. The remaining deployment steps will be concludedSince this time, the system is used by CEMIG's high, medium and low voltage asset registration teams.

In 2019, we´ve implemented the reconciliation of the grid registration units with the elements registered in February 2020.SAP/ERP, the consultation module and the electrical calculation module.

In 2020 the system was fully deployed.

There are another IT solutions based in GIS technologies, such as, geographic panels with data available in tabular and map views, automation panels for distribution's operations, system to management, inspection and security of dams and integrations to permit access to simple map views.

Internal Telecommunications Network

CEMIG’s telecommunications network is composed of high performancehigh-performance microwave links provided by more than 376 communication stations, and an optical system of approximately 1,0381,161 miles of optical fiber providing a mix of telecommunications. Our robust data network also contains communications facilities that share the site with more than 418 substations, 44 generation44-generation plants and 172 high and extra high-voltagehigh voltage transmission and distribution lines.

The solutions provided range from corporate telephonic and corporate networks to mission critical telecommunications grid dedicated to monitoring, protection and control of generation plants, substations, transmission and distribution lines, dispatching of field crews to carry out technical and commercial services, lightning and storm prediction and hydro meteorological system to operate reservoirs.

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In order to support supervision and control of the medium-voltage mission critical distribution system, a proprietary radio communication system is in place, installed in approximately 7001,023 reclosers and 77 automated switches. Other 8,72012,087 reclosers are monitored and controlled utilizing third part solution,solution; begin 8,57011,187 supported by cellular solution and 150910 by satellite media.

Commercial and technical service dispatch are supported by 1,200 vehicle mobile terminals connected by a hybrid satellite and Cellular Solution and 400 handhelds equipped with cellular solution.

Approximately 15,00039,118 energy meters are equipped with cellular solution and dedicated to revenue protection. Additionally, more than 5,000 meters utilizing RF Mesh and PLC solution are installed in low voltage customers and medium voltage transformers at Sete Lagoas region constituting a completeproof-of-concept of Advanced Metering Infrastructure – AMI.(‘AMI’).

The corporate data network serves more than 230 offices and units within the concession area.

The Telecommunications Network Operation monitors and operates the infrastructure 24 hours x 7 days a week to guarantee continuity and reliability, according to Brazilian regulations and in compliance with ANEEL regulations, National Grid Operator – ONS(‘ONS’) operational procedures and other specific regulations.

Corporate Data Network

Our corporate data network services 377 units in 275 cities of Minas Gerais linked by an infrastructure, which includes microwave links, optical fibers and metal cables, owned either by ourselves or by contracted operators. The architecture is in line with market standards, usingstate-of-the-art equipment, which is monitored, operated and managed using the latest technological solutions.

The physical and logical network topologies employ security resources such as firewalls, intrusion prevention system (IPS), access control, antivirus and antispam systems, which are continuously updated to protect against unauthorized access, in accordance with ISO 27002. A security information and event management system (SIEM) makes it possible to investigate adverse events, while also providing a historical record base to meet legal requirements.

The Network and Security Operations Center,Centers (‘NOC’ and ‘SOC’), at the Company’s head office, in Belo Horizonte, monitors, operates and manages the whole network and security infrastructure in realReal time (24 hours per day, x 7 days a week), maintaining confidentiality, integrity and availability of the data throughout the whole network.

Information Security Management

Information security, a permanent concern of ours, is ensured by a management system based on the Brazilian Standard (‘ABNT’) NBR ISO/IEC 27001:2013, which is aligned with best market practices. Our information security management system includes processes for policy, risk, communication, information classification and information security management and control. In addition, recurring actions for improvement in processes, communication, awareness and training strengthen our information security practices.

CEMIG maintains an ongoing safety awareness program for its employees through annual campaigns.

IT Governance Program

Our Information & Technology Governance Program aims to continually align ITprogram seeks alignment with ourthe business, adding value by applying information technology,through the application of the appropriate resource management risk managementof resources and risks, constantly monitoring performance and compliance, withensuring adherence to legal, regulatory and Sarbanes-Oxley requirements.

compliance requirements that are continuously audited. In order to meet the companyexecute corporate strategy and objectives, the Company usescompany aligns interests and goals with control objectives and with governance and management processes, translating business opportunities and needs into results with compliance and within the Balanced Scored Card methodology. The strategicappropriate levels of risk. To support this governance

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program and ensure that the strategy is implemented, the processes employed by the IT department are directly related to the control objectives and are deployed inbased on IT contribution goals. This enable IT alignment with business needs.service management (‘ITIL’) best practices.

The IT processes

Commercial Management System

We have established and services are structured and monitored using a Itil methodology. This monitoring allows to handle deviations and ensures continuous process improvement.

The company has a risk and controls managementconsolidated an efficient customer service system, based on Cobit 5SAP CCS (‘Customer Care Solution’)/ CRM (‘Customer Relationship Management’) platform, fully integrated with the Business Intelligence (‘BI’) database, which supports our customer service processes.

The employees use CCS/CRM to meetmanage and serve approximately 9 million customers who receive high, medium and low voltage energy supply. Both corporate tools offer security, quality and productivity to our processes of energy distribution with efficiency in accordance with the requirementsregulatory and Market requirements.

In 2019, we configured a new solution based in Salesforce software to improve the efficiency and reliability of energy trading and trading actions related for the use of distribution system assets. We aim improvements in controls over energy sales processes, greater traceability of information, management of customer portfolios with mapping of new opportunities, use of mobile devices such as tablets and smartphones and greater agility for customer billing.

The Salesforce solution was increased by the deployment of a portal accessed by specific customers. This portal offers an interface so that customers can make their requests and claims regarding energy quality.

During 2020, due to the emergencies caused by the Covid-19 pandemic, we implemented several adjustments focusing the automation and availability of our customer system and offering services by the internet and mobile app.

Management Tools

In 2019, we started a project to install new IT products to improve engineering processes, based on the Cyme Platform (‘CYME’), provided by Cooper Power Systems.

The CYME platform is an expert system that includes complex electrical calculations for the planning and study of distribution networks. In the case of CEMIG, which has an extensive and integrated distribution network and a significant level of complexity, the activities for implementing the technology solution are even more challenging and demanding, requiring considerable effort to complete the steps.

The project continued in 2020, although affected by pandemic. Interfaces and integrations were developed and customized to connect to Geographic Information System (‘GIS’) GE Smallworld, Outage Management System (‘OMS’) application, Advanced Metering Infrastructure (‘AMI’) and other systems. The CymDIS application that performs electric calculations based on our electric network was also delivered.

New mobile solution for collection of readings and simultaneous printing of invoices in the field: Since August 2020, we have readers using the new application "SGL Collector" (SGL is a reading management system) on smartphones. The new solution provides benefits of an application with a more intuitive graphical interface that makes it easy for the reader to learn and perform activities, associated with handling smaller, lighter equipment and with lower costs compared to the PDAs previously used. The installation and updating of versions of the Sarbanes Oxley Act. This systemapplication on the readers' smartphones is evaluated annuallydone remotely and centrally, through a UEM (‘Unified Endpoint Management’) platform that guarantees all the security and integrity of the equipment and applications used by the internal audit and independent external auditors.field teams in the execution of the activities throughout CEMIG's concession area.

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Customer Relationship Channels

We have nine major channels of service to our Minas Gerais customers. Customer service contact, whether of an emergency nature or to deal with, service requests, can be made via: (i) our call center, which can handle up to 294,000an average of 40,000 daily calls, and also operates with an efficient electronic service through Interactive Voice Response (“IVR”(‘IVR’, orUnidade de Resposta Audível); (ii) in person at branches in the 774 municipalities of our concession; (iii) through our Virtual Branch, on our website, which offers 2646 types of service; (iv) via SMS; (v) via the social networks Facebook, WhatsappWhatsApp and Twitter; (vi) smartphone application “CEMIG Atende” ‘CEMIG Atende’ which offers 187 types of service and Telegram Messenger application which offers 512 types of services.

Commercial Management System

We have established and consolidated an efficient customer service system, based on SAP CCS (Customer Care Solution)/ CRM (Customer Relationship Management) platform, fully integrated with the Business Intelligence (BI) database, which supports our customer service processes.

The employees use CCS/CRM to manage and serve approximately 9 million customers who receive high, medium and low voltage energy supply.

Both corporate tools offer security, quality and productivity to our business process and delivery with efficiency in accordance with the regulatory and market requirements.

CEMIG creates a database which brings all the information of customers, with their requirements in order to manage and follow up the services.

Making possible the CEMIG’s team to identify and drive its customers according to their needs and also to manage marketing campaigns.

Providing personalized relationship with customers, improving their satisfaction.

Supply the employees with information and processes in order to better know about the customers, understand their needs and establish effective relationships between the company and the customers.

Maintenance and Repair Systems

The 10,83110,835 miles of high voltage distribution lines in CEMIG D’s network, operating at from 34.5kV34.5 kV to 161kV,230 kV, are supported by approximately 53,151 structures, mainly made of metal.

The network of CEMIG GT has 3,0643,062 miles of high voltage transmission lines, operating at from 230kV230 kV to 500kV,500 kV, supported by approximately 11,754 structures.

The majority of the service interruptions to our distribution and transmission lines are the result of lightning, farm surface fires, vandalism, wind, and corrosion.

The entire high voltage transmission line system of CEMIG D is inspected once a year by helicopter, using a ‘Gimbal’ gyro-stabilized system with conventional andinfra-red infrared cameras, allowing for simultaneous visual and thermographic(infra-red) (infrared) inspections. Land-based inspections are also made at intervals of between one and three years, depending on the characteristics of the line, such as time in operation, number of outages, type of structure, and the line’s importance to the energy system as a whole.

All the extra high voltage transmission lines of CEMIG GT are inspected twice a year by helicopter. Land-based inspections are made every two years to inspect the supporting structures. Line pathways are inspected annually, aiming to keep the areas free of vegetation that could lead to surface fires.

We use modern modular aluminum structures to minimize the impact of emergencies involving fallen structures. Most of our maintenance work on transmission lines is done using live-wire methods. We have a well-trained staff and special vehicles and tools to support live- and dead-wire work. In 2015, CEMIG GT acquired 37 extra structures to be used in case of emergency. CEMIG has a well-trained and equipped team to provide support whenever necessary.

Our set of spare equipment (transformers, breakers, arresters, etc.) and mobile substations isare of great importance in prompt reestablishment of power to our customers in the event of emergencies involving failed substations.

Information Security Management

Information security, a permanent concern of ours, is ensured by a management system based on the Brazilian Standard (“ABNT”) NBR ISO/IEC 27001:2013, which is aligned with best market practices. Our information security management system includes processes for policy, risk, communication, information classification and information security management and control. In addition, recurring actions for improvement in processes, communication, awareness and training strengthen our information security practices.

CEMIG maintains an ongoing safety awareness program for its employees through annual campaigns. This year, we conducted a training using aE-learning, in which 2500 employees were trained.

Management Tools

The SAP GRC (Software Solutions for Governance, Risk & Compliance) solution controls our processes, with a focus on meeting requirements of internal audit activities. The GRC Process Control module enables to perform continuous controls monitoring using automated workflows to effectively manage compliance activities. Some of the critical IT controls are being automated with this module. The user access management, role management and segregation of duties (SoD) risks review processes have also been improved with Access Control module.

Property, Plant, and Equipment and Intangible Assets

Our main assets are our power generation plants, transmission and distribution infrastructure described on Item 4.infrastructure. Our net book value of total property, plant and equipment and intangible assets, including our investment in certain consortiaconsortium that operate energy generation projects, including projects under construction, was R$13,43914,217 million on December 31, 2018.2020.

Generation facilities represented 21.26%16.93% of this net book value, intangible assets represented 80.19%83.07%, of this net book value, (distributiondistribution facilities in intangible assets represented 82.49%77.96%, and other intangible, including our gas distribution system represented 15.62%15.35% and other miscellaneous property and equipment, including transmission and telecommunication facilities, represented 1.89%6.69%.

The average annual depreciation rates applied to these facilities were: 3.61%2.96% for hydroelectricalhydroelectric generation facilities, 8.42%6.19% for administration facilities, and 4.59%4.94% for thermoelectricwind facilities.

Apart from our distribution and generation network, no single one of our assets produced more than 10% of our total revenues in 2018.2020. Our infrastructure is adequate for our present needs and suitable for their intended purposes. We have rights of way for our distribution lines, which are our assets and do not revert to the landowner upon expiration of our concessions.

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The Brazilian PowerEnergy Industry

General

In the Brazilian energy sector, generation, transmission and distribution activities were traditionally conducted by a small number of companies that had always been owned by either the Federal Government or the governments of individual states. Since the 1990s, several state-controlled companies were privatized, in an effort to increase efficiency and competition. The Fernando Henrique Cardoso administration (1995–(1995 – 2002) aimed to privatize the state-controlled part of the energy sector, but the Luis Inácio Lula da Silva administration (2003–(2003 – 2010) ended this process and implemented a “New‘New Industry Model”Model’ for the Brazilian energy sector, expressed in Law No. 10,848, enacted on March 15, 2004, referred to as the “New‘New Industry Model Law”Law’.

Significant changes were implemented during Dilma Rousseff’s administration (i.e. from 2011 through(2011 – 2016), by means of Provisional Act No. 579/12, converted into Law No. 12,783/13, establishing new rules for renewal of concessions, including rebidding for hydroelectric power generation concessions.

Subsequently, under the administration of Michel Temer (2016–2018), other changes were introduced in the sector by Provisional Act 735/16, enacted as Law No. 13,360/16, including a change of the bidding rules for energy generation, transmission and distribution concessions as well as addressing the renegotiation of hydrological risk. AlsoIn addition, in 2017, a series of public consultations, which discussed proposals for modernization, and expansion of the Free Market in electric power supply with the industry (Public Consultation No. 33) began.

During the first year under Jair Bolsonaro (2019 – present), the government proceeded with the studies proposed by public consultation n. 33, holding several workshops and meetings with agents to study the following topics: separation of energy contracts into capacity and energy contracts, pricing, definition of price limits and reduction of the spot price time base.

Main Regulatory Authorities

National Energy Policy Council – CNPE

In August 1997, the CNPE was created to advise the Brazilian president regarding the development and creation of the national energy policy. CNPE is presided over by the MME, and the majority of its members are officials of the Federal Government. CNPE was created to optimize the use of Brazil’s energy resources and to assure the supply of energy to the country.

Ministry of Mines and Energy – MME

The MME is the Brazilian Federal Government’s primary regulator of the power industry. Following the adoption of the New Industry Model Law, the Brazilian Federal Government, acting primarily through the MME, undertook certain duties that were previously under the responsibility of ANEEL, including the drafting of guidelines governing the granting of concessions and the issuance of directives governing the bidding process for concessions related to public services and public assets.

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National Electric Energy Agency – ANEEL

The Brazilian power industry is regulated by ANEEL, an independent federal regulatory agency. After enactment of the New Industry Model Law, ANEEL’s primary responsibility is to regulate and supervise the power industry in line with the policy issued by MME and to respond to matters which are delegated to it by the Brazilian Federal Government.

National System Operator – ONS

The ONS was created in 1998 as a non-profit private entity comprising free customers, energy utilities engaged in the generation, transmission and distribution of energy, and other private participants such as importers and exporters. The New Industry Model Law granted the Brazilian Federal Government the power to appoint three directors of the ONS, including the Director-general. The primary role of the ONS is to coordinate and control the generation and transmission operations in the interconnected power system, subject to ANEEL’s regulation and supervision.

Brazilian Electric Power Trading Chamber– CCEE

One of the main roles of the CCEE is to run public auctions in the regulated market, including the auction of existing energy and new energy. Additionally, the CCEE is responsible, among other things, for: (1) registering all the power purchase agreements within the Regulated Market (CCEARs), and the agreements within the Free Market, and (2) accounting for and settling short-term transactions.

Under the New Industry Model Law, the price of energy in the spot market, known as the Differences Settlement Price (Preço de Liquidação de Diferenças, or ‘PLD’), takes into account factors similar to the ones used to determine the Wholesale Energy Market spot prices prior to the New Industry Model Law. Among these factors, the variation of the PLD will mainly vary according to the balance between the market supply and demand for energy, as well as the impact that any variation on this balance may have on the optimal use of the energy generation resources by the ONS.

The members of the CCEE are generators, distributors, trading agents and free customers, and its board of directors comprises four members appointed by these agents and one appointed by the MME, who is the chairperson of the board of directors.

Energy Research Company – EPE

The Brazilian Federal Government created EPE by a decree enacted on August 16, 2004. It is a state-owned company, responsible for carrying out strategic research on the energy industry – including energy, oil, gas, coal and renewable energy sources. EPE is responsible for: (i) studying projections for the Brazilian energy matrix; (ii) preparing and publishing the national energy balance; (iii) identifying and quantifying energy resources; and (iv) obtaining the required environmental licenses for new generation concessionaires. EPE’s research supports the MME in its policymaking role in the domestic energy industry. EPE is also responsible for approving the technical qualification of new energy projects to be included in the related auctions.

Energy Sector Monitoring Committee – CMSE

Decree No. 5,175 enacted on August 9, 2004, established the Energy Sector Monitoring Committee, or CMSE, which acts under the direction of the MME. The CMSE is responsible for monitoring and permanently evaluating the continuity and security of energy supply conditions and for indicating necessary steps to correct identified problems.

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Permanent Commission for Analysis of Methodologies and Computation Programs of the Electric Sector – CPAMP

Ordinance No. 47, enacted on February 19, 2008, created the Permanent Committee for Analysis of Methodologies and Computation Programs of the Electric Sector (‘CPAMP’), with the purpose of guaranteeing coherence and integration of the methodologies and computational programs used by MME, EPE, ONS and CCEE.

Ownership Limitations

On November 10, 2009, ANEEL issued Resolution No. 378, requiring it to notify the Economic Law Secretariat of the Ministry of Justice (‘SDE’) if it identifies any act that may cause unfair competition or may result in significant market control (under Article 54 of Law 8,884 enacted on June 11, 1994). After the notification, SDE must inform CADE. On November 30, 2011, Law No. 8,884 was revoked and replaced by Law No. 12,529, which terminated the SDE and replaced it with the Competition General Management Unit (‘Superintendência Geral’). Such unit, if necessary, will require ANEEL to analyze any such events, upon which CADE will decide if there should be any sanctions applied. Under Articles 37 and 45 of Law No. 12,529, these may vary from pecuniary penalties to dissolution or other disposition of the offending company.

The New Industry Model

The primary objective of the New Industry Model was to guarantee security of supply and reasonableness of rates. With the objectiveIn terms of ensuring security of supply, the New Industry Model Law (a) requires distributors to contract their entire energy production, and to be responsible for making realistic projections of demand requirements; and (b) aims to arrange for the construction of new hydroelectric and thermal plants to be decided in ways that best balance security of supply and reasonableness of rates. To achieve reasonable rates, the New Industry Model Law requires that all purchases of energy by distributors to be by auction, based on lowest price criteria, and that contracting be carried out through the Regulated Market. Auctions are categorized into two types: (i) auctions for supply from new plants, aimed at expansion of the system; and (ii) auctions for power generated by existing plants, aiming to meet existing demand.

The New Industry Model created two environments for the purchase and sale of energy: (i) the Regulated Market, in which distribution companiesdistributors purchase through public auctions all of the power they need to supply their customers; and (ii) the Free Market, to include all purchases of energy bynon-regulated entities, such as free customers and trading companies. Distributors are allowed to operate only in the Regulated Market, whereas generators may operate in both, maintaining their competitive characteristics.

Requirements for expansion of the sector are evaluated by the Federal Government through the MME. Two entities were created to provide structure for the sector: (i) the Energy Research Company (Empresa de Pesquisa Energética or “EPE”‘EPE’), a state-controlled company responsible for planning expansion of generation and transmission; and (ii) CCEE, a private entity responsible for the accounting and settlement of short-term (spot) energy transactions. CCEE is also responsible, through delegation by ANEEL, for organizing and conducting Regulated Market public power auctions, in which the distributors purchase energy.

The New Industry Model eliminated self-dealing, forcing distributors to purchase energy at the lowest available price rather than from related parties. The New Industry Model exempted contracts executed prior to the enactment of the law, in order to provide regulatory stability to transactions carried out before it was enacted.

Several categories of power supply are not subject to the requirement for public auction via the Regulated Market: (1) certain low capacity generation projects located near consumption points (such as certainco-generation plants and SHPs); (2) plants qualified under the PROINFA program; (3) power from Itaipu and, as from January 1, 2013, from Angra I and II;II; (4) power purchase agreements entered into before the New Industry Model Law; and (5) concessions extended by Law No. 12,783. The rates at which the energy generated by Itaipu is traded are denominated in U.S. dollars and established by ANEEL pursuant to a treaty between Brazil and Paraguay, and there are also compulsory procurement volumes. As a consequence,Consequently, the price of energy from Itaipu rises or falls according to the U.S. Dollar/realReal exchange rate. Changes in the price of Itaipu-generatedItaipu-generated energy are, however, neutralized by the Brazilian Federal Government, which buys all the energy credits from Eletrobrás.

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The New Industry Model Law is currently being challenged on constitutional grounds before the Brazilian Federal Supreme Court. The Brazilian Federal Government moved to dismiss the actions, arguing that the constitutional challenges were moot because they relate to a provisional act that had already been converted into law. To date, the Brazilian Supreme Court has not reached a final decision upon the merits of this action and we do not know when such a decision may be reached. Thus, the New Industry Model Law is currently in force. Regardless of the Supreme Court’s final decision, certain portions of the New Industry Model Law related to restrictions on distributors performing activities unrelated to the distribution of energy, including sale of energy by distributors to free customers and the elimination of agreements between related parties, are expected to remain in full force and effect.

Coexistence of Two Energy Trading Environments

Under the New Industry Model Law, energy purchase and sale transactions are carried out in two different market segments: (1) the Regulated Market, in which distribution companiesdistributors buy all their power supply needs through public bids; and (2) the free market,Free Market, for all purchases of energy bynon-regulated entities such as free customers, energy traders and energy importers.

The Regulated Market

In the Regulated Market, distribution companiesdistributors purchase energy for their regulated customers through public auctions regulated by ANEEL and conducted by the CCEE.

Energy purchases take place through two types of bilateral contracts: (i) Energy Agreements (Contrato de Quantidade de Energia) and (ii) Capacity Agreements (Contratos de Disponibilidade de Energia). Under an Energy Agreement, a generator commits to supply a certain amount of energy and assumes the risk that energy supply could be adversely affected by hydrological conditions and low reservoir levels, among other conditions, that could interrupt the supply of energy, in which case the generator will be required to purchase the energy from third parties to meet its supply commitments. Under a Capacity Agreement, a generator commits to make a certain amount of capacity available to the Regulated Market. In this case, the revenue of the generator is guaranteed under the contractual conditions and the distributor assumes the hydrological risk. However, if there are additional costs to the distributors, these are passed on to customers. Together, these agreements comprise the power purchase agreements (Contratos de Comercialização de Energia no Ambiente Regulado, or “CCEARs”‘CCEARs’) in the Regulated Market.

The regulations under the New Industry Model Law establish that distribution companiesdistributors that contract less than 100% of their total demand, accounted in the CCEE, will be subject to penalties. There are mechanisms to reduce the possibility of penalties, such as participation in the MCSD mechanism (“(‘Mechanism of compensation of surpluses and deficits”deficits’), which allows for the managing of surpluses and deficits among distribution companies,distributors, or purchase of supply in auctions during the year. Any remaining shortfall from 100% of total demand may be purchased at the spot market. If a company contracts more than 105% of its total demand, it would be subject to price risk if it sells that supply in the spot market in the future. To reduce this price risk, a company may reduce its purchase contracts made at “existing source”‘existing source’ auctions by up to 4% each year, by bilateral negotiation through Regulation 711, through MCSD “New‘New Energy contracts”contracts’, and through loss of customers that have opted to become free customers (and are thus supplied by generators directly).

With the renewal of the hydroelectric power plant concessions, Contracts for the Physical Accounts Security (“CCGF”(‘CCGF’) were created. These contracts take into account 90% of the energy generated by the plants whose concessions were renewed in order to mitigate the hydrological risk. The execution of CCGF is mandatory and each distributor received an amount according to the assessment made by ANEEL.

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The Free Market

In the Free Market, energy is traded by power generators. The Free Market also includes certain grandfathered existing bilateral contracts between generators and distributors until the expiration of their current terms. Upon expiration, new contracts would have to be executed under the New Industry Model Law.

Potentially free customers are those whose energy demand exceeds 3 (three) MW at a voltage equal to or higher than 69kV or at any voltage level if their supply began after July 1995. Since January 2019, customers whose supply began before 1995 were also able to migrate to the Free Market pursuant to Law No. 13,360/16. In July 2019, the restriction to be a free customer will be reduced to 2,52.5 MW and in January 2020 to 2 MW (Ministerial Order 514/2018). In addition,On December 12, 2019, Ministerial Order no. 465/2019 reduced the restriction to be free consumer to 1.5 MW in January 2021, to 1.0 MW in January 2022 and to 0.5 MW in January 2023. This order also gave ANEEL and CCEE a dead line (January 2022) to finish and present regulatory measures necessary to allow the free market to be opened for consumers with a load below 0.5 MW, including the regulated energy trader and proposed opening schedule beginning January 1, 2024.

Until the total opening, customers with contracted demand of 500kW500 kW or more may be serviced by suppliers other than their local distribution company if they purchase from certain alternative energy sources, such as SHPs, wind or biomass of a certain size.

Once a customer has opted for the Free Market, it may only return to the regulated system after giving its regional distributor five years’ notice. The distributor may reduce this term at its discretion. The aim of the extended notice period is to ensure that, if necessary, the distributor is able to purchase additional energy to supply there-entry of free customers into the Regulated Market. Moreover, distributors may also reduce the amount of energy purchased according to the volume of energy that they will no longer distribute to free customers. State-owned generators may also sell energy to free customers, but unlike private-sector generators, they are obliged to do so through an auction process.

Restricted Activities for DistributorsDistribution companies

DistributorsDistribution companies in the Brazilian Interconnected Grid (Sistema Interligado Nacional, or “SIN”‘SIN’) are not permitted to: (1) operate in the business of the generation or transmission of energy; (2) sell energy to free customers, except for those in their concession area and under the same conditions and rates as regulated customers in the Regulated Market; (3) directly or indirectly hold any interest in any other company, except entities incorporated for raising, investment and management of funds necessary for the distributor (or its parent company or related companies or partnerships); or (4) engage in activities that are unrelated to their respective concessions, except for those permitted by law or in the concession agreement.

Contracts Executed Prior to the New Industry Model Law

Under the New Industry Model Law, contracts executed by distribution companiesdistributors and approved by ANEEL before the enactment of that law will not be amended to reflect any extension of their terms or change in prices or volumes of energy already contracted.

Reduction of the Level of Contracted Energy

Decree No. 5,163/04, which regulates trading in energy under the New Industry Model Law, allows distribution companies to reduce their CCEARs: (1) to compensate for the exit of potentially free customers from the regulated market, pursuant to a specific declaration delivered to the Mining and Energy Ministry, (2) by up to 4.0% per year of the initial contracted amount due to market deviations from their estimated market projections, at the distribution company’s discretion, starting two years after the initial energy demand was declared; and (3) in the event of increases in the amounts of energy acquired under contracts entered into before March16, 2004 (date of publication of Law No. 10,848/04). This reduction may be made only with CCEARs of existing power plants.

The circumstances in which the level of contracted energy may be reduced must be stated in CCEARs, and distribution companies may make such reductions at their own sole discretion, in compliance with the provisions described above, and ANEEL regulations.

ANEEL regulations require any reduction of the level of contracted energy under the CCEARs of existing energy to be preceded by the Mechanism of Compensation of Surplus and Deficits (MCSD), by means of which distribution companies that have contracted energy in excess of their demand may assign a portion of their CCEARs to distribution companies that have contracted less energy than needed to meet their customers’ demand.

In 2016, a New Energy MCSD was created, which allows the transfer of new energy contracts between distributors in order to compensate for surpluses and deficits. If there is more surplus than deficit, the mechanism also allows the generators to offer reduction of the contracts to the distributors in order to compensate this surplus. The reduction is then effected in descending order of price and there is no financial compensation for the reduction. In the end of 2017, ANEEL restricted the reduction’s offer to generators that are not in commercial operation (delayed operation).

In addition to the New Energy MCSD, ANEEL’s Normative Resolution No. 711/16 was also published, which allows bilateral negotiation of contracts between generators and distributors, enabling partial or full reduction of contracted energy under CCEARs. This mechanism provides financial compensation if the reduced contract is priced above the average price of the distributor’s portfolio (PMIX). Such compensation is limited to a36-month period. If the CCEAR has a price lower than the PMIX, the loss must be reimbursed to the customer. In the end of 2017, ANEEL changed Resolution No. 711/16, thus restricting bilateral negotiations with distributors to generators that are not in commercial operation, ANEEL also reduce the financial compensation to12-month revenue for permanent reduction.

To compensate the restrictions in the New Energy MCSD and the Normative Resolution No. 711/16 mechanisms, ANEEL through Normative Resolution No. 824/2018 creating a new mechanism (MVE – Mecanismo de Venda de Excendentes) for the distributor to sell their surplus. The MVE will make public auction with annual, semiannual and quarterly products, where the distributors can offer their surplus to free market agents. If the distributor surplus is under the 105% the positive difference between bid price and PLD (on the product period) will be split between distribution company and the customer, else if the difference is negative the distribution company will assume the loss. Above 105% the company assumes all results positives and negatives.

Limitations on Pass-Through

The New Industry Model also limits the pass-through of costs of energy to final customers. The Annual Reference Value corresponds to the weighted average of the energy prices in “A–5”‘A - 5’ and “A–3”‘A - 3’ auctions, calculated for all distribution companies,distributors, and creates an incentive for distribution companiesdistributors to contract for their expected energy demands in the A–A - 5 auctions, where prices are expected to be lower than in A–A - 3 auctions. The Annual Reference Value is applied in the first three years of power purchase agreements from new power generation projects. After the fourth year, the energy acquisition costs from these projects will be allowed to be passed through in full. Decree No. 5,163/04 establishes the following limitations on the ability of distribution companiesdistributors to pass through costs to customers:

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·

No pass-through of costs for energy purchases that exceed 105% of regulatory demand.

demand;

◾·

Limited pass-through of costs for energy purchases made in an A–3 auction, if the volume of the acquired energy exceeds 2.0% of the demand found in A–5 auctions.

auctions;

◾·

Limited pass-through of energy acquisition costs from new energy generation projects if the volumere-contracted through CCEARs of existing generation facilities is below a “Contracting Limit”‘Contracting Limit’ defined by Decree No. 5,163.

5,163;

◾·

Energy purchases from existing facilities in the“A-1” ‘A - 1’ auction are limited to 0.5% of distribution companies’distributors’ demand, frustrated purchases in previous A–A - 1 auctions, involuntary exposure to regulated customer demand, plus the “replacement”‘replacement’, defined as the amount of energy needed to replace the power from power purchase agreements that expire in the current year (A–(A - 1), according to ANEEL Resolution No. 450/2011. If the acquired energy in the A–A - 1 auction exceeds the limit, the pass-through to final customers of costs of the excess portion is limited to 70.0% of the average value of such acquisition costs of energy generated by existing generation facilities. MME will establish the maximum acquisition price for energy generated by existing projects.

projects;

◾·

Energy purchases in “market adjustment”‘market adjustment’ auctions are limited to 5.0% of a distribution concession holder’s total demand (the previous limit, modified by Decree 8,379/14, was 1.0%, except for 2008 and 2009) and pass-through of costs is limited to Annual Reference Value.

Value;

◾·

If distributors fail to comply with the obligation to fully contract their demand, the pass-through of the costs from energy acquired in the short-term market will be the equivalent to the lower of the PLD or the Annual Reference Value.

Rationing under the New Industry Model Law

The New Industry Model Law establishes that, in a situation in which the Federal Government decrees a compulsory reduction in the consumption of energy in a certain region, all energy quantity agreements in the regulated market, registered within the CCEE in which the buyer is located, shall have their volumes adjusted in the same proportion to the required reduction of consumption.

Rates

Electric energy rates in Brazil are set by ANEEL, which has the authority to adjust and review rates in accordance with applicable concession contracts and regulations. Each distribution company’s concession contract provides for an annual rate. In general, “Parcel‘Parcel A costs”costs’ are fully passed through to customers. “Parcel‘Parcel A costs”costs’ are the portion of the rate calculation formula which provides for the recovery of certain costs that are not within the control of the distribution company. “Portion‘Parcel B costs”costs’, which are costs that are under the control of the distributors, are adjusted for inflation in accordance with IPCA index. The average annual rate adjustment includes components such as the inter-year variation of Parcel A costs (“CVA”(‘CVA’) and other financial adjustments, which compensate for changes in the company’s costs, upupward or downdownward, that could not be previously taken into account in the rate charged in the previous period.

Distribution concessionaires are also entitled to periodic reviews. Our concession agreements establish a five-year period between periodic reviews. These reviews mainly aim: (i) to ensure necessary revenues to cover efficient operating costs, determined by the regulator, and adequate return for investments deemed essential for the services within the scope of each company’s concession; and (ii) to determine the “X factor”‘X factor’, which is calculated based on the average productivity gains from increases in scale, and on labor costs.scale. The X factor is a result of three components: a productivity factor representing those productivity gains (Xpd); the quality factor XQ, which punishes or rewards the distribution company depending on the quality of the service provided, and the factor Xt, which has the objective of reducing or increasing the regulatory operating costs during the five-year period between the rates reviews, to reach the level defined for the previous year ofefficient operating cost determined by the review cycle.regulator.

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In 2011, ANEEL concluded the Public Hearing No. 040/2010, in which it dealt with the methodology for the third periodic review. To calculate the rate of return, ANEEL used the methodology of Weighted Average Cost of Capital (“WACC”(‘WACC’), which resulted in a yearly rate of 7.50% after tax, compared to the rate of 11.25% applied in the previous cycle. This rate of return was applicable to the investments made by CEMIG D until the next tariff cycle, which was conducted in 2018. After that, the new rate of return calculated by the regulator is 8.09% after tax.

ANEEL also changed the methodology used to calculate the X Factor: from a method based on discounted cash flow to the Total Factor Productivity (“TFP”(‘TFP’) method, which consists of defining potential productivity gains for each company based on average productivity gains.gains in the later years. It also included the other two components, as mentioned above: XQ and Xt. The components of the X factor, determined in the 2018 review, for the period 2018/2023, were: Xt =-1.33%, On which is applicable on each review anannual readjustment, Xpd and XQ is calculated which are defined ex-post and added to the previous values.value based, respectively, on the productivity gains from the last year and from changes in the quality of services provided.

ANEEL has also issued regulations governing access to the distribution and transmission facilities, and establishing TUSD;TUSD and the TUST. The rates to be paid by distribution companies, generators and free customers for use of the interconnected power system are reviewed annually. The review of the TUST takes into account the RAP of transmission concessionaires under their concession contracts.contracts For more detailed information on the rate-setting structure, see “—Rates‘Rates for the Use of the Distribution and Transmission Systems.”’

In 2015, ANEEL separated part of the variable energy costs of distributors, which were previously agreed to be applied in 2016, and created an additional fee that would be passed on to customers through their energy bills. This system becameis known as “tariff‘tariff flags.”’ The system provides customers with a system disclosing the realReal costs of energy generation. The system is a simple one: the colors of flags (green, yellow or red) indicate whether, based on the conditions of energy generation, the cost of energy to customers will increase or decrease. When the system provides a green flag, the hydrological conditions for power generation are favorable and there should be no additional fee included in the customers’ rate. If the conditions are somewhat less favorable, the system will indicate a yellow flag and there will be additional charges proportional to consumption, at a ratio of R$2.50 per 100 kWh (or fractions thereof).consumption. If conditions are even less favorable, the system will indicate a red flag, and there will be anwhich has two levels.

In 2019, the additional fee imposed on customers proportional tocharges remain the consumption rate of R$4.50 per 100 kWh (or fractions thereof). Throughout the year 2015 the flag remained red. In 2016,same as 2018 until July when the additional charges corresponding to each flag were adjusted as follows: the yellow flag was set to R$1.50 per 100 kWh, the red flag level 1 was set to R$3.004.00 per 100 kWh and the red flag level 2 was set to R$ 4.506.00 per 100 kWh. During 2016, thereThose additional charges were red flagsadjusted again in January and February, yellow flags in March and November and green flags in all other months. In 2017,1st when the additional charges corresponding to each flag were adjusted as follows: the yellow flag was set to R$ 2.001.343 per 100 kWh, the red flag level 1was1 was set to R$ 3.004.169 per 100 kWh and the red flag level 2 was set to R$ 3.506.243 per 100 kWh. During 2017,2020, due to the Covid 19 pandemic, the tariff flags were suspended from June/2020 until November/2020 (ANEEL’s dispatch nº 1,511/2020). ANEEL’s Dispatch nº 3,364/2020 restored the tariff flags on December/2020 there werewas a red flagsflag level 2 in OctoberDecember, a yellow flag in January and November, red flags 1 in April, May, August and December, yellow flags in March, July and September anda green flags in all other months. In 2018, the additional charges corresponding to each flag were adjusted as follows: the yellow flag was set to R$ 1.00 per 100 kWh, the red flag level 1 was set to R$ 3.00 per 100 kWh and the red flag level 2 was set to R$ 5.00 per 100 kWh. During 2018, there were red flags 2 from June to October, yellow flags in May and November and green flags in all other months.

Acquisition of land

The concessions granted to CEMIG by the Federal Government assign to the concessionaire the acquisition of the lands in which the plants and substations will be implanted. Energy companies in Brazil have to negotiate with each property owner to obtain the land needed for the implementation of the entity. However, in the event that a concessionaire is unable to obtain the necessary land amicably, such landthese lands may be acquired for use by the concessionaire through specific legislation. In cases of acquisition, through legal proceedings, the concessionaires may have to participate in negotiations regarding the value of compensation to owners and the resettlement of communities in legal proceedings. The Company makes every effort to negotiate with the owners and affected communities before taking legal action.

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The Brazilian Electric Power System – Operational Overview

Brazil’s powerenergy production and transmission is a large-scale hydroelectric and thermal system made up predominantly of hydroelectric power stations, with many separate owners. The Brazilian Interconnected Grid connects companies in the Southern, Southeastern, Center-West, and Northeastern Regions and part of the Northern Region of Brazil. Approximately 2% of the country’s energy production capacity is not connected to the Brazilian Grid, in small isolated systems located mainly in the Amazon region. Brazil’s abundant hydrological resources are managed through storage reservoirs. It is estimated that Brazil has hydroelectric power generation potential of close to 246,313246,241 MW, of which only 44% has been developed or is under construction, according to Eletrobrás studies compiled in December 2017.2018.

 

LOGO

Source: Banco de Informações de Geração (SIGA ANEEL – 16/02/2021)

By April 2019,2021, Brazil had an installed capacity in the interconnected power system of 164,050175.35 GW, approximately 63.75%51% of which is hydroelectric, according to the ‘Matriz de Energia Elétricatrica’ (Eletric Power Matrix) available at theBancoSistemas de Informaçõesão de Geração“BIG” – ‘SIGA’, published by ANEEL. This installed capacity includes half of the installed capacity of Itaipu – a total of 14,000MW14,000 MW owned equally by Brazil and Paraguay.

Approximately 31%Eletrobrás, a company owned by the Federal Government, operate approximately 30% of Brazil’s installed generating capacity and 49% of Brazil’s high voltage transmission lines are operated by Eletrobrás, a company owned by the Federal Government.lines. Eletrobrás has historically been responsible for implementing energy policy, and conservation and environmental management programs. The remaining high-voltage transmission lines are owned by state-controlledState-controlled or local electric power companies.companies own the remaining high-voltage transmission lines. Distribution is conducted by approximately 60 state or local utilities, a majority of which havehas been privatized by the Federal Government or state governments.

Historical Background

The Brazilian Constitution provides that the development, use and sale of energy may be undertaken directly by the Brazilian Federal Government or indirectly through the granting of concessions, permissions or authorizations. Since 1995, the Brazilian Federal Government has taken a number of measures to restructure the power industry. In general, these have aimed to increase the role of private investment and eliminate restrictions on foreign investment, thus increasing overall competition in the power industry.

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

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The Brazilian Constitution was amended in 1995 to authorize foreign investment in power generation. Prior to this amendment, all generation concessions were held either by a Brazilian individual, or by an entity controlled by Brazilian individuals, or by the Brazilian Federal Government or a state government.

·The Brazilian Constitution was amended in 1995 to authorize foreign investment in power generation. Prior to this amendment, all generation concessions were held either by a Brazilian individual, or by an entity controlled by Brazilian individuals, or by the Brazilian Federal Government or a state government;
·The Federal Government enacted Law No.8,987 on February 13, 1995, or the Concessions Law, and Law No.9,074 on July 7, 1995, or the Power Concessions Law, that together:
orequired that all concessions for the provision of energy-related services be granted through public bidding processes;
ogradually allowed certain energy customers with significant demand (generally greater than 3 MW), referred to as free customers, to purchase energy directly from suppliers holding a concession, permission or authorization;
oprovided for the creation of generation entities, or Independent Power Producers, which, by means of a concession, permission or authorization, may generate and sell all or part of their energy to free customers, distribution concessionaires and trading agents, among others;
ogranted free customers and energy suppliers open access to the distribution and transmission grids;
oeliminated the need for a concession to construct and operate power projects with capacity from 1 MW to 30 MW, or Small Hydroelectric plants, (SHPs), which was amended on May 28, 2009 by Law No. 11,943 and further by Law No. 13,360/16, raising the limit from 30 MW to 50 MW, regardless of being characterized as an SHP or not;

The current regulator, ANEEL, and the Conselho Nacional de Política Energética (National Energy Policy Council, or ‘CNPE’), were created in 1997.

 

required that all concessions for the provision of energy-related services be granted through public bidding processes;

gradually allowed certain energy customers with significant demand (generally greater than 3 MW), referred to as free customers, to purchase energy directly from suppliers holding a concession, permission or authorization;

provided for the creation of generation entities, or Independent Power Producers, which, by means of a concession, permission or authorization, may generate and sell all or part of their energy to free customers, distribution concessionaires and trading agents, among others;

granted free customers and energy suppliers open access to the distribution and transmission grids;

eliminated the need for a concession to construct and operate power projects with capacity from 1 MW to 30 MW, or Small Hydroelectrical plants, (SHPs), which was amended on May 28, 2009 by Law No. 11,943 and further by Law No. 13,360/16, raising the limit from 30 MW to 50 MW, regardless of being characterized as an SHP or not.

•

The current regulator, ANEEL, and theConselho Nacional de Política Energética (National Energy Policy Council, or “CNPE”), were created in 1997.

In 1998, the Federal Government enacted Law No. 9,648 (“(‘Power Industry Law”Law’), to overhaul the basic structure of the energy industry, providing as follows:

Establishment of a self-regulated body responsible for operation of the short-term energy market, or Wholesale Energy Market, replacing the prior system of regulated generation prices and supply contracts.

Creation of the ONS anon-profit, private entity responsible for the operational management of the generation and transmission activities of the interconnected power system.

Establishment of public bidding processes for concessions for construction and operation of power plants and transmission facilities, in addition to the bidding process requirements under the Concessions Law and the Power Concessions Law.

On March 15, 2004, the Brazilian Federal Government enacted Law No. 10,848, (or the “New Industry Model Law”
·Establishment of a self-regulated body responsible for operation of the short-term energy market, or Wholesale Energy Market, replacing the prior system of regulated generation prices and supply contracts;
·Creation of the ONS a non-profit, private entity responsible for the operational management of the generation and transmission activities of the interconnected power system;
·Establishment of public bidding processes for concessions for construction and operation of power plants and transmission facilities, in addition to the bidding process requirements under the Concessions Law and the Power Concessions Law, On March 15, 2004, the Brazilian Federal Government enacted Law No. 10,848, (or the ‘New Industry Model Law’), in an effort to further restructure the power industry, with the ultimate goal of providing customers with security of supply combined with fair rates. On July 30, 2004, the Brazilian Federal Government published Decree No. 5,163, governing trading rules under the New Industry Model Law, as well as the granting of authorizations and concessions for energy generation projects. These include rules relating to auction procedures, the form of power purchase agreements and the method of passing costs through to final customers.

On September 12, 2013, the Brazilian Federal Government issued Provisional Measure No. 579, enacted as Law No. 12,783, related to the extension of the concessions granted prior to Law 9074 of July 7, 1995,9,074, aiming to decrease the sector’s charges and achieving tariffs that are more reasonable tariffs.reasonable. This legislation changed the rules applicable to certain concessions, and implemented new bidding process rules for certain utilities, and adjustments to tariffs.

On August 18, 2015, the Brazilian Federal Government published Provisional Act No. 688, which was converted into Law No. 13,203, on December 8, 2015, which created the mechanism of voluntaryre-negotiation of hydrological risks affecting the hydroelectric generation companies. In the same law, the government changed the bidding process rules for certain concessions too.

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In June 22, 2016, the Brazilian Federal Government issued Provisional Act No. 735, thatwhich was converted into Law No. 13,360, enacted on November 17, 2016, which, among other measures, altered Chapter III of Law 12,783, governing competitive bids for energy generation, transmission and distribution concessions.

On July 2017, the MME organized two public consultation proceedings with the purpose of gathering contributions from sectorial agents to improve the national electric energy sector and update its regulatory framework.

On February 9, 2018, the MME submitted for analysis by the Brazilian President a draft bill including several proposed changes to the industry regulation. Among other issues addressed by the MME in the draft of the bill, we highlight:

(a)Divestment of hydro power plants. In case of divestment of hydro power plants, the new concession would be granted by means of payment of compensation to the government and it would not be subject to the quota regime established by Law No. 12,783/2013 (for generation concessions renewed in accordance with Law No.12,783/2013, the energy produced by the power plant must be sold to all distribution companies in Brazil according to a quota system);

(b)Expansion of the free market. The consumption requirement for the characterization of free customers would be reduced. Currently, free customers must have an energy load of 3MW. Between 2020 and 2024, the load criteria qualifying the free customer would vary from 2 MW to 300kW. By 2026, there would not be a minimum energy load required, as long as the free customer is connected to tension equal or higher than 2,3kV;

(c)Incentives for renewable energy. MME’s proposal tends to reduce incentives granted to renewable energies through discount over connection tariffs. Such discount may be subject to certain conditions;

(d)Hydrological risk. The hydrological risk of differences in power production due to a hydrological scenario would exclude: (i) generation in disregard of the merit order which means dispatching energy to the grid in disregard of the ascending price raking for energy generation, (ii) anticipation of delivery of firm energy to the system of relevant power plants, and (iii) restriction to the supply of energy to the grid due to delay in the transmission system; and

(e)
·Divestment of hydro power plants. In case of divestment of hydro power plants, the new concession would be granted by means of payment of compensation to the government and it would not be subject to the quota regime established by Law No. 12,783/2013 (for generation concessions renewed in accordance with Law No. 12,783/2013, the energy produced by the power plant must be sold to all distributors in Brazil according to a quota system);
·Expansion of the free market. The consumption requirement for the characterization of free customers would be reduced. Currently, free customers must have an energy load of 3MW. Between 2020 and 2024, the load criteria qualifying the free customer would vary from 2 MW to 300kW. By 2026, there would not be a minimum energy load required, as long as the free customer is connected to tension equal or higher than 2,3kV;
·Incentives for renewable energy. MME’s proposal tends to reduce incentives granted to renewable energies through discount over connection tariffs. Such discount may be subject to certain conditions;
·Hydrological risk. The hydrological risk of differences in power production due to a hydrological scenario would exclude: (i) generation in disregard of the merit order which means dispatching energy to the grid in disregard of the ascending price raking for energy generation, (ii) anticipation of delivery of firm energy to the system of relevant power plants, and (iii) restriction to the supply of energy to the grid due to delay in the transmission system; and
·Separation between energy consumption and firm energy. A timeline for implementation of the legislative model that separates the charges for firm energy added to the grid and energy consumption.

Furthermore, it is under analysis in Congress the Bill of Law nº 622/2015, which establishes a deadline, defined in 2017, for the application of discounts not lower than 50% in tariffs for use of the transmission and distribution systems (TUST and TUSD) for projects using alternative energy sources such as solar, wind, biomass and qualified cogeneration, as stated in Article 26 and paragraphs of Law 9.427/9,427/1996. In its current status, the bill states that such discounts will stay valid for current grants, even if extended, and for future grants up to December 31, 2027. The bill also imposes on the Federal Government the obligation to create a market mechanism to encourage investments inlow-carbon energy sources, to be implemented on January 1, 2027. Currently,2027.Currently, Bill of Law nº 622/2015 is in the Infrastructural Services Commission, awaiting appointment of a rapporteur.

The publication of Law 14.052/2020 and Resolution 895/2020, proposed the reimbursement of agents holding the concession of hydraulic plants in the MRE of the effects: (i) generation in disregard of the merit order which means dispatching energy to the grid in disregard of the ascending price ranking for energy generation, (ii) anticipation of delivery of firm energy to the system of relevant power plants, and (iii) restriction to the supply of energy to the grid due to delay in the transmission system. These effects will be calculated retroactively from 2012 to 2020, updated and remunerated at the ANEEL rate of 9.63%. The amount will then be paid through extension of the plants' concession. With this new agreement, injunctions are expected to be withdrawn and market deficits to be settled. In this way, the liquidity of the market in the short term and the default in the CCEE should return to their historical values.

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Rationing and Extraordinary Rate Increases

Rationing of energy; government measures to compensate energy concession holders.

In late 2000 and early 2001, low levels of rainfall, significant growth in demand for energy, and Brazil’s significant dependence on energy generated from hydroelectric sources resulted in an abnormal fall in levels at several of the reservoirs used by Brazil’s largest hydroelectric generation plants. In May 2001, the Brazilian Federal Government announced a group of measures requiring reduction in consumption of energy in response to those conditions (“Brazilian Energy Rationing Plan”). Under this plan, energy distribution and generation companies (such as CEMIG) were compensated for the losses of revenue resulting from the rationing imposed by the Brazilian Federal Government – either due to lower volume of sales, or reduction in energy selling prices, or purchases of energy within CCEE. This compensation was given in the form of the right to charge extraordinary increases in energy rates to customers for a future period, which averaged 74 months, and ended in March 2008.

However, the New Industry Model (its main purpose being to guarantee the supply of energy) created auctions for the Regulated Market, in which it is possible to buy energy from new plants to seek security of supply. Since the New Industry Model was introduced, approximately 109,713 MW of capacity have been placed in these auctions.

Of this amount, a total of 12,319 MW was contracted in “Reserve Auctions” – that is to say, this power capacity is not committed to any contract, or to any minimum supply.

In the rainy season of late 2012 and early 2013, there was much less rainfall than expected in Brazil’s Southeastern region (November to March), and in this situation the thermoelectric plants were activated to generate complementary supply to meet the system’s energy consumption needs. During this period, the principal strategy of ONS was to preserve storage capacity at the reservoirs of hydroelectric plants and to ensure supply of the system’s energy needs over the whole of the year 2013. This resulted in a high level of expenses on thermoelectric generation, and a sustained increase in the spot market price – which is calculated weekly by CCEE and averaged R$121.29/MWh in July 2013.

Once again, in the rainy season of late 2013 and early 2014, rainfall in the Southeast was lower than the expected averages, anall-time low. This placed the system in a state of alert during the whole of 2014, concentrating the efforts of the operators on how to maintain the capacity of the system to supply consumption needs. ONS continued to dispatch all the thermal plants, and introduced some flexibility to hydroelectric restrictions so as to maintain the levels of storage and meet demand. Over the year, the spot price reached the regulatory limit, with the spot price rising to R$822/MWh for several months. Its average in the year was R$688/MWh. At the end of 2014, the levels of storage once again reached their lowest level, putting great pressure on the ONS to guarantee full operation of the system.

In order to maintain the requisite supply during 2015, the ONS continued to utilize the full capacity of thermoelectric plants, as there was no improvement in hydrology during the rainy season. In order to avoid possible rationing, the Brazilian Federal Government revised the applicable tariffs by removing subsidies and passing the cost of thermoelectric generation directly to customers, resulting in an increase in the cost of energy by 50%. The effect of the increase in energy prices, along with the poor performance of the economy, led to a drop in energy consumption of 1.3% compared to 2014. With lower power consumption, additional thermal utilization and the improvement in the hydrology of the second half of 2015, the Brazilian energy system met the demand and there was no need for rationing. Once again, we ended the year with low levels of water storage in reservoirs.

In the spot market, the spot price closed December 31, 2015, with a yearly average of R$287.20/MWh. The price cap for 2015 was R$388.48/MWh.

With the drop in energy consumption and increased rainfall close to the historical average in the rainy season, pressure on the operation of the system was relieved in 2016, which enabled the gradual shutdown of the thermal plants that were operating due to energy security. However, the northern and northeastern regions continued to have shortages and recorded historically low rainfall. As a result, some thermal plants in those regions remained in operation. In 2016, the average spot price was R$ 93.98 / MWh with a ceiling of R$ 422.56 / MWh. In 2017, the average spot price was R$ 324.17/MWh with a ceiling of R$ 533.82/MWh, and in 2018, it amounted to R$ 288.57 / MWh with a ceiling of R$ 505.18/MWh

Conflicts of interest between CEMIG and other users of water.water

The operation of reservoirs for generation of energy by CEMIG requires it to assess the multiple uses of water by other users of the relevant river basin, and this in turn requires it to consider the applicability of a number of factors, including environmental factors, irrigation, waterways and bridges. In periods of severe drought, such as the one beginning in 2013, CEMIG was actively involved in monitoring and forecasting the levels of reservoirs and in maintaining a dialogue with public authorities, civil society and users. While CEMIG engages other essential users and takes into account societal interests with respect to its water use, competing interests with respect to the use of water could, subject to certain minimum limits established by law, affect the use of water in our operations, which in turn could affect our operating results or financial condition. Potential conflicts between CEMIG and other users are monitored through CEMIG’s active participation in River Basin Committees, and also in the related Technical Boards and Working Groups, where users of water, organized civil society and public authorities are represented. CEMIG participates in 5 River Basin Committees of rivers under federal control, and 20 River Basin Committees of rivers under local State control. CEMIG also monitors news published in various media outlets, receives comments and complaints during the periods of floods or drought, and acts to resolve any conflicts with communities living in the river basins where it has hydroelectric plants.

For new projects, CEMIG prepares a socio-environmental impact study, and carries out public hearings with all interested parties, where suggestions in assessing any potential conflicts are analyzed. When the project is operational, a Plan for Environmental Conservation and Use of the Artificial Reservoir Surroundings ((‘Plano Ambiental de Conservação e Uso do Entorno de Reservatório ArtificialArtificial’) is prepared with the participation of stakeholders. This plan is intended to govern conservation, recovery, use and environmental protection of the reservoir and its surrounding area in a balanced way, complying with the applicable legislation, the needs of the project and the demands of society.

CEMIG also conducts a program calledProximidade(“Proximity”(‘Proximity’), which coordinates activities aimed at improving the relationship with affected communities. Through this program, CEMIG hosts public meetings that cover topics such as the operational and security procedures in its hydroelectric plants; climate conditions; and environmental aspects. CEMIG also provides opportunities for the public to take guided tours of plant facilities. By means of theProximidade program, CEMIG also receives comments and complaints from the affected population and establishes partnerships with local community leaders, public entities, the local media and other actors responsible for safety and flood, including Civil Defense associations, the Fire Brigade and the Military Police.

Finally, CEMIG uses a risk management system to analyze scenarios and estimate the degree of financial exposure to risks, considering the probability of each event, and its impact. In the scenarios related to potential conflicts with other users, CEMIG also evaluates the effects arising from prolonged droughts, which may lead to an increase in competition for water between the energy sector and other users, and also the risks arising from consequences of floods due to excessive rain.

Concessions

We conduct the majority of our activities in generation, transmission and distribution of energy through concession contracts executed with the Brazilian Federal Government. The Brazilian Constitution requires that all concessions for public services must be subject to competitive tenders. In 1995, in an effort to implement these provisions of the Constitution, the Federal Government instituted certain laws and regulations, referred to collectively as the Concessions Law, which governs the procedures for competitive tenders in the energy sector.

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On September 22, 2004, while the rules established by Law No. 9,074, enacted on July 7, 1995, were still in effect, CEMIG requested from ANEEL an extension for 20 years of the concessions of the Emborcação and Nova Ponte Hydroelectric Plants. On January 14, 2007, the Federal Government approved the extension of these concessions for a period of 20 years from July 24, 2005, until July 24, 2025. The related concession contract was amended on October 22, 2008, to reflect the extension granted to CEMIG.

On September 11, 2012, the Federal Government issued Provisional Act No. 579 of 2012 (“PA 579”), which was converted into No. 12,783 of January 11, 2013, governing the extension of concessions granted before Law No. 9,074/95. Under PA 579, concessions granted before Law No. 9,074/95 could be extended for a single time, for a period of up to 30 years.Transmission:

On December 4, 2012, CEMIG signed the second amendment to transmission contract No. 006/97, which extended the concessions under such contract for 30 years, in accordance with PA 579, beginning on January 1, 2013. This resulted in an adjustment to the RAP from these concessions, which will reducereducing the revenue which we will receive arising from those concessions. The Brazilian Federal Government has compensated us for the reduction of the RAP in part, but we have not yet been compensated for the assets in operation before 2000. In accordance with Law No. 12,783, we are required to be compensated for the reduction of the RAP of the assets in operation before 2000, over a period of 30 years, the amounts being adjusted by the IPCA inflation index. This compensation was addressed by Mining and Energy Ministry Order No. 120/16, which determined that recognition of the amounts owed would take place as from the tariff adjustment process of 2017.

Also on December 4, 2012, CEMIG elected not to accept the extension of the generation concessions that expired in the years 2013 to 2017, namely Três Marias, Salto Grande, Itutinga, Volta Grande, Camargos, Peti, Piau, Gafanhoto, Tronqueiras, Joasal, Martins, Cajuru, Paciência, Marmelos, Dona Rita, Sumidouro, Poquim and Anil. In relation to the power plants that had their first extension of the related concessions after the issuance of PA 579, namely Jaguara, São Simão and Miranda, CEMIG believes that Generation Concession Contract No. 007/97 enables CEMIG to extend these concessions for an additional 20 years, until 2033, 2035 and 2036, respectively, without restrictions.

Based on this understanding, CEMIG GT applied for a writ of mandamus against an act of the Mining and Energy Minister with the objective of ensuring its right to extend the concession of the Jaguara hydroelectric plant, pursuant to the terms of Clause 4 of Concession Contract No. 007/97. The Company was granted an interim injunction on September 3, 2013 that entitled it to continue commercial operation of the Jaguara plant until a judgment was issued by the courts on the writ of mandamus. Judgment was issued on this action, denying CEMIG GT’s writ of mandamus application. Before the result of this decision was published, CEMIG GT petitioned to the STF seeking another provisional decision and asking for an interim injunction permitting it to continue operating and managing the plant. The interim injunction was granted on December 21, 2015. With the publication of the result of the writ of mandamus, CEMIG GT filed an ordinary appeal to the STF on March 1, 2016. On March 21, 2017, the interim injunction granted in the case of the provisional decision cited above was revoked by the Reporting Justice.

On November 21, 2017, the 2nd Panel of the STF ruled that the application for mandamus should not proceed. The Company believes that this is not a final decision, and for this reason, now that the full judgment has been published, the Company is evaluating the possible lines of appeal. The chance of loss in this action has been classified as ‘probable’, in view of the judgment given in Ordinary Appeal 34.203/STF. The case has several particular elements: the singular nature of Concession Contract No. 007/1997; the unprecedented nature of the subject matter; and the fact that the action will be a leading case in consideration of extension of concessions by the Brazilian Courts.

In addition to the litigation relating to the Jaguara plant, CEMIG GT has also applied for a writ of mandamus at the STJ with respect to the São Simão plant against an act of the Mining and Energy Minister, in order to ensure its right to extend the concession of this plant. The interim injunction originally obtained by the Company on December 19, 2014, to remain in control of commercial operation of the São Simão plant until the judgment on the writ of mandamus, was reviewed, and overturned, by the Reporting Judge on June 30, 2015. While this proceeding is ongoing, CEMIG GT is still in control of the plant, and since September 2015 the power generated by the São Simão plant has been allocated to the Regulated Market and has been paid for under the ‘quota’ regime, whereby CEMIG GT is entitled to receive an amount equal to the costs of operating and maintaining the plant and is subject to adjustments related to the performance of the plant, instead of being able to sell the energy in the Free Market. Even so the Reporting Justice of the case at STJ, in view of the granting of the interim decision by the Federal Supreme Court suspending the action in relation to the Jaguara Plant, served notice on CEMIG GT to state its position on the suspension of the case in relation to the São Simão hydroelectric plant. CEMIG GT stated its interest in the suspension, but requested granting of the interim decision with the same outcome that was employed in the case of the Jaguara plant, namely keeping CEMIG GT as holder of the concession of the São Simão plant, on the same conditions as the Jaguara plant, that is to say observing the original terms of Concession Contract No. 007/97, prior to Law No. 12,783/13. The injunction was granted by the Reporting Justice to allow CEMIG GT to retain ownership of the São Simão concession, under the initial bases of Concession Contract No. 007/97, until the conclusion of the judgment. On March 28, 2017, that interim injunction was revoked.On December 13, 2017, the First Section of the Higher Appeal Court (STJ) ruled to reject CEMIG’s applications. The Company is currently assessing lines of appeal. The chance of loss in this action has been classed as ‘probable’, due to the judgment given against the Company in Ordinary Appeal 34.203/STF, which was filed in the case of the mandamus on the Jaguara hydroelectrical plant (see above) – since both proceedings have the same issues and facts to be considered, and in the last analysis will be heard and judged by the same court body.

CEMIG GT filed a renewed application for mandamus, requesting interim relief, against an act of the Mining and Energy Minister that was illegal and violated the plaintiff’s right to obtain an extension of the period of concession of the Miranda Hydroelectric Plant based on Clause 4 of Concession Contract No. 007/97. CEMIG GT was granted an interim injunction to continue in commercial operation of the Miranda hydroelectric plant until a final judgment is reached on this application for mandamus. In response to a motion for revision of judgment brought by the Brazilian Federal Government against the Internal Appeal, the Reporting Justice revoked this interim decision on March 29, 2017. There is presently no judgment on the merit of this action. The chance of loss in this action was classified as probable due to the judgment given against the Company in Ordinary Appeal 34.203/STF, which was filed in the case of the mandamus proceedings relating to the Jaguara hydroelectrical plant (see above) – since both proceedings have the same issues and facts to be considered, and in the last analysis will be heard and judged by the same court body.

In addition to the Mandamus mentioned above, on February 21, 2017, CEMIG GT made a renewed request to MME, reiterating its administrative application for extension, for 20 (twenty) years, of the concessions of the Jaguara, São Simão and Miranda hydroelectric plants in the terms specified by Clause 4 of Concession Contract No. 007/97. In this new request, which restates the Company’s interests in these plants, CEMIG GT also made a subsidiary request, for the concession of these hydroelectric plants to be transferred/granted to one of its subsidiaries, for the purposes specified by Paragraph1-C of Article 8 of Law 12,783/13 (included in that law by Law No. 13360 of November 17, 2006), which enables the Brazilian Federal Government to grant a power generation concession for 30 years when associated with transfer of control of a legal entity providing this service which is under direct or indirect control of a State, the Federal District or a municipality. The presentation of the subsidiary request does not result in any waiver by CEMIG GT of its right to guaranteed extension of the concessions as specified in Clause 4 of Concession Contract 007/97, which is the subject of the legal actions that it currently has in progress against the Brazilian Federal Government.On September 27, 2017 the Brazilian Federal Government auctioned the concessions for the São Simão, Jaguara, Miranda and Volta Grande hydroelectrical plants, the concessions for which had been previously held by CEMIG GT. These plants have aggregate generation capacity of 2,922 MW, and the price of the sale was R$ 12.13 billion. In each case the winning bidder of the concessions was a third party not related to CEMIG GT. CEMIG GT worked intensely to maintain the concessions of the São Simão, Jaguara and Miranda plants and despite of the result of the auction, CEMIG GT will continue to fight for its rights to be recognized by the courts. As well as the legal actions in progress in the Federal Supreme Court (STF) and in the Higher Appeal Court (STJ), proceedings were brought in the administrative and the judicial sphere related to the indemnity to which CEMIG GT is entitled.

The amounts payable of the indemnities corresponding to the portions of investments linked to revertible goods not amortized or depreciated, recognized by MME in Ministerial Order 291/2017, were impugned in the administrative sphere (still awaiting decision – a hierarchy appeal), and, in the judiciary,judiciary. CEMIG GT applied for a Prior Provisional Decision, on November 27, 2016, with the objective of obtaining an order for the Federal Government to exhibit the documentation that supported its calculation of the indemnity for reversion of the assets of the Jaguara, Miranda, São Simão and Volta Grande hydroelectrical plants, and alsohydroelectric plants. The Federal Government immediately deposit thenon-contested portion of the indemnity, which had been set at R$ 1.0271,028 million. In this case, the application for interim decision was refused and CEMIG GT filed an Interlocutory Appeal (currently pending judgment). Additionally, on January 17, 2018, CEMIG amended the writ: (i) to reiterate the need for exhibition of documents; (ii) applying for declaration of nullity of Article 1, §1 and 2, and Article 2, of Mining and Energy Ministry Order 291/2017, and consequent payment of indemnity to include all the investments made by CEMIG GT in the concessions referred to; and (iii) requesting immediate payment of thenon-contested amount.

Generation contracts:

In the years 2014 and 2015, Brazil experienced a severe drought culminating in further alterations to the regulatory framework, established by Provisional Act No. 688/15 and later converted into Law No. 13,203/15. This law, among other measures, significantly altered Law No. 12,783/13, creating a mechanism of voluntary renegotiation of hydrological risks, since they affect the hydroelectric generation companies, and changing the rules for bidding for certain hydroelectric generation concessions. Subsequently, in 2016, other changes were introduced to the sector by Provisional Act No. 735/16, enacted as Law No. 13,360/16, which, among other measures, changed Chapter III of Law No. 12,783/13, which relates to bidding for energy generation, transmission and distribution concessions.

Following publication of the tender documents for Generation Auction No. 12/15 on October 7, 2015, which included the new regulatory provisions for renewal of concessions of existing plants stipulated by Law No. 13,203/15, CEMIG’s Board of Directors authorized our participation in Generation Auction No. 12/2015, and CEMIG GT was successful at this auction, held at the B3 on November 25, 2015. CEMIG won concessions for Lot ’D’ – which comprises the concessions for 18 hydroelectric plants: Três Marias, Salto Grande, Itutinga, Camargos, Cajuru, Gafanhoto, Martins, Marmelos, Joasal, Paciência, Piau, Coronel Domiciano, Tronqueiras, Peti, Dona Rita, Sinceridade, Neblina and Ervália. The total installed capacity of these plants is 699.5 MW, and their guaranteed basic offtake is 420.2 MW average.

These concession contracts have a period of 30 years beginning in January 2016 and expiring in January 2046 and, during the first half of 2016, were assigned by CEMIG GT to 7 wholly-owned subsidiaries created for commercial operation of these concessions (CEMIG Geração Camargos, CEMIG Geração Itutinga, CEMIG Geração Três Marias, CEMIG Geração Volta Grande, CEMIG Geração Leste, CEMIG Geração Oeste and CEMIG Geração Sul).

On September 9, 2020, the Law 14,052 was issued, changing the Law 13,203/2015 and establishing new conditions for renegotiation of hydrological risk in relation to the portion of costs incurred due to the GSF, borne by the holders of hydroelectric plants participating in the MRE between 2012 and 2017, when there was a serious crisis in water sources.

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The aim of this new law is to compensate the holders of hydroelectric plants participating in the MRE for non-hydrological risks caused by:

(i)        Generation ventures classified as structural, related to bringing forward of physical guarantee of the plants;

(ii) The restrictions on start of operation of the transmission facilities necessary for outflow of the generation output of structural projects; and

(iii) Generation outside the merit order system, and importation.

This compensation will take the form, of extension of the grant of concession or authorization to operate, limited to 7 years, calculated on the basis of the parameters applied by ANEEL.

On December 1, 2020, ANEEL issued its Normative Resolution 895, which established the methodology for calculation of the compensation, and the procedures for renegotiation of hydrological risk. To be eligible for the compensations under Law 14,052, the holders of hydroelectric plants participating in the MRE are required to:

(i)        Cease any legal actions which claimed exemption from, or mitigation of hydrological risks related to the MRE;

(ii) Relinquish any claims and/or further legal actions in relation to exemptions from or mitigation of hydrological risks related to the MRE; and

(iii) Not to have renegotiated hydrological risk under Law 13,203/2015.

On March 2, 2021 the CCEE sent to ANEEL the calculations for the concessions extensions in the Free Market (ACL) that have opted to accept the conditions proposed by ANEEL Normative Resolution 895/2020 and Law 14,052/2020. The Company’s management is awaiting ratification and publication by ANEEL of its extensions of the concession grants, for subsequent submission to the Company’s governance bodies for approval. Thus, no impact arising from this subject has been recorded in the financial statements at December 31, 2020.

Based on the preliminary data supplied by CCEE to ANEEL, the Company’s plants will have the right to the following periods of extension:

Power plant

Physical Guarantee

(average MW)

Preliminary expectation of Concession extension

(months)

Emboração

500

23

Nova Ponte

270

25

Sá Carvalho

56

22

Rosal

29

46

Others (1)

399

-

   

(1)Includes 11 power plants, of which 7 are owned by CEMIG GT, 1 is owned by CEMIG PCH and 3 are owned by Horizontes. The average concession extension in months varies between 1 and 84 months.

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With the approval of Law 14,120/2021, the right to reimbursement for the generation plants of Lot D was recognized, enabling the CCEE to make a new calculation, including these plants, indicating the right to their concession extension by the allowed maximum (seven years). Official confirmation of these amounts is pending regulations to be issued by ANEEL.

Distribution contractscontracts::

In relation to the extension of the distribution concession contracts, CEMIG D, in accordance with Decree No. 7,805/2012 and Decree No. 8,461/2015, indicated acceptance of the extension of its concession contracts, and signed the Fifth Amendment to its Concession Contract in December 2015. This amendment guarantees extension of the foregoing concessions for an additional 30 years, from January 1, 2016 until January 2, 2046. The new amendment also requires CEMIG’s compliance with more stringent rules regarding service quality and with respect to CEMIG’s economic and financial sustainability, which must be met during the full 30 years of the concession.

Such compliance will be annually assessed by ANEEL, and if there isnon-compliance, the concessionaire may be obliged to arrange for capital contributions by its controlling shareholders.Non-compliance for two consecutive years, or for a total of fivenon-consecutive years, will result in forfeiture (caducidade) of the concession.

Principal Regulatory Authorities

National Energy Policy Council – CNPE

In August 1997, the CNPE was created to advise the Brazilian president regarding the development and creation of the national energy policy. CNPE is presided over by the MME, and the majority of its members are officials of the Federal Government. CNPE was created to optimize the use of Brazil’s energy resources and to assure the supply of energy to the country.

Ministry of Mines and Energy – MME

The MME is the Brazilian Federal Government’s primary regulator of the power industry. Following the adoption of the New Industry Model Law, the Brazilian Federal Government, acting primarily through the MME, undertook certain duties that were previously under the responsibility of ANEEL, including the drafting of guidelines governing the granting of concessions and the issuance of directives governing the bidding process for concessions related to public services and public assets.

National Electric Energy Agency – ANEEL

The Brazilian power industry is regulated by ANEEL, an independent federal regulatory agency. After enactment of the New Industry Model Law, ANEEL’s primary responsibility is to regulate and supervise the power industry in line with the policy issued by MME and to respond to matters which are delegated to it by the Brazilian Federal Government.

National System Operator – ONS

The ONS was created in 1998 as anon-profit private entity comprising free customers, energy utilities engaged in the generation, transmission and distribution of energy, and other private participants such as importers and exporters. The New Industry Model Law granted the Brazilian Federal Government the power to appoint three directors of the ONS, including the Director-general. The primary role of the ONS is to coordinate and control the generation and transmission operations in the interconnected power system, subject to ANEEL’s regulation and supervision.

Energy Trading Chamber – CCEE

One of the main roles of the CCEE is to run public auctions in the regulated market, including the auction of existing energy and new energy. Additionally, the CCEE is responsible, among other things, for: (1) registering all the power purchase agreements within the Regulated Market (CCEARs), and the agreements within the Free Market, and (2) accounting for and settling short-term transactions.

Under the New Industry Model Law, the price of energy in the spot market, known as the Differences Settlement Price (Preço de Liquidação de Diferenças, or “PLD”), takes into account factors similar to the ones used to determine the Wholesale Energy Market spot prices prior to the New Industry Model Law. Among these factors, the variation of the PLD will mainly vary according to the balance between the market supply and demand for energy, as well as the impact that any variation on this balance may have on the optimal use of the energy generation resources by the ONS.

The members of the CCEE are generators, distributors, trading agents and free customers, and its board of directors comprises four members appointed by these agents and one appointed by the MME, who is the chairman of the board of directors.

Energy Research Company – EPE

The Brazilian Federal Government created EPE by a decree enacted on August 16, 2004. It is a state-owned company, responsible for carrying out strategic research on the energy industry – including energy, oil, gas, coal and renewable energy sources. EPE is responsible for: (i) studying projections for the Brazilian energy matrix; (ii) preparing and publishing the national energy balance; (iii) identifying and quantifying energy resources; and (iv) obtaining the required environmental licenses for new generation concessionaires. EPE’s research supports the MME in its policymaking role in the domestic energy industry. EPE is also responsible for approving the technical qualification of new energy projects to be included in the related auctions.

Energy Sector Monitoring Committee – CMSE

Decree No. 5,175 enacted on August 9, 2004, established the Energy Sector Monitoring Committee, or CMSE, which acts under the direction of the MME. The CMSE is responsible for monitoring and permanently evaluating the continuity and security of energy supply conditions and for indicating necessary steps to correct identified problems.

Permanent Commission for Analysis of Methodologies and Computation Programs of the Electric Sector—CPAMP

Ordinance No. 47, enacted on February 19, 2008, created the Permanent Committee for Analysis of Methodologies and Computation Programs of the Electric Sector (CPAMP), with the purpose of guaranteeing coherence and integration of the methodologies and computational programs used by MME, EPE, ONS and CCEE.

Ownership Limitations

On November 10, 2009, ANEEL issued Resolution No. 378, requiring it to notify the Economic Law Secretariat of the Ministry of Justice (“SDE”) if it identifies any act that may cause unfair competition or may result in significant market control (under Article 54 of Law 8,884 enacted on June 11, 1994). After the notification, SDE must inform CADE. On November 30, 2011, Law No. 8,884 was revoked and replaced by Law No. 12,529, which terminated the SDE and replaced it with the Competition General Management Unit (“Superintendência Geral”). Such unit, if necessary, will require ANEEL to analyze any such events, upon which CADE will decide if there should be any sanctions applied. Under Articles 37 and 45 of Law No. 12,529, these may vary from pecuniary penalties to dissolution or other disposition of the offending company.

Incentives for Alternative Sources of Power

In 2000, a federal decree created the Thermoelectric Priority Program (Programa Prioritário de Termeletricidade, or “PPT”), for the purpose of diversifying the Brazilian energy matrix and decreasing its strong dependency on hydroelectric plants.

In 2002, the PROINFA Program was established by the Brazilian Federal Government to create certain incentives for development of alternative sources of energy, such as wind energy projects, SHPs and biomass projects. It was established in accordance with Law No. 10,438, dated April 26, 2002, to create incentives for the development of alternative electric energy sources, including wind energy projects, small hydro power plants and biomass projects. In accordance with PROINFA, Eletrobrás purchases the energy generated by such alternative sources for a period of 20 years, which is subsidized by all final customers connected to the Brazilian Interconnected Grid—SIN, both in the free and regulated market, with the exception oflow-income customers. PROINFA aims to include renewable energy in the national energy matrix. In its first phase, which started in 2004, 2,527 MW of renewable energy (1,100 MW of wind energy, 327 MW from biomass and 1,100 MW from PCHs) became part of the national energy matrix. By 2020, generated power under the PROINFA is likely to represent at least 15% of the annual growth, according to MME.

Law No. 9,427/96, as amended by Law No. 10,762/03, Law No. 13,097/15 and Law No. 13,360/16, further established that hydroelectric plants with an installed capacity of 1MW or less, generation plants classified as a SHP, and those with qualifying solar, wind, biomass or cogeneration sources, with capacity injected into the grid no higher than 30 MW, used for independent production or self-production, will have the right to a discount of at least 50% on the rates for use of the transmission and distribution systems, charged on production and consumption of the energy sold. This legal provision was regulated by ANEEL through its Resolution Nos. 077/2004, 247/2006 and 271/2007.

The government also held two alternative energy generation auctions and fourback-up regulated auctions for contracting power from wind energy projects, SHP projects, or biomass projects.

Regulatory Charges

Global Reversion Fund and Public Use Fund – RGR and UBP

In certain circumstances, power companies are compensated for assets used in connection with a concession if this concession is eventually revoked or is not renewed. In 1971, the Brazilian Congress created a Global Reversion Fund (Reserva Global de Reversão, or “RGR”‘RGR’), designed to provide funds for such compensation. In February 1999, ANEEL revised the assessment of a fee requiring all distributors, transmission companies and certain generators operating under public service regimes to make monthly contributions to the RGR at an annual rate equal to 2.5% of the company’s fixed assets in service, but not to exceed 3.0% of total operating revenues in any year. In recent years, the RGR has been used mainly to finance generation and distribution projects.

The Brazilian Federal Government has imposed a fee on IPPs reliant on hydrological resources, except for SHPs and generators under the public services regime, similar to the fee levied on public-industry companies in connection with the RGR. IPPs are required to make contributionscontribute to the Public Use Fund (Fundo de Uso de Bem Público, or “UBP”‘UBP’), according to the rules of the corresponding public bidding process for the granting of concessions. Until December 31, 2002, Eletrobrás received the UBP payments. Since then they have been paid directly to the Brazilian Federal Government.

Since January 2013, the Global Reversion Fund has not been charged to: (i) any distribution companies;distributors; (ii) any transmission or generation utilities whose concessions have been extended under Law No. 12,783; or (iii) any transmission utilities that started their bidding procedure on or after September 12, 2012.

Fuel Consumption Account – CCC

The Fuel Consumption Account (Conta de Consumo de Combustível, or “CCC”‘CCC’), was created in 1973 to generate financial reserves to cover the high costs associated with the use of thermoelectric energy plants, especially in the Northern Region of Brazil, due to the higher operating costs of thermoelectric plants compared to hydroelectric plants. All energy companies were required to contribute annually to the CCC. Annual contributions were calculated on the basis of estimates of the cost of fuel needed by the thermoelectric energy plants in the following year. The CCC was then used to reimburse generators operating thermoelectric plants for a substantial portion of their fuel costs. Starting in 2013, CCC’sCCC's expenditures are included in the annual budget of the CDE. TheEletrobrás managed the CCC was managed by Eletrobrás and, as of May 2017, it has been managed by CCEE pursuant to Law No. 13,360/2016.

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Charge for the Use of Water Resources

With the exception of Small Hydroelectric Plants, all hydroelectric utilities in Brazil must pay fees to Brazilian states and municipalities for the use of hydrological resources. The amounts are based on the amount of energy generated by each utility and are paid to the states and municipalities where the plant or the plant’s reservoir is located.

Energy Development Account – CDE

In 2002, the Brazilian Federal Government created the CDE to be in effect for 25 years, funded by: (i) annual payments made by concessionaires for the use of public assets; (ii) penalties and fines imposed by ANEEL; and, (iii) since 2003, the annual fees to be paid by agents offering energy to final customers, by means of a charge to be added to the rates for the use of the transmission and distribution system. The amounts are adjusted annually. The CDE was created to support: (1) development of energy production throughout the country; (2) production of energy from alternative sources; and (3) universalization of energy services throughout Brazil. With the enactment of Law No. 12,783/2013, these fees were used to contribute to reduction of energy rates. The CDE is managed by CCEE.

Under the New Industry Model Law, failure to pay the contribution to the RGR, the PROINFA Program, the CDE or any payments for purchases of energy in the regulated market prevents the defaulting party from receiving a rate readjustment (except for an extraordinary review), or receiving resources arising from the RGR or CDE.

ANEEL Inspection Charge (“TFSEE”)– TFSEE

The Energy Services Inspection Charge, is an annual tax charged by ANEEL for its administrative and operating costs. It is calculated according to the Tariff Regulation Procedure (Procedimento de Regulação Tarifária, or “Proret”‘Proret’) – (Subsection 5.5: Energy Services Inspection Charge) based on the type of service provided (including independent production), and is proportional to the size of the concession, permission or authorization. It is limited to 0.4% of the annual economic benefit, considering the installed capacity, earned by the concessionaire, permit holder or authorized party and must be paid directly to ANEEL in 12 monthly installments.

The Regulated Market Account

Contracts held by distribution companiesdistributors for a total supply of approximately 8,600 MW expired in December 2012. These contracts had been executed in the first auctions of energy from existing supply sources in 2005, and the energy should have beenre-contracted in a further auction, but the Brazilian Federal Government did not hold the auction in 2012, because it expected that, with the renewal of the concession contracts this supply would come from Assured Energy Quota Contracts. However, the energy supply that was renewed was lower than expected and the distribution companiesdistributors were under-contracted by 2,000 MW in 2014 and by 2,500 MW in 2015. By 2016, the decrease of consumption of energy resulted in a balance between the power purchase agreements and the demand from distribution companies.distributors. The Regulated Market Account was established in 2014 to cover the exposure that distribution companiesdistributors could have as a result of under-contracted amounts. By 2015, the lower consumption of energy eliminated the under-contracted shortfall and resulted in a more regular contracting level. Thus, the Regulated Market Account was not needed to cover the exposure of distribution companiesdistributors during 2015.

This situation was further exacerbated by the fact that certain power plants did enter into operation when expected, and by the low level of contracting in the auctions held in 2013 and 2014. The result was that the total level of under contracting in 2014 was 3,500 MW. In this scenario the only option for the distribution companies,distributors, in a situation of under contracting, was to purchase the required supply in the spot market.

The hydrological situation of the system in 2013 and 2014, as explained above, raised the energy cost in the spot market to its highest level, causing the financial exposure of the distribution companiesdistributors to reach billions ofreaisReais.

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Since the cost of the distribution companies’distributors’ exposure is passed through to customers only in the following year, this gap caused a problem in the companies’ cash flow. By 2015, the new price cap was lower than in 2014 and the “tariff flags”‘tariff flags’ mechanism helped the distribution companiesdistributors to balance their exposure so no new loan was necessary.

To deal with this, the government created the Regulated Market Account, by Decree No. 8,221/14 enacted on January 1, 2014, regulated by ANEEL Resolution No. 612/04, which created an account to be managed by the CCEE, aiming to cover part or all of the costs resulting from the involuntary exposure to the spot market and of the dispatching of the thermal plants related to the availability contracts in the regulated market. To cover these costs, CCEE obtained a financing from a group of private and public institutions. These funds were then passed to the distribution companies,distributors, as determined by Decree No. 8,221/14 and ANEEL Resolution No. 612/2014. In 2014 and 2015, R$21 billion was raised by this account and passed through to the distribution companies.distributors.

The ANEEL Resolution No. 1,863/15 defined the charges to be applied on the energy customers and the Resolution No. 2004/2015 later updated those charges. These loans were charged by means of the payment through CDE, and were inserted in the energy rates after the Annual Tariff Adjustment of each distribution company proportionally to their captive markets. Initially CEMIG D had 59 months to pay the loan, and in December 2015, that period was updated to 47 months.

Energy Reallocation Mechanism

The Energy Reallocation Mechanism (Mecanismo de Realocação de Energia, or “MRE”‘MRE’), attempts to mitigate the risks involved in the generation of hydroelectric power by mandating that all hydroelectric power generators share the hydrological risks within the Brazilian grid. Under Brazilian law, the revenue from sales by generators does not depend on the amount of energy they in fact generate, but on the “Guaranteed Energy”‘Guaranteed Energy’ or “Assured Energy”‘Assured Energy’ of each plant, indicated in each concession agreement.

Any imbalances between the power actually generated and the Assured Energy is covered by the MRE. In other words, the MRE reallocates the energy, transferring a surplus from those who generated in excess of their Assured Energy to those who generated less than their Assured Energy. The volume of energy actually generated by the plant, either more or less than the Assured Energy, is priced pursuant to an “Energy‘Energy Optimization Rate,”’ which covers the operation and maintenance costs of the plant. This additional revenue or expense is accounted for on a monthly basis by each generator.

The MRE is efficient in mitigating the risks of individual plants that have adverse hydrological conditions in a river basin, but it does not succeed in mitigating this risk when low hydrological levels affect the whole grid, or large regions of it. In extreme situations, even with the MRE, the aggregate generation of the whole system will not attain the levels of the total Assured Energy, and hydrological generators may be exposed to the spot market. In these situations, the shortage in hydro resources will be compensated by greater use of thermal generation, and spot prices will be higher.

In 2014, Brazil was subject to very adverse hydrological conditions, which resulted in a lower level of hydroelectric generation, and on the full utilization of thermoelectric plants of the system, as noted above. This led the plants of the MRE to generate at levels below their physical guarantee levels, causing an exposure for the generation companies to the short-term market. The proportion of the exposure is calculated by the ratio between the energy generated by all the plants of the MRE and the total of all the physical guarantees. This ratio is called the Generation Scaling Factor (“GSF”(‘GSF’) (Fator de ajuste da energia). In 2014, the GSF was 0.91, which indicates that the generation companies had their physical guarantee reduced by 9% in that year. In 2015, this exposure continued to occur, despite of a slightly better hydrology, but with the continued thermal dispatch and lower energy consumption the GSF closed the year at 0.84.

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During 2015, the low values of GSFs along with high spot prices again left producers of hydroelectric generation with high financial exposure. Thus, starting in March 2015, generators began to obtain court injunctions to prevent such exposure. Such injunctions claimed that the GSF’s calculation methodology was incorrect and that it caused undue exposure to producers. From March to September, there was an exponential increase in the number of injunctions issued, which led to a paralysis of the market. In order to address this situation, the Brazilian Federal Government proposed (by means of Provisional Act No. 688) the renegotiation of the hydrological risk, enabling generators with Free Market contracts to transfer the exposure to customers in exchange for a risk’s premium payment to be deposited in theso-called tariff band deposit account (the tariff band surcharges are deposited in such account and transferred to the distribution concessionaires) and would be indemnified for the losses suffered in 2015 by means of, among other measures, an extension of their power generation grants (concessions or authorizations, as the case may be) for up to 15 years. In other words, hydroelectric power plants would recover the costs incurred with GSF deficits retroactively to January 2015, and such recovery would form a “regulatory‘regulatory asset,”’ which would be amortized over the term of the concession/authorization. If the remaining concession/authorization period is insufficient (i.e. not long enough to amortize the regulatory asset), generating companies would have a concession/authorization extension (limited to 15 years). To be able to use the mechanism the companies have to waive all claims filed and all injunctions obtained, as well as waive any further rights they would have in connection with any such legal action. This mechanism enabled plants with contracts signed in the regulated market and the free market to renegotiate them. However, the system and mechanism for renegotiating are different in the two markets. In both, this mechanism functions as a hedge, in which the generators bear the high cost of reserve of energy, and they receive the amount stipulated by the spot market price for their generation.

In the Free Market, the system did not have the same acceptance levels that were present in the regulated market, since the value of the risk premium was too high and, in order to hedge their GSF exposure, the generation companies would have to acquire reserve energy contracts. For these reasons, and considering that there are other alternatives available in the free market to mitigate the hydrological risks, generation companies deemed the voluntary negotiation was deemed inefficient by generation companies.

inefficient. Consequently, acceptance of the mechanism by the regulated market was, approximately 90%. However, it was not accepted by the free market.

In 2018,2020, the average GSF stood at 0.84,0.83 still impacted by a hydrological condition below the historical average and lower reservoir levels. The chart below presents the average price and GSF for the periods shown:

LOGO 

Charges for Use of the Distribution and Transmission Systems

ANEEL oversees rate regulations that govern access to the distribution and transmission systems and establish rates: (i) TUSD;TUSD and (ii) TUST. Additionally, distribution companiesdistributors of the South, South-EastSoutheast and Midwest parts of the grid pay specific charges for transmission of energy generated at Itaipu.Itaipu Hydro Plant. All these rates and charges are set by ANEEL. The following is a summary of each rate or charge:

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TUSD

The TUSD is paid to a distribution company by generation companies, other distribution companiesdistributors and customers, for the use of the distribution system to which they are connected. It is adjusted annually according to an inflation index, the variation in transmission costs, and regulatory charges. This adjustment is passed to customers of the distribution network in the Annual Rate Adjustment or Reviews.

Law 9,427/96 defines the application of discounts not lower than 50% in tariffs for use of the distribution and transmission systems (TUSD and TUST) for projects using alternative energy sources such as solar, wind, biomass and qualified cogeneration, as stated in his Article 26 and paragraphs.

TUST

The TUST is paid by generators, distributors and free customers, for the use of the basic transmission grid to which they are connected. It is adjusted annually according to an inflation index and taking into account any adjustment to the annual revenue of the transmission companies. According to criteria established by ANEEL, owners of the different parts of the transmission grid were required to transfer the coordination of their facilities to the ONS in return for receiving regulated payments from the transmission system users. Generation and distribution companies,distributors, and free customers, also pay a fee for exclusive transmission connections to some transmission companies. The fee is set byregulator sets the regulatorfee for a12-month period and it is paid monthly through the issuance of invoices.

As mentioned above, this tariff may suffer changes regarding the application of discounts for generators using thelow-carbon energy sources defined in Article 26 and paragraphs of Law 9,427/1996.

Distribution rates

Distribution rates are subject to review by ANEEL, which has the authority to adjust and review rates in response to changes in energy purchase costs, charges payments or transmissions payments, or other factors related to market conditions. ANEEL divides the costs of all distribution companiesdistributors into: (1) costs that are beyond the control of the distributor, or “Parcel A”‘Parcel A’ costs; and (2) costs that are under the control of the distributor, or “Portion B”‘Parcel B’ costs. The rate adjustment is based on a formula that takes into account the division of costs between the two categories.

Parcel A costs include, among others, the following:

·Regulatory Charges (CDE, TFSEE and PROINFA);
·Costs of energy purchased for resale (CCEARs, power from Itaipu, and bilateral agreements); and
·Transmission charges (National grid, the Transmission Frontier grid, transport of energy from Itaipu, use of network for connection to other transmission companies, use of networks of other distributors, and the ONS).

 

Regulatory Charges (CDE, TFSEE and PROINFA);

Costs of energy purchased for resale (CCEARs, power from Itaipu, and bilateral agreements); and

Transmission charges (National grid, the Transmission Frontier grid, transport of energy from Itaipu, use of network for connection to other transmission companies, use of networks of other distribution companies, and the ONS).

PortionParcel B costs are those that are within the utility’s control, and include:

return on investment;

taxes;

regulatory default;

depreciation costs; and

costs
·Return on investment;
·Taxes;
·Regulatory default;
·Depreciation costs; and
·Costs of operation of the distribution system.

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In general, Parcel A costs are fully passed through to customers. PortionParcel B costs,costs; however, are adjusted for inflation in accordance with the IGP–MIPCA inflation index adjusted by the X Factor. Energy distribution companies,distributors, according to their concession contracts, are also entitled to periodic reviews. These reviews mainly aim: (i) to ensure necessary revenues to cover efficient PortionParcel B operating costs and adequate compensation for investments deemed essential for the services within the scope of each company’s concession; and (2)(ii) to determine the X factor.

The X factor is used to adjust the proportion of the change in theIGP-M IPCA index that is used in the annual adjustments and to share the company’s productivity gains with final customers.

In addition, distribution concessionaires are entitled to an extraordinary review of rates, on acase-by-case basis, in the event of unusual circumstances, to ensure their financial balance and compensate them for unpredictable costs, including taxes that significantly change their cost structure.

Item 4A.

Unresolved Staff Comments

Not Applicable.

 

Item 5.

Operating and Financial Review and Prospects

You should read the information contained in this section together with our consolidated financial statements as of December 31, 20182020, 2019 and 2017January 1, 2019 and for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, contained elsewhere in this annual report. The following discussion is based on our consolidated financial statements, which have been prepared in accordance with IFRS and presented in millionsmillion ofreaisReais.

Our consolidated financial statements for the years ended December 31, 2019 and the opening balance as of January 1, 2019 have been restated to reflect the application of change in accounting policy disclosed in note 2.8 of our annual consolidated financial statements.

Basis of MeasurementPreparation

a)

Statement of compliance

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS)(‘IFRS’) as issued by the International Accounting Standards Board (IASB)(‘IASB’).

Company’s management confirmscertifies that all relevant and material information in the financial statements is being disclosed, which is used by management in its administration of the Company.

As part of its normal operations, the Company receives written comments and/ or requests from local regulators (i.e. ANEEL and CVM) regarding some of the information reported by the Company on its quarterly and annual reports, as well as on its regulatory financial statements filled locally in Brazil. The Company responds to such requests timely and its management believes that these comments and/ or requests would not have a material impact on the current or previously issued financial statements.

On May 15, 2019,April 30, 2021, the Company’s Fiscal CouncilAudit Committee authorized the issuance of the consolidated financial statements as of December 31, 2018 2020, 2019 and 2017 January 1, 2019 and for the years ended December 31, 2018, 20172020, 2019 and 2016.2018.

 

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Basis of measurement

The consolidated financial statements were prepared on a historical cost basis, except in the case of certain financial instruments and assets as held for sale, which are measured at fair value and fair value less costs to sell, in accordance with the standards applicable, as detailed in Note 31 and 32, to the Financial Statements.respectively.

Functional currency and presentation currency

The consolidated financial statements are presented in Reais, which is the functional currency of the Company and its subsidiaries, joint ventures and affiliates, and all amounts are rounded to the nearest million, except when otherwise indicated.

Transactions in foreign currency were converted to Reais at the exchange rate as of the transaction date. Balances of monetary assets and liabilities denominated in foreign currency are translated to Reais at the exchange rates at the reporting date. Foreign exchange gains and losses resulting from the settlement or translation of assets and liabilities denominated in foreign currency are recorded in finance income and costs in the consolidated statement of income.

 

c)

Use of estimates and judgments

Preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Uncertainties about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Estimates and assumptions are periodically reviewed, using as a reference both historical experience and any significant change in scenarios that could affect the Company’s financial position or results of operations. Revisions in relation to accounting estimates are recognized in the period in which the estimates are reviewed, and in any future periods affected.

The principalmain estimates and judgments that have a signficiantsignificant effect on the amounts recognized in the financial statements are as follows:

Adjustments for loss on doubtful accounts – Note 8 to the Financial Statements;

Deferred income and social contribution taxes – Note 10 to the Financial Statements.

Financial assets and liabilities of the concession – Note 15 to the Financial Statements.

Concession contract assets – Note 16 to the Financial Statements.

Investments – Note 17 to the Financial Statements.

Property, plant and equipment (“PP&E”) and useful life of assets – Note 18 to the Financial Statements.

Intangible assets and useful life of assets – Note 19 to the Financial Statements.

Employee post-employment obligations –Note 24 to the Financial Statements.

Provisions – Note 25 to the Financial Statements.

Unbilled revenue – Note 28 to the Financial Statements.

·Adjustments for loss on doubtful accounts – Note 8 to the Financial Statements;
·Deferred income tax and social contribution tax – Note 10 to the Financial Statements;
·Financial assets and liabilities of the concession – Note 14 to the Financial Statements;
·Concession contract assets – Note 15 to the Financial Statements;
·Investments – Note 16 to the Financial Statements;
·Property, plant and equipment (‘PP&E’) and useful life of assets – Note 17 to the Financial Statements;
·Intangible assets and useful life of assets – Note 18 to the Financial Statements;
·Leasing transaction – Note 19 to the Financial Statements;
·Amounts to be refunded to customers – Note 21 to the Financial Statements;
·Employee post-employment obligations –Note 24 to the Financial Statements;
·Provisions – Note 25 to the Financial Statements;
·Unbilled revenue – Note 27 to the Financial Statements;
·Financial instruments measurement and fair value measurement – Note 31 to the Financial Statements;
·Assets held for sale measurement – Note 32 to the Financial Statements.

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The settlement of the transactions involving those estimates may result in amounts that are significantly different from those recorded in the financial statements due to the uncertainty inherent to the estimation process. The Company reviews its significant estimates at least annually.

New

The main new accounting standards and interpretations

 

a)

New accounting standards, interpretation or revisionsamendments of accounting standards, applied for the first time in 2018

2020

The Company hasnew accounting standards, interpretation or amendments of accounting standards, applied for the first time new accounting standards that became effective for annual periods beginning January 1, 2018 or later, as described below:

IFRS 9 – Financial Instruments

IFRS 9, Financial Instruments, replaces IAS 39, Financial Instruments: Recognition and Measurement, for annual periods beginningin 2020 had no impact on or after 1 January 2018, bringing together all three aspectsthe consolidated financial statements of the accounting forCompany. (See Note 2 of the financial instruments: classification and measurement; impairment; and hedge accounting.

IFRS 9 establishes that all financial assets recognized that are within the scope of IAS 39 should subsequently be measured at amortized cost, fair value through profit or loss and fair value through OCI, reflecting the business model in which the assets are managed, and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest on the principal amount outstanding.

The standard eliminated the categories under IAS 39 and, thus, the Company reclassified those categories to comply with the new standard, as follows:statements).

 

Classification

IAS 39IFRS 9

Financial assets

Cash and cash equivalents – Investments (1)

Loans and receivablesFair value – profit or loss

Marketable securities – Cash investments (2)

Held to maturityAmortized cost

Marketable securities – Cash investments (2)

Held for tradingFair value – profit or loss

Customers and Traders; Concession holders (transmission service)

Loans and receivablesAmortized cost

Restricted cash

Loans and receivablesAmortized cost

Advances to suppliers

Loans and receivablesAmortized cost

Accounts receivable from the State of Minas Gerais

Loans and receivablesAmortized cost

Receivable from related parties

Loans and receivablesAmortized cost

Concession financial assets –CVA (Portion ‘A’ Costs Variation Compensation) Account, andOther financial components, in tariff adjustments

Loans and receivablesAmortized cost

Reimbursement of tariff subsidy payments

Loans and receivablesAmortized cost

Low-income subsidy

Loans and receivablesAmortized cost

Escrow deposits

Loans and receivablesAmortized cost

Derivative financial instruments (swaps)

Fair value –profit or lossFair value – profit or loss

Concession financial assets – Distribution infrastructure

Held for tradingFair value – profit or loss

Indemnities receivable – Transmission

Loans and receivablesAmortized cost

Generation indemnity receivable

Loans and receivablesFair value – profit or loss

Concession grant fee – Generation concessions

Loans and receivablesAmortized cost

Other credits

Loans and receivablesAmortized cost

Financial liabilities

Loans, financing and debentures

Amortized costAmortized cost

Debt agreed with pension fund (Forluz)

Amortized costAmortized cost

Concession financial liabilities –CVA(Portion ‘A’ Costs Variation Compensation) Account, andOther financial components, in tariff adjustments

Amortized costAmortized cost

Onerous concessions

Amortized costAmortized cost

Tax Amnesty Program (PRCT)

Amortized costAmortized cost

Suppliers

Amortized costAmortized cost

Advances from customers

Amortized costAmortized cost

Derivative financial instruments (swaps)

Fair value – profit or lossFair value – profit or loss

Derivative financial instruments – Put options

Fair value – profit or lossFair value – profit or loss

(1)

They are recognized at their nominal amounts, which are similar to fair value.

(2)

The Company holds ‘marketable securities’ with different classifications under a IFRS 9.

Impairment of financial assets

The adoption of IFRS 9 has fundamentally changed the Company’s accounting for impairment losses for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. This approach requires a significant degree of judgment on how the changes in economic factors affect expected losses in realization of credits, to be determined based on weighted probabilities. This model applies to financial assets measured at amortized cost, debt securities measured at fair value through other comprehensive income (FVOCI), with the exception of investments in equity instruments (shares) and concession contract assets.

Under IFRS 9, provisions for expected losses are to be measured on one of the following bases:(i) 12-month expected credit losses, that is to say, losses of credit that result from possible default events within 12 months after the base date; and (ii) ‘full lifetime expected credit losses, i.e. credit losses expected to result from all of the possible default events over the expected life of a financial instrument, if the credit risk has increased significantly since its initial recognition. As required by IFRS 9, the Company used the simplified approach in calculating ECL for trade receivables and contract assets that did not contain a significant financing component. The Company applied the practical expedient to calculate ECL using a provision matrix.

The Company adopted the new standard using the retrospective modified method, with the effects accounted on retained earnings as of January 1, 2018. As a result, the Company will not apply the requirements of this new standard to the comparative years presented.

The impacts arising from the initial adoption of IFRS 9 on January 1, 2018 have been recognised directly to Equity, without impact on the Statement of Income, as follows:

Jan. 01, 2018

IFRS 9

Customers and traders; power transmission (a)

(150) 

Adjustment arising from Light (b)

(83) 

Deferred income and social contribution taxes (a)

51

(182) 

(a)

Expected losses on doubtful receivables from customers of distribution segment and deferred tax effects.

(b)

Refers to the effects of first time adoption of IFRS 9 by Light recognized directly to Equity as of January 1, 2018 based on modified retrospective method.

IFRS 15 –Revenue from contracts with customers

IFRS 15, supersedes IAS 11, Construction Contracts, IAS 18, Revenue, and related interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers. IFRS 15 establishes afive-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. Additionally, IFRS 15 establishes requirements for more detailed presentation and disclosure than the rules until then in effect.

The Company performed an assessment of the five steps for recognition and measurement of revenue, as required by IFRS 15:

1.

Identify the contracts signed with its customers;

2.

Identify the performance obligations in each type of contract;

3.

Determine the price of each type of transaction;

4.

Allocate the price to the performance obligations contained in the contract; and

5.

Recognize the revenue when (or to the extent that) the entity satisfies each performance obligation of the contract.

The Company adopted the new standard using the retrospective modified method, with the effects accounted on retained earnings as of January 1, 2018. As a result, the Company will not apply the requirements of this new standard to the comparative years presented.

The table below summarizes the impacts of adoption of IFRS 15, net of taxes, on the Statement of financial position and the Statement of income as of and for the year ended December 31, 2018:

Consolidated statement of income

(IN MILLIONS OF REAIS - R$ mn)

  December 31, 2018
Amounts prepared
under Previous IFRS		  Adjustment
IFRS 15		  December 31, 2018
Amounts prepared
under IFRS 15		 

CONTINUING OPERATIONS

    

NET REVENUE (1)

   22,222   44   22,266 

OPERATING COSTS

   (17,677)   —     (17,677) 

OPERATING EXPENSES (1)

   (1,699)   (44)   (1,743) 

Share of (loss) profit, net, of subsidiaries and joint ventures

   (104)   —     (104) 

Remeasurement of previously held equity interest in subsidiaries acquired

   (119)   —     (119) 

Adjustment for impairment of Investments

   (127)   —     (127) 

Finance income (expenses), net

   (518)   —     (518) 

Income tax and social contribution tax

   (599)   —     (599) 
  

 

 

  

 

 

  

 

 

 

Net income from continuing operations

   1,379   —     1,379 
  

 

 

  

 

 

  

 

 

 

Consolidated statement of financial position

(IN MILLIONS OF REAIS - R$ mn)

  December 31, 2018
Amounts prepared
under Previous IFRS		   Adjustment
IFRS 15		  December 31, 2018
Amounts prepared
under IFRS 15		 

Current assets

   27,796    —     27,796 

Concession financial assets (2)

   1,202    (131)   1,071 

Concession contract assets (2)

   —      131   131 

Other current assets

   26,594    —     26,594 

Non-current assets

   32,059    —     32,059 

Concession financial assets (2)

   5,925    (998)   4,927 

Concession contract assets (2 and 3)

   —      1,598   1,598 

Intangible assets (3)

   11,377    (600)   10,777 

Othernon-current assets

   14,757    —     14,757 
  

 

 

   

 

 

  

 

 

 

Total assets

   59,855    —     59,855 

Current liabilities

   23,394    —     23,394 

Non-current liabilities

   20,522    —     20,522 
  

 

 

   

 

 

  

 

 

 

Total liabilities

   43,916    —     43,916 
  

 

 

   

 

 

  

 

 

 

Shareholders’ equity

   15,939    —     15,939 
  

 

 

   

 

 

  

 

 

 

(1)

Adjustment related to reimbursements to customers, arising from penalties for violation of electricity supply quality indicators determined by the grantor, as reduction in Revenues for use of the distribution network (TUSD). Up to December, 31, 2017, these reimbursements were recognized as operational expenses.

(2)

Change in the classification of assets linked to transmission infrastructure. Considering the performance obligation, during the period of the concession, as comprising availability, operation and maintenance of the transmission lines, the assets linked to transmission infrastructure, which until 2017 were recognized as financial assets, began to be recognized as concession contract assets as from January 1, 2018. For more details see Note 16 to the Financial Statements.

(3)

Classification of the financial assets related to infrastructure of the concession during the period of construction to contract asset as defined under iFRS 15.Infrastructure under constructionrefers to assets in the distribution segment still in the process of construction, for which the performance obligation is satisfied over the time during which they are constructed. Until 2017, these assets were initially recorded in Intangible assets, and when they were ready for their intended use, the total balance was allocated to financial assets and intangible assets. As from January 1, 2018, these assets are classified as concession contract assets, and later splited between financial assets and intangible assets when they came into operation. For more details see Note 16 to the Financial Statements.

The impacts arising from the initial adoption of IFRS 15 on January 1, 2018 by Company’s equity investees have been recognised directly to Equity, without impact on the Statement of Income, as follows:

(IN MILLIONS OF REAIS - R$ mn)Jan. 01, 2018

IFRS 15

Adjustment arising from Taesa (a)

25

25

(a)

Refers to the effect of first time adoption of IFRS 15 by the equity investee Taesa recognized directly to Equity as of January 1, 2018 based on modified retrospective method.

Impact of the newly applied standards on contracts under the scope of IFRIC 12 –Concession contracts

The changes introduced by IFRS 15 and IFRS 9 have impacted the distribution and transmission segments in the classification and measurement of their concession related assets, which are already under the scope of IFRIC 12. Under IFRS 15, the consideration is required to be allocated to each performance obligation identified in the contract with the customer, and the financial asset that was previously recognized under IAS 39, need now to be classified under IFRS 15 (Contract asset, Receivable) and under IFRS 9, as a financial asset classified as either amortized cost or fair value through profit or loss. Under IFRS 15, the Company concluded that it has contracts with the following identified performance obligations: (i) construction – to build; (ii) to operate and maintain; and (iii) to provide financing to the concession Grantor. In the transmission segment, the Company has concluded that it has a single contract with a customer (the transmission line concession), with those same obligations. Thus, based on the contractual characteristics, the Company classified the financial asset that was recorded under IAS 39, as a contract asset under IFRS 15, upon completion of the construction of the infrastructure. This is because the Company is required to operate and maintain the infrastructure, and it is also subject to periodic tariff reviews, in order to bill for the construction services. For the same reasoned and based on the contractual characteristics, the assets related to the the infrastructure of the distribution concession agreements that are still under construction are recorded as contract assets.

Because of the long-term nature of the concession contracts, the Company has identified that there is a significant financing component that requires to be accounted for separately.

The impacts on the measurement of the concession contract assets are described in Note 16 to the Financial Statements.

Other interpretation or revisions of accounting standards without relevant effects in the consolidated financial statements

Company applied all amendments and new interpretation to IFRSs issued by the IASB which are effective for fiscal years commencing on January 1, 2018, however, they did not have a material effect in the consolidated financial statements and are described below:

IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations

The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of anon-monetary asset ornon-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises thenon-monetary asset ornon-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the date of the transactions for each payment or receipt of advance consideration. This Interpretation did not have any impact on Company’s consolidated financial statements.

Amendments to IAS 28 Investments in Associates and Joint Ventures—Clarification that measuring investees at fair value through profit or loss is aninvestment-by-investment choice

The amendments clarify that an entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on aninvestment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. If an entity that is not itself an investment entity, has an interest in an associate or joint venture that is an investment entity, then it may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which: (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent. These amendments did not have any impact on the Company’s consolidated financial statements.

b)

Standards issued but not yet effective

BelowThe new and amended standards and interpretations that are details of standards, new or updated interpretations, issued, but not yet in effective, up to the reporting date of issuance of the Company.Company’s financial statements are disclosed in the financial statements. The Company intends to adopt these standards, new interpretations, and updates when they come into effect.

IFRS 16 –Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease,SIC-15, Operating Leases-Incentives andSIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of‘low-value’ assets (e.g., personal computers) andshort-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

The Company adopted IFRS 16 on January 1, 2019, using the modified retrospective method, therefore, comparative periods will not be restated. The Company will use the exemptions proposed by on lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset if of low value.

The Company’s assessment and detailed evaluation of the impacts of adoption of IFRS 16 was based mainly on the following lease contracts:

Commercial real estate used for serving customers;

Buildings used as headquarters;

Commercial vehicles used in operations.

Impact on the statement of financial position is as follows:

(IN MILLIONS OF REAIS - R$ mn) 

January 1, 2019

Assets – right of use

342

Liabilities – Obligations referring to operation leasing agreements

(342) 

IFRIC 23 – Uncertainty over income tax treatments

The interpretation addresses the accounting for income taxes taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include the requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

Whether the entity considers uncertain tax treatments separately.

The assumptions that the entity makes in relation to the examination of tax treatments by the tax authorities.

How the entity determines taxable profit (tax loss), the bases, unused tax credits, and tax rates.

How the entity consider changes in facts and circumstances.

An entity is has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The Interpretation effective for annual reporting periods beginning on or after January 1, 2019, but certain transition reliefs are available. The Company will apply the interpretation from its effective date.

The Company is still evaluating the potential effects of application of this new Interpretation on the consolidated financial statements.

The Company expects that other amended standards and interpretations, not yet in effect will not likely have a significant impact on its consolidatedif applicable, when they become effective. (See Note 2 of the financial statements.

statement).

Summary of significant accounting policies

The significant accounting policies described belowin the financial statements have been applied consistently to all the periods presented in the consolidated financial statements, except for the practices, which were applied prospectively as from 2018,2020, in accordance with the standards and regulations previously described in this section. (See Note 2 of the financial statement)

The main accounting policies relating to the Company´s present operations that require judgment and the use of specific valuation criteria are the following:

 

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Financial instruments

Financial instruments

Financial instruments are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (‘OCI’), and fair value through profit or loss, depending on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them.

Fair value through profit or loss: this includes the concession financial assets related to distribution segment infrastructure. TheseThe financial assets related to energy distribution infrastruture are measured at the expected New Replacement Value (Valor(Valor Novo de Reposição, or VNR)‘VNR’), as defined in the concession agreement, which represent the fair value of the residual value of the infrastructure as of the balance sheet date. The financial assets related to gas distribution infrastruture are measured based on the fair value of the indemnity established in the concession contract. The Company recognizes a financial asset resulting from a concession contract when it has an unconditional contractual right to receive cash or another financial asset from, or under the direction of the grantor for the services of construction and maintenance of the infrastructure.

Financial assetsThis category also include;includes cash equivalents, marketable securities not classified at amortized cost, derivative financial instruments concession financial assets for distribution infrastructure, and indemnities receivable from the generation assets.

Cash and cash-equivalents comprise cash at banks and on hand and short-term highly liquid deposits, subject to an insignificant risk of changes in value, maintained to carry out the Company’s short-term cash management. The disclosures about the main assumptions used in fair value measurement are summarized in the respective notes.

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Derivative financial instruments (Swap transactions)transactions and call spread): The Company through its subsidiary Cemig GT, maintains derivative instruments to manage its exposure to the risks of changes in foreign currency exchange rates mainly the US dollar.(US dollar). Derivative instruments are recognized initially at their fair value and the related transaction costs are recognized in the Statement of income when they are incurred. After initial recognition, derivatives are measured at fair value and changes in fair value are recorded in the Consolidated Statement of Income.

Derivative financial instruments (Put options) – The options to sell to CemigCEMIG GT units of the FIP Melbourne and FIP Malbec funds (‘the SAAG Put’PUT’) were measured at fair value using the Black-Scholes-Merton (BSM) method, using as reference the related put options obtained by the BSM model valued on the closing date of the financial statements for the year ended December 31, 2018. its exercise date. See note 3231 to the Financial Statements for further details.

Amortized cost: This includes;includes accounts receivables from customers, traders and power transport concession holders; advances to suppliers; accounts receivable from Minas Gerais State; restricted cash; escrow deposits in litigation; marketable debt securities with the intention of holding them until maturity;maturity and the terms of their contracts originate known cash flows that constitute exclusively payments of principal and interest; concession financial assets related to thegeneration concession grant fee; indemnifiable receivable for transmission assets; accounts receivable from related parties; suppliers; loans and debentures; debt agreed with the pension fund (Forluz)(‘Forluz’); concessions payable; the Minas Gerais State PRCT Tax Amnesty Program; advances from customers; assets and liabilities related to theCVA account andOther financial components in tariff adjustments; the low-income subsidy; reimbursement of tariff subsidies; and other credits.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate (‘EIR’).

•

Customers,

Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

Receivables from customers, traders and power transport concession holders

Accounts receivable from customers, traders and power transport concession holders are initially recognized at the sales value and subsequently measured at amortized cost. These receivables are stated including sales tax and net of withholding taxes, which are recognized as recoverable taxes.

In order to estimate future losses on receivables, the Company adopted a simplified approach, considered that the accounts receivable from customers do not have significant financial components, and calculated the expected loss considering the historical average ofnon-collection over the total billed in each month (based on the last 1224 months of billing), segregated by type of customer and projected for the next 12 months, taking into account the age of maturity of invoices, including those not yet due. due and unbilled.

The estimatedAnnual Permitted Revenue (‘RAP’) is the consideration received as revenue from the investment in the national grid as well as the construction or upgrades, operation and maintenance services. The revenue from the energy transmission concession contracts is recognized when the performance obligation is satisfied. The contract asset is transferred to the financial asset, falling within the scope of IFRS 9, after the issuance of the credit notice, monthly issued by ONS, authorizing RAP billing, which is when the right to consideration is unconditional. The revenue is recognized at the transaction price and the assets are subsequently measured at amortized cost, using the effective interest method, adjusted by impairment losses, when applicable, and recognizing the deferred taxes. As required by IFRS 9 – Financial Instruments, the financial asset carrying amount is analyzed and, when applicable, a loss allowance for the past due balancesexpected credit losses is recognized.

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The expected losses for overdue accounts of customers who havethat renegotiated their debt has been calculatedis measured based on the maturity date of the original invoice, withdespite the new terms negotiatednegotiated. Expected losses are fully recognized for accounts overdue for more than 12 months.

Expected losses for invoices unbilled, not being taken into account. For the balances that are moreyet due or less than 12 months past due expectation of total loss is assumed.

Provisions for expected losses are measured based on expected losses for the next 12 months, as a function ofaccording to the potential default events, or losses of credit expected for the whole life of a financial instrument, if the credit risk has significantly increased since its initial recognition.

For large customers, the provision for doubtful receivables is recorded based on estimates by Management, in an amount sufficient to cover probable losses. The principalmain criteria used by the Company are: (i) customers with significant open balances, the receivable balance is analyzed inbased on the light of thedebt history, of the debt, negotiations in progress, and asset guarantees; and (ii) for large customers, an individual analysis of the debtors and the initiatives in progress to realize the overdue credits.receivables.

 

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Investments

The Company has investments in associatesConcession assets

Energy and joint ventures. These investments are accounted using the equity method in the consolidated financial statement andGas Distribution segment: Concession infrastructure under construction are initially recognized at fair value.

Controlrecorded as contract assets, in accordance with IFRS 15 and IFRIC 12, considering that the Company is obtainedentitled to consideration for performance completed to date, and, only when the Company and/or one of its subsidiariesconstruction phases ends, has the power to control the financial and operational policies of an entity to receive benefits from its activities.

The consolidated financial statements include the financial statements of the Company and its subsidiaries.

The investments of the Company includes the intangible assets representing the right to commercial operationcharge for the services provided to customers or receive an indemnity at the end of the regulated activity identified inconcession period for assets not yet amortized. In accordance with IFRS 15 and IFRIC 12, construction revenues equivalent to new infrastructure are initially recorded as contract assets, measured at construction cost plus margin (which, for the process of allocationconstruction business, is deemed as zero). Construction cost include borrowing costs.

The portion of the price for acquisition of the jointly-held entities and affiliated companies, net of any accumulated impairment.

•

Business combination

Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at the acquisition date fair value, and the amount of the any non-controlling interest in the acquiree. Any contingent considerationinfrastructure to be transferred by the acquirer will be recognised at fair value at the acquisition date.

A business combination occurs when the Company acquires control of a business, whatever its legal form. At the acquisition date the Company recognizes and measures the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. Goodwill is initially measured at cost, which being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed.

When a business combination is carried out in stages (“step-acquisition method”), the interest previously held by the Company in its investee is remeasured at the fair value at the acquisition date and the corresponding gain or loss, if any, is recognized in the statement of income.

•

Concession assets

EnergyDistributionsegment: concession intangible assets are amortized during the concession period is recorded as an intangible asset, as provided for in IFRIC 12 –Concession contracts,. As disclosed in note 2.4 to and is subsequently measured at cost less amortization. The amortization rates reflect the Financial Statements,expected pattern of their consumption and are measured based on the changes introducedasset carrying amount using the straight-line method, using the rates based on the expected useful life of the energy distribution assets that are used by IFRS 15 have affected the classification of distribution assets.Regulator during the tariff process.

The Company recognizes a financial assetsasset for to the residual value of the infrastructure at the end of the concession, representing an unconditional right to receive cash or otheranother financial asset directly from the grantor. Until December 31, 2017 the financial assets was classified as held for trading (available for sale). Starting January 1, 2018, and due to the application of IFRS 9 the financial asset that is now classified as a financial instrument in the Fair value through profit or loss category.

The amortization period of the concession intangible asset includes an extension period of 30 years, as described in more detail in Note 4 to the Financial Statements.

Additions to the concession infrastructure are initially recorded as a contract assets at cost, including capitalized borrowing costs. When the infrastructure starts operations, at that point the infrastructure cost is split and part is allocated to a financial assets, as explained above, and the remaining to an intangible assets. The financial assetsThis portion is subsequently measured at the estimated fair value.value, which represents the New Replacement Value (Valor Novo de reposição, or VNR), based on the Regulatory Remuneration Base of Assets ratified by the regulator (‘ANEEL’) in the tariff processes.

Transmissionsegment:Starting January 1, 2018, When construction is finalized, concession infrastructure assets remains as contract asset, considering the existence of performance obligations during the concession period, represented by the network construction, operation and due to the application of IFRS 15, the financial asset related to themaintenance, as there is no unconditional right to receive the consideration for the construction service unless the company operates and maintains the infrastructure. The contract asset is reclassified as a financial asset (accounts receivable) only after the performance obligation to operate and maintain the infrastructure cost was reclassifiedis satisfied, since from that point nothing more than the passage of time is necessary for the consideration to a contract asset. See Note 2.4be received. The costs related to the Financial Statements.infrastructure construction are recognized as incurred in the statement of income. The construction or upgrade services revenues are recognized in accordance with the stage of completion of the construction service, based on the costs actually incurred, including construction margin.

The margin added to the performance obligation related to the construction and improvements is based on Company’s expectations regarding its projects profitability.

When adjusting the amount of consideration for the concession contract asset financing component, the Company uses the discount rate which reflects the Company’s estimation of the financing of the transmission infrastructure investments. This reflects the rate that discounts the nominal amount of the consideration to the price that the customer would pay in cash for the goods or services when (or as) they transfer to the customer. The interest rates implicit in the contract are defined at the beginning of the investments and take into account the credit risk of the counterparties.

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When the tariff set is changed at the time of the periodic tariff reviews, the contract asset is remeasured, discounting the future revenue (RAPs) using the contract original discount rate, implicit in the contract. The amount remeasured is confronted to the carrying amount and the difference is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumulative catch-up basis).

Consideration monthly received is allocated to revenue related to the operation and maintenance service and to the collection of the financialcontract asset related to the construction service based on their relative fair value. Costs of expansion and upgrades of the infrastructure are recorded as contract assets.

Due

Financial portion of remuneration and depreciation unpaid since the extensions of concessionsin in accordance with Law 12,783/2013: corresponding to the acceptanceportion of remuneration and depreciation unpaid from the date of the terms of renewal of the old transmission concessions, part of the transmission assetsextension of the concessions terminated on December 31, 2012, is subject of reimbursement byuntil it was incorporated into the granting authority, and an accounts receivable was recognized corresponding to the estimated indemnityAssets Remuneration Base (January 1, 2013 until June 30, 2017), to be receivedpaid over a period of eight years. For further information, see Note 16years through the RAP.

The amounts to be received are subject to the Financial Statements.applicable regulatory rules in the tariff process, including the mechanisms that monitor and measure efficiency. In this new context, the unconditional right to consideration depends on the satisfaction of the performance obligation to operate and maintain, and is, thus, characterized as a contractual asset.

Generation segment:segment: As described in Note 15 to the Financial Statements, theThe concession fee right paid for the concession contracts granted by the Brazilian Regulator (Aneel)ANEEL in November 2015 has beenare classified as a financial asset, at amortized cost, as it represents an unconditional right to receive cash, adjusted by the IPCA index, and remuneratory interest, during the period of the concession.

Gas distribution segment:concession intangible assets recorded in the gas distribution segment are amortized during the concession period, as provided for in IFRIC 12 – Concession contracts.

The amortization reflects the pattern in which future economic benefits of the asset are expected to be consumed. The consumption pattern of the assets are related to the economic useful lives of each of the underlying assets that comprise the concession. This economic useful life is also used by the regulator to determine the basis for measuring the tariff for rendering the concession services.

The Company recognizes a financial asset related to the residual value of the infrastructure at the end of the concession, representing an unconditional right to receive cash or other financial asset directly from the grantor.

Starting on January 1, 2018, and due to the application of IFRS 15, the financial asset related to the unconditional right to receive the infrastructure cost including capitalized borrowing costs, was reclassified to a contract asset. See Note 2.4 to the Financial Statements.

Additions and upgrades to the concession infrastructure are initially recorded as a contract assets at cost, including capitalized borrowing costs. When the infrastructure starts operations, at that point the infrastructure cost is split and part is allocated to a financial assets, as explained above, and the remaining to an intangible assets. The financial assets is subsequently measured at the estimated fair value.

•

Intangible assets

Intangible assets are mainly, comprised of the intangible assets related to the service concession contracts as described in topic (e) above as well as software. Intangible assets are stated at cost, less amortization, and any accumulated impairments when applicable.

 

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Property, plant and equipment

Impairment

Property, plant and equipment are stated at the cost, including deemed cost (upon initial application of IFRSs) and capitalized borrowing costs, less accumulated depreciation.

Depreciation is calculated on a straight-line basis, over the estimated useful lives of the assets, or the concession term, whatever is shorter. Depreciation rates are shown in Note 18 to the Financial Statements.

Gains and losses resulting from the disposal of a property, plant and equipment, are measured as the difference between the net proceeds obtained from the sale and the asset’s book value, and are recognized in the Statement of income when the asset is disposed of.

•

Impairment

In assessing impairment of financial assets, the Company uses historical trends of the probability of default, timing of recovery and the amounts of loss incurred, adjusted to reflect management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

Additionally, management revises, annually, the carrying valueamount of non-financial assets, for the purpose of assessing if there is any indication, such as events or changes in the economic, operational or technological conditions that an asset may be impaired. If any indication exists, or when annulannual impairment testing of an asset is required, the Company estimates the asset´s recoverable.recoverable amount. The recoverable valueamount of an asset or cash generating unit is defined as the higher between its value in use and its fair value less costs to sell. When the carrying valueamount of an asset or cash generating unit exceeds its recoverable value,amount, an impairment loss is recognized, adjusting the carrying valueamount of the asset or cash generating unit to its recoverable value.amount.

 

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Employee benefits

The liability recorded in the consolidated statement of financial position related the Company’s retirement benefit pension plan obligations, is the greater of: (a) the amount to be paid in accordance with the terms of the pension plan for amortization of the actuarial obligations, and (b) the present value of the actuarial obligation, as calculated by a qualified actuary, less the fair value of the plan’s assets, and adjusted for unrecognized actuarial gains and losses. Expenses related to the debt agreed upon with the pension trust fund were recorded in finance income (expenses), because they represent financial interest and inflation adjustment. Other expenses related to the pension fund were recorded as operating expenses.

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The Company offers post-employment healthcare benefits to its employees as well as life insurance for active and retired employees. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology that is used for defined benefit pension plans. These obligations are measured annually by a qualified independent actuary.

Actuarial gains and losses arising as a result of changes in actuarial assumptions are recognized in other comprehensive income.

Short-term benefits to employees: Employees’ profit sharing as determined in the Company’sby-laws are recorded in accordance with the collective agreement established with the employees’ union and recorded in employees’ and managers’ profit sharing in the Statementstatement of income.

 

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Income tax and Social Contribution tax

Income tax and social contribution tax

The income tax and social contribution tax expenses represents the total amount of current and deferred taxes, which are presented separately in the financial statements. The Company is subject to the regular tax regime ‘Lucro Real’. However, its subsidiaries that can benefit from the favorable tax regime, according to tax law, analyze the payable tax projection for the next year, in order to determine the tax regime that reduces its taxes payment.

Deferred and current tax related to items recognized directly in equity or in other comprehensive income (OCI) are recognized directly in equity.

Periodically, in accordance with IFRIC 23, the Company and its subsidiaries evaluate positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Current

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date.

Advances, or tax credits, are presented as current ornon-current assets, in accordance with the expected date of their realization at the balance sheet date, when the tax amounts are duly calculated and offsettedoffset against advances made.

Deferred

Deferred tax is provided using the liability method onrecognized for temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax bases of assets and liabilities and their carrying amounts for financial reporting purposesbase at the reporting date.

Deferred tax liabilities are recognized for all taxable temporary differences except:

When the deferredinter-temporal tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

differences. Deferred tax assets are recognized for all deductible the temporary differences and unused tax loss carryforwardsdeductible, to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and unused tax loss carryforwards can be utilized, except:

When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable thatfor the temporary differences will reverse in the foreseeable future and taxable profit willto be available against which the temporary differences can be utilizedoffset, except:

·When the deferred tax (asset or liability) arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;
·In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future;
·In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized;
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The carrying amount of deferred

·Theses taxes are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred income tax and social contribution tax assets isare reviewed at eachthe reporting date, and are reduced to the extent that their realization is no longer probable that sufficient taxable profit will be availableprobable.

The Company offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to allowset off current tax assets and current tax liabilities and the deferred tax asset to be utilized. Unrecognizedassets and deferred tax assets are re-assessed at each reporting date and are recognisedliabilities relate to income taxes levied by the extent that it has become probable that futuresame taxation authority on either the same taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.entity.

 

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Non-current assets classified as held for sale and discontinued operations assets classified as held for sale and discontinued operations

The Company classify non-current assets as held for sale when their carrying amount will be recovered, principally, through a sale transaction rather than through continuous use. This condition is met only when the asset (or group of assets) is available for immediate sale in its current condition subject only to usual and customary terms for the sale of the asset (or group of assets) and its sale is considered highly probable. Management must be committed to the sale which is expected to be completed within one year from the date of classification. Assets held for sale are measured at the lower of its carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance expenses and income tax expenses.

Fixed assets (PP&E) and Intangible assets are not depreciated or amortized as long as they are classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the Statement of Financial Position.financial position.

Dividends received from jointly controlled entities and affiliates, classified as held for sale, are recognized in the Income statement, in view of the discontinuation of measurement by the equity method, under IFRS 5.

A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

·Represents a separate major line of business or geographical area of operations;
·Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
·Is a subsidiary acquired exclusively with a view to resale.

 

Represents a separate major line of business or geographical area of operations

Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations

Or

Is a subsidiary acquired exclusively with a view to resale

Discontinued operations are excluded from the reported profit from continuing operations, and are presented as a single amount, after taxes, based on discontinued operations, in the statement of income.

Additional disclosures are presented in Note 33 to the Financial Statements.32. All the other notes to the financial statements include amounts for continuing operations, except when otherwise stated.

 

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Revenue recognition

Through December 31, 2017,Revenue recognition

In general, revenue was measured at fair value of the consideration received or receivable, less any estimates or refunds and other similar deductions.

As from January 1, 2018, in general, revenue contracts with customers in the Company’s energy, gas and other sectors, areis recognized when the performance obligation is satisfied, at an amount that reflects the amount of consideration that is expectedto which the Company expects to be received in exchange for the goods or services transferred. The Company recognizes revenue only when it is probable that it will receive the considerationentitled in exchange for the goods or services transferred, taking into accountwhich must be allocated to that performance obligation. The revenue is recognized only when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services transferred to the customer, considering the customer’s ability and intention to pay that amount of consideration when it is due.

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Revenues from the sale of energy are recordedmeasured based on the energy supplied and the tariffs specified in the terms of the contract or in effect in the market. Revenues from retail supply of energy to final customers are recorded when the delivery has taken place. The billing is carried out monthly. Unbilled retail supply of energy, from the period between the last billing and the end of each month, is estimated based on the supply contracted. contracted and on the volume of energy delivered but not yet billed.

Historically, the differences between the estimated amounts and the actual revenues recognized are not significant.

Revenue from the supply of energy to the Brazilian grid system is recorded when the delivery has taken place and is invoiced to customers on a monthly basis, in accordance with the payment schedules specified in the concession agreement.

Revenues from transmission concession services are recognized in the Statement of income monthly, and represent the fair value of construction, operation and maintenance of the transmission lines and the remuneration of the financial asset.

The services provided include charges for connection and other related services; the revenues are recognized when the services are rendered.

In order to satisfy its performance obligations under the transmission concession contracts the Company is required to maintain the transmission infrastructure available to users and in return receives a remuneration refer to as “Permitted Annual Revenue (RAP)” for the concession period, which is billed monthly.

Revenues from use of the distribution system (TUSD) received by the Company from other concession holders and other customers that use the distribution network are recognized in the monthperiod in which the services are provided. Unbilled retail supply of energy, from the period between the last measured consumption, according to the schedules specified in the concession regulation, and the end of each month, is estimated based on the billing from the previous month or the contractual amount. Historically, the differences between the estimated amounts and the actual revenues recognized are not significant.

The ‘Parcel A’ revenue andother financial componentsin tariff adjustments are recognized in the Statement of income when the energy acquisition costs effectively incurred are different from those considered by the Grantor to stablishes the energy distribution tariff. For further details, see Note 15 to the Financial Statements.

Any adjustment of expected cash flows from the concession financial asset of the energy distribution concession contract is presented as operating revenue, together with the other revenues related to the energy distribution services.

•

Finance income and expenses

Finance incomeConstruction revenue – corresponds to the performance obligation to build the infrastructure, by the investments in concession assets made by the Company in the reporting period. Recognition of this revenue is mainly compriseddirectly related to the expenditure incurred on the addition of interest incomecontractual assets.

Revenues from the sale of gas are measured based on funds invested, monetary adjustmentsthe volume of gas sold and the tariffs specified in the terms of the contract. Revenues from supply of gas are recorded when the delivery has taken place, based on overdue receivablesthe volume measured and interest incomebilled. The billing is carried out monthly. In addition, unbilled supply of gas, from the period between the last billing and the end of each month, is estimated based on other financial assets. Interest income isthe supply contracted and on the volume of gas delivered but not yet billed. Historically, the differences between the estimated amounts and the actual revenues recognized are not significant and are recorded in the following month.

Revenues from transmission concession services are recognized in the Statementstatement of income monthly, and includes:

·Construction revenue corresponds to the performance obligation to build the transmission infrastructure, recognized based on the satisfaction of performance obligation over time. They are measured based on the cost incurred, including PIS/Pasep and Cofins taxes over the total revenues and the profit margin of the project.
·Operation and maintenance revenue corresponds the performance obligation of operation and maintenance specified in the transmission concession contract, after termination of the construction phase. They are recognized when the services are rendered and he invoices for the RAPs are issued.
·Interest revenue in the contract asset recognized, recorded as transmission concession gross revenue in statement income. Revenue corresponds to the significant financing component in the contractual asset, and is recognized by the linear effective interest rate method based on the rate determined at the beginning of the investments, which is not subsequently changed. The average of the implicit rates is 6.68%. The rates are determined for each authorization and are applied on the amount to be received (future cash flow) over the contract duration. This includes financial updating by the inflation index specified for each transmission contract.

The services provided include charges for connection and other related services; the revenues are recognized when the services are rendered.

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The profit margin on operation and maintenance of transmission infrastructure is determined based on the individual sale price of the service, based on available information on the value of the consideration that the entity expects to have the right to, in exchange for the services promised to the client, in cases where the Company’s transmission subsidiaries have the right, separately, to the remuneration for the activity of operation and maintenance, as per IFRS 15 – Revenue from contracts with clients, and the costs incurred for the provision of services of operation and maintenance.

The Resolution ANEEL 729/2016 regulates the Variable Portion (‘Parcela Variável’ or ‘PV’), which is the pecuniary penalty applied by the grantor as a result of any unavailability’s or operational restrictions on facilities that are part of the National Grid and the surcharge corresponding to the pecuniary bonuses provided to concessionaries as an incentive to improve the transmissions facilities availability. The Company assessed the PV effects, based on historical data, and concluded that recognizing the occasional variable consideration arising from the PV estimated would not result in relevant account information. Therefore, for the both situations described, it is recognized as an adjustment to revenue, either as an increase in or a reduction of operation and maintenance revenue, when it occurs.

Leases

As from the IFRS 16 first adoption, on January 01, 2019, the Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets.

When recording a lease operation, the lessee recognizes a liability to make the payments (a leasing liability) and an asset, representing the right to use the subject asset during the period of the leasing (an asset of right to use).

Right-of-use assets:Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated amortization and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are amortized on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets; as described in Note 19 to the Financial Statements.

If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, amortization is calculated using the effectiveestimated useful life of the asset.

Lease liabilities:At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.

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In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest method.rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

FinanceThe Company recognize separately the expenses include:of interest on the leasing liability and the expense of depreciation of the asset of the right to use.

Short-term leases and leases of low-value assets:The Company applies the short-term lease recognition exemption to its short-term leases. It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognized as expense on borrowings; and foreign exchange and monetary adjustments on borrowing costs of debt, financings and debentures. Interest expense ona straight-line basis over the Company’s borrowings that is not capitalized is recognized in the Statement of income using the effective interest method.lease term.

 

•

Segment reporting

The operating results of all operating segments for which discrete financial information is available, are reviewed regularly by the Company’s CEO, to make decisions about resources to be allocated to the segment, and to assess its performance.

Segment results that are reported to the CEO include items directly attributable to the segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters) and head office expenses.

Segment capital expenditure is the total cost incurred during the year to acquire: concession financial assets, intangible assets, concession contract assets and property, plant and equipment.

Principal Factors Affecting our Financial Performance

Analysis of Energy Sales and Cost of Energy Purchased

Energy rates in Brazil, related to energy distribution companies’distributors’ sales to regulated customers, are set by ANEEL, which has the authority to readjust and review rates in accordance with the applicable provisions of the concession contracts. See “Item 4: The Brazilian Power Industry—Tariffs”.

We charge regulated customers for their actual energy consumption during each30-day billing period at specified rates. Certain large industrial customers are charged according to the energy capacity contractually made available to them by us, with adjustments to those rates according to consumption during peak demand time, as well as capacity requirements that exceed the contracted amount.

In general, rates on energy that we purchase are determined by reference to the capacity contracted for as well as the volumes actually used.

The following table sets forth the average rate (inreaisReais per MWh) and volume (by GWh) components of energy sales and purchases for the periods indicated. The term “average rate”‘average rate’ refers to revenues for the relevant class of customers divided by the MWh used by such class and does not necessarily reflect actual rates and usage by a specific class ofend-users during any particular period.

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   Year ended December 31, 
   2018   2017   2016 

Energy sales:

      

Average rate to final customers (R$/MWh)

      

Industrial rate

   276.61    276.27    276.80 

Residential rate

   843.28    783.53    788.52 

Commercial rate

   558.83    578.36    663.17 

Rural rate

   496.27    446.09    409.23 

Public services rate and others

   505.74    469.17    464.45 

Total sales to final customers (GWh)

      

Industrial customers

   17,689    17,761    19,494 

Residential customers

   10,267    10,008    9,916 

Commercial customers

   8,380    7,508    6,573 

Rural customers

   3,615    3,651    3,575 

Public services and other customers

   3,571    3,534    3,488 

Average rate (R$/MWh)

   501.68    479.90    474.85 

Total revenues (R$million)

   21,882    20,438    20,458 

Sales to distributors:

      

Volume (GWh)

   11,992    12,777    12,509 

Average rate (R$/MWh)

   249.33    255.37    237.61 

Total revenues (R$million)

   2,990    3,263    2,972 

Year ended December 31,

2020

2019 (Restated)

2018

(Restated)

Energy sales:   
Average rate to final customers (R$/ MWh)   
Industrial rate327.62320.04276.61
Residential rate899.31917.41843.28
Commercial rate580.91582.62558.83
Rural rate581.49542.26496.27
Public services rate and others540.52548.43505.74
    
Total sales to final customers (GWh)   
Industrial customers12,73114,87317,689
Residential customers10,98110,53810,267
Commercial customers8,5719,3358,380
Rural customers3,7663,7953,615
Public services and other customers3,3193,6343,571
Average rate (R$/ MWh)584,18569,76501.32
Total revenues (R$million)23,01824,05221,882
    
Sales to concession holders:   
Volume (GWh)13,90711,92011,992
Average rate (R$/ MWh)241.82246.90250.33
Total revenues (R$million)3,3632,9433,002

Distribution Rates

Our operating results have been significantly affected by fluctuations in the levels of rates that CEMIG D is authorized to charge for distribution of energy. The process of setting rates in Brazil has been influenced, historically, by government attempts to control inflation. With the restructuring of the Brazilian energy sector, which began in 1995, and under the terms of the renewal of the concession contract that we signed with ANEEL in 1997, there have been significant changes in the process of setting tariffs.

CEMIG D’sD's periodic tariff review takes place every five years and has the objective ofre-evaluating the company’scompany's manageable costs, which primarily include the operating costs and the costs of fixed assets that comprise the remuneration and depreciation of these assets. In the tariff review, the regulator applies the methodology for defining efficient operating costs and evaluates the incremental investments made in the asset base since the last review, as well as the write-offs and depreciation of the existing assets, composing a new remuneration base.

The resultOn May 15, 2020, in view of the 2018 tariff review became effective as of May 28, 2018, and the revenue to cover the manageable costs defined in this review will be valid for a period of five years being readjusted annually by the IPCA minus the X Factor, which is the average productivity for the distribution sector in Brazil, plus some adjustments. For CEMIG D, we had an improvement in Parcel B revenue in the 2018 tariff review due to: (1) incorporation of the Risk Remuneration methodology of Special Obligations in the amount of approximately R$550 million, which are assets incorporated with third-party capital; (2) increase in the net remuneration basepublic calamity scenario resulting from the investments madeCovid-19 pandemic, CEMIG submitted a request to ANEEL to defer the application of the result of its tariff process until June 30, 2020, in order to mitigate the 2013 to 2018 cycle; and (3) increaseeffects on consumers in revenue to cover CAIMI (Custo Anual de Instalações Móveis e Imóveis) due to changesits concession area, the tariff that was in methodology by ANEEL.force since May 2019 remaining. On June 25, 2020, ANEEL’s Board approved the result of CEMIG's readjustment with an average impact of 4.27%.

On May 22, 2018,August 5, 2020, CEMIG submitted to ANEEL defineda proposal for the annualreversal of R$714 million, for consumers in its concession area, regarding the financial component of reimbursement of Pasep / Cofins, with the objective of complying with contribute to low tariffs at a time when society as a whole was seeking to reduce the impacts of the pandemic. On August 18, 2020, ANEEL approved the readjustment with the insertion of this negative component reducing the average effect of CEMIG D’s 2020 tariff adjustment for CEMIG D: an average increase of 23.19%.to zero. Such rate was in effective starting on starting May 28, 2018August 19, 2020 and it remainremains the same until May 27, 2019.2021. Such increaseupdating had the following components: (i) an increase of 13.30%6.07% due to the Tariff Adjustment Index; (ii) an increasedecrease of 4.59%14.31% due to the variation in Parcel A costs (CVA –non-manageable costs); and (iii) ana increase of 5.30%8.24% related to other financial adjustments. The average annual tariff adjustments of CEMIG D in 2018, 20172020, 2019 and 2016,2018, and the revisions of their respective components were as follows:

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   2018   2017   2016 

Average annual/periodic tariff adjustment

   23.19%    (10.66)%    3.78% 

Components

      

Tariff adjustment index

   13.30%    1.29%    0.20% 

Inter-year variation in fixed costs (CVA)

   4.59%    (5.27)%    4.19% 

Other financial adjustments

   5.30%    (6.68)%    0.61% 

On May 16, 2017, ANEEL determined that the annual tariff adjustment should be applied to the tariffs of CEMIG D. The result was an average decrease in customer energy rates by 10.66%, applied from May 28, 2017 until May 27, 2018.

On May 24, 2016, ANEEL determined that the annual tariff adjustment should be applied to the tariffs of CEMIG D. The result was an average increase in customer energy rates by 3.78%, applied from May 28, 2016 until May 27, 2017.

Light – Tariff Review

On March 15, 2017, Light signed the fifth amendment to the Concession Contract: by this amendment Aneel approved bringing forward of the date of the Company’s Periodic Tariff Review (“PTR” – referred to in Portuguese as RTP or Revisão Tarifária Periódica), with an average upward adjustment of 10.45% – this review had previously been scheduled for November 2018. The positive effects for Light included: (i) incorporation into the Regulatory Base for Remuneration (Base de Remuneração Regulatória – BRR) of the investments made in 2013–2016 (mainly comprising amounts spent on the 2016 Olympic Games, for which the remuneration would normally occur only as from 2018) with a very small discount of 3% – with this, Light SESA becomes the Brazilian distributor with the highest net BRR; and (ii) increase in the percentage ofnon-technical losses passed through to the tariff, from 30.11% to 36.06%; and increase in the percentage for technical losses passed through to the tariff, from 5.40% to 6.34%.

The main changes between the annual Tariff Adjustment of November 2016 and the PTR (initially to have been held in 2018 but in fact held in 2017) were as follows:

 

   2016 Tariff Adjustment
(Annual IRT = Tariff Adjustment Index)		  2017 Periodic Tariff Review
(‘PTR’)
Passthrough of losses    

Non-technical

  30.11%  36.06%

Technical

  5.40%  6.34%
‘Special Obligations’ and Specific Targets  As per 3rd PTR  None
BRR – R$ billion    

Gross

  14.94  15.78

Net

  8.37  8.47
Regulatory Ebitda – R$ billion  1.49  1.66
Portion B andNon-recoverable Revenues – R$ million  2,535  2,911
Date of Next Tariff Review  Was programmed for Nov. 16, 2018

(with next one in 2023)

  Issued in fact on March 15, 2017
(next one in 2022)
End of concession  June 4, 2026  June 4, 2026
 

2020

2019

2018

Average annual/periodic tariff adjustment0.00%8.73%23.19%

Components

   
Tariff adjustment index6.07%1.94%13.30%
Inter-year variation in fixed costs (CVA)-14.31%15.98%4.59%
Other financial adjustments8.24%-9.18%5.30%

Transmission Rates

In January 2013, our transmission concession was renewed for another 30 years in accordance with the rules defined in Law 12,783 / 12,783/2013. At that time, there was an Extraordinary Review and transmission revenue was strictly reduced to the amount necessary to cover operation and maintenance costs, being part of thenon-reversible assets indemnified.

In 2017, the capital cost of the reversible assets not yet amortized at the time of renewal of the transmission became part of the Allowed Annual Revenue (RAP)(‘RAP’) of transmission concessionaires covered by Law 12,783 / 12,783/2013, according to rules defined in MME Administrative Rule no. 120/2016 (Portaria MME nº 120/2016).2016. This revenue consists of two components. One refers to the financial component, which corresponds to the cost of capital of thenon-indemnified assets for the period from January 2013 to June 2017. During this period, the transmission company remained without any revenue for the assets made available that had not yet been indemnified. The second component, called the economic component, refers to the cost of capital to be paid to the end of the asset lifespan.

According to Technical Note No. 183/2017, appended to Homologatory Resolution No. 2,258 / 2,258/2017, which ratified the RAP calculation for the 2017-2018 cycle, the total value of the cost of capital of assets not indemnified for this cycle iswas R$370.8 million.

With respect toConcerning the readjustment processes, the transmission concession agreement provides for a review every five years. The first review after the concession renewal was to occur in July 2018. However, this review will occuroccurred only in 20192020 with a retroactive effect from July 2018. The methodology for this review was approved by Normative Resolution No. 816/2018, which covers a new criterion for valuation of the asset base aand captures other revenues for tariff moderation. A new model for calculating operating costs and capturing other revenues for tariff moderation.

is being discussed with the regulator. In July 2018,2020, CEMIG GT’s RAP was reducedincreased by 10.66%15.7%. The main positive variations were observed in the Economic and Financial Component of the Annual Cost of Assets (‘CAA’) of Basic Network of the Existing System (‘BNES’), due to the change of the WACC and the reinclusion of the Ke parameter on the Financial Component, both effects of the Review process of the 2018-2023 cycle. The postponement of the RAP Review of the 2018-2023 cycle (which took place, as expected, in 2020) generated an Adjustment Portion of R$165 million, referring to the positive effects of the review on the revenue of the 2018-2019 and 2019-2020 cycles. This amount will be paid in three installments of R$55 million (June 2020 prices) in the 2020-2021, 2021-2022, and 2022-2023 cycles, adjusted by the IPCA. In CEMIG Itajubá case (concession contract No. 079/2000) there was awarded an adjustment of 6.5%, as athe result of an inflation adjustment to the revenue previously approved based on the IPCA index, recognition of new improvements strengthening the transmission network and also the review of the RAP concerning the cost of non incorporated capital after the concession renewal, according to the MME Decree No. 120/2016. Disregarding the non incorporated capital cost on the RAP, the readjustment would be an increase of 4.00%. In CEMIG Itajubá case (concession contract No. 079/2000) was awarded an adjustment of 3.32%. The concession contract No. 079/2000 provides that for the first 15 years of the concession the RAP will be flat and thereafter for the following 15 years the RAP will be 50% of the value during the first 15 years. At the time this adjustment, all our assets under the concession contract No. 079/2000 already had a 15 year lifetime.IGP-M index.

In July 2017, CEMIG GT’s RAP was increased by 131.3%, as a result of an inflation adjustment to the revenue previously approved based on the IPCA index, recognition of new improvements strengthening the transmission network and also the addition of the cost ofnon-incorporated capital after the concession renewal, according to the MME Decree No. 120/16. Disregarding thenon-incorporated capital cost on the RAP, the readjustment would have been an increase of 6.5%. In the case of CEMIG Itajubá (concession contract No. 079/00), it had a negative adjustment of 41.2%. The concession contract No. 079/2000 provides that for the first 15 years of the concession, the RAP will be flat and thereafter for the following 15 years the RAP will be 50% of the value during the first 15 years. At the time of such negative adjustment of 41.2%, all CEMIG GT’s assets under the concession contract No. 079/00 already had a 15 year lifetime (some of them had already met this margin on the previous cycle), which is the reason for the negative adjustment to the RAP of close to 50%.

In July 2016, CEMIG GT’s RAP was increased by 26.2%, as a result of an inflation adjustment to the revenue previously approved based on the IPCA index, and also due to recognition of new improvements strengthening the transmission network. The substation that had been put out to tender, CEMIG Itajubá, concession contract No. 079/2000, was awarded a positive adjustment of 3.0%. The increase for the Itajubá facility was lower than average inflation as measured by theIGP-M index, due to the reduction of the RAP for this concession starting on the first half of 2017. This reduction was established in concession contract No. 079/200 determining that the structure of the cash flow from the operations was higher in the first fifteen years, so the investors could face the higher debt from the financial structure in the beginning of the concession period. The approved revenue for the2016-17 period for the two concessions, totaled an aggregate of R$334 million. The approved revenue for the2017-18 period for the two concessions totaled R$ 709 million, of which R$ 371 million corresponded to the cost ofnon-incorporated capital.

Rationing of Energy and Government Measures to Compensate Energy Concession Holders

By 2016, still under “El Niño’s” (climate phenomenon that occurs when Pacific Ocean gets warmer than average) effect the Southeast had an above historic average rainfall in January leading to a great recover in the south east reservoir. Due to these improved conditions for hydroelectrical generation, in February 2016 the ONS began to reduce thermoelectric generation.

With the drop in energy consumption and increased rainfall, close to the historical average in the rainy season, pressure on the operation of the system was relieved in 2016, which enabled the gradual shutdown of the thermal plants that were operating due to energy security. However, the northern and northeastern regions continued to have shortages and recorded historically low rainfall. As a result, some thermal plants in that region remained in operation. In 2016, the average PLD was R$ 93.98 / MWh with a ceiling of R$ 422.56 / MWh.

In 2017, the system experienced low flows during the dry period, which prevented the principal reservoirs to recover. At the end of April 2017, storage in the national grid system was close to 40% of its maximum capacity. In this scenario of low storage and low flows prices were high, which increased dispatching of the thermoelectric plants. The northeastern region which continued to have shortages of low rainfall. In 2017, the average PLD in the system was R$ 324.17/MWh, with a ceiling of R$ 533.82/MWh.

In 2018, the low inflows of the 2017/2018 wet period kept the reservoirs low, which raised the PLD reaching the maximum value in August (R$ 505.18/MWh). In October, beginning of the 2018/2019 period, the inflows improved considerably reflecting in a fast reduction of the price to R$ 59 / MWh at the beginning of December.

Exchange Rates

Substantially all of our revenues and operating expenses are denominated in reais.Reais. However, we have some foreign currency-denominated debt. As a result, in reporting periods when the realReal declines against the U.S. dollar or other foreign currencies in which our debt is denominated, our operating results and financial position can be adversely affected even with such foreign currency-denominated debt being hedged. Foreign exchange gain or loss and monetary variation gain or loss may impactaffect our results of operations in periods in which there are wide swings in the value of therealReal relative to the U.S. dollar or high inflation. We have a number of financial and other contracts under which we owe, or are entitled to, amounts in respect of monetary variation as measured by an index of price inflation in Brazil.

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Impacts of Covid-19

Overview

On March 11, 2020, the World Health Organization characterized Covid-19 as a pandemic, reinforcing the restrictive measures recommendations to prevent the virus dissemination worldwide. These measures are based, mainly, on social distancing, which have been causing major negative impact on entities, affecting their production process, interrupting their supply chains, causing workforce shortages and closing of stores and facilities. The economies around the world are developing measures to handle the economic crisis and reduce any possible effect, especially by their central banks and fiscal authorities.

Government measures aimed at Brazilian energy sector

Several measures were implemented by the Brazilian government, specifically aimed at energy sector, which include:

·The provisional normative act. 950/2020 issued on April 8, 2020, which provides for 100% discount in the calculation of social energy tariff (‘Tarifa Social de Energia Elétrica’), from April 1, 2020 to June 30, 2020, applicable to customers included in low-income residential subclass, with energy consumption less than or equal to 220 kWh/month. The act also authorizes the Federal Government to allocate resources to Energy Development Account (CDE), limited to R$900 million, to cover the tariff discounts established.
·Expansion on the limit of total amount of energy that can be declared by energy distributors in the process of the mechanism for the sale of surplus (‘Mecanismo de Venda de Excedentes’ - MVE), during 2020, from 15% to 30%, for the purpose of facilitating contractual reductions.
·Provision of financial resources available in the reserve fund in April 2020, by CCEE, in accordance with ANEEL Dispatch 986/2020, dedicated to reduce future regulatory fees. CEMIG D was granted with R$122 million.
·Under Resolution 878/2020, issued on March 24, 2020, the regulator has implemented some measures in an attempt to maintain the public service of energy supply, which include: prohibiting energy supply suspension due to default of certain categories of customers (residential), for 90 days, extended to July 31, 2020, prioritizing emergency assistance and energy supply to services and activities regarded as essential, drawing up specific contingency plans to assist health care units and hospital services, among others. Under Resolution 879/2020, issued in July 21, 2020, the regulator changed the Resolution 878/2020, as of August, 2020, maintaining the prohibition of energy supply suspension only to low income residential subclass, revoking the provisions applied to the other residential subclasses and related to services and activities regarded as essential.
·Authorization to create the ‘Covid-Account’ under the Decree 10,350/2020 issued on May 18, 2020, as detailed in the following topic.

Company’s initiatives

On March 23, 2020, the Company established the Coronavirus Crisis Management Committee (‘Comitê Diretor de Gestão da Crise do Coronavírus’) to ensure its readiness to making decisions because of the fast-changing situation, which became more widespread, complex and systemic.

Also, in line with recommendations to maintain social-distancing measures, the Company has implemented an operational contingency plan and several precautionary measures to keep its employees healthy and safe, including: security and health technicians contacting operational staff on a daily basis; interacting daily with subcontractors Social Service department to monitor the evolution of suspicious cases; changing the schedule to prevent gatherings; restricting national and international travel; suspending technical visits and events at Company’s facilities; using remote means of communication; adopting work-from-home policies for a substantial number of employees, providing face masks for employees in external service or in service into its facilities, and requiring outsourcings providers to put the same procedures in place.

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In August 2020 the Company started the plan for the gradual return-to-office, which is in compliance with measures for prevention, control and mitigation of risks of Covid-19 transmission in work environments.

In-person service to the general public was suspended temporarily, and resumed, subject to appointment, from August 3, 2020, in the municipalities that subscribed to the plan created by the State of Minas Gerais, called ‘Plano Minas Consciente’, and which are in the ‘Green Wave’ phase of the program. The decision to serve the public in person by appointment obeys the rules of the plan, and is in accordance with responsible resumption of the economy in Minas Gerais state, following the Covid-19 pandemic.

The Company maintains the communication with its customers on virtual channels and essential assistance in customers’ facilities, ensuring the appropriate energy supply.

The Company also adopted the following measures in order to contribute with society:

·Providing payment flexibility to low-income residential subclass customers, registered as social tariff, who will be able to pay their debts in up to six installments, without interest or penalties, applied until July 1, 2020;
·Providing payment flexibility to public and philanthropic hospitals as well as to emergency rooms units, without interest or penalties, conditions applied until July 1, 2020;
·Offering the entities regarded as small business by Brazilian law the option for payment in up to six installments, without interest or penalties, conditions applied until July 1, 2020;
·A negotiation campaign was launched, in effect until October 31, 2020, enabling customers to pay debt by installments in up to 12 months without interest.

In addition, the Company Executive Board approved the following measures, in order to support the fight against the Covid-19 during the critical period named “purple wave” (‘onda roxa’) instituted by the Extraordinary Covid-19 Committee of the State of Minas Gerais, through the Deliberation n. 138, of March 16, 2021, in the State of Minas Gerais:

·Suspending the interruption in supply of energy of customers classified as low income residential subclass;
·Providing payment in installments to customers classified as low income residential subclass, under the specific conditions of the program, available in the Company website.
·Providing payment in installments to customers from other classes, including commercial customers classified as as small business by Brazilian law, operating in the sectos affected by the crises, under the specific conditions of the program, available in the Company website;
·Prioritizing emergency assistance and energy supply to health care units and hospital services and others activities regarded as essential; and
·Communication initiatives aimed at raising awareness of the population about the importance of staying at home, rational use of energy, and electronic equipment use, preventing overload, short-circuit and fires.

The Company is working diligently to mitigate the crisis impacts on its liquidity, implementing the following measures, among others:

·Restraint of the capital expenditure planned for 2020, in the approximate amount of R$349 million and a budget review, which reduced the expenses related to labor, material, outsourced services and others, in the approximate amount of R$164 million;
·Reduction in dividends payments to shareholders, and deferral dividends and interest on equity payments to the end of 2020;
·Negotiating with its customers on the free market their contracts;
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·Negotiating the terms and conditions established in contracts signed with gas suppliers, including Petrobrás;
·Deferral, during the year, payment of taxes and social charges payment, as authorized by legislation.

“Covid-account” (‘Conta-Covid’)

On May 18, 2020, in order to mitigate the financial effects caused by the Covid-19 pandemic, the Decree n. 10,350/20 authorized the creation of Covid account, to support the energy distribution sector, which is the basis of the energy sector financial flow, aimed to either cover the distribution agents revenue/cash flow deficit or to anticipate their revenues, related to (i) over-contracted purchases due to market retraction, (ii) “CVA” sector assets (iii) maintaining the neutrality of regulatory charges, (iv) compensation for the delay in applying tariff adjustments until June 30, 2020 and (v) anticipation of “parcel B” revenues as determined by ANEEL regulation.

On June 23, 2020, the regulator issued the Normative Resolution n. 885/2020, which set out the criteria and procedures to manage the “Covid-account”, as well as regulated the use of the CDE regulatory charge.

On January 26, 2021, ANEEL issued the Despatch nº 181/2021, which defined the monthly charge to be paid in order to amortize the loan, as well as the respective coverage to be included into the tariff to pay the charge. The annual quote of ‘CDE-Covid-Account’ will be paid by the distribution agents through the tariff charge included in the energy tariff and in the tariff of use of distribution system (‘TUSD’).

The amount received by CEMIG D will be converted, updated by Selic rate, as a tariff negative financial component in the tariff processes of 2021, ensuring the neutrality.

CEMIG D joined the financial compensation mechanism under the Covid-account (‘Conta-Covid’), in order to boost its cash flow enabling it to meet its financial obligations, in spite of the collection reduction resulting of the economic crises. The total total amount from the “Covid-Account”received by CEMIG D, in installments, was R$1,404 million.

There are some rules applied to distribution agents entitled to the Covid-account resources, such as (i) relinquishing any intention to reduce or end the purchase of energy from generators because of a reduction in the sales caused by the pandemic crises, until December 2020; (ii) in the event of default on payments, limiting their dividend payments to the legal minimum of 25% of net income and (iii) renounce the right to complain in court or arbitral tribunals on the conditions, procedures or obligations determined in legal and regulatory provisions on Covid-account. Notwithstanding, the right to request an extraordinary tariff review is fully preserved.

Due to the statements of renunciations established in the Acceptance Document under the Normative Resolution 885/2020, on July 3, 2020 CEMIG D’s Shareholders Extraordinary General Meeting approved alteration to its by-laws, to include §4 on Clause 33 limiting the distribution of mandatory dividend or interest on equity to the legal minimum, exceptionally for the cases and conditions that the regulator may demand, by rule or by contract, in order to mitigate a situation of financial imbalance caused by any fact or event attributable to a third party, or overriding government rulings, or expressly recognized force majeure.

Impact of Covid-19 on Financial Statements

Since March 2020, the Company has been monitoring the Covid-19 pandemic impact on its business and the market in which it operates. The Company has implemented a series of precautionary measures to protect the health of its employees and to prevent the spread of the novel coronavirus in its operational and administrative facilities. The measures are in accordance with the recommendations of World Health Organization (WHO) and Brazilian Ministry of Health and aim to contribute with the populations and Brazilian Authorities efforts, in order to help prevent the virus dissemination.

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The Coronavirus crises made an impact on the Company operations, especially related to energy distribrution market, due to the contraction of the economic activities and the social distancing measures, affecting entities production process, interrupting their supply chains, causing workforce shortages and closing of stores and facilities. These effects might result in lower energy consumption and an increase in delinquency.

In this scenario intervention in market policies, and the initiatives to reduce transmission of Covid-19, also led to lower consumption of natural gas in 2020 than in 2019: consumption by the industrial sector was 3% lower year-on-year, and consumption by the automotive sector was 28% lower. At the same time, consumption in 2020 by residential users was 20% higher year-on-year, and by commercial users was 14% higher – reflecting the natural motivation of increased use of natural gas as a safer option when supply is continuous.

As of December 31, 2020, from the observation of the pandemic’s economic effects, the Company assessed the assumptions used for calculating fair value and recoverable amount of certain financial and non-financial assets, as follows:

·The subsidiary CEMIG GT assessed whether the greater pressure on the exchange rate, combined with a lack of financial market liquidity, will have a negative impact on derivative financial instruments entered into to protect its operations against the risks arising from foreign exchange rate changes. At this point, given the current market conditions, the change in derivative instrument’s fair value, based on the forecasts of future interest and exchanges rates, cannot offset the Company’s total exposure to foreign exchange rate variability, resulting in a net loss of R$4 million in the period of January to December of 2020. The long-term projections carried out for the foreign exchange rate are lower than the current dollar quotation, which may represent a decrease in Company’s foreign exchange variation expense, if the projected scenario occurs;
·The Company is assessing the circumstances arising from Covid-19 pandemic and associated measures aimed at reducing the impact of the economic contraction on customer delinquency when measuring expected credit losses. The Company has intensified measures to mitigate the risks of delinquency, such as a campaign of negotiation with clients in arrears whose energy supply the Company was temporarily prohibited from suspending as well as intensifying the usual collection measures;
·The Company also reviewed the financial assets and liabilities measured at fair value to reflect the conditions and current rates projected, which impacts are presented in Note 31 to the Financial Statements;
·The total load on the Brazilian national grid fell in 2020, especially from March to May, and has been recovering gradually since. Year to date, the energy transported and sold to CEMIG D customers increased 4.42% and reduced 5.31%, respectively. In the second semester of 2020, the energy transported increased 10.29% and the energy sold expanded 94.66%, compared with the same period of the last year, reflecting the easing of social distancing rules;
·The accumulated variation of the CEMIG D’s captive customers market, measured from the pandemic outbreak until December 2020, reduced by 8%. It is important to mention that the effects of the financing expenses arising from energy purchase were minimized by the ‘Covid-Account’ creation; and
·The Company is starting negotiations and deferrals with its customers and energy and gas suppliers, in order to maintain CEMIG GT and Gasmig liquidity during the economic crisis.

The impacts of the Covid-19 pandemic disclosed are based on the Company’s best estimates. Despite the impact of the pandemic on the Company’s liquidity in 2020, significant long-term effects are not expected.

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Operating Results

Year Ended December 31, 20182020 compared to the Year Ended December 31, 20172019

From January 1, 2018, we were required to adopt IFRS 9 – Financial Instruments and IFRS 15 – Revenue from contracts with customers. We are not required to retrospectively apply IFRS 9 and IFRS 15 to any periods prior to January 1, 2018. IFRS 9 introduced changes to the measurement and classification of financial instruments, as well as changes to the method for calculating impairment of financial instruments. IFRS 15 established a new method to recognize revenue from contracts with customers by applying a five-step analysis, including contract identification, performance obligation identification, transaction price determination, transaction price allocation and recognition of revenue. Net revenues

Our consolidated financial statements as of and for the year ended December 31, 2018 reflect the adoption of IFRS 9 and IFRS 15. We used the modified retrospective approach when adopting such standards; thus, we did not restate our financial statements as of and for the years ended December 31, 20172019 and 2016 for2018 have been restated to reflect the adoption of IFRS 9 and IFRS 15. Accordingly, our financial statements as of and for the year ended December 31, 2018 and our financial statements for the comparative periods are not directly comparable when it comes to such standards. For more information regarding the adoption of IFRS 9 and IFRS 15change in an accounting policy and its effects onimpacts are disclosed in note 2.8 of our consolidated financial statements, see note 2.4 to our Consolidated Financial Statements included in “Item 18. Financial Statements.”statements.

Net operating revenues

Net operating revenues increaseddecreased by 2.55%1.02% from R$21,71225,486 million in 20172019 (restated) to R$22,26625,228 million in 2018,2020, as follows.

 

2020

Net revenues

2019

(Restated)

Net revenues

2020 vs 2019

 (in million of R$)(%)(in million of R$)(%)(%)
Energy sales to final customers23,01891.2424,05294.37(4.30)
Revenue from wholesale supply to other concession holders3,41413.532,87611.2818.71
CVA (compensation for changes in ‘Parcel A’ items ) and Other financial components4551.80580.23684.48
Financial component arising from PIS/Pasep and Cofins taxes refunded to customers– realization2661.05---
Revenue from use of the electricity distribution systems – TUSD3,02211.982,72210.6811.02
Transmission operation and Maintenance revenue2801.113521.38(20.45)
Interest revenue arising from the financing component in the transmission contract asset4381.743281.2933.54
Adjustment to expectation of cash flow from indemnifiable financial asset of the distribution concession160.06180.07(11.11)
Revenue on financial updating of the Concession Grant Fee3471.383181.259.12
Construction revenues1,6376.491,2925.0726.70
Energy transactions on the CCEE1540.614321.69(64.35)
Mechanism for the sale of surplus2340.93---
Supply of gas2,0117.972,2989.02(12.49)
Fine for violation of service continuity indicator(51)(0.20)(58)(0.23)(12.07)
Recovery of PIS/Pasep and Cofins taxes credits over ICMS--1,4285.60-
Other revenue1,7096.771,7216.76(0.75)
Deductions on revenue(11,722)(46.46)(12,351)(48.46)(5.09)
Total net revenue25,228100.0025,486100.00(1.02)

 

   2018  % of net
operating
revenues		  2017  % of net
operating
revenues		  2018
versus
2017%		 
   (in millions
of R$)		     (in millions
of R$)		       

Energy sales to final customers

   21,882   98.3   20,439   94.1   7.06 

Revenue from wholesale supply to other concession holders

   2,990   13.4   3,263   15.0   (8.37) 

CVA (compensation for changes in ‘Parcel A’ items) and Other financial components in tariff increases

   1,973   8.9   988   4.6   99.70 

Revenue from use of the energy distribution systems – TUSD

   2,045   9.2   1,611   7.4   26.94 

Transmission concession revenue

   411   1.8   371   1.7   10.78 

Transmission indemnity revenue

   250   1.1   373   1.7   (32.98) 

Generation indemnity revenue

   55   0.2   271   1.3   (79.70) 

Adjustment to expectation of cash flow from indemnifiable Financial asset of the distribution concession

   —     —     9   0.1   —   

Revenue from financial updating of the Concession Grant Fee

   321   1.4   317   1.5   1.26 

Construction revenues

   898   4.0   1,118   5.1   (19.68) 

Transactions in energy on the CCEE

   217   1.0   860   4.0   (74.77) 

Supply of gas

   1,995   9.0   1,759   8.1   13.42 

Fine for violation of service continuity indicator

   (44)   (0.2)   —     —     —   

Other operating revenues

   1,585   7.1   1,484   6.8   6.81 

Deductions on revenue

   (12,312)   (55.3)   (11,151)   (51.4)   10.41 

Total net operating revenue

   22,266   100.0   21,712   100.0   2.55 

Energy sales to final customers

Total revenue from energy sold to final customers excluding CEMIG’s own consumption, in 20182020 was R$ 21,88223,018 million, or 7.06% higher4.30% lower than the figure for 20172019 of R$ 20,43924,052 million.

The main items that affected total revenue from energy sold to final customers were:

•·

The annual tariff adjustment for CEMIG D effective as from May 28, 2018,2019, with an averageupward effect of 23.19%8.73% on customer tariffs, in comparison an averagedownward upward effect on customer tariffs of 10.66%23.19% effective as from May 28, 2017.

2018; and
·Volume of energy sold to final customers 6.66% lower year-on-year.

 

Higher revenuesThe annual tariff adjustment for CEMIG D, effective July 1, 2020, with average upward effect on customer tariffs was 4.27% and from August 19, 2020, the adjustment was recalculated, resulting in the adjustment having a null effect on customer tariffs, due to reimbursement to customers of R$714 million, corresponding to the escrow deposits released after the success of CEMIG’s legal action (against which there is no further appeal), which recognized the right to exclude the ICMS amounts from the ‘Tariff flag’ componentscalculation basis of customer bills: R$ 655 million in 2018, comparedPIS/Pasep and Cofins taxes. See Note 14 to R$ 454 million in 2017. This reflects the low level of reservoirs, activating the ‘Yellow Flag’ and ‘Red Flag’ additional tariff rates, leading to higher revenue in 2018.financial statements.

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Volume of energy sold to final customers 2.51% higheryear-on-year.

Market Evolution

The total for sales in CEMIG’s consolidated energy market comprises sales to: (i) Captive customers in CEMIG’s concession area in the State of Minas Gerais; (ii) Free Customers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação Livre, or ACL); (iii) other agents of the energy sector – traders, generators and independent power producers, also in the Free Market; (iv) Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR);ACR Market; and (v) the Wholesale Trading Exchange (Câmara de Comercialização de Energia Elétrica – CCEE) eliminating transactions between companies of the CEMIG Group..

As illustrated in the table below, the total volume of energy sold by CEMIG in 2018 increased2020 decreased by 0.5%1.52% as compared to 2017:2019:

   GWh (2) 
  2018   2017   Var % 

Residential

   10,267    10,008    2.6 

Industrial

   17,689    17,761    (0.4) 

Commercial, Services and Others

   8,380    7,507    11.6 

Rural

   3,615    3,652    (1.0) 

Public Power

   871    866    0.6 

Public Illumination

   1,384    1,367    1.2 

Public Service

   1,316    1,301    1.2 

Subtotal

   43,522    42,462    2.5 

Own Consumption

   41    37    10.8 
   43,563    42,499    2.5 

Supply to Other Concessionaires(1)

   11,992    12,777    (6.1) 

Total

   55,555    55,276    0.5 

 GWh (2)

2020

2019

Var %

Residential10,98110,5384.20
Industrial12,73114,873(14.40)
Commercial, Services and Others8,5719,335(8.18)
Rural3,7663,795(0.76)
Public Power714905(21.10)
Public Illumination1,2431,357(8.40)
Public Service1,3621,373(0.80)
Subtotal39,36842,176(6.66)
Own Consumption3438(10.53)
 

39,402

42,214

(6.66)
Supply to Other Concessionaires (1)13,90711,91916.68
Total

53,309

54,134

(1.52)
(1)

Includes Regulated Market Energy Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

(2)

Data not audited by external auditors; includes Regulated Market Energy Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

Residential:Residential consumption in 20182020 was 2.6%4.20% higher than in 2017.2019. This increase is primarily due to new customer connections made in 2018,2020, in CEMIG D.

IndustrialIndustrial:: Total volume of energy consumed by regulated and free industrial customers was 0.4%14.40% lower in 20182020 than in 2017.2019. This decrease was due primarily to industrial activity not resuming growth atdue to the rate expected forCovid-19 pandemic during the year.

Commercial, Services and OthersOthers:: Consumption was 11.6% higher8.18 % lower in 2018,2020, mainly due to the incorporation of new customers in CEMIG GT’s portfolio.Covid-19 pandemic during the year.

Rural:Consumption by rural users decreasedincreased by 1%0.76 % in 2018, mainly due to lower use of irrigation systems.2020.

Supply to Other concessionaires:The energy sale to other concessionaires decreased 6.1%increased 16.68% compared to 20172019 due to a lowerhigher volume of energy available sold in this segment, consideringto redeem part of the low level of Brazilian reservoirs in 2018 and the allocation of energy sold to final customers.high credit that those companies have at CCEE.

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Revenue from Use of Distribution Systems (the TUSD charge)

:This is revenue from charging Free Customers the Tariff for Use of the Distribution System (TUSD) on the volume of energy distributed. In 2018,2020, this revenue was R$ 2,0453,022 million, compared to R$ 1,6112,722 million in 2017,2019, an increase of 26.94%11.02% year-on-year, mainly reflecting the following:

·Upward adjustment of 15.47% in the TUSD, in CEMIG D’s 2019 annual tariff adjustment, effective from May 28, 2019 added to an upward adjustment of 5.74% in the TUSD, in CEMIG D’s 2020 annual tariff adjustment, effective from May 28, 2020.

 

upward adjustment of approximately 36% in the TUSD, in CEMIG D’s 2018 annual tariff adjustment, effective from May 28, 2018 in comparison to a downward adjustment of approximately 40% in the TUSD, in CEMIG D’s 2017 annual tariff adjustment, effective May 28, 2017;

contracted demand approximately 8.18% higher in 2018; and

approximately 14.29% more facilities being billed under Contracts for Use of the Distribution System (CUSDs).

The CVA Account and Other financial components, in rate increases

increases:CEMIG recognizes the difference between actualnon-controllable costs (in which the CDE, and energy bought for resale, are significant components) and the costs that were used as the basis of decision of the rates charged to customers. The amount of this difference is passed through to customers in CEMIG D’s next tariff adjustment – in 20182020 this represented a revenue of R$455 million, compared to the R$58 million. The higher figure in 2020 compared to 2019 is mainly due higher cost of energy and the estimated figures used for future cost of energy in the tariff calculation (this difference generates a financial asset to be reimbursed to the Company through the next tariff adjustment).

Transmission concession revenue

·Construction revenue corresponds to the performance obligation to build the transmission infrastructure, recognized based on the satisfaction of obligation performance over time. They are measured based on the cost incurred, including PIS/Pasep and Cofins taxes over the total revenues and the profit margin of the project. For more information, see note 15 to the Financial Statements.
·Operation and maintenance revenue correspondes to the performance obligation of operation and maintenance specified in the transmission concession contract, after termination of the construction phase. They are recognized when the services are rendered and the invoices for the RAPs are issued.
·Interest revenue in the contract asset recognized, recorded as transmission concession gross revenue in statement income. Revenue corresponds to the significant financing component in the contractual asset, and is recognized by the linear effective interest rate method based on the rate determined at the start of the investments, which is not subsequently changed. The average of the implicit rates is 6.68%. The rates are determined for each authorization and are applied on the amount to be received (future cash flow) over the contract duration. This includes financial updating by the inflation index specified for each transmission contract.

Revenue from transactions in energy on the CCEE:Revenue from transactions in energy on the CCEE was R$154 million in 2020, compared to R$432 million in 2019, a decrease of 64.35% year-on-year. This reflects lower volume of energy available for settlement in the wholesale market in 2020 considering the low level of Brazilian reservoirs and energy allocated to be sold to other segments.

Revenue from supply of gas:CEMIG reported revenue from supply of gas totaling R$2,011 million in 2020, compared to R$2,298 million in 2019, a decrease of 12.49%. This mainly reflects the decrease on the volume of gas sold to the wholesale market in 2020, mainly in the thermal and industrial segment.

Construction revenues:Distribution and transmission infrastructure construction revenues totaled R$1,637 million in 2020, compared to R$1,292 million in 2019 (restated), an increase of 26.70%. This revenue is fully offset by Construction costs in the distribution segment, of the same amount, and corresponds to the Company’s investments in assets of the concession in the year. For the transmission segment, this represents investment in small improvements in 2020, due to regulatory changes and the suspension of contracts with works suppliers’ reinforcements.

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Recovery of PIS/Pasep and Cofins taxes credits over ICMS:The credits of PIS/Pasep and Cofins totaling R$1,428 million in 2019, resulted from the success in the Company’s legal action questioning the inclusion of ICMS tax in these amounts since July 2003.

Revenue from the mechanism for the sale of energy surplus:The revenue from the mechanism for the sale of energy surplus (MVE) were R$234 million in 2020, relating to offers of supply made at the end of 2019 by CEMIG D. This mechanism is an instrument regulated by ANEEL enabling distributors to sell overcontracted supply – the energy amount that exceeds the quantity required to supply captive customers.

Other:Other revenues totaled R$1,709 million in 2020, compared to R$1,721 million in 2019, 0.75% lower year-on-year. The breakdown of the other revenues is presented on Note 27 to the Financial Statements.

Deductions from Revenue: Taxes and charges applied to revenue in 2020 were R$11,722 million, or 5.09% lower than in 2019 (R$12,351 million) (restated), mainly reflecting the following:

·CDE: The amounts of payments to the Energy Development Account (CDE) are decided by an ANEEL Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, and the subsidy for balanced tariff reduction, the low-income customer subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). Charges for the CDE in 2020 were R$2,443 million, compared to R$2,448 million in 2019. This is a non-controllable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

·Customer charges – the ‘Tariff Flag’ system: The Tariff Flag bands are activated because of low levels of water in the system’s reservoirs – tariffs are temporarily increased due to scarcity of rain. The ‘Red’ band has two levels – Level 1 and Level 2. Level 2 comes into effect when scarcity is more intense. Activation of the tariff flags generates an impact on billing in the subsequent month. Income from charges to the customer related to the Tariff Flag bands was 49.32% lower in 2020, at R$149 million, compared to R$294 million in 2019. This reflects application of the Green band for the whole year of 2020, due to reduction of the demand due to the Covid-19 Pandemic effects.

·Other taxes and charges on revenue: The other significant deductions from revenue are taxes, which are calculated as a percentage of sales revenue. Thus, their variations arise, substantially, from the changes in revenue.

Periodic Tariff Review

The tariff review effected in June 2020 for Contract 006/1997 resulted in recognition of revenue of R$529 million, comprising R$322 million for new assets in the National Grid, and R$207 million for existing assets in the National Grid, corresponding to the extension of the concessions, under Law 12,783/13, which were included in the regulatory remuneration base. In December 2020, contract 079/2020 was also submitted to the periodic tariff review, and this resulted in recognition of revenue of R$23 million (R$22 million net of PIS/Pasep and Cofins taxes). The revenues resulting from the periodic tariff reviews reflect, principally, the change in the rate of regulatory remuneration for the transmission activity, and remeasurement of the New Replacement Value (Valor Novo de Reposição – VNR) of the regulatory remuneration base (BRR).

Additionally, these revenues were impacted by the increase in annual RAP, in July 2020, and includes the effects of inflation and also new revenues resulting from investments authorized.

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Operating costs and expenses

Operating costs and expenses in 2020 were R$21,432 million, a decrease of 4.64% as compared to 2019 (R$22,475 million).

The following table illustrates the components of operating costs and expenses in 2020 and 2019 expressed as a percentage of net revenues:

 

2020

Net revenues

2019

(Restated)

Net revenues

2020 vs 2019

 (in  million of R$)(%)(in  million of R$)(%)(%)
Energy bought for resale(12,111)48.01(11,286)44.287.32
Charges for use of the national grid(1,748)6.93(1,426)5.6022.58
Depreciation and amortization(989)3.92(958)3.763.24
Personnel(1,276)5.06(1,272)4.990.31
Gas bought for resale(1,083)4.29(1,436)5.63(24.58)
Outsourced services(1,265)5.01(1,239)4.862.10
Post-employment benefits(438)1.74(408)1.607.35
Materials(79)0.31(91)0.36(13.19)
Operating provisions and impairment………..(423)1.68(2,401)9.42(82.38)
Employees’ and managers’ profit sharing…..(142)0.56(263)1.03(46.01)
Infrastructure construction costs(1,581)6.27(1,200)4.7131.75
Other operating expenses, net(297)1.17(494)1.94(40.20)
Total operating costs and expenses

(21,432)

84.95

(22,474)

88.18

(4.64)

The following are the main variations in operating costs and expenses between 2020 and 2019 (restated):

Employees´and managers´ profit sharing

The expense on employees and managers profit sharing was R$142 million in 2020, compared to R$263 million in 2019. The decrease was due to a lower consolidated net income of CEMIG – the basis of calculation for this expense.

Energy purchased for resale

Expenses due to energy purchased for resale in 2020 were R$12,111 million, compared to R$11,286 million in 2019, representing an increase of 7.31%. The main factors contributing to such increase were:

·Expenses on energy acquired in regulated market auctions increased by 10.36%, totalling R$3,334 million in 2020, as compared to R$3,021 million in 2019, mainly due to the increase in the volume of energy acquired;
·Expense on supply from Itaipu was 39.26% higher, at R$1,990 million in 2020, compared to R$1,429 million in 2019. The difference is mainly due to the increase of 31.80% in the average dollar quotation in 2020 compared to 2019 (R$5.23 and R$3.97, respectively), which has contributed to the rise in dollar energy price per KW (US$28.41/KW in 2020 and US$27.71/KW in 2019);
·The expenses on distributed generation (‘geração distribuída’) acquired was R$678 million in 2020, compared to R$207 million in 2019, 227.54% higher. This reflects the higher number of generation units installed (63,845 in December 2020, compared to 31,172 in December 2019); and the higher volume of energy injected into the grid (1,008,589,663 MWh in 2020, compared to 412,290,475 MWh in 2019);
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·The cost of purchases of supply in the spot market was at R$1,497 million in 2020, compared to R$1,886 million in 2019. The result expressed for spot-price supply is the net balance between revenues and expenses of transactions on the Power Trading Chamber (CCEE). The lower figure is mainly due to the average spot price (PLD) being 22.06% lower, at R$177.00/MWh in 2020, compared to R$227.10/MWh in 2019.

This is a non-controllable cost for CEMIG Distribution: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment. For further details see Note 29 to the Financial Statements.

Charges for use of the national grid

Charges for use of the national grid in 2020 were R$1,748 million, compared to R$1,426 million in 2019, representing an increase of 22.58%.

This expense is payable by energy distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid are set by an ANEEL Resolution. The higher figure is mainly due to the annual adjustment in charges for use of the National Grid, which usually takes place in July, and had an effect of approximately 27.4% in 2020.

This is a non-manageable cost for CEMIG Distribution: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Operating provisions and impairment

Operating provisions in 2020 totaled R$423 million, compared to R$2,401 million in 2019, a decrease of 82.38%. The decrease was mainly due to:

·Provisions for employment-law legal actions amounting R$46 million in 2020, compared to a provisions of R$136 million in 2019. This arises mainly from reassessment of the probability of loss in existing actions, based on application of the IPCA-E inflation index instead of the TR reference rate in monetary adjustment for employment-law legal actions dealing with debts.
·Variation of provisions for taxes, which represented the recognition of R$75 million in 2020, compared to R$1,228 million in 2019. This variation results, mainly, of the Company’s reassessment, based on the opinion of its legal advisers, of the probability of loss on administrative and court proceedings opened against the Company relating to social security contributions on the payment of profit shares to its employees, alleging that Company did not previously establish clear and objective rules for the distribution of these amounts. For further details see Note 28 to the Financial Statements.
·Expected losses on doubtful receivables from clients 38.24% lower, at R$147 million in 2020, compared to R$238 million in 2019. This difference mainly reflects reversal of expected losses for debts for energy consumption and services owed by the direct and indirect administration of Minas Gerais State of R$210 million, in 2020, that the Company will be able to be offset against ICMS tax owed to the state, under State Decree 47,908/2020. For more information, see Note 11to the Financial Statements. Also, default in 2020 declined due to clients’ acceptance of the negotiation rules approved by the Company for dealing with the impacts of the Covid-19 pandemic.
·This was partially offset by the recognition of an estimated loss on realization of the receivables from Renova, in the amount of R$688 million, after an assessment of the investee’s credit risk, which deteriorated in the current year, that increased the cost with operating provisions in 2019.

For further Information see Note 25 to the Financial Statements.

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Infrastructure construction costs

Infrastructure construction costs in 2020 totaled R$1,581 million, or 31.75% more than in 2019 (R$1,200 million).

Construction revenues for energy and gas distribution segment are equivalent to new infrastructure are initially recorded as contract assets, measured at construction cost plus margin (which, for the construction business, is deemed as zero). Construction cost include borrowing costs.

Construction revenues for transmission segment are recorded when construction is finalized, concession infrastructure assets remains as contract asset, considering the existence of performance obligations during the concession period, represented by the network construction, operation and maintenance, as there is no unconditional right to receive the consideration for the construction service unless the company operates and maintains the infrastructure.

Gas bought for resale

In 2020 the Company reported expense of R$1,083 million on acquisition of gas, 24.58% less than the expense of R$1,436 million in 2019. This is primarily due to the decrease of 16.28% in the volume of gas bought from Petrobras, related to the impacts of the Covid-19 pandemic in the thermal and industrial sector demand.

Post-employment obligations

The Company’s post-retirement obligations were 7.35% higher in 2020, than 2019, being R$438 million and R$408 million, respectively. This mainly reflects a higher cost for the Health Plan in 2020, due to reduction of the discount rate used in the actuarial valuation made in December 2019.

Share of profit (loss), net, of associates and joint ventures

In 2020, CEMIG reported a gain by the equity method of R$357 million, compared to R$125 million reported in 2019. This primarily reflects higher gains in 2020 on the investments in TAESA compared to losses on the investments in Santo Antônio Energia and Itaocara in 2019. See Note 16 to the Financial Statements for details on the results from the investees recognized under this line.

Net finance income (expense)

Net finance income totaled R$905 million in 2020, compared to net finance expenses of $1,360 million in 2019. The main factors contributing to this change in net finance income and expenses were:

·Recognition, in 2020, of R$1,753 million from the hedge transaction related to the Eurobond transaction, compared to recognition of a gain of R$998 million in 2019. The adjustment of the hedge transaction to fair value resulted in a positive effect, due to a lower variation in the future curve for the DI (Interbank Deposit) rate than in the future curve for the US dollar exchange rate. This gain should be considered together with the expense on foreign exchange variation arising from the Eurobond, as described below; and
·Revenue of Monetary updating of the PIS/Pasep and Cofins taxes credits over ICMS, adding up to R$1,580 million in 2019. CEMIG, CEMIG GT and CEMIG D filed an Ordinary Action for a declaration that it was unconstitutional to include the ICMS value added tax within the taxable amount for calculation of PIS/Pasep and Cofins; and for recognition of these companies’ right to offsetting of amounts unduly paid for the 10 years prior to the action being filed, with monetary adjustment by the Selic rate. For more information see Note 10 to the Financial Statements.

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This was partially offset by the following:

·Higher interest on loans in foreign currency – which in 2020 represented a financial expense of R$850 million, compared a financial expense of R$664 million in 2019. This higher increase is due to 29% higher exchange rate in effect in in 2020 (R$5.19 in 2020, compared to R$4.03 in 2019);
·Higher foreign exchange variation on loans in foreign currency – which in 2020 represented a financial expense of R$1,742 million, compared a financial expense of R$226 million in 2019. This higher increase is due to the higher exchange rate in effect in the period (29% in 2020, compared to 4% in 2019).

The breakdown of financial income and expenses is in Note 29 to the Financial Statements.

Income Tax and the Social Contribution Tax

In 2020, the Company’s expense on income tax and the Social Contribution tax totaled R$936 million, on pre-tax profit of R$3,801 million, an effective rate of 24.63%. In 2019, the Company’s expense on income tax and the Social Contribution tax totaled R$1,599 million (restated), on pre-tax profit of R$4,570 million (restated), an effective rate of 34.99%.

Operating Results

Year Ended December 31, 2019 compared to the Year Ended December 31, 2018

Our consolidated financial statements for the years ended December 31, 2019 and 2018 have been restated to reflect the change in accounting policy disclosed in note 2.8 of our annual consolidated financial statements.

From January 1, 2019, we were required to adopt IFRS 16 – Leases. IFRS 16, establishes principles for recognition, measurement, presentation and disclosure of leasing transactions and requires that lessees account all the leasing transactions in accordance with a single balance sheet model, similar to the accounting of financial leasing. At the leasing operation beginning date, the lessee recognizes a liability to make the payments (a lease liability) and an asset, representing the right of use the subject asset during the period of the leasing (a right-of-use asset). Lessees are required to recognize separately the expenses of interest on the leasing liability and the expense of depreciation of the asset of the right to use.

Lessees are also required to revalue the leasing liability when certain events occur (for example, change in the period of leasing, a change in the future payments of the leasing as a result of a change in an index, or a rate used to determine such payments). In general, the lessee will recognize the amount of the revaluation of the lease liability as an adjustment to the right-of-use asset.

The Company has made an analysis of the initial application of IFRS 16 in their financial statements as from January 1, 2019, and elected to apply the recognition exemptions for short-term leases (contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option), and leases for which the underlying asset is of low value. We used the modified retrospective approach when adopting such standards; thus, we did not restate our financial statements as of and for the year ended December 31, 2018 and 2017 for the adoption of IFRS 16. Accordingly, our financial statements as of and for the year ended December 31, 2019 and our financial statements for the comparative periods are not directly comparable when it comes to such standard. For more information regarding the adoption of IFRS 16 and its effects on our financial statements, see note 2.4 to the Financial Statements included in “Item 18. Financial Statements”.

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Net revenues (restated)

Net revenues increased by 14.30% from R$22,299 million in 2018 to R$25,486 million in 2019, as follows.

 

2019

(restated)

Net revenues

2018

(restated)

Net revenues

2019 vs 2018

 (in million of R$)(%)(in million of R$)(%)(%)
Energy sales to final customers24,05294.3721,88298.139.92
Revenue from wholesale supply to other concession holders2,87611.282,99013.41(3.81)
CVA (compensation for changes in ‘Parcel A’ items ) and Other financial components580.231,9738.85(97.06)
Revenue from use of the electricity distribution systems – TUSD2,72210.682,0459.1733.11
Transmission operation and maintenance revenue3521.383431.542.62
Interest revenue arising from the financing component in the transmission contract asset3281.293111.395.47
Generation assets - indemnity revenue--550.25-
Adjustment to expectation of cash flow from indemnifiable financial asset of the distribution concession180.07---
Revenue on financial updating of the Concession Grant Fee3181.253211.44(0.93)
Construction revenues1,2925.079404.2237.45
Energy transactions on the CCEE4321.692170.9799.08
Supply of gas2,2989.021,9958.9515.19
Fine for violation of service continuity indicator(58)(0.23)(44)(0.20)31.82
Recovery of PIS/Pasep and Cofins taxes credits over ICMS1,4285.6---
Other revenue1,7216.761,5857.118.64
Deductions on revenue(12,351)(48.46)(12,314)(55.22)0.30
Total net revenue25,486100.022,299100.014.30

Energy sales to final customers

Total revenue from energy sold to final customers in 2019 was R$24,052 million, or 9.92 % higher than the figure for 2018 of R$21,882 million.

The main items that affected total revenue from energy sold to final customers were:

·The annual tariff adjustment for CEMIG D effective as from May 28, 2019, with an average upward effect of 8.73% on customer tariffs, in comparison an average upward effect on customer tariffs of 23.19% effective as from May 28, 2018;
·Lower revenues from the ‘Tariff flag’ components of customer bills: R$294 million in 2019, compared to R$655 million in 2018. This reflects the level of reservoirs, activating the ‘green Flag’ for most of the months in 2019, as a consequence of the best hydrological conditions compared to the year of 2018;
·Volume of energy sold to final customers 0.08% higher year-on-year.

Market Evolution

The total for sales in CEMIG’s consolidated energy market comprises sales to: (i) Captive customers in CEMIG’s concession area in the State of Minas Gerais; (ii) Free Customers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação Livre, or ACL); (iii) other agents of the energy sector – traders, generators and independent power producers, also in the Free Market; (iv) Distributors, in the ACR Market; and (v) the Wholesale Trading Exchange (Câmara de Comercialização de Energia Elétrica – CCEE).

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As illustrated in the table below, the total volume of energy sold by CEMIG in 2019 decreased by 2.56% as compared to 2018:

 GWh (2)

2019

2018

Var %

Residential10,53810,2672.64
Industrial14,87317,689(15.92)
Commercial, Services and Others9,3358,38011.40
Rural3,7953,6154.98
Public Power9058713.90
Public Illumination1,3571,384(1.95)
Public Service1,3731,3164.33
Subtotal42,17643,522(3.09)
Own Consumption3841(7.32)
 

42,214

43,563

(3.10)
Supply to Other Concessionaires (1)11,92011,992(0.60)
Total

54,134

55,555

(2.56)

Includes Regulated Market Energy Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

Data not audited by external auditors; includes Regulated Market Energy Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

Residential: Residential consumption in 2019 was 2.64% higher than in 2018. This increase is primarily due to new customer connections made in 2019, in CEMIG D.

Industrial: Total volume of energy consumed by regulated and free industrial customers was 15.92% lower in 2019 than in 2018. This decrease was due primarily to industrial activity not resuming growth at the rate expected for the year.

Commercial, Services and Others: Consumption was 11.40 % higher in 2019, mainly due to the incorporation of new customers in CEMIG GT’s portfolio.

Rural: Consumption by rural users increased by 4.98 % in 2019.

Supply to Other concessionaires: The energy sale to other concessionaires decreased 0.60 % compared to 2018 due to a lower volume of energy available sold in this segment, considering the low level of Brazilian reservoirs in 2019 and the allocation of energy sold to final customers.

Revenue from Use of Distribution Systems (the TUSD charge): This is revenue from charging Free Customers the Tariff for Use of the Distribution System (TUSD) on the volume of energy distributed. In 2019, this revenue was R$2,722 million, compared to R$2,045 million in 2018, an increase of 33.11% year-on-year, mainly reflecting the following:

·upward adjustment of 17.44% in the TUSD, in CEMIG D’s 2018 annual tariff adjustment, effective from May 28, 2018 in comparison to a upward adjustment of 17.28% in the TUSD, in CEMIG D’s 2019 annual tariff adjustment, effective from May 28, 2019.

The CVA Account and Other financial components, in rate increases: CEMIG recognizes the difference between actual non-controllable costs (in which the CDE, and energy bought for resale, are significant components) and the costs that were used as the basis of decision of the rates charged to customers. The amount of this difference is passed through to customers in CEMIG D’s next tariff adjustment – in 2019 this represented a decrease in revenue of R$ 1,97358 million, compared to an increase in 20172018 of R$ 9881,973 million. The higherlower figure in 20182019 than 20172018 is mainly due to a higherlower difference in 20182019 than 20172018 between actual costs of energy and the estimated figures used for future cost of energy in the tariff calculation (this difference generates a financial asset to be reimbursed to the Company through the next tariff adjustment).

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Transmission indemnityconcession revenue

·Construction revenue corresponds to the performance obligation to build the transmission infrastructure, recognized based on the satisfaction of obligation performance over time. They are measured based on the cost incurred, including PIS/Pasep and Cofins taxes over the total revenues and the profit margin of the project. For more information, see note 15 to the Financial Statements.
·Operation and maintenance revenue correspondes to the performance obligation of operation and maintenance specified in the transmission concession contract, after termination of the construction phase. They are recognized when the services are rendered and the invoices for the RAPs are issued.
·Interest revenue in the contract asset recognized, recorded as transmission concession gross revenue in statement income. Revenue corresponds to the significant financing component in the contractual asset, and is recognized by the linear effective interest rate method based on the rate determined at the start of the investments, which is not subsequently changed. The average of the implicit rates is 6.68%. The rates are determined for each authorization and are applied on the amount to be received (future cash flow) over the contract duration. This includes financial updating by the inflation index specified for each transmission contract.

In 2018, we recognized transmission indemnity revenue of R$ 250 million compared to R$373 million in 2017. In 2017 CEMIG GT recorded R$ 149 million related to transmission concession assets, which were not included in the calculation basis for revenues in the previous tariff reviews.

Generation indemnity revenue

In 2018 the Company recognized revenue of R$ 55 million compared to R$ 271 million in 2017 for the adjustment to the balance not yet amortized of the concessions for theSão Simão andMiranda Hydroelectric Plants, as per Ministerial Order 291/17.

Revenue from transactions in energy on the CCEE

CCEE:Revenue from transactions in energy on the CCEE was R$432 million in 2019, compared to R$217 million in 2018, compared to R$ 860 million in 2017, a decreasean increase of 74.77%99.08% year-on-year. This reflects lowerhigher volume of energy available for settlement in the wholesale market in 20182019 considering the low level of brazilianBrazilian reservoirs in 2018 and energy allocated to be sold to other segments. In the first quarter of 2017 the Company reported revenues relating to the available energy of theJaguaraandMiranda plants.

Revenue from supply of gas

gas:CEMIG reported revenue from supply of gas totaling R$2,298 million in 2019, compared to R$1,995 million in 2018, compared to R$ 1,759 million in 2017, an increase of 13.42%15.19%. This mainly reflects the increase in the cost of gas, which was passed through to customers – since there was in fact a reduction of 16.26% in the volume of gas sold (from 1,319,242 m³ in 2017 to 1,104,745 m³ in 2018). The cost of gas suffered a significant effect from FX variation in 2018.6.74% higher year-on-year.

Construction revenues

revenues:Distribution infrastructure construction revenues totaled R$ 8981,292 million in 2019 (restated), compared to R$940 million in 2018 compared to R$ 1,118 million in 2017, a reduction(restated), an increase of 19.68%37.45%. This revenue is fully offset by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the year.

Recovery of PIS/Pasep and Cofins taxes credits over ICMS: The credits of PIS/Pasep and Cofins taxes (previously erroneously charged to include the amounts of ICMS taxes paid or due), totaling R$1,428 million, resulted from the success in the Company’s legal action questioning the inclusion of ICMS tax in these amounts, and is backdated to July 2003.

Other operatingrevenues: Other revenues

Other operating revenues was R$ 2,2731,721 million in 2019, compared to R$1,585 million in 2018, up 4.22% from 2017 (R$ 2,181 million).8.64% higher year-on-year. This increase was primarily due to an increase in revenues related to subsidies and reimbursement for decontracted supply partially compensatedthat are reimbursed by a revenue related to Telecom services of R$149 million recorded in 2017, considering that the Telecom business was sold in 2018. See more information on Note 33 to the Financial Statements.Eletrobras. The breakdown of the other revenues is presented on Note 2829 to the Financial Statements.

Deductions from RevenueRevenue:

Taxes and charges applied to revenue in 20182019 were R$12,31212,351 million (restated), or 10.41%0.30% higher than in 20172018 (R$11,15112,314 million) (restated), as follows.mainly reflecting the following:

·CDE:The amounts of payments to the Energy Development Account (CDE) are decided by an ANEEL Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, and the subsidy for balanced tariff reduction, the low-income customer subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). Charges for the CDE in 2019 were R$2,448 million, compared to R$2,603 million in 2018. This is a non-manageable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.
·Customer charges – the ‘Tariff Flag’ system: The Tariff Flag bands are activated because of low levels of water in the system’s reservoirs – tariffs are temporarily increased due to scarcity of rain. The ‘Red’ band has two levels – Level 1 and Level 2. Level 2 comes into effect when scarcity is more intense. Activation of the tariff flags generates an impact on billing in the subsequent month. Income from charges to the customer related to the Tariff Flag bands was 55.11% lower in 2019, at R$294 million, compared to R$655 million in 2018. This reflects less application of the Red band in 2019 than in 2018, due to (i) stabilized reservoir levels, and (ii) slightly higher expectations of rain.
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·Other taxes and charges on revenue: The other significant deductions from revenue are taxes, which are calculated as a percentage of sales revenue. Thus, their variations arise, substantially, from the changes in revenue.

CDE

The amounts of payments to the Energy Development Account (CDE) are decided by an ANEEL Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, the subsidy for balanced tariff reduction, thelow-income customer subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). Charges for the CDE in 2018 were R$ 2,603 million, compared to R$ 1,822 million in 2017.

This is anon-manageable cost: the difference between the amounts used as areference for setting of tariffs and the costs actually incurred is compensated for inthe subsequent tariff adjustment.

Customer charges – the “Tariff Flag” system

The Tariff Flag bands are activated as a result of low levels of water in the system’s reservoirs – tariffs are temporarily increased due to scarcity of rain. The ‘Red’ band has two levels – Level 1 and Level 2. Level 2 comes into effect when scarcity is more intense. Activation of the tariff flags generates an impact on billing in the subsequent month.

Income from charges to the customer related to the Tariff Flag bands was 44.27% higher in 2018, at R$ 655 million, compared to R$ 454 million in 2017.

This reflects greater application of the Red band in 2018 than in 2017, due to (i) lower reservoir levels, and (ii) lower expectations of rain.

Other taxes and charges on revenue

The other significant deductions from revenue are taxes, which are calculated as a percentage of sales revenue. Thus, their variations arise, substantially, from the changes in revenue.

Operating costs and expenses

Operating costs and expenses, in 20182019 were R$19,42022,475 million (restated), an increase of 3.20%15.73% as compared to 20172018 (R$18,81819,420 million).

The following table illustrates the components of operating costs and expenses in 20182019 and 20172018 expressed as a percentage of net operating revenues:

 

2019

(restated)

Net revenues

2018

Net revenues

2019 vs 2018

 (in  million of R$)(%)(in  million of R$)(%)(%)
Energy bought for resale(11,286)(44.28)(11,084)(49.71)1.82
Gas bought for resale(1,436)(5.63)(1,238)(5.55)15.99
Charges for use of the national grid(1,426)(5.60)(1,480)(6.64)(3.65)
Depreciation and amortization(958)(3.76)(835)(3.74)14.73
Personnel(1,272)(4.99)(1,410)(6.32)(9.79)
Employees’ and managers’ profit sharing(263)(1.03)(77)(0.35)241.56
Outsourced services(1,239)(4.86)(1,087)(4.87)13.98
Post-employment benefits(408)(1.60)(337)(1.51)21.07
Materials(91)(0.36)(104)(0.47)(12.50)
Operating provisions and impairment(2,401)(9.42)(466)(2.09)415.24
Construction costs(1,200)(4.71)(897)(4.02)33.78
Other operating expenses, net(494)(1.94)(405)(1.82)22.22
Total operating costs and expenses

(22,474)

(88.18)

(19,420)

(87.09)

15.73

 

   2018  % of net
operating
revenues		  2017  % of net
operating
revenues		  2018
versus
2017%		 
   (in millions
of R$)		     (in millions
of R$)		       

Energy bought for resale

   (11,084)   (49.8)   (10,919)   (50.3)   1.51 

Gas bought for resale

   (1,238)   (5.6)   (1,071)   (4.9)   15.59 

Charges for the use of the national grid

   (1,480)   (6.6)   (1,174)   (5.4)   25.98 

Depreciation and amortization

   (835)   (3.8)   (850)   (3.9)   (1.76) 

Personnel

   (1,410)   (6.3)   (1,627)   (7.5)   (13.34) 

Employees’ and managers’ profit sharing

   (77)   (0.3)   (5)   —     1,440.00 

Outsourced services

   (1,087)   (4.9)   (974)   (4.5)   11.60 

Post-employment benefits

   (337)   (1.5)   229   1.1   —   

Materials

   (104)   (0.5)   (71)   (0.3)   46.48 

Operating provisions

   (466)   (2.1)   (854)   (3.9)   (45.43) 

Construction costs

   (897)   (4.0)   (1,119)   (5.2)   (19.84) 

Other operating expenses, net

   (405)   (1.8)   (383)   (1.8)   5.74 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating costs and expenses

   (19,420)   (87.2)   (18,818)   (86.6)   3.20 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The following are the main variations in operating costs and expenses between 20182019 and 2017:2018:

Personnel

Personnel expenses were R$1,272 million in 2019, compared to R$1,410 million in 2018, compared to R$1,627 million in 2017, a decrease of 13.34%9.79%. The decrease was mainly due to a 69.16% decreasereduction of 10% in expenses relatedthe avarage number of employees in 2019 compared to our voluntary retirement plan from2018 (5,796 in 2019 and 5,923 in 2018).

Employees´and managers´ profit sharing

The expense on employees and managers profit sharing was R$214263 million in 20172019, compared to R$6677 million in 2018. This decreaseThe increase was partially offset bydue to a higher consolidated net income of CEMIG – the following:basis of calculation for this expense.

 

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Salary increase of 1.83% under the Collective Work Agreement, which came into effect in November 2017 (full effect in 2018).

Salary increase of 4.00% under the Collective Work Agreement, which came into effect in November 2018.

Energy purchased for resale

Expenses due to energy purchased for resale in 20182019 were R$11,08411,286 million, compared to R$10,91911,084 million in 2017,2018, representing an increase of 1.51%1.82%. The main factors contributing to such increase were:

·The cost of purchases of supply in the spot market was at R$1,886 million in2019, compared to R$1,818 million in 2018, reflecting CEMIG D’s exposure to the wholesale market in 2019.
·Expenses on supply acquired through physical guarantee quota contracts were 5.30% higher, at R$715 million in 2019, compared to R$679 million in 2018. This mainly reflects CEMIG D’s average quota tariff being in 2019, at R$102.22/MWh, compared to R$92.51/MWh in 2018.
·Expenses on energy acquired in regulated market auctions by 9.71% lower, totalling R$3,021 million in 2019, as compared to R$3,346 million in 2018, mainly due to level of the water reservoirs of the hydroelectric plants in the system, the number of thermoelectric plants dispatched was larger in– with a consequent higher expense on fuel for these plants.

 

The cost of purchases of supply in the spot market was 21.36% higher at R$1,818 million in 2018, compared to R$1,498 million in 2017, reflecting CEMIG D’s higher exposure to the wholesale market in 2018.

Expenses on supply acquired through physical guarantee quota contracts were 47.29% higher, at R$679 million in 2018, compared to R$461 million in 2017. This mainly reflects CEMIG D’s average quota tariff being 52.98% higher in 2018, at R$ 92.51/MWh, compared to R$ 60.47/MWh in 2017.

Expenses on energy acquired in regulated market auctions decreased by 5.88%, totalling R$3,346 million in 2018, as compared to R$3,555 million in 2017, mainly due to low level of the water reservoirs of the hydroelectric plants in the system, the number of thermoelectric plants dispatched was larger in 2017 – with a consequent higher expense on fuel for these plants.

Expenses on supply acquired in the free market and ‘bilateral contracts’ were, 6.71% lower, at R$ 4.355 billion4,098 million in 2018,2019, compared to R$ 4.668 billion3,871 million in 2017.2018. This mainly reflects CEMIG GT’s expenses being 10.13% lower (R$ 4.055 billion4,097 million in 2018,2019, compared to R$ 4.512 billion4,055 million in 2017)2018) due to the volume of energy acquired being 8.99% lower (22,742,263 MWh in 2017, compared to 20,697,022 MWh in 2018).acquired.

This is anon-manageable cost: cost for CEMIG Distribution: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment. For further details see Note 2928 to the Financial Statements.

Charges for the use of the national grid

Charges for the use of the national grid totaledin 2019 were R$1,426 million, compared to R$1,480 million in 2018, 26.06% higher than in 2017 (R$ 1,174 million)representing a decrease of 3.65%.

This expense is payable by energy distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid are set by an ANEEL Resolution. The higher amounts in 20182019 are due to increased transmission costs related to the payment of the transmission indemnities to the agents of the energy sector that accepted the terms of Law 12,783/13.

This is anon-manageable cost in the energy distribution business: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Operating provisions and impairment

Operating provisions in 20182019 totaled R$ 4662,401 million, compared to R$ 854466 million in 2017,2018, an decreaseincrease of 45.43%415.24%.

The decreaseincrease was mainly due to:

·Recognition of an estimated loss on realization of the receivables from Renova, in the amount of R$688 million, after an assessment of the investee’s credit risk, which deteriorated in the current year;
·Provisions for employment-law legal actions amounting R$136 million in 2019, compared to a reversal of provisions of R$42 million in 2018. This arises mainly from new actions, or from reassessment of the probability of loss in existing actions, based on adverse court decisions taking place in the period. Also, a difference was recognized for application of the IPCA-E inflation index instead of the TR reference rate in monetary adjustment for employment-law legal actions dealing with debts arising from March 25, 2015 to November 10, 2017. These are at the advanced execution phase and now have probability of loss assessed as ‘probable’, due to the recent decision by the Regional Employment-law Appeal Court of the Minas Gerais region (3rd Region) to apply the decision of the Higher Employment-law Appeal Court, ordering use of the IPCA-E index. For further Information see Note 25 to the Financial Statements; and
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·Variation of provisions for taxes, which represented the recognition of R$1,228 million in 2019, compared to the reversion of R$5 million in 2018. This variation results, mainly, of the Company’s reassessment, based on the opinion of its legal advisers, of the probability of loss on administrative and court proceedings opened against the Company relating to social security contributions on the payment of profit shares to its employees, alleging that Company did not previously establish clear and objective rules for the distribution of these amounts. For further Information see Note 25 to the Financial Statements.

The lower provisions foremployment-law contingencies, which were

Infrastructure construction cost

Infrastructure construction costs in 2019 totaled R$ 421,200 million, or 33.78% more than in 2018 compared to R$ 206 million in 2017. The significant amount provisioned in 2017 mainly reflectsre-evaluations of potential losses in various legal actions as a result of change in the procedural phase of provisional execution, and its effect on actions disputing: the basis for calculation of hazardous work remuneration; claims for equal payment for allegedly unlawful outsourcing; and subsidiary/joint liability. In 2018, a new case law of the Federal Supreme Court (STF) on the lawfulness of outsourcing of any activities, whether for means or forend-use, led tore-evaluation of the potential loss on several actions on this subject, with consequent reduction of the amounts previously provisioned. See further Information in Note 25 to the Financial Statements.

Reduction of R$ 155 million in the fair value of the investment options in RME, Lepsa and SAAG in 2018. This was 55.46% less than in 2017 (reduction of R$ 348 million). See more details related to the put options on Note 29 and 32 to the Financial Statements.

On the other hand, estimated losses on doubtful receivables were 6.45% higher, at R$ 264 million in 2018, compared to R$ 248 million in 2017. Rather than representing an increase in default as a percentage of billing, this difference reflects an increase in the basis for calculation of the provision, partly due to the higher total billing in 2018 resulting from the May 2018 tariff adjustment for CEMIG D.

Construction cost

Construction costs in 2018 totaled R$(R$897 million, or 19.84% less than in 2017 (R$ 1,119 million). This cost is fully offset by Construction revenue, of the same amount, and corresponds to the Company’s investment in assets of the concession in the period.

Construction revenues for energy and gas distribution segment are equivalent to new infrastructure are initially recorded as contract assets, measured at construction cost plus margin (which, for the construction business, is deemed as zero). Construction cost include borrowing costs.

Construction revenues for transmission segment are recorded when construction is finalized, concession infrastructure assets remains as contract asset, considering the existence of performance obligations during the concession period, represented by the network construction, operation and maintenance, as there is no unconditional right to receive the consideration for the construction service unless the company operates and maintains the infrastructure.

Gas bought for resale

In 20182019 the Company reported expense of R$ 1,2381,436 million on acquisition of gas, 15.59%15.99% more than the expense of R$ 1,0711,238 million in 2017.2018. This is primarily due to the increase of 23.11% in the pricecost of gas bought from Petrobras.

Post-employment obligations

The Company´s post-retirement obligations were 21.07% higher in 2019, than 2018, being R$408 million and was partially offset byR$337 million, respectively. This mainly reflects a higher cost for the Health Plan in 2019, due to reduction of 16.20%the discount rate used in the volume of gas purchased (from 1,309,459 m³ in 2017 to 1,097,275 m³ in 2018). The price of gas suffered a significant effect from exchange rate variation in 2018.

Post-employment obligations

The impact of the post-employment obligations of the Company on operational profit was an expense totaling R$ 337 million in 2018, compared to a reversal of expense of R$ 229 million in 2017.

This is due to changesactuarial valuation made in the life insurance policy in 2017, which resulted in the insured capital for retirees being reduced by 20% every 5 years, as from age 60, reaching a minimum of 20%. This represented a reduction of R$ 619 million in the post-employment obligations for the year ended December 31, 2017.2018.

Other operating revenues and expenses recognized as discontinued operations

A highlight component was the completion, in November 2018, of the process of disposal of the assets of CEMIG Telecom, which resulted in a gain of R$ 378 million in 2018. More details are in Note 33 to the financial statements.

Share of profit (loss) profit,, net, of associates and joint ventures

In 2018,2019, CEMIG reported a lossgain by the equity method of R$ 104125 million, a 58.73% decrease compared to a loss of R$252104 million reported in 2017.2018. This basicallyprimarily reflects higher losses in 2018 and 2017 on the interestsinvestments in Renova and Santo Antônio Energia.

See Note 1716 to the Financial Statements for details on the results from the investees recognized under this line.

Remeasurement of previously held equity inerest in subsidiaries acquired

Due to the exercise of the put option on the RME’s shares, by the other shareholders of RME, the Shareholders’ Agreement related to the jointly control of the investee Light lost effect, and the Company directly and indirectly holds an aggregated 49.99% of Light’s voting shares. As a result the Company currently controls Light, in accordance with the provisions of IFRS 10 – Consolidated financial statements.

In addition, upon obtaining control of Light, the investments Lightger, Axxiom, Guanhães Energia and Itaocara in which the Company exercised joint control with Light, became controlled subsidiaries of the Company.

As specified in IFRS 3 – Business combinations, the Company remeasured the interest previously held in the investments at fair value, and a loss related to the difference between the fair value and the carrying value of the previously held interest in the amount of R$199 million was recognized in the statement of income for the year.

On December 20, 2018, the Company acquired 51% equity interest held by Energimp in Parajuru and Volta do Rio, which became wholly-owned subsidiaries, in exchange for its 49% interest in Morgado.

Prior to the transaction above, the Company owned a joint controlled interest of 49% in the share capital of Parajuru and Volta do Rio. As such these investment were accounted for under the equity method.

Upon obtaining control, the Company remeasured the previously held interest in these investments at fair value, and gain related to the difference between the fair value and the carrying value in the amount of R$80 million was recognized in the statement of income for the year.

More details are Note 17.1. to the Financial Statements.

Net Finance Expenses

Net finance expensesincome (expense)

Net finance income totaled R$5181,360 million in 2018,2019, compared to net finance expenses of R$996518 million in 2017.2018. The main factors contributing to this decrease in net finance expenses were:

·Revenue of Monetary updating of the PIS/Pasep and Cofins taxes credits over ICMS, adding up to R$1,580 million. CEMIG, CEMIG GT and CEMIG D filed an Ordinary Action for a declaration that it was unconstitutional to include the ICMS value added tax within the taxable amount for calculation of PIS/Pasep and Cofins; and for recognition of these companies’ right to offsetting of amounts unduly paid for the 10 years prior to the action being filed, with monetary adjustment by the Selic rate. For more information see Note 9.
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Recognition, in 2018, of a gain of R$ 893 million from the hedge transaction related to the Eurobond Issue, compared to recognition of a loss of R$ 32 million in 2017. The adjustment of the hedge transaction to fair value resulted in a positive effect, due to a lower variation in the future curve for the DI (Interbank Deposit) rate than in the future curve for the US dollar exchange rate. This gain should be considered together with the expense on foreign exchange variation arising from the Eurobond, as described below.

 

Recognition in 2018 of R$ 56 million in income from charges related to lending to related parties. There is more information in Note 31 to the financial statements.

Costs and charges on loans and financing were 14.26% lower, at R$ 1.257 billion in 2018, compared to R$ 1.466 billion in 2017. This reflects the lower CDI rate (principal index of the debt) – which totaled a variation of 6.40% over the whole of 2018, compared to 9.93% in 2017.

Income from late charges on energy bills 34.87% higher in 2018, at R$ 352 million, compared to R$ 261 million in 2017. This mainly reflects the effects of renegotiation of past due bills with customers, with recognition of interest and monetary updating.

Higher net result of monetary updating on the balances of CVA and Other financial components in tariff increases: net revenue of R$ 62 million in 2018, compared to a net expense of R$ 41 million in 2017, primarily reflecting the higher balance of net assets in 2018 than in 2017.

The decreaseincrease was partially offset by the following:

·Recognition, in 2019, of R$998 million from the hedge transaction related to the Eurobond Issue, compared to recognition of a gain of R$893 million in 2018. The adjustment of the hedge transaction to fair value resulted in a positive effect, due to a lower variation in the future curve for the DI (Interbank Deposit) rate than in the future curve for the US dollar exchange rate. This gain should be considered together with the expense on foreign exchange variation arising from the Eurobond, as described below;
·Lower foreign exchange variation on loans in foreign currency – which in 2019 represented a financial expense of R$226 million, compared a financial expense of R$582 million in 2018. This reduction is due to the lower exchange rate in effect in the period (4.02% in 2019, compared to 17.03% in 2018).

 

Income from financial investments 43.41% lower, at R$ 116 million in 2018, compared to R$ 205 million in 2017. This primarily reflects a lower total of funds invested in 2018, and a lower average CDI Rate: 6.40% in 2018 compared to 9.93% in 2017.

Monetary updating on escrow deposits 82.20% lower, at R$ 34 million in 2018, vs. R$ 191 million in 2017. In 2017 CEMIG GT posted a gain of R$ 82 million, for reversal of the provision for the lawsuit challenging the constitutionality of inclusion of ICMS tax (payable or already paid) within the amount of revenue on which two other taxes – the Pasep and Cofins taxes – were charged (more details in Note 13 to our Financial Statements).

Expense on monetary updating of loans and financing 22.94% higher, at R$ 134 million in 2018, vs. R$ 109 million in 2017. This mainly reflects the higher IPCA index – one of the principal index of the debt – in the year: 3.75% in 2018 compared to 2.95% in 2017.

There was a foreign exchange variation expense of R$ 579 million in 2018, relating to the dollar-indexed funding of the Eurobond issue (placed in two parts: US$1 billion (R$ 3.2 billion) in December 2017 and US$500 million (R$ 1.9 billion) in July 2018).

The breakdown of Financialfinancial income and expenses is in Note 3029 to the Financial Statements.

Income Tax and the Social Contribution Tax

In 2019, the Company’s expense on income tax and the Social Contribution tax totaled R$1,599 million (restated), on pre-tax profit of R$4,568 million (restated), an effective rate of 35.00%. In 2018, the Company’s expense on income tax and the Social Contribution tax totaled R$ 728610 million (restated), onpre-tax profit of R$ 2.304 billion,2,011 million (restated), an effective rate of 31.60%. In 2017, the Company’s expense on income tax and the Social Contribution tax totaled R$ 644 million, onpre-tax profit of R$ 1.646 billion, an effective rate of 39.13%30.33%.

There is a reconciliation of these effective rates with the nominal tax rates in Note 10(d) to the financial statements.

Year Ended December 31, 20172020 compared to the Year Ended December 31, 2016

Net operating revenues

Net operating revenues increased by 15.66% from R$18,773 million in 2016 to R$21,712 million in 2017 mainly due to a positive effect of R$988 million in CVA (compensation for changes in ‘Parcel A’ items) and Other financial components in tariff increases in 2017 as compared to a negative effect of R$ 1,455 million in 2016. Such variation in CVA (compensation for changes in ‘Parcel A’ items) and Other financial components in tariff revenues was mainly due to the increase in the costs of acquiring energy at auction in 2017, as compared to the costs used as the basis for tariffs. This generated a financial asset for CEMIG, which, in turn, resulted in an amount to be reimbursed by customers in the next tariff adjustment.2019

 

   2017  % of net
operating
revenues		  2016  % of net
operating
revenues		  2017
versus
2016%		 
   (in millions
of R$)		     (in millions
of R$)		       

Energy sales to final customers

   20,438   94.1   20,458   109.0   0.10 

Revenue from wholesale supply to other concession holders

   3,263   15.0   2,972   15.8   9.79 

CVA (compensation for changes in ‘Parcel A’ items ) and Other financial components in tariff increases

   988   4.6   (1,455)   (7.8)   —   

Revenue from use of the energy distribution systems – TUSD

   1,611   7.4   1,705   9.1   (5.51) 

Transmission concession revenue

   371   1.7   312   1.7   18.91 

Transmission indemnity revenue

   373   1.7   751   4.0   (50.33) 

Generation indemnity revenue

   272   1.3   —     —     —   

Adjustment to expectation of cash flow from indemnifiable Financial asset of the distribution concession

   9   0.1   8   —     12.50 

Revenue from financial updating of the Concession Grant Fee

   317   1.5   300   1.6   5.67 

Construction revenues

   1,119   5.1   1,193   6.4   (6.20) 

Transactions in energy on the CCEE

   860   4.0   161   0.9   334.16 

Supply of gas

   1,759   8.1   1,444   7.7   21.81 

Other operating revenues

   1,483   6.8   1,421   7.6   4.36 

Deductions on revenue

   (11,151)   (51.4)   (10,497)   (55.9)   6.23 

Total net operating revenue

   21,712   100.0   18,773   100.0   15,66 

Energy sales to final customers

Total revenue from energy sales to final customers (excluding CEMIG’s own consumption) was R$20,438 million in 2017, representing a decrease of 0.10% as compared to 2016 (R$20,458 million).

The main items that affected total revenue from energy sales to final customers were:

The Annual Tariff Adjustment for CEMIG D, with an average decrease on customer tariffs of 10.66%, effective from May 28, 2017.

Volume of energy sold in 2017 was 1.36% lower than in 2016.

The Annual Tariff Adjustment for CEMIG D, with an average increase on customer tariffs of 3.78%, effective from May 28, 2016 (full effect in 2017).

The decrease was partially offset by an increase of customer charges – ‘Tariff Flag’ amounts, to R$ 454 million in 2017, compared to R$ 360 million in 2016, due to the low level of hydroelectric reservoir water storage levels, with the activation of the yellow and red flags, which led to a higher collection in 2017 of additional charges related to the flags.

Market Evolution

The total for sales of CEMIG’s consolidated energy market comprises sales to: (i) regulated customers in our concession area in the State of Minas Gerais, (ii) free customers in both the State of Minas Gerais and other states of Brazil, in the Free Market, (iii) other agents of the energy sector – traders, generators and independent power producers, also in the Free Market, (iv) distributors, in the Regulated Market; and (v) sales in the CCEE, eliminating transactions between companies of the CEMIG Group.

As illustrated in the table below, the total volume of energy sold by CEMIG in 2017 decreased by 0.57% as compared to 2016:

   GWh 
  2017   2016   Var % 

Residential

   10,008    9,916    0.93 

Industrial

   17,761    19,494    (8.89) 

Commercial, Services and Others

   7,507    6,573    14.21 

Rural

   3,651    3,575    2.13 

Public Power

   866    886    (2.26) 

Public Illumination

   1,367    1,350    1.26 

Public Service

   1,301    1,252    3.91 

Subtotal

   42,461    43,046    (1.36) 

Own Consumption

   37    37    —   
   42,499   43,083   (1.36) 

Supply to Other Concessionaires(1)

   12,777    12,509    2.15 

Total

   55,276    55,592    (0.57) 

(1)

Includes Regulated Market Energy Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

Comments on the various customer categories:

Residential: Residential consumption in 2017 was 0.92% higher than in 2016. This increase is primarily due to the new customer connections made in 2017.

Industrial: Total volume of energy consumed by regulated and free industrial customers was 8.89% lower in 2017 than in 2016. This decrease was due primarily to the migration of such customers to the free market.

Commercial, Services and Others: Consumption was 14.21% higher in 2017, mainly due to the incorporation of new customers in CEMIG GT’s portfolio.

Rural: Consumption by rural users increased by 2.13% in 2017, mainly due to higher use of irrigation systems and an increase in the customer base.

Revenue from Use of Distribution Systems (the TUSD charge)

Revenue from the Tariff for Use of the Distribution System (Tarifa de Uso do Sistema de Distribuição, or TUSD) is derived from the tariff charged to free customers for the transport of energy sold. In 2017, this revenue totaled R$1,611 million, representing a decrease of 5.51% as compared to 2016 (R$1,705 million).

The main items that affected the revenue from the use of distribution systems are as follows:

Reduction of 0.52% in the tariff for free customers, given in the annual tariff adjustment of May 28, 2016.

Reduction of 40% in the tariff for free customers, given in the annual tariff adjustment of May 28, 2017.

The decrease was partially offset by an increase in the volume of energy distributed of 10.92% in 2017, mainly due to the resumption of production by the ferro-alloys sector in 2017.

The CVA Account and Other financial components, in tariff increases

CEMIG recognizes the difference between actualnon-controllable costs (in which the CDE and energy bought for resale are significant components) and the costs that were used as the basis for determining the rates charged to customers. The amount of this difference is passed through to customers in CEMIG D’s next tariff adjustment. In 2017, this resulted in an increase of R$ 988 million in revenue, as compared to a reduction of R$ 1,455 million in 2016. This increase in revenues is mainly due to the increase in the costs of acquiring energy at auction in 2017, as compared to the costs used as the basis for tariffs. This generated a financial asset for CEMIG, thereby resulting in an amount to be reimbursed by customers in the next tariff adjustment.

Adjustment to expectation of cash flow from the indemnifiable Financial asset of the distribution concession

We realized a gain of R$9 million on an adjustment to the expectation of cash flow from the indemnifiable financial asset of the distribution concession compared to a gain of R$ 8 million in 2016, an increase of 12.50%. This was due to an increase in the estimate of the financial assets to be indemnified at the end of the concession, following the renewal of the concession contract in December 2015. Please refer to Note 15 to our consolidated financial statements for more details.

Transmission indemnity revenue

In 2017, we recognized transmission indemnity revenue of R$ 373 million compared to R$751 million in 2016. In 2016, as a result of the definition by the Ministry of Mines and Energy of the criteria for updating the transmission indemnity, the amount of the indemnification to be received was recorded retroactively to 2013 based on the cost of regulatory capital, which significantly affected the revenue recorded.

The amount recorded in 2017, of R$ 149 million, related to a difference of assets of the transmission concession, whose amounts were not included in the revenue calculation basis in previous See Note 15 – Concession Financial and Sector Assets and Liabilities. The amount recorded was based on Technical Note183/201-SGT/ANEEL of June 22, 2017.

Revenue from transactions in energy on the CCEE

Revenue from transactions in energy on the CCEE was R$ 860 million in 2017 compared to R$ 161 million in 2016 – ayear-on-year increase of 434.16%.

This increase in revenue from transactions in energy on the CCEE was due to an increase in the volume of energy available for settlement in the wholesale market during 2017 and an increase of 244.28% in the wholesale energy price (324.17/MWh in 2017 and R$94.16/MWh in 2016).

Revenue from supply of gas

CEMIG reported revenue from the supply of gas totaling R$ 1,759 million in 2017, compared to R$ 1,444 million in 2016, an increase of 21.81%. This mainly reflects a higher volume of gas sold (1,319,242 m³ in 2017 compared to 1,066,351 m³ in 2016), an increase of 23.72%.

Construction revenues

Construction and infrastructure revenue related to transmission and distribution totaled R$ 1,119 million in 2017, compared to R$ 1,193 million in 2016, representing a decrease of 6.20%. Construction and infrastructure revenue is fully offset by construction costs, of the same amount, and corresponds to CEMIG’s investments in concession assets.

Revenue from financial updating of the Concession Grant Fee

In 2017, we recognized revenue from financial updating of the Concession Grant Fee in the amount of R$317 million, compared to R$300 million in 2016. This revenue resulted from updating by the IPCA index, plus remuneratory interest, on the Concession Grant Fee for the concession awarded as Lot D of Auction 12/See Note 15 to our consolidated financial statements.

Generation indemnity revenue

In 2017, the Company recorded revenue in the amount of R$271 million related to the adjustment of the unamortized balance of the concessions of the São Simão and Miranda plants, according to the Administrative Rule nº 291/17. For more details please see Notes 4 and 15 to our consolidated financial statements.

Deductions from Revenue

Taxes and charges applied to revenue in 2017 were R$ 11,151 million, or 6.23% higher than in 2016 (R$ 10,497 million).

CDE

The amounts of payments to the Energy Development Account (CDE) are decided by an ANEEL Resolution. The purpose of the CDE is to cover costs of concession indemnities; tariff subsidies; the subsidy for balanced tariff reduction; thelow-income customer subsidy; the coal consumption subsidy; and the Fuels Consumption Account (CCC).

Charges for the CDE in 2017were R$ 1,822 million, compared to R$ 2,074 million in 2016. This is anon-manageable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Customer charges – the “Tariff Flag” system

Charges to customers arising from the Tariff Flag system were higher, at R$ 454 million in 2017, compared to R$ 360 million in 2016, due to the low level of hydroelectric reservoir water storage levels, with the activation of the yellow and red flags, which led to a higher collection in 2017 of additional charges related to the flags.

Other taxes and charges on revenue

The other significant deductions from revenue are taxes, which are calculated as a percentage of sales revenue. Thus their variations arise, substantially, from the changes in revenue.

Operating costs and expenses

Operating costs and expenses, in 2017 were R$18,818 million, an increase of 18.32% as compared to 2016 (R$15,904 million). For more information please refer to Note 27 to our consolidated financial statements.

The following table illustrates the components of operating costs and expenses in 2017 and 2016 expressed as a percentage of net operating revenues:

   2017  % of net
operating
revenues		  2016  % of net
operating
revenues		  2017
versus
2016%		 
   (in millions
of R$)		     (in millions
of R$)		       

Energy bought for resale

   (10,919)   (50.3)   (8,273)   (44.1)   31.98 

Gas bought for resale

   (1,071)   (4.9)   (877)   (4.7)   22.01 

Charges for the use of the national grid

   (1,174)   (5.4)   (947)   (5.0)   23.97 

Depreciation and amortization

   (850)   (3.9)   (834)   (4.4)   1.92 

Personnel

   (1,627)   (7.5)   (1,643)   (8.8)   0.97 

Employees’ and managers’ profit sharing

   (5)   —     (7)   —     (28.57) 

Raw materials and inputs for production of energy

   (10)   —     —     —     —   

Outsourced services

   (974)   (4.5)   (867)   (4.6)   12.34 

Post-employment benefits

   229   1.1   (345)   (1.8)   —   

Materials

   (61)   (0.3)   (58)   (0.3)   5.17 

Operating provisions

   (854)   (3.9)   (704)   (3.8)   21.31 

Construction costs

   (1,119)   (5.2)   (1,193)   (6.4)   (6.20) 

Other operating expenses, net

   (383)   (1.8)   (156)   (0.8)   145.51 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating costs and expenses

   (18,818)   (86.6)   (15,904)   (84.7)   18.32 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The following are the main variations in operating costs and expenses between 2017 and 2016:

Expenses due to energy purchased for resale in 2017 was R$10,919 million, compared to R$8,273 million in 2016, representing an increase of 31.98%. The main factors contributing to such increase were:

Expenses on energy acquired in regulated market auctions increased by 40.00%, totalling R$ 3,556 million in 2017, as compared to R$ 2,540 million in 2016, mainly due to activation of thermal plants in 2017 due to the low level of the reservoirs of the hydroelectric plants in the system, with an increase in the expense on combustion fuel for those plants.

The expense on energy from Itaipu Binacional increased by 8.65% and totaled R$ 1,243 million in 2017, compared to R$ 1,144 million in 2016 when indexed to the U.S. dollar. This variation was mainly due to the increase of the rate, which was US$ 25.78/kW per month in 2016, as compared to US$ 28.73/kW per month in January 2017.

The cost of purchases of supply in the spot market was 96.85% higher at R$ 1,498 million in 2017, compared to R$ 761 million in 2016, reflecting the higher cost of energy in the wholesale market in 2017 (R$94.16/MWh in 2016 compared to R$324.17/MWh in 2017).

Charges for the use of the national grid totaled R$ 1,174 million in 2017, 23.97% higher than in 2016 (R$ 947 million). This expense is payable by energy distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid by CEMIG are set by an ANEEL Resolution.

Operating provisions in 2017 totaled R$ 854 million, compared to R$ 704 million in 2016, an increase of 21.31%. In relation to provisions for contingencies, we highlight the increase in labor provisions (R$206 million in 2017 compared to R$ 120 million in 2016). The increase in the provisioned amount is due to the revaluation caused by new facts which occurred during 2017. For more information please refer to Note 24 to our consolidated financial statements.

Personnel expenses were R$ 1,627 million in 2017, compared to R$ 1,643 million in 2016, a decrease of 0.97%. This decrease was mainly due to a 14.31% reduction in the average number of employees (6,447 in 2017 compared to 7,524 in 2016). This decrease was partially offset by the following:

Salary increase of 8.50% under the Collective Work Agreement, which came into effect in November 2016.

Salary increase of 1.83% under the Collective Work Agreement, which came into effect in November 2017.

Recognition, in 2017 and 2016, of expenses in the amount of R$214 million and R$ 93 million, respectively, related to the voluntary retirement plan.

Expenses on raw materials and inputs for production of energy in 2017 totaled R$ 10 million, compared to R$ 40 thousand in 2016. These expenses represent the fuel expenses to operate the Igarapé thermal plant. The higher expense in 2017 was due to worse hydrological conditions in 2017 compared to 2016.

Construction costs in 2017 totaled R$ 1,119 million, or 6.20% less than in 2016 (R$ 1,193 million). This line item records CEMIG’s investment in assets of the transmission and distribution concessions in the period, and is fully offset by the line Construction Revenue, in the same amount.

The expense on employees’ and managers’ profit shares in 2017 was R$ 5 million, compared to R$ 7 million in 2016. This expense represents the estimate of the amount to be paid to employess whose labor unions have signed specific profit sharing agreements with CEMIG.

The impact of CEMIG’s post-employment obligations on the bottom line was a reversion of expense of R$229 million in 2017, compared to an expense of R$345 million in 2016. This was due to changes in the life insurance policy, which resulted in the reduction of insured capital by 20% every 5 years, from 60 years, to a minimum of 20%, representing a reduction of R $ 619 million in post-employment obligations recorded as of December 31, 2017.

In 2017, CEMIG reported an expense of R$ 1,071million for gas purchased for resale, compared to an expense of R$ 877 million in 2016, an increase of 22.12%. The increase mainly reflects a higher volume of gas purchased (1,309,459 m³ in 2017 compared to 1,063,677 m³ in 2016).

Adjustment for impairment in value of investments

In 2016, CEMIG posted an adjustment for a reduction in value of investments of R$ 763 million related to its investment in Renova. For additional information, see Note 16 to our consolidated financial statements.

Share of (loss) profit, net, of associates and joint ventures

In 2017, CEMIG reported a loss by the equity method of R$ 252 million, which compares with a loss of R$ 302 million reported in 2016. This variation primarily reflects better results from our interest in Light that presented a gain of R$35 million in 2017 compared to a loss of R$121 million in 2016. For more details please refer to Note 16 to our consolidated financial statements.

Net Finance Expenses

Net finance expenses totaled R$ 997 million in 2017, compared to net finance expenses of R$ 1,437 million in 2016. The main factors contributing to this decrease in net finance expenses were:

Costs of loans and financing and debt, including transaction costs, decreased by 20.49%, totaling R$1,533 million in 2017, as compared to R$1,928 million in 2016. This decrease is due mainly to the lower variation in the CDI rate: 9.93% in 2017 compared to 14.06% in 2016.

Expense on monetary variation in loans and financing decreased by 55.51%, at R$ 109 million in 2017 compared to R$ 245 million in 2016, mainly due to the lower inflation rate posted by the IPCA index (2.95% in 2017 compared to 6.29% in 2016).

This decrease was partially offset by an expense on foreign exchange variation of R$53 million in 2017 compared to a net revenue of R$27 million in 2016. This variation is due mainly to an expense recorded in 2017 in the amount of R$57 million related to the issuance of Eurobonds in 2017.

The decrease was also partially offset by a reduction in the income from cash investments: R$205 million in 2017 compared to R$317 million in 2016. This result is due to a lower variation of CDI of 9.93% in 2017 (compared to 14.06% in 2016).

The decrease was also partially offset by an increase in the monetary updating of court escrow deposits: R$191 million in 2017 compared to R$46 million in 2016. In 2017, CEMIG recorded an amount of R$82 million due to the reversion provision related to the court challenge of the constitutionality of inclusion of the amount of ICMS tax within the base amount on which these contributions are calculated.

Income Tax and the Social Contribution Tax

In 2017, the expense on income tax and the Social Contribution tax totaled R$ 644 million, on income before income tax and social contribution tax of R$ 1,646 million, an effective tax rate of 39.13%.

In 2016, the expense on income tax and the Social Contribution tax totaled R$ 33 million, on income before income tax and social contribution tax of R$ 367 million, an effective tax rate of 8.99%. There is a reconciliation of these effective tax rates with the nominal tax rates on Note 10 to our consolidated financial statements.

Liquidity and Capital Resources

Our business is capital-intensive. Historically, we have had a need for capital to finance the construction of new generation facilities and expansion and modernization of the existing generation, transmission and distribution facilities.

Our liquidity requirements are also affected by our dividend policy. We finance our liquidity and capital needs principally with cash generated by operations and, on a lesser scale, with funds from financing.

Cash and Cash Equivalents

Cash and cash equivalents on December 31, 20182020 totaled R$ 8911,680 million, compared to R$ 1,030536 million on December 31, 20172019 and R$995891 million on December 31, 2016.2018. No cash nor cash equivalents were held in any other currency than the Real. The main components of this variation:

Net Cash flows from (used in) operating activities

The totals of Net cash generated by operating activities in 2018 and 2017 were, respectively, R$ 1,008 million and R$ 580 million. The higher cash generated in 2018 compared to 2017 mainly reflects the reimbursement received for the São Simão and Miranda hydroelectric plants, and the Company’s increased in profitability.

The totals of net cash generated by operating activities in 20172020 and 20162019 were, respectively, R$5808,607 million and R$1,2132,036 million. The lowerhigher net cash generatedfrom operations in 2017 compared to 20162020 was mainly due to higherthe receipt of R$1,404 referring to the Covid account, in addition to the amounts raised from judicial deposits referring to the Pasep/ Cofins action on the ICMS, in the amount of R$1,383 million. In addition, in 2020 the Company started to offset Pasep/Cofins credits on ICMS against federal taxes payable, which caused a lower cash outflow to pay taxes in 2017comparison with 2019, being R$240 million in 2020 compared to cover ‘Parcel A’non-manageable costs,R$1,767 million in 2019.

The totals of net cash generated by operating activities in 2019 and 2018 were, respectively, R$2,036 million and R$1,008 million. The higher net cash from operations in 2019 was mainly due to the Company’s higher expense of energy due, in turn, toprofitability, and the lower hydroelectric reservoir levels, resultingratio between non-manageable costs and the tariff receipts for CEMIG D, expressed in the need to store waterchange in the system“CVA” account (“Parcel A” items variation compensation) and to activate thermoelectric plants, resulting in a higher price for power in 2017.the item “Other financial components”.

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Net Cash flow from (used in)used in investing activities

The Company used net cash of R$ 2115,076 million in investing activities in 2018,2020, compared to net cash used in investing activities of R$ 3861,188 million in 2017.2019. The decreaseincrease reflects the high volume of the Company’s investments in the distribution system and capital contribution on investees in the period, net of the amounts received from sale of assetsmarketable securities – which totaled R$ 6553,368 million in 2018,2020, and R$ 76679 million in 2017.

2019, mainly due to more cash available.

NetThe Company used net cash usedof R$1,188 million in investing activities totaled R$386 million in 2017,2019, compared to net cash used in investing activities of R$614211 million in 2016. In 2017,2018. This figure results from: payment by Gasmig of the total invested in securitiesconcession grant fee, of R$891 million, with the objective of re-establishing the economic-financial equilibrium of the concession contract, and its extension up to 2053. This amount was R$ 4 million, comparedadded to redemptionsthe Remuneration Base of R$1,400 million in 2016. In addition, we made capital injections into investees totaling R$254 million in 2017 comparedAssets (BRR) of Gasmig, as an intangible asset, to R$ 1,455 million in 2016.be amortized over the period up to the end of the concession contract.

Net Cash flow from (used in) financing activities

Cash used in financing activities in 2018 totaled R$ 936 million, comprising R$509 million related to dividends and interest on capital paid, amortization of financing totaling R$ 3,527 million partially offset by new financing of R$ 2,990 million and subscription of capital by shareholders in the amount of R$110 million.

In 2017,2020, cash used in financing activities resulted in a net outflow oftotaled R$1592,387 million primarily related to the payment of loans, financing and debentures in the amount of R$4,1312,531 million, R$1184 million related to borrowing costsleasing payments and R$540598 million related to dividends and interest on capital paid, which were partially offset by an inflow from loans, financing and debentures of R$3,308826 million.

Cash used in financing activities in 2019 totaled R$1,203 million, comprising: R$4,883 million in amortization of financings, R$4,477 million in new funding received; R$96 million in leasing payments; and R$701 million in dividends and interest on equity paid to shareholders.

In 2018, cash used in financing activities totaled R$936 million, comprising R$509 million related to dividends and interest on capital paid, amortization of financing totaling R$3,527 million partially offset by new financing of R$2,990 million and subscription of capital by shareholders to be capitalized in the amount of R$1,215110 million.

In 2016, financing activities resulted in a net outflow of R$529 million, comprising R$5,591 million paid in amortization of financing; R$675 million paid in dividends and interest on capital; and inflow from financing of R$5,737 million.

Indebtedness

Our indebtedness from loans, financing and debentures (current andnon-current) as of December 31, 20182020 was R$14,77215,020 million, which was comprised of R$2,1982,059 million of current debt and R$12,57412,961 million ofnon-current debt. Of our debt as of December 31, 2018,2020, R$5,8277,825 million was denominated in foreign currencies (R$5,826 million of which was U.S. dollar-denominated and R$0,2 million of which was Euro-denominated) and R$8,9457,195 million denominated inreaisReais.

Our indebtedness from loans, financing and debentures (current andnon-current) as of December 31, 20172019 was R$14,39814,777 million, which was comprised of R$2,3712,747 million of current debt and R$12,02712,030 million ofnon-current debt. Of our debt as of December 31, 2017,2019, R$3,2976,061 million was denominated in foreign currencies (R$3,293 million of which was U.S. dollar-denominated and R$4 million of which was Euro-denominated) and R$11,1008,716 million denominated inreaisReais.

Our main financing contracts, on a consolidated basis,indebtedness as of December 31, 2018, are2020, is shown in the following table (in millions of Reais)Reais):

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Financing source

 Principal
maturity		  Annual financial cost %  Currency  2018  2017 
 Current  Non-current  Total  Total 

FOREIGN CURRENCY

       

Banco do Brasil: Various Bonds (1) (4)

  2024   Various   US$   2   24   26   24 

Eurobonds (2)

  2024   9.25%   US$   44   5,812   5,856   3,333 

KfW (2)

  2019   1.78%   EURO   —     —   —     4 

(-) Transaction costs

     —   (21)   (21)   (15) 

(±) Interest paid in advance (3)

     —   (34)   (34)   (48) 
    

 

 

  

 

 

  

 

 

  

 

 

 

Debt in foreign currency

     46   5,781   5,827   3,298 
    

 

 

  

 

 

  

 

 

  

 

 

 

BRAZILIAN CURRENCY

       

Banco do Brasil S.A. (2)

  2018   140.00% do CDI   R$   —     —     —     742 

Banco do Brasil S.A. (4)

  2022   146.50% do CDI   R$   37   466   503   500 

Caixa Econômica Federal (4)

  2018   119.00% do CDI   R$      8 

Caixa Econômica Federal (4)

  2022   146.50% do CDI   R$   44   583   627   627 

Caixa Econômica Federal (5)

  2021   TJLP + 2.50%   R$   —   56   56   —   

Caixa Econômica Federal (6)

  2022   TJLP + 2.50%   R$   —   108   108   —   

Eletrobrás (4)

  2023   UFIR + 6.00% a 8.00%   R$   13   20   33   50 

Large customers (4)

  2024   IGP-DI + 6.00%   R$   2   3   5   4 

FINEP (2)

  2018   
TJLP+5.00% e
TJLP+8.00%		 
 		  R$   —     —     —     2 

—Banco da Amazônia S.A. (2)

  2018   CDI + 1.90%   R$   —     —     —     122 

Sonda (7)

  2021   110.00% do CDI   R$   —   46   46   42 

Promissory Notes – 9th Issue—single series (4)

  2019   151.00% do CDI   R$   426   —   426   —   

 Principal maturityAnnual financial cost %Currency20202019
CurrentNon-currentTotalTotal
FOREIGN CURRENCY       
Banco do Brasil: Various Bonds (1) (4)2024DiverseUS$2101218
Eurobonds (2)20249.25%US$597,7957,8546,092
(-)Transaction costs   -(16)(16)(19)
(±) Interest paid in advance (3)   -(25)(25)(30)
Debt in foreign currency   

61

7,764

7,825

6,061

BRAZILIAN CURRENCY       
Caixa Econômica Federal (5)2021TJLP + 2.50%R$17-1761
Caixa Econômica Federal (6)2022TJLP + 2.50%R$14-14118
Eletrobrás (4)2023UFIR + 6.00% at 8.00%R$35820
Large customers (4)2024IGP-DI + 6.00%R$---5
Sonda (7)2021110.00% of CDIR$50-5049
Promissory Notes – 1st Issue - Single series (8)2020107.00% of CDIR$---875
(-) FIC Pampulha - Marketable securities of subsidiary companies (9)   ---(3)
Debt in Brazilian currency   

84

5

89

1,125

Total of loans and financings   

145

7,769

7,914

7,186

Debentures - 3th Issue – 3rd Series (2)2022IPCA + 6.20%R$3953677621,088
Debentures - 6th Issue – 2nd Series (2)2020IPCA + 8.07%R$---17
Debentures - 7th  Issue – Single series (2) (11)2021140.00% of CDIR$289-289578
Debentures - 3th Issue – 2nd Series (4)2021IPCA + 4.70%R$588-5881,109
Debentures - 3th Issue – 3rd Series (4)2025IPCA + 5.10%R$439921,035991
Debentures - 7th Issue – 1st Series (4)2024CDI + 0.45%R$5421,3501,8922,165
Debentures - 7th Issue – 2nd Series (4)2026IPCA + 4.10%R$31,5851,5881,520
Debentures – 4th Issue – 1st Series (8)2022TJLP+1.82%R$10102031
Debentures – 4th Issue – 2nd Series (8)2022Selic + 1,82%R$54914
Debentures – 4th Issue – 3th Series (8)2022TJLP + 1,82%R$12102234
Debentures – 4th Issue – 4th Series (8)2022Selic + 1,82%R$551015
Debentures – 7th Issue – Single series (8)2023CDI + 1.50%R$20406080
Debentures – 8th Issue – Single series (8)2031IPCA + 5.27%R$14876890-
(-) Discount on the issuance of debentures (10)   -(18)(18)(22)
(-) Transaction costs   

(12)

(29)

(41)

(29)

Total, debentures   

1,914

5,192

7,106

7,591

Total   

2,059

12,961

15,020

14,777

Financing source

  Pricipal
maturity		   Annual financial cost
%		  Currency  2018   2017 
  Current   Non-current   Total   Total 

(-) FIC Pampulha—Securities of subsidiary companies (9)

         (25)    —    (25)    —   

(-)Transaction costs

         (2)    (11)    (13)    (26) 

Debt in Brazilian currency

         495    1,271    1,766    2,071 
        

 

 

   

 

 

   

 

 

   

 

 

 

Total of loans and financing

         541    7,052    7,593    5,369 
        

 

 

   

 

 

   

 

 

   

 

 

 

Debentures—3th Issue—2nd Series (2)

   2019   IPCA + 6.00%  R$   156    —      156    301 

Debentures—3th Issue—3rd Series (2)

   2022   IPCA + 6.20%  R$   53    996    1,049    1,011 

Debentures—5th ª Issue—single series (2)

   2018   CDI + 1.70%  R$   —      —      —      703 

Debentures—6th Issue—1st Series (2)

   2018   CDI + 1.60%  R$   —      —      —      508 

Debentures—6th Issue—2nd Series (2)

   2020   IPCA + 8.07%  R$   17    16    33    32 

Debentures—7th Issue—Single Series (2)

   2021   140.00% do CDI  R$   342    681    1,023    1,683 

Debentures—3th Issue—1st Series (4)

   2018   CDI + 0.69%  R$   —      —      —      447 

Debentures—3th Issue—2nd Series (4)

   2021   IPCA + 4.70%  R$   569    1,027    1,596    1,537 

Debentures—3th Issue—3rd Series (4)

   2025   IPCA + 5.10%  R$   41    916    957    921 

Debentures—4th Issue—Single Series (4)

   2018   CDI + 4.05%  R$   —      —      —      20 

Debentures—5th Issue—Single Series (4)

   2022   146.50% do CDI  R$   112    1,468    1,580    1,576 

Debentures—6th Issue—Single Series (4)

   2020   CDI + 1.75%  R$   276    275    551    —   

Debentures (8)

   2018   CDI + 1.60%  R$   —      —      —      100 

Debentures (8)

   2018   CDI + 0.74%  R$   —      —      —      34 

Debentures (8)

   2022   TJLP+1.82%
(69%) e
Selic+1.82% (31%)		  R$   33    92    125    155 

Debentures (8)

   2019   116.50% do CDI  R$   50      50    50 

Debentures (8)

   2023   CDI + 1.50%  R$   20    80    100    —   

Debentures 2th Emissão—Série Única (7)

   2019   128.50% do CDI  R$   —      —      —      26 

(-) FIC Pampulha: Securities of subsidiary companies (9)

         —      —      —      (25) 

(-) Transaction costs

         (12)    (29)    (41)    (50) 
        

 

 

   

 

 

   

 

 

   

 

 

 

Total, debentures

         1,657    5,522    7,179    9,029 
        

 

 

   

 

 

   

 

 

   

 

 

 

Overall total

         2,198    12,574    14,772    14,398 
        

 

 

   

 

 

   

 

 

   

 

 

 

(1)

Net balance of the Restructured Debt comprising bonds at par and discounted, with balance of R$ 174,790,234 million, less the amounts given as Deposits in guarantee, with balance of R$ 148,854.222 million. Interest rates vary – from 2 to 8% p.a.;six-month Libor plus spread of 0.81% to 0.88% p.a.

;
(2)

CEMIG Geração e Transmissão.

o;
(3)

Advance of funds to achieve the yield to maturity agreed in the Eurobonds contract.

contract;
(4)

CEMIG Distribuição.

o;
(5)

In Central Eólica Praias de Parajuru, resulting from the transactions to eliminate cross-shareholdings between CEMIG GT and Energimp. For more details please see Note 1718 to the financial statements.

statements;
(6)

Central Eólica Volta do Rio – result of elimination of cross-shareholdings between CEMIG GT and Energimp. For more details please see Note 1718 to the financial statements.

statements;
(7)

CEMIG Company. Arising from merger of CEMIG Telecom.

Telecom;
(8)

Gasmig.

The proceeds from the 8th debenture issue, concluded by Gasmig on September 10, 2020, in the amount of R$850 million, were used to redeem the Promissory Notes issued on September 26, 2019, with maturity at 12 months, whose proceeds were used in their entirety for payment of the concession grant fee for the gas distribution concession contract;
(9)

FIC Pampulha has financial investments in securities issued by subsidiary companies of the Company. For more information and characteristics of this fund, see Note 3130 to the financial statements.

statements;
(10)Discount on sale price of the 2nd series of the 7th Issue by CEMIG Distribution (CEMIG D).

2018

On February 2, 2021, CEMIG GT effected extraordinary amortization of its 7th issue of non-convertible debentures, in the amount of R$265 million, which had final maturity in December 2021.

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The following financing contracts were entered into during the year ended December 31, 2018:2020 (in millions of Reais):

Financing source 2019DatePrincipal maturityAnnual financial cost %Amount
BRAZILIAN CURRENCY    
Debentures – 8th Issue – single Series (1)September, 20202031IPCA + 5.27%850
(-)Transactions costs   (24)
Total raised   

826

(1)Gasmig

On September 10, 2020, Gasmig concluded its 8th issue of simple debentures, not convertible into shares, in the amount of R$850 million, in a single series, with an 11-year term and monetary restatement by the IPCA plus interest of 5.27% per year, based on 252 working days. The total net funds raised were allocated to Gasmig, on the present date, of the mandatory early redemption of the 1st Issue of Commercial Promissory Notes, in a single series, with a total amount of R$850 million on the issue date.

The following financing contracts were entered into during the year ended December 31, 2019 (in millions of Reais):

Financing source 2019DatePrincipal maturityAnnual financial cost %Amount
BRAZILIAN CURRENCY    
Debentures – 7th Issue – 1st Series (1)July, 20192024CDI + 0.454%2,160
Debentures – 7th Issue – 2nd Series (1)July, 201920264.10% of IPCA1,500
Promissory Notes – 1st Issue (2)September, 20192020107.00% of CDI850
(-)Transactions costs   (10)
(-)Discount on the issuance of debentures (3)   (23)
Total raised   

4,477

(1)CEMIG Distribuição
(2)Gasmig
(3)Discount on the sale price of the 2nd series of the debentures issued by CEMIG Distribuição.

On July 22, 2019, the Company completed the distribution of its 7th issue of simple debentures, non-convertible secured debentures, in the amount of R$3,685 million, in two series. The 1st series, with a term of 5 years, for R$2,160 million and paying interest of CDI + 0.45%. The 2nd series, with a 7 year term, in the amount of R$1,500 million and paying monetary restatement by the IPCA plus interest of 4.10%, making an average equivalent cost estimated at 108.61% of CDI.

The Company used the proceeds to prepay the outstanding balance of the 9th issue of promissory notes, with final maturity in October 2019, of the 6th issue of simple debentures, with final maturity in June 2020, of the 5th issue of simple debentures, with final maturity in June 2022, and Bank Credit Notes, with final maturities in June 2022, totaling R$3,644 million in principal, interest and charges.

Issuance of Commercial Promissory Notes

In May 2018, CEMIG D issued Commercial Promissory Notes in the amount offor R$400 million, due on October 24, 2019. The promissory notes bear interest at 151% of the CDI Rate, which will be paid on the maturity date. The proceeds will be used to recompose CEMIG D’s cash, due to the payment of the 3rd issuance of debentures, and to enhance working capital.Thecapital. The issuance is guaranteed by CEMIG and benefits from collateral composed of a fiduciary assignment (alienação fiduciária) of shares issued by Gasmig. The Commercial Promissory Notes have restrictive financial covenants, requiring the maintenance of a Net Debt/EBITDA ratio less than or equal to: (A) for CEMIG: (i) 4.5x for June 2018; (ii) 4.25x for the fiscal year 2018; and (iii) 4.25x for June 2019; and (B) for CEMIG D (i) 7.5x for June 2018; (ii) 4.5x for the fiscal year 2018; and (iii) 3.8x for June 2019.

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On December 19, 2018, CEMIG D completed the public offering of the 6th issuance of simplenon-convertible secured debentures, in a single series, under which 550,000 debentures, with par value unit of R$1,000, at the issue date of December 3, 2018, in a total amount of R$550 million that shall be paid in 12 monthly installments, maturing on June 3, 2020. The net proceeds from the issuance were used for replenishment of the CEMIG D’s cash position due to expenses related to purchasedpurchase energy and for the payment of debts maturating in February 2019. The debentures pay interests of CDI plus 1.75% per year. The interest will be paid monthly, with the first installment due on January 3, 2019 and the last installment on the maturity date. The debentures are guaranteed by (i) CEMIG´s Guaranty; (ii) fiduciary assignment (alienação fiduciária) of 33.37% common shares issued by Gasmig. The indenture also has restrictive financial covenants, requiring the maintenance of minimum capitalization rate as expressed by Net Debt/EBITDA plus dividends received that shall be equal or below (A) for CEMIG D: (i) 4.50x for the fiscal year of 2018; (ii) 3.80x for June 2019; (iii) 3.80x for the fiscal year of 2019; inclusive. and (B) for CEMIG (i) 4.25x for the fiscal year of 2018; (ii) 4.25x for June 2019; (iii) 3.50x for the fiscal year of 2019; inclusive.

CEMIG GT’s retap of Eurobonds

On July 18, 2018, CEMIG GT issued an additional US$500 million of its Eurobonds. The proceeds were used to repay debt. As with the original issuance of Eurobonds by CEMIG GT in December 2017, the issuance was hedged by a coupon swap and a call spread on the principal, in order to protect the company against foreign exchange volatility.

2017

The following financing contracts were entered into during the year ended December 31, 2017:

CEMIG’s Bank Debt Refinancing

In 2017, CEMIG entered into negotiations with its main creditors in connection with the Bank Debt Refinancing, representing up to R$3.4 billion of debt, in order to refinance short and medium term indebtedness of CEMIG GT and CEMIG D and to balance CEMIG’s short and medium term cash flows. The reprofiling involved extending the amortization schedules of existing debt maturities, ranging from 2017 through 2020, into facilities with a principal amortization grace period in 2018 and final maturities in 2022.

In December 2017, CEMIG D concluded the reprofiling by means of a local notes issuance in the amount of R$1,575 million and amendments to debt agreements entered into with Banco do Brasil (R$500 million) and Caixa Econômica Federal – CEF (R$625 million). As to CEMIG GT, there were amendments to debt agreements entered into with Banco do Brasil (R$741 million). In the aggregate, the bank debt reprofiling reached approximately R$3.4 billion. The new debt of CEMIG D will pay interest of 146.5% of CDI (local interest rate), whereas the new debt of CEMIG GT will pay interest of 140% of CDI. The amortization of principal will begin in January 2019, with 36 equal monthly payments for CEMIG GT, and the amortization of principal will begin in July 2019, with 36 monthly payments corresponding to an annual distribution of 6.75% in 2019, 13.50% in 2020, 27% in 2021, 11.25% and a balloon of 41.50% in 2022, for CEMIG D.

The Bank Debt Refinancing did not involve a principal reduction and the new facilities are senior secured indebtedness. The collateral for CEMIG GT’s Bank Debt Refinancing is comprised of a cash sweep on CEMIG GT’s asset sales (35% of every asset sale), a pledge on dividends earned from some of CEMIG and CEMIG GT’s subsidiaries (TAESA, Aliança, CEMIG Geração Carmagos S.A., CEMIG Geração Itutinga S.A., CEMIG Geração Leste S.A., CEMIG Geração Oeste S.A., CEMIG Geração Salto Grande S.A., CEMIG Geração Sul S.A. and CEMIG Geração Três Marias S.A.), a fiduciary assignment (alienação fiduciária) of 34.34% of the preferred shares issued by Gasmig, a pledge on receivables (R$125 million per month for the life of the new debt facility) and an escrow account equal to the amount of the next three payments due. The collateral for CEMIG D’s Bank Debt Refinancing, shared among the local debentures, Caixa Econômica Federal – CEF and Banco do Brasil, is comprised of: (i) a cash sweep on CEMIG’s asset sales (35% of every asset sale) and (ii) a pledge on certain receivables (R$400 million per month for the life of the new debt facility with respect to the local debentures and a debt agreement entered into with Caixa Econômica Federal – CEF, and other receivables with respect to the debt agreements entered into with Caixa Econômica Federal – CEF and Banco do Brasil). In addition, the collateral for the debt agreements entered into with Banco do Brasil also includes a pledge of receivables (duplicate invoice). There is also a corporate guarantee by CEMIG of both CEMIG D and CEMIG GT’s Bank Debt Refinancing.

CEMIG GT’s issuance of Eurobonds

In the same context of lengthening the amortization schedule, CEMIG GT issued theEurobondsin December 2017. The issuance was priced in December with a 9.25% coupon and 9.5% yield and the proceeds were used to repay existing short-term debt. The bonds will pay interests semiannually and the principal will fall due in December 2024, with an option for prepayment, without premium after 6 years from issue. The issuance was hedged by a coupon swap and a call spread on the principal, in order to protect the company against foreign exchange volatility.

TheEurobonds contain certain restrictive covenants which, among other things, limit CEMIG GT’s ability to (i) incur additional debt; (ii) make certain dividend payments, redeem capital stock and make certain investments; (iii) transfer and sell assets; (iv) enter into any agreements that would limit the ability of subsidiaries to pay dividends or make distributions; (v) create liens on assets; (vi) effect a consolidation, merger or sale of assets; and (vii) enter into transactions with affiliates. TheEurobonds also contain certain financial maintenance covenants applicable to CEMIG and CEMIG GT.  The indenture governing theEurobonds contains customary events of default. CEMIG GT has the right, at its option, to redeem any of theEurobonds, in whole or in part, at any time on or after December 5, 2023, at the redemption prices set forth in the indenture governing theEurobonds. Prior to December 5, 2023, CEMIG GT has the right, at its option, to redeem theEurobonds, in whole but not in part, at a redemption price equal to the greater of (i) 100% of the principal amount of suchEurobonds and (ii) the sum of the present value at such redemption date of (a) the redemption price of theEurobonds on December 5, 2023 plus (b) all required interest payments on theEurobonds through December 5, 2023 (excluding accrued but unpaid interest to the date of redemption), discounted to the redemption date on a semi-annual basis (assuming a360-day year consisting of twelve30-day months) at the Treasury Rate plus 50 basis points, plus in each case any accrued interest on the principal amount of theEurobonds to, but excluding, the date of redemption.

2016

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The following financing contracts were entered into during the year ended December 31, 2016:

Debentures Issuance and Refinancing of Banco do Brasil Credits

On December 29, 2016 CEMIG GT completed the public offering of the 7th issuance of simplenon-convertible secured debentures, in a single series, with restricted placement efforts, under which 224,000 debentures, with par value unit of R$10,000, at the issue date of December 23, 2016, in a total amount of R$2,240 million that shall be paid in 37 monthly installments, with final maturity date on December 23, 2021. The net proceeds from the issuance were used for the repayment of 144 Commercial Promissory Notes of its 6th Commercial Notes Public Issuance and for replenishment of the CEMIG GT’s cash position. The debentures pay an interest equal to 140% of the CDI rate per year. The interest will be paid monthly, with the first installment due on January 23, 2017 and the last installment on the maturity date. The debentures are guaranteed by (i) CEMIG’s Guaranty; (ii) fiduciary assignment of receivables of CEMIG GT; and (iii) fiduciary assignment (alienação fiduciária) of 49% common shares issued by CEMIG Geração Carmagos S.A., CEMIG Geração Itutinga S.A., CEMIG Geração Leste S.A., CEMIG Geração Oeste S.A., CEMIG Geração Salto Grande S.A., CEMIG Geração Sul S.A. and CEMIG Geração Três Marias S.A. (together “CEMIG GT – SPEs”). The Indenture also has a restrictive financial covenants for CEMIG, requiring the maintenance of minimum capitalization rate as expressed by Net Debt/EBITDA plus dividends received that shall be equal or inferior than (i) 4.5x for the fiscal year of 2017; (ii) 4.35x for the fiscal year of 2018; (iii) 3.5x for the fiscal year of 2019; (iv) 3.0x for the fiscal year of 2020; and (v) 2.5x for the fiscal year of 2021, inclusive. Additionally, CEMIG GT’s 7th issuance of debentures had a provision in which, in case there was a debt issuance abroad, CEMIG GT undertook to use 40% of the proceeds to carry out the early redemption or extraordinary amortization of the debentures. CEMIG GT’s 7th issuance of debentures also had a provision in which, in case there was an asset sale, CEMIG GT undertook to use 40% of the proceeds to carry out the early redemption or extraordinary amortization of the debentures. However, if more than 50% of the debentures had already been prepaid, 20% of the proceeds had to be used to carry out an early redemption or extraordinary amortization. The indenture governing the 7th issuance of debentures was amended in April 2018 to reduce to 20% the percentage of a debt issuance abroad or of an asset sale that has to be used to carry out an early redemption or extraordinary amortization of the 7th issuance of debentures.

On October 21, 2016 CEMIG D repaid to Banco do Brasil S.A. two Commercial Credit Notes issued on May 27, 2010, as amended on May 10, 2013 and on April 22, 2016 with final maturities in April 2018, paying the total principal amount of R$600 million, plus interest, calculated up to the date of settlement, of R$25 million. The payment was made from CEMIG D’s own funds.

On October 24, 2016, CEMIG GT paid to Banco do Brasil S.A. the installments of two Fixed Credit Contracts, in the amount of R$286 million, and Bank Credit Notes in the amount of R$430 million, totaling R$716 million. The payments were made with funds from a new lending transaction, also with Banco do Brasil S.A., and with CEMIG GT’s own funds.

On October 24, 2016, CEMIG GT issued a Bank Credit Note in favor of Banco do Brasil S.A., in the total amount of R$600 million, in order to refinance certain notes previously extended by Banco do Brasil. This loan has an annual interest rate of 132.90% of the CDI rate, and will be paid in four half-yearly installments, with the last payment to be made in October 2018.

Issue of Bank Credit Note

On March 22, 2016, CEMIG D issued a Bank Credit Note in favor of Caixa Econômica Federal, in the amount of R$695 million, to be used for the payment of interest and principal on existing debt, represented by Bank Credit Notes issued in favor of both Banco do Brasil and Caixa Econômica Federal, as well as the 8th issuance of Promissory Notes of CEMIG D due in the first half of 2016. The interest rate is 132.14% of the CDI rate, p.a. The Bank Credit Note has a maturity of 48 months and a grace period of 18 months for payment of the principal. During the grace period, the payment of interest shall be made in a quarterly basis. After the grace period, amortization and payment of interest shall be made monthly. This Bank Credit Note is guaranteed by CEMIG and by a lien over CEMIG D’s receivables in the amount not lower than 40% of the outstanding balance of this Bank Credit Note.

Issues of Promissory Notes

On July 1, 2016, CEMIG GT concluded its 7th issuance of Commercial Promissory Notes, comprised of 124 notes, representing a total of R$620 million. The net proceeds were used to pay the second portion of the concession grant fee for the hydroelectrical plants in Lot D of ANEEL Auction No. 12/2015, and to improve CEMIG GT’s working capital. The Promissory Notes pay interest equal to 128% of the averageone-day ‘DI’ rate, the daily interbank deposit rate, to be paid on the maturity date. The notes initially had a 360 day term, but they were amended to mature on December 7, 2017 and the final value that was paid at maturity was R$599 million.

Redemption of Promissory Notes

On March 28, 2016, CEMIG D repaid the totality of its 8th issuance of Promissory Notes. The amount of R$1.958 billion was paid to the holders of the notes, R$1.7 billion of principal and R$258 million of interest.

In the financing contracts of CEMIG D and of CEMIG GT there are standard clauses restricting payment of dividends, if the companies are in default; restricting asset disposals that might adversely affect their activities; and restricting disposal of shareholding control of the companies involved.

Because we have a significant portion of our financing, totaling R$2,198 million, due for payment in 2019, we need short- term funds to pay and refinance these obligations. As a state company, we are subject to restrictions, under present laws and regulations, in relation to financing and our capacity to obtain financing in certain situations, including registration of foreign financing with the Brazilian Central Bank. In addition, financial institutions in Brazil are subject to restrictions on exposure to the risks related to State governments, governmental bodies and state-controlled companies such as CEMIG. Still, such restrictions do not prohibit local financial institutions from acquiring debentures and other local debt instruments issued by CEMIG or, even, to extend credit if they have room in their limit exposure. However, there can be no assurance that these restrictions may not be amended and, therefore, hinder our ability to obtain financing in the future. See “Item 3. Key Information – Risk Factors – Risks Relating to CEMIG – We are subject to restrictions on our ability to make capital investments and to incur indebtedness, which could adversely affect our business, results of operations and financial condition.”

The recent changes in the regulations of the energy sector, especially those introduced for generation and the transmission by Law No. 12,783/13, and the tariff review of CEMIG D, which occurred in April 2013, have demanded more precise budget planning. In 2016, we covered our expenditure on capital and investments in acquisitions and met our needs for liquidity through a combination of cash flow from operations and financing. In 2017, we met our liquidity needs, through a combination of cash flow from operations and financing, including the issuance of Eurobonds. The same happened in 2018, when we issued local notes and retaped the international bond market. Since we principally use cash generated by operations to provide funding for our liquidity and capital needs, factors that result in an increase or reduction of our revenues and net income could have a corresponding effect on our access to sources of liquidity.

In the long term, we foresee that it will be necessary to make significant capital expenditures on maintenance and updating of our generation, transmission, and distribution facilities, and we expect to employ various sources of liquidity, such as cash flow from operations and financing, in relation to such needs.

CEMIG Financing Guarantees

CEMIG has provided total financing guarantees in the amountfor R$15,020 million on loans, financing and debentures, on December 31, 2020, were as follows: (in millions of R$4,538 million, as described below.Reais)

2020
Promissory notes and Sureties10,197
Guarantee and Receivables3,454
Receivables112
Shares330
Unsecured927
TOTAL

15,020

 

Related party

  

Relationship

  

Type

  

Objective

  2018   Maturity 
  (R$ ‘000) 

Norte Energia (NESA)

  Affiliated  Surety  Financing   2,571,420    2042 

Light

  Jointly-controlled entity  Counter-guarantee  Financing   683,615    2042 

Santo Antônio Energia (SAESA)

  Jointly-controlled entity  Surety  Financing   875,297    2034 

Santo Antônio Energia (SAESA)

  Jointly-controlled entity  Surety  Debentures   400,726    2037 

Centroeste

  Jointly-controlled entity  Surety  Financing   6,816    2023 
        

 

 

   
         4,537,874   

Norte Energia S.A. (“NESA”) entered into a financing agreement No. 11.2.0134.1 with BNDES, dated March 31, 2011, as amended on December 18, 2012, in the amount of R$3.685 billion, divided in sub credit A and sub credit B, which proceeds were used for the acquisition of equipment for the construction of Belo Monte hydroelectrical complex. The interest rate is TJLP with a spread of 5.5% per year, to be paid on a quarterly basis. The amortization of sub credit A will be paid in 287 consecutive monthly installments, with final maturity date on March 15, 2041, and of sub credit B will be paid in 258 consecutive monthly installments, with final maturity date on March 15, 2041. This agreement is guaranteed by (i) pledge of the shares issued by NESA and held by its shareholders; (ii) fiduciary assignment of credit rights; and (ii) guaranty by CEMIG, with a limited liability up to 4.79% of the total amount of the agreement.

NESA entered into a financing agreement No. 12.2.1238.1 with BNDES, dated as of December 18, 2012, in the amount of R$9.815 billion, with final maturity date on January 15, 2042, which proceeds were used for the construction of Belo Monte hydroelectrical complex. The interest rate is TJLP with a spread of 2.25% per year, to be paid along with the amortization of the principal amount. This agreement is guaranteed by (i) pledge of the shares issued by NESA and held by its shareholders; (ii) fiduciary assignment of credit rights; and (ii) guaranty by CEMIG, with a limited liability up to 4.79% of the total amount of the agreement.

NESA entered into a credit facility agreementNo. 391.115-37/12, with Caixa Econômica Federal and Banco BTG Pactual S.A., dated as of December 18, 2012, in the amount of R$ 9 billion, with final maturity date on January 15, 2042, which proceeds were used to the construction of Belo Monte hydroelectrical complex, its transmission system and cash injection to PDRS Xingu. The interest rate is TJLP with a spread of 2.65% per year, to be paid along with the amortization of the principal amount. This agreement is guaranteed by (i) pledge of the shares issued by NESA and held by its shareholders; (ii) fiduciary assignment of credit rights; and (ii) guaranty by CEMIG, with a limited liability up to 4.79% of the total amount of the agreement.

Santo Antônio Energia S.A. (“SAESA”) entered into a financing agreement with Banco da Amazônia S.A., dated as of March 11, 2009, in the amount of R$503 million, with final maturity date on March 10, 2034, which proceeds were used to the construction of Santo Antônio hydroelectrical complex. The interest rate is 10% per year. During the grace period of amortization of the principal of each sub credit, 50% of the financial charges related to the interest payments of each sub credit will be paid monthly on each day 10. The other financial charges related to the payment of interest must be capitalized and paid only after the expiration of the respective grace period of each sub credit. This agreement is guaranteed by (i) pledge of the shares issued by SAESA and held by Madeira Energia S.A. (“MESA”); (ii) equity support agreement by Santo Antônio’s shareholders and (iii) guaranty by CEMIG, with a limited liability up to 10% of the total amount of the agreement.

SAESA entered into a financing agreement No. 1/2013 with Banco Santander (Brasil) S.A., Banco Bradesco S.A., Banco do Brasil S.A., Banco Itaú BBA S.A., Caixa Econômica Federal, and BES Investimento do Brasil S.A. – Banco de Investimento, dated as of August 28, 2013, in the amount of R$995 million, with final maturity date on March 15, 2034, which proceeds were used to the construction of Santo Antônio hydroelectrical complex. The interest rate varies between 3.8% to 2.8%, per year, to be paid along with the amortization of the principal amount. This agreement is guaranteed by (i) pledge of the shares issued by SAESA and held by MESA; (ii) fiduciary assignment of credit rights; (iii) equity support agreement by Santo Antônio’s shareholders and (ii) guaranty by CEMIG, with a limited liability up to 10% of the total amount of the agreement.

On December 14, 2018, SAESA entered into an agreement with BNDES and the other creditors concerning the reprofiling of the abovementioned financing, allowing the company to use the funds in the reserve account, extending the debt maturity until 2040, rearranging the guarantee structure, as well as changing the indexation of BNDES contracts.

Santo Antônio entered into a financing agreement No. 1/2009 with Banco Santander S.A., Banco Bradesco S.A., Banco do Brasil S.A., Unibanco – União de Bancos Brasileiros S.A., Banco do Nordeste do Brasil S.A., Banco Itaú BBA S.A., Caixa Econômica Federal, Banco da Amazônia S.A. and BES Investimento do Brasil S.A. – Banco de Investimento, dated as of March 11, 2009, in the amount of R$3 billion, with final maturity date on March 15, 2034, which proceeds were used to the construction of Santo Antônio hydroelectrical complex and its transmission system. The interest rate varies between 3.8% to 2.8%, per year, to be paid along with the amortization of the principal amount. This agreement is guaranteed by (i) pledge of the shares issued by Santo Antônio and held by MESA; (ii) fiduciary assignment of credit rights; (iii) equity support agreement by SAESA’s shareholders and (ii) guaranty by CEMIG, with a limited liability up to 10% of the total amount of the agreement.

SAESA entered into a credit facility agreement No. 08.2.1120.1 with BNDES, dated March 4, 2009, in the amount of R$ 3.09 billion, with final maturity date on March 15, 2034 which proceeds were used to the construction of Santo Antônio hydroelectrical complex and its transmission system. The interest rate is TJLP with a spread of 2.4% per year, to be paid along with the amortization of the principal amount. This agreement is guaranteed by (i) pledge of the shares issued by Santo Antônio and held by MESA; (ii) fiduciary assignment of credit rights; (iii) equity support agreement by Santo Antônio’s shareholders and (ii) guaranty by CEMIG, with a limited liability up to 10% of the total amount of the agreement.

Companhia de Transmissão Centroeste de Minas entered into a credit facility agreement No. 10.2.1862.1 with BNDES, dated April 14, 2011, in the amount of R$ 28 million, with final maturity date on April 15, 2023, which proceeds were used to the construction of the Transmission Line LT Furnas – Pimenta 2 – 345kV. The interest rate is TJLP with a spread of 3.0% per year, to be paid along with the amortization of the principal amount. This agreement has a restrictive financial covenant requiring CEMIG, guarantor of the financing, to maintain a minimum capitalization rate as expressed by Shareholder’s equity / Total assets equal or greater than 0.3. This agreement has a guaranty by CEMIG, with a limited liability up to 51% of the total amount of the agreement.

Restricted Covenant Clauses

The Company has contracts with covenants linked to financial ratios, as follows:

Title - Security

Covenant

Covenant

Ratio required – Issuer

Ratio required Cemig

CEMIG (guarantor)

Ratio required –
Parajuru and Volta do
Rio

Compliance required

7th DebentureDebentures Issue

CemigCEMIG GT (1)

Net debt

/

(Ebitda + Dividends received)

The following or less:

5.0 in 2018

4.5 in 2019

3.0 in 2020

2.5 in 2021

The following or less:

4.25 in 2018

3.5 in 2019

3.0 in 2020

2.5 in 2021

—  semi-annuallySemi-annual and annual

Eurobonds

 

CemigCEMIG GT (3)(2)

Net debt

/

Ebitda adjusted for the Covenant (6)

The following or less:

5.5 on June, 30, 2018

5.0 on Dec. 31, 2018

5.0 on June, 30, 2019

4.5 on Dec. 31, 2019

4.5 on June, 30, 2020

3.0 on Dec. 31, 2020

3.0 on June 30, 2021

2.5 on/after Dec. 31, 2021

The following or less:

5.0 on June, 30, 2018

4.25 on Dec. 31, 2018

4.25 on June, 30, 2019

3.5 on Dec. 31, 2019

3.5 on June, 30, 2020

3.0 on Dec. 31, 2020

3.0 on June 30, 2021

3.0 on/after Dec. 31, 2021

—  semi-annuallySemi-annual and annual

Bank Credit Notes of

Banco do Brasil

and

Caixa Econômica Federal;

and

5th and 6th Debenture7th Debentures Issue

and 9th Note Issue

CemigCEMIG D (3)

Net debt

/

(Ebitda + Dividends received)

Current liquidityadjusted

The following or less:

7.5 on June, 30. 2018

4.5 on Dec, 31. 2018

3.8 on June, 30. 2019

3.8 on Dec, 31. 2019

3.3 on June, 30. 2020

3.3 on Dec, 31. 2020

3.3 on June, 30. 2021

3.3 on/after Dec, 31. 2021

0.6x or more on/after June. 30. 2018

less than 3.5

The following or less:

4.5 on June, 30, 2018

4.25 on December, 31, 2018

4.25 on June, 30, 2019

3.5 on December, 31, 2019

3.5 on June, 30, 2020

less than 3.0 on December, 31, 2020

3.0 on June, 30, 2021

2.5 on/after December, 31, 2020

0.6x or more on/after June. 30. 2018

—  

—  

semi-annuallySemi-annual and annual

Debentures

GASMIG (4)(3)

Overall indebtedness (Total liabilities/Total assets)

Less than 0.6—  —  -Annual
Ebitda / Debt servicing1.3 or more—  —  -Annual
Ebitda / Net finance income (expenses)2.5 or more—  —  -Annual
Net debt / Ebitda

The following or less than 2.5 on Dec, 31.2020

2.5 or more—  —  -Annual

Financiamento8th Debentures Issue

Gasmig

Single series (4)

Ebtida/Debt servicing

Net debt/Ebitda

1.3 or more as of Dec, 31.2020

3.0 or less as of Dec, 31.2020

-

-

Annual

Annual

Financing Caixa Econômica Federal

 

Parajuru eand Volta do Rio (5)

Debt servicing coverage index

 

Equity / Total liabilities

 

Share capital subscribed in investee / Total investments made in the project financed

—

—

—

—

—

—

1.20 or more

 

20.61% or more (Parajuru)

20.63% or more (Volta do Rio)

 

20.61% or more (Parajuru)

20.63% or more (Volta do Rio)

-

-

-

Annual (during amortization)

 

Permanent assets

Always

 

Permanent assets

Always

(1)

7th Issue of Debentures by CemigCEMIG GT, inas of December 31, 2016, of R$ 2,240.

2,240 million.
(2)

In the event of a possible overrunbreach of the financial maintenance covenants, interest will automatically be increased by 2% p.a. during the period in which they remain exceeded. There is also an obligation to comply with a ‘maintenance’ covenantcovenants – which requires that the consolidated debt, in Cemig Consolidated (as per financial statements), shall have asseta guarantee for debt of 1.75x Ebitda (2.0 inas of December 31, 2017); and a ‘damage’ covenant, requiring real guarantee for debt in Cemigat CEMIG GT of 1.5x Ebitda.

(3)

The instruments described above have compliance requirements for their covenants with specific ratios up to their maturity dates, as shown in the detail table at the beginning of this Note.

(4)

If Gasmig does not achieve the required covenants, Gasmigit must, within 120 days from the date of notice in writing from BNDES or BNDESPar, constitute guarantees acceptable toby the debenture holders for the total amount of the debt, subject to the rules of the National Monetary Council (CMN), unless the required ratios are restored within that period. Cross-default: Certain contractually specified situations can cause early maturity of other debts.debts (cross-default).

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(4)Non-compliance with the financial covenants results in automatic early maturity. If early maturity is declared by the debenture holders, Gasmig must make the payment after receipt of notification.
(5)

The financing contracts with Caixa Econômica Federal for the Praias de Parajuru and Volta do Rio wind power plants have financial covenants with compliance relating to early maturity of the debt remaining balance of the debt.balance. Compliance with the debt servicing coverage index is considered to be demandable only annually and during the period of amortization, which begins in July 2020.

(6)The adjusted Ebtida arises from earings before interest, income taxes and social contribution on net income, depreciation and amortization in accordance with CVM Instruction No 527 from October 4, 2012.

At the end

The Company is in compliance with all covenants as of December 31, 2018, all2020, except for non-compliance with the covenantsfinancial covenant of the loan contracts with the CEF of the subsidiaries Central Eólica Praias de Parajuru and Central Eólica Volta do Rio. Thus, exclusively to comply with the requirement of item 69 IAS 1, the Company reclassified R$2 million, to current liabilities, referring to the loans of those subsidiaries, which were complied with.

Certainoriginally classified in non-current liabilities. Additionally, the Company assessed the possible consequences arising from this matter in their other contracts for loans, financingfinancings and debentures, agreements of Light S.A. and subsidiaries has clausesconcluded that may cause the early maturity of debt, including cross default. The early maturity only occurs when one of the ratios has not been complied with in two consecutive quarters or four intercalate quarters, and when certain nonfinancial covenants have not been complied with. Loans, financing and debentures agreements require that Light S.A. and subsidiaries to maintains certain net debt/EBITDA ratios and covenants. On December 31, 2018, Light S.A. and subsidiariesno further reclassifications were in conformity with the required debt covenants, except for the Bonds. The Bonds have restrictive debt covenants and, on December 31, 2018, the subsidiary exceeded the limit of 3.50 times net debt/EBITDA ratio, thus being obliged to respect the limits for contracting new debts until it resumes compliance with the established covenants As of December 31, 2018, the lack of compliance by Light to the debt/EBITDA ratio had no impact in any other covenants of Light and/or the Company.

necessary.

Review of Compliance and Corporate Governance System

CEMIG has undertaken a number of initiatives to boost its compliance and corporate governance system, including revising itsbylaws in light of the new State Companies Law (Law No. 13,303/16), its code of ethics in light of the Brazilian Anticorruption Law (Law No. 12,846/13),maintaining a compliance program (current cycle 2016/2018) and providing training on its code of conduct to all of its employees.

Research and Development

We dedicate ourselves to projects that use technological advances not only in energy systems, but also in all fields related to energy, such as development of alternativeenvironmental control, storage energy sources, environmental control,systems, performance of energy systems and safety optimization.

CEMIG currently invests around R$ 3843 million in research projects and Development (R&D)(‘R&D’).

In 2018,2020, CEMIG transferred R$ 3843 million to the National Scientific and Technological Development Fund (Fundo Nacional de Desenvolvimento Científico e Tecnológico, or “FNDCT”‘FNDCT’), a federal fund to support research and development, and R$ 1921 million to the Energy Research Company(Company (Empresa de Pesquisa Energética, or “EPE”‘EPE’).

In 2017,2019, we invested R$40 million in research and development, and transferred R$37.841 million to the FNDCT, and R$18.920 million to the EPE.

In 2016,2018, we invested R$23.49 million in research and development, and transferred R$47.8638 million to the FNDCT, and R$23.9319 million to the EPE.

Trends

As a public service utility, we are subject to regulations issued by the Brazilian Federal Government as described in “Item 4: Information on the Company – The Brazilian Power Industry.”Industry”. Therefore, any change in the regulatory framework may affect us significantly either with respect to our revenue, if the change relates to prices or with respect to our operating expenses if the change relates to costs incurred to provide service to customers.

As to the question of reliability of supply of energy, the structural capacity of the system is adequate to meet the market’s needs for consumption of energy, and the expansion of generation and transmission capacity currently in development will be able to meet the expected demand for consumption from the market. Rates of growth of energy consumption in Brazil in recent years have been 2.1 % (2014-2015),-0.9% (2015-2016), 4.2% (2016-2017), 3.73% (2017-2018), 1.92% (2018-2019) and 3.73% (2017-2018)-1.56% (2019-2020), as a result of strong recovery of energy consumption after two years of economic recession. The Brazilian Federal Government has been successful with the “new supply”‘new supply’ auctions starting in 2005 – which have made possible the construction of new projects such as the Santo Antônio hydroelectrical hydroelectric plant (3,150 MW) and the Jirau hydroelectrical hydroelectric plant (3,750 MW), on the Madeira River; the Belo Monte plant (11,233 MW) on the Xingu River; and the Teles Pires plant (1,820 MW) on the Teles Pires River, in accordance with the needs of the distribution companiesdistributors for acquisition of energy.

Regarding capital expenditures, in 2019for 2021 we planplanned to make capital investments in relation to our fixed assets in the amount of approximately R$ 1,3672,347 million, corresponding to our basic program. We expect to allocate these expenditures primarily to the expansion of our distribution system. We will also allocate R$ 372196 million for injection of capital into subsidiaries in 2019, to meet specific capital needs. For more details see item 4 (Capital Expenditures)‘Capital Expenditures’.

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In the matter of the pandemic situation, caused by the new coronavirus, see ‘Risk Factors’ and ‘Impacts of Covid-19’, where the Company addresses its initiatives and possible impacts on its business.

Commitments

CEMIG GT and the private pension plan entities participating in the investment of SAAG entered into put option agreements exercisable by the funds in July 2021. The exercise price of the put options will correspond to the amount invested by each private pension plan, adjustedpro rata temporis, by the IPCA index as published by the IBGE, plus interest at 7% p.a., discounting dividends and interest on capital that have already been paid by SAAG to the private pension plan entities. The Company believes that the premises and conditions that were the grounds for the investment in Santo Antônio Energia and the legal structure of the various contracts signed for this purpose underwent substantial changes which resulted in the options imbalance and invoked the arbitration cause to discuss the terms of the agreements. For more details, please see Note 1634 to our consolidated financial statements.

CEMIG and its subsidiaries have commitments that include acquisition of energy from Itaipu, acquisition of energy at auctions, physical quota guarantees and other commitments, as follows as of December 31, 2018:2020: (in millions of Reais)

 20212022202320242025After 2026Total
Purchase of energy from Itaipu1,5151,5481,5951,5951,59533,49941,347
Purchase of energy – auctions3,4163,3873,3783,5363,32847,85564,900
Purchase of energy – ‘bilateral contracts’33233233222267801,365
Quotas of Angra 1 and Angra 22882912993013006,3407,819
Transport of energy from Itaipu1892152182221595211,524
Other energy purchase contracts4,4504,7234,6223,4783,31028,77749,360
Physical quota guarantees81281281281281217,04321,103
Total

11,002

11,308

11,256

10,166

9,571

134,115

187,418

 

   2019   2020   2021   2022   2023   After 2024   Total 

Purchase of energy from Itaipu

   1,352    1,416    1,381    1,440    1,532    45,656    52,777 

Purchase of energy – auctions

   2,753    3,129    3,525    3,808    4,293    85,444    102,952 

Purchase of energy –‘bilateral contracts’

   314    333    349    366    385    469    2,216 

Quotas for Angra 1 and Angra 2

   267    285    291    305    321    12,431    13,900 

Transport of energy from Itaipu

   233    237    220    207    217    6,962    8,076 

Other energy purchase contracts

   3,963    3,041    3,057    3,814    3,395    37,159    54,429 

Physical quota guarantees (1)

   858    896    933    979    1,028    39,890    44,584 

Operating leasing transactions (2)

   75    69    30    —      —      —      174 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans, financing and debentures

   2,198    1,927    2,098    2,060    251    6,238    14,772 

Total

   12,013    11,333    11,884    11,125    11,422    234,249    293,880 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
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CEMIG and its subsidiaries have loans, financing and debentures, by currency and index, with the respective amortization, as follows: (in millions of Reais)

 20212022202320242025

2026

And thereafter

Total
Currency       
US dollar61--7,805-

-

7,866

Total, currency denominated61--7,805--7,866
Index       
IPCA (1)1,0436152483411,1381,4784,863
UFIR/RGR (2)332---8
CDI (3)912570560268--2,310
URTJ/TJLP (4)5320----73
Total by index2,0111,2088106091,1381,4787,254
(-)Transaction costs(12)(1)(1)(18)(5)(20)(57)
(±)Interest paid in advance

-

-

-

(25)

-

-

(25)

(-) Discount

-

-

-

-

(9)

(9)

(18)

Overall total

2,060

1,207

809

8,371

1,124

1,449

15,020

(1)Expanded National Customer Price (IPCA) Index,
(2)Fiscal Reference Unit (Ufir / RGR)
(3)CDI: Interbank Rate for Certificates of Deposit,
(4)Interest rate reference unit (URTJ) / Long-Term Interest Rate (TJLP)
(5)IGP-DI (‘General – Domestic Availability’) Price Index,

CEMIG and its subsidiaries have contracts containing a lease that are, in their majority, indexed to the IPCA inflation index on an annual basis. Below is an analysis of maturity of lease contracts:

(R$ million)Consolidated (nominal)
202156
202227
202326
202426
202526
2026 at 2045483
Undiscounted values

644

Embedded interest(417)
Leasing liabilities

227

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1)

ANEEL apportions the physical guarantee of the generators that are in the regime of quotas among the distributors, the parcels of the apportionment are called quotas of physical guarantee.

2)

This refers to the total ofnon-cancellable future minimum payments on vehicle rental for the company’send-activities, with annual adjustment by the IGP–M inflation index, without renewal clauses; and rental of real estate properties at the administrative headquarters forend-activities (more details in Note 31 to our financial statements).

We do not have any materialoff-balance sheet arrangements.

Item 6.

Directors, Senior Managers and Employees

Directors and Senior Management

CEMIGThe Company is managed by itsthe Board of Directors composed of 9 members, and by the Executive Board. The Board which consists of 7 Executive Officers. The Minas Gerais State Government, as the majority shareholder, has the right to elect the majorityDirectors of the Company comprises nine members, of which one shall be the Chair and another the Deputy Chair. The Executive Board has seven Executive Officers, who may be shareholders, resident in Brazil, elected by the Board of Directors. Every holderDirectors for a period of CEMIG common shares has the right to vote in an election for members of our Board of Directors. Under the Brazilian Corporation Law, any shareholder holding at least 5% of CEMIG’s common shares in circulation may request the adoption of a multiple vote procedure, which confers upon each share a number of votes equaltwo years, subject to the present numberrequirements of membersthe applicable law and regulations. Re-election for a maximum of three further consecutive periods of office is permitted. The structure and composition of the Board of Directors and gives the shareholder the right to accumulate his or her votes in a sole candidate, or distribute them among several.

Under the Brazilian Corporation Law, holders of preferred shares representing at least 10% of CEMIG’s share capital, and also holders of common shares representing at least 15% of its registered capital (other than the controlling shareholder) have the right to elect a member of theExecutive Board of Directors in a separate election. If none of the holders of common shares or preferred shares qualifies under the minimum limits specified above, shareholders representing,shall be identical in the aggregate, a minimum of 10% of the share capital may combine their holdings to elect a member of the Board of Directors.

CEMIG and its wholly-owned subsidiaries CEMIG GTDistribuição S.A and CEMIG D all have the same Board of Directors, Fiscal council and Executive Board, and anyGeração e Transmissão S.A., with occasional exceptions must beif approved by the Board of Directors.

Board of Directors

CEMIG’sThe Board of Directors meets, ordinarily, at least once a month and, extraordinarily, whenever called by its Chairman, Vice-Chairman,Chair, Deputy Chair, or byone-third one third of its members, or by the Executive Board (“Board of Executive Officers”).Board. Its responsibilities includeinclude: setting the corporate strategy, general orientation of CEMIG’s businesses, approval of certain significant transactions, and the election, dismissal and monitoring of ourthe Chief Officers (members of the Executive Officers.Board).

All the members of the Board of Directors are elected by the Shareholders’ General Meeting. NoMeeting of Shareholders. With the exception of the member of the Board of Directors representing the Employees, no other member of the Board of Directors has any employmenta work contract with CEMIG or with any subsidiary that provides for any benefit in the event of its termination.rescission.

Under CEMIG’sby-laws, the Board of Directors is made up of 9 members, elected for a concurrent period of two years, with a maximum of three consecutive renewals, observing the requirements and prohibitions established in the applicable legislation and regulations.

The following rules apply to the composition of the Board of Directors:

a)The following two groups of shareholders each have the right to elect one member, in a separate vote, in accordance with the applicable legislation: (i) the minority holders of common shares, and (ii) the holders of preferred shares;
b)At least 25% (twenty five per cent) of the members must be independent, or, under Article 141 of Law 6,404/1976, at least one of them if there is a decision for the minority shareholders to exercise their option to use the multiple vote mechanism;
c)The employees have the right to elect one member, subject to the terms of Federal Law 12,353 of December 28, 2010, as applicable;
d)In any event, the majority of the members shall be elected by the controlling shareholder of the Company.

(a) The following two groups of shareholders each have the right to elect one member, in separate votes, in accordance with the applicable legislation: (i) the minority holders of common shares, and (ii) the holders of preferred shares.

(b) At least 25% of the members must be independent, or at least one of them, if there is a decision for the minority shareholders to exercise their option to use the multiple vote mechanism.

(c) The employees have the right to elect one member.

(d) In any event, the majority of the members shall be elected by the controlling shareholder of the Company.

Currently, the seats are occupied by five members appointed by the Minas Gerais State Government, three members appointed by minority shareholders, and one appointed as the representative of the employees, as per Article 19 of the Law 13303/16.

The period of office of the present membersComposition of the Board of Directors expires at the Annual General Meeting of Shareholders to be held in April 2020. The names and positions and dates of initial appointment of the present board members are as follows:

Directors:

Board of Directors

NameNomination

Position

Position

Date of first
appointment

Márcio Luiz Simões Utsch (1)

ChairMarch 25, 2019

Afonso Henriques Moreira Santos (1)

MemberJuly 31, 2020
Cledorvino Belini (1)

Board MemberMarch 25, 2019

Antônio Rodrigues dos Santos e JunqueiraJosé Reinaldo Magalhães (1)

Board MemberMarch 25, 2019

José Reinaldo Magalhaes(Seat vacant) (1)

Board MemberMarch 25, 2019-

Romeu Donizete Rufino (1)

Paulo César de Souza e Silva (2)		Board MemberMarch 25, 2019July 31, 2020

Renata Bezerra Cavalcanti (2)

José João Abdalla Filho (3)		Board MemberMarch 25, 2019April 30, 2014

Marcelo Gasparino da Silva (2)

Board MemberMay 2, 2016

José João Abdalla Filho (2)

Marco Aurélio Dumont Porto (4)		Board MemberApril 30, 2014

Márcio José Peres (3)

Board MemberMarch 25, 2019February 17, 2020

(1)

Elected by State of Minas Gerais and other shareholders

(2)

Elected by minority shareholders

(3)

Appointed by the holders of the preferred shares.

(4)Elected by a representative of the employees

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Below is some brief biographical information about each member of the Board of Directors:

Márcio Luiz Simões Utsch—UtschMr. Utsch was, born in 1959, and earnedhas a degree in law. He heldlaw degree. Principal executive positions in the department storepositions: Mesbla S.A., as (department store): General Manager, of Purchasing and Operations; in the electronics games company Gradiente Entertainment as(electronics, games): Chief Officer for Sales and Distribution Logistics; and joinedLogistics. Alpargatas S.A. in 1997, where he acted as: Joined 1997. CEO from 2003 until retirement, age 60, in 2019.

Afonso Henriques Moreira Santos, born in 1957, has a degree in electric engineering. From April, 2019 to 2019, whenDecember of the same year he retiredwas member of the Board of Directors of Light S.A. Board member at IX Estudos e Projetos LTDA from October, 2006 to April, 2019. He served as full time professor at the ageFederal University of 60.Itajubá from January 1980 to March 2016.

Cledorvino Belini– Mr. Belini, born in 1949, has a degree in business administration from Mackenzie University, a postgraduatemaster's degree and master’spostgraduate degree from USPSão Paulo University (USP), and an MBA from FDC/Insead. Over hisIn a 44-year career at Fiat, Mr. Belinihe served as its CEO in Brazil and Latin America for 11 years (2004-2015), and in 2009 he joined the Fiat Group Executive Council (GEC)(‘GEC’), the highest governing body of the Fiat Group worldwide. In 2010–2013, he was president of the Brazilian Vehicle Manufacturers’ Association (Anfavea)(‘Anfavea’). Since October 2017, he ishas been an Independent Member of the Board of Directors of the JBS group.

Antônio Rodrigues dos Santos e Junqueira– Mr. Junqueira is the Founding Partner of Vinland Capital, and since May 2018, is responsible for the Company and Equity Research department. He held the position of Executive Director and Partner at Banco BTG Pactual and was responsible for the Electricity and Water Services Sectors, on the sellers’ side (from 2007 to 2018). Additionally, he worked in the Company and Equity Research Department at UBS Investment Bank from 2005 to 2006.

José Reinaldo Magalhães – Mr. Magalhães, born in 1956, was Managermanager of private equity FIP funds atBR-Investimentos and Bozano Investimentos Gestoras de Recursos from 2009 to 2015 as– the team member he was responsible for the Funds’ investment and disinvestment decisions. From 2006 to 2018, he held the position of Director of Investments at the Institutional Investor Department atAt PREVI (Banco do Brasil pension fund)., he was Director of Investments, Institutional Investor Department, from – 2006–2018. At Banco do Brasil, he was New York Branch Assistant Manager of the New York branch (from 2004 to 2005),in 2004–2005, Deputy Manager atof the Chicago Representative Office (from 2002 to 2004)(2002-4), and Executive Manager atin the Director’s Department for Planning and Risk Management, (fromfrom 1998 to 2002).to2002. At PREVI, he was Division Manager, of the International Financial Institutions Management, (fromfrom 1995 to 1998) and1998. From 1994–1998, he was a Trainee atin the Overseas Manager Training Program, in São Paulo, Austin, Texas and London, (fromand from 1990 to 1994, to 1998). He was an Analyst atanalyst in the Technical Department (‘DETEC’) ofBB-B1 Banco de Investimentos (from 1990 to 1994).Investimentos. He joined DETEC in October 1975, and from 1983 to 1983–1989 he was Technical Adviser atto the Minas Gerais State Supervision Office of DETEC.

Office.

Romeu Donizete RufinoPaulo César de Souza e Silva—Mr. Rufino was, born in 1956. From 1978 to 1982 he joined PricewaterhouseCoopers as an assistant and became supervising Auditor. At Eletronorte he was Manager1955, graduated in economics at Mackenzie University in São Paulo. He took part of the Accounts Department (from 1983executive board of Embraer from October 1997 to 1998), and advisor to the Chief Financial Officer’s Department. During this period, he served on the Audit Boards of Companhia Energética de Brasília (CEB) and Previnorte (the Eletronorte pension fund). At ANEEL (Brazilian Electricity Regulatory Agency) he was General Manager of Inspection (from 1998 to 2006), Director (2006 to 2013), and Director General (from 2013 to 2018).May 2019.

Renata Bezerra Cavalcanti—José João Abdalla FilhoMrs. Cavalcanti was Division head, born in 1945, is CEO and controlling shareholder of Petrobras (from 1995 to 2000) and Energy Secretariat (from 2007 to 2012). She is Council member of Firjan (Rio de Janeiro Industries Federation) since 2012 and a memberBanco Clássico S.A.; Substitute Member of the Energy Board of theDirectors of CEG (Companhia Distribuidora de Gás do Rio de Janeiro ChamberJaneiro); Substitute Member of Commerce since 2014.the Board of Directors of Tractebel Energia S.A.; CEO of Dinâmica Energia S.A.; and CEO of Social S.A. Mineração e Intercâmbio Comercial e Industrial.

Marcelo Gasparino da Silva, – Mr. Silva was born in 1971. He is a lawyer specializing in corporate tax law, with a degree from ESAG, and MBA in Controllership, Auditing and Finance. He began his executive career in 2007 as Legal and Institutional Director of Celesc. He is the Coordinator of the Santa Catarina Chapter, Holder of Board Member Certification from, and a member of the Council of, IBGC (the Brazilian Corporate Governance Institute). He is Chair of the Board of Directors of Usiminas, and is a member of the Board of Directors of Bradespar and Eternit. He has served as a Member of the Boards of Directors of Eletrobras, Celesc, AES Eletropaulo, Tecnisa and SC Gás, and as a member of the Fiscal councils of Bradespar, AES Eletropaulo, AES Tietê and Renuka do Brasil. He is Coordinator of the Legal and Compliance Committee of Eternit. He is the spokesperson of the GGG (Corporate Governance Group).

José João Abdalla FilhoMarco Aurélio Dumond Porto– Mr. Abdalla Filho was, born in 1945. He holds the position of banker, CEO and controlling shareholder of Banco Clássico S.A.; Substitute Member of the Board of Directors of CEG (Companhia Distribuidora de Gás do Rio de Janeiro) and Substitute Member of the Board of Directors of Tractebel Energia S.A.; CEO of Dinâmica Energia S.A.; and CEO of Social S.A. Mineração e Intercâmbio Comercial e Industrial.

Márcio José Peres –Mr. Márcio José Peres has1968, earned a degree in electricalcivil engineering from the FederalFumec University of Uberlândia,in 1994, before pursuing postgraduate studies and specialization in project management, and innovation and knowledge management, at IETEC, He has an MBA in business management practice from Ibmec. He has workedCentro Universitário Newton Paiva. Working at CEMIG since 1989, serving in a range of management functions since 2004. At presentMarch 1986, initially via CEMIG Senai, he is General Manager for Implementationbecame Assistant Engineer, Project Engineer, Generation Projects Manager; and Operational Management of Wholly-owned SubsidiariesTechnical and Jointly-owned Projects. He also serves as a statutory director of wholly-owned subsidiariesCommercial Director of the CEMIG Group.two SPCs Hidrelétrica Cachoeirão S.A and Hidrelétrica Pipoca S.A. He has served as Alternative Energy Sources Manager, Quality and Special Projects Manager, and Management and Internal Controls Manager; and is currently a Quality Analyst in the Office of the CEO.

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Significant Civil and Criminal Proceedings Involving Key Management Members

Mr. Marcelo Gasparino da Silva, a member of the Board of Directors of CEMIG, is a defendant in two “Civil"Civil Action of Administrative Impropriety due to Damages to the Public Treasury”Treasury" proceedings (not criminal cases), both of which were filed before the 1st Public Treasury Court of Florianópolis in Santa Catarina State, Brazil.

In the first case, the prosecutor in Santa Catarina State, Brazil has alleged irregularities regarding a specific business acquisitionpurchase by Celesc Distribuição S.A. approved on December 11, 2008 without the required auction proceeding. Such acquisitionpurchase was made in reliance on an emergency decree by the State Governor. Mr. Marcelo Gasparino da Silva was named as a defendant as a result of his role as Celesc Distribuição’so's Legal Officer from 2007 to 2009. In the other civil action involving Mr. Marcelo Gasparino da Silva, the prosecutor has alleged irregularities in the agreement entered into by Celesc Distribuição S.A. and Monreal Corporação Nacional de Serviços e Cobranças S/C Ltda. Almost all former members of the Celesc Distribuição’s board of directors between 2003 and 2009 were named as defendants in the case. Both actions are in thepre-trial proceeding stage, and the relevant complaints have not been consideredaccepted by the Court yet. Since the last report in 2021, there hasn't been significant development on these cases and there's no verdict, they are still on the pre-trial proceeding stage.

Mr. Ronald Cavalcante de Freitas, DirectorJosé João Abdalla Filho, a member of Communicationthe Company’s Board of Light S.A. since December 11, 2015,Directors, is defendant in a classcriminal action filed on February 23, 2016,pending before the First2nd Federal Criminal Court of Rio de Janeiro, for which he is accused of having committed the crime of tax evasion, for alleged omission of information in his 2010 income tax return. Mr. Abdalla Filho presented his defense, in which he alleges that the Court is unfit to proceed with the criminal action, and non-occurrence of the criminal practice, considering that the facts found (sale of real estate) occurred in the 1910s and 1940s, and not in the year 2001, according to the accusatory view. On August 3, 2020, the Court gave judgment “ruling the criminal action to be extinct, without decision on the merit, due to recognition of absence of process, namely, absence of correct, and consequently valid, constitution of the tax credit”. The Federal Public Accounts and AuthoritiesAttorneys then filed an appeal, on September 8, 2020. At this time, the case was remitted to the regional Federal Appeal Court of the Legal District of Belo Horizonte (Minas Gerais), which disputes the legitimacy of an institutional advertising campaign relating to payment2nd Region. The regional Attorneys of the national minimum salaryRepublic presented an opinion on September 19, 2020. A date for teachers, publishedhearing by the Minas GeraisCourt for judgment on the appeal is pending.

In another criminal action, before the first Federal Court of Araçatuba – Judiciary of São Paulo State, GovernmentMr. Abdalla Filho is accused of the crime of tax evasion, for alleged false declaration of the totality of his revenues, and omission of revenues in a company in which he was CEO, majority shareholder and manager during the period in whichyears 2006–2008. In preliminary defense, Mr. Freitas acted as Undersecretary of Communication ofAbdalla stated the Minas Gerais State Government, and is also seeking return toview that the public funds of the amount spent on this advertising. In April 2018 the plaintiffs presented answer to the motion for clarification filed by the Government of Minas Gerais State, and on May 17, 2018 the judge gave judgment partially in favor of that motion, revoking part of the decision that closed the disclosure phase, and making an order requiring the defendants to state what matters of fact the witness testimony would deal with. On June 7, 2018 plaintiffs requested attachmentaccusation should be rejected, due to the case recordsbeing null in its entirety, and that on the merit, the accusation is without grounds, and a ruling of complete acquittal should be given. On June 5, 2019, the Federal Public Attorneys presented an amendment to the accusation to include the allegation that Mr. Abdalla Filho had committed the same offenses for the years 2010 and 2011. However, by an interim decision of the interlocutory appeal, which maintainedChair of the Federal Supreme Court on July 15, 2019, the exclusion applied for by Mr. Abdalla was granted. On December 10, 2019, a further judgment ordered the case to go forward, due to the view taken by the full Supreme Court in the final judgment on the Special Appeal referred to. On the same occasion, the court determined issuance of Letters Rogatory to the federal judiciary of Rio de Janeiro to serve notice on Mr. Abdalla for presentation of a new preliminary defense due to the amendment to the accusation. With the case being digitalized, a writ pointing to failures in the digitalization was presented on January 1, 2021, and a judgment was given ordering the secretariat to check the digitalization, to correct the failings, and subsequently serve notice on the defendant to present preliminary defense. This regularization of the digitalization, and service of notice on the defendant for presentation of a new preliminary defense, is still pending.

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A third criminal action, also about tax evasion, was presented in the first Federal Court of Americana – judiciary of São Paulo State. The Federal Public Attorneys allege omission of information, false declaration to the tax authorities, and attempt to defraud tax inspection. The case involves more than one company chaired and managed by Mr. Abdalla. After the preliminary defense, Mr. Abdalla is of the view that the accusation should be rejected, that the case is null in its entirety, and that on the merit the accusation cannot proceed, since an acquittal judgment has been given. However, due to the interim relief given that had suspended publicationdecision by the Chair of the institutional advertising campaign discussedFederal Supreme Court on July 15, 2019, in the Special Appeal RE 1.55.941/SP, with ergo omnes effect as precedent over all other cases, dismissal of the criminal action was requested, and on June 8, 2018granted. On January 30, 2020, a further decision ruled that the defendants filed petition stating which facts they aimedcase should be resumed, due to clarify with the witness testimony that had been applied for. At present a decision is awaitedunderstanding stated by the Full Supreme Court in the final judgment on the productionsaid Special Appeal. The case records in the criminal action have been digitalized, and designation of the witness testimony.

date for hearing of evidence and judgment is pending.

Board of Executive OfficersBoard

CEMIG’sThe Executive Board made up ofcomprises seven Executive Officers, is responsible, among other things, for putting into effect the decisions ofwho may be shareholders, resident in Brazil, elected by the Board of Directors and forday-to-day management. The members of the Executive Board – the Executive Officers – have individual responsibilities established in theby-laws and hold their positions for a period of two years, observingsubject to the requirements established inof the applicable legislation and regulation, withregulations. Re-election for a maximum of three consecutive renewals. The periodperiods of office foris permitted. The periods of office of the present Executive Officers expiresmembers of the Board of Directors expire at the Annual Shareholders’ General Meeting of Shareholders to be held in April 2020. The Executive Officers are elected by the Board of Directors. Ordinary meetings are held at least twice per month and extraordinary meetings are held whenever called by the Chief Executive Officer, or CEO, or by two Executive Officers other than the CEO.

The Executive Officers exercise their positions as full-time occupations dedicated to the service of CEMIG. They may simultaneously exercisenon-remunerated positions in the management of our subsidiaries or other affiliates, at the option of the Board of Directors. They are, however, obligated to hold and exercise the corresponding positions in the wholly-owned subsidiaries CEMIG D and CEMIG GT

The Executive Board is responsible for the daily management of CEMIG’s business, subject to the obligation to adhere to the Long-Term Strategic Plan, the Multi-year Business Plan and the Annual Budget.2022. The Executive Board meets ordinarily at least two times each month;twice per month, and extraordinarily whenever called by the Chief Executive Officer or by two Executive Officers.

The Executive Officers withexercise their positions as full-time occupations in service of the Company. They may at least two days’ prior noticethe same time exercise non-remunerated positions in writing or by emailthe management of the Company’s wholly-owned or other digital medium – such notice not being required if allsubsidiaries, or affiliated companies, at the option of the Board of Directors. They obligatorily hold and exercise, however, the corresponding positions in the wholly-owned subsidiaries CEMIG Distribuição S.A. and CEMIG Geração e Transmissão S.A.

The Executive Officers are present.Board is responsible for current management of the Company’s business, subject to obedience to the Long-term Strategy, the Multi-year Business Plan, and the Annual Budget, which must be prepared and approved in accordance with the by-laws. The decisionsAnnual Budget shall reflect the Company’s Multi-year Business Plan and, consequently, the Long-Term Strategy, and must give details of the operational revenue and expenses, costs and capital expenditure, cash flow, the amount to be allocated to the payment of dividends, investments of cash from the Company’s own funds or from funds of third parties, and any other data that the Executive Board are taken by vote ofconsiders to be necessary.

Subject to the majority of its members, andprovisions in the event of a tie the Chief Executive Officerpreceding Clauses and good corporate governance practices, it shall have a casting vote.

It isbe the duty of everyeach member of the Executive Board to comply with and to cause others to comply with, the following: the Company’s bylaws,these by-laws, the decisions of the General Meeting of Shareholders, and of the Board of Directors, the Internal Regulations and the decisions of the Executive Board.Board, these being duties of the related Chief Officers’ Offices.

The following are the names, positions and dates of initialfirst appointment of our Executive Officers are as follows:

the Members of the Executive Board

Board:

Executive Board

NameChief Officer

Nomination

Position

Date of original
initial appointment

Cledorvino Belini

Chief Executive Officer (CEO)– CEOReynaldo Passanezi FilhoFebruary 8,January 13, 2020
Chief Trading OfficerDimas CostaSeptember 1, 2016
Chief Distribution OfficerMarney Tadeu AntunesJanuary 5, 2021
Chief Generation and Transmission OfficerPaulo Mota HenriquesMarch 21, 2019

CEMIGPar Director

Maurício Fernandes Leonardo Júnior

Dall’Agnese		December 11, 2020
Chief Finance and Investor Relations OfficerLeonardo George de MagalhãesMarch 19, 201820, 2020

Paulo Mota Henriques

Chief GenerationCounsel and Transmission OfficerMarch 21, 2019

Daniel Faria Costa

Chief Officer for ManagementsRegulationEduardo SoaresMarch 19, 2018

Ronaldo Gomes de Abreu

Interim Chief Corporate Management OfficerFebruary 21, 2017

Dimas Costa

Chief Trading OfficerSeptember 1, 2016

Ronaldo Gomes de Abreu

Chief Distribution and Sales OfficerMarch 21, 201920, 2020

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Cledorvino BeliniReynaldo Passanezi Filho– Mr. Belini, born in 1965, is a graduate of the Senior Executive Program, the principal course in the Stanford University Graduate School of Business (July-August 2018); he attended the CEO course of the Getúlio Vargas Foundation in Entrepreneurial Management from March 2015 to July 2017; has a doctorate in economics from São Paulo University, 1995-2000; a master’s degree in economics from the University of Campinas, 1987-92, with distinction, for the dissertation in Industrial Organization on the subject ‘financial Solutions and Privatization for Brazilian Steel’; a degree in economics from São Paulo University, 1983-86 (sixth-placed in the University Entrance examination); and a degree in Law from the Pontifícia Universidade Católica of São Paulo, 1983-89. He is a member of the Brazilian Bar Association (OAB). He has wide experience in positions of senior leadership in the private sector, the financial sector and the public sector; excellence in strategy and management, with a track record of success in privatizations, restructurings and growth; solid qualification in finance and mergers and acquisitions, with profound knowledge of Latin America and infrastructure, especially electricity.

Dimas Costa, born in 1954, earned a degree in electrical engineering from PUC Minas in 1978. From 1978 to 1980, he was an Engineer in the Water & Energy Department of Minas Gerais, where he was Division Head from 1980 to 1985. From 1978 to 1980, he worked as an engineer in the Minas Gerais Water & Energy Department. At CEMIG, in 1985-1987, he was an engineer in the Distribution Unit; from 1987 to 1995 he was assistant in the Senior Power Planning & Development Management Unit; from 1995 to 1998 he was manager of the Energy Development Department; from 1998 to 2007, manager for sales to corporate clients; from 2007 to 2010, general manager for sales to clients of the company; and in 2011 to 2013, general manager of the company for sales to the company’s clients with incentive benefits. He was formerly Director and managing partner of Ponta Energia Consultores Associados Ltda, from 2013 to 2016.

Marney Tadeu Antunes, born in 1962, has a degree in business administration from Mackenzie University, a postgraduate and master’s degree from USP and an MBA from FDC/Insead. Over his44-year career at Fiat, Mr. Belini served as its CEO in Brazil and Latin America for 11 years (2004-2015), and in 2009 he joined the Fiat Group Executive Council (GEC), the highest governing body of the Fiat Group worldwide. In 2010–2013 he was president of the Brazilian Vehicle Manufacturers’ Association (Anfavea). Since October 2017 he is an Independent Member of the Board of Directors of the JBS group.

Maurício Fernandes Leonardo Júnior - Mr. Maurício Fernandes Leonardo Júnior has a degree in literature from Unoeste, with postgraduate studies in accounting and finance at the Federal University of Paraná (UFPR), a master’s degree in productionelectrical engineering from the Federal UniversityCollege of Santa Catarina (UFSC), post-graduateEngineering of Sorocaba, with specialization and postgraduate degrees and studies in marketing at PUC Rio de Janeiro,subjects including Management, Strategy, Project Management, Marginal Costs and MBA in business management from the Federal University of Mato Grosso (UFMT). Working for Banco do Brasil, from 1998 to 2017, his posts included: Deputy Branch Manager (1998–2000); Division Manager (2001–2003); Executive Manager at the New Business Directorate (2005–2008); Executive ManagerElectricity Tariffs. He has 34 years’ experience in the Controller’s Department (2005–2013); Executive Manager, USA (2008–2010); CEO and ChairBrazilian electricity sector. Most recently, he was Chief Distribution Officer of the Board of Directors of Banco do Brasil Money Transfers, New York (2010–2013); Deputy General Manager, New York (2013); Executive Manager in the Human Resources Directorate (2014–2015); and Chief Operations Officer in Vienna, Austria (2015 to 2017). From 2005 to 2007 he was a member, and later Chair, of the Fiscal Council of Ativos S.A, and has served as a member of the Fiscal Councils of: CPFL Energia, and CPFL Geração (2005-2007); BrasilPrev Seguros e Previdencia; and CASSI (health insurance provider for Banco do Brasil employees) (2014–2015). He has served on the Boards of Directors of BB Money Transfers, USA (2010–2011), and Fundação Banco do Brasil (2004-2007); and as General Manager of Economus Instituto de Seguridade Socialelectricity distributor EDP in São Paulo (from 20172015 to date).

Daniel Faria Costa - Mr. Daniel Faria Costa has a degree in law from Universidade Federal de Uberlândia2020) and postgraduate degrees in Financial Management and Business Management from Fundação Dom Cabral. Mr. Costa worked at Banco do Brasil group (from 1979 to 2018) mainly in corporate banking and restructuring of assets. He served as General Manager in New York (from 2007 to 2011), Executive Manager of Chief Sales Officer’s Department in Brasília (2011). In 2012 he was General Manager for Sales of Banco Patagônia S.A., in Buenos Aires, Argentina; In 2014 he worked as an Executive ManagerDirector of the Related Entities Governance Unit in Brasília (from 2013 to 2015); and (from 2016 to 2018) National General Manager for Restructuringdistribution companies of Assets, in São Paulo.the CPFL Energia Group (2011–2015).

Paulo Mota HenriquesHenrique – Mr. Henriques was, born in August 1962. He1962, has a degree in electrical engineering from the Federal University of Juiz de Fora, a MBA from the Getúlio Vargas Foundation, and a specialization degree in Industrial Automation Engineering from the Federal University of Minas Gerais (UFMG(UFMG). His professional career startedbegan at CEMIG in 1987, where he worked as General Manager offor Transmission in Belo Horizonte from 2004 to 2007, and was responsible for the technical, financial and administrative management of extra-high-voltagethe assets of substations and transmissiontransmissions lines inof ultra-high voltage belonging to the national grid, and other transmission facilities. He was General Manager, of Generation and Transmission Management Control, at CEMIG GT, from 2007 to 2009 and his2009: - where responsibilities included planning, implementation, coordination and development of the Strategy Management in the Chief Generation and Transmission Officer’s Department.Officer's Office. In 2009, he wasbecame General Manager for Coordination, Generation and Transmission, at CEMIG GT and was– responsible for management of corporate processes in the office of the Chief Generation and Transmission Officer,Officer’s Office, and planning and management of Generation and Transmission projects in companies and wholly-ownedwholly owned subsidiaries. He also served as General Manager of Taesa (from 2009 to 2011). He was a member and Director of the Boards of Directors of the following CEMIG affiliated companies: Companhia Transleste de Transmissão (from 2007 to 2009), Companhia Transirapé de Transmissão (from 2007 to 2009) and PCH Guanhães Energia (from 2007 to 2009). He was General Manager for Transmission Maintenance at CEMIG (from 2011 to 2016), and Director at Brazilian Power Transmission CompaniesCompanies’ Association (Abrate)(‘Abrate’) (from 2017 to 2019).

Dimas CostaMaurício Dall’Agnese – Mr. Costa earned a degree, born in electrical engineering fromPUC Minas in 1978. In 1978–1980 he worked as an engineer in the Minas Gerais State Water and Energy Department, where he was a Division Head from 1980 to 1985. With CEMIG, in 1985–1987, he was an engineer in the Distribution Unit; from 1987 to 1995 he was an Assistant in the Senior Management Unit for Energy Planning and Development; from 1995 to 1998 he was Manager of the Energy Development Department; from 1998 to 2007 he was Sales Manager for Corporate Customers; from 2007 to 2010 he was the Company’s General Manager for Customer Sales; and from 2011 to 2013 he was the Company’s General Manager for Incentive-bearing Customer Sales. He is a former Director of Ponta Energia Consultores Associados Ltda. (from 2013 to 2016).

Ronaldo Gomes de Abreu – Mr. Abreu was elected Chief Distribution and Sales Officer of CEMIG in June 2017. He1984, has a degree in business administrationeconomics from São Paulo University (USP), and wide experience in M&A processes in the Managementelectric power sector. Since April 2020 he has served as CEMIG’s Associate Director for Strategy and Accounting Sciences School of UNA;Innovation. Previously he has served in leadership positions at BBVA, ISA CTEEP and Vale.

Leonardo George de Magalhães has a law degree from the Law School of Sete Lagoas,in accounting, and an MBA in strategic and business management from the Federal University of Minas Gerais (UFMG). He joined CEMIG ashas been an employee in 1985 and since 1994 has held positions of management in CEMIG’s departments of Distribution and Sales, and Finance and Investor Relations. In his management career at CEMIG for more than 30 years. Since 2008, he has worked in the Controller’s Department, with numerous executive responsibilities in the Finance Department including accounting, tax planning, financial planning, budget, valuation of investments, cash management and forecasting of results.

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Eduardo Soares is a lawyer, with a career of 30 years in the profession, dedicated to the areas of infrastructure, energy, structured financings, project finance, and processes of customer relationship, billing, revenue management, expansionadministrative and planning of the energy system, regulation,corporate law. He has wide experience in financial transactions, M&A, restructurings and tariffs.stockholding transactions.

Compensation of Members of the Board of Directors and Executive OfficersBoard

The total and individual compensationcosts of the members of the Board of Directors,key personnel, comprising the Executive Board, the Audit Committee and Fiscal Council, is established by the General Meeting of Shareholders, in accordance with the legislation from time to time in force, and payment of participation, of any kind, in the profits of CEMIG is not permitted to the members of the Audit Committee and the Board of Directors except forin 2020, 2019 and 2018, are within the board member representing employees.

Inlimits approved at a General Shareholders’ Meeting, and the fiscal year ended December 31, 2018effects on the total compensation paid to CEMIG’s directors and officers and to the directors and officers of CEMIG D and CEMIG GT, including health insurance, paid leave, bonuses, retirement, other benefits and labor contribution taxes, totaled approximately R$40.6 million. The following chart presents the compensation to the membersincome statements of the Board of Directors, Executive Board, Fiscal Council and Support Committee members in 2018 and 2017:years ended, are as follows:

(in millions of Reais)202020192018
Remuneration272534
Profit sharing (reversal)964
Assistance benefits113
Total

37

32

41

 

   2018 (1)   2017 (1) 

Remuneration

   34,088    32,284 

Profit sharing

   4,170    491 

Assistance benefits

   2,342    1,783 
  

 

 

   

 

 

 

Total

   40,600    34,558 
  

 

 

   

 

 

 

(1)

Amounts expressed in R$ ‘000

There is no contract between CEMIG or its wholly-owned subsidiaries and affiliates and any director or officer of CEMIG that grants any kind of -retirementretirement benefits, other than the retirement plan of Forluz and the healthcare plan CEMIG Saúde, which is applicable to the Executive Officers (as long as they qualify under the rules and regulations of Forluz) on the same terms as for other employees.

The Fiscal Council

Under CEMIG’sby-laws, its Fiscal Council is established permanently. It sets forth ordinary monthly meetings and extraordinary meetings whenever necessary. It comprises five members, and their respective substitute members, elected by the shareholders at the General Meeting, for a term of two years. A member may bere-elected a total of two times. The holders of the preferred shares, as a group, are entitled to elect one member of the Fiscal Council and a corresponding substitute. A single minority holder of common shares, or a group of minority holders of common shares, with a joint interest of at least 10% of the total shares, has the right to elect one member of the Fiscal Council and a corresponding substitute. The majority of the members shall be elected by the controlling shareholder and at least one member shall be a public servant. The primary responsibility of the Fiscal Council, which is independent from management and from the independent external auditors appointed by the Board of Directors, is to review the financial statements and report on them to the shareholders. The Fiscal Council is also responsible for providing opinions on any proposals by management to be submitted to the General Meeting of Shareholders related to: (i) changes in the share capital; (ii) issue of debentures or warrants; (iii) capital expenditures plans and budgets; (iv) distribution of dividends; (v) changes in the corporate structure; or (vi) corporate reorganization, such as mergers, consolidations and spin-offs. The Fiscal Council also examines the activities of management and reports on them to the shareholders.

The current members of the Fiscal Council and their substitute members, all of whose terms expire at the Annual General Meeting of Shareholders to be held in 2020, are as follows:

Name

Position

Position

Date of initial
appointment

José Afonso Bicalho Beltrão da Silva – Gustavo de Oliveira Barbosa (1)

Chair (1)

Member		August 7, 2019
Igor Mascarenhas Eto (1)Substitute memberNovember 9, 2020
Fernando Scharlack Marcato (1)MemberApril 30, 2018October 19, 2020

Helvécio Miranda Magalhães JúniorCarlos Eduardo Amaral Pereira da Silva (1)

Substitute memberAlternateJuly 23, 2018August 7, 2019

Marco Antônio de Rezende Teixeira VacantElizabeth Jucá e Mello Jacometti (1)

MemberApril 30, 2018August 7, 2019

Flávia Cristina Mendonça Faria da PieveFernando Passalio de Avelar (1)

AlternateSubstitute memberJuly 23, 201831, 2020

Camila Nunes da Cunha Pereira Paulino (1)

MemberApril 30, 2018

Wieland Silberschneider (1)

AlternateJuly 23, 2018

Rodrigo de Mesquita Pereira (2)

MemberApril 30, 2018

Michele da Silva Gonsales Torres (2)

MemberAlternateApril 30, 2018July 31, 2020

Ronaldo Dias (2)

Substitute memberAugust 7, 2019
Cláudio Morais Machado (3)

MemberApril 30,June 11, 2018

Carlos Roberto de Albuquerque Sá (3)

Substitute memberAlternateApril 30,June 11, 2018

(1)

Appointed by State of Minas Gerais (as the controlling shareholder).

(2)

Appointed by the holders of the preferred shares.

(3)

Appointed by the minority of the holders of voting shares.

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Below is a brief biography of each member of our Fiscal Council:

José Afonso Bicalho Beltrão da Silva –Gustavo de Oliveira Barbosa,Born born in 1948, Mr. da Silva1965, has a degree in economicsaccounting from UNICEUB (‘Centro de Ensino Unificado de Brasília’), and post-graduation, with MBA in executive management of Pension Funds, from the Federal District University Centre (‘ICAT/UDF’). He was Chief Executive Officer of the Rio de Janeiro State Pension Fund (‘Rioprevidência’) from 2010 to 2016. He then served as State Secretary for Finance and Planning of Rio de Janeiro from 2016 to 2018; Technical Banking Advisor in the Regional Headquarters for Public Legal Entities at Caixa Econômica, from 2018 to 2019, and consultant at Barbosa & Mello Consultoria in 2019. He is currently State Secretary for Finance in the Minas Gerais State Government.

Igor Mascarenhas Eto, born in 1991, has a degree in Business Administration from IBMEC Minas Gerais. He was Commercial Annalist in Ceres Finances from October 2012 to jolly 2013, Finance Intern in Libe Construction Company from July 2013 to December 2013, owner-partner of ArteClube Communication Company from January 2015 to November 2016 and of Person Strategic Management and Consulting Company from May 2014 to November 2016 and to January 2018 to august 2019. Igor was also Project Manager in 2LM Strategic Management and Consulting Company from March 2016 to December 2017 and he developed activities in Partido Novo (political party), in Belo Horizonte city, as Secretary of Finances from April 2017 to April 2019, Administration Coordination of Campanha Romeu Zema Governador (‘Governor Romeu Zema Campaign’) from August 2018 to October 2018, Party Expansion Leader of Metropolitan Region of Belo Horizonte city (‘RMBH’) since August 2017. Subsequently, he was General Secretary of Minas Gerais Government from January 2019 to March 2020 and he is currently State Secretary in Minas Gerais Government since March 2020.

Fernando Scharlack Marcato, born in 1978, has a master’s degree in Public Law from Paris University 1 (‘Panthéon-Sorbonne’). He worked for over 12 years in the multidisciplinary structuring of infrastructure projects and he was also Executive Secretary for New Business at SABESP – Basic Sanitation Company of São Paulo state for 5 years. He has been a law teacher for 8 years in law course at Getúlio Vargas Foundation of São Paulo (‘FGV Direito-SP’), having coordinated and organized FGV’s first post-graduate course in infrastructure Law, in addition to coordinating FGV’s PPP’s (Public-Private Partnerships), Concession and Privatizations Study Group and he was co-founder of Infracast, first Portuguese Language podcast and social network channel on the topic PPP’s (‘Public-Private Partnerships’), Concession and Privatizations. He was also founding partner of GO Association, multidisciplinary consultancy in the Brazil’s infrastructure and co-author of the book Infrastructure Law, vol 1, Saraiva Publisher Company in 2017. He is currently the State Secretary for Infrastructure and Mobility in the Minas Gerais Government.

Carlos Eduardo Amaral Pereira da Silva, born in 1969, has a degree in Medicine from the Federal University of Minas Gerais (UFMG)Juiz de Fora (UFJF), a master’s degreewith MBA in regional economics from Cedeplar (the Developmentmanagement of Business and Planning Unit) of UFMG, and is Ph.D. in economicsProjects from the University of Manchester, England. He was CEO of Credireal (Bancosame university, and MBA in Patient Health and Safety Management from the Juiz de Crédito Real de Minas Gerais) in 1994–7, and of BEMGE (Banco do Estado de Minas Gerais) in 1994–98. From January 2006 to July 2012 he was Secretary of Finance of the prefecture of Belo Horizonte. From March 2009 to July 2014 he was CEO of PBH Ativos S.A. From April 2013 to December 2014 he was an Advisor to the Minister of Development, Industry and Foreign Trade, and an Advisor to the Brazilian Development Bank (BNDES)Fora Medicine & Health School (‘Suprema’). From January 22, 2015 to April 30, 2018 he served as a member of the Boards of Directors of CEMIG, CEMIG D and CEMIG GT. Since January 20151994, he has served as Finance Secretary ofa neurosurgeon at the State of Minas Gerais andState Hospital Foundation (‘FHEMIG’), also serving since October 20151998 at Juiz de Fora Federal University (‘UFJF’). Since 1996, he has also been a member ofneurosurgeon at the Board of Directors of Transmissora Aliança de Energia Elétrica S.A. (“Taesa”Monte Sinai Hospital (‘HMS-NCI’). He is currently State Secretary for Health in the Minas Gerais State Government.

Marco Antônio de Rezende Teixeira –Elizabeth Jucá e Mello Jacometti, Bornborn in 1956, Mr Teixeira1960, has a degree in lawEconomics, specialization course in finance, from Juiz de Fora Federal University (UFJF), and master’s degree in Leadership and management from the FederalPublic Leadership Centre (‘CLP’)/��Instituto Singularidade. From 2013 to 2016 she was Planning and Management Secretary of the Prefecture of Juiz de Fora, where she was also Municipal Health Secretary from 2016 to 2018. She is currently State Secretary for Social Development in the Minas Gerais State Government.

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Fernando Passalio de Avelar, born in 1978, has a degree in Business Administration from Estácio de Sá College, postgraduate degree in Government Audit from Gama Filho Foundation and postgraduate degree in Financial Institutions Management from Pontifical Catholic University of Minas Gerais (UFMG)(‘PUC Minas’). Fernando has professional background, included as business person, and an academic experience in private financial institutions as well as in public agencies as government employee of the State Public Finance Secretary since 2008. He worked, since 2009, as internal auditor and, for many years, as public manager working on public projects and public policies aimed at supporting the productive sector.

Michele da Silva Gonsales Torres, born in 1983, is a lawyer specialized in Corporate Law at Mackenzie University and Compliance Specialist at LEC-Legal, Ethics & Compliance. Member of the Compliance Committee of IASP/SP, currently is responsible of contracts and compliance office area and management office since 2015 at the law firm ALFM Advogados. Michele has worked for many years as Legal Manager of a medium-sized construction and engineering company, and has been operating with company risk management, preparing Codes of Conduct and implementing Compliances Program. Moreover, Michele is specialist in analysis, preparation and management of all sort of contracts, elaboration of corporate acts, strategic legal planning for business deals. She was the Fiscal Council Member of COMPANHIA ENERGÉTICA DE MINAS GERAIS-CEMIG (2018-2019) and was elected again in 2020 (2020-2022). She is also the Fiscal Council Member of Light S.A. (2020-2021).

Ronaldo Dias, born in 1946, has a degree in Accounting from Faculdade Moraes Júnior. From 2014 to 2016 he was a substitute member of the Fiscal Council of CEG, the Rio de Janeiro Gas Distribution Company. Subsequently he was a substitute member of the Fiscal Council of CEMIG, from 2016 to 2018. Since 19832017 he has been a lawyer for Companhia Brasileira de Trens Urbanos (CBTU). He was Procurator-Generaldirector of the city of Belo Horizonte from 1997 to 2012. Since 2012 he has been managing partner of Rezende Teixeira Sociedade de Advogados. He currently serves as State Secretary of the State of Minas Gerais, since 2015. He served as a member of the Boards of Directors of CEMIG, CEMIG D and CEMIG GT since January 2015.Banco Clássico.

Camila Nunes da Cunha Pereira Paulino –Ms. Paulino has served since September 2016 as advisor to the CEO of the Minas Gerais water utility Copanor. She served as a member of the Fiscal Councils of CEMIG, CEMIG D and CEMIG GT since May 12, 2017.

Rodrigo de Mesquita Pereira –Mr. Pereira has a law degree from São Paulo University (USP) and postgraduate degrees, with MBA in business management and capital markets from Fundação Getúlio Vargas. He also has a postgraduate degree in law from Pontifícia Universidade Católica de São Paulo. He served as an Attorney in the São Paulo State Public Prosecutor’s Office from 1991 to 2001; and since 2001 has been a lawyer and partner at the Mesquita Pereira, Almeida e Esteves law office.

Cláudio Morais Machado, – Mr. Cláudio Morais Machado,born in 1943, has a graduatedegree in accounting, served in the Brazilian Central Bank, as Auditor, Head of InspectionAccounting, with updating from 1998 to 2017, and Regional Delegate for Porto Alegre (State of Rio Grande do Sul), from 1976 until retirement in April 1997, andserves as an auditor on theAccounting Expert Witness for State Fiscal Council of the Stateand Federal Courts of Rio Grande do Sul, from 1971 to 1976. He is currently a director and partner of BMCP Auditores Independentes S/C, Quantum Consultoria and CMCS Consultoria. From 1998 to 2003, he was vice-president of the Regional Accounting Council of Rio Grande do Sul (CRCRS); member of Committees of the Federal Accounting Council (CFC); and Director of the Brazilian Institute of Accountants—Ibracon—6th Regional Section, from 1997 to 2008. From 2006 to 2009 he was a Substitute Member of the Council of the CFC for Rio Grande do Sul. From 2003 to 2007 he served on the CFC Technical Examination Committee for Qualification of Independent Auditors; and from 1998 to 2017 he was a technical expert witness in accounting, with focus on financing, for the State and Federal Judiciary.finance. He has lectured in graduateat postgraduate courses in accounting and auditing from 1973 to 2015; was a lecturergiving lectures and serving as facilitator in the courses of Ibracon (6th Regional Sector), CRCRS and the IBGC; and has beenis a university lecturer in postgraduate courses specialized in accounting, auditing and corporate governance, since 1990. He has also served as a memberMember of the Fiscal Councils of:of the following companies: Grupo Everest Hotel, Group, ofdo Rio de Janeiro, in 2015; Profarma Distribuidora de Produtos Farmacêuticos S.A., of Rio, in 2015; Tupi S.A., of Joinville, Santa Catarina, State, from 2010 to 2010–2016; as a substitute Member of the Fiscal Council of Instituto de Desenvolvimento Gerencial S.A., of Nova Lima, Minas Gerais, from 2011 to 2015; as a member of the Fiscal Council of Banrisul S.A., of Porto Alegre (RS)(city of Rio Grande do Sul), and its Chairwhich he chaired since 2003; and a member of the Fiscal Councils of the holding company Paludo Participações S.A., of Porto Alegre (RS), from 2014,since 2014; and the NGO Fundação Projeto Pescar, of Porto Alegre, fromsince 2012. From 2011 to 2015 he served as substitute member of the Fiscal Council of the Management Development Institute (‘IDG’) of Nova Lima, Minas Gerais. He joined the Fiscal Council of CEMIG, nominated by BNDESPar, in 2018.

CustomerCarlos Roberto de Albuquerque Sá, born in 1950, has a degree in accounting and economics, and a postgraduate degree in finance, from PUC (‘Pontifícia Universidade Católica’) of Rio de Janeiro. Since 2011 he has been coordinator of the Audit Committee of Lojas Marisa; a since 2016 has been a member of the Fiscal Council of the holding company of Itaú/ Unibanco, and of Marfig Global Foods. He is a partner in the company CS Consult.

In accordance

The Audit Committee

The Audit Committee is an independent, consultative body, permanently established, with Brazilian law, CEMIG has established a Customer Council, comprising representatives of customer groupsits own budget allocation. Its objective is to provide advice and advocacy organizations, but not members ofassistance to the Board of Directors. Directors, to which it reports. It also has the responsibility for such other activities as are attributed to it by legislation.

The Customer Council advises us in questionsmain activities conducted by the Audit Committee are related to: (i) supervision of service and other concernsindependent auditors activities, (ii) supervision of the customers.activities carried out in the areas of internal control, internal audit and preparation of the financial statements of the Company, and (iii) monitor the quality and integrity of the internal control mechanisms, the financial statements, information and measurements disclosed by the Company.

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Audit Committee

On June 11, 2018, we established anThe Audit Committee in compliance with the State Companies Law. Our Audit Committee is comprisedhas four members, all of three members,which are independent, nominated and elected by the Board of Directors in the first meeting after the Annual General Meeting for periods of office of three years, not to run concurrently. Two of the members are independent members. One re-election is permitted.

The functions of the Audit Committee includehas operational autonomy to conduct or order consultations, evaluations and investigations within the scope of its activities, including contracting and use of independent external specialists.

The current membersAudit Committee must have means for receiving accusations, including those of a confidential nature, internal and external to the Company, on subjects related to its area of duties.

The Audit Committee may exercise its duties and responsibilities in relation to such wholly-owned and other subsidiaries of the Company as adopt the structure of joint sharing of an Audit Committee, whose terms expire at the Annual General Meetings of Shareholders to be held in 2020 with respect to one member and 2021 with respect to the other two members, are as follows:

Committee.

Name

Position

Pedro Carlos de Mello

Coordinator
Afonso Henriques Moreira SantosMember
Márcio de Lima Leite

Member

Pedro Carlos de Mello

Member

Renata Bezerra Cavalcanti

Roberto TommasettiMember

Below

The following is a brief biography of each member of our Audit Committee:

Pedro Carlos de Mello—Mr. de Mello, born in 1952, has ana degree in accounting degree from AEUDF of the Federal District (Brasília – 1979–82);Unified Teaching Association (AEUDF), and a degree in economicsEconomics from the Political Sciences and Economic Sciences UniversityEconomics College of Cruz Alta (Rio Grande do Sul,1971-74); andAlta. He has an MBA degree in controllership with postgraduate studies atfrom Fipecafi (Accounting,(The Accounting, Actuarial and Financial Research Institute Foundation of São Paulo University (Brasília,1995-96); and– USP), MBA degreesin training of executives from theCoppead (the Postgraduate Management Research Institute (Coppead) of Rio de Janeiro Federal University (May–June 1994)– ‘UFRJ’), and postgraduate degree in Accounting, Costsaccounting, costs and Auditing,auditing from the Getúlio Vargas Foundation (Brasília, Aug–Dec. 1982)(‘FGV’). For the National Private Pension Plans Authority (Previc), he was Management Information General Coordinator in the Technical Analysis Directorate (Ditec) from March-July 2014.

For the Accounting Management Unit of Banco do Brasil S.A. in Brasília (DF), he was Chief Accountant from April 2007 to March 2009; Executive Manager for Supervision of Brazilian Subsidiaries and Foreign Offices (Gesex)(‘Gesex’) from April 1999 to April 2007; and acted as General Manager for Accounting, in absences of the principal office holder (in Brasília), from 1998 to April 2007. OnHe was General Coordinator of Management Information for the Technical Analysis Director (‘DITEC’) of the National Pension Plan Authority (‘Previc’) in 2014, and a substitute member of the Fiscal Council of Usiminas in 2016 and 2017. Since 2016 he has been a member of the Audit Committee of the Minas Gerais Development Bank (BDMG)(‘BDMG’).

Afonso Henriques Moreira Santos, born in 1957, has a degree in Electric Engineering. From April, 2019 to December of the same year he was member of the Board of Directors of Light S.A. Board member at IX Estudos e Projetos LTDA from October, 2006 to April, 2019. He served as full time professor at the Federal University of Itajubá from January 1980 to March 2016.

Márcio de Lima Leite, born in 1971, has a law degree from the Milton Campos Faculty and in accounting from the Pontifícia Universidade Católica (‘PUC’) of Minas Gerais. He has a postgraduate degree in Strategic Management with specialization in finance from Minas Gerais Federal University (‘UFMG’), and a master’s degree in law, economic and social relations from the Milton Campos Faculty. He is currently director of the Commercial Association of Minas Gerais (‘ACMinas’); a guest professor at PUC of Minas Gerais; and Chief Counsel and Business Development Director at Fiat Chrysler Automobiles (‘FIAT’) of Latin America.

Roberto Tommasetti, born in 1973, has a degree in Economics from University ‘Federico II’ (Italy), revalidated by Rio de Janeiro State University (‘UERJ’), and in accounting from UFRJ (‘Rio de Janeiro Federal University’). He has a master’s degree in accounting and finance from PUC, São Paulo, and a doctorate in accounting from UFRJ. CPA in Brazil and Italy, he is a partner of a consulting firm and lectures financial and management accounting in graduate and postgraduate courses. Member of Italian-Brazilian Chamber of Commerce of Rio de Janeiro, where he is part of the Brazil-Italy Energy Council, he has been a member since September 2016, and Coordinator of the Committee since August 2017. From April 2016 to April 2017 he was a substitute member of the Fiscal Council of Usiminas (Usinas Siderúrgicas de Minas Gerais S.A.)

Renata Bezerra Cavalcanti—Mrs. Cavalcanti was Division head of Petrobras (from 1995 to 2000) and Energy Secretariat (from 2007 to 2012). She is Council member of Firjan (Rio de Janeiro Industries Federation) since 2012 and a member of the Energy Board of Directors and the Rio de Janeiro ChamberAudit Committee of Commerce since 2014.

Márcio de Lima Leite – Legaldifferent companies and Governance Officer of Fiat Chrysler Automóveis Brasil Ltda.; Member of Riskserved as CFO, Chief Controller, and Internal Controls Committee for Latin America – responsible for training in compliance, antitrust, anti-corruption law; and code of conduct for employees, suppliers and concession holders; participation in M&A projects. PUC University of Minas Gerais: Visiting Professor at the LL.M course in Tax Law, Accounting and Governance. Member of Audit Board of the NGP Instituto Minas Pela Paz (IMPP). Torino Foundation: Chief Counsel. Vice-president, Anfavea (Brazilian Automobile Manufacturers’ Association). Director, Minas Gerais State Chamber of Commerce. Automotive Committee, Minas Gerais Industries Association (Fiemg).independent auditor.

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Employees

As of December 31, 2020, we had 5,254 employees at CEMIG, CEMIG D and CEMIG GT, of which 179 were management level and 103 were contracted to provide temporary outsourced services. As of December 31, 2019, we had 5,596 employees at CEMIG, CEMIG D and CEMIG GT, of which 185 were management level and 72 were contracted to provide temporary outsourced services. As of December 31, 2018, we had 6,083 employees at CEMIG, CEMIG D and CEMIG GT, of which 244 were management level and 316 were contracted to provide temporary outsourced services. As of December 31, 2017, we had 5,864 employees at CEMIG, CEMIG D and CEMIG GT, of which 254 were management level and 333 were contracted to provide temporary outsourced services. As of December 31, 2016 we had 7,119 employees at CEMIG, CEMIG D and CEMIG GT, of which 230 were at management level and 192 were contracted to provide temporary outsourced services. This table presents the breakdown of our employees by type on those dates:

Number of Employees as of December 31,(1)

  2018 (2)   2017 (3)   2016 

Managers

   244    254    230 

Professional staff

   1,188    1,096    1,323 

Operational technical staff and office employees

   4,651    4,514    5,566 
  

 

 

   

 

 

   

 

 

 

Total

   6,083    5,864    7,119 

Number of Employees as of December 31, (1)

2020 (2)

2019 (3)

2018 (4)

Managers179185244
Professional staff1,1331,1471,188
Operational technical staff and office employees

3,942

4,264

4,651

Total5,2545,5966,083
(1)

These figures include only employees of CEMIG GT, CEMIG D and CEMIG.

(2)

In 2020, 104 employees were hired and 444 left CEMIG.

(3)In 2019, 272 employees were hired and 762 left CEMIG.
(4)In 2018, 359 employees were hired and 244 left CEMIG.

(3)

In 2017, 27 employees were hired and 1,189 left CEMIG.

Unions

Meetings are held throughout the year for collective negotiation with the unions that represent the employees. The Collective Work Agreements (Acordos Coletivos de Trabalho, or “ACTs”‘ACTs’) that result from these meetings cover salary adjustments, benefits, rights and duties of the employment relationship, and come into effect starting on November 1 of each year until the end of the validity of each respective Collective Work Agreement.

Negotiations between the Company and the Unions for the 2017-20192019-2021 Collective Work Agreements were concluded.

During the 2017/October 2019 to January 2021, negotiations, the company and the unions agreed to a readjustment of economic benefits in November 2017, to ensure replacement of losses due to inflation in the period, with an adjustment of 1.83%2.55% in line with inflation, in addition to ensuring the correction of salaries and benefits, in November 2018,2020, by the inflation index (INPC-IBGE) accumulated between November 1, 20172019 and October 31, 2018.2020.

The agreement reaffirmed benefits as: payment of day and night overtime; setting of a ceiling for grant of financial help for training in technical or graduation courses; advance of the first installment of the annual 13th salary payment; assistance benefits; release of union leaders and provisional job stability; and funds for grant of salary alterations in accordance with the Careers and Remuneration Plan (Plano de Cargos e Remunerações, or “PCR”‘PCR’).

In health and safety in the workplace, the employees have the following benefits guaranteed: regulated Internal Accident Prevention Committees (Comissões Internas de Prevenção de Acidentes, or “CIPAs”‘CIPAs’), with participation by the unions; medical health inventory; inspection of contractors as to their work safety; and notification of serious or fatal accidents.

During the 2017/20192019/2021 negotiations, there waswasn`t a stoppage/strike of one day, with a minimal participation of employees. Instrike. However, in the event of strikes, CEMIG has an Operational Emergency Committee, created with the basic objective of establishing a Contingency Plan to maintain our essential services In the event of strikes,strikes; CEMIG has an Operational Contingency Council aimed at setting forth a Contingency Plan for continuation of its essential services.

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Compensation

CEMIG compensates its employees in a competitive way, in line with best market practices.

CEMIG’s compensation strategy reflects a compatible and competitive positioning with the market, with benefits and programs for the welfare of its employees. Thus, CEMIG has a Careers and Remuneration Plan (Plano de Cargos e Remunerações, or “PCR”), in which the positions are described based on their nature and complexity, as well as the knowledge requirements necessary for the performance of their functions. The fees are set considering the reviews of positions, made according to specific methodology. ThisThe plan is designed to attract, develop, retain and enhance the best talented Company professionals needed to conduct CEMIG’s business while preserving our culture, the alignment to its business objectives, competitiveness and longevity in the market where it operates without losing sight of the particularities of its segment and the commitment of the employees with the result of their work. In addition, the PCRCareers and Remuneration Plan establishes criteria for granting horizontal and vertical progressions that include, among other things, employee performance.

The current PCRCareers and Remuneration Plan was put in place in 2004September 2018 aiming to provide us with the instruments of compensation considered to be necessary to maintain an equitable and competitive payment structure and establish criteria for promotions. WithIn order to maintain a current plan that is consistent with the change ofbusiness context, the Executive Board of CEMIG held in January 2015Careers and the reformulation of our StrategicRemuneration Plan the PCRis being revised. The review project wasis expected to be completed in the first half of 2018. The aim is adapting it to the new reality of the entity business, the strategic planning of CEMIG and aligning to other HR processes.2021.

This table presents the monthly average of base salary and of compensation, by job category of CEMIG:

December 31, 2020 (R$)

Average base salary as of

Average compensation as of

Managers20,047.0634,292.17
Professional staff10,681.0812,957.84
Operational technical staff and office employees5,253.138,153.58

 

   Average base salary as
of December 31, 2018		   Average compensation
as of December 31,
2018		 

Managers

  R$19,988,55   R$33,314.34 

Professional staff

  R$9,718,06   R$11,982.39 

Operational technical staff and office employees

  R$4,960,70   R$7,833.84 

Program for Sharing in Profit, Results, and Productivity

CEMIG has a program for sharing profits and results with employees in accordance with applicable Brazilian employment legislation. Profits are distributed only if, in aggregate, at least 50%70% of the corporate targets are achieved, after relative weighting for each of the corporate and operational indicators.

In 2020, in accordance with the terms of the Collective Agreement, CEMIG distributed 4.3% of its profits.

In 2019, in accordance with the terms of the Collective Agreement, CEMIG distributed 4% of its profits, with the possibility of an increase of another 20% of the value of this profit that exceeds the budget, reaching the maximum limit to be distributed of 7.5% of the Consolidated Net Income.

The calculation of the profit sharing distribution will be based on the Result of Indicators, and the payment will be made 100% in proportion to the individual remuneration of each employee among all the employees represented by the signatory entities of the referred agreement.

Distribution will occur only if at least 70% of the goals are achieved as a whole, observing the relative weight of each of the indicators. The basket of indicators for the year 2020 contains 10 corporate indicators.

In 2018, in accordance with the terms of the Collective Agreement PLR 2017, CEMIG distributed part of its profits to the employees represented by the unions that signed the program and simplified the list of indicators to 7 corporate and 28 operational indicators, facilitating the monitoring of the results by its employees. CEMIG also signed the Collective Agreement PLR that will distribute part of the profits to employees, based on the results in 2018.

In 2017, CEMIG distributed part of its profits to the Program for Sharing in Profit and reduced the operational indicators to 28 targets. In 2016, in accordance with the terms of the Specific Collective Agreement PLR 2016, CEMIG distributed 4% of its profits to the program and simplified the list of indicators, facilitating the monitoring of results by its employees.

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Benefits

CEMIG provides its employees a range of benefits, such as reimbursement of disability-related expenses of employees and/or their dependents, funeral assistance in the event of death of an employee or of his or her direct dependents, and payment of part of the employee’s contribution to the complementary pension plan. In 2018,2020, a total of R$ 214.2183 million was paid in employee benefits, comprising R$ 78.3100 million in contributions to the pension plan and R$ 135.883 million in assistance benefits.

Voluntary Retirement Programs

In April 2016, CEMIG launched its PDVP2020, the Company approved the Voluntary Programmed Voluntary RetirementSeparation Plan for 2020 (PDVP 2016) for2020). Those eligible - all employees who would havehad worked forat the Company for 25 years or more onby December 31, 2016.2020 - were able to join from May 4 to May 22, 2020. The offer includedprogram paid the following items, as extra compensation: (i) 40%standard legal severance pay per termination agreement, being 50% of the balance on the employee’s account with the FGTS; and (ii) paymentnotice period, an amount equal to 20% of the amount normally paid to employees who are dismissed, which can vary from one month to 90 daysBase Value of the severance reference salary,employee's FGTS fund, an additional premium equal to 50% of the notice period, plus 20% of the Base Value of the FGTS fund, as specified by Law No. 12,506/11. This was accepted by 578well as other payments foreseen in the legislation. The program has reached 396 employees who leftand the company duringCompany expects to save approximately R$100 million per year.

In December 2019, the period between June 2, 2016 and October 20, 2016.

In March 2017, CEMIG launched its PDVPCompany created the Programmed Voluntary Retirement Plan (PDVP 2017) for2019). Eligible employees – all employees who would have worked forat the Company for 25 years or more as of December 31, 2017.2019 – were able to join the program between January 7 and January 31, 2019. The offer includedPDVP provided for the payment of an additional premiumthe legal severance payments, including indemnified notice, deposit of upthe amount corresponding to five salaries in the following terms:

Deadline to enroll in the program

Additional premium

04/03 to 04/28/20175 salaries
05/02 to 05/31/20174 salaries
06/01 to 06/30/20173 salaries
07/03 to 07/31/20172 salaries
08/01 to 08/31/20171 salary
09/01 to 09/29/2017None

In addition to the additional premium there were also the following items, as extra compensation: (i)a fine of 40% of the balanceFGTS base amount for retirement purposes and other charges provided by the legislation, with no provision for payment of additional premium. In March 2019, the Company approved the reopening of the employee’s accountPDVP 2019, with the FGTS; and (ii) payment of the amount normally paid to employees who are dismissed, which can vary from one month to 90 days of the severance reference salary, as specified by Law No. 12,506/11. This was accepted by 1,189 employees, who began to leave the company during theadhesion period between May 2, 2017April 1 and October 17, 201710, 2019, and changes to the requirements for adhesion, keeping the other conditions unchanged. The program reached 613 employees and the amount expensed wasCompany expects savings of approximately R$ 214 million.150 million per year.

In March 2018, CEMIG approved the Programmed Voluntary Retirement Program (the “2018 PDVP”‘2018 PDVP’). Employees eligible to be part of the 2018 PDVP are those that will have worked for CEMIG for 25 years or more as of December 31, 2018. The period for joining the 2018 PDVP was April 2 through April 30, 2018. The 2018 PDVP offered payment of the severance amounts specified by law, including payment for the notice period, and deposit of the penalty amount of 40% of the FGTS (Labor Guarantee Fund) Base Value, as well as the other payments specified by the legislation. The 2018 PDVP was accepted by 151 employees, for which the estimated cost in the amount of R$25.6 million was recorded.

In December 2018, the Company created the Programmed Voluntary Retirement Plan for 2019 (the “2019 PDVP”). Those eligible – any employees who had worked with the Company for 25 years or more by December 31, 2018 – were able to join from January 7 to 31, 2019. The program will pay the standard legal payments for severance – including: payment for the period of notice, and especially, an amount equal to the ‘penalty’ payment of 40% of the Base Value of the employee’s FGTS fund, as well as the other payments under the legislation, but with no additional premium. A total of R$ 66 million has been appropriated as expense for the 2019 PDVP, including severance payments, corresponding to acceptance by 458 employees, recorded in 2018.

In March 2019 the Company approved reopening of the 2019 DVP program, for those joining between April 1 and 10, 2019, with some changes in the requirements for joining, but the same financial conditions.

Health and Safety

As a result of CEMIG’sthe various actionsinitiatives and programs from CEMIG, focused on health, hygiene and occupational safety issues, theat work, accident indicators have shown a significant reduction inover the last seven years. The corporate indicator Frequency Rate of Work Related Injuries with Absence (‘TFA’) of the workforce, which had been stable in recent years, reached 1.66 in December/2020, the last recorded, signaling an increase of 3,75% compared to the result recorded in 2019 and 9.21% above the limit set by the company of 1.52. We also registered a fatal accident that killed 3 employees of one of our partner companies.

In 2018,2019, the Accident Frequency Rate of Work Related Injuries with Time off Work (TFA)Absence (‘TFA’), relative to the force of work,workforce, was 1.521.60 accidents per one million hours worked, 3.4%5.26% higher than in 2017,2018, and 22%18.75% below the limit1.90 limit.

It is also important to note that, the Coronavirus pandemic brought about a series of 1.95.

In 2018 there was alsodifficulties for the company's usual activities, generating the need to implement a 33.59% increaseseries of additional measures, led by the company's health area, to enable business continuity and safeguard the integrity of all the workers in the TFA for contract personnel, compared to the results obtained in 2017.

Share Ownership

No member of the Board of Directors or Executive Board owns more than 0.03% of our preferred shares or more than 0.03% of our common shares.workforce.

 

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Item 7.

Major shareholders and related party transactions

Principal Shareholders

On March 31, 2019,2021, the government of the State of Minas Gerais was the holder, directly and indirectly of 248,536,849258,759,424 common shares, or 50.97% of CEMIG’s shares carrying the right to vote. As of the same date, FIA Dinâmica Energia, our second largest shareholder, held 48,700,000129,606,377 common shares, or approximately 9.99%25.53% of that class of shares, and 55,905,34435,328,172 preferred shares, or approximately 5.76%3.49% of that class of shares.

The table below provides information about ownership of the common and preferred shares in CEMIG as of March 31, 2019:2021:

Shareholder

  Common
Shares		   % of the
Class		   Preferred
Shares		   % of the
Class		 

Minas Gerais State Government (1)

   248,536,849    50.97%    418,893    0.04% 

FIA Dinâmica Energia Fund

   48,700,000    9.99%    55,905,344    5.76% 

BNDES Participações S/A – BNDESPar

   54,342,992    11.14%    26,220,938    2.70% 

Total of all members of Board of Directors, Executive Board and Fiscal Council

   0    0%    36,200    0% 

Others

   136,034,303    27.90%    887,996,364    91.44% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shares

   487,614,144    100%    970,577,739    99.94% 

Shares in treasury

   69    —      560,649    0.06% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shares issued

   487,614,213    100%    971,138,388    100% 

Shareholder

Common Shares

% of the Class

Preferred Shares

% of the Class

Minas Gerais State Government (1)258,759,42450.97%11,112,0481.10%
FIA Dinâmica Energia Fund129,606,37725.53%35,328,1723.49%
BNDES Participações S/A – BNDESPar56,578,17511.14%27,299,4322.70%
Total of all members of Board of Directors, Executive Board and Fiscal Council10,313-67,4780.01%
Others62,715,92912.35%936,691,47392.64%
Total shares507,670,218100%1,010,498,60399.94%
Shares in treasury71-583,7090.06%
Total shares issued507,670,289100%1,011,082,312100%
(1)

The shares attributed in this line to the State of Minas Gerais include shares held by Minas Gerais Participações S.A., a Brazilian stock company (sociedade por ações), and other agencies of the State government and companies controlled by the State of Minas Gerais.

Since CEMIG was formed, its operations have been influenced by the fact that it is controlled by the government of the Brazilian State of Minas Gerais. Its operations have had and will continue to have an important impact in the development of trade and industry of Minas Gerais and on the social conditions in the State. Occasionally in the past the Minas Gerais state government has oriented the company to dedicate itself to certain activities and make certain expenditures specifically designed to promote the social, political or economic objectives of the government of the State of Minas Gerais, and not necessarily destined to generate profit for CEMIG, and there is the possibility that the state government may orient us in this direction in the future. See “Item 3. Material Information – Risk factors – Risks Relating to CEMIG – We are controlled by the government of the Brazilian State of Minas Gerais, which might have interests that are different from the interests of the other investors, or even of the Company.”Company”.

As of March 31, 20192021 CEMIG had 1 holder of common shares represented by ADRs who were registered in the United States, holding a total of 595,2672,587,491 common shares; and 1412 registered holders of preferred shares represented by ADRs who were registered in the United States, holding a total of 164,403,865227,670,421 preferred shares.

Although theby-laws do not make any restriction on a change in control of CEMIG, under the legislation of the State of Minas Gerais such a change would require a state law authorizing the change of control. Because CEMIG is controlled by the State, any sale that results in the state government not holding more than 50% of the voting shares of CEMIG (or any other transaction that could transfer the control of CEMIG, in whole or in part), requires approval by legislation specifically authorizing this change, made by the legislative power of Minas Gerais, approved by a minimum of 60% of the members of the State Assembly; and this authorization must then also be approved by the local citizens in a referendum.

On September 6, 2017, AGC Energia S.A. (“AGC Energia,” a subsidiary of the Andrade Gutierrez Group) announced its decision to exit CEMIG’s controlling shareholder group, terminating the CEMIG shareholders’ agreement. On October 4, 2017, AGC Energia notified us that it had reduced its equity interest in the common shares of CEMIG from 20.05% of the voting share of CEMIG to 16.29% of the voting share of CEMIG through sales on a securities exchange of 15,812,100 common shares of CEMIG and on October 24 2017, AGC Energia notified us that it had further reduced its equity interest in the common shares of CEMIG to 12.79% of the voting share of CEMIG through sales on a securities exchange of 14,739,600 common shares of CEMIG. On December 26, 2017 AGC Energia notified us that it had sold its entire equity interest in the voting share of Companhia Energética de Minas Gerais by sale on a securities exchange.

On January 20, 2016, FIA Dinâmica Energia Fund acquired 2,360,000 preferred shares of CEMIG. With this acquisition, FIA Dinâmica Energia held at that time 5.28% of the preferred shares issued by CEMIG.

On March 3, 2016, BNDESPar exchanged the totality of its holding of debentures issued under the Deed of the First Private Issue by AGC Energia ofNon-convertible Permanent Asset guaranteed Exchangeable Shareholders’ Debentures, in a Single Series, dated February 28, 2011 and amended January 17, 2012, for 54,342,992 common shares and 16,718,797 preferred shares in CEMIG, owned by AGC Energia. After the exchange, the equity interest held by BNDESPar in CEMIG — which on March 2, 2016, totaled 0% of the common shares and 1.13% of the preferred shares — increased to 12.9% of the common shares and 3.13% of the preferred shares.

We are not aware of any other significant alterations in percentages of shares held by holders of 5% or more of our voting shares in circulation during the last three years.

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Related Party Transactions

During the regular course of our business, we engage in transactions with related parties, some of which are of a recurring nature. The following summarizes the material transactions we engage in with our principal shareholders and their affiliates.

CEMIG is party to the following transactions with related parties (please refer(refer to Note 3130 to our consolidated financial statementsthe Financial Statements for more details):

·Sale of energy supply to the Minas Gerais State government. The price of the supply is the one set by ANEEL through a Resolution relating to the annual tariff adjustment of CEMIG D. In 2017 the government of Minas Gerais State signed a debt recognition agreement with CEMIG D for payment of debt relating to the supply of power due and unpaid, in the amount of R$113 million, to be settled in 24 installments, updated monthly by the variation of the IGP-M index, up to November 2019. Twenty installments were unpaid on December 31, 2020. These receivables have a guarantee in the form of CEMIG’s right to retain dividends and Interest on capital otherwise payable to the State (in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default. CEMIG D filed an application with the tax authority of Minas Gerais state to accept the terms of State Law 23,510/2020, to enable part of the ICMS tax payable to be offset against the debt owed by the government of Minas Gerais state to the Company. At present, the state tax authority is validating the invoices presented, to authorize the compensation of credits. As a result, the Company has reversed the amount of R$210 million previously recognized as expected losses for doubtful receivables;
·Inflation advance against Future Capital Increase (AFAC), which were returned to the State of Minas Gerais. These receivables have guarantee in the form of CEMIG´s right to retain dividends and Interest on Equity otherwise payable to the State (in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default. The balance receivable on December 31, 2020, is R$12 million (R$115 million on December 31, 2019);
·Transactions in energy between generators and distributors were made in auctions organized by the Federal Government; transactions for transport of energy, made by transmission companies, arise from the centralized operation of the National Grid carried out by the National System Operator (ONS);
·Contract to provide plant operation and maintenance services related to transmission services;
·Legal actions realized and legal actions provisioned arising from the agreement made between Aliança Geração (jointly controlled entity), Vale S.A. (company which we have joint ventures in common) and CEMIG. The action is provisioned in the amount of R$119 million, of which CEMIG’s portion is R$41 million;
·Advance payments for energy supply made in 2019 to Norte Energia (jointly controlled entity), established by auction and by contract registered with the CCEE (Wholesale Trading Exchange). Norte Energia delivered contracted supply until December 31, 2020, starting on January 01, 2020. There is no financial updating of the contract;
·CEMIG GT (subsidiary) has an R$688 million receivable from Renova (jointly-controlled entity) that due to the uncertainties related to continuity of Renova (jointly-controlled entity), an estimated loss on realization of the receivables was recorded for the full value of the balance;
·On November 25, 2019, December 27, 2019 and January 27, 2020, DIP loan contracts under the court-supervised reorganization proceedings, referred to as ‘DIP’, ‘DIP 2’ and ‘DIP 3’, were entered into between the Company and Renova (jointly-controlled entity), which is in-court reorganization , in the amounts of R$10 million, R$6.5 million, and R$20 million respectively. The contracts specify interest equal to 100% of the accumulated variation in the DI rate, plus an annual spread, applied pro rata die (on 252-business-days basis), of 1.083% for the DIP contract, 2.5% for the DIP2 contract and 1.5% for the DIP3, up to the date of respective full payment. The Company recognized an impairment loss for the receivables from Renova, of its total carrying amount of R$37 million, in the second semester of 2020. For further information, see note 16 (c) to our consolidated financial statements;
·Liability recognized relating to the Company’s interest in the share capital of Hidrelétrica Itaocara, due to its negative equity (see Note 16 to the Financial Statements);
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·Contract for development of management software between CEMIG D (subsidiary) and Axxiom Soluções Tecnológicas S.A., instituted in ANEEL Dispatch 2657/2017. The liability on December 31, 2020, is R$4 million (R$3 million on December 31, 2019);
·The contracts of Forluz are updated by the Expanded Customer Price Index (Índice Nacional de Preços ao Consumidor Amplo, or IPCA) calculated by the Brazilian Geography and Statistics Institute (IBGE) plus interest of 6% p.a. and will be amortized up to the business year of 2031 (see Note 24 to the Financial Statements);
·The Company’s contributions to the pension fund for the employees participating in the Mixed Plan, and calculated on the monthly remuneration, in accordance with the regulations of the Fund;
·Funds for annual current administrative costs of the Pension Fund in accordance with the specific legislation of the sector. The amounts are estimated as a percentage of the Company’s payroll;
·Rental of the Company’s administrative head offices from Forluz (the employee pension fund), in effect up to November 2020 and August 2024 (able to be extended every five years, up to 2034), with annual inflation adjustment by the IPCA index and price reviewed every 60 months. Aiming at costs reduction, in November 2019, CEMIG returned the Aureliano Chaves building to Forluz and in November, 2020, CEMIG decided to renew with Forluz and returned the remaining leased floors of Aureliano Chaves building;
·Post-employment obligations relating to the employees’ health and dental plan (CEMIG Saúde). (See Note 24 to the Financial Statements);
·The relationship between CEMIG and its investees are described in Note 16 – Investments to the Financial Statements;

Sale of energy supply to the Minas Gerais State government. The price of the supply is the one set by ANEEL through a Resolution relating to the annual tariff adjustment of CEMIG D In 2017 the government of Minas Gerais State signed a debt recognition agreement with CEMIG D for payment of debt relating to the supply of power due and unpaid, in the amount of R$ 113 million, to be settled in 24 installments, updated monthly by the variation of theIGP-M index, up to November 2019. The first installment, of R$ 5 million, was paid in December 2017. Nine installments were unpaid on December 31, 2018. These receivables have a guarantee in the form of CEMIG’s right to retain dividends and Interest on capital otherwise payable to the State (in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default. The amount of the Public Lighting Contribution relating to the debt recognition agreement on December 31, 2018 was R$ 2 million.

Recalculation of the inflation adjustment of amounts relating to the Advance for Future Capital Increase (AFAC), which were returned to the State of Minas Gerais. Amount transferred to Accounts receivable from Minas Gerais State, on September 30, 2017. The outstanding amount on December 31, 2018 was R$ 246 million (see Note 12 to the Financial Statements).

Financial gain of R$ 12 million from bringing forward ICMS tax, as per Minas Gerais State Decree 47488.

Transactions in energy between generators and distributors were made in auctions organized by the Federal Government; transactions for transport of energy, made by transmission companies, arise from the centralized operation of the National Grid carried out by the National System Operator (ONS) (see Note 31 to the Financial Statements).

Contract to provide plant operation and maintenance services.

In 2017, payments of R$ 70 million were made to Santo Antônio Energia, subsidiary of Madeira Energia: R$ 52 million was advanced by CEMIG GT; R$ 12 million by Sá Carvalho; and R$ 6 million by Rosal. The last installment was paid in January 2019.

Reimbursement for the supply that was decontracted due to alteration of the power purchase agreements (CCEARs) between Santo Antônio Energia S.A., a subsidiary of Madeira Energia, and CEMIG Distribuição – totaling R$ 84 million, to be settled in 24 monthly installments, with inflation adjustment by the Selic rate and maturities up to January 2020. The outstanding amount on December 31, 2018 was R$ 46 million.

Bringing forward of payments under a Purchase Agreement for Incentive-Bearing Power becoming due in January through October 2019, to be settled by July 9, 2090, with monetary updating at 155% of the CDI rate. The agreement for early payment has guarantees, shared between CEMIG and Light, related to their shareholding interest in Renova, dividends of its investees, and wind projects to be developed. The outstanding amount on December 31, 2018 was R$ 87 million.

CEMIG GT has a R$ 445 million receivable from Renova that will be paid in monthly installments up to December 2021 with financial updating at 150% to 155% of the CDI rate. The accounts receivable have guarantees, shared between CEMIG and Light, related to their shareholding interest in Renova, dividends of its investees, and wind projects to be developed.

On February 20, 2009 the Company signed the eighth amendment to the wind power purchase agreement with Renova, extending the due date of the sole payment from January 10, 2019 to July 9, 2019. The financial updating is calculated on the basis of 155% of the CDI rate. On December, 31, 2018 the amount to be reimbursed by Renova as indemnity for suspension of supply of power from July to September 2018 is R$ 52 million. The amount to be reimbursed by Renova is covered by guarantees, shared between CEMIG and Light, related to their shareholding interest and dividends of investees of Renova and also wind projects to be developed.

On February 20, 2019, the Company signed the reimbursement contract arising from a term of assignment of a power purchase agreement for the period December 1 to 31, 2018. The amount of R$ 10 million is to be settled by July 9, 2019 with monetary adjustment at 155% of the CDI rate. The amount to be reimbursed by Renova is covered by guarantees, shared between CEMIG and Light, related to their shareholding interest and dividends of investees of Renova and also wind projects to be developed.

Contract for development of management software between CEMIG D and Axxiom Soluções Tecnológicas S.A., instituted in ANEEL Dispatch 2657/2017. The outstanding amount on December 31, 2018 was R$ 0.2 million.

The contracts of Forluz are updated by the Expanded Customer Price Index (Índice Nacional de Preços ao Consumidor Amplo, or IPCA) calculated by the Brazilian Geography and Statistics Institute (IBGE) plus interest of 6% p.a. and will be amortized up to the business year of 2031 (see Note 24 to the Financial Statements).

The Company’s contributions to the pension fund for the employees participating in the Mixed Plan, and calculated on the monthly remuneration, in accordance with the regulations of the Fund. In 2018, it represented an expense of R$ 78 million.

Funds for annual current administrative costs of the Pension Fund in accordance with the specific legislation of the sector. The amounts are estimated as a percentage of the Company’s payroll. In 2018, it represented an expense of R$ 28 million.

Rental of the Company’s administrative head offices with Forluz, in effect up to October 2020 (able to be extended every five years, up to 2035) and February 2019 (contract in the process of renewal, able to be extended every five years, up to 2034), with annual inflation adjustment by the IPCA index and price reviewed every 60 months.

Post-employment obligations relating to the employees’ health and dental plan (CEMIG Sáude) in amount of R$120 million and R$2,271 million, respectively. (see Note 24 to the Financial Statements).

Government-Controlled Companies Law

On June 30, 2016, Federal Law No. 13,303/16 (the “State Companies Law”) came into force. According to this law, all government-owned companies, mixed capital companies (sociedades de economia mista), as well as their subsidiaries, must comply with new standards regarding corporate governance, contracting with third parties and public bidding procedures.

On June 11, 2018, CEMIG’s Extraordinary General Shareholders’ Meeting approved changes in the bylaws of CEMIG and its subsidiaries in order to formalize best practices of corporate governance and to comply with the requirements of the State Companies Law. The improvements formally incorporated in CEMIG’sby-laws include:

 

•

Reduction of the number of members of the Board of Directors from 15 to 9 – reflecting the Best Corporate Governance Practices Code of the Brazilian Corporate Governance Institute (Instituto Brasileiro de Governança Corporativa, IBGC) and the Corporate Sustainability Assessment Manual of the Dow Jones Sustainability Index.

The employees have the right to elect one member.

At least 25% (twenty five per cent) of the members must be independent; and at least one, in the event that the minority shareholders decide to exercise the option of multiple vote.

•

Creation of the Audit Committee (Comitê de Auditoria). The Fiscal Council (Conselho Fiscal) remains in existence.

Where filling of appointments to positions on the Board of Directors and/or Executive Board of the Company’s subsidiaries or affiliates is the competency of the Company, it shall do so in accordance with the criteria of the State Companies Law and its bylaws.

The creation or review of the following policies by the Board of Directors: dividend policy; policy on transactions with the related parties; people management policy; information disclosure policy; policy on communication and spokespersons; policy on nominations; policy on holdings and corporate risk policy.

The Eligibility and Assessment Policy for appointments to the Board of Directors or Executive Board of subsidiaries or affiliates.

The Related Party Transactions Policy.

Formal designation for the Board of Directors to ensure implementation of and supervision of our systems of risks and internal controls.

The CEO to have responsibility for directing compliance and corporate risk management.

Greater emphasis on control functions: internal audit, compliance and corporate risk management.

Adoption of an arbitration chamber for resolution of any disputes among the company, its shareholders, board of directors and members of the Fiscal Council.

Every year the members of the Board of Directors, Executive Board and the members of the statutory committees shall undergo individual and collective performance evaluation.

Only the Board of Directors can appoint, from among the Company’ career employees, and dismiss, in both cases with due justification, the head of the Internal Audit Unit.

Item 8.

Financial Information

Consolidated Financial Statements and Other Financial Information

Please findFind our consolidated financial statements, which begin on pageF-1 of this document, and “Item 3. Key Information – Selected Consolidated Financial Data.”Data”.

Legal and Administrative Proceedings

The Company, in particular CEMIG GT and CEMIG D, are involved in certain legal and administrative proceedings regarding tax, regulatory, customer, administrative, environmental,employment-law and other issues, in relation to its business. In accordance with IFRS, we record and disclose the amounts of the proceedings that we have determined a loss to “probable”‘probable’, and disclose the amounts of the proceedings in which we have determined a loss to be “possible”,‘possible’; to the extent, these amounts can be reasonably estimated. For more information regarding such contingencies, see the Note 25 to our consolidated financial statements.the Financial Statements.

Regulatory Matters

CEMIG and CEMIG D are parties in lawsuits arising from clauses of energy supply contracts for public lighting, signed with various municipalities in the concession area. These actions request restitution of a portion of amounts charged in the last 20 years, in the event that the courts recognize that these amounts were unduly charged. The proceedings are based on an alleged mistake by CEMIG in the estimate of time used for the calculation of the consumption of energy by public lighting paid for by the Public Lighting Contribution (Contribuição de Iluminação Pública, or “CIP”‘CIP‘). On December 31, 2018,2020, the amount involved in these actions was approximately R$975 million,1.072 billion, and the chancesprobability of loss were assessed as ‘possible’, since, although the case law is amply in favor of Cemig,CEMIG, it has not been definitively consolidated.

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CEMIG GT filed an application to be included a joint defendant in a lawsuit brought by AES Sul against ANEEL, seeking annulment of ANEEL Dispatch No. 288/2002, which set the guidelines for interpretation of ANEEL Resolution No. 290/2000, and thus changed the situation of AES Sul Distribuidora, from creditor to debtor of the Wholesale Energy Market (Mercado(Mercado Atacadista de Energia,, or “MAE”‘MAE’), predecessor of the present CCEE. CEMIG GT obtained an interim decision to suspend the deposit that had been ordered in favor of AES, determined in the process of financial settlement, for the historic amount. The application to be joined as a party was granted and CEMIG GT is aco-litigant with Centrais Elétricas de Santa Catarina S.A. (“CELESC”(‘CELESC’) in the principal case (“(‘Ordinary Action”Action’), resulting in CEMIG D being able to present petitions and appeals in that action if necessary. A Special Appeal was filed against the decision allowing for CEMIG D’s joinder before the STJ, which awaits judgment. This appeal does not prevent CEMIG GT from acting in the case to which it was admitted. Judgment at first instance was given against said Ordinary Action, and AES filed an appeal, which was granted. The Appeal Court Judgment on the appeal was the subject of a Motion for Clarification by CEMIG GT, on which judgment was given (cognizance taken, and appeal granted in part as to confirmation that only ANEEL should bear the costs of loser’s fees). As to the merits of the question, an appeal was lodged (againstnon-unanimous decision by an appellate court), which awaits judgment.On December 31, 2018,2020, the amount involved in the action was R$317376 million, and the chancesprobability of loss were assessed as possible‘possible’ since there is still the possibility of the second instance decision being modified in the appeals that are currently awaiting judgment.

CEMIG GTCompany and its subsidiaries are represented by the Brazilian Independent Energy Producers Association (Associação Brasileira dos Produtores Independentes de Energia Elétrica, or “APINE”)involved in a legal actionnumerous administrative and judicial proceedings, challenging, principally: (i) tariff charges in which APINE seeks a declaration of nullity of Articles 2 and 3 of CNPE Resolution No. 3, enacted on March 6, 2013, which states, in summary, that the ONS shall have the power, in addition to what is indicated by the computer programs, to dispatch energy resources or change the direction of exchange betweensub-markets, and that the costinvoices for use of the additional dispatch will be prorated between alldistribution system by a self-producer; (ii) alleged violation of targets for continuity indicators in retail supply of energy; and (iii) the agentstariff increase made during the federal government’s economic stabilization plan referred to as the ‘Cruzado Plan’, in 1986. The aggregate amount of the market, in proportion to the energy traded. The ability to make such rulings represents impositioncontingency is approximately R$293 million (R$280 million at December 31, 2019), of a burden on the Generating Agents of the market, which led them, through their associations, including APINE, to question the legality of this Resolution in the Courts. The Plaintiff’s request was granted by the trial court, with interim decision in favor of members of APINE, including CEMIG GT and its subsidiaries. This decisionR$52 million (R$36 million at December 31, 2019) has been challenged distributed to the 7th Panel of the Regional Federal Court (Tribunal Regional Federal, or “TRF”) of the 1st Region, which unanimously rejected it. The Federal Government filed a motion for clarification, which was denied. On January 16, 2017, the Federal Government filed a Special Appeal, which was denied. The updated amount of this claim for CEMIG GT and its subsidiaries on December 31, 2018, was approximately R$225 million, and the chances of loss were assessedrecorded as ‘possible,’ in view of the unprecedented nature of the subject matter.

The CEMIG D received infringement notices from ANEEL for allegednon-compliance regarding the calculation of the service outage indicators DEC (duration) and FEC (frequency) for the year ended December 31, 2016 and December 31, 2017. The infringement notices requires CEMIG to recalculate the two indicators and assesses a fine of R$28.2 million. The Company filed a defense, in both cases, that have not yet been definitively judged in the administrative scope. On December 31, 2018,provision – the amount involved inestimated as probably necessary for settlement of these administrative proceedings was R$ 28.2 million and the chances of loss have been established as possible.disputes.

Tariff Increases

The Federal Public Attorneys’ Office filed a class action against CEMIG D and ANEEL, to avoid exclusion of customers from classification in theLow-income Residential TariffSub-category, and also requesting an order for CEMIG D to pay 200% of the amount allegedly paid in excess by customers in thatsub-category. Judgment at first instance was given in favor of the Federal Public Attorneys, and CEMIG D and ANEEL have filed an appeal with TRF. A decision by the Court in this case has been pending since March 2008. As of December 31, 20182020 the amount involved in this case was approximately R$303357 million The chance of loss has been classified as ‘possible’ due to the existence of other judgments, both in the judiciary and in the administrative sphere, that are in favor of the argument put forward by CEMIG D.

Tax and Similar Charges

CEMIG and its subsidiaries, especially CEMIG GT and CEMIG D, are parties in several administrative and judicialtax-related proceedings concerning the imposition of state sales tax (Imposto Sobre a Circulação de Mercadorias e Serviços, or “ICMS”), rural real estate ownership tax (Imposto Sobre a Propriedade Territorial Rural, or “ITR”), the Contribution for Social Integration (Programa de Integração Social, or “PIS”), Pasep and Cofins (which are taxes on gross sales revenue), the social contribution tax on net income (Contribuição Social Sobre o Lucro Líquido, or “CSLL”), and federal corporate income tax (Imposto de Renda da Pessoa Jurídica, or “IRPJ”), among others. The principal contingencies are set out below.

CEMIG, CEMIG GT and CEMIG D are parties in various legal actions disputing the applicability of the Urban Land Tax (Imposto(Imposto Territorial Urbano, or “IPTU”‘IPTU’), on realReal estate properties designed for public service concessions. This is a matter on which case law has not been established by the higher courts. There is an Extraordinary Appeal awaiting judgment by the Federal Supreme Court which, because it will give rise to a global precedent, will be applied to the other legal actions involving the same question.As of December 31, 20182020 the amount involved in these actions was approximately R$142 million. The amounts for which chancesprobability of loss were assessed as ‘probable’ totaled approximately R$54 million and the proceedings in which the chancesprobability of loss were assessed ‘possible’ totaled approximately R$ 13781 million.

In 2006, CEMIG, CEMIG GT and CEMIG D advanced funds to some of their employees in exchange for their rights to future payments, referred to as the “‘Anuênio.”’ No income tax or social security contributions were collected in connection with those payments, since it is our opinion that they are not applicable The Brazilian Federal Revenue Service, however, initiated an administrative proceeding seeking to levy taxes on such payments. In order to avoid the risk of imposition of penalties, we filed two writs for mandamus, which were decided unfavorably to us in the lower court. We have appealed and are awaiting the ruling of the Court of Appeals on whether the income tax is applicable. Regarding the social security contributions, the TRF ruled against us. We appealed to the Superior Courts, which have not yet rendered a decision. On December 31, 2018,2020, the amount involved in these actions was, approximately, R$304295 million, and we have assessed the chance of loss as possible,‘possible’, in view of the indemnity nature of the advance payments made to the employees and the absence of specific case law in STJ and the TRF of the First Region. We emphasize that, in relation to Income Tax, both the STJ and the TRF of the First Region adopt the position that there is no tax levied on payments arising from the suppression of employees’ collective bargaining rights when agreed through a collective agreement, since such amounts are considered as being of an indemnity nature.

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INSS initiated an administrative proceeding against CEMIG in 2006 allegingnon-payment of the social security contribution on the amounts paid to our employees and directors as profit-sharing in the period 1998 to 2004. In 2007, we filed a writ of mandamus seeking declaration that such profit-sharing payments were not subject to social security contributions. We received a partial favorable decision in 2008, which declarednon-applicability of the contribution of social security on the profit-sharing amounts paid for employees, and its applicability on the profit-sharing amounts paid to directors. We have appealed the decision and, are waiting foron August 23, 2019, the upper courtTRF of the 1st Region issued a ruling giving partial approval to decide.declare the decay of tax credits related to taxable events that occurred up to August 2001, but denying the other requests. As a result of that decision, on December 31, 2018,2020, the amount involved in this action was assessed as approximately R$ 200139 million, and we have assessed the chance of loss as possible, based on the result of judgments of the Administrative Tax Appeals Committee (Conselho Administrativo de Recursos Fiscais, or “CARF”), on similar cases.‘probable’.

The Brazilian Federal Tax Authority ((‘Secretaria da Receita Federal’) has brought, in addition to the process mentioned above, other administrative proceedings against CEMIG, CEMIG GT, CEMIG D and Rosal Energia S.A., in relation to Social Security contributions under various headings: employee profit sharing, the Workers’ Food Program (Programa de Alimentação do Trabalhador, or “PAT”‘PAT’), the education support contribution ((‘auxílio-educação’),time-of-service bonuses, Special Additional Retirement payments, taxes under suspended enforcement, overtime payments, hazardous occupation payments, matters related to Sest/Senat (transport workers’ support programs), donations, sponsorships, and fines fornon-compliance with accessory obligations. We have presented defenses and wait for judgment. As of December 31, 2018,2020, the amount involved in these actions was approximately R$ 1.221.5 billion. TheAs a result of the decision by the TRF of the 1st Region mentioned above, the amounts for which chancesprobability of loss were assessed as ‘probable’ totaled approximately R$0.4 million1.137 billion and the proceedings in which the chancesprobability of loss were assessed ‘possible’ totaled approximately R$ 1.219 billion. This amount will be reduced as a result of final decisions won by CEMIG GT in 2017 in administrative proceedings relating to employees’ and management’s profit shares for 2005 and 2006; but the decision on the amount of the reduction still depends on calculation by the Federal Tax Authority of the tax credit remaining in these specific proceedings.354 million.

CEMIG, CEMIG GT, CEMIG D and Sá Carvalho S.A. are parties in administrative proceedings in relation to Corporate Income Tax (“IRPJ”(‘IRPJ’) and the Social Contribution on Net income (“CSLL”(‘CSLL’). As of December 31, 2018,2020, the amount involved in these actions were assessed as approximately R$350425 million, and the chancesprobability of loss assessed as ‘possible’. The infringement notices for the Social Contribution (CSLL) tax are due in particular to the companies having excluded, from their declared basis of calculation for this tax, amounts relating to: (i) cultural and artistic donations and sponsorship; (ii) payments of punitive fines; (iii) taxes with liability suspended; and (iv) expenses on amortization of goodwill, since there is no provision in law that supports taxation of amounts reported under this heading. The infringement notices for corporate income tax are due to the fact that when calculating the Real Profit the companies considered as expenses the amounts spent on technological innovation, under Law 11196/11,196/05. The Trade and Industry Ministry (MCTI)(‘MCTI’), which initially, due to lack of information, had not recognized this legal categorization of these amounts, is reviewing its legal opinions now that it is in possession of the information sent by the companies.

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The Federal Tax Authority issued an infringement notice on Parati – Participações em Ativos de Energia Elétrica (Parati)(‘Parati’), a CEMIG affiliated company, and as a jointly responsible party, on CEMIG, in relation to the Withholding Income Tax (Imposto(Imposto de Renda Retido na Fonte, or “IRRF”‘IRRF’) allegedly applicable to capital gains arising from the disposal of assets or rights in Brazil by anon-resident, on the basis of allegedly being the legal entity responsible for the withholding and payment of the tax. The transaction in question was in regards to the purchase by Parati, and sale by Enlighted, on July 7, 2011, of a 100% interest in Lepsa LLC (a company headquartered in Delaware, USA). Lepsa LLC was also the owner of 75% of the quotas of Luce Brasil Fundo de Investimento em Participações (“(‘FIP Luce”Luce’), which in turn was the indirect holder, through Luce Empreendimentos e Participações S.A., of approximately 13.03% of the total and voting share of Light (Light, which has only issued common shares). After certain transactions, Parati became the direct holder of 100% of the shares of Luce Empreendimentos e Participações S.A. (LEPSA), which in turn was the holder of approximately 13.03% of the voting share and total share capital of Light. Subsequently, the totalspin-off ofAfter successive corporate transactions, Parati was completed,merged into CEMIG and, that company was succeeded, 50% by LEPSA and 50% by RME. FIP Luce was liquidated on December 6, 2012 and Lepsa LLC on May 18, 2012.consequently, succeed its position in this process. On May 2, 2016, the Delegated Judgment office of the Federal Tax Authority decided on the challenge presented by Parati and CEMIG: it maintained the posting of the tax credit against Parati, and in relation to CEMIG, it upheld the principle of joint liability. The companies then appealed, and the Voluntary Appeal is pending judgment by CARF. As of December 31, 2018,2020, the amount claimed in this case totaled approximately R$221234 million and the chance of loss was assessed as ‘possible’, mainly due to the matters of fact: (i) On the question of joint responsibility, CEMIG is merely an affiliated entity, because it had assigned its contractual rights to Parati; (ii) on the question of simulation, the situation in this specific case is more favorable than that in the precedents that are found in the case law. If the allegation of simulation is overturned, we believe that there will be no legal case for the demand for payment; (iii)(ii) on the merits,merit, because this is a very specific transaction, there are no similar precedents; and (iv)(iii) with regards to the fine, the same arguments hold as to the singular nature of this specific case.

CEMIG and its wholly-owned subsidiaries, especially CEMIG GT and CEMIG D, are parties in various court and administrative proceedings dealing with offsetting of credits arising from tax losses in corporate income tax returns, and also payments made in excess, identified by Federal Revenue Payment or Credit Receipts, involving corporate income tax, the Social Contribution on net income and the PIS and Cofins taxes. The companies are contesting thenon-ratification by the authorities of these offsettings,offsetting, and attempts by the federal tax authorities to recover the amounts of these taxes to be compensated. In February 2016, the Delegated Judgment Office of the Brazilian Federal Tax Authority served notice on CEMIG GT and CEMIG D of judgments which that Office had given partially in favor of the impugnments presented, approving and ratifying the greater part of the offsetting requested by the companies in two proceedings that involve significant amounts, reducing the amount in dispute in the administrative sphere. In 2017, certain lawsuits on the matter involving high amounts were terminated with a decision in favor of the companies, reducing the amount under dispute in the administrative sphere. On December 31, 20182020, the amount involved in these proceedings wasfor which the probability of loss were assessed ‘possible’ totaled approximately R$146 million203 million.

CEMIG and its subsidiaries are involved in numerous administrative and judicial claims actions relating to taxes, including, among other matters, subjects relating to the chance of loss inRural Property Tax (‘ITR’); the case was assessed as ‘possible’.

The Company is a party in one judicial proceeding involving requests for restitutionTax on Donations and offsetting of credits arising fromLegacies (‘ITCD’); the Social Integration Program (Programa de Integração Social, or ‘PIS’); the Contribution to Finance Social Security (Contribuição para o Financiamento da Seguridade Social, or ‘Cofins’); Corporate Income tax carryforward balances indicated in(‘Imposto de Renda Pessoa Jurídica’, or ‘IRPJ’); the Social Contribution (‘Contribuição Social sobre o Lucro Líquido’, or ‘CSLL’); and motions to tax returns, and also for excess payments identified by the corresponding tax payment receipts for the calendar years from 1997 to 2000. On November 20, 2014, judgment was given at first instance in favor of the Company, annulling the debits charged by the federal tax authority, and in April 2016, at the second instance (appeal), the Regional Federal Appeal Court of the First Region confirmed the decision in favor of CEMIG. In March 16, 2018 this case was definitively judgment in Cemig’s favor.enforcement. As of December 31, 2017,2020, the amount involved in this actionthese actions for which probability of loss were assessed as ‘probable’ totaled approximately R$14 million and the proceedings in which the probability of loss were assessed ‘possible’ totaled approximately R$152 million.

ICMS (local state value added tax)

From December 2019 to November 2020 the Tax Authority of Minas Gerais State issued infraction notices against the subsidiary Gasmig, in the total amount of R$55 million, relating to reduction of the calculation base of ICMS tax in the sale of natural gas to its customers over the period from December 2014 to December 2016, alleging a divergence between the form of calculation used by Gasmig and the opinion of that tax authority. The claims comprises: principal of R$17 million, penalty payments of R$27 million and interest of R$11 million.

Considering that the State of Minas Gerais, over a period of more than 25 years, has never made any allegations against the methodology of calculation by the Company, the managers, together with their legal advisers, believe that there is a defense under Article 100, III of the National Tax Code, which removes claims for penalties and interest; and that the contingency for loss related to these amounts is ‘remote’. In relation to the argument on the difference between the amount of ICMS tax calculated by Gasmig and the new interpretation by the state tax authority, the probability of loss was approximatelyconsidered ‘possible’. On December 31, 2020 the amount of the contingency for the period relating to the rules on expiry by limitation of time is R$576107 million.

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Contracts

CEMIG D is a party in court disputes involving claims for rebalancing of contracts to implement part of the rural electrification program known asLuz Para Todos(“‘Light for All”All’). As of December 31, 2018,2020, the amount involved in these actions was approximately R$ 291356 million. The chancesamounts for which probability of loss in these actions have beenwere assessed as ‘probable’ totaled approximately R$1 million and the proceedings in which the probability of loss were assessed ‘possible’. totaled approximately R$355 million.

CEMIG and the State of Minas Gerais are parties in an administrative proceeding filed by the Audit Court of the State of Minas Gerais (“TCMG”(‘TCMG’), on a representation of supposed irregularities in the manner used for application of arrears interest, and in the percentage of discount given, at the time of the settlement of the debt owed by the State of Minas Gerais to CEMIG in relation to the Contract for Assignment of the Outstanding Balance Receivable on the Earnings Compensation Account (“CRC”(‘CRC’). In June 2018, the Court’s Technical Unit and the Public Attorneys’ Accounting Department gave opinions, against the Representation. The principal arguments presented by CemigCEMIG were accepted. Proceedings in the case before the Reporting Member of the Court have been completed, and will be included in a judgment agenda for decision by the full Court sitting in session. As of December 31, 2018,2020, the amount involved in this action was approximately R$412448 million, and the chancesprobability of loss in the action were assessed as ‘possible’.

Employment Law Obligations

CEMIG, CEMIG GT and CEMIG D are parties in various labor claims filed by their employees and by employees of companies that provide them with services. Most of these claims relate to overtime and additional pay, severance payments, various benefits, salary adjustments and the effects of such matters on a supplementary retirement plan, and the use of outsourced labor. Under Brazilian employment laws, claimants must file claims for any unpaid amounts to which they are entitled within two years from the relevant termination of the employment contract, and such rights are limited to a period of five years prior to the filing of the claim. On December 31, 20182020, the value of the claims for which the chancesprobability of loss had been assessed as ‘probable’ was approximately R$457427 million; for those with chancesprobability of loss assessed as ‘possible’ the amount was R$1.3 billion.959 million.

Alteration of the monetary updating index of labor claims

The Higher Labor Appeal Court (Tribunal Superior do Trabalho, or ‘TST’), considering a position adopted by the Federal Supreme Court (Supremo Tribunal Federal, ‘STF’) in two actions on constitutionality that dealt with the index for monetary updating of federal debts, decided on August 4, 2015 that labor claims not yet decided that discuss debts subsequent to June 30, 2009 should be updated based on the variation of the IPCA-E (‘Expanded National Customer Price’) Index, rather than of the TR reference interest rate. On October 16, 2015, an interim injunction was given by the STF that suspended the effects of the TST decision, on the grounds that decisions on matters of general constitutional importance should be decided exclusively by the STF. In a public joint judgment of November 1, 2018, the Higher Employment Appeal Court decided that the IPCA-E should be adopted as the index for inflation adjustment of employment-law debts for cases proceedings filed from March 25, 2015 to November 10, 2017 and the TR continue to be used for the other periods.

However, in December 2020, the Federal Supreme Court, aiming to end the discussion around the topic involving the updating index of labor claims, gave partial judgment in favor of two actions for declaration of constitutionality, deciding for the unconstitutionality of Reference Rate (TR) and ruled that monetary adjustment applied to employment-law liabilities should be by the IPCA-E index until the stage of service of notice in a legal action, and thereafter by application of the Selic rate,. The effects of this decision were modulated as follows: (a) payments already made in due time and in the appropriate manner, using application of the TR, the IPCA-E or any other indexer, will remain valid and may not be the subject of any further contestation; (b) actions in progress that are at the discovery phase, should be subject to backdated application of the Selic rate, on penalty of future allegation of non-demandability of judicial title based on an interpretation contrary to the position of the Supreme Court; and; (c) the decision is automatically applicable to actions in which final judgment has been given against which there is no appeal, provided that there is no express submission in relation to the monetary adjustment indices and interest rates; and this also applies to cases of express omission, or simple consideration of following the legal criteria.

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Environmental Issues

The Public Attorneys’ Office of the State of Minas Gerais and other parties, have brought civil public actions against CEMIG, CEMIG GT and CEMIG D requiring them to invest at least 0.5% of their annual operating revenue since 1997 in environmental protection and preservation of the water tables of the municipalities where hydroelectricalhydro electrical plants are located, and to indemnify the State of Minas Gerais, proportionately, for environmental damage allegedly caused, arising from omission to comply with Minas Gerais State Law No.°12,503/97. Partial judgment has been given in favor of the plaintiffs in four of these actions by the Minas Gerais State Court of Appeals, ordering CEMIG and CEMIG GT to invest 0.5% of gross annual revenue since 1997 in measures for preservation and protection of the water tables. The Companies have filed appeals with the STJ and with the STF, since the actions involve federal laws and constitutional matters. On February 9, 2015, the STF recognized the general repercussion of the dispute. In May / 2020, the virtual trial by the STF was concluded, which, by majority, considering theme 774 of general repercussion, granted the extraordinary appeal, considering the unconstitutionality of State Law No. 12,503 / 1997, as it constituted an undue State intervention in the contract of concession of the exploitation of the energy use of water courses, an activity of the Union's competence, according to art. 21, XII, ‘b’, of the Federal Constitution. As of December 31, 2018,2020, the amount involved in these actions was approximately R$148186 million, and the chancesprobability of loss were assessed as ‘possible’‘remote’.

Additionally, CEMIG, CEMIG GT and CEMIG D are party to a number of other administrative and judicial proceedings and claims involving environmental matters, regarding certain protected areas, environmental licenses and remediation of environmental damages, among others. As of December 31, 20182020, the amount for which chance of loss was assessed as ‘probable’ was approximately R$1.3 million131.4 thousand and the total of proceedings in which chancesprobability of loss were assessed as ‘possible’ was approximately R$101165 million. These proceedings also include other public civil actions in which the amounts involved cannot be precisely assessed, in our view, since most of these lawsuits are related to alleged environmental damages and claim indemnity, remediation of damaged areas and compensation measures that will be defined in the course of the proceedings, by expert verification of the amounts involved. Also, since public civil lawsuits are related to collective rights, individual actions may be filed seeking reparations or damages arising from judicial decisions to be issued under the public civil actions.

Property and Liability

CEMIG, CEMIG GT and CEMIG D are party in several legal proceedings, mainly as defendant, relating to realReal property and to indemnity arising from accidents taking place in the ordinary course of the business. On December 31, 20182020 the amount for which chancesprobability of loss were assessed as ‘probable’ was approximately R$3741 million and the total of proceedings in which chancesprobability of losses were assessed as ‘possible’ was approximately R$345 million.

448million.

Alteration of the monetary updating index of labor claims

The Higher Labor Appeal Court (Tribunal Superior do Trabalho,Other proceedings

Company and its subsidiaries are involved as plaintiff or TST), consideringdefendant, in other less significant claims, related to the normal course of their operations including: provision of cleaning service in power line pathways and firebreaks, indemnities for rescission of contracts, on a position adopted by the Federal Supreme Court (Supremo Tribunal Federal, STF) in two actions on constitutionality that dealt with the index for monetary updating of federal debts, decided on August 4, 2015 that labor claims not yet decided that discuss debts subsequent to June 30, 2009 should be updated based on the variation of theIPCA-E (Expanded National Customer Price) Index, rather than of the TR reference interest rate. On October 16, 2015 an interim injunction was given by the STF that suspended the effects of the TST decision, on the grounds that decisions on matters of general constitutional importance should be decided exclusively by the STF.

In a public joint judgment of November 1, 2018, the Higher Employment Appeal Court decided that theIPCA-E should be adopted as the index for inflation adjustment ofemployment-law debts for cases proceedings filed from March 25, 2015 to November 10, 2017,lesser scale, and the TR continue to be used for the other periods. This results in a reduction of the estimated value of the difference between the inflation adjustment indices foremployment-law cases proceedings, which is R$88 million as of December 31, 2018 (R$220 million on December 31, 2017). No additional provision has been made, since The Company, based on the assessment by its legal advisers, has assessed the chances of loss in the action as ‘possible’,disputes alleging losses suffered as a result of supposed breaches of contract at the decision bytime of provision of services of cleaning of power line pathways and firebreaks. As of December 31, 2020, the STF,amount involved in these actions for which probability of loss were assessed as ‘possible’ totaled approximately R$591 million and the proceedings in which the probability of there being no established case law, nor analysis by legal writers onloss were assessed ‘probable’ totaled approximately R$54 million.

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Customer’s claims

Company and its subsidiaries are involved in various civil actions relating to indemnity for moral injury and for material damages, arising, principally, from allegations of irregularity in measurement of consumption, and claims of undue charging, in the subject afternormal course of business. As of December 31, 2020, the injunction given byamount involved in these actions for which probability of loss were assessed as ‘possible’ totaled approximately R$119 million and the Federal Supreme Court.proceedings in which the probability of loss were assessed ‘probable’ totaled approximately R$22 million.

Renova: Application to override corporate identity

A Receivables Investment Fund (Fundo de Investimento em Direitos Creditórios – FIDC) filed an application for Override of Legal Identity (Incidente de Desconsideração da Personalidade Jurídica – IDPJ) in relation to certain companies of the Renova group, aiming to include some shareholders of Renova, including the Company and its subsidiary CEMIG GT, as defendants jointly and severally liable. The amount involved in this dispute is estimated at R$76 million at December 31, 2020. The probability of loss have been assessed as ‘possible’.

Dividend Policy and Payments

Mandatory Dividend—Priority and Amount of Dividends

Under ourby-laws, we are required to pay to our shareholders, as mandatory dividends, 50% of the net income of each fiscal year ending December 31, determined in accordance with Law No. 6,404, enacted on December 15, 1976, or “Brazilian‘Brazilian Corporate Law”Law’. Our preferred shares have priority in the allocation of the minimum mandatory dividend for the period in question. The order of priority of the dividend distribution is as follows:

The annual minimum dividend for the preferred shares: these have preference in the event of repurchase of shares, and have an annual minimum dividend equal to the greater of the following:

·10% of their par value; or
·3% of the shareholders’ equity associated with it;
·The dividends on the common shares, up to the minimum percentage for the preferred shares.

 

10% of their par value; or

3% of the shareholders’ equity associated with it.

The dividends on the common shares, up to the minimum percentage for the preferred shares.

In the General Shareholders’ Meeting held on April 30, 2015 and on April 29, 2016, our Board of Directors indicated that the payment of a dividend calculated on the basis of 50% of the net income for the years ended in 2014 and 2015, as specified in theby-laws would not be compatible with the Company’s current financial situation. As a result, the General Meeting of Shareholders approved the payment of dividends corresponding to 25% of our net income for the years ended in 2014 and 2015. The amount not distributed as a mandatory dividend, calculated as the difference between 50% of net income as specified in our bylaws and the amount paid equal to 25% of our net income for the years ended in 2014 and 2015, will be held in Shareholders’ equity in the reserve for mandatory dividends not distributed, to be paid as soon as our financial situation so permits, in accordance with Paragraph 5 of Article 202 of Law 6,404/1976.

The Annual General Meeting of Shareholders held on May 12, 2017 approved payment of dividends for the business year 2016, of R$204 million, to holders of preferred shares, this amount being below the mandatory minimum specified by theby-laws, of R$419 million. On December 21, 2016, the Company declared payment of Interest on Capital (Juros sobre Capital Próprio, or JCP) in the amount of R$380 million, using the balance of the Retained Earnings Reserve, and payable to shareholders whose names were on the Company’s Nominal Share Registry on December 26, 2016. Of this amount of Interest on Capital, the amount of R$215 million, net of income tax, was allocated to the holders of the preferred shares.Sub-item III of CVM Decision 683/2012 specifies that Interest on Capital paid or credited may be imputed against the minimum mandatory dividend only at its value net of withholding income tax. Any amount remaining after the payment of the mandatory dividend on common share must be distributed on an equal,pro rata basis with respect to all preferred shares and common shares.

The Annual General Meeting of Shareholders held on April 30, 2018 approved payment of dividends for the year 2017, of R$486 million, to holders of preferred shares and R$15 million to holders of common shares. The payment of dividends was made in a single tranche on December 30, 2018.

On December 18, 2018, the Company declared payment of Interest on Capital in the amount of R$210 million, on account of the amount of the minimum mandatory dividend for 2018, and payable to shareholders whose names were on the Company’s Nominal Share Registry on December 21, 2018. This amount will bewas paid in two installments, the first byon June 28, 2019 and the second byon December 30,27, 2019. The Board of Directors proposed to the Annual General Meeting to be(AGM) held on May 3, 2019 the payment of dividends for the year 2018 of R$437 million, to holders of preferred shares and R$220 million to holders of common shares. The payment of dividends will bewas made in a single tranche on December 27, 2019.

On December 18, 2019, the Company declared payment of Interest on Capital in the amount of R$400 million, on account of the amount of the minimum mandatory dividend for 2019, and payable to shareholders whose names were on the Company’s Nominal Share Registry on December 23, 2019. This amount will be paid in two installments, the first by June 30, 2020 and the second by December 30, 2019.2020. The Board of Directors decided to propose to the Annual General Meeting (AGM) to be held on July 31, 2020 the payment of dividends for the year 2019 of R$364 million, to holders whose names are in the Company´s Nominal Share Registry on the date of the AGM. The payment of dividends was made in a single tranche on December 30, 2020.

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On September 22 and December 23, 2020, the Company declared payment of Interest on Capital in the amount of R$553 million, on account of the amount of the minimum mandatory dividend for 2020, and payable to shareholders whose names were on the Company’s Nominal Share Registry on September 22 and December 30, 2020. This amount will be paid in two installments, the first by June 30, 2021 and the second by December 30, 2021. The Board of Directors decided to propose to the Annual General Meeting (AGM) to be held on April 30, 2021. The payment of dividends for the year 2020 of R$929 million, to holders whose names are in the Company´s Nominal Share Registry on the date of the AGM. The payment of dividends will be paid in two installments, the first by June 30, 2021 and the second by December 30, 2021.

Unrealized profit reserve: Article 197 of the Brazilian corporate law nº 6,404/76 allows the Company to pay the mandatory dividend, calculated as required by the Bylaws, up to the amounts of the realized portion of the net income for the year (received in cash). The excess between such mandatory dividend amount and the dividends that will be actually paid was recorded in the ‘Unrealized profit reserve’.

In 2020, Company presented a positive net share of profit of subsidiaries, jointly controlled entities and affiliates of R$2,704 million, which can be regarded as unrealized portion of net income for the year, in accordance with the Brazilian corporate law. The share of profit of subsidiaries and joint ventures might not be realized in 2021, which means it might not be converted into cash, considering the macro-economic scenario and the fact that the impacts of Covid-19 – coronavirus on investees’ cash flows and financial results may continue in 2021.

In light of the realized profit for the year, as stated above, Management proposed the constitution of unrealized profit reserve will be maintained with a balance in the amount of R$835 million, considering the reversal of the reserve constituted in 2019 and the new constitution of the same amount in 2020.

The unrealized profit reserve amounts can only be used to pay mandatory dividends. Hence, when the Company realizes such profits in cash, it must distribute the corresponding dividend in the subsequent period, after offsetting of any losses in subsequent years.

Without prejudice to the mandatory dividend, every two years, or shorter period if the Company’s cash position permits, we distribute extraordinary dividends, up to the limit of the cash available, as determined by the Board of Directors, under the Company’s Strategic Guidelines Plan and the dividend policy specified in that plan.

The annual dividends declared shall be paid in two equal installments, the first by June 30 and the second by December 30 of each year. Extraordinary dividends shall be paid as decided by the Board of Directors, according to the same deadline.

Under Brazilian Corporate Law, the Board of Directors may declare interim dividends, in the form of interest on capital, to be paid from retained earnings, accumulated reserves or profit reported in semi-annual or quarterly financial statements. Any interim dividend paid may be set off against the amount of the mandatory dividend payable for the fiscal year in which the interim dividend was paid.

In the fiscal years in which we do not have sufficient profit to pay dividends to our preferred and common shareholders, the State of Minas Gerais guarantees a minimum dividend of 6% of the par value of the preferred or common shares, respectively, per year to all shares of the Company issued until August 5, 2004 and held by individuals.

Amounts Available for Distribution

The amount available for distribution is calculated on the basis of the financial statements prepared in accordance with generally accepted accounting practices adopted in Brazil and the procedures described below.

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The mandatory dividend is calculated on the basis ofadjusted net income, defined as net income after taking onto account: (a) amounts allocated to the legal reserve, (b) amounts allocated to record contingency reserves and reversal of these reserves accumulated in prior fiscal years, and (c) any unrealized profit transferred to the unrealized profitunrealizedprofit reserve account, and any amounts previously posted to this reserve account which have been realized in the fiscal year and used to offset losses.

We are obligated to maintain a legal reserve of 5% of the net income of each fiscal year until it reaches 20% of the Company’s social capital according to Article 193 of Brazilian Corporate Law. However, we are not obligated to make any allocation to the legal reserve in relation to any fiscal year in which the sum of the legal reserve and the other established capital reserves exceeds 30% of the Company’s totalpaid-in capital. Any loss for the year may be charged against the legal reserve.

Under Brazilian Corporate Law, profits of subsidiaries or affiliates are accounted by the equity method and income from term sales, realizable after the end of the next fiscal year, are accounted for as unrealized profit.

The total of income reserves (with the exception of the reserve for contingencies relating to expected losses, tax benefits and the unrealized profit reserve), the legal reserve, the special reserves, the reserve for investment projects, and retained earnings may not be greater than the Company’s registered capital. The amount in excess of our registered capital must be used to increase our registered capital or be distributed as cash dividends.

Under Brazilian Corporate Law and theby-laws of the Company, dividends not claimed within three years of the date on which they are distributed revert to the Company.

Interest on CapitalEquity

Brazilian corporations are permitted to distribute dividends in the form of a tax deductibletax-deductible notional interest expense on shareholders’ equity in accordance with Law No. 9,249/1995 of December 26, 1995, as amended. The amount of tax deductibletax-deductible interest that may be paid is calculated by applying the daily pro rata variation of the TJLP on the shareholders’ equity during the relevant period and cannot exceed the greater of:

·50.0% of net income (before taking into account such distribution and any deductions for income taxes and after taking into account any deductions for social contributions on net income) for the period in respect of which the payment is made; or
·50.0% of earnings reserves and retained earnings.

 

50.0% of net income (before taking into account such distribution and any deductions for income taxes and after taking into account any deductions for social contributions on net income) for the period in respect of which the payment is made; or

50.0% of earnings reserves and retained earnings.

Non-residents shareholders must register with the Central Bank so that the foreign currency proceeds of their dividend, Interest on Capital payments, or of sale or other amounts relating to their shares, may be remitted to them outside Brazil. The preferred shares underlying our Preferred ADSs and the common shares underlying our Common ADSs are held in Brazil by the custodian bank, as agent for the depositary bank, which is the registered owner of the shares.

Dividends and interest on shareholders’ equity over the minimum established in a Company’sby-laws are recognized when approved by the shareholders in the general meeting.

Currency Exchange

Payments of cash dividends and distributions, if any, will be made inreaisReais to the custodian on behalf of the depositary bank, which will then convert such proceeds into U.S. dollars and transfer such U.S. dollars to the depositary bank for distribution to holders of ADRs. In the event that the custodian is unable to immediately convert thereaisReais received as dividends into U.S. dollars, the amount of U.S. dollars payable to the holders of ADRs may be adversely affected by devaluations of therealReal that occur before such dividends are converted and remitted. TherealReal depreciated approximately 17.16%22.61% in comparison to the U.S. dollar in 2018.2020. See “Item 3, Key Information—Risk Factors—Risks Relating to Brazil— The Federal Government exercises significant influence on the Brazilian economy, Political and economic conditions can have a direct impact on our business.”business”.

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Dividends in respect of the preferred shares and common shares paid tonon-resident holders, including holders of Preferred ADSs and Common ADSs, are generally not subject to Brazilian withholding tax, although in general payments of interest on capital are subject to withholding tax. See “Item 10, Additional Information—Taxation—Information - Taxation - Brazilian Tax Considerations—Considerations - Taxation of Dividends”Dividends’ and “—‘- U.S. Tax Considerations—Considerations - Taxation of Distributions.” There is no specific record date upon which the depositary bank will determine the exchange rate to be used in connection with converting cash dividends or other cash distributions. Pursuant to the Deposit Agreements, the depositary bank will arrange for the funds to be converted into U.S. dollars upon receipt of notice of cash dividends or other cash distributions.

History of Dividend Payments

The table below gives the history of recent declarations of dividends and Interest on Capital to holders of our common and preferred shares. In each case, the payment takes place in the year following the year for the results of which the dividend was declared. Please seeSee the section “Item 3 – Material information – Selected Consolidated Financial Information”.

Declaration History of Dividends and Interest on Capital (1)

Dividend Year

  Common Shares   Preferred Shares 
   (in millions R$)(2)   (in millions US$)(3)   (in millions R$)(2)   (in millions US$)(3) 

2016(4)

   127    39    253    78 

2016(5)

   —      —      204    63 

2017(6)

   15    5    486    147 

2018(7)

   290    75    577    149 

Dividend Year

Common Shares

Preferred Shares

 

(in millions R$) (2)

( in millions US$) (3)

(in millions R$) (2)

(in millions US$) (3)

2018 (4)29075577149
2019 (5)2554950999
2020 (6)49688986176
(1)

Under Brazilian accounting practices, dividends and Interest on Capital are accounted in the business year in which the income from which the dividends are declared, provided that they are previously approved.

approved;
(2)

Amounts expressed inreaisReais are expressed in nominal reaisReais.

;
(3)

The amounts in USD displayed above are for illustrative purposes only and were calculated by dividing the amount of dividends and interest on capital paid, expressed in nominalreaisReais, by the exchange rate obtained from the Federal Reserve Board’s website on respective “record dates”‘record dates’; for 2018—2020 - as of April 05, 2019

16, 2021;
(4)

According to the proposal of the Ordinary and Extraordinary General Meetings of Shareholders held on May 12, 2017, the Company declared payment of Interest on Capital in a total of R$ 380 million, of which R$127 million to the common shares and R$253 million to the preferred shares using the balance of the Retained Earnings Reserve payable to shareholders whose names were on the Nominal Share Registry on December 26, 2016. The amount declared to the preferred shares was on account of the minimum mandatory dividend for 2016.

(5)

The dividends for 2016 refer to the amounts that were approved at the proposal of the Ordinary and Extraordinary General Meetings of Shareholders held on May 12, 2017.

(6)

According to the Ordinary and Extraordinary General Meetings of Shareholders held on April 30, 2018, the Company declared payment of R$486 million as mandatory minimum dividend to holders of preferred shares whose names are on the Company’s Nominal Share registry on the date on which the Ordinary (Annual) General Meeting is held. The Company also proposed payment of R$ 15 million as the mandatory minimum dividend to holders of common shares whose names are on the Company’s Nominal Share registry on the date on which the Ordinary (Annual) General Meeting is held.

(7)

On December 18, 2018, the Company declared payment of Interest on Capital in the amount of R$210 million, on account of the amount of the minimum mandatory dividend for 2018, and payable to shareholders whose names were on the Company’s Nominal Share Registry on December 21, 2018. This amount will be paid in two installments, the first by June 28, 2019 and the second by December 30, 2019.According to the proposal of the Ordinary and Extraordinary General Meetings of Shareholders to be held on May 3, 2019, the Company proposed payment of R$437 million as mandatory minimum dividend to holders of preferred shares whose names are on the Company’s Nominal Share registry on the date on which the Ordinary (Annual) General Meeting is held. The Company also proposed payment of R$220 million as the mandatory minimum dividend to holders of common shares whose names are on the Company’s Nominal Share registry on the date on which the Ordinary (Annual) General Meeting is held;

(5)On December 18, 2019, the Company declared payment of Interest on Capital in the amount of R$400 million, on account of the amount of the minimum mandatory dividend for 2019, and payable to shareholders whose names were on the Company’s Nominal Share Registry on December 23, 2019. This amount will be paid in two installments, the first by June 30, 2020 and the second by December 30, 2020. According to the proposal of the Ordinary and Extraordinary General Meetings of Shareholders to be held on July 31, 2020, the Company proposed payment of R$364 million as mandatory minimum dividend to holders of common and preferred shares whose names are on the Company’s Nominal Share registry on the date on which the Ordinary (Annual) General Meeting is held.

(6)On September 22, 2020, the Company declared payment of Interest on Capital in the amount of R$120 million, on account of the amount of the minimum mandatory dividend for 2020, and payable to shareholders whose names were on the Company’s Nominal Share Registry on September 25, 2020. This amount will be paid in two installments, the first by June 30, 2021 and the second by December 30, 2021. On December 23, 2020, the Company declared payment of Interest on Capital in the amount of R$433 million, on account of the amount of the minimum mandatory dividend for 2020, and payable to shareholders whose names were on the Company’s Nominal Share Registry on December 30, 2020. This amount will be paid in two installments, the first by June 30, 2021 and the second by December 30, 2021. According to the proposal of the Ordinary and Extraordinary General Meetings of Shareholders to be held on April 30, 2021, the Company proposed payment of R$929 million as mandatory minimum dividend to holders of common and preferred shares whose names are on the Company’s Nominal Share registry on the date on which the Ordinary (Annual) General Meeting is held.

 

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Item 9.

Offer and Listing Details

Trading Market

The principal trading market for our preferred shares is the Brazilian Stock Exchange (B3). Our Preferred ADSs, each representing one preferred share as of December 31, 20182020 have traded on the NYSE under the symbol “CIG”‘CIG’ since September 18, 2001. Prior to that date, our Preferred ADSs were traded in theover-the-counter, or OTC, market in the United States. The Preferred ADSs are evidenced by Preferred ADRs issued by Citibank, N.A., as depositary, pursuant to a Second Amended and Restated Deposit Agreement, dated August 10, 2001, as amended on June 11, 2007 and on September 11, 2012 by and among the Company, the depositary and the holders and beneficial owners of Preferred ADSs evidenced by Preferred ADRs issued thereunder. As of DecemberMarch 31, 20182021 there were approximately 166,960,865227,670,421 Preferred ADSs outstanding (each representing one preferred share), representing approximately 17.2%20.19% of our 971,138,3881,011,082,312 preferred shares.shares (without considering the effect of the capitalization of 116,243,122 preferred shares approved on April 30).

The principal trading market for our common shares is the B3. Our Common ADSs, each representing one common share as of December 31, 20182020 have traded on the NYSE under the symbol “CIG.C”‘CIG.C’ since June 12, 2007, when we established an American Depositary Shares program for our common shares. The Common ADSs are evidenced by Common ADRs issued by Citibank, N.A., as depositary, pursuant to a Deposit Agreement, dated June 12, 2007, by and among Company, the depositary and the holders and beneficial owners of Common ADSs evidenced by Common ADRs issued thereunder. As of DecemberMarch 31, 20182021 there were approximately 474,1362,587,491 Common ADSs outstanding (each representing one common share), representing 0.10%0.51% of our 487,614,213507,670,289 common shares.shares (without considering the effect of the capitalization of 58,366,345 common shares approved on April 30). The following prices are net of earnings, including dividends:

As of December 31, 2018,2020, the closing price per preferred share on the B3 was R$ 13.8614.27 and the closing price per Preferred ADS on the NYSE was US$ 3.56.2.82.

As of December 31, 2018,2020, the closing price per common share on the B3 was R$ 15.0316.11 and the closing price per Common ADS on the NYSE was US$ 3.93.3.18.

The following table sets forth the reported high and low closing sale prices adjusted for dividends for the preferred and common shares on the B3 and the Preferred and common ADSs on the NYSE for the periods indicated.

The shares price and ADSs price were adjusted to the new number of shares, after the share dividend.

 

Common Shares

Common ADSs

Preferred Shares

Preferred ADS

  Common
Shares		   Common
ADSs		   Preferred
Shares		   Preferred
ADS		 

Price in Nominal R$

Price in US$

Price in Nominal R$

Price in US$

Year

  Price in
Nominal R$		   Price in US$   Price in
Nominal R$		   Price in US$ 

High

Low

High

Low

High

Low

High

Low

  High   Low   High   Low   High   Low   High   Low 

2014

   15.38    8.46    7.07    3.70    13.94    7.65    6.41    3.29 

2015

   13.69    5.16    4.82    1.14    12.34    4.49    4.19    1.14 

2016

   9.08    3.94    3.03    0.98    8.26    3.43    2.63    0.86 9.083.943.030.988.263.432.630.86

2017

   13.45    6.05    4.44    1.81    10.23    5.92    3.34    1.76 13.456.054.441.8110.235.923.341.76

2018

   15.03    5.97    4.26    1.54    13.86    6.09    3.56    1.58 15.035.974.261.5413.866.093.561.58
201918.7113.734.833.2115.0912.243.952.86
202016.337.104.061.3714.617.253.401.24
                
  Common
Shares		   Common
ADSs		   Preferred
Shares		   Preferred
ADS		 

Common Shares

Common ADSs

Preferred Shares

Preferred ADS

Quarter

  Price in
Nominal R$		   Price in US$   Price in
Nominal R$		   Price in US$ 

Price in Nominal R$

Price in US$

Price in Nominal R$

Price in US$

  High   Low   High   Low   High   Low   High   Low 

2017

 

              
2019

High

Low

High

Low

High

Low

High

Low

1 Q

   13.45    7.64    4.44    2.42    10.23    6.54    3.34    2.05 17.0314.454.403.6514.1312.433.743.21

2 Q

   11.33    7.03    3.69    2.23    9.00    6.32    2.92    1.97 18.7114.624.773.7914.9412.243.813.00

3 Q

   8.77    7.63    3.05    2.38    8.23    7.15    2.66    2.21 18.5615.234.833.5915.0913.623.953.24

4 Q

   8.13    6.05    2.58    1.81    7.63    5.92    2.45    1.76 15.8213.733.903.2114.2112.303.372.86

2018

                
2020 

1 Q

   7.71    6.06    2.29    1.82    8.13    6.09    2.42    1.88 16.307.104.061.4514.617.463.401.42

2 Q

   7.68    5.97    2.19    1.57    8.07    6.49    2.31    1.69 11.577.192.511.3711.037.252.301.24

3 Q

   6.86    6.24    1.72    1.54    7.32    6.73    1.79    1.58 

4 Q

   15.03    6.45    4.26    1.60    13.86    6.93    3.56    1.69 
                
  Common
Shares		   Common
ADSs		   Preferred
Shares		   Preferred
ADS		 

Month

  Price in
Nominal R$		   Price in US$   Price in
Nominal R$		   Price in US$ 
  High   Low   High   Low   High   Low   High   Low 

October 2018

   11.68    6.45    3.06    1.60    11.92    6.93    3.24    1.69 

November 2018

   12.59    10.99    3.25    2.86    12.57    10.87    3.23    2.90 

December 2018

   15.03    12.23    4.26    2.99    13.86    12.06    3.56    3.01 

January 2019

   16.90    15.09    4.59    3.91    14.49    13.38    3.84    3.53 

February 2019

   16.90    15.48    4.60    3.81    14.69    13.09    3.92    3.47 

March 2019

   17.79    15.81    4.60    4.03    14.88    13.27    3.94    3.38 

April 2019

   17.67    15.27    4.40    3.96    14.74    13.50    3.83    3.49 
  Common
Shares		   Common
ADSs		   Preferred
Shares		   Preferred
ADS		 

Period

  Price in
Nominal R$		   Price in US$   Price in
Nominal R$		   Price in US$ 
  High   Low   High   Low   High   Low   High   Low 

As of May 15, 2019

   17.76    16.60    4.41    4.08    14.75    13.08    3.68    3.24 
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3 Q11.719.982.311.8411.359.902.241.80
4 Q16.3310.763.221.8914.279.952.841.80
 
 

Common Shares

Common ADSs

Preferred Shares

Preferred ADS

 

Price in Nominal R$

Price in US$

Price in Nominal R$

Price in US$

Month

High

Low

High

Low

High

Low

High

Low

October 202012.1810.762.191.8910.789.951.991.80
November 202013.9111.572.651.9812.3810.132.371.82
December 202016.3314.093.222.6714.2712.412.842.50
January 202117.3715.823.272.8515.2513.462.932.50
February 202116.9214.503.172.5714.4211.962.672.11
March 202115.7913.672.852.3913.0311.362.271.99
April 2021 (until April 26,2021)15.8015.262.902.7713.5012.512.432.13

* Source: Economatica – net earnings prices, including dividends.

The table below represents the share dividends paid on the common and preferred shares and their respective Common and Preferred ADSs, resulting in an adjustment to the price per share and ADS:

Record of share dividends paid on common and preferred shares and Common and Preferred ADSs

Year

Declaration

Declaration

Record date
Brazil

Payment
date Brazil

Record date
NYSE

Payment
date NYSE

201604/29/201604/29/201612/29/201605/04/201601/05/2017
201705/12/201705/12/201712/28/201705/07/201701/05/2018
201804/30/201804/30/201812/28/201805/03/201801/08/2019
201905/03/201905/03/201912/26/201905/07/201901/07/2020
202007/31/202007/31/202012/30/202008/14/202001/08/2021

Since July 12, 2002, our shares have been traded on the LATIBEX, under the ticker symbol “XCMIG,”‘XCMIG,’ The LATIBEX is an electronic trading market created in 1999 by the Madrid Stock Exchange in order to facilitate the trading market of Latin American Securities in Euros.

Trading on the B3 S.A.— - BRASIL, BOLSA, BALCÃO (“B3”(‘B3’)

The preferred shares and common shares are traded on the B3, the only Brazilian stock exchange that trades shares. Trading on the B3 is limited to brokerage firms and a limited number of authorized entities. The CVM and B3 have discretionary authority to suspend trading in shares of a particular issuer under certain circumstances.

Trading on the B3 is conducted between 10:00 a.m. and 5:00 p.m. or from 11:00 a.m. to 6:00 p.m. (during daylight savings time in Brazil). The B3 also permits trading from 5:30 p.m. to 6:00 p.m. during a different trading period called the “after market”‘after market’, except during daylight time. Trading during aftermarket is subject to regulatory limits on price volatility and on the volume of shares transacted through internet brokers.

If you were to trade in the preferred shares or common shares on the B3, your trade is settled in three business days after the date of the trade. Delivery of and payment for shares is made through the facilities of a separate clearinghouse, which maintains accounts for brokerage firms. The seller is ordinarily required to deliver the shares to the exchange on the second business day following the date of the trade. The clearing house for the B3 is theCâmara de Ações (previously organized asCompanhia Brasileira de Liquidação e Custódia, or “CBLC”‘CBLC’).

In order to better control volatility, the B3 has adopted a “circuit breaker”‘circuit breaker’ system pursuant to which trading sessions may be suspended (i) for a period of 30 minutes whenever the index of this stock exchange falls more than 10% from the index registered for the previous day; (ii) for one hour if the index of this stock exchange falls 15% or more from the index registered for the previous day, after the reopening of trading; and (iii) for a

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certain period of time to be defined by the B3, if the index of this stock exchange falls 20% or more from the index registered for the previous day, after the reopening of trading. The minimum and maximum price is based on a reference price for each asset, which will be the previous session’s closing quote, when considering the asset at the beginning of the day before the first trade, or the price of the day’s first trade. The asset’s reference price will be altered during the session if there is an auction sparked by the intraday limit being breached. In this case, the reference price will become whatever results from the auction.

B3 settles the sale of shares three business days after they have taken place, without monetary adjustment of the purchase price. The shares are paid for and delivered through a settlement agent affiliated with the B3. The B3 performs multilateral compensation for both the financial obligations and the delivery of shares. According to the B3’s regulations, financial settlement is carried out by the Central Bank’s reserve transfer system. The securities are transferred by the B3’s custody system. Both delivery and payment are final and irrevocable.

Trading on the B3 is significantly less liquid than trading on the NYSE or other major exchanges in the world. Although any of the outstanding shares of a listed company may trade on the B3, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by a controlling group or by government entities.

Trading on the B3 by a holder not deemed to be domiciled in Brazil for Brazilian tax and regulatory purposes, or a “non‘non Brazilian holder,”’ is subject to certain limitations under Brazilian foreign investment regulations. With limited exceptions,non-Brazilian holders may trade on Brazilian stock exchanges in accordance with the requirements of CMN Resolution No. 4,373/2014, which requires that securities held bynon-Brazilian holders be maintained in the custody of financial institutions authorized by the Central Bank and by the CVM or in deposit accounts with financial institutions. In addition, Resolution No. 4,373/2014 requires non Brazilian holders to restrict their securities trading to transactions on the B3 or qualified over the counter markets. With limited exceptions,non-Brazilian holders may not transfer the ownership of investments made under Resolution No. 4,373/2014 to othernon-Brazilian holders through a private transaction.

We have been a member of Special Corporate Governance Level 1 of the B3 since October 2001. The rules regarding such corporate governance segment are comprised by the Special Corporate Governance Level 1 Regulations (“(‘Regulamento de Listagem do Nível 1 de Governança Corporativa”’), which were amended on March 21, 2011 by B3 and approved by the CVM. Such revised set of rules became effective on May 10, 2011. Among the obligations that are contemplated by such regulations, we are required to:

present our consolidated statement of financial position, Standardized Financial Statements – DFP, consolidated statement of income, quarterly financial statements – ITR, and the Reference Form (Formulário de Referência);

include, in the notes to our quarterly financial statements, a note regarding related party transactions, containing the disclosure provided in the applicable accounting rules to annual financial statements;

disclose
·Present our consolidated statement of financial position, Standardized Financial Statements – DFP, consolidated statement of income, quarterly financial statements – ITR, and the Reference Form (‘Formulário de Referência’);
·Include, in the notes to our quarterly financial statements, a note regarding related party transactions, containing the disclosure provided in the applicable accounting rules to annual financial statements;
·Disclose any direct or indirect ownership interest per type and class exceeding 5% of each type and class of the Company’s capital share, to the level of individual shareholders, once the Company has been provided with such information;

disclose the amount of free float shares and their respective percentage in relation to total shares outstanding, which shall be of at least 25% of shares representing our capital share;

disclose, by December 10th of each year, an annual timetable of corporate events, containing, at a minimum, the date of (a) acts and corporate events, (b) public meetings with analysts and other applicable parties, and (c) disclosure of financial information scheduled for the next fiscal year, Any changes in scheduled events must be notified to the B3 and to the public at least 5 days in advance;

hold at least one annual meeting with market analysts and any other interested parties to disclose information about their economic and financial situation, projects and perspectives;

prepare, disclose and submit to the B3, a securities trading policy and a code of conduct establishing the values and principles that guide the Company, the controlling shareholder, the members of the Company’s capital share, to the level of individual shareholders, once the Company has been provided with such information;

·Disclose the amount of free float shares and their respective percentage in relation to total shares outstanding, which shall be of at least 25% of shares representing our capital share;
·Disclose, by December 10th of each year, an annual timetable of corporate events, containing, at a minimum, the date of (a) acts and corporate events, (b) public meetings with analysts and other applicable parties, and (c) disclosure of financial information scheduled for the next fiscal year, Any changes in scheduled events must be notified to the B3 and to the public at least 5 days in advance;
·Hold at least one annual meeting with market analysts and any other interested parties to disclose information about their economic and financial situation, projects and perspectives;
·Prepare, disclose and submit to the B3, a securities trading policy and a code of conduct establishing the values and principles that guide the Company, the controlling shareholder, the members of the

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board of directors and of the Fiscal Council, when installed, and members of any bodies with technical or advisory functions created theby-laws;

·Establish that the term of office of our board of directors shall not exceed two years, with reelection being permitted;
·Have different persons occupying the positions of chairman of the board of directors and chief executive officer or main executive officer of our company;
·Adopt mechanisms that provide for capital dispersion in any public share offerings through the adoption of special procedures, such as guaranteeing access to all interested investors or distributing to non-institutional individuals or investors of at least 10% of the total to be distributed; and
·Include in our by-laws the mandatory provisions required by B3.

 

establish that the term of office of our board of directors shall not exceed two years, with reelection being permitted;

have different persons occupying the positions of chairman of the board of directors and chief executive officer or main executive officer of our company;

adopt mechanisms that provide for capital dispersion in any public share offerings through the adoption of special procedures, such as guaranteeing access to all interested investors or distributing tonon-institutional individuals or investors of at least 10% of the total to be distributed; and

include in ourby-laws the mandatory provisions required by B3.

Disclosure of Trading by Insiders

Brazilian securities regulations require our controlling shareholders, management, members of our Fiscal Council and any other technical or advisory body to disclose to us, the CVM and the B3 the number and types of securities issued by us, our subsidiaries and our controlling companies that are held by them or by persons closely related to them and any changes in their respective ownership positions during the preceding 12 months. The information regarding the trading of such securities (amount, price and date of acquisition) must be provided to the CVM and the B3 by the Company within 10 days of the end of the month in which they occurred or of the month in which the managers of the Company were empowered.

Disclosure of Material Developments

Under the Brazilian securities legislation, we are required to publicly disclose any material act or fact related to our business, to CVM and to B3. We are also required to publish an announcement of such material acts or facts (in newspapers or on news websites). An act or fact is considered material if it has a material impact on: the price of our securities; the decision of investors to buy, sell or hold our securities; or the decision of investors to exercise any rights as holder of any of our securities. Under extraordinary circumstances, material acts or facts may in practice not be disclosed if the controlling shareholders or the management believes that revealing them would put the Company’s legitimate interests at risk, provided that such controlling shareholders or managers must immediately publicize the material act or fact if they lose control over the information or in case of atypical alterations on share prices or on the amount of shares traded.

Trading on Brazilian stock exchanges bynon-residents in Brazil is subject to limitations under the Brazilian law on foreign investment. See the section “Item 10. Additional information – Foreign exchange controls”.

Regulation of Brazilian Securities Markets

The Brazilian securities markets are principally governed by Law No. 6,385, enacted on December 7, 1976, and the Brazilian Corporate Law, each as amended and supplemented, and by regulations issued by the CVM, the National Monetary Council (CMN), and the Central Bank, which has, among other powers, licensing authority over brokerage firms, and which regulates foreign investments and foreign exchange transactions. These laws and regulations, among others, provide for disclosure requirements applicable to issuers of traded securities, protection of minority shareholders and criminal penalties for insider trading and price manipulation. They also provide for licensing and oversight of brokerage firms and governance of the Brazilian stock exchanges.

Under Brazilian Corporate Law, a corporation is either public ((‘companhia abertaaberta’), such as we are, or a closed company ((‘companhia fechadafechada’). All public companies, including us, are registered with the CVM and are subject to reporting requirements. A company registered with the CVM may have its securities traded on the Brazilian stock exchanges or in the Brazilianover-the-counter market. Our common shares are listed and traded on the B3 and may be traded privately subject to some limitations between individuals in which a financial institution registered with the CVM serves as intermediary.

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We have the option to request that trading in our securities on the B3 be suspended in anticipation of a material announcement. Trading may also be suspended on the initiative of the B3 or the CVM based on or due to, among other reasons, a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to inquiries by the CVM or the stock exchange.

The Brazilian over the counter market consists of direct trades between individuals in which a financial institution registered with the CVM serves as intermediary. No special application, other than registration with the CVM, is necessary for securities of a public company to be traded in this market. The CVM requires that it be given notice of all trades carried out in the Brazilian over the counter market by the respective intermediaries.

Trading on the B3 bynon-residents of Brazil is subject to limitations under Brazilian foreign investment and tax legislation. The Brazilian custodian for the preferred shares or the common shares must register with the Central Bank of Brazil to be eligible for the remittance of funds in U.S. dollars abroad for payments of dividends, any other cash disbursements, or upon the disposition of the shares and sales proceeds thereof. In the event that a holder of Preferred ADSs exchanges it’sit is Preferred ADSs for preferred shares or a holder of Common ADSs exchanges it’sit is Common ADSs for common shares, the investor will need to apply for registration, as required by Resolution No. 4,373, enacted on September 29, 2014, which regulates investments in Brazilian financial and securities markets by foreigners. See “Item 10. Additional Information—Exchange Controls”.

Disclosure Requirements

The CVM Rule No. 358, of January 3, 2002, establishes some requirements regarding the disclosure and use of information related to material facts and acts of publicly held companies, including the disclosure of information on the trading and acquisition of securities issued by publicly held companies. Among others, these requirements include provisions that:

i.·

establishEstablish the concept of a material fact that gives rise to reporting requirements. Material facts include decisions made by the controlling shareholders, resolutions of the general meeting of shareholders and of management of the company, or any other facts related to the company’s business (whether occurring within the company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade those securities or to exercise any of those securities’ underlying rights;

ii.·

specifySpecify examples of facts that are considered to be material, which include, among others, the execution of shareholders’ agreements providing for the transfer of control, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies;

iii.·

obligeOblige the investor relations officer, controlling shareholders, other officers, directors, members of the audit committee and other advisory boards to disclose material facts;

iv.·

requireRequire simultaneous disclosure of material facts to all markets in which the corporation’s securities are admitted for trading;

v.·

requireRequire the acquirer of a controlling stake in a corporation to publish material facts, including its intentions as to whether or not tode-list the corporation’s shares, within one year;

vi.·

establishEstablish rules regarding disclosure requirements in the acquisition and disposal of a material shareholding stake; and

vii.·

restrictRestrict the use of insider information.

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Item 10.

Additional Information

CEMIG’s Compliance and Corporate Governance System

CEMIG seeks to keep its compliance and corporate governance system aligned to best market practices. Over recent years, the Company has been enhancing its system of governance. This now includes all the requirements specified in Federal Law 13,303/16 (‘the State Companies Law’). Under this law, all companies that are controlled or partly owned by the state, and their subsidiaries, have the obligation to comply with new rules on corporate governance, contracting of outsourced entities or individuals, and public competitions.

CEMIG now includes the following practices of good governance and compliance demanded by this legislation:

1.       The Board of Directors is responsible for ensuring implementation and supervision of our systems of risk management and internal controls.

2.       At least 25% of the Board of Directors must be independent.

3.       We have an Audit Committee.

4.       The CEO has the responsibility of directing compliance and corporate risk management.

5.       The members of the Board of Directors, the Executive Board and the members of committees formed under the by-laws must be submitted to individual and collective performance evaluation annually.

6.       The head of the Internal Audit Unit may be appointed, and dismissed, only by the Board of Directors, in both cases only with due justification, and must be chosen from among the Company’s career employees.

7.       Adaptation of the Company to the General Data Protection Law (LGPD), with a structure dedicated to the subject, and designation of an Official Responsible for Data Protection.

As well as adopting good corporate governance and compliance practices, CEMIG has a group of policies that establish directives for related subjects. These include:

CEMIG´s Anti-fraud Policy; the Related Party Transactions Policy; the Nominations and Eligibility Policy; the Governance and Management Policy for Non-controlled Investees; the Conflict of Interests Policy; the Data Privacy Policy for Clients and the Public; the Data Privacy Policy for Employees, Suppliers and Service Providers; and the Corporate Risks Management and Compliance Policy.

CEMIG’s Compliance Policy comprises consolidation of the directives that aim to assure the Company’s commitment to adoption of a high standard of integrity and compliance with rules and the law, in the conduct of its business. CEMIG’s commitment to the concept and principle of Integrity is one of its Values, approved by the Board of Directors. The following are objectives of CEMIG’s Compliance Policy:

·To create and maintain an organizational culture that encourages ethical conduct and commitment to best compliance practices, and obedience to internal and external rules (a ‘compliance culture’);
·To prevent, detect and respond to any failings in compliance with CEMIG’s internal and external rules, and any deviations of conduct; and
·To concentrate on mitigation of compliance risks prioritized by the Company.

The Compliance Policy establishes the directives and means for achieving these objectives, including among other matters: the role of Senior Management and the Company’s leadership; maintenance of documented rules and procedures; training and teaching in communication; implementation of internal controls; and availability of channels for consultations and reports of adverse behavior.

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In terms of anti-corruption action, the Company’s most significant risks relating to fraud and corruption have been mapped, documented and approved by Senior Management. In this mapping process, probabilities of materialization of risks are estimated, in accordance with their causes and the severity of the consequences if they occur, and the internal controls and measures related to mitigation of each risk are mapped.

Three areas – Compliance; Risk Management and Internal Controls; and Privacy and Data Protection – are responsible for coordinating the related processes in the company and supporting the individuals responsible for each area of risk and controls. The Internal Audit unit is responsible for periodically checking the compliance and effectiveness of functioning of the Company’s systems of internal controls, compliance and risk management, including the risks and controls related to prevention of and combating corruption.

On its corporate intranet, CEMIG makes a group of rules and procedures permanently available to employees, which orient appropriate conduct by employees in management of processes and execution of all their activities.

The Company also has an Anonymous Reporting Channel, an Ombudsman, and an Ethics Committee, which are accessible for interactions with their internal and external public and able to record and deal with any ethical irregularities or dilemmas affecting operations.

Matters related to compliance are continually dealt with through the Company’s internal channels and mechanisms for communication and training. For this, we use several internal channels, including email, the intranet, the Leadership Channel, banners and WhatsApp. In 2020, with the impacts of the pandemic on the work environment, online means of communication were extremely important tools for increasing internal communications. We covered a range of subjects through articles, texts and videos, aiming to take highly important contents on the culture of integrity and compliance to everyone in the Company. Internal Policies and Procedures were also widely disseminated through these channels.

Training sessions in compliance are made available periodically to the Company’s employees. Training courses were held in 2020 on Moral and Sexual Harassment in the Workplace, and Prevention of Fraud and Corruption. Also, all employees must mandatorily receive the training on CEMIG’s Code of Conduct, every year.

In 2019 and 2020, CEMIG carried out its Compliance Maturity Survey. The aim of this survey is to assess the levels of knowledge on what compliance is, on CEMIG’s Compliance Policy, on adherence to our values (culture), and on employees’ perception in terms of CEMIG’s procedures for prevention, detection and response that are currently in place. Together, these dimensions express the maturity of compliance in the Company. The data resulting from the survey show us that there is attention and commitment on the part of employees in relation to compliance culture and behavior, recognition of its importance, and growing interest in the subject.

Finally, we highlight that CEMIG is a signatory to the UN Global Compact, of which principle number 10 is: ‘Work against corruption in all its forms, including extortion and bribery’; and of the Entrepreneurs’ Pact for Integrity and Against Corruption, organized by the Ethos Institute of Brazil.

Memorandum and Articles of Association

By-laws

We are a state-controlled company registered under the laws of Brazil. The registration number (“NIRE”(‘NIRE’) given to us by the Board of Trade of Minas Gerais (Junta Comercial do Estado de Minas Gerais, or ‘Jucemg’) is 5804055.7968077. Set forth below is a brief summary of certain significant provisions of (i) ourby-laws, as amended by our general and special shareholders’ meeting on March 25, 2019July 31, 2020 and (ii) Brazilian Corporate Law. The description of ourby-laws contained herein does not purport to be complete and is qualified by reference to ourby-laws, which have been filed as an exhibit to this annual report.

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Objects and purpose

As described in Clause 1 of itsby-laws, CEMIG was incorporated with four main objects:

(i)i.To

to build, operate and commercially operate systems of generation, transmission, distribution and sale of energy, and related services;

(ii)ii.To

to operate in the various fields of energy, from whatever source, with a view to economic and commercial operation;

(iii)iii.To

to provide consultancy services within its field of operation to companies in and outside Brazil; and

(iv)iv.To

to carry out activities directly or indirectly related to its objects, including the development and commercial operation of telecommunication and information systems, technological research and development, and innovation.

Preferred Shares

Holders of preferred shares have the right to receive annual minimum dividends in an amount equal to the greater of 10% of the par value of each preferred share or 3% of the net worth value associated with each preferred share. Holders of our preferred shares also have priority over any other class of shares if we decide to redeem shares. A preferred share does not entitle its owner to vote at the General Shareholders’ Meetings.

Share Subscription

Shares purchased by the State Government, which must constitute at all times the majority of our voting shares, are paid for in accordance with Brazilian Corporate Law. Shares purchased by other shareholders (whether natural persons or legal entities) shall be paid for in accordance with the decision resulting from the general meeting of shareholders that addresses the matter.

Article 172 of the Brazilian Corporate Law provides that each shareholder has a general preemptive right to subscribe for new shares or convertible securities issued in any capital increase, in proportion to that shareholder’s shareholding, except in the event of the exercise of any option to acquire shares of our capital share. Shareholders must exercise their preemptive rights within 30 days of the publication of the notice of capital increase.

In the event of a capital increase, holders of Preferred ADSs, which represent preferred shares, and holders of Common ADSs, which represent common shares, have preemptive rights to subscribe only for newly issued preferred shares or common shares, respectively, in proportion to their shareholdings but may be unable to exercise those rights due to U.S. securities law restrictions. See “Item 3, Risk Factors—Risks Relating to the Preferred Shares, Preferred ADSs, Common shares and Common ADSs—You may not be able to exercise preemptive rights with respect to our securities.”securities”.

Minority Shareholders

Ourby-laws provide that the preferred and minority common shareholders are entitled to elect one member and an alternate to the Board of Directors, respectively, in a separate vote in accordance with the applicable legislation, as more fully described in “—‘—Rights of Shareholders—Rights of Minority Shareholders”.Shareholders.’

Dividends

For a discussion of our dividend policy, see “Item 8, Financial Information—Dividend Policy and Payments”.Payments.”

General Meetings of Shareholders

General Meetings of Shareholders

The general meetings of shareholders are held for the purposes specifiedprovided for by law, specifically in law, as stated inthe Brazilian Corporate Law. Ordinary General Meetings are heldThey take place within the first four months following the end of the business year, and must be are

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called withby prior notice of at least 15 days’ prior notice. Braziliandays. The Corporate Law also specifies that the following decisions maycan be made only be taken at aby the General Meeting of Shareholders:

·To changes the by-laws;
·To elect or dismiss, at any time, the members of the company’s management or Fiscal Council or committee, subject to sub-item II of Article 142 of the Corporate Law;
·Annually, to receive the accounts of management, and to decide on the financial statements presented by them;
·To authorize issuance of debentures;
·To suspend exercise of shareholders’ rights;
·To decide on valuation of goods or assets that a shareholder provides for formation of the share capital;
·To authorize issuance of ‘founder’s shares’;
·To decide on transformation, merger, absorption or split of or by the company, its dissolution or liquidation; To elect or dismiss liquidators, and take decisions on their accounts; and
·To authorize the managers to admit bankruptcy or seek concordats.

 

examine the management accounts, discuss and vote on the Financial Statements;

deliberate on the destination of the net income of the year and distribution of dividends;

election and/or dismissal of members of the Board of Directors or of the Fiscal Council, establishment of the member’s remunerations and of an additional budget to remunerate the committees;

approval of corrections of the monetary expression of the Company’s capital share;

any change in theby-laws;

suspension of exercise of the rights of a shareholder who has violated Brazilian Corporate Law or theby-laws;

deliberate on the valuation of shareholders’ assets for the formation of the capital share;

issuance of beneficiary parts;

issuance of debentures;

the merger of the Company into another company, its dissolution, transformation, split, merger or liquidation, as well as appointment and/or dismissal of the respective liquidator and its accounts;

election and/or dismissal, at any time, of members of the Board of Directors or of the Fiscal Council;

•

any action relating to bankruptcy orconcordata.

As a general rule, the affirmativea vote ofin favor by shareholders representing at least the majority of our issuedthe common shares outstanding,in circulation, present in person or represented by proxyholders of power of attorney, at a General Meeting of Shareholders, is required to approvefor approving or ratifyratifying any proposed measure.measure proposed. Abstentions are not taken into account.counted. However, thean affirmative vote ofby shareholders representing thea majority of our outstanding common sharesthe share capital in circulation is required for any decision to:decisions which:

·Create preferred shares or increase an existing class of preferred shares in a manner not proportional in relation to the other classes of shares, unless the measure is specified or authorized by the by-laws;
·Change any preference, prerogative or condition of redemption or amortization conferred upon one or more classes of preference shares; or create a class with greater prerogatives than those of the existing classes of preferred shares;
·Reduce the percentage of the obligatory dividends;
·Make any change to the company’s corporate Objects;
·Carry out any transaction of absorption or merger of the company with any other company;
·Carry out a split of part of the company’s assets or liabilities;
·Approve our participation in a group of companies;
·Apply for cancellation of the state of liquidation;
·Approve dissolution of the company;
·Approve the creation of ‘founder’s shares’; and/or
·Approve incorporation of all of our shares into those of another company in such a way as to make us a wholly owned subsidiary of that other company.

 

create preferred shares or disproportionately increase an existing class of preferred shares in relation to the other classes of shares, unless such action is provided for in, or authorized by, ourby-laws;

modify a preference, privilege or condition in terms of redemption or amortization conferred on one or more classes of preferred shares; or create a new class with greater privileges than those of the existing classes of preferred shares;

reduce the percentage of mandatory dividends;

make any change to the Company’s corporate objects;

cause the Company to incorporate or to be incorporated by, or to merge with, another company;

spin off a portion of our assets or liabilities;

approve our participation in a group of companies;

apply for cancellation of liquidation status;

approve the dissolution of the Company;

approve the creation of founders shares; and/or

approve the incorporation of all of our shares by another company in such a way that we become a wholly-owned subsidiary of that other company.

Shareholders may be represented at a shareholders’ meetingGeneral Meeting of Shareholders by a person holding a power of attorney from the shareholder, appointed nogiven not more than one year prior to the date of the meeting. To be eligiblequalified to represent a shareholder inat a General Meeting of Shareholders, the person holding aholder of the power of attorney must be a shareholder, or one of our executive officersthe Company’s directors, or one of the membersa member of the Board of Directors, or anattorney-at-law. A publicly held corporation,a lawyer. For a listed company, such as ours,CEMIG, the party holdingholder of the Powerpower of Attorneyattorney may also be a financial institution.

Subject to the provisions of the Brazilian Corporate Law and ourby-laws, our Board of Directors may ordinarilyroutinely call our General Meetings of Shareholders. These meetingsGeneral Meetings of Shareholders may also be called by:called:

·By the Fiscal Council, if the Board of Directors omits to call the General Meeting within one month from the date on which this has been requested of it, in accordance with the applicable law, or a General Meeting at any moment in the event that serious and urgent matters affect our Company;
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the Fiscal Council, if the Board of Directors fails to call a General Meeting of Shareholders within one calendar month of any date on which it has been requested to do so, under the applicable laws, or an Extraordinary General Meeting of Shareholders at any time when serious and urgent matters affect the Company;

·By any shareholder, whenever the Board of Directors omits to call the General Meeting of Shareholders within 60 days from the date on which this has been requested of it in accordance with the Brazilian Corporate Law or our by-laws;
·By shareholders holding at least 5% of the share capital, in the event that the Board of Directors omits to call the General Meeting within 8 calendar days from receipt of a request from these shareholders to call a General Meeting, with indication of the matters to be discussed; or,
·By any holders of at least 5% of our voting stock or 5% of the shareholders without the right to vote, if our Board of Directors omits to call the General Meeting of Shareholders within 8 calendar days from receipt of a request from said shareholders to install the Fiscal Council.

 

any shareholder, whenever the Board of Directors fails to call a General Meeting of Shareholders within 60 days of being required to do so by the Brazilian Corporate Law or by ourby-laws;

holders of at least 5% of our share capital, if the Board of Directors fails to call a General Meeting of Shareholders within eight calendar days of receipt of a request from those shareholders to call a General Meeting of Shareholders, indicating the matters to be discussed;

holders of at least 5% of the voting share, or 5% of those shareholders who do not have the right to vote, if the Board of Directors omits to call a General Meeting of Shareholders within eight calendar days of receipt from those shareholders of a request to place the Fiscal Council in session.

Remote voting procedure

Pursuant to CVM Instruction No. 561, it is mandatory that remote voting – an absentee ballot system – should be available for Ordinary (Annual) General Meetings and Extraordinary General Meetings of Shareholders held to elect members of the Board of Directors or the Fiscal Council.

Shareholders may exercise the vote in General Meetings by filling in the Remote Voting Statement (Boletim(Boletim de Voto à Distância, or BVD)‘BVD’), which must contain all the subjects to be decided. The BVD may be delivered through the custody agent, through the administrator for book-entry shares, or directly at the Company.

The objective of remote voting is to increase shareholders’ participation in general meetings, by facilitating the process of voting/representation. It also enables reduction of the costs of attending meetings and representation in them.

In accordance with the provisions of the legislation, CEMIG is adopting remote voting as from the start of the current year.

The Board of Directors

Ourby-laws require our Board of Directors to have nine members. One must be appointed Chair of the Board, and one Deputy Chair.

Key functions specific to the Board of Directors include the following:

·To set the general orientation of the Company’s business;
·To elect, dismiss and evaluate the Executive Officers of the Company, in accordance with the applicable legislation, subject to the by-laws;
·To approve the policy on transactions with the related parties;
·To decide, upon proposal by the Executive Board, on disposal of, or placement of a charge upon, any of the Company’s property, plant or equipment, and on the Company giving any guarantee to any third party of which the individual value is equal to 1% or more of the Company’s Shareholders’ equity;
·To decide, upon proposal by the Executive Board, on the Company’s investment projects, signing of contracts and other legal transactions, contracting of loans or financing, or the constitution of any obligations in the name of the Company which, individually or jointly, have value equal to 1% or more of the Company’s Shareholders’ equity, including injections of capital into wholly-owned or other subsidiaries or affiliates or the consortia in which the Company participates;
·To call the General Meeting of Shareholders;
·To monitor and inspect the management by the Executive Board: the Board of Directors may, at any time, examine the books and papers of the Company, and request information on contracts entered into or in the process of being entered into, and on any other administrative facts or acts which it deems to be of interest to it;
·To give a prior opinion on the Executive Board’s report of management and accounts of the Company;
·to choose and to dismiss the Company’s auditors, from among companies with international reputation that are authorized by the Securities Commission (CVM) to audit listed companies, subject to statement of position by the Fiscal Council;
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to set the general orientation of the Company’s business;

·To authorize, upon proposal by the Executive Board, opening of administrative tender proceedings, or proceedings for dispensation or non-requirement of tender, or of non-applicability of the duty to tender, and the corresponding contracting, when the amount is more than 1% or more of the Company’s Shareholders’ equity, or more than R$100,000,000.00, as adjusted annually by the IPCA Inflation Index, if positive;
·Upon proposal by the Executive Board, to authorize filing of legal actions, or administrative proceedings, or entering into court or out-of-court settlements, for amounts equal to 1% or more of the Company’s Shareholders’ equity;
·To authorize the issuance of securities in the Brazilian or external market, for raising of funding in the form of non-convertible debentures, promissory notes, commercial papers and other instruments;
·To approve the Long-term Strategy, the Multi-year Business Plan and the Annual Budget, and alterations and revisions to them;
·Annually, to set the directives and establish the limits, including financial limits, for spending on personnel, including concession of benefits and collective employment agreements, subject to the competency of the General Meeting of Shareholders and subject to the Annual Budget;
·To authorize the exercise of the right of preference and rights under shareholders’ agreements or voting agreements in wholly-owned or other subsidiaries or affiliates and the consortia in which the Company participates, except in the cases of the wholly-owned subsidiaries CEMIG Distribuição S.A. and CEMIG Geração e Transmissão S.A., for which the General Meeting of Shareholders has the competency for decision on these matters;
·To approve participation in the share capital of, and constitution or extinction of, any company, undertaking or consortium;
·To approve, in accordance with its Internal Regulations, the institution of committees supporting the Board of Directors – the opinions or decisions of which are not a necessary condition for decision on the matters by the Board of Directors;
·To accompany the activities of internal auditing;
·To discuss, approve and monitor decisions that involve corporate governance practices, relationship with interested parties, people management policy and code of conduct;
·To ensure implementation of, and to supervise, the systems for management of risks and internal controls established for the prevention and mitigation of the principal risks to which the Company is exposed, including the risks related to safety and security of accounting and financial information and the occurrence of corruption or fraud;
·To establish an information disclosure policy to mitigate the risk of contradiction between the various areas and the managers of the Company;
·To make statements on any increase in number of the Company’s own staff, concession of benefits or advantages, or revision of a salaries and careers plan, including alteration in the amount paid for commissioned posts or free appointments, and compensation of Chief Officers;
·To appoint, and to dismiss, in both cases with grounds, the head of the Internal Audit Unit, from among the Company’ career employees;
·To elect the members of the Audit Committee, at the first meeting held after the Annual General Meeting, and to dismiss them, at any time, upon vote given with grounds by absolute majority of the members of the Board of Directors;
·To arrange for analysis, every year, of the success in meeting targets and results in execution of the Multi-year Business Plan and the Long-term Strategy, and to publish its conclusions and state them to the Legislative Assembly of Minas Gerais State and to the Minas Gerais State Audit Court; and
·To approve the complementary policies, including the policy on holdings, in accordance with the terms of these by-laws.

 

to elect, dismiss and evaluate the Executive Officers of the Company, in accordance with the applicable legislation, subject to theby-laws;

to approve the policy on transactions with the related parties;

to decide, upon proposal by the Executive Board, on disposal of, or placement of a charge upon, any of the Company’s property, plant or equipment, and on the Company giving any guarantee to any third party of which the individual value is equal to 1% or more of the Company’s Shareholders’ equity;

to decide, upon proposal by the Executive Board, on the Company’s investment projects, signing of contracts and other legal transactions, contracting of loans or financing, or the constitution of any obligations in the name of the Company which, individually or jointly, have value equal to 1% or more of the Company’s Shareholders’ equity, including injections of capital into wholly-owned or other subsidiaries or affiliates or the consortia in which the Company participates;

to call the General Meeting of Shareholders;

to monitor and inspect the management by the Executive Board: the Board of Directors may, at any time, examine the books and papers of the Company, and request information on contracts entered into or in the process of being entered into, and on any other administrative facts or acts which it deems to be of interest to it;

to give a prior opinion on the Executive Board’s report of management and accounts of the Company;

to choose and to dismiss the Company’s auditors, from among companies with international reputation that are authorized by the Securities Commission (CVM) to audit listed companies, subject to statement of position by the Fiscal Council;

to authorize, upon proposal by the Executive Board, opening of administrative tender proceedings, or proceedings for dispensation ornon-requirement of tender, or ofnon-applicability of the duty to tender, and the corresponding contractings, when the amount is more than 1% or more of the Company’s Shareholders’ equity, or more than R$ 100,000,000.00, as adjusted annually by the IPCA Inflation Index, if positive;

upon proposal by the Executive Board, to authorize filing of legal actions, or administrative proceedings, or entering into court orout-of-court settlements, for amounts equal to 1% or more of the Company’s Shareholders’ equity;

to authorize the issuance of securities in the Brazilian or external market, for raising of funding in the form ofnon-convertible debentures, promissory notes, commercial papers and other instruments;

to approve the Long-term Strategy, the Multi-year Business Plan and the Annual Budget, and alterations and revisions to them;

annually, to set the directives and establish the limits, including financial limits, for spending on personnel, including concession of benefits and collective employment agreements, subject to the competency of the General Meeting of Shareholders and subject to the Annual Budget;

to authorize the exercise of the right of preference and rights under shareholders’ agreements or voting agreements in wholly-owned or other subsidiaries or affiliates and the consortia in which the Company participates, except in the cases of the wholly-owned subsidiaries CEMIG Distribuição S.A. and CEMIG Geração e Transmissão S.A., for which the General Meeting of Shareholders has the competency for decision on these matters;

to approve participation in the share capital of, and constitution or extinction of, any company, undertaking or consortium;

to approve, in accordance with its Internal Regulations, the institution of committees supporting the Board of Directors – the opinions or decisions of which are not a necessary condition for decision on the matters by the Board of Directors;

to accompany the activities of internal auditing;

to discuss, approve and monitor decisions that involve corporate governance practices, relationship with interested parties, people management policy and code of conduct;

to ensure implementation of, and to supervise, the systems for management of risks and internal controls established for the prevention and mitigation of the principal risks to which the Company is exposed, including the risks related to safety and security of accounting and financial information and the occurrence of corruption or fraud;

to establish an information disclosure policy to mitigate the risk of contradiction between the various areas and the managers of the Company;

to make statements on any increase in number of the Company’s own staff, concession of benefits or advantages, or revision of a salaries and careers plan, including alteration in the amount paid for commissioned posts or free appointments, and compensation of Chief Officers;

to appoint, and to dismiss, in both cases with grounds, the head of the Internal Audit Unit, from among the Company’ career employees;

to elect the members of the Audit Committee, at the first meeting held after the Annual General Meeting, and to dismiss them, at any time, upon vote given with grounds by absolute majority of the members of the Board of Directors;

to arrange for analysis, every year, of the success in meeting targets and results in execution of the Multi-year Business Plan and the Long-term Strategy, and to publish its conclusions and state them to the Legislative Assembly of Minas Gerais State and to the Minas Gerais State Audit Court; and

to approve the complementary policies, including the policy on holdings, in accordance with the terms of theseby-laws.

The financial limits relating to decisions by the Board of Directors that are identified by a percentage of the Company’s Shareholders’ equity shall be automatically adopted when the financial statements of each year are approved.

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Under Brazilian Corporate Law, members of the Board of Directors of a company usually have certain duties equivalent to those imposed by the laws of the majority of the States of the USA, including duty of loyalty to the company, duty not to trade in their own personal interest, and the duty diligently attend to the management of the company’s business. The Members of our Board of Directors and our Executive Board may be held liable for failure in these duties to us and to our shareholders, and may be subject to legal action in proceedings brought by government bodies or by our shareholders.

There are no provisions in our bylaws relating to: (i) power for a board member to vote on proposals or contracts in which he or she has a material interest; (ii) powers that may be exercised by our board members to take on loans; (iii) retirement age for members of the Board of Directors; or (iv) the number of shares necessary for qualification of board members.

The Chair and Vice-Chair of the Board of Directors must be chosen by their peers, at the first meeting of the Board of Directors that takes place after the election of its members, and the Vice-Chair shall take the place of the Chair when the Chair is absent or prevented from exercising his/her functions.

The shareholders have the power to set the compensation of the members of boards at the General Meeting of Shareholders at which the board members are elected.

Rights of Shareholders

We extend to our shareholders all of the rights that are provided under Brazilian law. Ourby-laws are in compliance with the Brazilian Corporate Law.

Essential Rights

Article 109 of Brazilian Corporate Law provides that a corporation may not deny certain rights to its shareholders under any circumstances,circumstances. These shareholders’ rights include:

·The right to have a share of the corporation’s earnings;
·The right to have a share of the corporation’s assets, in the event of a liquidation of the Company;
·The right to supervise our management according to Brazilian Corporate Law;
·Preemptive rights to subscribe new shares or securities convertible into shares, except for exceptions provided by Brazilian Corporate Law and our by-laws; and
·The right to withdraw from the company under certain circumstances provided in Brazilian Corporate Law.

 

the right to have a share of the corporation’s earnings;

the right to have a share of the corporation’s assets, in the event of a liquidation of the Company;

the right to supervise our management according to Brazilian Corporate Law;

preemptive rights to subscribe new shares or securities convertible into shares, except for exceptions provided by Brazilian Corporate Law and ourby-laws; and

the right to withdraw from the company under certain circumstances provided in Brazilian Corporate Law.

Voting Rights

As a general rule, only our common shares are entitled to vote and each common share corresponds to one vote. Holders of preferred shares acquire voting rights if, during three consecutive fiscal years, we fail to pay a fixed or minimum dividend to which the preferred shares are entitled. If a holder of preferred shares acquires voting rights in this manner, such rights will be identical to the voting rights of a holder of common shares and will continue until the dividend is paid. No restrictions exist on the right of a holder of common shares or preferred shares to exercise voting rights with respect to such shares by virtue of such holder being anon-resident of Brazil or a citizen of a country other than Brazil. However, holders of Preferred ADSs may only vote the underlying preferred shares through the depositary according to the terms of the Second Amended and Restated Deposit Agreement, and holders of Common ADSs may only vote the underlying common shares through the depositary according to the terms of the Common ADS Deposit Agreement. In any circumstance in which holders of preferred shares are entitled to vote, each preferred share will entitle its holder to one vote.

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Redemption Rights

Brazilian Corporate Law provides that, under limited circumstances, a shareholder has the right to withdraw his or her equity interest from the company and to receive payment for the portion of shareholder’s equity attributable to his or her equity interest. Our common shares and preferred shares are not redeemable, with the exception that a dissenting shareholder is entitled under Brazilian Corporate Law to obtain redemption in the event of any of the following decisions being made at a shareholders’ meeting by shareholders representing at least 50% of the voting shares:

creating preferred shares or increasing an existing class of preferred shares without maintaining the existing ratio with the remaining class of preferred shares, unless when already set forth in or authorized by the bylaws (1);

to modify a preference, privilege or condition of redemption or amortization conferred on one or more classes of preferred shares, or to create a new class with greater privileges than the existing classes of preferred shares (2);

to reduce the mandatory distribution of dividends (3);

to change the Company’s purpose (4);

to merge into another company or to consolidate with another company, subject to the conditions set forth in Brazilian Corporate Law (5);

•·Creating preferred shares or increasing an existing class of preferred shares without maintaining the existing ratio with the remaining class of preferred shares, unless when already set forth in or authorized by the bylaws (1);

·

To modify a preference, privilege or condition of redemption or amortization conferred on one or more classes of preferred shares, or to create a new class with greater privileges than the existing classes of preferred shares (2);
·To reduce the mandatory distribution of dividends (3);
·To change the Company’s purpose (4);
·To merge into another company or to consolidate with another company, subject to the conditions set forth in Brazilian Corporate Law (5);
·To transfer all of our shares to another company in order to make us a wholly-owned subsidiary of that company, known as ‘incorporação de açõeses’ (6);

·To approve acquisition of the control of another company at a price that exceeds certain limits set out in Brazilian Corporate Law (7);
·To split up, subject to the conditions set forth in Brazilian Corporate Law (8);
·To transform the Company into another type of company (9);
·To participate in a centralized group of companies, as defined under Brazilian Corporate Law and subject to the conditions set forth therein (10);

 

to approve acquisition of the control of another company at a price that exceeds certain limits set out in Brazilian Corporate Law (7);

to split up, subject to the conditions set forth in Brazilian Corporate Law (8);

to transform the Company into another type of company (9);

to participate in a centralized group of companies, as defined under Brazilian Corporate Law and subject to the conditions set forth therein (10);

Only holders of shares adversely affected by the changes mentioned in items (1) and (2) above may require the Company to redeem their shares. The right of redemption mentioned in items (5), (6), (7) and (10) above may only be exercised if our shares do not satisfy certain liquidity ratios or dispersion at the time of the decision by the shareholders. The shareholders’ right to withdraw referred to in item (8) may be exercised only if the split results in: (a) a change in the corporate objects, except when the equity value of the assets and liabilities split off is passed to a company whose preponderant activity coincides with that arising from the corporate objects of the company from which it is split; (b) reduction of the mandatory dividend; or (c) participation in a group of companies. Also note that in the case of item (10), the right to withdraw applies to all the Company’s shareholders, and not only to those who have been dissident at the related General Meeting of shareholders. The right to redeem shares will expire 30 calendar days from publication of the minutes of the related shareholders’ meeting, except: (a) in the case of items (1) and (2) above, if the decision is subject to confirmation by the holders of the preferred shares (which must be given in an Extraordinary General Meeting to be held within one year), in which case the period of 30 days shall be counted from publication of the minutes of the Extraordinary General Meeting; or (b) in the case of item (5), (6) and (7) above, in which case the period of 30 days shall be counted from the end of a period of 120 days, given for the company resulting from the amalgamation, merger or unbundling to obtain a listed company registration and have its shares listed on the secondary market.

Our Company has the right to reconsider any act that gives rise to rights of redemption within 10 calendar days of expiry of such rights if the redemption of shares of dissident shareholders places the Company’s financial stability at risk. Law 9,457 enacted on May 5, 1997, which altered Brazilian Corporate Law, contains provisions which, among other matters, restrict the rights of redemption in certain cases and allow companies to redeem their shares for their economic value, subject to certain requirements. Ourby-laws at present do not specify that our share capital may be redeemed at its economic value and, consequently, any redemption in accordance with Brazilian Corporate Law would be made at a minimum of the book value per share, determined on the basis of the last Statement of financial position approved by the shareholders, it being stipulated that, if the General Meeting which gives rise to the rights of redemption has taken place more than 60 calendar days of the date of the last approved Statement of financial position approved, the shareholder shall have the right to require that its shares be valued based on a new Statement of financial position on a date that falls within a period of 60 calendar days of the General Meeting of Shareholders.

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Rights of Minority Shareholders –

Brazilian Corporate Law provides that shareholders owning at least 5% of the capital share of a corporation are afforded the following rights, among others:

the right to require that the books of the corporation be made available for review, whenever there is any indication of an act violating the Brazilian legislation or the Company’sby-laws, or whenever these have been violated, or if there are grounds for suspicion that serious irregularities have been committed by the company’s management;

the right to require the Company’s managers to reveal:

(i)·

The right to require that the books of the corporation be made available for review, whenever there is any indication of an act violating the Brazilian legislation or the Company’s by-laws, or whenever these have been violated, or if there are grounds for suspicion that serious irregularities have been committed by the company’s management; the right to require the Company’s managers to reveal:

oThe number of securities issued by the company or by subsidiaries, or companies of the same group, that theyThey have acquired or sold, directly or through other people, in the prior business year;

(ii)o

shareShare purchase options that management have contracted or exercised in the prior business year;

(iii)o

allAll benefits or advantages, whether indirect or complementary, that they have received or which they are receiving from the company, or from affiliated or subsidiary companies or companies of the same group;

(iv)o

theThe terms of such employment contracts as have been signed by the company with directors or high-level employees; and/or

(v)o

anyAny other material acts or facts in relation to the activities of the company.

·The right to require that the members of the Fiscal Council supply information about matters within their sphere of competence;
·The right to call General Meetings of Shareholders, in certain circumstances, whenever the members of the Board of Directors or of the Executive Board omit to do so; and
·The right to file legal actions for indemnity against members of the Board of Directors or the Executive Board, as the case may be, for losses and/or damages caused to the company’s property, whenever it is decided in the General Meeting of Shareholders that such an application for indemnity will not be presented.

 

the right to require that the members of the Fiscal Council supply information about matters within their sphere of competence;

the right to call General Meetings of Shareholders, in certain circumstances, whenever the members of the Board of Directors or of the Executive Board omit to do so; and

the right to file legal actions for indemnity against members of the Board of Directors or the Executive Board, as the case may be, for losses and/or damages caused to the company’s property, whenever it is decided in the General Meeting of Shareholders that such an application for indemnity will not be presented.

Minority shareholders that own, individually or in aggregate, our outstanding common shares (since at least 10% of our outstanding common shares are held by minority shareholders), and also holders of our preferred shares, have the right to appoint one member of the Fiscal Council and an alternate. All shareholders have the right to attend general meetings of shareholders.

Brazilian Corporate Law also provides that minority shareholders that hold either (i) preferred shares representing at least 10% of the total share capital of a company or (ii) common shares representing at least 15% of the voting capital of a company, have the right to appoint one member and an alternate to the Board of Directors. If no common or preferred shareholder meets these thresholds, shareholders holding preferred shares or common shares representing at least 10% of the total share capital of the company are entitled to combine their holdings to appoint one member and an alternate to the Board of Directors.

Changes in rights of shareholders –

A General Meeting of Shareholders must be held whenever the Company intends to change the rights of holders of our common shares or preferred shares. Under Brazilian Corporate Law the proposed changes must be approved by a majority of the class of shareholders that would be affected. Certain changes related to the rights of preferred shares, such as changes in preferences, advantages or conditions of redemption or amortization, may result in the exercise of rights to withdraw by the holders of the shares affected.

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Going Private Transactions and Delisting from the B3 –

Our delisting, as a public company, must be preceded by a tender offer by our controlling shareholders or the Company for the acquisition of all of the then outstanding shares, subject to the conditions below:

·The price offered for the shares under the public offering must be the fair value of those shares, as established in Brazilian Corporate Law; and
·Shareholders holding more than two thirds of our float shares shall have expressly agreed to the decision to become a private company or accepted the offer.

 

the price offered for the shares under the public offering must be the fair value of those shares, as established in Brazilian Corporate Law; and

shareholders holding more than two thirds of our float shares shall have expressly agreed to the decision to become a private company or accepted the offer.

Under Brazilian Corporate Law, the fair price shall be at least equal to our valuation as determined by one or more of the following valuation methods: Shareholders’ equity as expressed by book value, Shareholders’ equity valued at market prices, discounted cash flow, comparison of multiples, the quoted price of our shares on the securities market; or based on some other method of valuation accepted by the CVM. The price of the offer may be revised if it is challenged within 15 calendar days of its publication by holders of at least 10% of our outstanding shares, by means of a request sent to our management for an extraordinary General Meeting of Shareholders to be called to decide on whether to request new valuations, using the same, or another, valuation method. If the new valuation is lower than the valuation challenged, the shareholders that requested a new valuation, and those that approved the request, shall reimburse us for the costs incurred. However, if the second valuation is higher, the offering party will have the option to continue the offer, with the new price, or withdraw the offer.

Arbitration

Pursuant toUnder the Brazilian Corporate Law and its related regulations, if provided for in a company’sby-laws, disputes amonglitigation between shareholders will beis subject to arbitration. Ourthe arbitration specified in the by-laws. Under Clause 44 of CEMIG’s by-laws, currently do not provide the Company, its shareholders, managers and members of the Fiscal Council undertake to resolve through arbitration, preceded by mediation, before the Market Arbitration Chamber (CAM) of the B3 or the FGV Mediation and Arbitration Chamber, all and any dispute or controversy that may arise between them related to or arising from, in particular, the application, validity, efficacy, interpretation or violation of the provisions contained in the applicable legislation and regulations, the by-laws, any shareholders’ agreements filed at the head office, the rules issued by the Brazilian Securities Commission (CVM), or the other rules applicable to the functioning of the capital markets in general, as well as those contained in the Level 1 Regulations of the B3. Without prejudice to the validity of this arbitration clause, application for arbitration.urgency measures, before the arbitration tribunal has been constituted, should be remitted to the Judiciary, through the courts of the legal distinct of Belo Horizonte, Minas Gerais.

Material Contracts

For information concerning our material contracts, see “Item 4, Information on the Company” and “Item 5, Operating and Financial Review and Prospects”.

Exchange Controls

There are no restrictions on the ownership of preferred shares or common shares ofnon-financial institutions by legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of preferred shares or common shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation, which generally requires, among other things, that you register the relevant investment with the Central Bank and the CVM. Such restrictions on the remittance of foreign capital abroad may hinder or prevent the custodian for our common shares represented by our ADSs or the holders of our common shares from converting dividends, distributions or the proceeds from any sale of these shares into U.S. dollars and remitting the U.S. dollars abroad. Holders of our ADSs could becouldbe adversely affected by delays in, or refusal to grant any, required government approval to convert Brazilian currency payments on the common shares underlying our ADS and to remit the proceeds abroad.

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Since March 30, 2015, CMN Resolution No. 4,373/2014, of September 29, 2014, has been in full effect, providing for the issuance of depositary receipts in foreign markets in respect to shares of Brazilian issuers. CMN Resolution No. 4,373/2014, among other acts, revoked CMN Resolution No. 1,927/1992, enacted on May 18, 1992, CMN Resolution No. 1,289/1987, of March 20, 1987, and CMN Resolution No. 2,689/2000, enacted on January 26, 2000. Under Brazilian law relating to foreign investment in the Brazilian capital markets, foreign investors registered with the CVM and acting through authorized custodial accounts managed by local agents may buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration for each transaction. Foreign investors may register their investment under Law No. 4,131/1962, enacted on September 3, 1962, as amended, or under CMN Resolution No. 4,373, enacted on September 20, 2014.

The Law No. 4,131/1962 is the main legislation concerning investment of direct foreign capital and foreign direct equity in companies based in Brazil. It is applicable to any amount of capital that enters Brazil in the form of foreign currency, goods or services. Foreign investment portfolios are regulated by CMN Resolution No. 4,373/2014, CVM Instruction No. 559/2015, enacted on March 27, 2015, which regulates the approval of ADR programs by the CVM, and CVM Instruction No. 560/2015, enacted on March 27, 2015, which regulates the filing of transactions and disclosure of information by foreign investors, all reflecting the provisions of CMN Resolution No. 4,373/2014.

As of January 1, 2016, foreign investors that intend to be registered with the CVM shall fulfill the requirements under CVM Instruction No. 560/2015. In accordance with CMN Resolution No. 4,373/2014, the definition of a foreign investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered abroad. In order to become a 4,373 Holder, a foreign investor must:

·Appoint at least one representative in Brazil, with powers to perform actions relating to its investment;
·Appoint an authorized custodian in Brazil for its investments, which must be a financial institution or entity duly authorized by the Central Bank or CVM;
·Appoint a tax representative in Brazil;
·Through its representative in Brazil, register itself as a foreign investor with the CVM;
·Through its representative in Brazil, register its foreign investment with the Central Bank; and
·Be registered with the Federal Tax Authority (‘Secretaria da Receita Federal’), or the ‘RFB’, pursuant to RFB Normative Instruction 1,634/2016, enacted on May 06, 2016, and RFB Normative Instruction No. 1,548/2015, enacted on February 13, 2015.

 

appoint at least one representative in Brazil, with powers to perform actions relating to its investment;

appoint an authorized custodian in Brazil for its investments, which must be a financial institution or entity duly authorized by the Central Bank or CVM;

appoint a tax representative in Brazil;

through its representative in Brazil, register itself as a foreign investor with the CVM;

through its representative in Brazil, register its foreign investment with the Central Bank; and

be registered with the Federal Tax Authority (Secretaria da Receita Federal), or the “RFB”, pursuant to RFB Normative Instruction 1,634/2016, enacted on May 06, 2016, and RFB Normative Instruction No. 1,548/2015, enacted on February 13, 2015.

Investments in the preferred shares through the holding of Preferred ADSs, or in the common shares through the holding of Common ADSs, must be made pursuant to Annex II to CMN Resolution No. 4,373 enacted on September 29, 2014. Direct investments in the preferred shares upon the cancellation of the Preferred ADSs, or in the common shares upon the cancellation of the Common ADSs, may be held by foreign investors under Law No. 4,131 of September 3, 1962 or CMN Resolution No. 4,373 enacted on September 29, 2014, both of which effectively allow registered foreign investors to invest substantially in any capital market instrument in Brazil and extend a favorable tax treatment to all foreign investors registered and qualified under CMN Resolution No. 4,373, who are not resident in a tax haven, as defined by Brazilian tax laws.

The Annex II Regulations provide for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. The Preferred ADSs have been approved under the Resolution No. 1,289, which was repealed by Resolution No. 4,373, by the Central Bank and the CVM, and the Common ADSs have been approved by the CVM (since authorization from the Central Bank is no longer necessary).

Electronic certificates of registration have been issued in the name of Citibank, N.A., the depositary bank, with respect to the Preferred ADSs and the Common ADSs, and are maintained by Citibank Distribuidora de Títulos e Valores Mobiliários S.A., the Brazilian custodian for the preferred shares and the common shares, on behalf of the depositary bank. These electronic certificates of registration are registered through the Central Bank Information System. Pursuant to the certificates of registration, the custodian and the depositary bank are able to convert dividends and other distributions or sales proceeds with respect to the preferred shares represented by Preferred ADSs and the common shares represented by the Common ADSs into foreign currency and remit the proceeds outside Brazil.

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In the event that a holder of Preferred ADSs exchanges such Preferred ADSs for preferred shares, or a holder of Common ADSs exchanges such Common ADSs for common shares, such investment will need to be registered with the Central Bank, according to Resolution No. 4,373. Thereafter, the holder may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, the preferred shares or the common shares, unless the holder is a duly qualified investor under Resolution No. 4,373 by registering with the CVM and the Central Bank and appointing a representative in Brazil. If not so registered, the holder will be subject to less favorable Brazilian tax treatment than a holder of Preferred ADSs or Common ADSs. Regardless of qualification under Resolution No. 4,373, residents in tax havens are subject to less favorable tax treatment than other foreign investors. See “—‘—Taxation—Brazilian Tax Considerations.”’

Under current Brazilian legislation, the Brazilian Federal Government may impose temporary restrictions of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately nine months in 1989 and early 1990, the Brazilian Federal Government froze all dividend and capital repatriations held by the Central Bank that were owed to foreign equity investors, in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian Federal Government directives. We cannot assure you that the Brazilin Federal Government will not impose similar restrictions on foreign reparations in the future.

Taxation

The following summary contains a description of certain Brazilian and U.S. federal income tax consequences of the purchase, ownership and disposition of preferred shares, common shares, and Preferred ADSs or Common ADSs by a United States person, as defined in section 7701(a)(30) of the Internal Revenue Code of 1986, or the Code, as amended, or a holder that otherwise will be subject to U.S. federal income tax on a net income basis in respect of preferred shares, common shares, Preferred ADSs or Common ADSs, which we refer to as a U.S. holder, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase preferred shares, common shares, Preferred ADSs or Common ADSs. In particular this summary deals only with U.S. holders that will hold preferred shares, common shares, Preferred ADSs or Common ADSs as capital assets and does not address the tax treatment of U.S. holders that own or are treated as owning 10% or more of the total combined voting power of all classes of stock entitled to vote of the Company or 10% or more of the total value of shares of all classes of stock of the Company or that may be subject to special tax rules, such as banks or other financial institutions, insurance companies, retirement plans, regulated investment companies, real estate investment trusts, dealers in securities or currencies, brokers, traders in securities that elect to mark to market, persons who are subject to section 451(b) of the Code,tax-exempt organizations, persons liable for alternative minimum tax, “pass-through entities”‘pass-through entities’ such as partnerships or persons that will hold preferred shares, common shares, Preferred ADSs or Common ADSs as part of a hedging transaction, constructive sale transaction, position in a “straddle”‘straddle’ or a “conversion transaction”‘conversion transaction’ for tax purposes, and persons that have a “functional currency”‘functional currency’ other than the U.S. dollar. If an entity treated as a partnership for U.S. federal income tax purposes invests in our preferred shares, common shares, Preferred ADSs or Common ADSs, the U.S. federal income tax considerations relating to such investment will depend in part upon the status and activities of such entity and the particular partner. Any such entity should consult its own tax advisor regarding the U.S. federal income tax considerations applicable to it and its partners relating to the purchase, ownership and disposition of such shares or ADSs. This summary, as relates to U.S. tax considerations, does not describe any implications under U.S. state or local tax law,non-U.S. tax law, or the federal estate tax or gift tax. U.S. shareholders should consult their own tax advisors regarding such matters.

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This summary is based upon the tax laws of Brazil and the United States as in effect on the date hereof which are subject to change, possibly with retroactive effect, and to different interpretations. Prospective purchasers of preferred shares, common shares, Preferred ADSs or Common ADSs are encouraged to consult their own tax advisors as to the Brazilian, U.S. or other tax consequences of the purchase, ownership and disposition of preferred shares, common shares, Preferred ADSs or Common ADSs, including, in particular, the effect of any foreign, state or local tax laws.

Although there is currently no income tax treaty in force between Brazil and the United States, the tax authorities of both countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of preferred shares, common shares, Preferred ADSs or Common ADSs.

Brazilian Tax Considerations

General — The following discussion summarizes the main Brazilian material tax consequences of the acquisition, ownership and disposal of preferred shares, common shares, Preferred ADSs or Common ADSs, as the case may be, by a holder that is not domiciled in Brazil, which we refer to as anon-Brazilian holder for purposes of Brazilian taxation. In the case of a holder of preferred shares or common shares, we assume the investment is registered with the Central Bank. The following discussion does not address all of the Brazilian tax considerations applicable to any particularnon-Brazilian holder. Therefore, eachnon-Brazilian holder should consult his or her own tax adviser concerning the Brazilian tax consequences of an investment in our preferred shares, common shares, Preferred ADSs or Common ADSs.

Taxation of Dividends — Dividends paid by the Company, including share dividends and other dividends paid in property to the depositary in respect of the preferred shares or common shares, or to anon-Brazilian holder in respect of the preferred shares or common shares, are currently exempted from withholding tax in Brazil to the extent that the dividends are paid out of profits generated as of January 1, 1996. Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding tax at varying rates, depending on the year the profits were generated.

Beginning in 2008, the Brazilian accounting rules were significantly modified in order to align them with IFRS. After the issuance of such new rules, a transitory tax regime (Regime Tributário de Transição or RTT), was created mainly to ensure neutrality of the new accounting rules in connection with the calculation and payment of corporate taxes on income. Thus, according to the RTT, Brazilian companies had, only for purposes of calculation of their taxable profit, to use the accounting rules and criteria that existed until December 2007.

As a result of the application of the RTT, the accounting profit of a Brazilian company might be significantly higher (or lower) than its taxable profit. Although this specific matter has not been expressly regulated by law, the Brazilian tax authorities issued a normative instruction stating that the amount of dividends paid in excess of the profit of a company determined as per the accounting rules and criteria that existed until December 2007 should be subject to taxation.

On April 14, 2014, Law No. 12,973 was issued to, among other, terminate the RTT and regulate how corporate taxable income should be assessed taking as a starting point the accounting profit calculated according to the new accounting rules introduced as from 2008. Such Law states that dividends related to all accounting profits generated between January 2008 and 31 December 2013 in excess of the established methods and criteria in force in 31 December, 2007, are not subject to withholding tax, and does not integrate the calculation of income tax and social contribution. With reference to 2014, the law is not clear, but tax authorities state that dividends paid in excess of the profit of a company determined as per the accounting rules and criteria that existed until December 2007 should be subject to withholding income tax at the rate of 15%, or 25% if thenon-Brazilian holder is domiciled in a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment (“Nil or Low Taxation Jurisdiction”). As of 2015, in view of the termination of the RTT, there would be no differences between the accounting and the taxable profit, so that dividends generated since 2015 should be fully paid with no Brazilian withholding tax implications.

Payments of ‘Interest on capital’– Law No. 9,249, enacted on December 26, 1995, as amended, enables Brazilian corporations to make distributions to shareholders, in Brazilian currency, of a payment referred to as Interest on capital (‘Juros sobre Capital Próprio’). The payment is calculated based on multiplying the value of the company’s Shareholders’ equity by the Federal Government’s “TJLP”‘TJLP’, as set forth by the Central Bank, and payments up to such an amount may be deducted by the company as an expense when calculating its profit that will be taxable by income tax and the Social Contribution Tax, subject to the deduction not exceeding the greater of:

·50% of the net income (after deduction of the Social Contribution tax on Net Income, and before the provision for corporate income tax and the amounts attributed to shareholders as Interest on capital) for the period in which the payment will be made; or
·50% of the sum of retained earnings and earnings reserves as of the date of the beginning of the period in respect of which the payment is made.

 

50% of the net income (after deduction of the Social Contribution tax on Net Income, and before the provision for corporate income tax and the amounts attributed to shareholders as Interest on capital) for the period in which the payment will be made; or

50% of the sum of retained earnings and earnings reserves as of the date of the beginning of the period in respect of which the payment is made.

Any payment of interest on capital to shareholders (including holders of Preferred ADSs in respect of preferred shares and Common ADSs in respect of common shares) is subject to a withholding tax at a rate of 15%, or 25% if thenon-Brazilian holder is domiciled in a Nil or Low Taxation Jurisdiction. These payments may be included, at their net value, as part of any mandatory dividend.

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Law No. 9,430, enacted on December 27, 1996 was amended by Law No. 11,727 enacted on June 24, 2008, and later by Law No. 11,941 enacted on May 27, 2009, establishing the concept of a ‘privileged tax regime’, to govern transactions involving transfer pricing, and to strict rules for capitalization. This concept has a wider reach than the concept of a Nil or Low Taxation Jurisdiction. Under the new laws, a ‘privileged tax regime’ is defined as one which has one or more of the following characteristics: (i) it does not tax income or it taxes it at a maximum rate lower than 20%; (ii) it grants tax advantages tonon-resident entities or individuals (a) without requiring substantial economic activity in the country or territory or (b) conditional uponnon-exercise of substantive business activity in the country or territory; (iii) it does not generate tax income outside its territory, or taxes such income with a maximum rate lower than 20% (or 17% if the jurisdiction follows international standards of tax transparency, as defined by Brazilian Internal Revenue Office, especially in what regards to the disclosure of information in respect to corporate structure, ultimate beneficial owner, ownership of assets and business activities carried on in their territory) or (iv) it does not allow access to information on shareholdings, ownership of assets or rights, or to the business transactions carried out.

Although interpretation of the current Brazilian tax legislation might lead to the conclusion that the concept of ‘privileged tax regime’ should apply only for the purposes of rules to govern transfer pricing in Brazil, it is unclear whether such concept would also apply to other types of transaction, such as investments carried out in the Brazilian financial and capital markets for the purposes of this law. In the event that the ‘privileged tax regime’ concept is interpreted to be applicable to transactions carried out in the Brazilian financial and capital markets, this tax law would accordingly result in the imposition of taxes on aNon-Brazilian-Resident Holder that meets the privileged tax regime requirements in the same way as is applicable to a Nil or Low Taxation Jurisdiction. Current and prospective investors should consult with their own tax advisors regarding the consequences of the implementation of Law 9,430 enacted on December 27, 1996, as amended, and of any related Brazilian tax law or regulation concerning the concepts of “Nil‘Nil or Low Taxation Jurisdiction”Jurisdiction’ or “privileged‘privileged tax regimes”regimes’.

To the extent that payments of interest on capital are included as part of a mandatory dividend, we are required to distribute an additional amount to ensure that the net amount received by shareholders, after payment of the applicable withholding tax is at least equal to the mandatory dividend.

Distributions of interest on net equity to foreign holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered with the Central Bank.

We cannot assure you that our Board of Directors will not determine that future distributions should be made by means of dividends or interest on net equity.

Taxation of Gains — According to Law No. 10,833/03, the gains recognized on a disposal of assets located in Brazil, such as CEMIG shares, by anon-Brazilian holder, are subject to withholding income tax in Brazil. This rule is applicable regardless of whether the disposal is conducted in Brazil or abroad whether or not the disposal is made to an individual or entity resident or domiciled in Brazil.

As a general rule, capital gains realized as a result of a disposal transaction are the positive difference between the amount realized on the disposal of the asset and the respective acquisition cost.

Capital gains realized bynon-Brazilian holders on the disposal of shares sold on the Brazilian stock exchange (which includes the transactions carried out on the officialover-the-counter market) are subject to:

·Withholding income tax at a zero percent rate, when realized by a non-Brazilian holder that (i) has registered its investment in Brazil whit the Central Bank under the rules of the Brazilian Monetary Council, (‘CMN’) (‘Resolution No. 4,373 enacted on September 29, 2014’), or a Registered Holder, and (ii) is not a Nil or Low Taxation Jurisdiction Holder;
·In all other cases, including gains realized by a Non-Resident Holder that is not a Registered Holder and/or is a resident of or domiciled in a Nil or Low Taxation Jurisdiction, subject to income tax at a 15.0% rate. In this case, a withholding income tax of 0.005% shall be applicable and can be offset against any income tax due on the capital gain.

 

withholding income tax at a zero percent rate, when realized by anon-Brazilian holder that (i) has registered its investment in Brazil whit the Central Bank under the rules of the Brazilian Monetary Council, (“CMN”) (“Resolution No. 4,373 enacted on September 29, 2014”), or a Registered Holder, and (ii) is not a Nil or Low Taxation Jurisdiction Holder;

in all other cases, including gains realized by aNon-Resident Holder that is not a Registered Holder and/or is a resident of or domiciled in a Nil or Low Taxation Jurisdiction, subject to income tax at a 15.0% rate. In this case, a withholding income tax of 0.005% shall be applicable and can be offset against any income tax due on the capital gain.

Any other gains assessed on the disposition of the common shares that are not carried out on the Brazilian stock exchange are subject to income tax at a rate of 15%, except for Nil or Low Taxation Jurisdiction, which, in this case, would be subject to income tax at a rate of 25%. Law No. 13,259 of March 17, 2016 increased the income tax rates applicable to gains derived by Brazilian individuals up to 22.5% and, such increase, applicable as of January 2017, may also affectNon-Resident Holders.Non-Resident Holders should consult with their own tax advisors regarding the consequences of Law 13,259/2016. In the cases above, if the gains are related to transactions conducted on the Brazilian unofficialover-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable and can be offset against any income tax due on the capital gain.

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Any exercise of preemptive rights relating to shares will not be subject to Brazilian income tax. Gains realized by anon-Brazilian holder on the disposal of preemptive rights will be subject to Brazilian income tax according to the same rules applicable to the disposal of shares.

There can be no assurance that the current favorable tax treatment of Registered Holders will continue in the future.

Sale of Preferred ADSs and Common ADSs by U.S. Holders to OtherNon-Residents in Brazil—Brazil—Pursuant to Section 26 of Law No. 10,833, published on December 29, 2003, the sale of property located in Brazil involvingnon-resident investors is subject to Brazilian income tax as of February 1, 2004. Our understanding is that ADSs do not qualify as property located in Brazil and, thus, should not be subject to the Brazilian withholding tax; nevertheless, there is a risk that the Tax Authorities will try to assert Brazilian tax jurisdiction in such situation, reason whyNon-Resident Holders should consult with their own tax advisors the chances of success in that respect Insofar as the regulatory norm referred to is generic and has not been tested through the administrative or judicial courts, we are unable to assure the final outcome of such situation.

If such argument does not prevail, it is important to mention that with respect to the cost of acquisition to be adopted for calculating such gains, Brazilian law has conflicting provisions regarding the currency in which such amount must be determined, CEMIG’s Brazilian counsel’s view is that the capital gains should be based on the positive difference between the cost of acquisition of the preferred shares or common shares registered with the Central Bank in foreign currency and the value of disposal of those preferred shares or common shares in the same foreign currency. This view has been supported by aA precedent issued by the Brazilian administrative court.court has supported this view. However, considering that the tax authorities are not bound by such precedent, assessments have been issued adopting the cost of acquisition in Brazilian currency.

Gains on the Exchange of Preferred ADSs for Preferred Shares or the Exchange of Common ADSs for Common SharesShares——Although there is no clear regulatory guidance, the exchange of ADSs for shares should not be subject to Brazilian tax to the extent that, as described above, ADSs do not qualify as property located in Brazil for the purposes of Law No. 10,833.Non-Brazilian holders may exchange Preferred ADSs for the underlying preferred shares or Common ADSs for the underlying common shares, sell the preferred shares or common shares on a Brazilian stock exchange and remit abroad the proceeds of the sale within five business days of the date of exchange (according to the depositary’s electronic registration), with no tax consequences. Although there is no clear regulatory guidance, the exchange of ADSs for shares should not be subject to Brazilian withholding income tax. Nevertheless, it is important to mention that there is no precedent regarding this matter in administrative or judicial courts.

Upon receipt of the underlying preferred shares in exchange for Preferred ADSs or the underlying common shares in exchange for Common ADSs,non-Brazilian holders may also elect to register with the Central Bank the U.S. dollar value of such preferred shares or common shares as a foreign portfolio investment under CMN Resolution No. 4,373/2014, which will entitle them to the tax treatment referred to above in connection with “U.S.‘U.S. market investors”investors’.

Alternatively, thenon-Brazilian holder is entitled to register with the Central Bank the U.S. dollar value of such preferred shares or common shares as a foreign direct investment under Law No. 4,131/62, in which case the respective sale would be subject to the tax treatment referred in the section “Taxation‘Taxation of Gains”Gains’.

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Gains on the Exchange of Preferred Shares for Preferred ADSs or Common Shares for Common ADSsADSs—— With reference to the deposit of preferred shares in exchange for the Preferred ADSs or common shares in exchange for the Common ADSs, the difference between the acquisition cost of the preferred shares or common shares and the market price of the preferred shares or common shares is considered to be a capital gain subject to income tax at a rate from 15% or 25%for Nil or Low Taxation Jurisdiction Holders. Although there is no clear regulatory guidance, such taxation should not apply in case ofNon-Resident Holders registered under CMN Resolution No. 4,373/2014, except for Nil or Low Taxation Jurisdiction Residents. Law No. 13,259 of March 17, 2016 increased the income tax rates applicable to gains derived by Brazilian individuals up to 22.5% and, such increase, applicable as of January 2017, may also affectNon-Resident Holders.Non-Resident Holders should consult with their own tax advisors regarding the consequences of Law 13,259/2016.

Taxation of foreign exchange transactions—Brazilian law imposes Financial Transactions Tax (("Imposto sobreOperações Financeiras, or “IOF”‘IOF’) on foreign exchange transactions (known as the IOF/Câmbio, or ‘FX IOF’), on conversion ofreaisReais into foreign currency or vice-versa. The currently applicable rate of this tax for almost all foreign exchange transactions is 0.38%. However, exchange transactions carried out for the inflow of funds in Brazil for investments in the Brazilian financial and capital market made by a foreign investor (including aNon-Resident Holder, as applicable) are subject to IOF/Exchange at a 0%. The IOF/Exchange rate will also be 0% for the outflow of funds from Brazil related to these types of investments, including payments of dividends and interest on shareholders’ equity and the repatriation of funds invested in the Brazilian market.

Notwithstanding the said rates of the FX IOF tax in effect on the date of publication hereof, the Finance Ministry is authorized by law to increase the rate of this tax up to a maximum of 25% of the value of the transaction, but only for future transactions.

Taxation on transactions relating to securities—securities—Brazilian legislation imposes a tax on financial transactions relating to securities (referred to as theIOF tax on Securities, or “IOF/‘IOF/Títulos”tulos’), including transactions made on Brazilian stock exchanges.

The IOF Tax on Securities may also apply to transactions involving ADSs of preferred shares, or ADSs of common shares, if they are considered by the Brazilian tax authorities to be assets located in Brazil.

The rate of the IOF Tax on Securities applicable to transactions involving shares (preferred shares, ADSs for preferred shares, common shares and ADSs for common shares) is currently zero. Moreover, by Decree No. 8,165 enacted on December 24, 2013, the rate of the IOF Tax on Securities applicable on assignment of shares traded on a Brazilian stock exchange for the specific purpose of the underlying issuance of DRs outside Brazil was reduced to zero.

The Finance Ministry has the power to increase the rates of IOF Tax on Securities to as high as 1.5% per day, but this is applicable only to future transactions.

Other Brazilian Taxes—Taxes — Some Brazilian states impose gift and inheritance tax on gifts or bequests made by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such states. There are no Brazilian stamp, issues, registrations, or similar taxes or duties payable by holders of preferred shares, common shares, Preferred ADSs or Common ADSs.

U.S. Tax Considerations –

In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, a U.S. holder of ADSs is typically treated as the owner of the underlying shares represented by those ADSs. Consequently, exchanges of ADSs into shares, and shares into ADSs, generally, will not be subject to U.S. federal income tax.

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Taxation of Distributions—Subject to the discussion below under “– Passive‘Passive Foreign Investment Company Rules,”Rules’, distributions with respect to the shares or the ADSs (other than distributions in redemption of the shares subject to Section 302(b) of the Code or in a liquidation of the Company) will, to the extent made from current or accumulated earnings and profits of the Company as determined under U.S. federal income tax principles, constitute dividends. A distribution also includes distributions characterized as interest attributable to shareholders’ capital for Brazilian law purposes and the amount of any Brazilian taxes withheld on any such distribution, if any, even though a U.S. holder will not receive such amount as part of their distribution. Whether current or accumulated earnings and profits will be sufficient for all such distributions on the shares or ADSs to qualify as dividends depends on the future profitability of the Company and other factors, many of which are beyond the control of the Company. To the extent that such a distribution exceeds the amount of the Company’s earnings and profits, it will be treated as anon-taxable return of capital to the extent of the U.S. holder’s basis in the shares or ADSs, and thereafter as capital gains. As used below, the term “dividend”‘dividend’ means a distribution that constitutes a dividend for U.S. federal income tax purposes. The Company does not currently intend to continue the calculations of its earnings and profits under U.S. federal income tax principles. Accordingly, U.S. holders should expect that all distributions made with respect to the shares or ADSs will generally be treated as dividends. Cash dividends (including distributions characterized as interest attributable to shareholders’ capital for Brazilian law purposes and amounts withheld in respect of Brazilian taxes) paid with respect to:

(i)·

theThe shares generally will be included in the gross income of a U.S. holder as ordinary income on the day on which the dividends are actually or constructively received by the U.S. holder; or

(ii)·

theThe shares represented by ADSs generally will be included in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the depositary bank, and in either case, will not be eligible for the dividends received deduction allowed to corporations. Dividends paid inreaisReais will be included in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day they are received by the U.S. holder, in the case of shares, or the depositary bank, in the case of shares represented by ADSs.

If dividends paid inreaisReais are converted into U.S. dollars on the day they are received by the U.S. holder or the depositary bank, as the case may be, U.S. holders generally should not be required to recognize a foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisors regarding the treatment of any foreign currency gain or loss if anyreaisReais received by the U.S. holder or the depositary bank are not converted into U.S. dollars on the date of receipt, as well as the tax consequences of the receipt of any additionalreaisReais from the custodian due to Brazilian inflation.

Dividends will generally constitute foreign source income and will generally constitute “passive‘passive category income”income’ or, in the case of certain U.S. holders, “general‘general category income,”’ for foreign tax credit purposes. In the event Brazilian withholding taxes are imposed on such dividends, such taxes may be treated as a foreign income tax eligible, subject to generally applicable limitations and conditions under U.S. federal income tax law, for a credit against a U.S. holder’s U.S. federal income tax liability (or at a U.S. holder’s election, may be deducted in computing taxable income). The calculation and availability of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions, involves the application of rules that depend on a U.S. holder’s particular circumstances. U.S. holders should consult their own tax advisors regarding the availability of foreign tax credits with respect to Brazilian withholding taxes.

Distributions to U.S. holders of additional common shares or preemptive rights relating to such common shares with respect to their common shares or Common ADSs that are made as part of apro rata distribution to all shareholders of the Company generally will not be treated as dividend income for U.S. federal income tax purposes, but could result in additional U.S.-source taxable gain upon the sale of such additional shares or preemptive rights. Non-pro rata distributions of such shares or rights generally would be included in the U.S. holder’s gross income to the same extent and in the same manner as distributions payable in cash. In that event, the amount of such distribution (and the basis of the new shares or preemptive rights so received) generally will equal the fair market value of the shares or preemptive rights on the date of distribution. It is not entirely clear whether the preferred shares will be treated as preferred shares or common shares for this purpose. If the preferred shares are treated as common shares for these purposes the treatment above would apply to distributions of shares or preemptive rights with respect to preferred shares or Preferred ADSs. On the other hand, if the preferred shares are treated as preferred shares a distribution of additional shares or preemptive rights would be included in gross income to the same extent as a cash distribution whether or not such distribution is considered apro rata distribution.

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Qualified Dividend Income –Notwithstanding the foregoing, certain dividends received by individual U.S. holders that constitute “qualified‘qualified dividend income”income’ currently may be subject to a reduced maximum marginal U.S. federal income tax rate. Qualified dividend income generally includes, among other dividends, dividends received during the taxable year from “qualified‘qualified foreign corporations”corporations’. In general, a foreign corporation is treated as a qualified foreign corporation with respect to any dividend paid by the corporation with respect to shares of the corporation that are readily tradable on an established securities market in the United States. For this purpose, a share is treated as readily tradable on an established securities market in the United States if an ADR backed by such share is so traded.

Notwithstanding this previous rule, dividends received from a foreign corporation that is a passive foreign investment company (as defined below under “Passive‘Passive Foreign Investment Company Rules”Rules’) in either the taxable year of the corporation in which the dividend was paid or the preceding taxable year will not constitute qualified dividend income. In addition, the term “qualified‘qualified dividend income”income’ will not include, among other dividends, any (i) dividends on any share or ADS which is held by a taxpayer for 60 days or less during the121-day period beginning on the date which is 60 days before the date on which such share or the shares backing the ADS becomeex-dividend with respect to such dividends (as measured under section 246(c) of the Code) or (ii) dividends to the extent that the taxpayer is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Moreover, special rules apply in determining a taxpayer’s foreign tax credit limitation under section 904 of the Code in the case of qualified dividend income.

Individual U.S. holders should consult their own tax advisors to determine whether or not amounts received as dividends from us will constitute qualified dividend income subject to a reduced maximum marginal U.S. federal income tax rate and, in such a case, the effect, if any, on the individual U.S. holder’s foreign tax credit.

Taxation of Capital GainsSales, Redemptions and Other Taxable Dispositions — — Deposits and withdrawals of shares by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.

Subject to the discussion below under – “Passive‘Passive Foreign Investment Company Rules”Rules’, gains or losses realized by a U.S. holder on the sale, redemption or other taxable disposition of shares or ADSs will be subject to U.S. federal income taxation as capital gains or losses in an amount equal to the difference between such U.S. holder’s basis in the shares or the ADSs and the amount realized on the disposition.disposition in the case of the shares as determined in U.S. dollars. Gains or losses recognized by a U.S. holder on such a sale, redemption or other taxable disposition generally will be long-term capital gains or losses if, at the time of the sale or other taxable disposition, the shares or ADSs, as applicable, have been held for more than one year. Certainnon-corporate U.S. holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deduction of a capital loss is subject to limitations for U.S. federal income tax purposes.

A gain realized by a U.S. holder on a sale, redemption or other taxable disposition of shares or ADSs, including a gain that arises because the U.S. holder’s basis in the shares or ADSs has been reduced because a distribution is treated as a return of capital rather than as a dividend, generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Accordingly, if Brazilian withholding tax or income tax is imposed on the sale, redemption or other disposition of shares or ADSs as described in — “Taxation—‘Taxation—Brazilian Tax Considerations”Considerations’, such tax generally will not be available as a credit for the U.S. holder against U.S. federal income tax unless the U.S. holder has other income treated as derived from foreign sources, in the appropriate category, for purposes of the foreign tax credit rules.

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If a Brazilian withholding tax or income tax is imposed on the sale, redemption or other taxable disposition of shares or ADSs, the amount realized by a U.S. holder will include the gross amount of the proceeds of such sale, redemption or other taxable disposition before deduction of the Brazilian withholding tax or income tax if applicable. The availability of U.S. foreign tax credits for these Brazilian taxes is subject to certain limitations and involves the application of rules that depend on a U.S. holder’s particular circumstances. U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of, shares or ADSs.

Passive Foreign Investment Company Rules – Certain adverse U.S. federal income tax rules generally, apply to a U.S. person that owns or disposes of stock in anon-U.S. corporation that is classified as a passive foreign investment company (a “PFIC”‘PFIC’). In general, anon-U.S. corporation will be classified as a PFIC for any taxable year during which, after applying relevant look-through rules with respect to the income and assets of subsidiaries, either (i) 75% or more of thenon-U.S. corporation’s gross income is “passive income”‘passive income’ or (ii) 50% or more of the gross value (determined on a quarterly basis) of thenon-U.S. corporation’s assets produce passive income or are held for the production of passive income. For these purposes, passive income generally includes, among other things, dividends, interest, rents, royalties, gains from the disposition of passive assets and gains from commodities and securities transactions (other than certain active business gains from the sale of commodities). In determining whether anon-U.S. corporation is a PFIC, a pro rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.

The Company does not believe that it was a PFIC, for United States federal income tax purposes, for its preceding taxable year and does not expect to be a PFIC in its current taxable year or in the foreseeable future. However, because PFIC status depends upon the composition of a company’s income and assets, the market value of assets from time to time, and the application of rules that are not always clear, there can be no assurance that the Company will not be classified as a PFIC for any taxable year.

If the Company was to be classified a PFIC, a U.S. holder could be subject to material adverse tax consequences including being subject to greater amounts of tax on gains and certain distributions on the shares or ADSs as well as increased reporting requirements. U.S. holders should consult their tax advisors about the possibility that the Company might be classified as a PFIC and the consequences if the Company was classified as a PFIC.

Tax on Net Investment Income – – A U.S. holder that is an individual, an estate or a trust (other than a trust that falls into a special class of trusts that is exempt from such tax) will be subject to a 3.8% tax on the lesser of (i) the U.S. holder’s “net‘net investment income”income’ (in the case of individuals) or “undistributed‘undistributed net investment income”income’ (in the case of estates and trusts) for the relevant taxable year and (ii) the excess of the U.S. holder’s “modified‘modified adjusted gross income”income’ (in the case of individuals) or “adjusted‘adjusted gross income”income’ in the case of estates and trusts) for the taxable year over a certain threshold (which, in the case of individuals, will be between $125,000 and $250,000 depending upon the individual’s circumstances). A U.S. holder’s net investment income will generally include its dividend income on the shares or ADSs, and its net gains from the disposition of the shares or ADSs. U.S. holders that are individuals, estates or trusts should consult their own tax advisors regarding the applicability of this tax to their income and gains in respect of the shares or ADSs.

Information Reporting and Backup Withholding — — Information reporting requirements will generally apply to U.S. holders of ADSs and U.S. holders will be required to comply with applicable certification procedures to establish that they are not subject to backup withholding. Investors who are individuals and fail to report the required information could be subject to substantial penalties. Investors should consult their own tax advisors regarding these requirements. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the U.S. Internal Revenue Service on a timely basis.

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Disclosure Requirements for Specified Foreign Financial Assets – – Certain U.S. holders that own certain “specified‘specified foreign financial assets”assets’ with an aggregate value in excess of US$50,000 on the last day of the tax year or US$75,000 at any time during the tax year are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified‘Specified foreign financial assets”assets’ generally include any financial accounts held at anon-U.S. financial institution, as well as securities issued by anon-U.S. issuer that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. U.S. holders who fail to report on their specified foreign financial assets could be subject to substantial tax penalties. U.S. holders should consult their own tax advisors regarding the application of these information reporting rules to the ADSs or shares, including the application of these rules to their own particular circumstances.

Documents on Display

We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of the materials may be obtained from the SEC’s Public Reference Room at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, copies of the exhibits that accompany this annual report may be inspected at our principal executive offices located at Avenida Barbacena, 1219, 30190-131 Belo Horizonte, Minas Gerais, Brazil.

Dividends and Paying Agents

We pay dividends on preferred shares and common shares in the amounts and in the manner set forth under “Item 8, Financial Information—Dividend Policy and Payments”. We will pay dividends in respect of preferred shares represented by Preferred ADSs or common shares represented by Common ADSs to the custodian for the depositary bank, as record owner of the preferred shares represented by Preferred ADSs or the common shares represented by Common ADSs. As promptly as practicable after receipt of the dividends we pay through Citibank N.A. to the custodian, it will convert these payments into U.S. dollars and remit such amounts to the depositary bank for payment to the holders of Preferred ADSs or Common ADSs in proportion to individual ownership.

Documents on Display

We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In accordance with these requirements, we file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of the materials may be obtained from the SEC’s Public Reference Room at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at1-800-SEC-0330. In addition, copies of the exhibits that accompany this annual report may be inspected at our principal executive offices located at Avenida Barbacena, 1219,30190-131 Belo Horizonte, Minas Gerais, Brazil.

Insurance

We have insurance policies to cover fire damages to the two buildingsbuilding in which our head office is located and to other owned or rented buildings. Our operational risk insurance policy covers damages to the turbines, generators and transformers of our principal generating plants and substations caused by lightning, fire and explosion or risks such as equipment failure.

We also have insurance policies covering damage to or caused by aircraft used in our operations.

We do not have general third party liability insurance to cover accidents, and we do not seek proposals for this type of insurance. There is however a possibility that we may contract this type of insurance in the future.

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Also,

In addition, we do not seek proposals for, nor do we have, insurance cover against major natural disasters that might affect our facilities, such as earthquakes and floods or failures of the operational system.

We do not have insurance coverage for the risk of interruption of business, which means that damages suffered by our company, and consequent damages suffered by our customers as a resultbecause of interruption in the supply of energy are in general not covered by our insurance and we may be subject to significant losses. See the Section “Item 3, Key Information-Risk Factors-Risks relating to CEMIG. We operate without insurance policies against natural disasters and third-party liability.”liability”.

We believe that, since we contract insurance against fire and operational risk, our insurance cover is at a level that is usual in Brazil for the type of business that we conduct.

Difficulties of Enforcing Civil Liabilities againstNon-U.S. Persons

We are a state-controlled mixed capital company established under the laws of Brazil. All of our executive officers and directors presently reside in Brazil. In addition, substantially all of our assets are located in Brazil. As a result, it will be necessary for holders of Preferred ADSs or Common ADSs to comply with Brazilian law in order to obtain an enforceable judgment against our executive officers or directors or our assets. It may not be possible for holders of Preferred ADSs or Common ADSs to effect service of process within the United States upon our executive officers and directors, or to enforce in the United States judgments against these persons obtained in U.S. courts based upon civil liabilities of these persons, including any judgments based upon U.S. federal securities laws, to the extent these judgments exceed these persons’ U.S. assets. We have been advised by Brazilian counsel, Tozzini Freire Teixeira e SilvaRolim, Viotti, Goulart, Cardoso Advogados, that judgments of U.S. courts for civil liabilities based upon the federal securities laws of the United States may be, subject to the requirements described below, enforced in Brazil to the extent Brazilian courts may have jurisdiction. A judgment against the Company, or the persons described above, obtained outside Brazil, is subject to confirmation by the Brazilian Superior Court of Justice, without reconsideration of the merits. That confirmation will occur if the foreign judgment:

·Fulfills all formalities required for its enforceability under the laws of the country where the foreign judgment is granted;
·Is issued by a competent court after proper service of process is made, or after sufficient evidence of the parties’ absence has been given, as established pursuant to applicable Law;
·Is not subject to appeal;
·Is for the payment of a specified amount;
·Except if otherwise provided in the Apostille Convention, is authenticated by a Brazilian consular officer in the country where the foreign judgment is issued and is accompanied by a sworn translation into Portuguese; and
·Is not contrary to Brazilian national sovereignty, public policy, public morality or human dignity.

 

fulfills all formalities required for its enforceability under the laws of the country where the foreign judgment is granted;

is issued by a competent court after proper service of process is made, or after sufficient evidence of the parties absence has been given, as established pursuant to applicable Law;

is not subject to appeal;

is for the payment of a specified amount;

is authenticated by a Brazilian consular officer in the country where the foreign judgment is issued and is accompanied by a sworn translation into Portuguese; and

is not contrary to Brazilian national sovereignty, public policy or public morality.

We cannot be certain that the confirmation process described above will be conducted in a timely manner or that Brazilian courts would enforce a monetary judgment for violation of the United States securities laws with respect to the Preferred ADSs and the preferred shares represented by the Preferred ADSs or the Common ADSs and the common shares represented by the Common ADSs.

We were further advised by the abovementioned Brazilian counsel that:

original
·Original actions based on the federal securities laws of the United States may be brought in Brazilian courts and that, subject to Brazilian public policy and national sovereignty. Brazilian courts will enforce liabilities in such actions against us and our officers; and
·The ability of a creditor or the other persons named above to satisfy a judgment by attaching our assets or those of the selling shareholders is limited by provisions of Brazilian law.

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the ability of a creditor or the other persons named above to satisfy a judgment by attaching our assets or those of the selling shareholders is limited by provisions of Brazilian law.

A plaintiff (whether Brazilian ornon-Brazilian) residing outside Brazil during the course of litigation in Brazil must, in order to cover court costs and legal fees, provide a bond or if the plaintiff does not own any real property in Brazil, a guarantee. The bond must have a value sufficient to satisfy the payment of court fees and the defendant’s attorney fees, as determined by a judge in Brazil. This requirement does not apply to a proceeding to enforce a foreign judgment, which has been confirmed by the STJ (Superior(“Superior Tribunal de Justiça)a”).

Item 11.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk resulting from foreign currency exchange rates and interest rates fluctuations.

Foreign exchange risk results from certain of our loans and financing being denominated in currencies (primarily the U.S. dollar) other than the currency in which we earn revenues (the Brazilian real)Real). See “Item 5. Operating and Financial Review and Prospects – Critical Accounting Policies.”Policies”.

Exchange Rate Risk

On December 31, 2018 approximately 39.82%2020, R$7,866 million, representing 52.37% of our outstanding indebtedness, or R$5,882 million, waswere denominated in foreign currencies, of which approximately 100%100.00%, or R$5,882 million, was denominated in U.S. dollars. We do not have substantial revenues denominated in any foreign currencies and, due to regulations that require us to keep excess cash on deposit in real-denominatedReal-denominated accounts at Brazilian banks,banks; we do not have monetary assets denominated in foreign currencies.

In 2018,2020, a hypothetical 25% and 50% depreciation of the realReal against the U.S. dollar would result in an additional annual rate expense, of approximately R$1,5081,972 million and R$3,0163,940 million, respectively, reflecting the increased cost in reaisReais of foreign currency-denominated indebtedness from loans, financing and debentures, compared to probable scenario. This sensitivity analysis assumes a simultaneous unfavorable 25% and 50% fluctuation in each of the exchange rates affecting the foreign currencies in which our indebtedness is denominated.

The foreign exchange variations of the acquisition of energy from Itaipu is balanced by the CVA and Other financial components in tariff adjustment. This amount is passed through to customers in next tariff adjustment. Thus, this exposure affects the cash flow of the year, but does not affect the result of the year.

The table below provides summarized information regarding our exposure to exchange rate risk as of December 31, 2018:

2020:

U.S. Dollar:

(in millions of R$)

Financing7,866
Supplier (Itaipu)

U.S. Dollar:325

 8,191

Financing

5,882

Supplier (Itaipu)

268

Other Currencies:		 
Financing6,150

-

Other Currencies:

Financing

—  

Net liabilities exposed to exchange rate risk

6,1508,191

Swap transactions

On December 31, 2020 we had R$7,854 million in loans and financing outstanding that we use derivative instruments (swaps) to protect the servicing associated with these debts (principal plus interest).

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The derivative financial instruments contracted have the purpose of protecting the operations against the risks arising from foreign exchange variation and are not used for speculative purposes.

The notional amount of derivative transactions are not presented in the Company´s statement of financial position, since they refer to transactions that do not require cash as only the gains or losses actually incurred are recorded.

The table presents the derivative instruments contracted by the Company as of December 31, 2020:

Assets (1)Liability (1)Maturity periodTrade marketNotional amount (2)Unrealized gain/loss
Carrying amount 2020Fair value 2020

US$ exchange variation +

Rate (9.25% p.y.)

Local currency + R$150.49% of CDI

Interest:

Semi-annual

Principal:

Dec. 2024

Over the counterUS$1,0001,7722,110

US$ exchange variation +

Rate (9.25% p.y.)

Local currency + R$125.52% of CDI

Interest:

Semi-annual

Principal:

Dec. 2024

Over the counterUS$500588839
 

2,360

2,949

Current asset 523
Non-current asset 2,426

(1)For the US$1 billion Eurobond issued on December 2017: (i) for the principal, a call spread was contracted, with floor at R$3.25/US$ and ceiling at R$5.00/US$; and (ii) a swap was contracted for the total interest, for a coupon of 9.25% p.a. at an average rate equivalent to 150.49% of the CDI. For the additional US$500 issuance of the same Eurobond issued on July 2018: (1) a call spread was contracted for the principal, with floor at R$3.85/US$ and ceiling at R$5.00/US$; and (2) a swap was contracted for the interest, resulting in a coupon of 9.25% p.a., with an average rate equivalent to 125.52% of the CDI rate. The upper limit for the exchange rate in the hedge instrument contracted by the Company for the principal of the Eurobonds is R$5.00/US$. The instrument matures in December 2024. If the USD/BRL exchange rate is still over R$5.00 in December 2024, the company will disburse, on that date, the difference between the upper limit of the protection range and the spot dollar on that date. The Company is monitoring the possible risks and impacts associated with the dollar being valued above R$5.00, and assessing various strategies for mitigating the foreign exchange risk up to the maturity date of the transaction. The hedge instrument fully protects the payment of six-monthly interest, independently of the USD/BRL exchange rate.”
(2)In million of US$.

In accordance with market practice, the Company uses a mark-to-market method to measure its derivatives financial instruments for its Eurobonds. The principal indicators for measuring the fair value of the swap are the B3 future market curves for the DI rate and the dollar. The Black & Scholes model is used to price the call spread, and one of parameters of which is the volatility of the dollar, measured on the basis of its historic record over 2 years.

Interest Rate Risk

On December 31, 20182020 we had R$14,77215,020 million in loans and financing outstanding, of which approximately R$5,1692,383 million bear interest at rates tied to CDI rate and other floating indexes.

On December 31, 2018,2020, we had liabilities,assets, net of other assetsliabilities leaving interest at floating rates in the amount of R$1,7473,296 million. The assets consisted mainly of cash equivalents, as summarized in the tables below. A hypothetical, instantaneous and unfavorable change of 100 basis points in interest rates applicable to floating rate financial assets and liabilities held on December 31, 20182020 would result in a potential lossgain of R$1733 million accounted as a finance expense in our consolidated financial statements.

Total Debt Portfolio

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Total Debt Portfolio

(in millions of R$)

Floating rate debt: 

Floating rate debt:

Real-denominated		7,254

Real-denominated

8,999Fixed Rate debt: 

Fixed Rate debt:

Foreign currency-denominated		7,866
Transaction costs ( - )(57)
Paid interest (-)(25)
Discount on the issuance (-)

Foreign currency-denominated(18)

Total15,020

Total Portfolio5,882

Interest Rate Risk (in millions of R$)

Assets: 

Transaction costs (-)

Cash equivalents		(75) 1,587

Paid interest

Securities		(35) 4,125
Restricted Cash64
CVA and other financial components

134

Total5,910
 

Liabilities:		 
Financing(2,383)
Liabilities financial components…………………………………………………………………………………...

Total(231)

Total liabilities

(2,614)

Total14,7723,296

 

Total Portfolio
Interest Rate Risk
(in millions of R$)

Assets:

Cash equivalents

783

Securities

812

Accounts receivable – Renova

532

Advance for future delivery of power supply

94

CVA and other financial components

1,081

Reimbursement – Decontracting of supply

98

Reimbursement – Cessation of contracts

10

Restricted Cash

91

Total

3,501

Liabilities:

Advance sales of power supply

(79) 

Financing

(5,169) 

Total liabilities

(5,248) 

Total

(1,747) 

Item 12.

Description of Securities Other than Equity Securities

American Depositary Shares

Citibank, N.A, serves as the depositary (the “Depositary”‘Depositary’) for both our Common ADSs and Preferred ADSs. Holders of ADSs, any person or entity having a beneficial interest deriving from the ownership of the ADSs, and persons depositing shares or surrendering ADSs for cancellation and withdrawal of Deposited Securities (as defined in the Deposit Agreements) are required to pay to the Depositary certain fees and related charges as identified below.

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The fees associated with our Common ADSs are as follows:

Service

Rate

By Whom Paid

(1) Issuance of Common ADSs upon deposit of common shares (excluding issuances as a result of distributions described in paragraph (4) below).Up to $5.00 per 100 Common ADSs (or fraction thereof) issued.Persons depositing common shares or persons receiving Common ADSs.
(2) Delivery of Deposited Securities, property and cash against surrender of Common ADSs.Up to $5.00 per 100 Common ADSs (or fraction thereof) surrendered.Persons surrendering Common ADSs for purpose of withdrawal of Deposited Securities or persons to whom Deposited Securities are delivered.
(3) Distribution of cash dividends or other cash distributions (i.e. sale of rights and other entitlements).Up to $2.00 per 100 Common ADSs (or fraction thereof) held.Persons to whom a distribution is made.
(4) Distribution of Common ADSs pursuant to (i) share dividends or other free share distributions, or (ii) exercise of rights to purchase additional Common ADSs.Up to $5.00 per 100 Common ADSs (or fraction thereof) issued.Persons to whom a distribution is made.
(5) Distribution of securities other than Common ADSs or rights to purchase additional Common ADSs (i.e., spin off shares).Up to $5.00 per 100 Common ADSs (or fraction thereof) issued.Persons to whom a distribution is made.
(6) Transfer of ADRs.$1.50 per certificate presented for transfer.Persons presenting certificate for transfer.

The fees associated with our Preferred ADSs are as follows:

Service

Rate

By Whom Paid

(1) Issuance of Preferred ADSs upon deposit of preferred shares (excluding issuances contemplated by paragraphs (3) (b) and (5) below).Up to $5.00 per 100 Preferred ADSs (or fraction thereof) issued.Persons for whom deposits are made or persons receiving Preferred ADSs.
(2) Delivery of Deposited Securities, property and cash against surrender of Preferred ADSs.Up to $5.00 per 100 Preferred ADSs (or fraction thereof) surrendered.Persons surrendering Preferred ADSs or making withdrawal.
(3) Distribution of (a) cash dividend or (b) Preferred ADSs pursuant to share dividends (or other free distribution of share).No fee, soas long as prohibited by the exchange upon which the Preferred ADSs are listed. If the charging of such fee is not prohibited, the fees specified in (1) above shall be payable in respect of a distribution of Preferred ADSs pursuant to share dividends (or other free distribution of share) and the fees specified in (4) below shall be payable in respect of distributions of cash.Persons to whom a distribution is made.
(4) Distribution of cash proceeds (i.e., upon sale of rights and other entitlements).Up to $2.00 per 100 Preferred ADSs (or fraction thereof) held.Persons to whom a distribution is made.
(5) Distribution of Preferred ADSs pursuant to exercise of rights.Up to $5.00 per 100 Preferred ADSs (or fraction thereof) issued.Persons to whom a distribution is made.

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Direct and indirect depositary paymentspayments.

We have an agreement with the Depositary to reimburse the Company, up to a limited amount, for certain expenses in connection with our ADR programs, including listing fees, legal and accounting expenses, proxy distribution costs and investor relation related expenses. These reimbursements for the year ended December 31, 20182020 totaled a net amount of approximately US$ 3.60.958 million, after deduction of applicable U.S. taxes, in the amount of US$ 1.50.404 million.

PART II

 

Item 13.

Defaults, Dividend Arrears and Delinquencies

Not applicable.

 

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

 

Item 15.Item 15.

Controls and procedures

(a)

(a)       Assessment of Controls and Procedures for Disclosure

Our Executive Board, including theour Chief Executive Officer (“CEO”(‘CEO’) and Chief Finance and Investor Relations Officer, has assessed the effectiveness of our controls and procedures for financial disclosure and, although there are inherent limitations to the effectiveness of any system of controls, they are planned in order to provide reasonable assurance that the Company will achieve its objectives.

Our CEO and Chief Financial and Investor Relations Officer, have concluded thatevaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31 2018, controls2020, and procedures for financial purposes were not sufficient to ensurehave concluded that our files and records disclosed under the Exchange Act were:

(i)

registered, processed, summarized and reported in the appropriate period as determined by the rules and regulations issued by the SEC; and

(ii)

aggregated and communicated to our management, including to our CEO and Chief Financial and Investor Relations Officer to enable decisions to be taken on a timely basis.

However, the ineffectivenessbecause of the Company’smaterial weakness in our internal control over financial reporting as discussed below in Item 15 (b), these controls and procedures were not effective.

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of December 31, 2018, did not impact1934, as amended, is recorded, processed, summarized and reported within the time period specified in the SEC rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management of the Company, including the principal executive officer and financial officer, as appropriate to allow timely decisions regarding required disclosure. In light of the material weaknesses discussed below, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements which adequately presentare prepared in accordance with generally accepted accounting principles. Accordingly, our management, including our principal executive and financial officer, have concluded that the consolidated financial statements included in this Form 20-F present fairly, in all material respects, our financial position, as of December 31, 2018 and the consolidated results of our operations and our cash flows for the year then ended.periods presented in conformity with IFRS as issued by the IASB.

 

(b)

Management’s Annual Report on Internal Controls over Financial Reporting

Our Executive Board, including our CEO and Chief Finance and Investor Relations Officer, are(b)       Management’s Annual Report on Internal Controls over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and evaluating their effectiveness.15d-15(f) of the Exchange Act.

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Our internal control over financial reporting is a processsystem was designed to provide a reasonable assurance regardingas to the integrity and reliability of the published financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.statements. Our internal control over financial reporting includes those policies and procedures that:

(i)(1)

pertainPertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

(ii)(2)

provideProvide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Chief Officers of the Company; and

(iii)(3)

provideProvide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Due to its

All internal control systems, no matter how well designed, have inherent limitations internal control over financial reporting may not prevent or detect misstatements. Further, projections of any evaluationand can provide only reasonable assurance that the objectives of the effectiveness ofcontrol system are met.

Management evaluated the internal control over financial reporting to future periods are subject tounder the risk that controls may become inadequate due to changes in the conditions or that the degree of compliance with the policies or procedures might deteriorate.

Consistent with the guidance issued by the Securities and Exchange Commission that an assessment of recently acquired businesses may be omitted from management’s annual report on internal control over financial reporting in the year of acquisition, management excluded the assessment of the effectiveness of internal control over financial reporting of Light S.A. More details regarding Light S.A.’s acquisition of control by the Company during 2018 can be found in note 33supervision of our consolidated financial statements for the year endedCEO and Chief Financial and Investor Relations Officer, as of December 31, 2018.

Light S.A., which has been classified as an investment held for sale in our consolidated financial statements for the year ended December 31, 2018, represented the following amounts and percentages in our consolidated financial statements for the year ended December 31, 2018:

As of December 31, 2018

Total Assets

(in millions of Reais)

  

Percentage of
Company’s Total
Assets (%)

  

Net Assets
(in millions of Reais)

  

Percentage of
Company’s Net
Assets (%)

  

Net Income for the
year

(in millions of Reais)

  

Percentage of
Company’s Net
Income for the
year (%)

17,863

  29.85  3,389  21.26  59  3.39

Our management has assessed2020. Management evaluated the effectiveness of our internal control over financial reporting on December 31, 2018, based on the criteria establishedset forth in the integrated framework issued by theCommittee of Sponsoring Organizations of Treadway Commission, or COSO (2013 framework). framework of 2013.

Based on thisthese criteria, and due to thea material weakness described below, ourwas identified and management has concluded that as of December 31, 2020 our internal control over financial reporting were not effective as of December 31, 2018, althougheffective. As previously highlighted herein, this ineffectiveness has not compromised the consolidated financial statements as of December 31, 2018 and for the year then ended.2020.

Material Weakness in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in the internal control over financial reporting such that there is a reasonable possibility that a material misstatement in the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Our management has identified a material weakness related to lack of identification, design and execution of relevant controls on business and financial reporting processes and information technology general controls (ITGC), to prevent or detect material misstatements of the Company’s annual or interim financial statements on a timely basis.

(c) Plans for Remediation of Material Weakness

Our management is actively involved in the conception and implementation of efforts for remediation to resolve the material weakness that has been identified. The remediation efforts described below have been implemented or are in the process of implementation and are the responsibility of our management.

Identification and Execution of Relevant Controls

Actions already implemented:

A survey with employees responsible for controls, to understand the perceptions and difficulties that they have in the execution and management of the controls and to obtain information for actions of training, and identification of opportunities for improvement, in the Company’s internal control over financial reporting environment;

Carry out visits to companies listed with the SEC in order to better understand the best practices in relation to internal control over financial reporting;

Develop and give additional training to management, employees responsible for controls, personnel involved in the accounting of unusual and complex transactions and other key personnel involved in internal control over financial reporting;

Partial review of the Company’s control matrix;

Hire specialized advisory services from external consultants to support us analyzing new accounting pronouncements and unusual and complex transactions, in specific situations;

Identification and testing of some automated controls; and

Establish frequent meetings of the Executive Board and monthly meetings with members of the Company’s Audit Committee and the Fiscal Council to discuss matters related to internal control over financial reporting, focusing on topics related to the progress of the remediation plan.

Actions in progress:

Expand the involvement of the internal control department in matters related to internal control over financial reporting;

Increase of our accounting and financial reporting staff;

Hire specialized services to support us in a major review of the Company’s control matrix, establish our remediation plan with employees responsible for controls and perform procedures to evaluate the design and operating effectiveness of internal control over financial reporting; and

Continuous training to management, employees responsible for controls, the internal control team and internal auditors.

(d) Attestation Report of the Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of December 31, 2018,2020, has been audited by Ernst & Young Auditores Independentes S.S., the Company’s independent registered public accounting firm. Their audit reports on the Company’s consolidated financial statements for the year ended December 31, 2018 and on management’s assessment of internal control over financial reporting as of December 31, 2018, are included in our 2018 audited consolidated financial statements included in this Form20-F. Their report on management’s assessment of internal control over financial reporting as of December 31, 2018,2020, is included below in this Form 20-F and expresses an adverse opinion on the effectiveness of our internal control over financial reporting as of December 31, 2018.2020.

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(c)       Report of Independent Registered Public Accounting Firm

 

LOGO

 

Edifício Phelps Offices Towers

Rua Antônio de Albuquerque, 156

11º andar - Savassi

30112-010 - Belo Horizonte - MG - Brasil

Tel: +55 31 3232-2100

Fax: +55 31 3232-2106

ey.com.br

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Companhia Energética de Minas Gerais – CEMIG

Opinion on Internal Control over Financial Reporting

We have audited Companhia Energética de Minas Gerais – CEMIG’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Companhia Energética de Minas Gerais – CEMIG (the Company)Company has not maintained effective internal control over financial reporting as of December 31, 2018,2020, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness related to the lack of identification, design and execution of relevant controls on business and financial reporting processes to fully address the requirements of the COSO criteria.and information technology general controls (ITGC).

As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Light S.A., which is included in the 2018 consolidated financial statements of the Company and constituted 29.85% and 21.26% of total and net assets, respectively, as of December 31, 2018 and 3.39% of net income for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Light S.A.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of December 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the twothree years in the period ended December 31, 2018,2020, and the related notes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 20182020 consolidated financial statements, and this report does not affect our report dated May 15, 2019,April 30, 2021, which expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

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Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young Auditores Independentes S.S.

Belo Horizonte, Brazil

May 15, 2019April 30, 2020

(e) Changes

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(d)       Plans for Remediation of Material Weakness

Remediation plans are in progress to assure (I) the deployment of a PAM tool (Privileged Access Manager), adoption  of procedures to revoke non-revised key-users access’s rights and (III) implementation of EDR (End-point Detection and Response) tool and CSIR (Computer Security Incident Response) procedures. Corroborating the assertiveness and timeliness of corrections and remedial actions, the Company's Internal Control over Financial Reporting

DuringControls area validated with Management the year ended December 31, 2018, we made certain changes to our internal control over financial reporting,anticipation of the 2021 work schedule, prioritizing actions and completing remedies in order to respondbe tested and audited with compared to the material weakness relatedprevious years' schedule.In addition, control failures will be stratified, demonstrating the dependence and influence of other company departments on the appointments in order to act responsibly at all levels and organizational areas, acting on the ineffectivenessroot cause and mitigating the recurrence of our IT General Controls (ITGC) environment, which was identified and reported in our 2017 Form20-F and eliminated this material weakness.the failure.

 

Item 16A.

Financial Specialist of the Audit Committee

Although weWe established an audit committeeAudit Committee on June 11, 2018 in compliance with the Brazilian State Companies Law, we continue to maintain an Audit Board which operates as an Audit Committeeaudit committee for the purpose of the Sarbanes-Oxley Law of 2002. Under Section 10A–3 (c) (3) of the SEC rules on Audit Committeesaudit committees of companies listed on the New York Stock Exchange,non-US issuers can opt not to have a separate Audit Committeeaudit committee made up of independent members provided that they have an established Audit Boardaudit board or committee that has been chosen in accordance with the legal rules of its origin country, which expressly require or permit this Boardcommittee or board should comply with certain obligations. Also under this section, a Fiscal Council may carry out the obligations and responsibilities of a US Audit Committee, up to the limit permitted by the Brazilian legislation. The Financial Expert of our Fiscal CouncilAudit Committee is Cláudio Morais Machado.Pedro Carlos de Mello and he also satisfies the independence requirements of Rule 10A-3.

 

Item 16B.

Code of Ethics

We have adopted a code of ethics, as defined in Item 16B of Form20-F under the Exchange Act. Our code of ethics applies to our Chief Executive Officer, Chief Finance and Investor Relations Officer, and to persons performing similar functions, members of the Board of Directors, other officers, and employees. In 2019 we made minor adjustments to our code of ethics to comply with Brazilian Law No. 13.303 of 2016, which is filed with the SEC as an exhibit to this Form20-F, and is available on our website www.cemig.com.br. If we change the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Finance and Investor Relations Officer, and/or persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such change or waiver within five business days following the date of the change or waiver, on our website at the same address.

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Item 16C.

Principal Accountant Fees and Services

Ernst &Young Auditores Independentes acted as our independent registered public accounting firm for the fiscal years ended December 31, 20172020 and 2018 and Deloitte Touche Tohmatsu Auditores Independentes acted as our independent registered public accounting firm for the fiscal year ended December 31, 2016.

2019. Fees for professional services provided by our independent auditors in each of the last three fiscal years, in each of the following categories are:

 

(thousands of Reais)

Year ended December, 31

2020

2019

Audit fees7,3277,116
Audit-related fees865-
Tax fees880842
Total

9,072

7,958

 

   Year ended
December 31,		 
   2018   2017   2016 
   (thousands of reais) 

Audit fees

   8,111    6,053    1,570 

Audit-related fees

   4,232    845    —   

Tax fees

   767    758    82 
  

 

 

   

 

 

   

 

 

 

Total fees

   13,110    7,656    1,652 
  

 

 

   

 

 

   

 

 

 

The fees disclosed in 2018, include fees related to professional services performed by Ernst &Young Auditores Independentes for Light S.A. amounting of R$ 5,207 thousand.

Audit fees include the audit of our annual consolidated financial statements and internal control over financial reporting, the quarterly reviews of our consolidated interim financial statements, statutory audits of our subsidiaries and certain regulatory audits.

Audit-related fees include mostly services related to the issuance of comfort letter in connection with our Eurobond offering.

debentures. Tax fees refers to certain tax compliance services.

Audit CommitteePre-Approval Policies and Procedures

Our Fiscal CouncilAudit Committee currently serves as our audit board or committee for purposes of the Sarbanes-Oxley Act of 2002. However, as required by Brazilian legislation, we have adoptedpre-approval policies and procedures whereby all audit andnon-audit services provided by external auditors must be approved by the Board of Directors. Any service proposals submitted by external auditors need to be discussed and approved by the Board of Directors during its meetings. Once the proposed service is approved, we formalize the engagement of the relevant services. The approval of any audit andnon-audit services to be provided by our external auditors is specified in the minutes of the meetings of the Board of Directors. All feesservices mentioned above werepre-approved by the Board of Directors and the Fiscal Council.Audit Committee.

 

Item 16D.

Exemptions from the Listing Standards for Audit Committees

We rely on the general exemption from the listing standards relating to audit committees contained inRule 10A-3(c) (3) under the Exchange Act. Our Fiscal Council thatAudit Committee carries out the functions of an audit committee of the United States to the extent permitted under Brazilian law. Brazilian law requires our Fiscal CouncilAudit Committee to be separate from our board of directors, and members of our Fiscal CouncilAudit Committee are not elected by the Company’s management.  Brazilian law provides standards for the independence of our Fiscal CouncilAudit Committee from our management. Our Audit Committee is composed of four members, one of which is member of our board of directors.

We do not believe that our reliance on this general exemption will materially affect the ability of our Fiscal CouncilAudit Committee to act independently and to satisfy the other requirements of the listing standards relating to audit committees contained inRule 10A-3 under the Exchange Act.

We also have a Fiscal Council constituted according to the Brazilian law requirements. See more information on Item 6. Directors, Senior Managers and Employees.

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Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

 

Item 16F.Item 16F:

Change in Registrant’s Certifying Accountant

Not applicable.

 

Item 16G.

Corporate Governance

Corporate Governance Differences from NYSE Practices

On November 4, 2003, the NYSE established new corporate governance rules. Under the rules, foreign private issuers are subject to a more limited set of corporate governance requirements than U.S. domestic issuers. Under the NYSE rules, we are required only to: (i) have an audit committee or Fiscal Council, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, (ii) provide prompt certification by our CEO of any material noncompliance with any corporate governance rules, and (iii) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below.

For more information on our corporate governance practices, see Item 9. The Offer and Listing Trading Market—Trading on the B3.

Section

NYSE Corporate Governance Rule for U.S.DomesticU.S. Domestic Issuers

Our Approach

303A.01A listed company must have a majority of independent directors; “Controlled companies”‘Controlled companies’ are not required to comply with this requirement.

Under Section 303A of the rules of the NYSE, “controlled company”‘controlled company’ is taken to include a company in which more than 50% of the voting power is held by one individual, a group or another company. Since 50.97% of the voting share of CEMIG is held by the State of Minas Gerais, it is considered to be a controlled company. Therefore, this requirement currently does not apply to CEMIG.

303A.03Thenon-management directors of a listed company must meet at regularly scheduled executive sessions without management.

Thenon-management directors of CEMIG do not meet at regularly scheduled executive sessions without management.

303A.04A listed company must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. “Controlled companies”‘Controlled companies’ are not required to comply with this requirement.

As a controlled company, CEMIG is not required to have a nominating/governance committee.

Nonetheless, CEMIG has a Corporate Governance Committee, composed of dependent and independent directors, and its responsibilities are clearly defined in the internal regulations of the Board of Directors.

303A.05

A listed company must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties, “Controlled companies”duties; ‘Controlled companies’ are not required to comply with this requirement.

As a controlled company, CEMIG would not be required to comply with the compensation committee requirements as if it were a U.S. domestic issuer. CEMIG does not have a compensation committee.
303A.06
and
303A.07

A listed company must have an audit committee with a minimum of three independent directors that satisfy the independence requirements ofRule 10A-3 under the Securities Exchange Act of 1934, as amended, with a written charter that covers certain minimum specified duties.

CEMIG exercised its prerogative under SECRule 10A-3 and the Sarbanes Oxley Act of 2002, which allow non U.S.non-U.S. issuers not to have an Audit Committee. Our Fiscal CouncilAudit Committee carries out the functions of an Audit Committee of the United States up to the limit permitted by Brazilian law.

CEMIG’s Fiscal CouncilAudit Committee is a permanent body, responsible, principally, for inspection and supervision of the activities of the management and for verifying the managers’ compliance with their duties under the law and under theby-laws.

303A.08

Shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, with limited exemptions set forth in the NYSE rules.

Under Brazilian Corporate Law, shareholder preapproval is required for the adoption of equity compensation plans.
303A.09A listed company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects.

CEMIG’s listing on B3 is at Corporate Governance Level 1, and CEMIG is thus obliged to comply with the rules contained in those related regulations.

In addition, CEMIG’s Manual for Disclosure and Use of Information, its Securities Trading Policy, the Internal Regulations of its Board of Directors, and its Code of Ethics outline important rules of corporate governance, which orient its management.

303A.12Each listed company CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards.CEMIG’s CEO will promptly notify the NYSE in writing after any executive officer of CEMIG becomes aware of any materialnon-compliance with any applicable provisions of the NYSE corporate governance rules.

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Item 16H.

Mine Safety Disclosure

Not applicable.

 

Item 17.

Financial Statements

See “Item 18. Financial Statements.”Statements”.

 

Item 18.

Financial Statements

Reference is made topages F-1 throughF-163 F- 179 hereof.

The following financial statements are filed as part of this annual report onForm 20-F:

Audited Consolidated Statement of Financial Position as of December 31, 2018 and 2017;

·Audited Consolidated Statement of Financial Position as of December 31, 2020, 2019 and January 1, 2019;
·Audited Consolidated Statement of Income for the years ended December 31, 2018, 2017 and 2016;

Audited Consolidated Statement of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016;

Audited Consolidated Statement of Changes in Equity for the years ended December 31, 2018, 2017 and 2016;

Audited Consolidated Statement of Cash Flow for the years ended December 31, 2018, 2017 and 2016; and

Notes to the Consolidated Financial Statements.

Report of Ernst & Young Auditores Independentes as of December 31, 2018 and 2017 and for each of the two years ended December 31, 2018;

Report of Deloitte Touche Tohmatsu Auditores Independentes for the year ended December 31, 2016;

Independent Auditor’s Report (Pricewaterhouse Coopers) of Madeira Energia S.A. – MESA as of December 31, 2018 and 2017 and for each of the three years ended December 31, 2018;

•

Independent Auditor’s Report (Pricewaterhouse Coopers) of Norte Energia S.A. – NESA of December 31, 2017 and 2016 and for each of the two years ended December 31, 2017;

2020, 2019 and 2018;

·Audited Consolidated Statement of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018;
·Audited Consolidated Statement of Changes in Equity for the years ended December 31, 2020, 2019 and 2018;

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·Audited Consolidated Statement of Cash Flow for the years ended December 31, 2020, 2019 and 2018;
·Notes to the Consolidated Financial Statements;
·Ernst & Young Auditores Independentes S.S. (‘EY’) audited our consolidated financial statements as of and for the years ended December 31, 2020, 2019 and 2018. The financial statements of Madeira Energia S.A. as of and for the year ended December 31, 2020, 2019 and 2018 were audited by PricewaterhouseCoopers Auditores Independentes (‘PWC’)

Item 19.

Exhibits

The following documents are included as exhibits to this annual report:

No.

Exhibit
Number

Document

Description
1

Corporateby-laws of CEMIG, as amended and in effect since March  25, 2019.July 31, 2020.

2.1

Second Amended and Restated Deposit Agreement, dated as of August 10, 2001, by and among us, Citibank, N.A., as depositary, and the holders and beneficial owners of ADSs evidenced by ADRs issued thereunder (incorporated by reference to the Registration Statement onForm F-6 relating to the ADSs filed on August 20, 2001 (FileNo. 333-13826)). (P) (P)

2.2

Shareholders’ Agreement, dated June 18, 1997, between the State Government and Southern, relating to the rights and obligations of owners of our shares (incorporated by reference to Exhibit 2.1 to our Registration Statement onForm 20-F filed on August 13, 2001 (FileNo. 1-15224)). (P) (P)

2.3

Amendment No. 1 to the Second Amended and Restated Deposit Agreement, dated as of August 10, 2001, by and among us, Citibank, N.A., as depositary, and the holders and beneficial owners of ADSs evidenced by ADRs issued thereunder (incorporated by reference to the Registration Statement onForm F-6 relating to the ADSs filed on June 11, 2007 (FileNo. 333-143636)).

2.4

Deposit Agreement, dated as of June 12, 2007, by and among us, Citibank, N.A., as depositary, and the holders and beneficial owners of ADSs evidenced by ADRs issued thereunder (incorporated by reference to the Registration Statement onForm F-6 relating to the common share ADSs filed on May 7, 2007 (FileNo. 333-142654)).

2.5

The total amount of long-term debt securities of CEMIG and its subsidiaries under any one instrument does not exceed 10.0% of our total assets on a consolidated basis. We agree to furnish copies of instruments defining the rights of certain holders of long-term debt to the Securities and Exchange Commission upon request.

2.6

Indenture, dated as of December 5, 2017, among CemigCEMIG Geração e Transmissão S.A., as issuer, Companhia Energética de Minas Gerais – CEMIG, as notes guarantor, and the Bank of New York Mellon as trustee, paying agent, transfer agent and registrar and the Bank of NewYorkNew York Mellon SA/NV, Luxembourg Branch, as Luxembourg Paying Agent, Luxembourg Transfer Agent and Luxembourg Listing Agent.

Agent (incorporated by reference to Exhibit 8 to our Annual Report on Form 20-F filed on May 25, 2005 (File No. 1-15224)).
4.1

Contract of Concession for Generating Electric Energy, dated July 10, 1997, between the Federal Government and us, relating to the provision of electric energy generation services to the public (incorporated by reference to Exhibit 4.1 to our Registration Statement onForm 20-F filed on August 13, 2001 (FileNo. 1-15224)). (P) (P)

4.2

Contract of Concession of Electric Energy Transmission Services, dated July 10, 1997, between the Federal Government and us, relating to the transmission of electric energy to the public (incorporated by reference to Exhibit 4.2 to our Registration Statement onForm 20-F filed on August 13, 2001 (FileNo. 1-15224)). (P) (P)

4.3

Second Amendment to the Energy Transmission Concession Contract, dated September 16, 2005 (incorporated by reference to Exhibit 4.3 to our Registration Statement onForm 20-F filed on June 30, 2006 (FileNo. 1-15224)).

4.4

Third Amendment to the Energy Transmission Concession Contract, for the Northern, Southern, Eastern, and Western geographic areas, dated April 13, 2010 (incorporated by reference to Exhibit 4.4 to our Registration Statement onForm 20-F filed on June 30, 2010 (FileNo. 1-15224)).

4.5

Contracts of Concession of Public Service for Distribution of Electric Energy, dated July 10, 1997, between the Federal Government and us, relating to the provision of electric energy distribution services to the public (incorporated by reference to Exhibit 4.3 to our Registration Statement onForm 20-F filed on August 13, 2001 (FileNo. 1-15224)).(P) (P)

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4.6

First Amendment to the Energy Distribution Concession Contract, dated March 31, 2005 (incorporated by reference to Exhibit 4.5 to our Registration Statement onForm 20-F filed on June 30, 2006 (FileNo. 1-15224)).

4.7

Second Amendment to the Energy Distribution Concession Contract, dated September 16, 2005 (incorporated by reference to Exhibit 4.6 to our Registration Statement onForm 20-F filed on June 30, 2006 (FileNo. 1-15224)).

4.8

Contract for the Assignment of CRC Account, dated May 31, 1995, between the State Government and us, relating to amounts due to us from the State Government (incorporated by reference to Exhibit 4.4 to our Registration Statement onForm 20-F filed on August 13, 2001 (FileNo. 1-15224)).(P) (P)

4.9

First Amendment to the Contract for the Assignment of CRC Account, dated February 24, 2001, between the State Government and us, relating to amounts due to us from the State Government (incorporated by reference to Exhibit 4.5 to our Annual Report onForm 20-F filed on March 26, 2003 (FileNo. 1-15224)).

Exhibit
Number

Document

4.10

Second Amendment to the Contract for the Assignment of the CRC Account, dated October 14, 2002, between the State Government and us, relating to amounts due to us from the State Government (incorporated by reference to Exhibit 4.6 to our Annual Report onForm 20-F filed on March 26, 2003 (FileNo. 1-15224)).

4.11

Third Amendment to the Contract for the Assignment of CRC Account, dated October 24, 2002, between the State Government and us, relating to amounts due to us from the State Government (incorporated by reference to Exhibit 4.7 to our Annual Report onForm 20-F filed on March 26, 2003 (FileNo. 1-15224)).

4.12

Fourth Amendment to the Contract for the Assignment of CRC Account, dated January 23, 2006, between the State Government and us, relating to amounts due to us from the State Government (incorporated by reference to Exhibit 4.14 to our Registration Statement onForm 20-F filed on June 30, 2006 (FileNo. 1-15224)).

4.13

Announcement of Start of Public Distribution of Senior Units under CRC Account Securitization Fund, dated as of January 26, 2006 (incorporated by reference to Exhibit 4.15 to our Registration Statement onForm 20-F filed on June 30, 2006 (FileNo. 1-15224)).

4.14

Summary of Indenture Covering Public Distribution ofNon-Convertible Unsecured Debentures, dated August 24, 2006, between CEMIG D and Unibanco—União dos Bancos Brasileiros S.A. (incorporated by reference to Exhibit 4.18 to our Registration Statement onForm 20-F filed on July 23, 2007 (FileNo. 1-15224)).

4.15

Summary of Indenture Covering Public Distribution ofNon-Convertible Unsecured Debentures, dated April 17, 2007, between CEMIG GT and Unibanco—União dos Bancos Brasileiros S.A. (incorporated by reference to Exhibit 4.19 to our Registration Statement onForm 20-F filed on July 23, 2007 (FileNo. 1-15224)).

4.16

Summary of Indenture Covering the Second Issuance of Debentures, dated December 19, 2007, between CEMIG D and BB Banco de Investimento S.A. (incorporated by reference to Exhibit 4.20 to our Annual Report onForm 20-F filed on June 30, 2008 (FileNo. 1-15224)).

4.17

Share Purchase Agreement, dated April 23, 2009, between CEMIG GT, Terna—Rete Elettrica Nazionale S.p.A., and CEMIG (incorporated by reference to Exhibit 4.22 to our Registration Statement onForm 20-F filed on June 19, 2009 (FileNo.��1-15224)).

4.18

English Summary of Share Purchase Agreement between CEMIG and Andrade Gutierrez Concessões S.A., dated December 30, 2009 (incorporated by reference to Exhibit 4.18 to our Registration Statement onForm 20-F filed on June 30, 2010 (FileNo. 1-15224)).

4.19

English Summary of Share Purchase Agreement between CEMIG and Fundo de Investimento em Participações PCP, dated December 31, 2009 (incorporated by reference to Exhibit 4.19 to our Registration Statement onForm 20-F filed on June 30, 2010 (FileNo. 1-15224)).

4.20

English Summary of Put Option Agreement between CEMIG and Enlighted Partners Venture Capital LLC, dated March 24, 2010 (incorporated by reference to Exhibit 4.20 to our Registration Statement onForm 20-F filed on June 30, 2010 (FileNo. 1-15224)).

4.21

English Summary of Share Purchase Agreement among, TAESA,Taesa, Abengoa Concessões Brasil Holding S.A. and Abengoa Participações Holding S.A., dated June 2, 2011 (incorporated by reference to theForm 20-F filed on April 27, 2012 (FileNo. 1-15224)).

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4.22

English Summary of Share Purchase Agreement among, TAESA,Taesa, Abengoa Concessões Brasil Holding S.A., Abengoa Construção Brasil Ltda., NTE—Nordeste Transmissora de Energia S.A. and Abengoa Participações Holding S.A., dated June 2, 2011 (incorporated by reference to theForm 20-F filed on April 27, 2012 (FileNo. 1-15224)).

4.23Summary of Indenture Covering Public Distribution ofNon-Convertible Unsecured Debentures, dated March 3, 2010, between CEMIG GT and BB – Banco de Investimento S.A. (incorporated by reference to Exhibit 4.23 to our Annual Report onForm 20-F filed on June 30, 2011 (FileNo. 1-15224)).

Exhibit
Number

Document

4.24

English Summary of Share Purchase Agreement between TAESATaesa and Abengoa Concessões Brasil Holding S.A. dated March 16, 2012 (incorporated by reference to theForm 20-F filed on April 27, 2012 (FileNo. 1-15224)).

4.25

English Summary of Investment Agreement among RR Participações S.A., Light and Renova dated July 8, 2011 (incorporated by reference to theForm 20-F filed on April 27, 2012 (FileNo. 1-15224)).

4.26

English Summary of Put Option Agreement between Parati S.AS.A. and Fundação de Seguridade Social Braslight dated July 15, 2011 (incorporated by reference to theForm 20-F filed on April 27, 2012 (FileNo. 1-15224)).

4.27

English Summary of Share Purchase and Sale Agreement entered into between Amazônia Energia Participações S.A. and Construtora Queiroz Galvão S.A., Construtora OAS Ltda., Contern Construções e Comércio Ltda,Ltda., Cetenco Engenharia S.A., Galvão Engenharia S.A. and J. Malucelli Construtora de Obras S.A., for shares in Norte Energia S.A. dated October 25, 2011 (incorporated by reference to theForm 20-F filed on April 27, 2012 (FileNo. 1-15224)).

4.28

English Summary of Share Acquisition Agreement between CEMIG and the State of Minas Gerais dated December 27, 2011 (incorporated by reference to theForm 20-F filed on April 27, 2012 (FileNo. 1-15224)).

4.29

Summary of Indenture Covering the Public Distribution ofNon-Convertible Unsecured Debentures, dated March 13, 2012, between CEMIG Geração e Transmissão S.A., HSBC Corretora de Títulos e Valores Mobiliários S.A., Banco BTG Pactual S.A. and Banco do Nordeste do Brasil S.A. (incorporated by reference to theForm 20-F filed on April 27, 2012 (FileNo. 1-15224)).

4.30

Initial Announcement of Public Distribution, under the SystemRegime of Firm Guarantee of Placement, of Unsecured Debentures Not Convertible into Shares, with Additional Guarantee, in Three Series, of the Third Issue by CEMIG Distribuição S.A.,D, dated March 19, 2012 (incorporated by reference to theForm 20-F filed on April 30, 2013 (FileNo. 1-15224)).

4.31

Initial Announcement of Public Distribution, under the SystemRegime of Best Efforts for Placement, of Unsecured Debentures Not Convertible into Shares, with Additional Guarantee, in up to Three Series, of the Third Issue by CEMIG GT, dated March 12, 2012 (incorporated by reference to theForm 20-F filed on April 30, 2013 (FileNo. 1-15224)).

4.32

Summary of Private Contract for Investment in Transmission Assets, among CEMIG, CEMIG GT Trasmissora Aliança de Energia Elétrica S.A.and Taesa dated May 17, 2012 (incorporated by reference to theForm 20-F filed on April 30, 2013 (FileNo. 1-15224)).

4.33

Summary of the Share Purchase Agreement between CEMIG Capim Branco Energia S.A., Suzano Papel e Celulose S.A., and Suzano Holding S.A., intervening by Comercial Agrícola Paineiras LTDA (“Paineiras”LTDA. (‘Paineiras’) e Epícares Empreendimentos e Participações Ltda (“LTDA. (‘Epícares”cares’), dated March 12, 2013 (incorporated by reference to theForm 20-F filed on April 30, 2013 (FileNo. 1-15224)).

4.34

Summary of the Commitment Undertaking for Settlement, signed between the State of Minas Gerais and CEMIG, dated November 22, 2012 (incorporated by reference to theForm 20-F filed on April 30, 2013 (FileNo. 1-15224)).

4.35

Fifth Amendment to Concession Contracts No. S 002/1997–DNAEE, 003/1997–DNAEE, 004/1997–DNAEE and 005/1997–DNAEE, dated December 21, 2015, between the Federal Republic of Brazil and us, related to energy distribution service (incorporated by reference to theForm 20-F filed on November 14, 2016 (FileNo. 1-15224)).

4.36

Excerpts from concession contracts for energy generation Nos. 8, 9, 10, 11, 12, 13, 14, 15 and 16 between the Mining and Energy MinstryMinistry and CEMIG GT.

8

List of Subsidiaries (incorporated by reference to Exhibit 8 to our Annual Report onForm 20-F filed on May 25, 2005 (FileNo. 1-15224)).

11

Statement of Ethical Principles And Code of Ethics.

Professional Conduct.
12.1Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 15, 2019.April 30, 2021.

Exhibit
Number

Document

12.2

Chief Officer for Finance and Investor Relations Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 15, 2019.April 30, 2021.

208 
Table of Contents

 

13.1

Chief Executive Officer Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 15, 2019.April 30, 2021.

13.2

Chief Officer for Finance and Investor Relations Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 15, 2019.April 30, 2021.

101.INS*101.INS

XBRL Instance Document

Document.
101.SCH*101.SCH

XBRL Taxonomy Extension Schema Document

Document.
101.CAL*101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

Document.
101.DEF*101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

Document.
101.LAB*101.LAB

XBRL Taxonomy Extension Label Linkbase Document

Document.
101.PRE*101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentDocument.

 

(P)

Paper exhibits.

209 
*

To be filed by amendment.

Table of Contents

 

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

Date: April 30, 2021

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG
By:

/s/ Cledorvino BeliniReynaldo Passanezi Filho

Name:Cledorvino Belini Reynaldo Passanezi Filho
Title:Chief Executive Officer

Date: May 16, 2019

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG
By:

/s/ Maurício Fernandes Leonardo JúniorGeorge de Magalhães

Name:Maurício Fernandes Leonardo JúniorGeorge de Magalhães
Title:Chief Officer for Finance and Investor Relations

Table of Contents

Date: May 16, 2019

LOGO

 

Companhia Energética de Minas

Gerais – CEMIG

Consolidated Financial Statements as of December 31, 20182020, 2019 and 2017January 1st, 2019 and for each of the Years Ended December 31, 2018, 20172020, 2019 and 20162018 and Report of Independent Registered Public Accounting Firm

LOGO

Table of Contents

 

CONTENTS

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

F-8F-9

CONSOLIDATED STATEMENT OF INCOME

F-10F-11

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

F-12

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

F-13

CONSOLIDATED STATEMENT OF CASH FLOWS

F-15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

F-17

1.

OPERATING CONTEXTF-17

2.

BASIS OF PREPARATIONF-22F-27

3.

PRINCIPLES OF CONSOLIDATIONF-38F-51

4.

CONCESSIONS AND AUTHORIZATIONSF-40F-53

5.

OPERATING SEGMENTSF-46F-58

6.

CASH AND CASH EQUIVALENTSF-52F-64

7.

MARKETABLE SECURITIESF-52F-65

8.

RECEIVABLES FROM CUSTOMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERSF-53F-65

9.

RECOVERABLE TAXESF-55F-66

10.

INCOME AND SOCIAL CONTRIBUTION TAXESF-56F-68

11.

RESTRICTED CASHF-58

12.

ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAISF-58F-71

13.

12.ESCROW DEPOSITSF-59F-72

14.

13.REIMBURSEMENT OF TARIFF SUBSIDIESF-60F-72

15.

14.CONCESSION FINANCIAL AND SECTOR ASSETS AND LIABILITIESF-60F-73

16.

15.CONCESSION CONTRACT ASSETSF-67F-79

17.

16.INVESTMENTSF-69F-86

18.

17.PROPERTY, PLANT AND EQUIPMENTF-86F-109

19.

18.INTANGIBLE ASSETSF-88F-112

20.

19.		LEASING TRANSACTIONSF-115
20.SUPPLIERSF-90F-118

21.

TAXES PAYABLE AND AMOUNTS TO BE RESTITUTEDREFUNDED TO CUSTOMERS INCOME TAX AND SOCIAL CONTRIBUTIONF-91F-118

22.

LOANS, FINANCING AND DEBENTURESF-93F-119

23.

REGULATORY CHARGESF-99F-125

24.

POST-EMPLOYMENT OBLIGATIONSF-99F-125

25.

PROVISIONSF-106F-131

26.

EQUITY AND REMUNERATION TO SHAREHOLDERSF-115F-141

27.

SUBSIDIARIES WITH SIGNIFICANT INTERESTS HELD BYNON-CONTROLLING SHAREHOLDERSF-123

28.

REVENUEF-124F-149

29.

28.OPERATING COSTS AND EXPENSESF-128F-153

30.

29.FINANCE INCOME AND EXPENSESF-132F-156

31.

30.RELATED PARTY TRANSACTIONSF-133F-157

32.

31.FINANCIAL INSTRUMENTS AND RISK MANAGEMENTF-138F-160

33.

32.ASSETS AS HELD FOR SALE AND DISCONTINUED OPERATIONSF-154F-174

34.

33.INSURANCEF-157F-176

35.

34.COMMITMENTSF-159F-172

36.

35.THE ANNUAL TARIFF ADJUSTMENTNON-CASH TRANSACTIONSF-159F-178

37.

NON-CASH TRANSACTIONS36.F-159

38.

SUBSEQUENT EVENTSF-178F-160

 

Table of Contents

LOGO 

Edifício Phelps Offices Towers

Rua Antônio de Albuquerque, 156

11º andar - Savassi

30112-010 - Belo Horizonte - MG - Brasil

Tel: +55 31 3232-2100

Fax: +55 31 3232-2106

ey.com.br

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report Of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Companhia Energética de Minas Gerais – CEMIG

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of financial position of Companhia Energética de Minas Gerais – CEMIG (the Company) as of December 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the twothree years in the period ended December 31, 2018,2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, based on our audits and the reportsreport of other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 2018,2020, in conformity with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

We did not audit the 2018 and 2017 financial statements of Madeira Energia S.A., a corporation in which the Company has, directly and indirectly, at December 31, 2018 and 2017, an 15.5% and 18.1% interest, respectively.interest. In the consolidated financial statements, the Company’s investment in Madeira Energia S.A. at December 31, 2018 and 2017, is stated at R$740367 million and R$1,117552 million as of December 31, 2020 and 2019, respectively, and the Company’s equity in the losses of Madeira Energia S.A., in 2018 and 2017, is stated at R$185 million in 2020, R$188 million in 2019 and R$302 million and R$204 million, respectively. We did not audit the 2017 financial statements of Norte Energia S.A., a corporation in which the Company has, directly and indirectly, at December 31, 2017, an 11.7% interest. In the consolidated financial statements, the Company’s investment in Norte Energia S.A. at December 31, 2017, is stated at R$1,444 million, and the Company’s equity in the losses of Norte Energia S.A. in 2017 is stated at R$1 million.2018. Those statements were audited by other auditors whose reports havereport has been furnished to us, and our opinion, insofar as it relates to the amounts included for Madeira Energia S.A. and Norte Energia S.A., is based solely on the reportsreport of the other auditors.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 15, 2019,April 30, 2021, expressed an adverse opinion thereon.

Change in Accounting Principle

As discussed in Note 2.8 to the consolidated financial statements, the Company has elected to change its accounting policy for concession contract assets related to the transmission segment in 2020, 2019 and 2018. See below for discussion on our related critical audit matter.

F-3 
LOGOTable of Contents

 LOGO

 

Edifício Phelps Offices Towers

Rua Antônio de Albuquerque, 156

11º andar - Savassi

30112-010 - Belo Horizonte - MG - Brasil

Tel: +55 31 3232-2100

Fax: +55 31 3232-2106

ey.com.br

Basis for Opinion

These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the reportsreport of other auditors provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Concession infrastructure assets

Description of the matter

As described in Notes 14, 15 and 18 to the consolidated financial statements, the Company’s concession infrastructure assets as of December 31, 2020, which are comprised by concession financial assets, contract assets and intangible assets, amounted to R$3,924 million, R$4,980 million and R$11,810 million, respectively. Accounting for concession infrastructure assets is highly dependent on information technology (IT) systems and internal controls which were ineffective due to a material weakness identified by management. As discussed above and in Note 2.8 to the consolidated financial statements, the Company has elected to change its accounting policy for concession contract assets related to the transmission segment.

F-4 
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LOGO 

Auditing the measurement of the Company’s concession infrastructure assets, including the information derived from internal controls and IT systems impacted by the material weakness identified, was complex, required the performance of incremental audit procedures and significant auditor judgement due to the subjectivity of management’s judgments when: determining the indemnifiable amounts to be reimbursed by the grantor at the end of the concession period, for concession contracts in the generation segment; determining the impacts of the change on the Company’s accounting policy for concession contract assets related to the transmission segment, including the reassessment of the discount rate for the concession contracts long-term consideration and, consequently, to the margin allocation used when recognizing revenue; and determining which expenditures are eligible for capitalization under concession contracts in the distribution segment.

How we addressed the matter in our audit

To test the measurement of the Company’s concession infrastructure assets, our audit procedures included, among others, designing and performing incremental audit procedures to test the underlying records of transaction data obtained from the IT systems impacted by the material weakness; reading concession agreements; evaluating indemnifiable amounts recorded by the Company; assessing the history of payments related to indemnification clauses made by the grantor to companies that operate in the generation segment; examining communications between the Company and the grantor throughout the year; evaluating the change in accounting policy for concession contract assets related to the transmission segment; assessing, with the support of our valuation specialists, the discount rate used in management calculation, as well as the projected financial information and methodology used when determining margin; performing a sensitivity analysis to evaluate the changes in contract assets that would result from changes in certain key underlying assumptions; testing costs incurred against supporting documentation; testing the mathematical accuracy of cash flow projections; comparing the expected consideration inputs used in management calculation with the respective concession agreement; evaluating expenditures capitalized by comparing with the terms and conditions of the concession agreement and relevant accounting standards; testing expenditures capitalized against supporting documentation and comparing expenditures capitalized against historical data and observable industry trends. We also evaluated the disclosures included in Notes 2.8, 14, 15 and 18 to the consolidated financial statements.

Impairment of investments in associates and joint ventures

Description of the matter

As described in Note 16 to the consolidated financial statements, the Company periodically assesses for impairment its investments in associates and joint ventures accounted for as investees under the equity method. In 2020, as a result of such analysis, the Company concluded that there was indication of impairment in Madeira Energia S.A., Norte Energia S.A., Renova Energia S.A. and Guanhães Energia S.A. and, consequently, proceeded with the analysis and determination of their recoverable value, recognizing losses when applicable.

Auditing the Company's impairment assessment was complex and required significant auditor judgement as estimates underlying the fair value of evaluated assets are based on assumptions affected by future market and economic conditions, and to the existence of specific circumstances related to certain associates and joint ventures’ delayed operations start-up and going concern risks.

F-5 
Table of Contents

How we addressed the matter in our audit

To test the Company's impairment assessment our audit procedures included, among others, assessing the significant assumptions and financial and operating data used to estimate fair value; comparing the significant assumptions used to estimate prospective cash flows to current industry and economic trends; comparing relevant inputs to Company´s financial and operating data; performing a sensitivity analysis to evaluate the fair value estimate and involving our valuation specialists to assist in evaluating the discount rate and methodology used in the fair value calculation. We also evaluated the disclosures included in Note 16 to the consolidated financial statements.

/s/ Ernst & Young Auditores Independentes S.S.

We have served as the Company’sCompany‘s auditor since 2017.

Belo Horizonte, Brazil

May 15, 2019

April 30, 2021

F-6 
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Deloitte Touche Tohmatsu

Rua Antônio de Albuquerque, 330 -

12º andar

30112-010 - Belo Horizonte - MG

Brasil

Tel.: + 55 (31) 3269-7400

Fax: + 55 (31) 3269-7470 www.deloitte.com.br

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Companhia Energética de Minas Gerais - CEMIG

Belo Horizonte - MG - Brazil

We have audited the accompanying consolidated statements of income, of comprehensive income, of changes in shareholder’s equity and of cash flows of Companhia Energética de Minas Gerais - CEMIG and subsidiaries (the “Company”) for the year ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of Madeira Energia S.A. and Norte Energia S.A., both investees of the Company, accounted for under the equity method of accounting. The Company’s equity in losses of unconsolidated investee Madeira Energia S.A. was R$112 million for the year ended December 31, 2016, and the Company’s equity in losses of unconsolidated investee Norte Energia S.A. was R$12 million for the year ended December 31, 2016. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Madeira Energia S.A. and Norte Energia S.A., is based solely on the reports of the other auditors.- MESA

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board – PCAOB (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Companhia Energética de Minas Gerais – CEMIG and subsidiaries for the year ended December 31, 2016, in accordance with International Financial Reporting Standards - IFRS, issued by the International Accounting Standards Board - IASB.

As disclosed in note 17 to the consolidated financial statements, the Company holds noncontrolling interest in Renova Energia S.A., whose conditions indicate the existence of material uncertainty that may cast significant doubt on the ability of Renova Energia S.A. to continue as a going concern.

Belo Horizonte, MG, Brazil

May 16, 2017

/s/ DELOITTE TOUCHE TOHMATSU

Auditores Independentes

2019-BHZ-0176 VF.docx

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte provides audit, consulting, financial advisory, risk management, tax and relates services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 286,200 professionals make an impact that matters, please connect with us on Facebook, LinkedIn or Twitter.

© 2017 Deloitte Touche Tohmatsu. All rights reserved.

LOGO

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Madeira Energia S.A. - MESA

Opinion on the Financial Statements

We have audited the consolidated balance sheets of Madeira Energia S.A.– - MESA and its subsidiary (the “Company”) as of December 31, 20182020 and 20172019, and the related consolidated statementsstatement of operations, of comprehensive (loss) income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2018,2020, including the related notes (collectively referred to as the “consolidated financial statements”) (not presented herein). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 20172019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182020 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the auditing standards generally accepted in the United States of America and in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

PicewaterhouseCoopers, Av. Tancredo Neves, 2539, Caminho das Árvores, Ed. CEO Salvador Shopping - Torre Nova Iorque
Salvador - BA, Brasil, CEP 41820-021 T: (71) 3417-7500, F: (71) 3417-7698, www.pwc.com/br

F-7 
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Madeira Energia S.A. - MESA

Assessment of Impairment for long lived non-financial assets

As described in Note 3.8 c), 12 and 13 to the consolidated financial statements (not presented herein), the Company’s consolidated long lived non-financial assets balances amounted to R$ 19,316,488 thousand at December 31, 2020. Management evaluates impairment indicators for long lived non-financial assets. Potential impairment is identified by comparing the carrying value of the cash generating unit (CGU) to its recoverable amount, which is determined at the higher between its value in use and fair value less cost to disposal. An impairment charge is recognized when the carrying value exceeds the recoverable amount. The recoverable amounts of the CGU were determined by management at their estimated value in use. The process of estimating the recoverable amounts using value in use approach involves management´s significant judgments and assumptions related to revenue growth rates, projected operating profit and the discount rate.

The principal considerations for our determination that performing procedures relating to the impairment assessment for long lived non-financial assets is a critical audit matter are (i) the significant judgment by management when developing the value in use of the CGU; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, projected operating profit and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others, understanding management’s process for developing the value in use estimate; evaluating the appropriateness of the discounted cash flow model; testing the completeness and accuracy of underlying data used in the model; and evaluating the reasonableness of the significant assumptions used by management related to the discount rate, revenue growth rates, and projected operating profit. Evaluating management’s assumptions related to revenue growth rates and projected operating profit involved evaluating whether the assumptions used by management were reasonable considering (i) the contractual conditions of the concession contract; (ii) the current and past performance of the CGU, (iii) the consistency with external market and industry data, and (iv) the consistency of these assumptions with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s management discounted cash flow model the discount rate assumption.

Assessment of Recoverability of Deferred taxes

As described in Note 11.2 to the consolidated financial statements (not presented herein), the Company’s consolidated deferred income and social contribution tax assets balances were R$ 507,820 thousand, at December 31, 2020. Deferred tax assets are recognized for temporary differences, income tax losses carryforwards and negative basis of social contribution, to the extent that they are considered probable by Company´s management, considering sufficient future taxable profits against which the deferred tax assets can be utilized, on individual entity level. The process of estimating the recoverability of deferred tax assets using a cash flow projection involves management´s significant judgments and assumptions related to revenue growth rates, projected operating and taxable profits.

The principal considerations for our determination that performing procedures relating to the recoverability of deferred tax assets is a critical audit matter are (i) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, projected operating and taxable profits; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others, understanding management’s process for estimating the recoverability of deferred tax assets; evaluating the appropriateness of the cash flow projection, testing significant assumptions used by management in the projection of recoverability of deferred tax assets and testing the nature and amounts of the tax loss carryforwards, negative tax base and temporary differences. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s management cash flow projection.

/s/ PricewaterhouseCoopers

Auditores Independentes

Salvador-Bahia, Brazil

April 29, 201927, 2021

We have served as the Company’sCompany's auditor since 2009.

PricewaterhouseCoopers, Av. Tancredo Neves 2539, 22º, Ed. CEO Salvador Shopping, Torre Nova Iorque, Salvador, BA, Brasil, 41820-021, T: +55 (71) 3417 7500,www.pwc.com.br

F-8 
 

LOGO

Report of independent registered

public accounting firm

To Board of Directors and Shareholders

Norte Energia S.A.

Opinion on the financial statements

We have audited the balance sheets of Norte Energia S.A. (The “Company”) as of December 31, 2017 and 2016 and the related statements of operations, comprehensive loss, changes in equity and cash flows each of the two years in the period ended December 31, 2017, including the related notes (collectively referred to as the “financial statements”) (not presented herein). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the auditing standards generally accepted in the United States of America and in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Brasília, April 30, 2018

/s/ PricewaterhouseCoopers

Auditores Independentes

We have served as the Company’s auditor since 2015.

PricewaterhouseCoopers, SHS Quadra 6, Cj. A, Bloco C, Ed. Business Center Tower, Salas 801 a 811, Brasília, DF, Brasil,70322-915, Caixa Postal 08850, T: +55 (61) 2196 1800,www.pwc.com.br

LOGO

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 20182020, 2019 AND 2017JANUARY 1ST, 2019

ASSETS

(IN MILLIONS OF REAIS—REAIS - R$ mn)

  Note 2020 

2019

Restated(1)

 

01/01/2019

Restated(1)

CURRENT                
Cash and cash equivalents  6   1,680   536   891 
Marketable securities  7   3,360   740   704 
Receivables from customers, traders and power transport  concession holders  8   4,373   4,524   4,092 
Concession financial assets  14   258   891   890 
Concession contract assets  15   737   576   482 
Recoverable taxes  9   1,850   99   124 
Income tax and social contribution tax credits  10   598   621   387 
Dividends receivables  16   188   186   120 
Public lighting contribution      179   165   148 
Reimbursement of tariff subsidies payments  13   88   97   91 
Derivative financial instruments  31   523   235   70 
Others      364   426   521 
       14,198   9,096   8,520 
                 
Assets classified as held for sale  32   1,258   1,258   19,446 
                 
TOTAL CURRENT      15,456   10,354   27,966 
                 
 NON-CURRENT                
Marketable securities  7   765   13   109 
Receivables from customers, traders and power transport  concession holders  8   161   77   81 
Recoverable taxes  9   3,442   6,349   242 
Income tax and social contribution tax recoverable  10   347   228   6 
Deferred income tax and social contribution tax  10   2,453   2,430   2,147 
Escrow deposits  12   1,056   2,540   2,502 
Derivative financial instruments  31   2,426   1,456   744 
Accounts receivable from the State of Minas Gerais  11   12   115   246 
Concession financial assets  14   3,799   3,759   3,812 
Concession contract assets  15   4,243   3,307   3,026 
Investments – Equity method  16   5,415   5,400   5,235 
Property, plant and equipment  17   2,407   2,450   2,662 
Intangible assets  18   11,810   11,624   10,777 
Leasing – right-of-use assets  19   212   277   —   
Others      79   147   784 
TOTAL NON-CURRENT      38,627   40,172   32,373 
TOTAL ASSETS      54,083   50,526   60,339 

 

   Note  2018   2017 

CURRENT

      

Cash and cash equivalents

  6   891    1,030 

Marketable securities

  7   704    1,058 

Customers and traders and concession holders – Transport of electricity

  8   4,092    3,885 

Concession financial assets

  15   1,071    848 

Concession contract assets

  16   131    —   

Recoverable taxes

  9   124    174 

Income and social contribution tax credits

  10a   387    340 

Dividends receivables

  17   120    77 

Restricted cash

  11   91    106 

Inventories

     36    38 

Advances to suppliers

     7    116 

Accounts receivable from the State of Minas Gerais

  12   —      235 

Reimbursement of tariff subsidies payments

  14   91    77 

Low-income customer subsidy

     30    27 

Derivative financial instruments

  32   69    —   

Others

     506    526 
    

 

 

   

 

 

 
     8,350    8,537 

Assets classified as held for sale

  33   19,446    —   
    

 

 

   

 

 

 

TOTAL CURRENT

     27,796    8,537 
    

 

 

   

 

 

 

NON-CURRENT

      

Marketable securities

  7   109    30 

Advances to suppliers

  31   87    7 

Customers and traders and concession holders – Transport of electricity

  8   81    255 

Recoverable taxes

  9   242    231 

Income and social contribution taxes recoverable

  10a   6    21 

Deferred income and social contribution taxes

  10c   2,147    1,871 

Escrow deposits

  13   2,502    2,336 

Derivative financial instruments

  32   744    9 

Accounts receivable from the State of Minas Gerais

  12   246    —   

Others

     696    628 

Concession financial assets

  15   4,927    6,605 

Concession contract assets

  16   1,598    —   

Investments – Equity method

  17   5,235    7,792 

Property, plant and equipment

  18   2,662    2,762 

Intangible assets

  19   10,777    11,156 
    

 

 

   

 

 

 

TOTALNON-CURRENT

     32,059    33,703 
    

 

 

   

 

 

 

TOTAL ASSETS

     59,855    42,240 
    

 

 

   

 

 

 
(1)For further details of restatement of comparative balances, see Note 2.8

The Notes are an integral part of these Consolidated Financial Statements.

 

F-8

F-9 

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Table of Contents 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 20182020, 2019 AND 2017JANUARY 1ST, 2019

LIABILITIES

(IN MILLIONS OF REAIS—REAIS - R$ mn)

 

  Note  2018 2017  Note 2020 

2019

Restated (1)

 

01/01/2019

Restated (1)

Suppliers

  20   1,801  2,343   20   2,358   2,080   1,801 

Regulatory charges

  23   514  513   23   446   457   514 

Profit sharing

     79  9       122   212   79 

Taxes payable

  21a   410  705   21   506   411   453 

Income and social contribution tax

  10b   112  115 
Income tax and social contribution tax  10   140   134   112 

Interest on equity and dividends payable

  26   864  428   26   1,449   744   864 

Loans, financing and debentures

  22   2,198  2,371   22   2,059   2,747   2,198 

Payroll and related charges

     284  207       213   200   284 
Public lighting contribution      305   252   281 

Post-employment obligations

  24   253  232   24   305   288   253 

Concession financial liabilities

  15   —    415 

Derivatives financial Instruments

  32   —    520 

Advances from customers

  8   79  233 
Sector financial liabilities  14   231   —     —   
PIS/Pasep and Cofins taxes to be refunded to customers  21   448   —     —   
Put options SAAG  31   536   —     —   
Lease liabilities  19   48   85   —   

Others

     528  572       524   355   326 
    

 

  

 

       9,690   7,965   7,165 
     7,122   8,663 

Liabilities directly associated to assets held for sale

  33   16,272   —   
Liabilities classified as held for sale  32   —     —     16,272 
    

 

  

 

                 

TOTAL CURRENT

     23,394   8,663       9,690   7,965   23,437 
    

 

  

 

                 

NON-CURRENT

                     

Regulatory charges

  23   179  250   23   291   147   179 

Loans, financing and debentures

  22   12,574  12,027   22   12,961   12,030   12,574 

Taxes payable

  21a   29  28   21   263   227   249 

Deferred income and social contribution taxes

  10c   728  735 
Deferred income tax and social contribution tax  10   1,040   770   803 

Provisions

  25   641  678   25   1,892   1,888   641 

Post-employment obligations

  24   4,736  3,954   24   6,538   6,421   4,736 

Pasep and Cofins taxes to be reimbursed to customers

  21a   1,124  1,087 

Derivative financial Instruments

  32   419  336 

Other obligations

     92  152 
    

 

  

 

 
PIS/Pasep and Cofins taxes to be refunded to customers  21   3,570   4,193   1,124 
Put options SAAG  31   —     483   419 
Lease liabilities  19   179   203   —   
Others      181   96   93 

TOTALNON-CURRENT

     20,522   19,247       26,915   26,458   20,818 
    

 

  

 

 

TOTAL LIABILITIES

     43,916   27,910       36,605   34,423   44,255 
    

 

  

 

                 

EQUITY

  26     26             

Share capital

     7,294  6,294       7,594   7,294   7,294 

Capital reserves

     2,250  1,925       2,250   2,250   2,250 

Profit reserves

     6,362  5,729       10,061   8,750   6,362 

Equity valuation adjustments

     (1,327)  (837)       (2,431)  (2,407)  (1,327)

Deemed cost of property, plant and equipment

     611  639 

Accumulated other comprehensive income

     (1,938)  (1,476) 

Subscription of shares, to be capitalized

     —    1,215 
Retained earnings      —     212   145 

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

  27   14,579   14,326       17,474   16,099   14,724 
    

 

  

 

 

NON-CONTROLLING INTERESTS

     1,360  4   26   4   4   1,360 

TOTAL EQUITY

     15,939   14,330       17,478   16,103   16,084 
    

 

  

 

 

TOTAL LIABILITIES AND EQUITY

     59,855   42,240       54,083   50,526   60,339 
    

 

  

 

 

(1)For further details of restatement of comparative balances, see Note 2.8

The Notes are an integral part of these Consolidated Financial Statements.

F-10 

Table of Contents 

CONSOLIDATED STATEMENT OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(IN MILLIONS OF REAIS - R$ mn, except earnings per share)

  Notes 2020 2019
Restated (1)		 2018
Restated (1)
CONTINUING OPERATIONS                
NET REVENUE  27   25,228   25,486   22,299 
OPERATING COSTS                
COST OF ENERGY AND GAS  28             
Energy purchased for resale      (12,111)  (11,286)  (11,084)
Charges for use of the national grid      (1,748)  (1,426)  (1,480)
Gas purchased for resale      (1,083)  (1,436)  (1,238)
       (14,942)  (14,148)  (13,802)
OTHER OPERATING COSTS  28             
Personnel      (1,012)  (1,002)  (1,098)
Materials      (62)  (74)  (81)
Outsourced services      (1,087)  (1,043)  (913)
Depreciation and amortization      (865)  (815)  (761)
Operating provisions, net      (168)  (1,214)  (40)
Infrastructure construction cost      (1,581)  (1,200)  (897)
Others      (128)  (102)  (85)
       (4,903)  (5,450)  (3,875)
                 
TOTAL COST      (19,845)  (19,598)  (17,677)
GROSS PROFIT      5,383   5,888   4,622 
                 
OPERATING EXPENSES (REVENUES)  28             
  Selling expenses      (147)  (238)  (264)
  General and administrative expenses      (583)  (642)  (672)
  Operating provisions      (108)  (950)  (167)
  Other operating (expenses) income, net      (749)  (1,046)  (640)
       (1,587)  (2,876)  (1,743)
                 
Share of profit (loss), net, of affiliates and jointly-controlled entities  16   357   125   (104)
Dividends declared by investee classified as held for sale  32   —     73   —   
Result of business combination      51   —     —   
Periodic Tariff Review adjustments      502   —     —   
Remeasurement of previously held equity interest in subsidiaries acquired  16   —     —     (119)
Impairment loss on investments  16   —     —     (127)
Income before finance income (expenses) and taxes      4,706   3,210   2,529 
                 
Finance income  29   2,445   3,207   1,706 
Finance expenses  29   (3,350)  (1,847)  (2,224)
Income before income tax and social contribution tax      3,801   4,570   2,011 
                 
Current income tax and social contribution tax  10   (684)  (1,454)  (583)
Deferred income tax and social contribution tax  10   (252)  (145)  (27)
Net income for the year from continuing operations      2,865   2,971   1,401 
DISCONTINUED OPERATIONS                
Net income after tax for the year from discontinued operations  32   —     224   363 
                 
NET INCOME FOR THE YEAR      2,865   3,195   1,764 
Total of net income for the year attributed to:                
Equity holders of the parent                
            Net income from continuing operations      2,864   2,970   1,400 
            Net income from discontinued operations  32   —     224   322 
Net income for the year attributed to equity holders of the parent      2,864   3,194   1,722 
Non-controlling interests                
           Net income from continuing operations      1   1   1 
           Net income from discontinued operations      —     —     41 
       1   1   42 
 NET INCOME FOR THE YEAR      2,865   3,195   1,764 
                 
Basic and diluted earnings per preferred share – R$  26   1.69   1.89   1.02 
Basic and diluted earnings per common share – R$  26   1.69   1.89   1.02 
Basic and diluted earnings per preferred share from continuing operations – R$  26   1.69   1.75   0.83 
Basic and diluted earnings per common share from continuing operations – R$  26   1.69   1.75   0.83 
Basic and diluted earnings per preferred share from discontinued operations – R$  26   —     0.14   0.19 
Basic and diluted earnings per common share from discontinued operations – R$  26   —     0.14   0.19 

(1)For further details of restatement of comparative balances, see Note 2.8.

The Notes are an integral part of these Consolidated Financial Statements.

F-11 

Table of Contents 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(IN MILLIONS OF REAIS - R$ mn)

  2020 

2019

Restated (1)

 

2018

Restated (1)

NET INCOME FOR THE YEAR  2,865   3,195   1,764 
OTHER COMPREHENSIVE INCOME            
Items not to be reclassified to profit or loss in subsequent periods            
Post retirement liabilities – remeasurement of obligations of the defined benefit plans  (10)  (1,599)  (702)
Income tax and social contribution tax on restatement of defined benefit plans  4   544   239 
Others  (1)  —     —   
   (7)  (1,055)  (463)
             
COMPREHENSIVE INCOME FOR THE YEAR  2,858   2,140   1,301 
             
Total of comprehensive income for the year attributed to:            
Equity holders of the parent  2,857   2,139   1,259 
Non-controlling interests  1   1   42 
   2,858   2,140   1,301 
(1)For further details of restatement of comparative balances, see Note 2.8

The Notes are an integral part of these Consolidated Financial Statements.

 

F-9

F-12 

LOGO

Table of Contents 

 

CONSOLIDATED STATEMENT OF INCOMECHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2018, 20172020, 2019 AND 2016JANUARY 1ST, 2019

(IN MILLIONS OF REAIS—REAIS - R$ mn, except earnings per share)where otherwise indicated)

 

   Notes   2018  2017  2016 

CONTINUING OPERATIONS

      

NET REVENUE

   28    22,266   21,712   18,773 

OPERATING COSTS

      

COST OF ENERGY AND GAS

   29     

Energy purchased for resale

     (11,084)   (10,919)   (8,273) 

Charges for use of the national grid

     (1,480)   (1,174)   (947) 

Gas purchased for resale

     (1,238)   (1,071)   (878) 
    

 

 

  

 

 

  

 

 

 
     (13,802)   (13,164)   (10,098) 

OTHER OPERATING COSTS

   29     

Personnel

     (1,098)   (1,270)   (1,348) 

Materials

     (81)   (73)   (41) 

Outsourced services

     (913)   (759)   (720) 

Depreciation and amortization

     (761)   (787)   (802) 

Operating provisions, net

     (40)   (226)   (171) 

Infrastructure construction cost

     (897)   (1,119)   (1,193) 

Others

     (85)   (90)   (57) 
    

 

 

  

 

 

  

 

 

 
     (3,875)   (4,324)   (4,332) 

TOTAL COST

     (17,677)   (17,488)   (14,430) 

GROSS PROFIT

     4,589   4,224   4,343 

OPERATING EXPENSES

   29     

Selling expenses

     (264)   (248)   (382) 

General and administrative expenses

     (672)   (763)   (667) 

Operating provisions

     (167)   (353)   (5) 

Other operating (expenses) income, net

     (640)   34   (420) 
    

 

 

  

 

 

  

 

 

 
     (1,743)   (1,330)   (1,474) 

Share of loss, net, of subsidiaries and joint ventures

   17    (104)   (252)   (302) 

Remeasurement of previously held equity interest in subsidiaries acquired

   17    (119)   —     —   

Impairment loss on Investments

   17    (127)   —     (763) 
    

 

 

  

 

 

  

 

 

 

Income before finance income (expenses) and taxes

     2,496   2,642   1,804 

Finance income

   30    1,706   804   1,041 

Finance expenses

   30    (2,224)   (1,800)   (2,478) 
    

 

 

  

 

 

  

 

 

 

Income before income and social contribution taxes

     1,978   1,646   367 

Current income and social contribution taxes

   10d    (583)   (446)   (174) 

Deferred income and social contribution taxes

   10d    (16)   (198)   141 
    

 

 

  

 

 

  

 

 

 

Net income for the year from continuing operations

     1,379   1,002   334 
    

 

 

  

 

 

  

 

 

 

DISCONTINUED OPERATIONS

      

Net income after tax for the year from discontinued operations

   33    363   —     —   
    

 

 

  

 

 

  

 

 

 

NET INCOME FOR THE YEAR

     1,742   1,002   334 
    

 

 

  

 

 

  

 

 

 

 

F-10

  Attributable to the equity holders of the parent 

Non-controlling

interests

 

Total

Equity

  Share capital Capital reserves Profit reserves Equity valuation adjustments Retained earnings Total  
AS OF JANUARY 01, 2020 (Restated) (1)  7,294   2,250   8,750   (2,407)  212   16,099   4   16,103 
Non-controlling interests (Note 26)  —     —     —     —     —     —     (1)  (1)
Net income for the year  —     —     —     —     2,864   2,864   1   2,865 
Subscription of capital  300   —     (300)  —     —     —     —     —   
Other comprehensive income  —     —     —     (7)  —     (7)  —     (7)
Realization of PP&E deemed cost  —     —     —     (17)  17   —     —     —   
Appropriation of Net income for the year                                
Tax incentives reserve (note 26)  —     —     18   —     (18)  —     —     —   
Legal reserve (note 26)  —     —     142   —     (142)  —     —     —   
Proposed dividends  —     —     —     —     (1,482)  (1,482)  —     (1,482)
Retained earnings reserve (note 26)  —     —     1,451   —     (1,451)  —     —     —   
AS OF DECEMBER 31, 2020  7,594   2,250   10,061   (2,431)  —     17,474   4   17,478 

LOGO

(1)For further details of restatement of comparative balances, see Note 2.8

  Attributable to the equity holders of the parent 

Non-controlling

interests

 

Total

Equity

  Share capital Capital reserves Profit reserves Equity valuation adjustments Retained earnings Total  
AS OF JANUARY 01, 2019 (Restated) (1)  7,294   2,250   6,362   (1,327)  145   14,724   1,360   16,084 
Non-controlling interests (Note 26)  —     —     —     —     —     —     (1,357)  (1,357)
Net income for the year  —     —     —     —     3,194   3,193   1   3,195 
Remeasurement of obligations of the defined benefit plans, net of taxes  —     —     —     (1,055)  —     (1,055)  —     (1,055)
Realization of PP&E deemed cost  —     —     —     (25)  25   —     —     —   
Appropriation of Net income for the year                                
Tax incentives reserve (note 26)  —     —     18   —     (18)  —     —     —   
Proposed dividends  —     —     —     —     (764)  (764)  —     (764)
Retained earnings reserve (note 26)  —     —     1,535   —     (1,535)  —     —     —   
Unrealized profit reserve (note 26)  —     —     835   —     (835)  —     —     —   
AS OF DECEMBER 31, 2019  7,294   2,250   8,750   (2,407)  212   16,099   4   16,103 

(1)For further details of restatement of comparative balances, see Note 2.8

 

   Notes  2018   2017   2016 

Total of net income for the year attributed to:

        

Equity holders of the parent

        

Net income from continuing operations

     1,378    1,001    334 

Net income from discontinued operations

     322    —      —   
    

 

 

   

 

 

   

 

 

 

Net income for the year attributed to equity holders of the parent

     1,700    1,001    334 
    

 

 

   

 

 

   

 

 

 

Non-controlling interests

        

Net income from continuing operations

  27   1    1    —   

Net income from discontinued operations

     41    —      —   
    

 

 

   

 

 

   

 

 

 
     42    1    —   
    

 

 

   

 

 

   

 

 

 

NET INCOME FOR THE YEAR

     1,742    1,002    334 
    

 

 

   

 

 

   

 

 

 

Basic earnings per preferred share – R$

  26   1.17    0.84    0.35 

Basic earnings per common share – R$

     1.17    0.37    0.10 

Diluted earnings per preferred share – R$

     1.17    0.84    0.32 

Diluted earnings per common share – R$

     1.17    0.37    0.07 

Basic earnings per preferred share from continuing operations – R$

     0.95    0.84    0.35 

Basic earnings per common share from continuing operations – R$

     0.95    0.37    0.10 

Diluted earnings per preferred share from continuing operations – R$

     0.95    0.84    0.32 

Diluted earnings per common share from continuing operations – R$

     0.95    0.37    0.07 

F-13 

Table of Contents 

  Attributable to the equity holders of the parent 

Non-controlling

interests

 

Total

Equity

  Share capital Subscription of shares to be capitalized Capital reserves Profit reserves Equity valuation adjustments Retained earnings Total  
AS OF JANUARY 01, 2018 (Restated) (1)  6,294   1,215   1,925   5,729   (837)  (34)  14,292   4   14,296 
Proposed dividends from prior years  —     —     —     (127)  —     —     (127)  —     (127)
Expired dividends of previous years  —     —     —     —     —     42   42   —     42 
Subscription of shares, to be capitalized  —     110   —     —     —     —     110   —     110 
Subscription of capital  1,000   (1,000)  —     —     —     —     —     —     —   
Goodwill on subscription of shares  —     (325)  325   —     —     —     —     —     —   
Non-controlling interests  —     —     —     —     —     —     —     1,314   1,314 
Net income for the year  —     —     —     —     —     1,722   1,722   42   1,764 
Remeasurement of obligations of the defined benefit plans, net of taxes  —     —     —     —     (463)  —     (463)  —     (463)
Realization of PP&E deemed cost  —     —     —     —     (27)  42   15   —     15 
Appropriation of Net income for the year                                    
Tax incentives reserve (Note 26)  —     —     —     9   —     (9)  —     —     —   
Proposed dividends  —     —     —     —     —     (867)  (867)  —     (867)
Retained earnings reserve (Note 26)  —     —     —     751   —     (751)  —     —     —   
AS OF DECEMBER 31, 2018  7,294   —     2,250   6,362   (1,327)  145   14,724   1,360   16,084 

(1)For further details of restatement of comparative balances, see Note 2.8

The Notes are an integral part of these Consolidated Financial Statements.

 

F-11

F-14 

Table of Contents 

LOGO

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMECASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018, 20172020, 2019 AND 20162018

(IN MILLIONS OF REAIS—REAIS - R$ mn)

 

   2018  2017  2016 

NET INCOME FOR THE YEAR

   1,742   1,002   334 

OTHER COMPREHENSIVE INCOME

    

Items not to be reclassified to profit or loss in subsequent periods

    

Post retirement liabilities – remesurement of obligations of the defined benefit plans

   (702)   (394)   (780) 

Income and social contribution taxes on restatement of defined benefit plans (note 10c)

   239   133   265 

Equity gain (loss) on other comprehensive income in subsidiary and jointly-controlled entity

   —     (3)   4 
  

 

 

  

 

 

  

 

 

 
   (463)   (264)   (511) 

Items that may be reclassified to the profit or loss in subsequent periods

    

Equity gain (loss) on other comprehensive income of subsidiaries and jointly-controlled entities, relating to fair value of financial asset and conversion of transactions outside Brazil

   —     (38)   (3) 

Reclassification of translation adjustments to the profit or loss arising from sale of Transchile

   —     —     (40) 
  

 

 

  

 

 

  

 

 

 
   —     (38)   (43) 
  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME FOR THE YEAR

   1,279   700   (220) 
  

 

 

  

 

 

  

 

 

 

Total of comprehensive income for the year attributed to:

    

Equity holders of the parent

   1,237   699   (220) 

Non-controlling interests

   42   1   —   
  

 

 

  

 

 

  

 

 

 
   1,279   700   (220) 
  

 

 

  

 

 

  

 

 

 
  Note 2020 

2019

Restated (1)

 

2018

Restated (1)

CASH FLOW FROM OPERATIONS                
Net income for the year from continuing operations      2,865   2,971   1,401 
Net income for the year from discontinuing operations      —     224   363 
Adjustments to reconcile net income to net cash flows:                
Deferred income tax and social contribution tax  10   252   145   27 
Depreciation and amortization  17 and 18   989   958   850 
Loss on write-off of net residual value of unrecoverable concession financial assets, concessional contract asset, PP&E and Intangible assets  14, 15, 17 and 18   39   125   61 
Impairment of contract asset and  intangible assets  15 and 18   (12)  24   42 
Share of (gain) loss, net, of subsidiaries and joint ventures  16   (357)  (125)  104 
Periodic Tariff Review adjustments      (552)  —     —   
Result of business combination      (51)  —     119 
Dividends declared by investee classified as held for sale  32   —     (73)  —   
Impairment loss on investments      —     —     127 
Generation indemnity revenue  14   —     —     (55)
Reimbursement of  PIS/Pasep and Cofins over ICMS credits to customers– realization      (266)  —     —   
Remeasuring of concession financial and concession contract assets  14 and 15   (801)  (756)  (677)
Interest and monetary variation      1,202   1,190   1,207 
Recognition of PIS/Pasep and Cofins taxes credits over ICMS  9   —     (2,952)  —   
Exchange variation on loans  22   1,742   226   582 
Appropriation of transaction costs  22   15   38   33 
Provisions for operating losses  28   423   2,401   466 
Provision for reimbursement for suspension of energy supply – Renova      —     —     (60)
Net gain on derivative instruments at fair value through profit or loss      (1,753)  (998)  (893)
CVA (Parcel A items Compensation) Account and Other financial components in tariff adjustments  14   (455)  (58)  (1,973)
Post-employment obligations  24   491   464   405 
Others      56   (8)  (28)
       3,827   3,796   2,101 
Working capital adjustments                
Increase (decrease) in assets                
Receivables from customers and traders and Concession holders – Transport of electricity      (78)  (666)  (391)
CVA and Other financial components in tariff adjustments  14   1,467   362   909 
Recoverable taxes      (59)  (12)  38 
Income tax and social contribution tax credits      (162)  (71)  615 
Escrow deposits      1,538   11   (109)
Dividends received from investees  16   387   283   311 
Concession contract and financial assets  14 and 15   688   511   1,761 
Others      187   26   77 
       3,968   444   3,211 
Increase (decrease) in liabilities                
Suppliers      278   279   (553)
Taxes payable      824   (162)  (291)
Income tax and social contribution tax payable      690   1,433   (6)
Payroll and related charges      13   (84)  77 
Regulatory charges      132   (89)  (70)
Advances from customers      —     (81)  (153)
Post-employment obligations  24   (367)  (343)  (307)
Derivative financial instruments –Put options  31   —     —     (555)
Others      106   4   (165)
       1,676   957   (2,023)
Cash generated by operating activities      9,471   5,197   3,289 
Interest paid on loans, financing and debentures  22   (1,081)  (1,265)  (1,290)
Interest paid on leasing contracts  19   (4)  (5)  —   
Income tax and social contribution tax paid      (240)  (1,767)  (650)
Cash inflows from settlement of derivatives instruments      461   100   37 
Net cash flows from continuing operating activities      8,607   2,260   1,386 
Net cash flows used in discontinued operating activities  32   —     (224)  (378)
NET CASH FLOWS FROM OPERATING ACTIVITIES      8,607   2,036   1,008 

F-15 

Table of Contents 

  Note  2020  

2019

Restated(1)

  

2018

Restated(1)

 
INVESTING ACTIVITIES                
Marketable securities      (3,368)  79   276 
Restricted cash      (51)  79   15 
Investments                
    Acquisition of equity investees  16   —     —     (109)
    Capital contributions in investees  16   (120)  (38)  (241)
Cash arising from business combination      27   —     71 
Loans to related parties      (27)  (6)  —   
Property, plant and equipment  17   (132)  (70)  (77)
Intangible assets  18   (41)  (932)  (801)
Contract assets – distribution of gas and energy infrastructure  15   (1,364)  (925)  —   
Net cash flows used in continuing investment activities      (5,076)  (1,813)  (866)
Net cash flows from discontinued investment activities  16 and 32   —     625   655 
NET CASH FLOWS USED IN INVESTING ACTIVITIES      (5,076)  (1,188)  (211)
                 
FINANCING ACTIVITIES                
     Proceeds from Loans, financings and debentures, net from transaction costs  22   826   4,477   2,990 
     Interest on capital and dividends paid  26   (598)  (701)  (509)
     Capital increase      —     —     110 
Payment of loans, financing and debentures  22   (2,531)  (4,883)  (3,527)
Payment of principal portion of lease liabilities  19   (84)  (96)  —   
NET CASH FLOWS USED IN FINANCING ACTIVITIES      (2,387)  (1,203)  (936)
                 
Net (decrease) increase in cash and cash equivalents for the year      1,144   (355)  (139)
Cash and cash equivalents at the beginning of the year  6   536   891   1,030 
Cash and cash equivalents at the end of the year  6   1,680   536   891 

(1)For further details of restatement of comparative balances, see Note 2.8.

The Notes are an integral part of these Consolidated Financial Statements.

 

F-12

F-16 

Table of Contents 

LOGO

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

(IN MILLIONS OF REAIS—R$ mn, except where otherwise indicated)

   Attributable to the equity holders of the parent  Non-
controlling
interests		   Total
Equity		 
   Share
capital		   Subscription
of shares to
be capitalized		  Capital
reserves		   Profit
reserves		  Equity
valuation
adjustments		  Retained
earnings		  Total 

AS OF DECEMBER 31, 2017

   6,294    1,215   1,925    5,729   (837)   —     14,326   4    14,330 

First time adoption of IFRS 9 and IFRS 15

   —      —     —      —     —     (157)   (157)   —      (157) 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

AS OF JANUARY 01, 2018

   6,294    1,215   1,925    5,729   (837)   (157)   14,169   4    14,173 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Proposed dividends from prior years

   —      —     —      (127)   —     —     (127)   —      (127) 

Expired dividends of previous years

   —      —     —      —     —     42   42   —      42 

Subscription of shares, to be capitalized

   —      110   —      —     —     —     110   —      110 

Subscription of capital

   1,000    (1,000)   —      —     —     —     —     —      —   

Goodwill on subscription of shares

   —      (325)   325    —     —     —     —     —      —   

Net income for the year

   —      —     —      —     —     1,700   1,700   42    1,742 

Remeasurement of obligations of the defined benefit plans, net of taxes

   —      —     —      —     (463)   —     (463)   —      (463) 

Realization of PP&E deemed cost

   —      —     —      —     (27)   42   15   —      15 

Appropriation of Net income for the period

             

Tax incentives reserve (note 26c)

   —      —     —      9   —     (9)   —     —      —   

Proposed dividends (R$ 0,59 per share)

   —      —     —      —     —     (867)   (867)   —      (867) 

Appropriation of retain earnings to profit reserves

   —      —     —      751   —     (751)   —     —      —   

Non-controlling interests

   —      —     —      —     —     —     —     1,314    1,314 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

AS OF DECEMBER 31, 2018

   7,294    —     2,250    6,362   (1,327)   —     14,579   1,360    15,939 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

F-13

LOGO

   Attributable to the equity holders of the parent  Non-
controlling
interests		  Total
Equity		 
   Share
capital		   Subscription
of shares to
be
capitalized		   Capital
reserves		   Profit
reserves		   Equity
valuation
adjustments		  Retained
earnings		  Total 

AS OF DECEMBER 31, 2016

   6,294    —     1,925    5,200    (489)   —    12,930   4   12,934 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Subscription of shares. to be capitalized

   —      1,215    —      —      —     —     1,215   —     1,215 

Net income for the year

   —      —      —      —      —     1,001  1,001   1   1,002 

Remeasurement of obligations of the defined benefit plans, net of taxes

   —      —      —      —      (261)   —     (261)   —    (261) 

Equity gain (loss) on Other comprehensive income in subsidiary and jointly-controlled entity

   —      —      —      —      (41)   —     (41)   —     (41) 

Realization of PP&E deemed cost

   —      —      —      —      (46)   28   (18)   —    (18) 

Appropriation of Net income for the period

              

Tax incentives reserve

   —      —      —      1    —     (1)   —     —     —   

Proposed dividends (R$ 0.51 per share)

   —      —      —      —      —     (500)   (500)   —     (500) 

Additional dividends proposed.non-controlling interests

   —      —      —      —      —     —     —     (1)   (1) 

Appropriation of retain earnings to profit reserves

   —      —      —      528    —     (528)   —     —     —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

AS OF DECEMBER 31, 2017

   6,294    1,215    1,925    5,729    (837)   —     14,326   4   14,330 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

   Attributable to the equity holders of the parent  Non-
controlling
interests		   Total
Equity		 
   Share
capital		   Capital
reserves		   Profit
reserves		  Equity
valuation
adjustments		  Retained
earnings		  Total 

AS OF DECEMBER 31, 2015

   6,294    1,925    4,663   102   —     12,984   4    12,988 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Net income for the year

   —      —      —     —     334   334   —      334 

Remeasurement of obligations of the defined benefit plans, net of taxes

   —      —      —     (515)   —     (515)   —      (515) 

Equity loss on Other comprehensive income in subsidiary and jointly-controlled entity

        (39)    (39)     (39) 

Realization of PP&E deemed cost

   —      —      —     (37)   37   —     —      —   

Appropriation of Net income for the period

            

Tax incentives reserve

   —      —      7   —     (7)   —     —      —   

Proposed dividends (R$ 0.16 per share)

   —      —      (380)   —     —     (380)   —      (380) 

Additional dividends proposed.non-controlling interests

   —      —      623   —     —     623   —      623 

Reserve for mandatory dividends not distributed

   —      —      127   —     (204)   (77)   —      (77) 

Appropriation of retain earnings to profit reserves

   —      —      160   —     (160)   —     —      —   
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

AS OF DECEMBER 31, 2016

   6,294    1,925    5,200   (489)   —     12,930   4    12,934 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

The Notes are an integral part of these Consolidated Financial Statements.

F-14

LOGO

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

(IN MILLIONS OF REAIS—R$ mn)

      2018  2017  2016 

CASH FLOW FROM OPERATIONS

      

Net income for the year from continuing operations

     1,379   1,002   334 

Net income for the year from discontinuing operations

     363   —     —   
    

 

 

  

 

 

  

 

 

 

Net income for the year

     1,742   1,002   334 

Adjustments to reconcile net income to net cash flows:

      

Non-controlling interests

     (42)   (1)   —   

Income tax and social contribution taxes

  10.d   16   198   (141) 

Depreciation and amortization

  18 and 19   850   850   834 

Loss onwrite-off of net residual value of unrecoverable Concession financial assets , PP&E and Intangible assets

  15, 18 and 19   61   48   109 

Impairment of contract assets

  16   42   —     —   

Gain on sale of investments

  33   (378)   (197)   (315) 

Impairment loss on investments

  17   127   —     763 

Generation Indemnity Revenue

  15   (55)   (271)   —   

Adjustment to Remuneration Assets Base - BRR for transmission assets

     —     (75)   —   

Share of loss, net, of subsidiaries and joint ventures

  17   104   252   302 

Updating of concession financial and concession contract assets

  15 and 16   (585)   (753)   (1,110) 

Interest and monetary variation

     1,207   1,498   1,851 

Exchange variation on loans

  22   582   56   —   

Reversal of monetary updating on Advance for Future Capital Increase - AFAC

     —     (239)   —   

Tax Anmesty Program (PRCT)

     —     283   —   

Appropriation of transaction costs

  22   33   67   68 

Provisions for operating losses

  29.d   466   854   704 

Provision for reimbursement for suspension of energy supply – Renova

     (60)   —     —   

Net loss on derivative instruments at fair value through profit or loss

  30   (893)   32   —   

CVA (Parcel A items Compensation) Account andOther financial components in tariff adjustments

  15   (1,973)   (988)   1,455 

Remeasurement of previously held equity interest in subsidiaries acquired

  17   119   —     —   

Loss on other credits

  17.1   12   —     —   

Post-employment obligations

  24   405   (164)   447 
    

 

 

  

 

 

  

 

 

 
     1,780   2,452   5,301 
    

 

 

  

 

 

  

 

 

 

Working capital adjustments

      

(Increase) / decrease in assets

      

Customers and traders and Concession holders – Transport of electricity

     (391)   (818)   (56) 

Accounts Receivable from the State of Minas Gerais

     —     46   —   

CVA andOther financial components in tariff adjustments

  15   909   586   341 

Energy Development Account (CDE)

     —     (10)   8 

Recoverable taxes

     38   10   19 

Income and social contribution tax credits

     615   385   (62) 

Escrow deposits

     (109)   (4)   (28) 

Dividends received from investees

  17   311   354   683 

Concession financial assets: reimbursement – generation plants

  15   1,139   —     —   

Concession contract and financial assets

  15 and 16   565   398   (1,941) 

Advances to suppliers

     29   (116)   (120) 

Gas drawing rights

     75   537   (193) 

Others

     (27)   122   105 
    

 

 

  

 

 

  

 

 

 
     3,154   1,490   (1,244) 
    

 

 

  

 

 

  

 

 

 

Increase (decrease) in liabilities

      

Suppliers

     (553)   403   38 

Taxes payable

     (291)   (248)   38 

Income and social contribution taxes payable

     (6)   14   198 

Payroll and related charges

     77   (18)   4 

Regulatory charges

     (70)   (73)   92 

Advances from customers

     (153)   52   —   

Post-employment obligations

  24   (307)   (282)   (239) 

Derivative financial instruments –Put options

  32   (555)   (830)   (150) 

Others

     (165)   (357)   (167) 
    

 

 

  

 

 

  

 

 

 
     (2,023)   (1,339)   (186) 
    

 

 

  

 

 

  

 

 

 

Cash generated by operating activities

     2,911   2,603   3,871 
    

 

 

  

 

 

  

 

 

 

Interest paid on loans and financing

  22   (1,290)   (1,797)   (2,369) 

Income and social contribution taxes paid

     (650)   (226)   (289) 

Cash inflows from settlement of derivatives instruments

     37   —     —   
    

 

 

  

 

 

  

 

 

 

NET CASH FROM OPERATING ACTIVITIES

     1,008   580   1,213 
    

 

 

  

 

 

  

 

 

 

F-15

LOGO

   

Note

  2018  2017  2016 

INVESTING ACTIVITIES

      

Marketable securities

     276   (4)   1,400 

Restricted cash

     15   261   (367) 

Investments

     —     —     —   

Acquisition of equity investees

  17 and 37   (109)   (38)   —   

Disposal of investments

  33 and 17   655   766   949 

Capital contributions in investees

  17   (241)   (254)   (1,455) 

Cash arising from business combination

  37   71   —     —   

Property, plant and equipment

  18   (77)   (83)   (120) 

Concession contract assets – gas and distribution infrastructure

  16   (771)   —   —   

Intangible assets

  19   (30)   (1,034)   (1,021) 
    

 

 

  

 

 

  

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (211)   (386)   (614) 
    

 

 

  

 

 

  

 

 

 

FINANCING ACTIVITIES

      

Subscription of shares, to be capitalized

     —     1,215   —   

Capital increase

     110   —     —   

Interest on capital and dividends paid

     (509)   (540)   (675) 

Proceeds from Loans, financings and debentures

  22   2,990   3,308   5,737 

Borrowing costs

  22   —     (11)   —   

Payment of loans, financing and debentures

  22   (3,527)   (4,131)   (5,591) 
    

 

 

  

 

 

  

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

     (936)   (159)   (529) 
    

 

 

  

 

 

  

 

 

 

Net (decrease) increase in cash and cash equivalents for the year

     (139)   35   70 

Cash and cash equivalents at the beginning of the year

  6   1,030   995   925 
    

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at the end of the year

  6   891   1,030   995 
    

 

 

  

 

 

  

 

 

 

The Notes are an integral part of these Consolidated Financial Statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 20182020 AND 20172019 AND FOR THE YEARS ENDED ON DECEMBER

31, 2018, 20172020, 2019 AND 20162018

(IN MILLIONS OF REAIS—REAIS - R$ mn—mn - except where otherwise indicated)

1. OPERATING CONTEXT

1.OPERATING CONTEXT

a)The Company

Companhia Energética de Minas Gerais (‘(´Parent company’ or ‘Holding company’) is a listed corporation, with shares traded on the São Paulo Stock Exchange)Exchange (‘B3’) at Corporate Governance Level 1; through ADRs on the New York Stock Exchange (‘NYSE’); and on the stock exchange of Madrid (‘Latibex’). The Company is a state-controlled mixed capital company controlled by the State of Minas Gerais. It is domiciled in Brazil, with head office at Avenida Barbacena 1200, Belo Horizonte, Minas Gerais. It operates exclusively as a holding company, with subsidiaries and investments in associatesaffiliates or jointly controlledjointly-controlled entities (collectively refer to as ‘Cemig’ or the ‘Company’), which are engaged in the construction and operation of infrastructure used in the generation, transformation, transmission, distribution and sale of energy, and also activities in the various fields of energy sector and gas distribution, for the purpose of commercial operation.

Cemig has equity interests in the following subsidiaries, jointly-controlled entities and affiliates, all of which principal activities are:are construction and operation of systems of production, distribution and sale of energy and gas (information in MWh has not been audited by the external auditors):

 

InvestmentsClassificationDescription

Investments

SUBSIDIARIES:		 

Classification

Description

SUBSIDIARIES:

Cemig Geração e Transmissão S.A. (‘Cemig GT’ or ‘Cemig Geração e Transmissão’)SubsidiaryWholly-owned subsidiary engaged in the energy generation and transmission services. Its shares are listed in Brazil, but are not actively traded. Cemig GT has interests in 6482 power plants (60(75 of which are hydroelectric, 26 are wind power 1 is a thermal plant and 1 is solar) and associated transmission lines, most of which are part of the Brazilian national generation and transmission grid system,  with total installed generation capacity of 3,5095,786 MW (information not reviewed by the external auditors).
(5)
Cemig BaguariSubsidiaryCorporation engaged in the production and sale of energy as an independent power producer and in interests in investees or joint operations that are engaged in the production and sale of energy in future projects.
Cemig GeraçaoTrêão Três Marias S.A.SubsidiaryCorporation engaged in the production and sale of energy as public service concession holder, by commercial operation of the Três Marias Hydroelectric Plant, and sale and trading of energy in the Free Market. This subsidiary has installed capacity of 396 MW (5), and guaranteed offtake level of 239 MW (5) average.
Cemig Geração Salto Grande S.A.SubsidiaryCorporation engaged in the production and sale of energy as public service concession holder, by commercial operation of the Salto Grande Hydroelectric Plant, and sale and trading of energy in the Free Market. This subsidiary has installed capacity of 102 MW (5), and guaranteed offtake level of 75 MW (5) average.

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Investments

Classification

Description

Cemig Geração Itutinga S.A.SubsidiaryCorporation engaged in the production and sale of energy as public service concession holder, by commercial operation of the Itutinga Hydroelectric Plant, and sale and trading of energy in the Free Market.  This subsidiary has installed capacity of 52 MW (5), and guaranteed offtake level of 28 MW (5) average.
Cemig Geração Camargos S.A.SubsidiaryCorporation engaged in the production and sale of energy as public service concession holder, by commercial operation of the Camargos Hydroelectric Plant, and sale and trading of energy in the Free Market. This subsidiary has installed capacity of 46 MW (5), and guaranteed offtake level of 21 MW (5) average.
Cemig Geração Sul S.A.SubsidiaryCorporation engaged in the production and sale of energy as public concession holder, by commercial operation of the Coronel Domiciano, Marmelos, Joasal, Paciência and Piau Small Hydroelectric Plants, and trading in energy in the Free Market. Aggregate installed generation capacity is 39.53 MW; averageMW (5); guaranteed offtake guarantee islevel of 27.42 MW.
MW (5) average.
Cemig Geração Leste S.A.SubsidiaryCorporation engaged in the production and sale of energy as public concession holder, by operation of the Dona Rita, Sinceridade, Neblina, Ervália, Tronqueiras and Peti Small Hydroelectric Plants, and trading in energy in the Free Market. Aggregate installed generation capacity of these plants is 35.16 MW; average35.17 MW (5); guaranteed offtake guarantee is 18.64 MW.
level of 18.80 MW (5) average.
Cemig Geração Oeste S.A.SubsidiaryCorporation engaged in the production and sale of energy as public service concession holder, by commercial operation of the Gafanhoto, Cajuru and Martins Small Hydroelectric Plants, and sale and trading of energy in the Free Market. It has aggregate installed capacity of 28.90 MW (5), and aggregateguaranteed offtake guaranteelevel of 11.21 MW (5) average.
Rosal Energia S.A. (‘Rosal’)SubsidiaryCorporation that holds the concession to generate and sell energy, operating theRosal Hydroelectric Plant, on the border between the states of Rio de Janeiro and Espírito Santo.
Sá Carvalho S.A. (‘Sá Carvalho’)Subsidiary

Corporation that holds the concession to generate and sell energy, operating theSá Carvalho Hydroelectric Plant.

Horizontes Energia S.A. (‘Horizontes’)SubsidiaryCorporation that is classified as an independent power producer operating theMachado Mineiro andSalto do Paraopeba Hydroelectric Plants in Minas Gerais; and theSalto do Voltão andSalto do Passo Velho Hydroelectric Plants, in the state of Santa Catarina.
Cemig PCH S.A. (‘PCH’)SubsidiaryCorporation that is classified as an independent power producer operating thePai Joaquim hydroelectric power plant.
Cemig Comercializadora de Energia Incentivada S.A.SubsidiaryCorporation that is classified as an independent thermal generation power producer, in future projects.
Cemig Trading S.A. (‘Cemig Trading’)SubsidiaryCorporation engaged in trading and intermediation of energy.
Empresa de Serviços e Comercialização de Energia Elétrica S.A.SubsidiaryCorporation engaged in the production and sale of energy as an independent power producer, in future projects.

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Investments

Classification

Description

UTE Barreiro S.A. (‘Barreiro’)Cemig Geração Poço FundoSubsidiaryCorporation engaged in the production and sale of thermally generated energy, as an independent producer, through construction and operation of theUTE Barreiro thermal generation hydroelectric power plant Poço Fundo, located on the premises of V&M do Brasil S.A.,in Machado river, in the State of Minas Gerais
Gerais.
Central Eólica Praias de Parajuru S.A. (‘Central Eólica Praias de Parajuru’)SubsidiaryCorporation engaged in the production and sale of energy at the wind power plant of the same name in the northeastern Brazilian state of Ceará.
Central Eólica Volta do Rio S.A. (‘Central Eólica Volta do Rio’)SubsidiaryCorporation engaged in the production and sale of energy at the wind power plant of the same name in Acaraú, northeastern Brazilian state of Ceará.
Amazônia Energia Participações S.A (‘Amazônia Energia’)SubsidiarySpecial-purpose company created by Cemig GT (74.50% ownership) and Light (25.50%), for acquisition of an equity interest of 9.77% in Norte Energia S.A. (‘Nesa’), the company holding the concession for theBelo Monte Hydroelectric Plant, on the Xingu River, in the Northern Brazilian State of Pará.
Cemig Distribuição S.A. (‘Cemig D’ or ‘Cemig Distribuição’)SubsidiaryWholly-ownedWholly owned subsidiary, whose shares are listed in Brazil but are not actively traded; engaged in the distribution of energy through networks and distribution lines throughout almost the whole of Minas Gerais State.
Companhia de Gás de Minas Gerais (‘Gasmig’)SubsidiaryCorporation engaged in the acquisition, transportation and distribution of combustible gas or sub-products and derivatives, through a concession for the distribution of gas in the State of Minas Gerais.
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Cemig Geração DistribuídaSubsidiaryWholly owned subsidiary engaged in: building and maintaining projects and equipment associated with energy efficiency and micro- and mini- distributed generation; providing consultancy and studies for distributed generation projects and equipment, for subscription to systems for customers to supply to the grid as generators, and technical, regulatory and economic feasibility analyses for these purposes.
Luce Empreendimentos e ParticipaçõesSim (‘LEPSA’Efficientia’) (1)SubsidiaryNon-operational holding company, whose primary purpose is to hold direct equity interest in Light.
Rio Minas Energia Participações – (‘RME’) (1)SubsidiaryNon-operational holding company, whose primary purpose is to hold direct equity interest in Light.
Efficientia S.A. (‘Efficientia’)SubsidiaryCorporation that provides energy efficiency and optimization services and energy solutions through studies and execution of projects; and services of operation and maintenance of energy supply facilities.
Companhia de Transmissão Centroeste de Minas (‘Centroeste’) (2)SubsidiaryCorporation engaged in the construction, operation and maintenance of the Furnas-Pimenta transmission line – part of the national grid.
SUBSIDIARIES HELD FOR SALE(*):JOINTLY-CONTROLLED ENTITIES 
Guanhães Energia S.A. (‘Guanhães Energia’)Jointly-controlled entitySubsidiaryCorporation engaged in the production and sale of energy through building and commercial operation of the following Small Hydro Plants:Dores de Guanhães, Senhora do Porto andJacaré, in the county of Dores de Guanhães; andFortuna II, in the county of Virginópolis, in Minas Gerais. TheSenhora do Porto andDoreshydroelectric plants began operation in 2018 and the other two (FortunaandJacaré)are expected to be operating in the second quarter of 2019.
LightGer S.A. (‘LightGer’)

Jointly-controlled entity

SubsidiaryCorporation classified as independent power producer, formed to build and operate theParacambiSmall Hydro Plant (or PCH), on the Ribeirão das Lages river in the county of Paracambi, Rio de Janeiro State.
Usina Hidrelétrica Itaocara S.A. (‘UHE Itaocara’)Jointly-controlled entitySubsidiaryCorporation, comprising the partners of the UHE Itaocara Consortium, formed by Cemig GT and Itaocara Energia (of the Light group), responsible for construction of theItaocara I Hydroelectric Plant.
Light S.A. (‘Light’)SubsidiaryListed company engaged in the following activities: energy generation, transmission, trading, distribution, and related services; and holding direct or indirect interest in companies engaged in similar activities.

(1)

As mentioned in note 38, on April 24, 2019 the merger of the subsidiaries Lepsa and RME into the Company was completed.

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Investments

Classification

Description

Axxiom Soluções Tecnológicas S.A. (‘Axxiom’)SubsidiaryJointly-controlled entityUnlisted corporation, providing technology and systems solutions for operational management of public service concession holders, including companies operating in energy, gas, water and sewerage, and other utilities. Jointly controlled by Light (51%) and Cemig (49%).
JOINTLY-CONTROLLED ENTITIES
Hidrelétrica Cachoeirão S.A. (‘Cachoeirão’)Jointly-controlled entityProduction and sale of energy as an independent power producer, through theCachoeirão hydroelectric power plant located atPocrane, in the State of Minas Gerais.
Hidrelétrica Pipoca S.A. (‘Pipoca’)Jointly-controlled entityIndependent production of energy, through construction and commercial operation of thePipoca Small Hydro Plant (SHP, orPequena Central Hidrelétrica – PCH), on the Manhuaçu River, in the municipalities of Caratinga and Ipanema, in Minas Gerais State.
Retiro Baixo Energética S.A. (‘RBE’)Jointly-controlled entityCorporation that holds the concession to operate theRetiro Baixo Hydroelectric Plant, on the Paraopeba River, in the São Francisco river basin, in the municipalities of Curvelo and Pompeu, in Minas Gerais.
Amazônia Energia Participações S.A (‘Amazônia Energia’)Jointly-controlled entitySpecial-purpose company created by Cemig GT (74.50% ownership) and Light (25.50%), for acquisition of an equity interest of 9.77% in Norte Energia S.A. (‘Nesa’), the company holding the concession for the Belo Monte Hydroelectric Plant, on the Xingu River, in the Northern Brazilian State of Pará.
Aliança Norte Energia Participações S.A. (‘Aliança Norte’)Jointly-controlled entitySpecial-purpose company created by Cemig GT (49.9%(49% ownership) and Vale S.A. 50.1%)51%, for acquisition of an equity interest of 9% in Norte Energia S.A. (‘Nesa’), the company holds the concession for theBelo Monte Hydroelectric Plant, on the Xingu River, in the Northern Brazilian State of Pará.
Baguari Energia S.A. (‘Baguari Energia’)Jointly-controlled entityCorporation engaged in the construction, operation, maintenance and commercial operation of theBaguari Hydroelectric Plant, through participation in the UHE Baguari Consortium (Baguari Energia 49.00%49%, Neoenergia 51.00%Baguari I (Neoenergia) 51%), on the Doce river in Governador Valadares, Minas Gerais.
Renova Energia S.A. (‘Renova Energia’) – court supervised reorganizationJointly-controlled entityListed company engaged in the development, construction and operation of plants generating power from renewable sources – wind power, small hydro plants (SHPs), and solar energy; trading of energy; and related activities.
This jointly-controlled investee is currently under court supervised reorganization.
Aliança Geração de Energia S.A. (‘Aliança’)Jointly-controlled entityUnlisted company created by Cemig GT and Vale S.A. as a platform for consolidation of generation assets held by the two parties in generation consortia,  and investments in future generation projects. For their shares, the two parties subscribed the following generation plant assets:Porto Estrela, Igarapava, Funil, Capim Branco I, Capim Branco II, Aimorés,andCandonga. With these assets Aliança has total installed generation capacity, in operation, of 1,1701,158 MW (physical offtake guarantee 668661 MW average). It also has other generation projects. Vale and Cemig GT respectively hold 55% and 45% of the total capital.
Transmissora Aliança de Energia Elétrica S.A. (‘TAESA’)Jointly-controlled entityCorporation engaged in the construction, operation and maintenance of energy transmission facilities in 17all states of Brazil through direct and indirect equity interests in investees
Ativas Datacenter S.A. (‘Ativas’)

UFV Janaúba Geração de Energia Elétrica Distribuída SA

UFV Corinto Geração de Energia Elétrica Distribuída SA

UFV Manga Geração de Energia Elétrica Distribuída SA

UFV Bonfinópolis II Geração de Energia Elétrica Distribuída SA

UFV Lagoa Grande Geração de Energia Elétrica Distribuída SA,

UFV Lontra Geração de Energia Elétrica Distribuída SA,

UFV Mato Verde Geração de Energia Elétrica Distribuída SA,

UFV Mirabela Geração de Energia Elétrica Distribuída SA,

UFV Porteirinha Geração de Energia Elétrica Distribuída SA and

UFV Porteirinha II Geração de Energia Elétrica Distribuída AS (3)

Jointly-controlled entityGeneration of electric power from photovoltaic solar sources to the Distributed Generation market (‘Geração Distribuída’), with total installed capacity of 46.26MWp. The wholly owned subsidiary Cemig Sim and Mori Energia holds 49% and 51% of the total equity, respectively.
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Table of ContentsCorporation engaged in the supply of IT and communication infrastructure services, including physical hosting and related services formedium-sized and large corporations. 

Companhia de Transmissão Centroeste de Minas (‘Centroeste’)Affiliated Company Jointly-controlled entityCorporation engaged in the construction, operation and maintenance of theFurnas-Pimenta transmission line – part of the national grid.
Affiliated Company
Madeira Energia S.A. (‘Madeira’)Affiliated companyCorporation engaged in the construction and commercial operation of the Santo Antônio Hydroelectric Plant, through its subsidiary Santo Antônio Energia S.A., in the basin of the Madeira river, in the State of Rondônia.

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Ativas Datacenter S.A. (‘Ativas’)Affiliated entity

Investments

Classification

Description

Corporation engaged in the supply of IT and communication infrastructure services, including physical hosting and related services for medium-sized and large corporations.
FIP Melbourne (Usina de Santo Antônio)Affiliated entity

Investment fund managed by Banco Modal S.A., whose objective is to seek appreciation of capital invested through acquisition of shares, convertible debentures or warrants issued by listed or unlisted companies, and/or other assets. This fund held 83% of the share capital of SAAG Investimentos S.A. (‘SAAG’), the objects of which are to own equity in Madeira Energia S.A. (‘Mesa’).

Affiliated Company held for sale:
Light S.A. (‘Light’) (4)

Affiliated entity

Listed company engaged in the following activities: energy generation, transmission, trading, distribution, and related services; and holding direct or indirect interest in companies engaged in similar activities.

Investments in which the Company exercises joint control it does so through Shareholders’ agreements entered into with the other shareholders of the investment. See further information on the subsidiaries, jointly-controlled entities and affiliates in Notes 3 and 17; and on transactions between related parties

(1)On April 14, 2020, the Annual Shareholders General Meeting approved changes in this subsidiary’s By-laws, changing the name of this subsidiary, from Efficientia S.A. to Cemig Soluções Inteligentes em Energia S.A.-CEMIG SIM.
(2)On January 13, 2020, the Company concluded the acquisition of 49% of the share capital held by Eletrobras in Centroeste, becoming the sole owner of the investee since then.
(3)In 2020, Cemig concluded acquisition of interests in special-purpose companies operation in photovoltaic solar generation. For further information, see item (c) of this Note.
(4)In Light’s public offering of commom shares, completed on January 22, 2021, the Company sold its entire holding of shares in Light. For further information, see Note 31.

(5)Information not examined by the external auditors.

Management has assessed the capacity of the Company to continue as a going concern, and believes that its operations will generate sufficient future cash flows to enable continuity of its businesses. In addition, Management is not aware of any material uncertainties that could generate significant doubts about its ability to continue as a going concern. Therefore, these financial statements are prepared on a going concern basis.

Merger of Cemig Telecomunicações S.A. (‘Cemig Telecom’) and disposal of telecom assets

b)Centroeste control acquisition

On March 31, 2018January 13, 2020, the mergerCompany concluded the acquisition of wholly-owned subsidiary Cemig Telecom and Cemig was completed, at book value, and Cemig became the successorequity interest of all49% of the assets, rights and obligations. Since this is a mergershare capital held by Eletrobras in Centroeste, resulting in its now holding 100% of a subsidiary there will be no capital increase nor issuance of new shares.that investee. The sharesacquisition, which resulted in the subsidiary were canceled,Company obtaining control, based on the merger date.provisions of accounting standard IFRS 10– Consolidated Financial Standard, is the result of exercise of the right of first refusal for acquisition of the shareholding offered in Eletrobras Auction 01/2018, Lot P, held on September 27, 2018, and confirmed on January 15, 2019.

The balance sheeteffects of Cemig Telecom used for the merger, as of March 31, 2018, is as follows:business combination in this Financial statement are present in Note 16 (d).

 

Mar. 31, 2018

Asset

Current

25

Non-current

Non-current assets

15

Investments – Equity method

17

Property, plant and equipment

272

Intangible assets

12

316

Total assets

341

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Mar. 31, 2018
Liabilities

Current

34

Non-current

55
—  
—  
—  
—  
Equity252

Total liabilities and equity341

 

c)Acquisition of interest in special-purpose companies (‘SPCs’) operating in photovoltaic solar generation

 

On November 1, 2018,25, 2020, the Company’s management completedwholly-owned subsidiary Cemig Soluções Inteligentes em Energia S.A. (‘Cemig Sim’) acquired 49% of interest in seven special-purpose companies operating in photovoltaic solar generation for the processdistributed generation market (‘geração distribuída’), with total installed capacity of disposal29.45MWp, for 55. On August 19, 2020 and on September 30, 2020, this wholly-owned subsidiary also acquired 49% of interest in two others SPCs operating in the merged assetssame market segment for R$8 and R$10, respectively, with total installed capacity of Cemig Telecom.11.62 MWp. For further informationmore details, see Note 33.

Acquisition of control of Light S.A. (‘Light’)

On November 30, 2018 Cemig acquired the shares in RME, the holding company of Light, held byBB-Banco de Investimento S.A., BV Financeira S.A.—Crédito, Financiamento e Investimento and Banco Santander (Brasil) S.A., for R$ 659, as a result of the exercise of a put option by these shareholders.

As a result, the Company acquired control of Light, directly and indirectly holding an aggregated 49.99% of Light’s outstanding voting interest, however, Light has been classified as a discontinued operation in the consolidated financial statements as of December 31, 2018. See Notes 17.1 and 33.16.

 

F-21d)Covid-19

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General Context

 

Changes inOn March 11, 2020, the Company’sby-laws – enhancementWorld Health Organization characterized Covid-19 as a pandemic, reinforcing the restrictive measures recommendations to prevent the virus dissemination worldwide. These measures are based, mainly, on social distancing, which have been causing major negative impact on entities, affecting their production process, interrupting their supply chains, causing workforce shortages and closing of corporate governancestores and facilities. The economies around the world are developing measures to handle the economic crisis and reduce any possible effect, especially by their central banks and fiscal authorities.

On June 11, 2018

Government measures aimed at Brazilian energy sector

Several measures were implemented by the General Shareholders Meeting approved changes Cemig’sby-laws, to formalize best corporate governance practices and meet the requirements of Federal Law 13,303/2016 (the ‘Government-controlled Companies Law’). The improvements, now formally incorporated in theby-lawsBrazilian government, specifically aimed at energy sector, which include:

 

 •

§

The provisional normative act. 950/2020 issued in April 8, 2020, which provides for 100% discount in the calculation of social energy tariff (‘Tarifa Social de Energia Elétrica’), from April 1, 2020 to June 30, 2020, applicable to customers included in low-income residential subclass, with energy consumption less than or equal to 220 kWh/month. The act also authorizes the Federal Government to allocate resources to Energy Development Account (CDE), limited to R$900, to cover the tariff discounts established.

 

Reduction§

Expansion on the limit of total amount of energy that can be declared by energy distributors in the process of the numbermechanism for the sale of memberssurplus (‘Mecanismo de Venda de Excedentes’ - MVE), during 2020, from 15% to 30%, for the purpose of facilitating contractual reductions.

§

Provision of financial resources available in the reserve fund in April 2020, by Power Trading Chamber – CCEE, in accordance with Aneel Dispatch 986/2020, dedicated to reduce future regulatory fees. Cemig D was granted with R$122.

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§

Under Resolution 878/2020, issued on March 24, 2020, the grantor has implemented some measures in an attempt to maintain the public service of energy supply, which include: prohibiting energy supply suspension due to default of certain categories of customers (residential), for 90 days, extended to July 31, 2020, prioritizing emergency assistance and energy supply to services and activities regarded as essential, drawing up specific contingency plans to assist health care units and hospital services, among others. Under Resolution 891/2020, issued in July 21, 2020, the grantor changed the Resolution 878/2020, as of august, 2020, maintaining the prohibition of energy supply suspension only to low income residential subclass, revoking the provisions applied to the other residential subclasses and related to services and activities regarded as essential.

§

Authorization to create the ‘Covid-Account’ under the Decree 10,350/2020 issued on May 18, 2020, as detailed in the following topic.

“Covid-account” (‘Conta-Covid’)

On May 18, 2020, in order to cope with the public calamity caused by the Covid-19 pandemic, the Decree n. 10,350/20 authorized the creation of “Covid account”, to support the energy distribution sector, which is the basis of the energy sector financial flow, aimed to either cover the distribution agents revenue/cash flow deficit or to anticipate their revenues, related to (i) over-contracted purchases due to market retraction, (ii) “CVA” sector assets (iii) maintaining the neutrality of regulatory charges, (iv) compensation for the delay in applying tariff adjustments until June 30, 2020 and (v) anticipation of “parcel B” revenues as determined by Aneel regulation.

On June 23, 2020, the grantor issued the Normative Resolution n. 885/2020, which set out the criteria and procedures to manage the “Covid-account”, as well as regulated the use of the CDE regulatory charge.

On January 26, 2021, Aneel issued the Dispatch nº 181/2021, which defined the monthly charge to be paid in order to amortize the loan, as well as the respective coverage to be included into the tariff to pay the charge. The annual quote of ‘CDE-Covid-Account’ will be paid by the distribution agents through the tariff charge included in the energy tariff and in the tariff of use of distribution system (‘TUSD’).

The amount received by Cemig D will be converted, updated by Selic rate, as a tariff negative financial component in the tariff processes of 2021, ensuring the neutrality.

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Cemig D joined the financial compensation mechanism under the Covid-account (‘Conta-Covid’), in order to boost its cash flow enabling it to meet its financial obligations, in spite of the collection reduction resulting of the economic crises. The total amount from the “Covid-Account “received by Cemig D, in installments, was R$1,404. The first installment was received in July 2020, in the amount of 1,186, whist the remaining was received until December 2020, affecting positively the balance of cash and equivalent cash and market securities at December 31, 2020.

There are some rules applied to distribution agents entitled to the Covid-account resources, such as (i) relinquishing any intention to reduce or end the purchase of energy from generators because of a reduction in the sales caused by the pandemic crises, until December 2020; (ii) in the event of default on payments, limiting their dividend payments to the legal minimum of 25% of net income and (iii) renounce the right to complain in court or arbitral tribunals on the conditions, procedures or obligations determined in legal and regulatory provisions on Covid-account. Notwithstanding, the right to request an extraordinary tariff review is fully preserved.

Due to the statements of renunciations established in the Acceptance Document under the Normative Resolution 885/2020, on July 3, 2020 Cemig D’s Shareholders Extraordinary General Meeting approved alteration to its by-laws, to include §4 on Clause 33 limiting the distribution of mandatory dividend or interest on equity to the legal minimum, exceptionally for the cases and conditions that the grantor may demand, by rule or by contract, in order to mitigate a situation of financial imbalance caused by any fact or event attributable to a third party, or overriding government rulings, or expressly recognized force majeure.

Company’s initiatives

On March 23, 2020, the Company established the Coronavirus Crisis Management Committee (‘Comitê Diretor de Gestão da Crise do Coronavírus’) to ensure its readiness to making decisions because of the fast-changing situation, which became more widespread, complex and systemic.

Also, in line with recommendations to maintain social-distancing measures, the Company has implemented an operational contingency plan and several precautionary measures to keep its employees healthy and safe, including: security and health technicians contacting operational staff on a daily basis; interacting daily with subcontractors Social Service department to monitor the evolution of suspicious cases; changing the schedule to prevent gatherings; restricting national and international travel; suspending technical visits and events at Company’s facilities; using remote means of communication; adopting work-from-home policies for a substantial number of employees, providing face masks for employees in external service or in service into its facilities, and requiring outsourcings providers to put the same procedures in place.

In August the Company began the plan for the gradual return-to-office, which is in compliance with measures for prevention, control and mitigation of risks of Covid-19 transmission in work environments.

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In-person service to the general public was suspended temporarily, and resumed, subject to appointment, from August 3, 2020, in the municipalities that subscribed to the plan created by the State of Minas Gerais, called ‘Plano Minas Consciente’, and which are in the ‘Green Wave’ phase of the program. The decision to serve the public in person by appointment obeys the rules of the plan, and is in accordance with responsible resumption of the economy in Minas Gerais state, following the Covid-19 pandemic.

The Company maintain the communication with its customers on virtual channels and essential assistance in customers’ facilities, ensuring the appropriate energy and gas supply.

The Company also adopted the follow measures in order to contribute with society:

§

Providing payment flexibility to low-income residential subclass customers, registered as social tariff, who will be able to pay their debts in up to six installments, without interests or penalties, applied until July 1, 2020;.

§

Providing payment flexibility to public and philanthropic hospitals as well as to emergency rooms units, without interests or penalties, conditions applied until July 1, 2020;

§

Offering the entities regarded as small business by Brazilian law the option for payment in up to six installments, without interests or penalties, conditions applied until July 1, 2020;

§

A negotiation campaign was launched, in effect until October, 31, 2020, enabling customers to pay debt by installments in up to 12 months without interest.

§

A negotiation campaign was launched, on April 20, 2021, in effect for 30 days, enabling commercial customers at low voltage to pay debt by installments in up to 12 months without interest, including an exemption from financing updating not yet billed.

In Addition, the Company Executive Board approved the following measures, in order to support the fight against the Covid-19 during the critical period named “purple wave” (‘onda rocha’) instituted by the Extraordinary Covid-19 Committee of the State of Minas Gerais, through the Deliberation n. 138, of March 16, 2021 of, in the State of Minas Gerais:

§

Suspending the interruption in supply of energy of customers classified as low income residential subclass;

§

Providing payment in installments to customers classified as low income residential subclass, under the specific conditions of the Board of Directorsprogram, available in the Company website;

§

Providing payment in installments to customers from 15 to 9,other classes, including commercial customers classified as small business by Brazilian law, operating in line with the IBGC’s (Brazilian Corporate Governance Institute) Best Corporate Governance Practices Code andsectors affected by the Corporate Sustainability Evaluation Manualcrises, under the specific conditions of the Dow Jones Sustainability Index;program, available in the Company website;

§

prioritizing emergency assistance and energy supply to health care units and hospital services and others activities regarded as essential;

§

communication initiatives aimed at raising awareness of the population about the importance of staying at home, rational use of energy, and electronic equipment use, preventing overload, short-circuit and fires. 

 

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The measures above result in a postpone of cash of until R$151 to the Audit Committee. The Fiscal Council remainsnext year, considering the installments due in existence.2021.

The changes inCompany is working diligently to mitigate the Company’sby-laws have not affectedcrisis impacts on its liquidity, implementing the dividends policy.following measures, among others:

 

2.§restraint of the capital expenditure planned for 2020, in the approximate amount of R$349 and a budget review, which reduced the expenses related to labor, material, outsourced services and others, in the approximate amount of R$164;

§reduction in dividends payments to shareholders, and deferral dividends and interest on equity payments to the end of 2020 (see Note 26);

§negotiating with its customers on the free market their contracts;

§negotiating the terms and conditions established in contracts signed with gas suppliers, including Petrobrás;

§Deferral, during the year, of taxes and social charges payment, as authorized by legislation.

Impact of Covid-19 on Financial Statements

Since March, 2020, the Company has been monitoring the Covid-19 pandemic impact on its business and the market in which it operates. The Company has implemented a series of precautionary measures to protect the health of its employees and to prevent the spread of the novel coronavirus in its operational and administrative facilities. The measures are in accordance with the recommendations of World Health Organization (WHO) and Brazilian Ministry of Health and aim to contribute with the populations and Brazilian authorities efforts, in order to prevent the virus dissemination.

The Coronavirus crises made an impact on the Company operations, especially related to energy distribution market, due to the contraction of the economic activities and the social distancing measures, affecting entities production process, interrupting their supply chains, causing workforce shortages and closing of stores and facilities. This effects might result in lower energy consumption and an increase in delinquency.

In this scenario intervention in market policies, and the initiatives to reduce transmission of Covid-19, also led to lower consumption of natural gas in 2020 than in 2019: consumption by the industrial sector was 3% lower year-on-year, and consumption by the automotive sector was 28% lower. At the same time, consumption in 2020 by residential users was 20% higher year-on-year, and by commercial users was 14% higher – reflecting the natural motivation of increased use of natural gas as a safer option when supply is continuous.

As of December 31, 2020, from the observation of the pandemic’s economic effects, the Company assessed the assumptions used for calculating fair value and recoverable amount of certain financial and non-financial assets, as follows:

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§The subsidiary Cemig GT assessed whether the greater pressure on the exchange rate, combined with a lack of financial market liquidity, will have a negative impact on derivative financial instruments hired to protect its operations against the risks arising from foreign exchange rate changes. At this point, given the current market conditions, the change in derivative instrument’s fair value, based on the forecasts of future interest and exchanges rates, cannot offset the Company’s total exposure to foreign exchange rate variability, resulting in a net loss of R$4 in the period of January to December of 2020. The long-term projections carried out for the foreign exchange rate are lower than the current dollar quotation, which may represent a decrease in Company’s foreign exchange variation expense, if the projected scenario occurs.

§As a result of Covid-19 situation, the market conditions have deteriorated, and, under the current circumstances, the fair value of the Company’s interest in Light has decreased significantly. However, the market price of the shares increased in the end of 2020, resulting in the reversal of the impairment loss recognized during the year because of the decline in its market price less cost to sell. The Company sold its entire holding of shares in Light in the public offering of common shares in Light, completed on January 22, 2021, as described in Note 32.

§The Company assessed the circumstances arising from Covid-19 pandemic and associated measures aimed at reducing the impact of the economic contraction on customer delinquency to measure expected credit losses. The Company has intensified measures to mitigate the risks of delinquency, such as a campaign of negotiation with clients in arrears whose energy supply the Company was temporarily prohibited from suspending as well as intensifying the usual collection measures. The return of economic activities after the peak of the coronavirus outbreak, as well as the authorization of the energy supply suspension, as of August, 2020, provided by Normative Resolution n. 891/2020, have contributed to the reestablishment of the collection behavior. In addition, the negotiations to enable the recovery of past due receivables and the grantor’s measures to reestablish economic balance mitigated the negative effects of the economic crisis on collection.

§The management’s assumptions applied to determine the recoverable amount of the relevant investments in subsidiaries, joint-controlled entities and associates were not influenced significantly by the Covid-19 situation, since these investees’ cash flows are mainly related to long-term rights to commercial operation of the regulated activity. Therefore, no additional impairment losses were recognized to its investments in subsidiaries, joint-controlled entities and associates due to the economic crisis.

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§Despite the uncertainties related to the crisis unfolding and its potential long-term effects, the Company does not expect that the negative impact on its projections of likely future taxable profits might compromise the recoverability of its deferred tax assets.

§The Company also reviewed the financial assets and liabilities measured at fair value to reflect the conditions and current rates projected, which impacts are presented in Note 31.

§The total load on the Brazilian national grid fell in 2020, especially from March to May, and has been recovering gradually since. Year to date, the energy transported and sold to Cemig D customers increased 4.42% and reduced 5.31%, respectively. In the second semester of 2020, the energy transported increased 10.29% and the energy sold expanded 94.66%, compared with the same period of the last year, reflecting the easing of social distancing rules.

§The accumulated variation of the Cemig D’s captive customers market, measured from the pandemic outbreak until December 2020 reduced 8%. It is important to mention that the effects of the financing expenses arising from energy purchase were minimized by the ‘Covid-Account’ creation.

§The Company has maintained negotiations and deferrals with its customers and energy and gas suppliers, in order to maintain Cemig GT and Gasmig liquidity during the economic crisis.

The impacts of the Covid-19 pandemic disclosed in this financial statement were based on the Company’s best estimates. Despite the impact of the pandemic on the Company’s financial position in 2020, significant long-term effects are not expected.

2.BASIS OF PREPARATION

2.1
2.1Statement of compliance

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements provide comparative information in respect of the previous period. In addition, the Company presents an additional statement of financial position at the beginning of the preceding period when there is a retrospective application of an accounting policy, a retrospective restatement, or a reclassification of items in financial statements. An additional statement of financial position as at January 1, 2019 is presented in these consolidated financial statements due to the retrospective application of a change in an accounting policy (see Note 2.8).

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Company’s management confirmscertifies that all relevant and material information in the financial statements is being disclosed, which is used by management in its administration of the Company.

On May 15, 2019,April 30, 2021, the Company’s Fiscal CouncilAudit Committee authorized the issuance of the consolidated financial statements as of December 31, 20182020, 2019 and 2017January 01, 2019 and for the years ended December 31, 2018, 20172020, 2019 and 2016.2018.

2.2Basis of measurement

The consolidated financial statements were prepared on a historical cost basis, except in the case of certain financial instruments and assets as held for sale which are measured at fair value and fair value less costs to sell, in accordance with the standards applicable, as detailed in Note 32.31 and 32, respectively.

 

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2.3Functional currency and presentation currency

The consolidated financial statements are presented in Reais, which is the functional currency of the Company and its subsidiaries, joint ventures and affiliates, and all amounts are rounded to the nearest million, except when otherwise indicated.

Transactions in foreign currency were converted to Reais at the exchange rate as of the transaction date. Balances of monetary assets and liabilities denominated in foreign currency are translated to Reais at the exchange rates at the reporting date. Foreign exchange gains and losses resulting from the settlement or translation of assets and liabilities denominated in foreign currency are recorded in finance income and costscost in the consolidated statement of income.

2.3

2.4Use of estimates and judgments

Preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Uncertainties about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Estimates and assumptions are periodically reviewed, using as a reference both historical experience and any significant change in scenarios that could affect the Company’s financial position or results of operations. Revisions in relation to accounting estimates are recognized in the period in which the estimates are reviewed, and in any future periods affected.

The principal estimates and judgments that have a signficiant effect in the amounts recognized in the financial statements are as follows:

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Adjustments for loss on doubtful accounts – Note 8;

§Adjustments for loss on doubtful accounts – Note 8;
§Deferred income tax and social contribution tax – Note 10;
§Financial assets and liabilities of the concession – Note 14;
§Concession contract assets – Note 15;
§Investments – Note 16;
§Property, plant and equipment (“PP&E”) and useful life of assets – Note 17;
§Intangible assets and useful life of assets – Note 18;
§Leasing transaction – Note 19;
§Amounts to be refunded to customers – Note 21;
§Employee post-employment obligations –Note 24;
§Provisions – Note 25;
§Unbilled revenue – Note 27;
§Financial instruments measurement and fair value measurement – Note 31;
§Assets held for sale measurement – Note 32.

 

Deferred income and social contribution taxes – Note 10.

Financial assets and liabilities of the concession – Note 15.

Concession contract assets – Note 16.

Investments – Note 17.

Property, plant and equipment (“PP&E”) and useful life of assets – Note 18.

Intangible assets and useful life of assets – Note 19.

Employee post-employment obligations – Note 24.

Provisions – Note 25.

Unbilled revenue – Note 28.

Financial instruments measurement and fair value measurement – Note 32.

The settlement of the transactions involving those estimates may result in amounts that are significantly different from those recorded in the financial statements due to
the uncertainty inherent to the estimation process. The Company reviews its significant estimates at least annually.

 

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2.4 2.5New accounting standards, interpretation or revisionsamendments of accounting standards, applied for the first time in 20182020

The Company has applied, for the first time, new accounting standards that became effective for annual periods beginning January 1, 20182020 or later, as described below:

IFRS 9—Financial Instruments

IFRS 9,Financial Instruments, replaces IAS 39,Financial Instruments: Recognition03 – Business Combinations: The amendment clarifies that to be considered a business, an integrated set of activities and Measurement,assets must include, at a minimum, an input and a substantive process that, together, significantly contribute to the ability to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed to create outputs. These amendments must be applied to business combinations for which the acquisition date is on or after the beginning of the first annual periodsreporting period beginning on or after 1 January 2018, bringing together all three2020 and to asset acquisitions that occur on or after the beginning of that period.

IAS 1 and IAS 8: Provide a new definition of “material” and clarifies some aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.

IFRS 9 establishesthis definition. The amendments clarify that all financial assets recognized that are within the scope of IAS 39 should subsequently be measured at amortized cost, fair value through profit or loss and fair value through OCI, reflecting the business model in which the assets are managed, and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interestmateriality will depend on the principal amount outstanding.nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users.

The standard eliminated the categories under IAS 39 and, thus, the Company reclassified those categories to comply with the new standard, as follows:

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Classification

IAS 39

IFRS 9

Financial assets

Cash and cash equivalents – Investments (1)

Loans and receivablesFair value – profit or loss

Marketable securities – Cash investments (2)

Held to maturityAmortized cost

Marketable securities – Cash investments (2)

Held for tradingFair value – profit or loss

Customers and Traders; Concession holders (transmission service)

Loans and receivablesAmortized cost

Restricted cash

Loans and receivablesAmortized cost

Advances to suppliers

Loans and receivablesAmortized cost

Accounts receivable from the State of Minas Gerais

Loans and receivablesAmortized cost

Receivable from related parties

Loans and receivablesAmortized cost

Concession financial assets –CVA (Parcel ‘A’ Costs Variation Compensation) Account, andOther financial components, in tariff adjustments

Loans and receivablesAmortized cost

Reimbursement of tariff subsidy payments

Loans and receivablesAmortized cost

Low-income subsidy

Loans and receivablesAmortized cost

Escrow deposits

Loans and receivablesAmortized cost

Derivative financial instruments (swaps)

Fair value – profit or lossFair value – profit or loss

Concession financial assets – Distribution infrastructure

Held for tradingFair value – profit or loss

Indemnities receivable – Transmission

Loans and receivablesAmortized cost

Generation indemnity receivable

Loans and receivablesFair value – profit or loss

Concession grant fee – Generation concessions

Loans and receivablesAmortized cost

Other credits

Loans and receivablesAmortized cost

Financial liabilities

Loans, financings and debentures

Amortized costAmortized cost

Debt agreed with pension fund (Forluz)

Amortized costAmortized cost

Concession financial liabilities –CVA(Parcel ‘A’ Costs Variation Compensation) Account, andOther financial components, in tariff adjustments

Amortized costAmortized cost

Onerous concessions

Amortized costAmortized cost

Tax Amnesty Program (PRCT)

Amortized costAmortized cost

Suppliers

Amortized costAmortized cost

Advances from customers

Amortized costAmortized cost

Derivative financial instruments (swaps)

Fair value – profit or lossFair value – profit or loss

Derivative financial instruments – Put options

Fair value – profit or lossFair value – profit or loss 

(1)

They are recognized at their nominal amounts, which are similar to fair value.

(2)

The Company holds ‘marketable securities’ with different classifications under a IFRS 9.

 

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IAS 39, IFRS 7 and IFRS 09 – “Interest rate benchmark reform“: provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument.

 

Impairment of financial assets

The adoption of IFRS 9 has fundamentally changed the Company’s16: provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for impairment losses for financial assets by replacing IAS 39’s incurred loss approach withrent concession arising as a forward-looking expected credit loss (ECL) approach. This approach requires a significant degree of judgment on how the changes in economic factors affect expected losses in realization of credits, to be determined based on weighted probabilities. This model applies to financial assets measured at amortized cost, debt securities measured at fair value through other comprehensive income (FVOCI), with the exception of investments in equity instruments (shares) and concession contract assets.

Under IFRS 9, provisions for expected losses are to be measured on onedirect consequence of the following bases: (i) 12-month expected credit losses,Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any chance in lease payment resulting from the Covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification.

Conceptual Framework for Financial Reporting: The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to say, losses of credit that result from possible default events within 12 months afterassist the base date;IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and (ii) ‘full lifetime expected credit losses, i.e. credit losses expected to result fromassist all ofparties to understand and interpret the possible default events over the expected life of a financial instrument, if the credit risk has increased significantly since its initial recognition. As required by IFRS 9, the Company used the simplified approach in calculating ECL for trade receivables and contract assets that did not contain a significant financing component. The Company applied the practical expedient to calculate ECL using a provision matrix.

The Company adopted the new standard using the retrospective modified method, with the effects accounted on retained earnings as of January 1, 2018. As a result, the Companystandards. This will not apply the requirements of this new standard to the comparative years presented.

The impacts arising from the initial adoption of IFRS 9 on January 1, 2018 have been recognised directly to Equity, without impact on the Statement of Income, as follows:

Jan. 01, 2018

IFRS 9

Customers and traders; power transmission (a) (Note 8)

(150) 

Adjustment arising from Light (b)

(83) 

Deferred income and social contribution taxes (a) (Note 10c)

51

(182) 

(a)

Expected losses on doubtful receivables from customers of distribution segment and deferred tax effects.

(b)

Refers to the effects of first time adoption of IFRS 9 by Light recognized directly to Equity as of January 1, 2018 based on modified retrospective method.

IFRS 15—Revenue from contracts with customers

IFRS 15,supersedes IAS 11,Construction Contracts,IAS 18,Revenue,and related interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration toaffect those entities which an entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts withdeveloped their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. Additionally, IFRS 15 establishes requirements for more detailed presentation and disclosure than the rules until then in effect.

The Company performed an assessment of the five steps for recognition and measurement of revenue, as required by IFRS 15:

1.

Identify the contracts signed with its customers;

2.

Identify the performance obligations in each type of contract;

3.

Determine the price of each type of transaction;

4.

Allocate the price to the performance obligations contained in the contract; and

5.

Recognize the revenue when (or to the extent that) the entity satisfies each performance obligation of the contract.

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The Company adopted the new standard using the retrospective modified method, with the effects accounted on retained earnings as of January 1, 2018. As a result, the Company will not apply the requirements of this new standard to the comparative years presented.

The table below summarizes the impacts of adoption of IFRS 15, net of taxes, on the Statement of financial position and the Statement of income as of and for the year ended December 31, 2018:

Consolidated statement of income

  December 31, 2018
Amounts prepared
under Previous
IFRS		   Adjustment
IFRS 15		   December 31, 2018
Amounts prepared
under IFRS 15		 

CONTINUING OPERATIONS

      

NET REVENUE (1)

   22,222    44    22,266 

OPERATING COSTS

   (17,677)    —      (17,677) 

OPERATING EXPENSES (1)

   (1,699)    (44)    (1,743) 

Share of (loss) profit, net, of subsidiaries and joint ventures

   (104)    —      (104) 

Remeasurement of previously held equity interest in subsidiaries acquired

   (119)    —      (119) 

Adjustment for impairment of Investments

   (127)    —      (127) 

Finance income (expenses), net

   (518)    —      (518) 

Income tax and social contribution tax

   (599)    —      (599) 
  

 

 

   

 

 

   

 

 

 

Net income from continuing operations

   1,379    —      1,379 
  

 

 

   

 

 

   

 

 

 

Consolidated statement of financial position 

  December 31, 2018
Amounts prepared
under Previous
IFRS		   Adjustment
IFRS 15		   December 31, 2018
Amounts prepared
under IFRS 15		 

Current assets

   27,796    —      27,796 

Concession financial assets (2)

   1,202    (131)    1,071 

Concession contract assets (2)

   —      131    131 

Other current assets

   26,594    —      26,594 

Non-current assets

   32,059    —      32,059 

Concession financial assets (2)

   5,925    (998)    4,927 

Concession contract assets (2 and 3)

   —      1,598    1,598 

Intangible assets (3)

   11,377    (600)    10,777 

Othernon-current assets

   14,757    —      14,757 
  

 

 

   

 

 

   

 

 

 

Total assets

   59,855    —      59,855 

Current liabilities

   23,394    —      23,394 

Non-current liabilities

   20,522    —      20,522 
  

 

 

   

 

 

   

 

 

 

Total liabilities

   43,916    —      43,916 
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity

   15,939    —      15,939 
  

 

 

   

 

 

   

 

 

 

(1)

Adjustment related to reimbursements to customers, arising from penalties for violation of electricity supply quality indicators determined by the grantor, as reduction in Revenues for use of the distribution network (TUSD). Up to December, 31, 2017, these reimbursements were recognized as operational expenses.

(2)

Change in the classification of assets linked to transmission infrastructure. Considering the performance obligation, during the period of the concession, as comprising availability, operation and maintenance of the transmission lines, the assets linked to transmission infrastructure, which until 2017 were recognized as financial assets, began to be recognized as concession contract assets as from January 1, 2018. For more details see Note 16 –Concession contract assets.

(3)

Classification of the financial assets related to infrastructure of the concession during the period of construction to contract asset as defined under iFRS 15.Infrastructure under constructionrefers to assets in the distribution segment still in the process of construction, for which the performance obligation is satisfied over the time during which they are constructed. Until 2017, these assets were initially recorded in Intangible assets, and when they were ready for their intended use, the total balance was allocated to financial assets and intangible assets. As from January 1, 2018, these assets are classified as concession contract assets, and later splited between financial assets and intangible assets when they came into operation. For more details see Note 16 –Concession contract assets.

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The impacts arising from the initial adoption of IFRS 15 on January 1, 2018 by Company’s equity investees have been recognised directly to Equity, without impact on the Statement of Income, as follows:

Jan. 01, 2018

IFRS 15

—  

Adjustment arising from Taesa (a)

25

25

(a)

Refers to the effect of first time adoption of IFRS 15 by the equity investee Taesa recognized directly to Equity as of January 1, 2018 based on modified retrospective method.

Impact of the newly applied standards on contracts under the scope of IFRIC 12 –Concession contracts

The changes introduced by IFRS 15 and IFRS 9 have impacted the distribution and transmission segments in the classification and measurement of their concession related assets, which are already under the scope of IFRIC 12. Under IFRS 15, the consideration is required to be allocated to each performance obligation identified in the contract with the customer, and the financial asset that was previously recognized under IAS 39, need now to be classified under IFRS 15 (Contract asset, Receivable) and under IFRS 9, as a financial asset classified as either amortized cost or fair value through profit or loss. Under IFRS 15, the Company concluded that it has contracts with the following identified performance obligations: (i) construction – to build; (ii) to operate and maintain; and (iii) to provide financing to the concession Grantor. In the transmission segment, the Company has concluded that it has a single contract with a customer (the transmission line concession), with those same obligations. Thus,policies based on the contractual characteristics, the Company classified the financial asset that was recorded under IAS 39, as a contract asset under IFRS 15, upon completion of the construction of the infrastructure. This is because the Company is required to operateConceptual Framework. The revised Conceptual Framework includes some new concepts, updated definitions and maintain the infrastructure,recognition criteria for assets and it is also subject to periodic tariff reviews, in order to bill for the construction services. For the same reasonedliabilities and based on the contractual characteristics, the assets related to the infrastructure of the distribution concession agreements that are still under construction are recorded as contract assets.clarifies some important concepts.

 

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Because of the long-term nature of the concession contracts, the Company has identified that there is a significant financing component that requires to be accounted for separately.

The impactsThese amendments had no material impact on the measurement of the concession contract assets are described in Note 16.

Other interpretation or revisions of accounting standards without relevant effects in the consolidated financial statements

Company applied all amendments and new interpretation to IFRSs issued by the IASB which are effective for fiscal years commencing on January 1, 2018, however, they did not have a material effect in the consolidated financial statements and are described below:

IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations

The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the date of the transactions for each payment or receipt of advance consideration. This Interpretation did not have any impact on Company’s consolidated financial statements.Company.

Amendments to IAS 28 Investments in Associates and Joint Ventures – Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice

The amendments clarify that an entity that is a venture capital organization, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. If an entity that is not itself an investment entity, has an interest in an associate or joint venture that is an investment entity, then it may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which: (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent. These amendments did not have any impact on the Company’s consolidated financial statements.

2.5 2.6Standards issued but not yet effective

Below

The new and amended standards and interpretations that are details of standards, new or updated interpretations, issued, but not yet effective, up to the reporting date of issuance of the Company.Company’s financial statements are disclosed below. The Company intends to adopt these new and amended standards newand interpretations, and updatesif applicable, when they come into effect.become effective.

IFRS 16 –Leases

IFRS 16 was17 – Insurance Contracts, issued by IASB in May 2017: The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. IFRS 17 is effective for reporting periods beginning on or after 1 January 2016 and it replaces IAS 17,Leases, IFRIC 4,Determining whether an Arrangementcontains a Lease, SIC-15,Operating Leases-Incentives and SIC-27,Evaluating the Substance of TransactionsInvolving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar2023, with comparative figures required. This standard is not applicable to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

The Company adopted IFRS 16 on January 1, 2019, using the modified retrospective method, therefore, comparative periods will not be restated. The Company will use the exemptions proposed by on lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset if of low value.

The Company’s assessment and detailed evaluation of the impacts of adoption of IFRS 16 was based mainly on the following lease contracts:Company.

 

Commercial real state used for serving customers;

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Buildings used as headquarters;

Commercial vehicles used in operations.

 

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IAS 1 – Classification of Liabilities as Current or Non-current: In January 2020, the IASB issued amendments the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify: (I) what is meant by a right to defer settlement,; (ii) that a right to defer must exist at the end of the reporting period (iii) that classification is unaffected by the likelihood that an entity will exercise its deferral right (iv) that only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification. The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively.

 

Impact onIAS 16 - Property, Plant and Equipment – Proceeds before intended use: In May 2020, the statementIASB issued amendments to IAS 16 which prohibits entities deducting from the cost of financial position is as follows:

January 1,
2019

Assets – Right of use

342

Liabilities – Obligations referring to operation leasing agreements

(342) 

IFRIC 23 – Uncertainty over income tax treatments

The interpretation addresses the accounting for income taxes when tax treatments involve uncertaintyan item of property, plant and equipment any proceeds from selling items produced while bringing that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include the requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

Whether the entity considers uncertain tax treatments separately

The assumptions that the entity makes in relationasset to the examinationlocation and condition necessary for it to be capable of tax treatmentsoperating in the manner intended by management. Instead, these proceeds from the tax authorities

Howselling such items and the entity determines taxablecosts of producing those items must be recognized in profit (tax loss), the bases, unused tax credits, and tax rates

How the entity consider changes in facts and circumstances.

An entityor loss. The amendment is has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The Interpretation effective for annual reporting periods beginning on or after January 1, 2019, but certain transition reliefs2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment.

IFRS 9 - Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities – As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are available. The Company will applysubstantially different from the interpretation from its effective date.

The Company is still evaluatingterms of the potential effects of application of this new Interpretationoriginal financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the consolidatedother’s behalf. An entity applies the amendment to financial statements.liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted.

The Company expects that other amended standards and interpretations

Management does not yet in effect will not likely have aexpect significant impactimpacts on its consolidatedthe Company's financial statements.statements resulting from these amendments

2.6

2.7Summary of significant accounting policies

The significant accounting policies described below have been applied consistently to all the periods presented in the consolidated financial statements, except for the practices which were applied prospectively as from 2018,2020, in accordance with the standards and regulations described in Item 2.1 –Compliance statement.statement.

 

F-29The accounting policies relating to Company’s present operations that require judgment and the use of specific valuation criteria are the following:

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a)

Financial instruments

Financial instruments are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss, depending on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them.

Fair value through profit or loss:this includes the concession financial assets related to energy and gas distribution segment infrastructure. TheseThe financial assets related to energy distribution infraestruture are measured at the expected New Replacement Value (Valor Novo de Reposição, or VNR), as defined in the concession agreement, which represent the fair value of the residual value of the infrastructure as of the balance sheet date. The financial assets related to gas distribution infraestruture are measured based on the fair value of the indemnity established in the concession contract. The Company recognizes a financial asset resulting from a concession contract when it has an unconditional contractual right to receive cash or another financial asset from, or under the direction of the grantor for the services of construction and maintenance of the infrastructure.

Financial assets

This category also include;include cash equivalents, marketable securities not classified at amortized cost, derivative financial instruments concession financial assets for distribution infrastructure, and indemnities receivable from the generation assets.

Cash and cash equivalents comprise cash at banks and on hand and short-term highly liquid deposits, subject to an insignificant risk of changes in value, maintained to carry out the Company’s short-term cash management.

The disclosures about the main assumptions used in fair value measurement are summarized in the respective notes.

Derivative financial instruments (Swap transactions)transactions and call spread): The Company through its subsidiary Cemig GT, maintains derivative instruments to manage its exposure to the risks of changes in foreign currency exchange rates mainly the US dollar.(US dollar). Derivative instruments are recognized initially at their fair value and the related transaction costs are recognized in the Statement of income when they are incurred. After initial recognition, derivatives are measured at fair value and changes in fair value are recorded in the Consolidated Statement of Income.

Derivative financial instruments (Put options) – The options to sell to Cemig GT units of the FIP Melbourne and FIP Malbec funds (‘the SAAG Put’PUT’) were measured at fair value using the Black-Scholes-Merton (BSM) method, using as reference the related put options obtained by the BSM model valued on the closing date of the financial statements for the year ended December 31, 2018. See note 32 for further details.its exercise date.

Amortized cost: This includes;includes accounts receivables from customers, traders and power transport concession holders; advances to suppliers; accounts receivable from Minas Gerais State; restricted cash; escrow deposits in litigation; marketable debt securities with the intention of holding them until maturity;maturity and the terms of their contracts originate known cash flows that constitute exclusively payments of principal and interest; concession financial assets related to thegeneration concession grant fee; indemnifiable receivable for transmission assets; accounts receivable from related parties; suppliers; loans and debentures; debt agreed with the pension fund (Forluz); concessions payable; the Minas Gerais State PRCT Tax Amnesty Program; advances from customers; assets and liabilities related to theCVA account andOther financial components in tariff adjustments; the low-income subsidy; reimbursement of tariff subsidies; and other credits.

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Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate (EIR). More details, see note 31.

Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

b)

Customers,Receivables from customers, traders and power transport concession holders

Accounts receivable from customers, traders and power transport concession holders are initially recognized at the sales value and subsequently measured at amortized cost.

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These receivables are stated including sales tax and net of withholding taxes, which are recognized as recoverable taxes.

 

In order to estimate future losses on receivables, the Company adopted a simplified approach, considered that the accounts receivable from customers do not have significant financial components, and calculated the expected loss considering the historical average of non-collection over the total billed in each month (based on the last 1224 months of billing), segregated by type of customer and projected for the next 12 months, taking into account the age of maturity of invoices, including those not yet due. due and unbilled.

The estimatedAnnual Permitted Revenue (‘Receita Annual Permitida’ - RAP) is the consideration received as revenue from the investment in the national grid as well as the construction or upgrades, operation and maintenance services. The revenue from the energy transmission concession contracts is recognized when the performance obligations are satisfied. The contract asset is transferred to the financial asset, falling within the scope of IFRS 9, after the issuance of the credit notice, monthly issued by ONS, authorizing RAP billing, which is when the right to consideration is unconditional. The revenue is recognized at the transaction price and the assets are subsequently measured at amortized cost, using the effective interest method, adjusted by impairment losses, when applicable, and recognizing the deferred taxes. As required by IFRS 9 – Financial Instruments, the financial asset carrying amount is analyzed and, when applicable, a loss allowance for the past due balancesexpected credit losses is recognized.

The expected losses for overdue accounts of customers who havethat renegotiated their debt has been calculatedis measured based on the maturity date of the original invoice, withdespite the new terms negotiatednegotiated. Expected losses are fully recognized for accounts overdue for more than 12 months.

Expected losses for invoices unbilled, not being taken into account. For the balances that are moreyet due or less than 12 months past due expectation of total loss is assumed.

Provisions for expected losses are measured based on expected losses for the next 12 months, as a function ofaccording to the potential default events, or losses of credit expected for the whole life of a financial instrument, if the credit risk has significantly increased since its initial recognition.

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For large customers, the provision for doubtful receivables is recorded based on estimates by Management, in an amount sufficient to cover probable losses. The principalmain criteria used by the Company are: (i) customers with significant open balances, the receivable balance is analyzed inbased on the light of thedebt history, of the debt, negotiations in progress, and asset guarantees; and (ii) for large customers, an individual analysis of the debtors and the initiatives in progress to realize the overdue credits.receivables.

 

c)

Investments in affiliates and jointly-controlled entities

The Company has investments in associatesaffiliates and jointly-controlled entities. The considerations made in determining significant influence or joint ventures.control are similar to those necessary to determine control over subsidiaries. These investments are accounted using the equity method in the consolidated financial statement and are initially recognized at acquisition cost, equivalent to the consideration transferred measured at fair value.value at the acquisition date.

Control is obtained when the Company and/or one of its subsidiaries has the power to control the financial and operational policies of an entity to receive benefits from its activities.

The consolidated financial statements include the financial statements of the Company and its subsidiaries.

The investments of the Company includes the intangible assets representing the right to commercial operation of the regulated activity identified in the process of allocation of the price for acquisition of the jointly-heldaffiliates and jointly-controlled entities. Those intangible assets relating to the affiliates and jointly-controlled entities are included in the carrying amount of the investment and affiliated companies, netare amortized by the straight-line method, during the period of any accumulated impairment.the concessions.

 

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After application of the equity method, the Company determines whether it is necessary to recognize an impairment loss on its investment in its affiliates or jointly-controlled entities. At each reporting date, the Company determines whether there is objective evidence that the investment in the affiliates or jointly-controlled entities is impaired. If there is such evidence, the investment carrying amount is subject to impairment testing.

 

d)

Business combinationcombinations

Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at the acquisition date at fair value, andas well as the amount of the any non-controlling interest in the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.

A business combination occurs when the Company acquires control of a business, whatever its legal form. At the acquisition date the Company recognizes and measures the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree.interests. Goodwill is initially measured at cost, which beingas the excess of the aggregate of the consideration transferred and the amount recognisedrecognized for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed.

In the process of allocating the purchase price for of the acquisition of subsidiaries that is a concession holder, the fair value relating to the identifiable right to commercial operation of the regulated activity is recognized as intangible assets with a finite useful life.

When a business combination is carried out in stages (“step-acquisition method”), the interest previously held by the Company in its investee is remeasured at the fair value at the acquisition date and the corresponding gain or loss, if any, is recognized in the statement of income.

 

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e)

Concession assets

Energy and Gas Distributionsegment: Concession infrastructure under construction is initially recorded as contract assets, in accordance with IFRS 15 and IFRIC 12, considering that the Company is entitled to consideration for performance completed to date, and, only when the construction phases ends, has the right to charge for the services provided to customers or receive an indemnity at the end of the concession intangibleperiod for assets not yet amortized. In accordance with IFRS 15 and IFRIC 12, construction revenues equivalent to new infrastructure are initially recorded as contract assets, measured at construction cost plus margin. Construction cost include borrowing costs.

The portion of the infrastructure to be amortized during the concession period is recorded as an intangible asset, as provided for in IFRIC 12 –Concession contracts,. As disclosed in note 2.4, and subsequently measured at cost less amortization. The amortization rates reflect the changes introducedexpected pattern of their consumption and are measured based on the asset carrying amount using the straight-line method, using the rates based on the expected useful life of the assets that are used by IFRS 15 have affected the classification of distribution assets.Regulator during the tariff process.

The Company recognizes a financial assetsasset for to the residual value of the infrastructure at the end of the concession, representing an unconditional right to receive cash or otheranother financial asset directly from the grantor. Until December 31, 2017 the financial assets was classified as held for trading (available for sale). Starting January 1, 2018, and due to the application of IFRS 9 the financial asset that is now classified as a financial instrument in the Fair value through profit or loss category.

The amortization period of the concession intangible asset includes an extension period of 30 years, as described in more detail in Note 4.

Additions to the concession infrastructure are initially recorded as a contract assets at cost, including capitalized borrowing costs. When the infrastructure starts operations, at that point the infrastructure cost is split and part is allocated to a financial assets, as explained above, and the remaining to an intangible assets. The financial assetsThis portion is subsequently measured at the estimated fair value.value, which represents the New Replacement Value (Valor Novo de reposição, or VNR), based on the Regulatory Remuneration Base of Assets ratified by the grantor (Aneel) in the tariff review processes.

Transmission segment: segment:Starting January 1, 2018,When construction is finalized, concession infrastructure assets remains as contract asset, considering the existence of performance obligations during the concession period, represented by the network construction, operation and due to the application of IFRS 15, the financial asset related to themaintenance, as there is no unconditional right to receive the consideration for the construction service unless the company operates and maintains the infrastructure. The contract asset is reclassified as a financial asset (accounts receivable) only after the performance obligation to operate and maintain the infrastructure cost was reclassifiedis satisfied, since from that point nothing more than the passage of time is necessary for the consideration to a contract asset. See Note 2.4.be received. The costs related to the infrastructure construction are recognized as incurred in the statement of income. The construction or upgrade services revenues are recognized in accordance with the stage of completion of the construction service, based on the costs actually incurred, including construction margin.

 

F-32The margin added to the performance obligation related to the construction and improvements is based on Company’s expectations regarding its projects profitability.

LOGOWhen adjusting the amount of consideration for the concession contract asset financing component, the Company uses the discount rate which reflects the Company’s estimation of the financing of the transmission infrastructure investments. This reflects the rate that discounts the nominal amount of the consideration to the price that the customer would pay in cash for the goods or services when (or as) they transfer to the customer. The interest rates implicit in the contract are defined at the beginning of the investments and take into account the credit risk of the counterparties.

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When the tariff set is changed at the time of the periodic tariff reviews, the contract asset is remeasured, discounting the future revenue (RAPs) using the contract original discount rate, implicit in the contract. The amount remeasured is confronted to the carrying amount and the difference is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumulative catch-up basis).

 

Consideration monthly received is allocated to revenue related to the operation and maintenance service and to the collection of the financialcontract asset related to the construction service based on their relative fair value. Costs of expansion and upgrades of the infrastructure are recorded as contract assets.

Due

Financial portion of remuneration and depreciation unpaid since the extensions of concessions in accordance with Law 12,783/2013: corresponding to the acceptanceportion of remuneration and depreciation unpaid from the date of the terms of renewal of the old transmission concessions, part of the transmission assetsextension of the concessions terminated on December 31, 2012, is subject of reimbursement byuntil it was incorporated into the granting authority, and an accounts receivable was recognized corresponding to the estimated indemnityAssets Remuneration Base (January 1, 2013 until June 30, 2017), to be receivedpaid over a period of eight years.years through the RAP.

The amounts to be received are subject to the applicable regulatory rules in the tariff process, including the mechanisms that monitor and measure efficiency. In this new context, the unconditional right to consideration depends on the satisfaction of the performance obligation to operate and maintain, and is, thus, characterized as a contract asset. For furthermore information, see Note 16 –Concession contract assets.2.8.

Generationsegment: As described in Note 15, theThe concession fee right paid for the concession contracts granted by the Brazilian RegulatorGrantor (Aneel) in November 2015, has beenare classified as a financial asset, at amortized cost, as it represents an unconditional right to receive cash, adjusted by the IPCA index, and remuneratory interest, during the period of the concession.

Gas distributionsegment: concession intangible assets recorded in the gas distribution segment are amortized during the concession period, as provided for in IFRIC 12 –Concession contracts.

The amortization reflects the pattern in which future economic benefits of the asset are expected to be consumed. The consumption pattern of the assets are related to the economic useful lives of each of the underlying assets that comprise the concession. This economic useful life is also used by the regulator to determine the basis for measuring the tariff for rendering the concession services.

The Company recognizes a financial asset related to the residual value of the infrastructure at the end of the concession, representing an unconditional right to receive cash or other financial asset directly from the grantor.

Starting on January 1, 2018, and due to the application of IFRS 15, the financial asset related to the unconditional right to receive the infrastructure cost including capitalized borrowing costs, was reclassified to a contract asset. See Note 2.4.

Additions and upgrades to the concession infrastructure are initially recorded as a contract assets at cost, including capitalized borrowing costs. When the infrastructure starts operations, at that point the infrastructure cost is split and part is allocated to a financial assets, as explained above, and the remaining to an intangible assets. The financial assets is subsequently measured at the estimated fair value.

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f)

Intangible assets

Intangible assets are mainly comprised of the intangible assets related to the service concession contracts as described in topic (e) above as well as software. Intangible assets are stated at cost, less amortization, and any accumulated impairments when applicable. Amortization rates are shown in Note 16.

 

Any gain or loss arising on derecognition of an intangible asset, calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is included in the statement of income when the asset is derecognized.

g)

Property, plant and equipment

Property, plant and equipment are stated at the cost, including deemed cost (upon initial application of IFRSs) and capitalized borrowing costs, less accumulated depreciation.

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Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, or in certain circumstances, the concession term, whatever is shorter. Depreciation rates are shown in Note 18.17.

Gains and losses resulting from the disposal

Any gain or loss arising on derecognition of a property, plant and equipment, are measuredcalculated as the difference between the net disposal proceeds obtained from the sale and the asset’s book value, and are recognizedcarrying amount of the asset, is included in the Statementstatement of income when the asset is disposed of.derecognized.

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h)

Impairment

In assessing impairment of financial assets, the Company uses historical trends of the probability of default, timing of recovery and the amounts of loss incurred, adjusted to reflect management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

Additionally, management revises, annually, the carrying valueamount of non-financial assets, for the purpose of assessing if there is any indication, such as events or changes in the economic, operational or technological conditions that an asset may be impaired. If any indication exists, or when annulannual impairment testing of an asset is required, the Company estimates the asset´s recoverable.recoverable amount. The recoverable valueamount of an asset or cash generating unit is defined as the higher between its value in use and its fair value less costs to sell. When the carrying valueamount of an asset or cash generating unit exceeds its recoverable value,amount, an impairment loss is recognized, adjusting the carrying valueamount of the asset or cash generating unit to its recoverable value.amount.

 

i)

Employee benefits

The liability recorded in the consolidated statement of financial position related the Company’s retirement benefit pension plan obligations, is the greater of: (a) the amount to be paid in accordance with the terms of the pension plan for amortization of the actuarial obligations, and (b) the present value of the actuarial obligation, as calculated by a qualified actuary, less the fair value of the plan’s assets, and adjusted for unrecognized actuarial gains and losses. Expenses related to the debt agreed upon with the pension trust fund were recorded in finance income (expenses), because they represent financial interest and inflation adjustment. Other expenses related to the pension fund were recorded as operating expenses.

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The Company offers post-employment healthcare benefits to its employees as well as life insurance for active and retired employees. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology that is used for defined benefit pension plans. These obligations are measured annually by a qualified independent actuary.

Actuarial gains and losses arising as a result of changes in actuarial assumptions are recognized in other comprehensive income.

Short-term benefits to employees: Employees’ profit sharing as determined in the Company’sby-laws are recorded in accordance with the collective agreement established with the employees’ union and recorded in employees’ and managers’ profit sharing in the Statementstatement of income.

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j)

Income tax and Social Contributionsocial contribution tax

The income tax and social contribution tax expenses represents the total amount of current and deferred taxes, which are presented separately in the financial statements. The Company is subject to the regular tax regime ‘Lucro Real’. However, its subsidiaries that can benefit from the favorable tax regime, according to tax law, analyze the payable tax projection for the next year, in order to determine the tax regime that reduces its taxes payment.

Deferred and current tax related to items recognized directly in equity or in other comprehensive income (OCI) are recognized directly in equity.

Periodically, in accordance with IFRIC 23, the Company and its subsidiaries evaluate positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Current

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date.

Advances, or tax credits, are presented as current or non-current assets, in accordance with the expected date of their realization at the balance sheet date, when the tax amounts are duly calculated and offsettedoffset against advances made.

Deferred

Deferred tax is provided using the liability method onrecognized for temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax bases of assets and liabilities and their carrying amounts for financial reporting purposesbase at the reporting date.date and for unused tax losses or unused tax credits .

Deferred tax liabilities are recognized for all taxable temporary differences except:

When the deferredinter-temporal tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

differences. Deferred tax assets are recognized for all deductible the temporary differences deductible and unused tax loss carryforwardslosses or unused tax credits, to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and unused tax loss carryforwards can be utilized, except:

When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable thatfor the temporary differences will reverse in the foreseeable future and taxable profit willto be available against which the temporary differences can be utilizedoffset, except:

§When the deferred tax (asset or liability) arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
§In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

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§In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

 

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The carrying amount of deferred income and social contribution tax assets is reviewed at each reporting date, and are reduced to the extent that is no longer probable that sufficient taxable profit will be available to allow the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilitiesThese taxes are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

 

Deferred income tax and social contribution tax assets are reviewed at the reporting date, and are reduced to the extent that their realization is no longer probable.

The Company offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity.

k)Government grants

Government grants are recognized when there is reasonable assurance that the grant will be received, and all attached conditions will be complied with.

The Company has operations in an area incentivized by SUDENE and recognize its right to a 75% reduction in income tax, including the 10% additional. Such tax incentives, in the form of exemption or reduction of income tax, comply with the concept of government grants and are recognized as income on a systematic basis over the periods that the related income tax expense for which it is intended to compensate, is recorded.

Given the legal restriction on the profit distribution corresponding to the tax incentive, the Company maintains the amount related to the incentive granted in a tax incentive reserve.

In addition, the Company receives amounts from the Energy Development Account (CDE) as reimbursement for subsidies on tariffs granted to users of the public energy distribution service. These amounts are recognized as revenue in the income statement in a monthly basis, at the moment that the Company acquire the right of receive them.

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l)Non-current assets classified as held for sale and discontinued operations

The Company classify non-current assets as held for sale when their carrying amount will be recovered, principally, through a sale transaction rather than through continuous use. This condition is met only when the asset (or group of assets) is available for immediate sale in its current condition subject only to usual and customary terms for the sale of the asset (or group of assets) and its sale is considered highly probable. Management must be committed to the sale which is expected to be completed within one year from the date of classification. Assets held for sale are measured at the lower of its carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance expenses and income tax expenses.

Fixed assets (PP&E) and Intangible assets are not depreciated or amortized as long as they are classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the Statement of Financial Position.financial position. Dividends received from jointly-controlled entities and affiliates, classified as held for sale, are recognized in the Income statement, in view of the discontinuation of measurement by the equity method, under IFRS 5.

A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

 

Represents a separate major line of business or geographical area of operations

§represents a separate major line of business or geographical area of operations;
§is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
§is a subsidiary acquired exclusively with a view to resale.

 

Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations

Or

Is a subsidiary acquired exclusively with a view to resale

Discontinued operations are excluded from the reported profit from continuing operations, and are presented as a single amount, after taxes, based on discontinued operations, in the statement of income.

Additional disclosures are presented in Note 33.32. All the other notes to the financial statements include amounts for continuing operations, except when otherwise stated.

 

m)l)Current versus non-current classifications

The Company presents assets and liabilities in the statement of financial position based on current/non-current classification. Assets and liabilities are current when they are:

§Expected to be realized, intended to be sold, consume or settled in the normal operating cycle
§Held primarily for the purpose of trading
§Expected to be realized or settled within twelve months after the reporting period
§Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
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§There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

The terms of the liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

n)Revenue recognition

Through December 31, 2017,

In general, revenue was measured at fair value of the consideration received or receivable, less any estimates or refunds and other similar deductions.

As from January 1, 2018, in general, revenue contracts with customers in the Company’s energy, gas and other sectors, areis recognized when the performance obligation is satisfied, at an amount that reflects the amount of consideration that is expectedto which the Company expects to be received in exchange for the goods or services transferred. The Company recognizes revenue only when it is probable that it will receive the considerationentitled in exchange for the goods or services transferred, taking into accountwhich must be allocated to that performance obligation. The revenue is recognized only when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services transferred to the customer, considering the customer’s ability and intention to pay that amount of consideration when it is due.

Revenues from the sale of energy are recordedmeasured based on the energy supplied and the tariffs specified in the terms of the contract or in effect in the market. Revenues from retail supply of energy to final customers are recorded when the delivery has taken place. The billing is carried out monthly. Unbilled retail supply of energy, from the period between the last billing and the end of each month, is estimated based on the supply contracted. contracted and on the volume of energy delivered but not yet billed.

Historically, the differences between the estimated amounts and the actual revenues recognized are not significant.

 

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Revenue from the supply of energy to the Brazilian grid system is recorded when the delivery has taken place and is invoiced to customers on a monthly basis, in accordance with the payment schedules specified in the concession agreement.

Revenues from transmission concession services are recognized in the Statement of income monthly, and represent the fair value of construction, operation and maintenance of the transmission lines and the remuneration of the financial asset.

The services provided include charges for connection and other related services; the revenues are recognized when the services are rendered.

In order to satisfy its performance obligations under the transmission concession contracts the Company is required to maintain the transmission infrastructure available to users and in return receives a remuneration refer to as “Permitted Annual Revenue (RAP)” for the concession period, which is billed monthly.

Revenues from use of the distribution system (TUSD) received by the Company from other concession holders and other customers that use the distribution network are recognized in the monthperiod in which the services are provided. Unbilled retail supply of energy, from the period between the last measured consumption, according to the schedules specified in the concession regulation, and the end of each month is estimated based on the billing from the previous month or the contractual amount. Historically, the differences between the estimated amounts and the actual revenues recognized are not significant.

The ‘Parcel A’ revenue andotherother financialcomponentsin tariff adjustments are recognized in the Statement of income when the energy acquisition costs effectively incurred are different from those considered by the Grantor to stablishes the energy distribution tariff. For further details, see Note 15.

Any adjustment of expected cash flows from the concession financial asset of the energy distribution concession contract is presented as operating revenue, together with the other revenues related to the energy distribution services.

 

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Revenues from the sale of gas are measured based on the volume of gas sold and the tariffs specified in the terms of the contract. Revenues from supply of gas are recorded when the delivery has taken place, based on the volume measured and billed. The billing is carried out monthly. In addition, unbilled supply of gas, from the period between the last billing and the end of each month, is estimated based on the supply contracted and on the volume of gas delivered but not yet billed. Historically, the differences between the estimated amounts and the actual revenues recognized are not significant and are recorded in the following month.

Revenues from transmission concession services are recognized in the Statement of income monthly and include:

§

Construction revenue corresponds to the performance obligation to build the transmission infrastructure, recognized based on the satisfaction of performance obligation over time. They are measured based on the cost incurred, including PIS/Pasep and Cofins taxes over the total revenues and the profit margin of the project.

§

Operation and maintenance revenue corresponds to the performance obligation of operation and maintenance specified in the transmission concession contract, after termination of the construction phase. They are recognized when the services are rendered and the invoices for the RAPs are issued.

§Interest revenue in the contract asset recognized, recorded as transmission concession gross revenue in statement income. Revenue corresponds to the significant financing component in the contract asset, and is recognized by the linear effective interest rate method based on the rate determined at the begining of the investments, which is not subsequently changed. Company’s average implicit rates is 6.68%. The rates are determined for each authorization and are applied on the amount to be received (future cash flow) over the life of contract. This includes financial updating by the inflation index specified for each transmission contract.

The services provided include charges for connection and other related services; the revenues are recognized when the services are rendered.

The profit margin on operation and maintenance of transmission infrastructure is determined based on the individual sale price of the service, based on available information on the value of the consideration that the entity expects to have the right to, in exchange for the services promised to the client, in cases where the Company’s transmission subsidiaries have the right, separately, to the remuneration for the activity of operation and maintenance, as per IFRS 15 – Revenue from contracts with clients, and the costs incurred for the provision of services of operation and maintenance.

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The Resolution Aneel 729/2016 regulates the variable portion (‘Parcela Variável’ or ‘PV’), which is the pecuniary penalty applied by the grantor as a result of any unavailability’s or operational restrictions on facilities that are part of the National Grid and the surcharge corresponding to the pecuniary bonuses provided to concessionaries as an incentive to improve the transmissions facilities availability. The Company assessed the PV effects, based on historical data, and concluded that recognizing the occasional variable consideration arising from the PV estimated would not result in relevant account information. Therefore, for the both situations described, it is recognized as an adjustment to revenue, either as an increase or a reduction of operation and maintenance revenue, when it occurs and the amount is deemed to be significant.

o)Sales tax

Expenses and non-current assets acquired are recognized net of the amount of sales taxes when they are recoverable from the taxation authority.

p)Finance income and expenses

Finance income is mainly comprised of interest income on funds invested, monetary adjustments on overdue receivables and interest income on other financial assets. Interest income is recognized in the Statement of income using the effective interest method.

Finance expenses include:include interest expense on borrowings; and foreign exchange and monetary adjustments on borrowing costs of debt, financings and debentures. Interest expense on the Company’s borrowings that is not capitalized is recognized in the Statement of income using the effective interest method.

 

q)n)Cash dividends

A liability to pay a dividend is recognized when the distribution is authorized or is enforced by law or Company’s bylaws and the distribution is no longer at the discretion of the Company.

r)

Segment reporting

The operating results of all operating segments for which discrete financial information is available, are reviewed regularly by the Company’s CEO, to make decisions about resources to be allocated to the segment, and to assess its performance.

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Segment results that are reported to the CEO include items directly attributable to the segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters) and head office expenses.

Segment capital expenditure is the total cost incurred during the year to acquire:acquire concession financial assets, intangible assets, concession contract assets and property, plant and equipment.

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s)Leases

As from the IFRS 16 first adoption, on January 01, 2019, the Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The contracts that contain a lease component are described in Note 19.

When recording a lease operation, the lessee recognizes a liability to make the payments (a lease liability) and an asset, representing the right to use the subject asset during the period of the leasing (an asset of right to use).

Right-of-use assets

Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated amortization and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are amortized on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as described in Note 19.

If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, amortization is calculated using the estimated useful life of the asset.

Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.

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In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

The Company recognize separately the expenses of interest on the lease liability and the expense of depreciation of the asset of the right to use.

Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to its short-term leases. It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognized as expense on a straight-line basis over the lease term.

2.8Retrospective application of accounting policy and reclassification of items in financial statements

On January 1, 2018, at the first adoption of IFRS 15, considering the characteristics of its concession contracts, the Company classified as contract assets: (i) the consideration to be received for the construction of power transmission infrastructure corresponding to the remaining balance of National Grid assets (‘BNES’ - Basic Network of the Existing System), re-incorporated into the remuneration base (the economic portion), and (ii) the assets remunerated by tariff, since the performance obligation of construction and upgrade is conditional upon satisfaction of the performance obligation of operation and maintenance.

On the other hand, at first adoption of IFRS 15, the financial portion of the National Grid assets, which represents the amount owed since the extension of the concessions until its incorporation into the tariff (i.e. from January 1, 2013 to June 30, 2017), was classified as a financial asset, since it no longer involves the construction of infrastructure assets and exclusively represented installments not paid by the grantor, updated by the regulatory cost of capital of the transmission sector. The classification of this portion as a financial asset was based on the belief that the non-existence of infrastructure assets linked to the financial component of the national grid assets in relation to which a performance obligation could be required would substantiate its classification as financial asset.

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On June 30, 2020, as result of Company’s Periodic Tariff Review, Aneel reset the amount of the Permitted Annual Revenue (RAP) to be applied retrospectively as from July 1, 2018. In this tariff review, considering the results and criteria applied by the grantor in the formulation of the regulations to be applied for the National Grid assets – which among other factors include subjection of the amounts of the National Grid assets to operational efficiency measurement mechanisms, no longer having indemnity nature, it clarified certain elements for determination of Company’s accounting policy.

Accordingly, the Company’s change on its method of accounting policy for contractual transmission assets resulted substantially from the change in:

§Presentation of the assets of Basic Network of the Existing System (‘BNES’, standing for the network existent before year 2000) as contract assets, due to the inclusion of the consideration associated with these assets in the regulatory remuneration base, subjecting them to efficiency mechanisms for the performance obligations to operate and maintain the transmission infrastructure;
§Review of margin allocation for the concession contracts long term consideration and consequently to the margem allocation, based on the ‘expected cost plus margin’ approach and the criteria for definition of the implicit rate used in the calculation of the financing component of the contract;
§Inclusion of current and deferred PIS/Pasep and Cofins taxes in the calculation of the revenues under the contracts.

Additionally, and partially in connection with the clarifications, the Brazilian Securities and Exchange Commission (CVM) published on December 1, 2020 complementary interpretative guidance, CVM/SNC/SEP Circular Nº 04/2020, and the Company revised and retrospectively applied the following points in accordance with these regulations enacted by CVM, which were also adopted by the companies on the Brazilian power transmission sector, including: (i) classification of the National Grid assets as contract assets, relating to the renewal of the concession under Law 12783/14; (ii) allocation of the margin to performance obligations under the concession contract; and (iii) determination of the discount rate to be used for recognition of the financial component in the contract asset.

The main effects of these changes on the accounting policy in accordance with IAS 08 – Accounting Policies, Changes in Accounting Estimates and Errors on the restated financial statements as of December 31, 2019 and January 01, 2019 are as follows:

Statement of financial position December 31, 2019 January 01,2019
  As presented  Reclassification Adjustment Restated As presented Reclassification Adjustment Restated
CURRENT ASSET                                
Concession financial assets (1)  1,080   (189)  —     891   1,071   (181)  —     890 
Concession contract assets
(1) (2)		  172   189   215   576   131   181   170   482 
Others  8,887   —     —     8,887   26,594   —     —     26,594 
Total current assets  10,139   —     215   10,354   27,796   —     170   27,966 
                                 
NON-CURRENT ASSETS                                
Concession financial assets (1)  4,851   (1,092)  —     3,759   4,927   (1,115)  —     3,812 
Concession contract assets - transmission
(1) (2)		  1,024   1,092   383   2,499   999   1,115   313   2,427 
Others  33,914   —     —     33,914   26,134   —     —     26,134 
Total non-current assets  39,789   —     383   40,172   32,060   —     313   32,373 
TOTAL ASSETS  49,928   —     598   50,526   59,856   —     483   60,339 

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  December 31, 2019  January 01,2019 
Statement of financial position As presented  Adjustment  Restated  As presented  Adjustment  Restated 
CURRENT LIABILITIES                        
Taxes payable (3)  359   52   411   409   44   453 
Others  7,554   —     7,554   22,984   —     22,984 
Total current liabilities  7,913   52   7,965   23,393   44   23,437 
                         
NON-CURRENT LIABILITIES                        
Taxes payable (3)  1   226   227   30   219   249 
Deferred income tax and social contribution tax (4)  661   109   770   728   75   803 
Others  25,461   —     25,461   19,766   —     19,766 
Total non-current liabilities  26,123   335   26,458   20,524   294   20,818 
TOTAL LIABILITIES  34,036   387   34,423   43,917   338   44,255 
                         
EQUITY                        
Retained earnings  —     212   212   —     145   145 
Others  15,887   —     15,887   14,579   —     14,579 
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT (5)  15,887   212   16,099   14,579   145   14,724 
NON-CONTROLLING INTERESTS  4   —     4   1,360   —     1,360 
TOTAL EQUITY  15,891   212   16,103   15,939   145   16,084 

(1)Reclassification of the financial portion of the Basic Network of the Existing System (‘BNES’) asset to contract asset, since it was included into the remuneration base, and, thus, it is subject to the efficiency mechanisms applied to the operation and maintenance performance obligation.
(2)Recognition of the profit margin associated to the performance obligation to construct and upgrade the transmission infrastructure, as well as the interest revenue resulting from the financing component in the contract asset and the result of the periodic tariff revision;
(3)Effects of PIS/Pasep and Cofins over contract revenues.
(4)Deferral of income tax and social contribution tax over the adjustments;
(5)Effects of retrospective application of accounting policy, recorded as retained earnings, in accordance with IAS 08.

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STATEMENT OF INCOME Dec 31, 2019 Dec 31, 2018
As presented Adjustment Restated As presented Adjustment Restated
CONTINUING OPERATIONS                        
NET REVENUE (1)  25,390   96   25,486   22,266   33   22,299 
                         
TOTAL COST  (19,598)  —     (19,598)  (17,677)  —     (17,677)
                         
GROSS PROFIT  5,792   96   5,888   4,589   33   4,622 
                         
OPERATING EXPENSES (2)  (2,881)  5   (2,876)  (1,743)  —     (1,743)
                         
Share of profit (loss), net, of affiliates and jointly-controlled entities  125   —     125   (104)  —     (104)
Dividends declared by investee classified as held for sale  73   —     73             
Remeasurement of previously held equity interest in subsidiaries acquired  —     —     —     (119)  —     (119)
Impairment loss on investments  —     —     —     (127)  —     (127)
Net finance income  1,360   —     1,360   (518)  —     (518)
Income before income tax and social contribution tax  4,469   101   4,570   1,978   33   2,011 
                         
Current income tax and social contribution tax  (1,454)  —     (1,454)  (583)  —     (583)
Deferred income tax and social contribution tax (3)  (111)  (34)  (145)  (16)  (11)  (27)
Net income for the year from continuing operations  2,904   67   2,971   1,379   22   1,401 
DISCONTINUED OPERATIONS                        
Net income after tax for the year from discontinued operations  224   —     224   363   —     363 
                         
NET INCOME FOR THE YEAR  3,128   67   3,195   1,742   22   1,764 
                         
Total of net income for the year attributed to:                        
Equity holders of the parent                        
Net income from continuing operations  2,903   67   2,970   1,378   22   1,400 
Net income from discontinued operations  224   —     224   322   —     322 
Net income for the year attributed to equity holders of the parent  3,127   67   3,194   1,700   22   1,722 
Non-controlling interests                        
Net income from continuing operations  1   —     1   1   —     1 
Net income from discontinued operations  —     —     —     41   —     41 
NET INCOME FOR THE YEAR  3,128   67   3,195   1,742   22   1,764 
                         
Basic and diluted earnings per preferred share – R$ (4)  2.06   0.17   1.89   1.17   (0.15)  1.02 
Basic and diluted earnings per common share – R$  (4)  2.06   0.17   1.89   1.17   (0.15)  1.02 
Basic and diluted earnings per preferred share from continuing operations – R$  (4)  1.91   0.14   1.75   0.95   (0.12)  0.83 
Basic and diluted earnings per common share from continuing operations – R$  (4)  1.91   0.14   1.75   0.95   (0.12)  0.83 
Basic and diluted earnings per preferred share from discontinued operations – R$  (4)  0.15   0.01   0.14   0.22   (0.03)  0.19 
Basic and diluted earnings per common share from discontinued operations – R$  (4)  0.15   0.01   0.14   0.22   (0.03)  0.19 

(1)Recognition of the profit margin associated to the performance obligation to construct and upgrade the transmission infrastructure, as well as the interest revenue resulting from the financing component;
(2)Reversal of expected losses recorded in others expenses in prior periods.;
(3)Deferral of income tax and social contribution tax over the adjustments;
(4)The basic and diluted earnings per share for the years ended in December 31, 2019 and 2018 were also adjusted retrospectively in order to reflect the increase in the number of shares in 2021. For more information, see Note 26.
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STATEMENT OF CASH FLOWS 

Dec 31, 2019

As presented

 Adjustment 

Dec 31, 2018

Restated

CASH FLOW FROM OPERATIONS            
Net income for the year from continuing operations  2,904   67   2,971 
Net income for the year from discontinuing operations  224   —     224 
Adjustments to reconcile net income to net cash flows:            
Deferred income tax and social contribution tax (2)  111   34   145 
Loss on write-off of net residual value of unrecoverable concession financial assets, concessional contract asset, PP&E and Intangible assets (3)  130   (5)  125 
Adjustment to expectation of contract asset and financial concession asset (4)  (507)  (249)  (756)
Deffered PIS/Pasep and Cofins over contract revenues (6)  —     15   15 
Others  1,072   —     1,072 
TOTAL  3,934   (138)  3,796 
(Increase) decrease in assets            
Concession contract and financial assets (5)  373   138   511 
Others  (67)  —     (67)
TOTAL  306   138   444 
Increase (decrease) in liabilities  957   —     957 
Cash generated by operating activities  5,197   —     5,197 

(1)Effects of retrospective application of accounting policy, recorded as retained earnings, in accordance with IAS 08.
(2)Deferral of income tax and social contribution tax over the adjustments;
(3)Others immaterial adjustments referring to impairment losses and others expected losses.
(4)Recognition of the profit margin associated to the performance obligation to construct and upgrade the transmission infrastructure, as well as the interest revenue resulting from the financing component and the result of the periodic tariff revision;
(5)Adjustments in the amounts of the contract assets that were received, due to the reallocation of the consideration to performance obligation to construct and upgrade.
(6)Effects of PIS/Pasep and Cofins over contract revenues, including the deferred taxes;

STATEMENT OF CASH FLOWS 

Dec 31, 2019

As presented

 Adjustment 

Dec 31, 2018

Restated

CASH FLOW FROM OPERATIONS            
Net income for the year from continuing operations  1.379   22   1.401 
Net income for the year from discontinuing operations  363   —     363 
Adjustments to reconcile net income to net cash flows:            
Deferred income tax and social contribution tax (2)  16   11   27 
Adjustment to expectation of contract asset and financial concession asset (3)  (585)  (92)  (677)
Others (4)  985   2   987 
TOTAL  2,158   (57)  2,101 
(Increase) / decrease in assets            
Concession contract and financial assets (5)  1,704   57   1,761 
Others  1,450   —     1,450 
TOTAL  3,154   57   3,211 
Increase (decrease) in liabilities  (2,023)  —     (2,023)
TOTAL  3,289   —     3,289 

(1)Effects of retrospective application of accounting policy, recorded as retained earnings, in accordance with IAS 08.
(2)Deferral of income tax and social contribution tax over the adjustments;
(3)Recognition of the profit margin associated to the performance obligation to construct and upgrade the transmission infrastructure, as well as the interest revenue resulting from the financing component) and the result of the periodic tariff revision;
(4)Adjustments in the amounts of the contract assets that were received, due to the reallocation of the consideration to performance obligation to construct and upgrade;
(5)Effects of PIS/Pasep and Cofins over contract revenues, including the deferred taxes.
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Statement of comprehensive income 

Dec 31, 2019

As presented

 Adjustment 

Dec 31, 2019

Restated

 

Dec 31, 2018

As presented

 Adjustment 

Dec 31, 2018

Restated

NET INCOME FOR THE YEAR  3,128   67   3,195   1,742   22   1,764 
OTHER COMPREHENSIVE INCOME                        
Items not to be reclassified to profit or loss in subsequent periods  (1,055)  —     (1,055)  (463)  —     (463)
                         
COMPREHENSIVE INCOME FOR THE YEAR  2,073   67   2,140   1,279   22   1,301 
Total of comprehensive income for the year attributed to:                        
Equity holders of the parent  2,072   67   2,139   1,237   22   1,259 
Non-controlling interests  1   —     1   42   —     42 
   2,073   67   2,140   1,279   22   1,301 

The income tax and social contribution tax over the adjustments were also recognized.

The adjustment did not have an impact on the Company’s operating, investing and financing cash flows. The retrospective application only affected the transmission segment, presented in Note 5.

3. PRINCIPLES OF CONSOLIDATION

3.PRINCIPLES OF CONSOLIDATION

The year end of the financial statements of subsidiaries and jointly-controlled entities is the same as Cemig’s year end. Accounting practices are applied uniformly in line with those used by Cemig.

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The following subsidiaries are included in the consolidated financial statements:

 

Subsidiary 

  Form of
valuation		   2018   2017 
  Direct
interest, %		   Indirect
interest, %		   Direct
interest, %		   Indirect
interest, %		 

Cemig Geração e Transmissão

   Consolidation    100.00    —      100.00    —   

Cemig Distribuição

   Consolidation    100.00    —      100.00    —   

Gasmig

   Consolidation    99.57    —      99.57    —   

Cemig Telecom (1)

   Consolidation    —      —      100.00    —   

Cemig Geração Distribuída (Usina Térmica Ipatinga)

   Consolidation    100.00    —      100.00    —   

Efficientia

   Consolidation    100.00    —      100.00    —   

Luce Empreendimentos e Participações S.A.

   Consolidation    100.00    —      100.00    —   

Rio Minas Energia e Participações

   Consolidation    100.00    —      75.00    —   

Light (2)

   Consolidation    26.06    23.93    26.06    22.80 

LightGer (3)

   Consolidation    —      74.49    —      73.92 

Guanhães (3)

   Consolidation    —      74.49    —      73.92 

Axxion (3)

   Consolidation    49.00    25.49    49.00    24.92 

UHE Itaocara (3)

   Consolidation    —      74.49    —      73.92 
Subsidiary Form of valuation 2020 Form of valuation 2019
   Direct interest, %   Indirect interest, %    Direct interest, %   Indirect interest, % 
Cemig Geração e Transmissão  Consolidation   100.00   —    Consolidation  100.00   —   
Cemig Distribuição  Consolidation   100.00   —    Consolidation  100.00   —   
Gasmig  Consolidation   99.57   —    Consolidation  99.57   —   
Cemig Geração Distribuída (Usina Térmica Ipatinga) (1)  —     —     —    Consolidation  100.00   —   
Cemig Sim (Efficientia) (2)  Consolidation   100.00   —    Consolidation  100.00   —   
Centroeste (3)  Consolidation   100.00   —    Equity method  51.00   —   

 

(1)

Merged with Cemig on March 31, 2018.

On October 19, 2020, an Extraordinary General Meeting of Shareholders approved the merger of this wholly-owned subsidiary, at book value, and as a result the investee ceased to exist and the Company took over of all its rights and liabilities.
(2)

In December 2018,On April 14, 2020, the Annual Shareholders General Meeting decided to change this subsidiary’s By-laws, changing the name of this subsidiary to Cemig Soluções Inteligentes em Energia S.A.-Cemig Sim.

(3)On January 13, 2020, the Company obtained controlconcluded acquisition of Light, holding anthe equity interest of 49.99%. As49% of December 31, 2018, Light is classified as a discontinued operation. See more informationthe share capital held by Eletrobras in Notes 17.1Centroeste, resulting in its now holding 100% of that investee. More details see notes 1 and 33.

(3)

As a result of acquiring control of Light, also obtained control on these entities and classified it as discontinued operations. See more information in Notes 17.1 and 33.

16.

 

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a)Subsidiaries, jointly-controlled and affiliated entities

 

Although Cemig indirectly holds 100% of the total shares of Amazonia Energia Participações S.A., this investment is not consolidated as it is jointly controlled with other shareholders. Amazonia Energia Participações S.A. is a holding company with no operations and it only holds one material asset, which is the investment in Norte Energia S.A.

a) Subsidiaries and jointly-controlled entities

The financial statements of subsidiaries are included in the consolidated financial statements as from the date on which control is obtained, until the date on which the control.control ceases. The assets, liabilities and profit (loss) of the subsidiaries are consolidated using full consolidation. The accounting policies of the subsidiaries and jointly-controlled entities are aligned with the policies adopted by the Company.

The Company controls an investee when its existing rights give it the current ability to direct the relevant activities of the investee. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

When the Company loses controls of an investee, it derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position, at the date when control is lost. Any investment retained in the former subsidiary is recognized at its fair value and any resulting difference is recognized as gain or loss in the statement of income.

Jointly-controlled and affiliated entities are accounted for under the equity method.

b)Consortia

The Company recognizes the proportional interest in assets, liabilities, and profits (losses) of consortium operations, since these investments are considered to be ‘joint operations’ in accordance with the requirements of IFRS 11.

c)Transactions eliminated in consolidation

Intra-group balances and transactions, and any unrealized gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with investee companies accounted for under the equity method are eliminated against the investment in proportion to the Company’s equity interests in the investee. Unrealized losses are eliminated in the same way as unrealized gains are eliminated, but only up to the point at which there is no evidence of impairment.

In 2016, the financial statements of Transchile, for the purposes of calculations by the equity method, are converted from US dollars (the functional currency of Transchile) to Reais based on the exchange rate at last quoted day of the year, since Cemig’s functional currency is the Real. Foreign currency differences are recognized in other comprehensive income and presented in equity up to the date of the sale of the interest in Transchile. After conclusion of the sale, the amount recognized in other comprehensive income, in equity, was transferred in full to the Income statement. In 2016, the whole of Cemig’s interest in Transchile was sold to Ferrovial Transco Chile SpA., a company controlled by Ferrovial S.A.

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4.CONCESSIONS AND AUTHORIZATIONS

 

4. CONCESSIONS AND AUTHORIZATIONS

Cemig, through its subsidiaries, holds the following concessions or authorizations:

Company holding concession or authorizationConcession or authorization contract*Expiration date
POWER GENERATION
  Company holding concession or
authorization		Concession or authorization
contract		Expiration
date		 

POWER GENERATION

Hydroelectric plants

Emborcação (1)

Cemig GT   07/199707/2025

Nova PonteEmborcação (1)

 (2)Cemig GT07/199707/2025

Santa LuziaNova Ponte (1)

 (2)Cemig GT07/199707/2025
Santa Luzia (1)Cemig GT07/199702/2026

Sá Carvalho (1)

Sá Carvalho01/200412/2024

Rosal (1)

Rosal Energia01/199705/2032

Machado Mineiro (1)

Salto Voltão (1)

Salto Paraopeba (1)

Salto do Passo Velho (1)

Horizontes EnergiaResolution 331/2002

07/2025

10/2030

10/2030

10/2030


PCH Pai Joaquim (1)

Cemig PCH
Authorizing Resolution
377/2005
04/2032

Irapé (1)

Cemig GT14/200002/2035

Queimado (Consórcio)(Consortium) (1)

Cemig GT06/199701/2033

Salto MoraisRio de Pedras (1)

Cemig GT02/201307/202009/2024

Rio de PedrasPoço Fundo (1)

(8)		Cemig Geração Poço Fundo01/202105/2045
São Bernardo (1)Cemig GT02/201309/2024

Luiz Dias (1)

Cemig GT02/201308/2025

Poço Fundo (1)

Cemig GT02/201308/2025

São Bernardo (1)

Cemig GT02/201308/2025

Xicão (1)

Cemig GT02/201308/2025

Três Marias (2)

(3)Cemig Geração Três Marias08/201601/2046

Salto Grande (2)

(3)Cemig Geração Salto Grande09/201601/2046

Itutinga (2)

(3)Cemig Geração Itutinga10/201601/2046

Camargos (2)

(3)Cemig Geração Camargos11/201601/2046

Coronel Domiciano, Joasal, Marmelos, Paciência eand Piau (2)

(3)Cemig Geração Sul12/2016 and 13/201601/2046

Dona Rita, Ervália, Neblina, Peti, Sinceridade eand Tronqueiras (2)

(3)Cemig Geração Leste14/2016 and 15/201601/2046

Cajurú, Gafanhoto eand Martins (2)

(3)Cemig Geração Oeste16/201601/2046
 16/2016   01/2046

Thermal plants

Igarapé (1)

Cemig GT   
Igarapé (6)Cemig GT07/199708/2024
   
08/2024Wind power plants 

Wind power plants

Central Geradora Eólica Praias de Parajuru (3)

(4)ParajuruResolution 526/200209/2032

Central Geradora Eólica Volta do Rio (3)

(4)Volta do RioResolution 660/200101/2031
   
Resolution 660/2001POWER TRANSMISSION   01/2031

POWER TRANSMISSION

Rede Básica (4)

National grid (5)Cemig GT006/199701/2043
Substation – SE Itajubá (5)Cemig GT79/200010/2030
Furnas – Pimenta - Transmission line (5)Centroeste004/200503/2035
   006/199701/2043

Subestação – SE Itajubá (4)

Cemig GT79/200010/2030

ENERGY DISTRIBUTION (5)

(7)Cemig D

002/1997

003/1997

004/1997

005/1997


 

12/2045

GAS DISTRIBUTION (5)

Gasmig   
GAS DISTRIBUTION (7)GasmigState Law 11,021/199301/2053

DISCONTINUED OPERATIONS

Light SESA

Light06/199606/2026

Light Energia

Light06/199606/2026

PCH Lajes

Light07/201405/2026

 

(1)

Generation concession contracts that are not within the scope of IFRIC 12, whose infrastructure assets are recorded as PP&E since the concession grantor does not have control over whom the service is provided to as the output is being sold mainly in the Free Market (‘ACL’).

(2)

On July 17, 2020, Cemig GT filed a statement of its interest in extending these plants concession, under the independent producer regime, outside the regime of quotas, to ensure its right of option under the legislative changes currently under discussion, relating to the group of measures to modernize the electricity sector. Any actual decision will only be made after publication by the Brazilian Mining and Energy Ministry and by the grantor, Aneel, of the conditions for extension, which will be submitted to decision by Cemig’s governance bodies at the due time.

(3)Generation concession contracts within the scope of IFRIC 12, under which Cemig has the right to receive cash and therefore, recognizes a concession financial assets.

(3)

(4)

This refers to concessions, given by the process of authorization, for generation, as an independent power producer, of wind power, sold under the Proinfa program. The assets tied to the right of commercial operation are recorded in PP&E. The rights of authorization of commercial operation that are classified as an Intangible.

(4)

(5)

These refer to transmission concession contracts, for which a contract asset was recognized upon the application of IFRS 15, effectivefor being subject to satisfaction of performance obligations.
(6)On December 6, 2019, Aneel suspended Igarapé Plant commercial operation upon Cemig GT’s claim for early termination of its concession contract, and, as a result, the corresponding assets were written-off from January 1, 2018. See Note 2.4.

Cemig GT’s financial statement position. In February 2021, the Thermal Plant Igarapé concession was extinct. by the Brazilian Mining and Energy Ministry, in consideration of the termination request submitted by Cemig GT.
(5)

(7)

Concession contracts that are within the scope of IFRIC 12 and under which the concession infrastructure assets are recorded under the intangible and financial assets bifurcation model, and in compliance with IFRS 15, the infrastructure under construction has been classified as a contract asset.


(8)Aneel approved, through Authorizing Resolution n. 9.735, on Februarty 23, 2021, the transfer of the concession contract from Cemig GT to Cemig Poço Fundo. This transfer was formally agreed on April 16, 2021, resulting in a new contract (01/2021), which also extended the concession to 05/2045.

 

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Generation concessions

In the generation business, the Company sells energy:

 

(1)

(1)        Through auctions, to distributors to meet the demands of their captive markets; and

(2)        To free customers in the free market (Ambiente de Contratação Livre, or ACL).

 

(2)

To free customers in the free market (Ambiente de Contratação Livre, or ACL).

In the free market, energy is traded by the generation concession holders, small hydro plants (PCHs, or SHPs), self-producers, traders, and importers of energy.

There is also revenue from the spot market, which remunerates agents for de-contracted energy, which is settled at the Spot Price (PLD).

Transmission concessions

Under the transmission concession contracts, the Company, through its subsidiaries, is authorized to charge a Tariff for use of the Transmission System (Tarifa de Uso do Sistema de Transmissão, or TUST). Tariffs are adjusted annually on the same date the Permitted Annual Revenue (Receitas Anuais Permitidas, or RAP) of transmission concessions contracts is adjusted.adjusted by the grantor. This tariff is in effect from July 1 of each year, upon its publication, until June 30 of the subsequent year.

The payment for use of transmission service also applies to generation provided by the Itaipu Binacional. However, due to the legal characteristics of that plant, the corresponding charges are assumed by the holders of distribution concessions that hold quotas of its output.

Onerous concessions

When obtaining the concessions for construction of certain generation projects, the Company is required to make payments to the regulatorgrantor over the period of the contract or for up to 5 years upon signature of the concession contract for plants with installed capacity between 1 and 50 MW, as compensation for the right to operate them. The information on the concessions and the amounts to be paid are as follows:

 

Project

  Nominal value in
2018		   Present value in
2018		   Period of the concession   Updating indexer  Nominal value in 2020 Present value in 2020 Period of the concession Updating indexer

Irapé

   32,964    14,707    03/2006 – 02/2035    IGPM   38   18   03/2006 – 02/2035  IGPM

Queimado (Consortium)

   8,229    4,027    01/2004 – 12/2032    IGPM   9   5   01/2004 – 12/2032  IGPM

Salto Morais Small Hydro Plant

   —      —      06/2013 – 07/2020    IPCA 

Rio de Pedras Small Hydro Plant

   —      —      06/2013 – 09/2024    IPCA 

Various Small Hydro Plants (*)

   —      —      06/2013 – 08/2025    IPCA 

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(*)Table of Contents

Various SHPs, with installed capacity less than 50 MW:Luiz Dias, Poço Fundo, São Bernardoand Xicão.

 

The contracts for three Small Hydro Plants (SHPs) – Luiz Dias, Salto Morais and Xicão – with installed capacity of 1,620kW, 2,394kW and 1,808kW, respectively, were extinguished by Aneel at Cemig GT’s request, by authorizing resolutions of October 13, 2020, without reversion of assets, for further register as small hydropower plant with intalled capacity lower than 5MW (so-called ‘Central Geradora Hidrelétrica – CGH’ under Brazillian law), under the legislation and regulations. Cemig GT continues to operate these plants. The concession for the Salto Morais plant was terminated in July 2020, in accordance with the contract signed with Aneel, but continued to be operated by Cemig GT, since its installed capacity is lower than 5MW, and under the legislation grant of concession or authorization is not necessary in this case.

Cemig generate energy from nine hydroelectric plants that have the capacity of 5MW or less, including those mentioned in the previous paragraph – having a total installed capacity of 11.53MW, and thus under Law 9,074/95, these are dispensed from concession, permission or authorization, and do not have a final concession date.

The concessions fee are paid monthly to the grantor for an amount that changes over time. These payments are recorded as an intangible asset, representing a right to operate the concession and to charge users through the concession period, they are recorded as from the date of signature of the contracts at the present value of the future payment obligations.

 

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The amounts paid to the grantor in 2018,2020, the nominal value and the present value of the amounts to be paid in the next 12 months, are as follows:

 

Project

  Interest, %   Amounts paid in
2018		   Nominal value of
amounts to be paid in
the next 12 months		   Present value of
amounts to be paid in
the next 12 months		  Interest, % Amounts paid in 2019 Amounts to be paid in the next 12 months

Irapé

   100.00    1,762    2,019    1,902   100.00   2   2 

Queimado (Consortium)

   82.50    501    588    554   82.50   1   1 

Salto Morais Small Hydro Plant

   100.00    12    —      —   

Rio de Pedras Small Hydro Plant

   100.00    35    —      —   

Various Small Hydro Plants

   100.00    171    —      —   

(*)Under Aneel Resolution 467/2011 the power plants with total installed generation capacity of 1 to 50 MW must pay Aneel for five years, starting on the date that the concession contract is signed.

The rate used by the Company to discount the above liabilities to its present value, was 12.50%, and represents the average cost of funding in normal conditions on the date the concession contract was entered into.

Distribution concessions

The Company operates the concession for the distribution of electricityenergy in the greater part of the State of Minas Gerais, which expires in December 2045.

According to the concession contract, all assets and facilities that are used in the provision of the distribution service and which have been constructed by the concession holder are considered part of the assets of the related concession and must be returned to the grantor at the end of the contract. Cemig is entitled to receive a payment for the residual value of the infrastructure assets at the end of the concession contract taking into consideration the amounts involved and the timing when they became part of the infrastructure.

The Company is not subject to make any payments to the grantor in order to operate the distribution concessions, but is required to comply with certain quality standards and make infrastructure investments.

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The concession contracts and the Brazilian legislation establish a mechanism of maximum prices that allows for three types of adjustments to tariffs: (i) an annual tariff adjustment; (ii) periodic review of tariffs; and (iii) extraordinary reviews.

Each year the Company has the right to request for the annual adjustment, the purpose of which is to be compensated the effects of inflation on the tariffs, and to allow for certain changes in costs that are outside the Company’s control to be passed through to customers – for example the cost of electricityenergy purchased for resale and sector charges including charges for the use of the transmission and distribution facilities.

Also, the regulatorgrantor performs a Periodic Review of tariffs every five years, which aims to make adjustments due to changes in the Company’s costs, and to establish a factor based on scale gains, which will be applied in the annual tariff adjustments, for the purpose of sharing such gains with the Company’s customers.

The Company also has the right to request an extraordinary review of tariffs in the event that any unforeseen development significantly affects the economic-financial equilibrium of the concession. The Periodic Review and the Extraordinary Review are subject, to a certain degree, to the discretion of the regulator,grantor, although there arepre-established provisions for each revision cycle. When the Company requests an annual tariff adjustment, it is required to prove the financial impact on operations resulting from these events.

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Under the distribution concession contracts, the Company is authorized to charge customers a tariff consisting of two components: (i) A component related to costs of energy purchased for resale, charges for use of the transmission grid and charges for use of the distribution system that are not under its control (‘Parcel A costs’); and (ii) a portion relating to operating costs (‘Parcel B costs’).

Renewal of the distributionFifth Amendment to concession contract

On December 21, 2015, the CompanyCemig D signed, with the Mining and Energy Ministry, the Fifth Amendment to its concession contracts, extending its energy distribution concessions for an additional 30 years, starting January 1, 2016.

The principal characteristics and terms of the Amendment are as follows:

§The annual tariff adjustment will occur on May 28 of each year, according the rules set for in Clause 6 of the Amendment will be applied.
§Limitation of in the distribution of dividends and/or payment of Interest on Equity to the minimum established by law, in the envent of non-compliance with the annual indicators for outages (DECi and FECi) for two consecutive years, or three times in a period of five years, until the regulatory parameters are restored.
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The annual tariff adjustment will occur on May 28 of each year, starting in 2016; with the adjustment provisions specified in the previous concession contract remained unchanged. For the subsequent tariff adjustments the rules set for in Clause 6 of the Amendment will be applied.

§There is a requirement for injections of capital from the controlling shareholder in an amount sufficient to meet the minimum conditions for economic and financial sustainability.
§Subject to the compliance of efficiency criteria related to continuity of supply and the economic and financial management to guarantee the concession’s operations, being assured the right to a full defense and the right to appeal, as: (i) for five years starting January 1, 2016, any non-compliance for two consecutive years, or non-compliance with any of the conditions at the end of five years, will result in cancelation of the concession contract; (ii) starting January 1, 2021, any non-compliance for three consecutive years with the criteria of efficiency in continuity of supply, or for two consecutive years with the criteria of efficiency in economic and financial management, will result in proceedings to establish expiration of the concession.

 

Limitation of in the distribution of dividends and/or payment of Interest on Equity to the minimum established by law, in the envent ofnon-compliance with the annual indicators for outages (DECi and FECi) for two consecutive years, or three times in a period of five years, until the regulatory parameters are restored.

There is a requirement for injections of capital from the controlling shareholder in an amount sufficient to meet the minimum conditions for economic and financial sustainability.

Subject to the compliance of efficiency criteria related to continuity of supply and the economic and financial management to guarantee the concession’s operations as follows: (i) for five years starting January 1, 2016, anynon-compliance for two consecutive years, ornon-compliance with any of the conditions at the end of five years, will result in cancelation of the concession contract; (ii) starting January 1, 2021, anynon-compliance for three consecutive years with the criteria of efficiency in continuity of supply, or for two consecutive years with the criteria of efficiency in economic and financial management, will result in proceedings to establish expiration of the concession.

The criteria of efficiency in economic and financial management are as follows:

 

•§

Operational cash generation (–) QRR¹ (–) interest on the debt2³ ≥ 0; 0;

•§

Ebitda3³ ≥ 0 (by the end of 2017, maintained in 2018, 2019 and 2020);

[Ebitda (–) QRR]³ 0 (by the end of 2018, maintained in 2019 and 2020);

•§[Ebitda (–) QRR] ≥ 0 (by the end of 2018, maintained in 2019 and 2020);

§

{Net debt4 / [Ebitda (–) QRR]}£ ≤ 1 / (80% of the Selic rate) (by the end of 2019); and,

§{Net debt / [Ebitda (–) QRR]} ≤ 1 / (111% of the Selic rate) (by the end of 2020).

 

{1.QRR = ‘Regulatory reintegration quota’, or Regulatory depreciation expense.

2.Net debt / [Ebitda (–) QRR]}£ 1 / (111%x 111% of the Selic rate) (byrate.

3.Calculated according to the end of 2020).method defined by the grantor (Aneel), contained in distribution concession contract.

4.Gross debt, less financial assets.

 

1.

QRR = ‘Regulatory reintegration quota’, or Regulatory depreciation expense.

2.

Net debt x 111% of the Selic rate.

3.

Calculated according to the method defined by the regulator (Aneel), contained in distribution concession contract.

4.

Gross debt, less financial assets.

The CompanyCemig D was in compliance with the above criteria as of December 31, 2018.2020 and 2019.

 

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Notwithstanding Cemig D’s compliance with the Customer Unit Average Outage Duration indicator – DEC for 2020, it was non-complaint for three times over the past five years, and, in such circumstances, Cemig D must limit the amount of dividends and interest on equity to 25% of net income, less the amounts allocated to the legal reserve.

 

Gas distribution concessions

The concessions for distribution of natural gas are granted by each Brazilian state. In the state of Minas Gerais, the tariffs for natural gas are set by the regulator,grantor, the State’s Economic Development Secretariat, by market segment. The tariffs is comprised of a portion for the cost of gas and a portion for the distribution of gas. Each quarter the tariffs are adjusted to pass through the cost of gas, and once a year they are adjusted to update the portion allocated to cover the costs relating to the provision of the distribution service – remuneration of invested capital and to cover all the operating, commercial and administrative expenses of the concession holder.

In addition to these adjustments, in April 2015 the Economic Development Secretariat sentthere are periodic reviews of tariffs. The first periodic review of tariff, referred to the subsidiary Gasmig and Official Letter, SEDE/GAB/Nº303/2014 stating the timetable set for the first Tariff Review cycle. Due to delays, the methodology of the first Tariff Review2018-22 cycle, was decided in July 2017, and the homologation of the tariff for this tariff cycle is expected to occurconcluded in 2019. These reviews occurmay occurr every five years from the end of the first cycle, to evaluate the changes in the costs of the Gasmig and to adaptupdate the tariffs. The concession contract also specifies the possibility of an extraordinary review of tariffs if any event occurs that puts the economic-financial balance of the concession at risk.

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On December 14, 2018, the Minas Gerais State Department for Economic, Scientific, Technological and Higher Education Development (‘Sedectes’) or (‘the grantor power’) presented a study, prepared by Fundação Getulio Vargas Business school (“FGV”), related to financial economic rebalancing of theSeptember 19, 2019 Gasmig concession agreement, also supported by consultation from General Attorney’s Office of the State. The rebalancing that has been requested by the grantor is based on the contractual obligation to build a gas pipeline to serve the Nitrogen Fertilizers Unit (UFN), which should have been built by Petrobras. As a result Company was requested to paidsigned, with the State of Minas Gerais as Grantor, the amountthird amendment to the concession contract for distribution of R$852 million. Based onnatural gas in the study, Sedectes requested a response from Gasmig and began discussion for solution related to imbalance referred to, considering that oneState of its conditions for extensionMinas Gerais, which represents conclusion of the process of economic-financial rebalancing of the concession contract, (from 2023upon payment of a grant fee of R$852, updated from January 1, 2019 to 2053, as specified in the seconddate of payment, by the DI (Interbank Deposit) rate. This guarantees maintenance of Gasmig’s concession period up to 2053.

Under the third amendment to the contract) wasconcession contract, the requirement to make investmentstotal value paid for the constructioncompensatory grant fee will be added to Gasmig’s Remuneration Base of Assets, and considered in the gas pipeline.

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In this context, Gasmig hired specialized consultants to prepareprocess of tariff review by the grantor as an independent financial-economic valuation and legal opinion, to establish the fair value of the considerationintangible asset to be paid toamortized until the Minas Gerais State, for the purpose of enabling the rebalancing of the concession. The Company is accompanying the development of these discussions with the grantor authority.

The paymentend of the concession grant fee, when made, will be considered a concession intangible asset.

No changesperiod, producing immediate effect in the accounting treatmentterms of the concession contract, considering its extension, was made as a resultsetting and review of these events in the financial statements of the Company for the year ended December, 31, 2018.tariffs.

 

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5. OPERATING SEGMENTS

5.OPERATING SEGMENTS

The operating segments of the Company reflect their management and their organizational structure, used to monitoring its results.

 

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The Company also operates in the gas market, through its subsidiary Gasmig, and in other businesses with less impact on the results of its operations. These segments are reflected in the Company’s management, organizational structure, and monitoring of results.

The tables below show segment information for 2018, 20172020, 2019 and 2016:2018.

 

INFORMATION BY SEGMENT AS OF AND FOR THE YEAR ENDED DECEMBER 31. 2018 

DESCRIÇÃO

 ENERGY  GAS  TELECOM
(1)		  OTHER
(1)		  ELIMINATIONS  TOTAL 
 GENERATION
(1)		  TRANSMISSION  DISTRIBUTION
(1)		 

SEGMENT ASSETS

  14,671   3,862   37,840   1,822   10   2,607   (957)   59,855 

INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES

  4,055   1,163   —    —    —    17   —    5,235 

ADDITIONS TO THE SEGMENT

  559   —    129   —     9   —     —    697 

ADDITIONS TO FINANCIAL ASSETS

  —    96   727   70   —    —    —    893 

CONTINUING OPERATIONS

        

NET REVENUE

  6,374   675   13,757   1,619   —    134   (293)   22,266 

COST OF ENERGY AND GAS

        

Energy bought for resale

  (3,917)   —    (7,238)   —    —    —    71   (11,084) 

Charges for use of the national grid

  (216)   —    (1,463)   —    —    —    200   (1,480) 

Gas bought for resale

     (1,238)      (1,238) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  (4,133)   —    (8,701)   (1,238)   —      —     271   (13,802) 

OPERATING COSTS AND EXPENSES

        

Personnel

  (230)   (108)   (965)   (60)   (18)   (29)   —    (1,410) 

Employees’ and managers’ profit sharing

  (10)   (7)   (51)   —    —     (10)   —    (77) 

Post-employment obligations

  (46)   (27)   (224)   —    —    (41)   —    (337) 

Materials

  (39)   (4)   (58)   (2)   (1)   —     —    (104) 

Outsourced services

  (123)   (40)   (880)   (20)   (9)   (30)   15   (1,087) 

Depreciation and amortization

  (164)   —    (595)   (74)   (1)   (1)   —    (835) 

Operating provisions (reversals)

  (107)   (12)   (332)   2   1   (18)   —    (466) 

Construction costs

  —    (96)   (757)   (45)   —    —    —    (897) 

Other operating expenses, net

  (65)   (17)   (203)   (13)   (3)   (109)   7   (405) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total cost of operation

  (784)   (311)   (4,065)   (212)   (31)   (238)   22   (5,618) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

OPERATING COSTS AND EXPENSES

  (4,917)   (311)   (12,766)   (1,450)   (31)   (238)   293   (19,420) 

Equity in earning of unconsolidated investees, net

  (353)   231   33   —    (1)   (14)   —    (104) 

Remeasurement of previously held equity interest in subsidiaries acquired

  80   —    (52)   —    —  (147)   —    (119) 

Adjustment for impairment of Investments

  (127)   —    —    —    —    —    —    (127) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

OPERATING INCOME BEFORE FINANCE INCOME (EXPENSES)

  1,057   595   972   169   (32)   (265)   —    2,496 

Finance income

  1,113   61   434   84   1   13   —    1,706 

Finance expenses

  (1,536)   (5)   (621)   (38)   (5)   (19)   —    (2,224) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAXES

  634   651   785   215   (36)   (271)   —    1,978 

Income and Social Contribution taxes

  (276)   (122)   (217)   (53)   12   57   —    -599 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

  358   529   568   162   (24)   (214)   —    1,379 

DISCONTINUED OPERATIONS

        

NET INCOME AFTER TAX FROM DISCONTINUED OPERATIONS (Note 33)

  11   —    62   —    290   —    —    363 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NET INCOME (LOSS) FOR THE YEAR

  369   529   630   162   266   (214)   —    1,742 

Equity holders of the parent

  361   529   599   161   266   (216)   —    1,700 

Non-controlling interests

  8   —    31   1   —    2   —    42 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  369   529   630   162   266   (214)   —    1,742 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

F-58 

 

(1)Table of Contents

As stated in Note 33, certain assets in generation, distribution, telecommunications and other market segments were classified as held for sale. The revenues and expenses from these segments have been presented separating profits (losses) from continuing operations from those relating to discontinued operations.

 

INFORMATION BY SEGMENT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2020
  ENERGY             
DESCRIPTION Generation and sale  Transmission  Distribution  Gas  Other  Eliminations  TOTAL 
SEGMENT ASSETS  16,150   5,870   26,399   2,615   3,712   (663)  54,083 
INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES  3,927   1,467   —     —     21   —     5,415 
INVESTMENTS IN AFFILIATES CLASSIFIED AS HELD FOR SALE  —     —     1,258   —     —     —     1,258 
ADDITIONS TO THE SEGMENT  238   246   1,384   50   —     —     1,918 
                             
CONTINUING OPERATIONS                            
NET REVENUE  6,537   743   16,512   1,664   105   (333)  25,228 
COST OF ENERGY AND GAS                            
Energy bought for resale  (4,026)  —     (8,161)  —     —     76   (12,111)
Charges for use of the national grid  (199)  —     (1,799)  —     —     250   (1,748)
Gas bought for resale  —     —     —     (1,083)  —     —     (1,083)
Total  (4,225)  —     (9,960)  (1,083)  —     326   (14,942)
                             
OPERATING COSTS AND EXPENSES                            
Personnel  (192)  (114)  (886)  (60)  (24)  —     (1,276)
Employees’ and managers’ profit sharing  (24)  (12)  (92)  —     (14)  —     (142)
Post-employment obligations  (53)  (41)  (297)  —     (47)  —     (438)
Materials  (13)  (4)  (61)  (1)  —     —     (79)
Outsourced services  (113)  (46)  (1,055)  (25)  (33)  7   (1,265)
Depreciation and amortization  (207)  (5)  (668)  (106)  (3)  —     (989)
Operating provisions (reversals)  (122)  (10)  (272)  (1)  (18)  —     (423)
Construction costs  —     (147)  (1,384)  (50)  —     —     (1,581)
Other operating expenses, net  (68)  11   (212)  (12)  (16)  —     (297)
Total cost of operation  (792)  (368)  (4,927)  (255)  (155)  7   (6,490)
                             
OPERATING COSTS AND EXPENSES  (5,017)  (368)  (14,887)  (1,338)  (155)  333   (21,432)
                             
Equity in earnings of unconsolidated investees, net  (129)  494   —     —     (8)  —     357 
Periodic Tariff Review adjustments  —     502   —     —     —     —     502 
Gain on a bargain purchase and remeasurement of previously held equity interest in subsidiary acquired in business combinations transactions  —     51   —     —     —     —     51 
                             
OPERATING INCOME BEFORE  FINANCE INCOME (EXPENSES)  1,391   1,422   1,625   326   (58)  —     4,706 
Finance income  1,711   175   514   44   —     —     2,444 
Finance  expenses  (2,509)  (274)  (505)  (58)  (4)  —     (3,350)
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAX  593   1,323   1,634   312   (62)  —     3,800 
Income tax and social contribution tax  (206)  (209)  (430)  (85)  (6)  —     (936)
NET INCOME FROM CONTINUING OPERATIONS  387   1,114   1,204   227   (68)  —     2,864 
                             
Equity holders of the parent  387   1,114   1,204   226   (68)  —     2,863 
Non-controlling interests  —     —     —     1   —     —     1 
   387   1,114   1,204   227   (68)  —     2,864 

F-47

F-59 

Table of Contents 

LOGO

 

The following is a breakdown of the revenue of the Company by activity:

 

2018

  ENERGY  GAS OTHER ELIMINATIONS TOTAL 
GENERATION TRANSMISSION DISTRIBUTION 
2020 ENERGY GAS OTHER ELIMINATIONS TOTAL
GENERATION TRANSMISSION DISTRIBUTIONGAS

Revenue from supply of energy

   7,065   —   17,885   —     —    (78)  24,872   7,337   —     19,174  —     —     (79)  26,432 

Revenue from Use of Distribution Systems (the TUSD charge)

   —     —    2,067   —     —    (22)  2,045   —     —     3,046   —     —     (24)  3,022 

CVA andOther financial components in tariff adjustment

   —     —    1,973   —     —     —   1,973   —     —     455   —     —     —     455 

Transmission concession revenue

   —    589   —     —     —    (178)  411 
Reimbursement of PIS/Pasep and Cofins over ICMS credits to customers– realization  —     —     266   —     —     —     266 
Transmission operation and maintenance revenue  —     506   —     —     —     (226)  280 

Transmission construction revenue

   —    96   —     —     —     —    96   —     201   —     —     —     —     201 

Concession assets – indemnity revenue

   —    250   —     —     —     —    250 

Generation assets – indemnity revenue

   55   —     —     —     —     —    55 
Interest revenue arising from the financing component in transmission contract asset  —     438   —     —     —     —     438 

Distribution construction revenue

   —     —    757  45   —     —    802   —     —     1,385   51   —     —     1,436 

Adjustment to expectation of cash flow from Financial assets of distribution concession to be indemnified

   —     —     —     —     —     —     —     —     —     16   —     —     —     16 

Gain on inflation updating of Concession Grant Fee

   321   —     —     —     —     —    321   347   —     —     —     —     —     347 

Transactions in energy on the CCEE

   217   —     —      —     —    217   154   —     —     —     —     —     154 
Mechanism for the sale of surplus  —     —     234   —     —     —     234 

Supply of gas

   —    —     —    1,995   —     —    1,995   —     —     —     2,011   —     —     2,011 

Fine for violation of continuity indicator

   —    —    (44)   —    —     —    (44)   —     —     (51)  —     —     —     (51)

Other operating revenues

   82  29  1,345   —    144  (15)  1,585   5   34   1,561   —     113   (4)  1,709 

Sector / Regulatory charges reported as Deductions from revenue

   (1,366)  (288)  (10,226)  (421)  (11)   —   (12,312)   (1,306)  (436)  (9,574)  (398)  (8)  —     (11,722)
  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net operating revenue

   6,374  676  13,757  1,619  133  -293  22,266 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
Net revenue  6,537   743   16,512   1,664   105   (333)  25,228 

For further details of operating revenue, see Note 28.

 

F-48

LOGO

F-60 

 

INFORMATION BY SEGMENT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2017 
  ENERGY  TELECOMS  GAS  OTHER  ELIMINATIONS  TOTAL 
 GENERATION  TRANSMISSION  DISTRIBUTION 

SEGMENT ASSETS

  14,366   3,955   20,021   347   2,000   1,582   (32)   42,239 

INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES

  4,723   1,122   1,918   —     —     29   —     7,792 

ADDITIONS TO THE SEGMENT

  308   —     1,083   47   56   1   —     1,495 

ADDITIONS TO FINANCIAL ASSETS

  —     25   —     —     —     —     —     25 

NET REVENUE

  7,190   777   12,312   127   1,482   112   (288)   21,712 

COST OF ENERGY AND GAS

        

Energy bought for resale

  (4,209)   —     (6,783)   —     —     —     73   (10,919) 

Charges for use of the national grid

  (353)   —     (1,002)   —     —     —     181   (1,174) 

Gas bought for resale

  —     —     —     —     (1,071)   —     —     (1,071) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operational costs, total

  (4,562)   —     (7,785)   —     (1,071)   —     254   (13,164) 

OPERATING COSTS AND EXPENSES

        

Personnel

  (281)   (106)   (1,123)   (20)   (56)   (41)   —     (1,627) 

Employees’ and managers’ profit sharing

  (1)   —     (3)   —     —     (1)   —     (5) 

Post-employment obligations

  39   19   180   —     —     (9)   —     229 

Materials

  (11)   (4)   (43)   —     (2)   (1)   —     (61) 

Raw materials and inputs for production of energy

  (10)   —     —     —     —     —     —     (10) 

Outsourced services

  (127)   (31)   (785)   (28)   (17)   (16)   30   (974) 

Depreciation and amortization

  (176)   —     (567)   (35)   (71)   (1)   —     (850) 

Operating provisions (reversals)

  (139)   (10)   (469)   (1)   (2)   (233)   —     (854) 

Construction costs

  —     (25)   (1,045)   —     (49)   —     —     (1,119) 

Other operating expenses, net

  (117)   (11)   (408)   (23)   (15)   187   4   (383) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total cost of operation

  (823)   (168)   (4,263)   (107)   (212)   (115)   34   (5,654) 

OPERATING COSTS AND EXPENSES

  (5,385)   (168)   (12,048)   (107)   (1,283)   (115)   288   (18,818) 

OPERATING INCOME BEFORE EQUITY GAINS (LOSSES) AND FINANCE INCOME (EXPENSES)

  1,805   609   264   20   199   (3)   —     2,894 

Equity in earnings of unconsolidated investees, net

  (519)   234   42   (2)   —     (7)   —     (252) 

Finance income

  226   9   397   3   49   120   —     804 

Finance expenses

  (1,161)   (3)   (815)   (15)   (43)   237   —     (1,800) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAXES

  351   849   (112)   6   205   347   —     1,646 

Income and social contribution taxes

  (257)   (189)   31   (3)   (71)   (155)   —     (644) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NET INCOME (LOSS) FOR THE YEAR

  94   660   (81)   3   134   192   —     1,002 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

OTHER COMPREHENSIVE INCOME

        

Items that will not be reclassified to profit or loss

        

Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes

  (47)   (23)   (145)   —     —     (46)   —     (261) 

Equity gain (loss) on Other comprehensive income in subsidiary and jointly-controlled entity, net of tax

  —     —     —     —     —     (3)   —     (3) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  (47)   (23)   (145)   —     —     (49)   —     (264) 

Items that may be reclassified to  profit or loss

        

Equity gain on Other comprehensive income, in subsidiary and jointly-controlled entity, relating to fair value of financial asset available for sale, net of tax

  (34)   —     —     —     —     (4)   —     (38) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  (34)   —     —     —     —     (4)   —     (38) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME FOR THE YEAR

  13   637   (226)   3   134   139   —     700 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity holders of the parent

  13   637   (226)   3   133   139   —     699 

Non-controlling interests

  —     —     —     —     1   —     —     1 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  13   637   (226)   3   134   139   —     700 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
Table of Contents 

 

INFORMATION BY SEGMENT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2019
  ENERGY             
DESCRIPTION Generation and sale  Transmission  Distribution  Gas  Other  Eliminations  TOTAL 
SEGMENT ASSETS  14,749   4,712   25,616   2,689   3,888   (1,127)  50,527 
INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES  4,133   1,237   —     —     29   —     5,399 
INVESTMENTS IN AFFILIATES CLASSIFIED AS HELD FOR SALE  —     —     1,258   —     —     —     1,258 
ADDITIONS TO THE SEGMENT  102   220   936   934   9   —     2,201 
                             
CONTINUING OPERATIONS                            
NET REVENUE  6,882   811   15,919   1,858   323   (307)  25,486 
COST OF ENERGY AND GAS                            
Energy bought for resale  (3,841)  —     (7,517)  —     —     72   (11,286)
Charges for use of the national grid  (190)  —     (1,459)  —     —     223   (1,426)
Gas bought for resale  —     —     —     (1,436)  —     —     (1,436)
Total  (4,031)  —     (8,976)  (1,436)  —     295   (14,148)
                             
OPERATING COSTS AND EXPENSES                            
Personnel  (207)  (115)  (869)  (46)  (35)  —     (1,272)
Employees’ and managers’ profit sharing  (36)  (27)  (183)  —     (17)  —     (263)
Post-employment obligations  (50)  (38)  (277)  —     (43)  —     (408)
Materials  (17)  (6)  (63)  (2)  (3)  —     (91)
Outsourced services  (125)  (45)  (1,016)  (20)  (40)  7   (1,239)
Depreciation and amortization  (210)  (6)  (652)  (86)  (4)  —     (958)
Operating provisions (reversals)  (975)  (135)  (1,101)  (2)  (188)  —     (2,401)
Construction costs  —     (220)  (937)  (43)  —     —     (1,200)
Other operating expenses, net  (175)  (16)  (298)  (10)      5   (494)
Total cost of operation  (1,795)  (608)  (5,396)  (209)  (330)  12   (8,326)
                             
OPERATING COSTS AND EXPENSES  (5,826)  (608)  (14,372)  (1,645)  (330)  307   (22,474)
                             
Equity in earnings of unconsolidated investees, net  (88)  215   —     —     (2)  —     125 
Dividends declared by investee classified as held for sale  —     —     73   —     —     —     73 
                             
OPERATING INCOME BEFORE  FINANCE INCOME (EXPENSES)  968   418   1,620   213   (9)  —     3,210 
Finance income  1,282   98   1,535   21   271   —     3,207 
Finance  expenses  (1,035)  (115)  (632)  (46)  (19)  —     (1,847)
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAX  1,215   401   2,523   188   243   —     4,570 
Income tax and social contribution tax  (551)  (70)  (806)  (48)  (124)  —     (1,599)
NET INCOME FROM CONTINUING OPERATIONS  664   331   1,717   140   119   —     2,971 
                             
DISCONTINUED OPERATIONS                            
NET INCOME AFTER TAX FROM DISCONTINUED OPERATIONS  —     —     224   —     —     —     224 
NET INCOME (LOSS) FOR THE YEAR  664   331   1,941   140   119   —     3,195 
                             
Equity holders of the parent  664   331   1,941   139   119   —     3,194 
Non-controlling interests  —     —     —     1   —     —     1 
   664   331   1,941   140   119   —     3,195 

F-49

F-61 

Table of Contents 

LOGO

 

The following is a breakdown of the revenue of the Company by activity:

  ENERGY             

 2019

(Restated)

 GENERATION  TRANSMISSION  DISTRIBUTION  GAS  OTHER  ELIMINATIONS  TOTAL 
 Revenue from supply of energy  7,037   —     19,967   —     —     (76)  26,928 
 Revenue from Use of Distribution Systems (the TUSD charge)  —     —     2,747   —     —     (25)  2,722 
 CVA and Other financial components in tariff adjustment  —     —     58   —     —     —     58 
Transmission operation and maintenance  —     550   —     —     —     (198)  352 
 Transmission construction revenue  —     312   —     —     —     —     312 
Interest revenue arising from the financing component in transmission contract asset  —     328   —     —     —     —     328 
 Distribution construction revenue  —     —     937   43   —     —     980 
 Adjustment to expectation of cash flow from Financial assets of distribution concession to be indemnified  —     —     18   —     —     —     18 
 Gain on inflation updating of Concession Grant Fee  318   —     —     —     —     —     318 
 Transactions in energy on the CCEE  439   —     (7)  —     —     —     432 
 Supply of gas  —     —     —     2,298   —     —     2,298 
 Fine for violation of continuity indicator  —     —     (58)  —     —     —     (58)
PIS/Pasep and Cofins taxes credits over ICMS  414   —     830   —     184   —     1,428 
 Other operating revenues  82   28   1,468   —     151   (8)  1,721 
 Sector / Regulatory charges reported as Deductions from revenue  (1,408)  (407)  (10,041)  (483)  (12)  —     (12,351)
Net revenue  6,882   811   15,919   1,858   323   (307)  25,486 

2017

 ENERGY  TELECOMS  GAS  OTHER  ELIMINATIONS  TOTAL 
 GENERATION  TRANSMISSION  DISTRIBUTION 

Revenue from supply of energy

  7,340   —     16,442   —     —      (81)   23,701 

Revenue from Use of Distribution Systems (the TUSD charge)

  —     —     1,643   —     —     —     (32)   1,611 

CVA andOther financial components in tariff adjustment

  —     —     988   —     —     —     —     988 

Transmission concession revenue

  —     519   —     —     —     —     (148)   371 

Transmission construction revenue

  —     25   —     —     —     —     —     25 

Concession assets – reimbursement revenue

  —     373   —     —     —     —     —     373 

Generation assets – reimbursement revenue

  271   —     —     —     —     —     —     271 

Distribution construction revenue

  —     —     1,045   —     49   —     —     1,094 

Adjustment to expectation from reimbursement of distribution concession financial assets

  —     —     9   —     —     —     —     9 

Gain on inflation updating of concession grant fee

  317   —     —     —     —     —     —     317 

Transactions in energy on the CCEE

  860   —     —     —     —     —     —     860 

Supply of gas

  —     —     —     —     1,759   —     —     1,759 

Other operating revenues

  37   9   1,175   168   1   120   (26)   1,484 

Sector / Regulatory charges reported as Deductions from revenue

  (1,430)   (167)   (9,177)   (41)   (327)   (9)   —     (11,151) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net operating revenue

  7,395   759   12,125   127   1,482   111   (287)   21,712 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

For further details of operating revenue, see Note 28.

 

F-50

LOGO

 

INFORMATION BY SEGMENT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2016 
  ENERGY  TELECOMS  GAS  OTHER  ELIMINATIONS  TOTAL 
  GENERATION  TRANSMISSION  DISTRIBUTION 

SEGMENT ASSETS

  14,414   4,267   18,166   338   2,737   2,389   (276)   42,035 

ADDITIONS TO THE SEGMENT

  916   —     1,602   163   56   —     —     2,737 

ADDITIONS TO FINANCIAL ASSETS

  2,217   54   —     —     —     —     —     2,271 

INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES

  5,292   1,670   1,754   18   —     19   —     8,753 

NET REVENUE

  5,875   1,113   10,597   125   1,181   116   (234)   18,773 

COST OF ENERGY AND GAS

  —     —     —     —     —     —     —     —   

Energy bought for resale

  (3,071)   —     (5,260)   —     —     —     59   (8,272) 

Charges for use of the national grid

  (321)   —     (760)   —     —     —     134   (947) 

Gas bought for resale

  —     —     —     —     (877)   —     —     (877) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operatingcosts, total

  (3,392)   —     (6,020)   —     (877)   —     193   (10,096) 

OPERATING COSTS AND EXPENSES

  —     —     —     —     —     —     —     —   

Personnel

  (271)   (111)   (1,147)   (23)   (47)   (45)   —     (1,644) 

Employees’ and managers’ profit sharing

  (1)   —     (10)   (1)   —     4   —     (8) 

Post-employment obligations

  (54)   (23)   (231)   —     —     (37)   —     (345) 

Materials

  (11)   (3)   (42)   —     (2)   —     —     (58) 

Outsourced services

  (129)   (30)   (674)   (23)   (16)   (32)   37   (867) 

Depreciation and amortization

  (202)   —     (525)   (38)   (54)   (16)   —     (835) 

Operating provisions (reversals)

  (88)   (10)   (544)   (4)   —     (67)   —     (713) 

Construction costs

  —     (54)   (1,102)   —     (37)   —     —     (1,193) 

Other operating expenses, net

  (57)   (13)   (395)   11   (8)   313   4   (145) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total cost of operation

  (813)   (244)   (4,670)   (78)   (164)   120   41   (5,808) 

OPERATING COSTS AND EXPENSES

  (4,205)   (244)   (10,690)   (78)   (1,041)   120   234   (15,904) 

OPERATING INCOME BEFORE EQUITY GAINS (LOSSES) AND FINANCE INCOME (EXPENSES)

  1,670   869   (93)   47   140   236   —     2,869 

Equity in earnings of unconsolidated investees, net

  (448)   362   (180)   (31)   —     (5)   —     (302) 

Adjustment for loss of value in Investments

  (763)   —     —     —     —     —     —     (763) 

Finance income

  190   7   743   4   15   82   —     1,041 

Finance expenses

  (1,320)   (4)   (1,078)   (9)   (49)   (18)   —     (2,478) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAXES

  (671)   1,234   (608)   11   106   295   —     367 

Income tax and the Social Contribution tax

  (24)   5   103   (6)   (8)   (103)   —     (33) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

NET INCOME (LOSS) FOR THE YEAR

  (695)   1,239   (505)   5   98   192   —     334 

OTHER COMPREHENSIVE INCOME

        

Items that will not be reclassified to profit or loss

        

Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes

  (92)   —     (380)   —     —     (43)   —     (515) 

Equity gain (loss) on Other comprehensive income in jointly-controlled entities

  —     —     —     —     —     4   —     4 

Items that may be reclassified to profit or loss

        

Conversion adjustment of equity gain (loss) in other comprehensive income in subsidiary and jointly-controlled entity

  —     —     —     —     —     (3)   —     (3) 

Recycling of conversion adjustments to the Income statement arising from sale of Transchile

  —     (39)   —     —     —     —     —     (39) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME FOR THE YEAR

  (787)   1,200   (885)   5   98   150   —     (219) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity holders of the parent

  (787)   1,200   (885)   5   98   150   —     (219) 

Non-controlling interests

  —     —     —     —     —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  (787)   1,200   (885)   5   98   150   —     (219) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
F-62 

Table of Contents 

INFORMATION BY SEGMENT AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2018 (Restated)
DESCRIPTION ENERGY Gas Telecom* Other Eliminations TOTAL
 Generation and sale Transmission Distribution 
SEGMENT ASSETS  14,671   4,346   37,840   1,822   10   2,607   (957)  60,339 
INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES  4,055   1,163   —     —     —     17   —     5,235 
ADDITIONS TO THE SEGMENT  559   138   856   70   9   —     —     1,632 
                                 
CONTINUING OPERATIONS                                
NET REVENUE  6,374   708   13,757   1,619   —     134   (293)  22,299 
COST OF ENERGY AND GAS                                
Energy bought for resale  (3,917)  —     (7,238)  —     —     —     71   (11,084)
Charges for use of the national grid  (216)  —     (1,463)  —     —     —     199   (1,480)
Gas bought for resale              (1,238)              (1,238)
Total  (4,133)  —     (8,701)  (1,238)  —     —     270   (13,802)
                                 
OPERATING COSTS AND EXPENSES                                
Personnel  (230)  (108)  (965)  (60)  (18)  (29)  —     (1,410)
Employees’ and managers’ profit sharing  (10)  (7)  (51)  —     —     (9)  —     (77)
Post-employment obligations  (46)  (27)  (224)  —     —     (40)  —     (337)
Materials  (39)  (4)  (58)  (2)  (1)  —     —     (104)
Outsourced services  (123)  (40)  (880)  (20)  (9)  (30)  15   (1,087)
Depreciation and amortization  (164)  —     (595)  (74)  (1)  (1)  —     (835)
Operating provisions (reversals)  (107)  (12)  (332)  2   1   (18)  —     (466)
Construction costs  —     (96)  (757)  (44)  —     —     —     (897)
Other operating expenses, net  (65)  (17)  (203)  (13)  (3)  (112)  8   (405)
Total cost of operation  (784)  (311)  (4,065)  (211)  (31)  (239)  23   (5,618)
                                 
OPERATING COSTS AND EXPENSES  (4,917)  (311)  (12,766)  (1,449)  (31)  (239)  293   (19,420)
                                 
Equity in earnings of unconsolidated investees, net  (353)  231   33   —     (1)  (14)  —     (104)
Remeasurement of previously held equity interest in subsidiaries acquired  80   —     (52)  —     —     (147)  —     (119)
Impairment of investments  (127)  —     —     —     —     —     —     (127)
                                 
OPERATING INCOME BEFORE  FINANCE INCOME (EXPENSES)  1,057   628   972   170   (32)  (266)  —     2,529 
Finance income  1,113   61   434   84   1   13   —     1,706 
Finance  expenses  (1,536)  (5)  (621)  (38)  (5)  (19)  —     (2,224)
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAX  634   684   785   216   (36)  (272)  —     2,011 
Income tax and social contribution tax  (276)  (133)  (217)  (53)  12   57   —     (610)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS  358   551   568   163   (24)  (215)  —     1,401 
                                 
DISCONTINUED OPERATIONS                                
NET INCOME AFTER TAX FROM DISCONTINUED OPERATIONS  11   —     62   —     290   —     —     363 
NET INCOME (LOSS) FOR THE YEAR  369   551   630   163   266   (215)  —     1,764 
                                 
Equity holders of the parent  361   551   599   162   266   (217)  —     1,722 
Non-controlling interests  8   —     31   1   —     2   —     42 
   369   551   630   163   266   (215)  —     1,764 

(*) On March 31, 2018 Cemig Telecom assets and liabilities were merged into the Company.

F-63 

Table of Contents 

The following is a breakdown of the revenue of the Company by activity:

 

2016

 ENERGY  TELECOMS GAS OTHER ELIMINATIONS TOTAL 
GENERATION TRANSMISSION DISTRIBUTION 

2018

(Restated)

 ENERGY GAS OTHER ELIMINATIONS TOTAL
GENERATION TRANSMISSION DISTRIBUTION 

Revenue from supply of energy

 6,809   —    16,688   —     —     —    (67)  23,430   7,065   —     17,885   —     —     (78)  24,872 

Revenue from Use of Distribution Systems (the TUSD charge)

  —     —    1,740   —     —     —    (35)  1,705   —     —     2,067   —     —     (22)  2,045 

CVA andOther financial components in tariff adjustment

  —     —    (1,455)   —     —     —     —    (1,455)   —     —     1,973   —     —     —     1,973 

Transmission concession revenue

  —    410   —     —     —     —    (98)  312 
Transmission operation and maintenance  —     520   —     —     —     (177)  343 

Transmission construction revenue

  —    54   —     —     —     —     —    54   —     138   —     —     —     —     138 

Concession assets – reimbursement revenue

  —    751   —     —     —     —     —    751 

Generation assets – reimbursement revenue

  —     —     —     —     —     —     —    
Interest revenue arising from the financing component in transmission contract asset  —     311   —     —     —     —     311 
Generation assets – indemnity revenue  55   —     —     —     —     —     55 

Distribution construction revenue

  —     —    1,102   —    37    —    1,139   —     —     757   45   —     —     802 

Adjustment to expectation from reimbursement of distribution concession financial assets

  —     —    8   —     —     —     —    8 

Gain on inflation updating of concession grant fee

 300   —     —      —     —     —    300 
Adjustment to expectation of cash flow from Financial assets of distribution concession to be indemnified  —     —     —     —     —     —     —   
Gain on inflation updating of Concession Grant Fee  321   —     —     —     —     —     321 

Transactions in energy on the CCEE

 161   —     —     —     —     —     —    161   217   —     —         —     —     217 

Supply of gas

  —     —     —     —    1,444   —     —    1,444   —     —     —     1,995   —     —     1,995 
Fine for violation of continuity indicator  —     —     (44)  —     —     —     (44)

Other operating revenues

 22  14  1,134  159   —    125  (33)  1,421   82   29   1,345   —     145   (16)  1,585 

Sector / Regulatory charges reported as Deductions from revenue

 (1,322)  (211)  (8,620)  (34)  (301)  (9)   —    (10,497)   (1,366)  (290)  (10,226)  (421)  (11)  —     (12,314)
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net operating revenue

  5,970   1,018   10,597   125   1,180   116   (233)   18,773 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
Net revenue  6,374   708   13,757   1,619   134   (293)  22,299 

For further details of operating revenue, see Note 28.27.

 

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LOGO

As stated in Note 2.8, the effects of the retrospective application adjustments in balances for December 31, 2019 and 2018 only affected the transmission segment.

 

6. CASH AND CASH EQUIVALENTS

6.CASH AND CASH EQUIVALENTS

  2018   2017  2020 2019

Bank accounts

   108    113   93   210 

Cash equivalents

            

Bank certificates of deposit (CDBs) (1)

   555    686 
Bank deposit certificates (CDBs) (1)  1,416   290 

Overnight (2)

   228    227   171   36 

Others

   —      4 
  

 

   

 

   1,587   326 
   783    917   1,680   536 
  

 

   

 

 
   891    1,030 
  

 

   

 

 

 

(1)

Bank Deposit Certificates of Deposit (Certificados de Depósito Bancário, or CBDs)(CDBs), accrued interest at 40%50% to 106%108%, of the CDI Rate (Interbank Rate for Interbank Certificates of Deposit orCertificados de Depósito Inter-bancário – CDIs)deposit rates) published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip)(Cetip) in 2018 (50%2020 (80% to 106% in 2017)2019 and 40% to 106% in 2018). For these CDBs, the Company has repo transactions which state, on their trading notes, the bank’s commitment to repurchase the security, on demand, on the maturity date of the transaction, or earlier, at the Company’s option.

earlier.
(2)

Overnight transactions are repos available for redemption on the following day. They are usually backed by Treasury Bills, Notes or Bonds and referenced to apre-fixed rate of 6.39%1.89% in 2020 (4.39%, in 2018 (6.89%2019 and 6.39% in 2017)2018). Their purpose is to settle the short-term obligations of the Company, or to be used in the acquisition of other assets with better return to replenish the portfolio.

Note 3231 provides information in relation to the exposure of the Company to interest rate risks, and a sensitivity analysis of their effects on financial assets and liabilities.

7. MARKETABLE SECURITIES

 

   2018   2017 

Investments

    

Current

    

Bank certificates of deposit (CDBs) (1)

   —      3 

Financial Notes (LFs) – Banks (2)

   435    303 

Treasury Financial Notes (LFTs) (3)

   254    740 

Debentures (4)

   11    11 

Others

   4    1 
  

 

 

   

 

 

 
   704    1,058 

Non-current

    

Financial Notes – Banks (2)

   109    — 

Debentures (4)

   —      30 
  

 

 

   

 

 

 
   109    30 
  

 

 

   

 

 

 
   813    1,088 
  

 

 

   

 

 

 

 

F-64 

Table of Contents 

7.MARKETABLE SECURITIES

  2020 2019
Investments    
Current    
Bank deposit certificates (CDBs) (1)  545   —   
Financial Notes (LFs) – Banks (2)  2,074   645 
Treasury Financial Notes (LFTs) (3)  731   94 
Others  10   1 
   3,360   740 
Non-current        
Financial Notes (LFs) – Banks (2)  730   11 
Debentures (4)  25   2 
Others  10   —   
   765   13 
   4,125   753 

(1)

Bank Deposit Certificates of Deposit (Certificados de Depósito Bancário(CBDs), or CDBs), were remunerated in 2018accrued interest at 80%106% a 110% of the InterbankCDI Rate for Interbank Certificates of Deposit,Certificados de Depósito Inter-bancário – CDIs (100.25% to 105.25%(Interbank deposit rates) published by the Custody and Settlement Chamber (Cetip) in 2017).

2020.

F-52

LOGO

(2)

Bank Financial Notes (Letras Financeiras, or LFs) are fixed-rate fixed-income securities, issued by banks and that accrued interest a percentage of the CDI rate published by Cetip. The LFs had remuneration rates varying between 102%99.5% and 111.25%130% of the CDI rate in 2018 (102.01%2020 (101.95% and 113% in 2019 and 102% to 112%111.25% in 2017)2018).

(3)

Treasury Financial Notes (LFTs) (LFTs) are fixed-rate securities, their yield follows the daily changes in the Selic rate between the date of purchase and the date of maturity.

(4)

Debentures are medium and long term debt securities, which give their holders a right of credit against the issuing company. The debentures have remuneration varying from 104.25%TR+1% to 151%109% of the CDI Rate in 2018 (104.25%2020 (108.25% to 161.54%113% of CDI in 2017)2019 and 104.25% to 151% of CDI in 2018).

Note 3231 provides a classification of these marketable securities. Investments in marketable securities of related parties are shown in Note 31.

8. CUSTOMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERS30.

 

  Balances not
yet due 		  Up to 90
days past due 		  More than
91 up to 360 days
past due		  More than
361 days past due		  Dec. 31,
2018		  Dec. 31,
2017		 

Billed supply

  1,345   759   393   492   2,989   2,687 

Unbilled supply

  1,048   —     —     —     1,048   994 

Other concession holders – wholesale supply

  7   36   2   2   47   26 

Other concession holders – wholesale supply, unbilled

  282   —     —     —     282   283 

CCEE (Wholesale Trading Exchange)

  1   158   —     7   166   382 

Concession Holders – power transport

  76   15   3   86   180   159 

Concession Holders – power transport, unbilled

  212   —     —     —     212   177 

(–) Provision for doubtful receivables

  (179)   (21)   (20)   (531)   (751)   (568) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  2,792   947   378   56   4,173   4,140 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Current assets

      4,092   3,885 

Non-current assets

      81   255 

 

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LOGO

8.RECEIVABLES FROM CUSTOMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERS
  Balances not yet due  Up to 90 days past due  More than 91 up to 360 days past due  More than 361 days past due  2020  2019 
                   
Billed supply  1,518   637   387   583   3,125   3,130 
Unbilled supply  1,145   —     —     —     1,145   1,204 
Other concession holders – wholesale supply  18   26   1   5   50   47 
Other concession holders – wholesale supply, unbilled  260   —     —     —     260   204 
CCEE (Power Trading Chamber)  21   189   —     —     210   386 
Concession Holders – power transport  45   14   17   85   161   187 
Concession Holders – power transport, unbilled  295   —     —     —     295   253 
(–) Provision for doubtful receivables  (278)  (12)  (15)  (407)  (712)  (810)
   3,024   854   390   266   4,534   4,601 
                         
Current assets                  4,373   4,524 
Non-current assets                  161   77 

 

The Company’s exposure to credit risk related to customers and traders is provided in Note 32.31.

The allowance for doubtful accounts is considered to be sufficient to cover any potential losses in the realization of accounts receivable, and the breakdown by type of customers is as follows:

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   2018   2017 

Residential

   137    160 

Industrial

   172    178 

Commercial, services and others

   189    117 

Rural

   33    17 

Public authorities

   119    12 

Public lighting

   6    5 

Public services

   27    10 

Charges for use of the network (TUSD)

   68    68 

Others

   —      1 
  

 

 

   

 

 

 
   751    568 
  

 

 

   

 

 

 
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  2020 2019
Residential  110   131 
Industrial  188   197 
Commercial, services and others  190   161 
Rural  30   32 
Public authorities  83   201 
Public lighting  2   2 
Public services  35   31 
Charges for use of the network (TUSD)  74   55 
   712   810 

On July 31, 2020 Cemig D filed an application to the tax authority of State of Minas Gerais to offset debts for energy consumption and service owed by the direct and indirect administrations of Minas Gerais State, using amounts of ICMS tax payable, under Article 3 of Minas Gerais State Decree 47,908/2020, which regulated State Law 47,891/2020.  The debts from the State of Minas Gerais that qualify for offset are those past due at June 30, 2019, estimated at R$240, which are still being analized by the tax authority of State of Minas Gerais. The offset will initiate after the tax authority ratification and conclusion of the debt recognition agreement. As a consequence, Cemig D reversed the impairment previously recognized for the debts owed by Minas Gerais state, in the amount of R$210.

Changes in the allowance for doubtful accounts in 2018, 20172020, 2019 and 20162018 are as follows:

 

Balance at December 31, 2015

  625

Additions, net

382

Disposals

(347) 

Balance at December 31, 2016

660

Additions, net

248

Disposals

(340) 

Balance at December 31, 2017

  568 

Effect of adoption of  IFRS 9 on Jan. 1, 2018 (1) (Note 2.4)

  150 

Additions, net (Note 2930 d)

  264 

Disposals

Write-off		  (231)

Balance at December 31, 2018

  751 

(1)

Recognized directly to Equity, without inclusion in Statement of income

Advances from customers

The Company receives advance payments for the sale of energy from certain customers. Advance payments related to services not yet provided are as follows:

Balance at Dec. 31, 2016

Additions, net (Note 30 d)		  181238 

Additions

325

Disposals

  (318179)

Inflation adjustment (Note 30)

Balance at December 31, 2019		  45810 

Balance at Dec. 31, 2017

Additions, net (Note 30 d)		  233146 

Additions

50

Disposals

  (215244)

Inflation adjustment (Note 30)

Balance at December 31, 2020		  11

Balance at Dec. 31, 2018

79

712		 

 

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9.RECOVERABLE TAXES

 

Advance payments are adjusted until the actual delivery of the energy supply under the following terms:

  2020 2019
Current    
ICMS (VAT)  97   65 
PIS/Pasep (a) (b)  311   3 
Cofins (a) (b)  1,426   7 
Others  16   24 
   1,850   99 
Non-current        
ICMS (VAT) (b)  257   277 
PIS/Pasep (a)  588   1,102 
Cofins (a)  2,594   4,968 
Others  3   2 
   3,442   6,349 
   5,292   6,448 

 

2018

   2018
   2017
 

Counterparty 

  

Specified period
for billing

  

Index for
adjusting
prepaid amounts

  GWh
deliverable		 

BTG Pactual

  —    1.20 to 1.57% a.m.   —      —      44 

Deal Comercializadora

  —    1.2% a.m.   —      —      1 

White Martins Gases Industriais Ltda.

  January to March of 2019  124% do CDI   72    40    146 

White Martins Gases Industriais Ltda.(1)

  January to March of 2019  124% do CDI   —      —      42 

Ferroligas

  January to June of 2019  136% do CDI   —      39    —   
        

 

 

   

 

 

 
         79    233 
        

 

 

   

 

 

 
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(1)Table of Contents

Contracts signed with Cemig D, relating to the billing of Contract for Use of the Distribution System (CUSD), containing the components: transportation and other charges.

 

Revenue

a)Pis/Pasep and Cofins taxes credits over ICMS

On May 8, 2019, the Company and its subsidiaries Cemig D and Cemig GT obtained a final unappealable ruiling recognizing their right to exclude the ICMS amounts from advanced salesthe calculation basis of energy supplyPIS/Pasep and Cofins taxes, as from five years prior to the action initial filing– that is, from July 2003.

Thus, the Company recorded the PIS/Pasep and Cofins credits corresponding to the amount of these taxes over ICMS paid from the period of July 2003 to May 2019.

A final unappealable ruling was also handed to Cemig’s wholly-owned subsidiaries Sá Carvalho, Cemig Geração Distribuída (former UTE Ipatinga S.A.), Cemig Geração Poço Fundo S.A. (previously denominated UTE Barreiro S.A.) and Horizontes Energia S.A..

The Company has two expedients to recover the tax credits: (i) offsetting amounts receivable against amounts payable of PIS/Pasep and Cofins taxes, monthly, within the five-year period specified by the relevant law of limitation; or (ii) receiving securities issued in connection with Federal Government debts (“precatórios”).

Cemig D and Cemig GT prioritized the credits offsetting, to accelerate recovery. For the Company itself, priority will be given to receipt of the credits through precatórios letters of credit, since the Company does not have enough monthly payments of PIS/Pasep and Cofins taxes to enable offsetting.

On May 12, 2020, the Brazilian tax authority (Receita Federal) granted the Company’s request for ratification of the credits of PIS/Pasep and Cofins taxes arising from the legal action on which final judgment, subject to no further appeal, was given in favor of Cemig D and Cemig GT in 2019 and the subsidiaries are offsetting the amount receivable against amounts of federal taxes payable on a monthly basis, starting in May 2020, within the five-year statute of limitations period.

The Company recorded in current asset and non-current asset the amounts of R$1,725 and R$ 3,180, respectively, corresponding to the tax credits of PIS/Pasep and Cofins.

Based on the opinion of its legal advisers, the Company believes that a portion of the tax credits to be received by Cemig D should be reimbursed to its customers, considering a maximum period for calculation of the reimbursement of 10 years. Thus, Cemig D has constituted a liability corresponding to the total amount of the tax credits comprising the period of the last 10 years, from June 2009 to May 2019, net of PIS/Pasep and Cofins taxes over monetary updating, presented in Note 21. Cemig D awaits from the grantor a conclusion about the mechanisms and criteria for the reimbursement to its customers.

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On February 9, 2021, Aneel held a public consultation aimed at discussing how to return tax credits to customers, as described in Note 21. Aneel's proposal, which is being discussed, provides for the return of the amounts through a rebate in the next tariff review, within a period of up to five years. Aneel did not comment on the period for returning these credits to the customers.

The accounting effects relating to the recognition of the PIS/Pasep and Cofins taxes credits, including their monetary updating by the Selic rate, were recognized in the Statementstatement of income only whenin 2019, at net amount, updated to December 31, 2019, of R$1,965. Out of this amount, R$1,428 and R$1,550 were recognized as operational revenue and financial revenue (net of PIS/Pasep and Cofins taxes), respectively. In addition, the Company’s performace obligation is satisfies when the energy supply actually take place.

9. RECOVERABLE TAXESamount of R$1,012 was recorded as IRPJ and CSLL.

 

   2018   2017 

Current

    

ICMS (VAT)

   80    71 

PIS and Pasep

   4    12 

Cofins

   21    56 

Others

   19    35 
  

 

 

   

 

 

 
   124    174 

Non-current

    

ICMS (VAT)

   240    225 

PIS and Pasep

   —      1 

Cofins

   —      3 

Others

   2    2 
  

 

 

   

 

 

 
   242    231 
  

 

 

   

 

 

 
   366    405 
  

 

 

   

 

 

 

These credits and the reimbursement to customers are updated by the Selic rate until offsetting of the amount receivable against amounts payable or until reimbursement to customers. On December 31, 2020, the net effect in the finance income is R$42, more details see note 29.

Until December 31, 2020, credits of PIS/Pasep and Cofins taxes offset against payable federal taxes amouted R$1,275.

b)Other recoverable taxes

The ICMS (VAT) credits, that are reported innon-current assets, arise mainly from acquisitions of property, plant and equipment, and intangible assets, and can be offset against taxes payable in the next 48 monthsmonths. The transfer tonon-current is made in accordance with management’smanagement's best estimate of the amounts which will likely be realized in 12 months after December 31, 2019.these financial statements reporting date.

Credits of PIS, PIS/Pasep and Cofins generated by the acquisition of machinery and equipment can be offset immediately, in accordance with Law 11,774/08.

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immediately.

 

10. INCOME AND SOCIAL CONTRIBUTION TAXES

10.INCOME AND SOCIAL CONTRIBUTION TAXES

a) Income tax and Social Contribution taxessocial contribution tax recoverable

The balances of income tax and Social Contributionsocial contribution tax refer to tax credits in the corporate income tax returns of previous years and to advance payments which will be offset against federal taxes eventually payable. Current tax assets and current tax liabilities related to income tax and social contribution tax are offset in the statement of financial position subject to criteria established in IAS 12.

 

  2018   2017  2020 2019

Income tax

   253    231   698   608 

Social contribution tax

   140    130   247   241 
   393    361   945   849 
  

 

   

 

         

Current

   387    340   598   621 
  

 

   

 

 

Non-current

   6    21   347   228 
  

 

   

 

 

b) Income

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The balances of income tax and Social Contributionsocial contribution tax posted in non-current assets arise from advanced payments required by tax law and withholding taxes, which the expectation of offsetting is greater than 12 months.

b)Income tax and social contribution tax payable

The balances of income tax and Social Contributionsocial contribution tax recorded in current liabilities refer mainly to the taxes owed by the subsidiaries which report by the Real Profit method and have opted to make monthly payments based on estimated revenue, and also by the subsidiaries that have opted for the Presumed Profit method, in which payments are made quarterly.

 

  2018   2017  2020 2019

Current

        

Income tax

   83    88   108   99 

Social contribution tax

   29    27   32   35 
  

 

   

 

   140   134 
   112    115 
  

 

   

 

 

 

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c)Deferred income tax and social contribution tax

 

c) Deferred income and social contribution taxes

The Company has deferred taxed assets and liabilities from unused tax loss carryforwards, negative base for the Social Contributionsocial contribution tax, and deductible temporary differences, at the statutory rates applicable to each legal entity in Brazil of 25% (for Income tax) and 9% (for the Social Contributionsocial contribution tax), as follows:

 

  2018   2017  2020 

2019

(Restated)

 

01/01/2019

(Restated)

Deferred tax assets

                

Tax loss carryforwards

   373    524   401   116   373 

Provisions for contingencies

   218    218   538   544   218 

Provisions for losses on investments

   609    335 

Operating provisions

   455    539 

Provisions for profit sharing

   25    1 
Impairment on investments  640   660   882 
Fair value of derivative financial instruments (PUT SAAG)  182   164   143 

Post-employment obligations

   1,477    1,179   2,168   2,090   1,477 

Estimated provision for doubtful receivables

   279    207   256   283   279 

Taxes with suspended liability

   —      14 

Onerous concession

   8    8 

Adjustment to fair value: Swap/Loss

   —      13 

Others

   27    14   138   171   99 
  

 

   

 

 

Total

   3,471    3,052   4,323   4,028   3,471 
  

 

   

 

             

Deferred tax liabilities

                

Funding cost

   (25)    (31)   (11)  (16)  (25)

Deemed cost

   (239)    (276)   (225)  (232)  (239)

Acquisition costs of equity interests

   (501)    (464)   (486)  (503)  (501)

Borrowing costs capitalized

   (168)    (166)   (169)  (166)  (168)

Taxes on revenues not redeemed – Presumed Profit accounting method

   (5)    (1) 

Adjustment to expectation of cash flow – Concession assets

   (804)    (937)   (242)  (247)  (252)
Revenues arising from transmission contract asset  (768)  (624)  (627)

Adjustment to fair value: Swap/Gains

   (277)    (1)   (1,002)  (575)  (277)

Others

   (33)    (40)   (7)  (5)  (38)
  

 

   

 

 

Total

   (2,052)    (1,916)   (2,910)  (2,368)  (2,127)
  

 

   

 

 

Total, net

   1,419    1,136   1,413   1,660   1,344 
  

 

   

 

             

Total assets

   2,147    1,871   2,453   2,430   2,147 

Total liabilities

   (728)    (735)   (1,040)  (770)  (803)

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The changes in deferred income tax and social contribution taxestax were as follows:

  2020  

2019

(Restated)

  

01/01/2019

(Restated)

 
Balance at January 01  1,660   1,344   1,072 
Effects allocated to net profit from continuing operations  (252)  (145)  (27)
Effect allocated to other comprehensive income  4   544   239 
Effects allocated to net profit from discontinuing operations (note 32)  —     (85)  —   
Effects allocated to Equity            
First-time adoption of IFRS 9 – effects allocated to equity  —     —     51 
Reversal of deemed cost  —     —     18 
Transfer to assets held for sale  —     —     (3)
Variations in deferred tax assets and liabilities  —     —     (3)
Deferred taxes arising from business combination  —     —     (3)
Others  1   2   —   
Balance at December 1  1,413   1,660   1,344 

 

Consolidated

Balance at December 31, 2015

809

Effects allocated to Statement of income

141

Effects allocated to Statement of comprehensive income

265

Balance at Dec. 31, 2016

1,215

Effects allocated to Statement of income

(198) 

Effect allocated to Statement of comprehensive income
Net loss (gain) on actuarial restatement

133

Variations in deferred tax assets and liabilities

(14) 

Balance at Dec. 31, 2017

1,136

Effects allocated to Statement of income – continuing operations

(16) 

Effect allocated to Statement of comprehensive income

Re-measurement of defined-benefit plan obligations

239

Effects allocated to Equity

First-time adoption of IFRS 9 – effects allocated to equity (Note 2.5)

51

Reversal of deemed cost

18

Transfer to assets held for sale

(3) 

Variations in deferred tax assets and liabilities

(3) 

Deferred taxes arising from business combination

(3) 

Balance at December 31, 2018

1,419

On March 28, 2019,The estimated taxable profits forecast, on which the Boardrealization of Directors meeting approveddeferred tax asset are based, are determined by the Company’s estimatedannual budget and the long-term budget, both reviewed periodically, and by the historical profit. However, the taxable profit may be either higher or lower than the evaluation used by the management when the amount of the deferred tax recognized was determined.

Based on Company and its subsidiaries’ estimates, it is probable that future taxable profits forecast. This forecast was also submitted for examination byprofit will be available against which the Fiscal Council on March 28, 2019.

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unused tax losses and unused tax credits can be utilized. The Company estimated that the balance of deferred tax asset as of December 31, 20182020 will be realized,recovered, as follows:

 

2019

   567 

2020

   566 

2021

   542 

2022

   547 

2023

   492 

2024 to 2026

   458 

2027 to 2028

   299 
  

 

 

 
   3,471 
  

 

 

 
  Consolidated
 2021   681 
 2022   708 
 2023   624 
 2024   563 
 2025   563 
 2026 to 2028   743 
 2029 to 2030   441 
     4,323 

d) Reconciliation of income tax and Social Contribution

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d)Reconciliation of income tax and social contribution tax effective rate

This table reconciles the statutory income tax (rate 25%) and social contribution tax (rate 9%) with the current income tax expense in the Statement of income:

 

 2020 

2019

(Restated)

 

2018

(Restated)

  2018 2017 2016 

Profit before income and Social Contribution taxes

   1,978  1,646  367 

Income tax and Social Contribution tax – nominal expense (34%)

   (672)  (560)  (125) 
Profit before income tax and social contribution tax  3,800   4,570   2,011 
Income tax and social contribution tax – nominal expense (34%)  (1,292)  (1,554)  (683)

Tax effects applicable to:

                

Gain (loss) in subsidiaries by equity method (net of effects of Interest on Equity)

   (61)  (129)  (132) 
Gain (loss) in subsidiaries by equity method  93   8   (61)

Interest on Equity

   71   —    129   188   136   71 

Gain on dilution of an equity interest

   —    8  

Deduction – Intangible assets of concession amortized – capital gain –Taesa

   —     —    20 

Non-deductible contributions and donations

   (6)  (6)  (4)   (10)  (13)  (6)

Tax incentives

   29  11  3   39   66   29 

Tax credits not recognized

   (1)   —    5 

Difference between Presumed Profit and Real Profit

   89  81  126 
Effects from subsidiaries taxed based on gross revenues  97   89   89 

Non-deductible penalties

   (12)  (14)  (16)   (25)  (135)  (12)

Excess reactive power and demand

   —    (2)  (12) 
Impairment of accounts receivable from related parties  (13)  (234)  —   

Others

   (36)  (33)  (27)   (13)  38   (37)
  

 

  

 

  

 

 

Income tax and Social Contribution – effective gain (expense)

   (599)   (644)   (33) 
Income tax and social contribution tax – effective expense  (936)  (1,599)  (610)
  

 

  

 

  

 

             

Current tax

   (583)   (446)   (174)   (684)  (1,454)  (583)

Deferred tax

   (16)   (198)   141   (252)  (145)  (27)
  

 

  

 

  

 

   (936)  (1,599)  (610)
   (599)  (644)  (33) 
  

 

  

 

  

 

 

Effective rate

   30.30%   39.13%   8.99%   24.63%  35.00%  30.33%

11. RESTRICTED CASH

11.ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAIS

Restricted cash of R$ 91 on December 31, 2018, comprises mainly the amount deposited in a guarantee account by Cemig GT in relation to guarantees of power purchase agreements with Saesa, Eletronorte and Copel and the amount of R$ 106 on December, 31, 2017 referred to guarantee for settlement of the put option on shares in RME, and was used in full in the settlement of that put option on November 30, 2018 (more details in Note 32).

12. ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAIS

The Company has accounts receivable from the State of Minas Gerais, arising from return of an administrative deposit made for a dispute on the rate of inflation and other adjustment to be applied to an advance for future capital increase (‘AFAC’), made in prior years, which was the subject of a debt recognition agreement. The agreement provided for payment by the Minas Gerais State in 12 consecutive monthly installments, each updated by the IGP–M index up to the date of actual payment, the first to become due on November 10, 2017. The agreement states that, in the event of arrears or default by the State in payment of the agreed consecutive monthly installments, Cemig is authorized to retain dividends or Interest on Equity distributable to the State in proportion to the State’s equity interest, for as long as the arrears and/or default continues.

 

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As such, on December 28, 2018,Considering the reference in the previous paragraph, the Company withheld an amount of R$ 8,130 in 2020 (R$148 in 2019), corresponding to the dividends that would have been payable to Minas Gerais StateState. The balance receivable on that date.

On December 31, 2018,2020, is R$ 46 was received corresponding to two installments, net of the R$ 8 of retained dividends. The remaining balance receivable, R$ 246,12 (R$115 on December 31, 2019), was classified asNon-current assets, asset, as a result of the delays in installments past due since January 2018. Management believes that it will not suffer losses in the realization of these receivables, as the amounts due are subject to

Considering the guarantees mentioned above, which the Company intends to execute in the event ofnon-receipt default of the amount agreed in the debt recognition agreement.agreement, there are no expectation of losses on these receivables.

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13. ESCROW DEPOSITS

12.ESCROW DEPOSITS

 

  2018   2017  2020 2019

Labor claims

   335    304   278   355 
        

Tax contingencies

            

Income tax on Interest on Equity

   28    27   29   29 

Pasep and Cofins taxes (1)

   1,402    1,337 
PIS/Pasep and Cofins taxes (1)  66   1,448 

Donations and legacy tax (ITCD)

   51    49   54   53 

Urban property tax (IPTU)

   87    80   84   79 

Finsocial tax

   38    37   40   40 

Income and Social Contr. Tax on indemnity for employees’ ‘Anuênio’ benefit

   275    267 
Income tax and social contr. tax on indemnity for employees’ ‘Anuênio’ benefit (2)  286   282 

Income tax withheld at source on inflationary profit

   8    —     9   9 

Contribution tax effective rate (2)(3)

   18    —     18   18 

Others

   156    117 
ICMS (VAT) credits on PP&E  —     39 
Others (4)  98   92 
  

 

   

 

   684   2,089 
  2,063   1,914         

Others

            

Regulatory

   53    60   52   43 

Third party

   9    16   9   11 

Customer relations

   6    6   8   7 

Court embargo

   12    14   13   12 

Others

   24    22   12   23 
  

 

   

 

   94   96 
   104    118   1,056   2,540 
  

 

   

 

 
   2,502    2,336 
  

 

   

 

 

 

(1)

This refers to escrow deposits in the action challenging the constitutionality of inclusion of ICMS value added tax within the taxable amount for calculation of PIS/Pasep and Cofins taxes.

(2)See more details in Note 25 – Provisions under the section relating to the ‘Anuê‘Anuênioindemnity’ indemnity’.

(2)(3)

Escrow deposit in the legal action challenging an infringement claim relating to application of Social Contributionsocial contribution tax to amounts of cultural and artistic donations and sponsorship, expenses on punitive fines, and taxes with liability suspended.

(4)Includes escrow deposits from legal actions related to INSS and PIS/Pasep and Cofins taxes

Inclusion

Release of ICMS tax in the taxable basis for Pasep/Cofinsescrow deposits

This refers to

On February 13, 2020, the escrow deposits into court made in the action challenging the constitutionality ofinclusionof ICMS (VAT), already charged,value added tax within the taxable amount for calculation basis of these two contributions. The subsidiariesPIS/Pasep and Cofins taxes, as disclosed in Note 9a) were released amounting R$1,382, out of which R$1,186 and R$196 relates to Cemig D and Cemig GT, obtained interim relief from the Court allowing them not to make the payment, and authorizing payment as escrow deposits, starting in 2008, and maintained this procedure until August 2011. After that date, while continuing to challenge the basis of the calculation in court, they opted to pay the taxes monthly.

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In October 2017, the Federal Supreme Court (STF) published its Joint Judgment on the Extraordinary Appeal, in the form that creates overall precedent, in favor of the argument of the two subsidiaries. Based on the opinion of its legal advisers, the subsidiaries adopted the following:

Cemig GT reversed the provision in the amount of R$ 101, with effect on the net income for 2017, posting it as a reversal of deductions from revenue, in the fourth quarter of that year, with an amount of R$ 201 remaining deposited in escrow on December 31, 2018 (R$ 184 on December 31, 2017).

Cemig D maintains anrespectively. The escrow deposit of R$ 1,149 (R$ 1,110 on December 31, 2017); wrote down6 made by the liabilities relatingsubsidiary Sá Carvalho was released in the third quarter of 2020. The escrow deposits from the others wholly-owned subsidiaries is expected to these contributions; and constitutedbe released once their claims reach a liability for reimbursement to its customers. For more details, see Note 21.final unappealable ruling.

14. REIMBURSEMENT OF TARIFF SUBSIDIES

13.REIMBURSEMENT OF TARIFF SUBSIDIES

Subsidies on tariffs charged to users of distribution services – TUSD and EUST (Charges for Use of the Transmission System) are reimbursedrefunded to distributors through the funds from the Energy Development Account (CDE).

In 2018,2020, the amount recognized as subsidies revenues was R$9531,057 (R$8421,097 in 20172019 and R$ 792953 in 2016)2018). Of such amounts, Cemig Dthe Company has a receivable of R$82, as of88 in current assets, being R$83 (R$94 on December 31, 20182019) held by Cemig D and R$6 (R$ 73 in 2017) and3 on December 31, 2019) held by Cemig GT has a receivable of R$9 (R$4 in 2017) in current assets.

15. CONCESSION FINANCIAL AND SECTOR ASSETS AND LIABILITIESGT.

 

Concession financial assets

  2018   2017 

Financial assets (15.1)

    

Distribution concessions

   396    371 

Indemnifiable receivable – Transmission (15.2)

   1,296    1,928 

Transmission concessions (15.3)

   —      547 

Indemnifiable receivable – Generation (15.4)

   816    1,901 

Concession grant fee – Generation concessions (15.5)

   2,409    2,337 
  

 

 

   

 

 

 
   4,917    7,084 
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Concession sector assets

  2018   2017 

Amounts receivable from Parcel A (CVA) and Other Financial Components (15.6)

   1,081    369 
  

 

 

   

 

 

 

Total

   5,998    7,453 
  

 

 

   

 

 

 

Current assets

   1,071    848 

Non-current assets

   4,927    6,605 
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14.CONCESSION FINANCIAL AND SECTOR ASSETS AND LIABILITIES
Concession financial assets 2020  

2019

(Restated)

  

01/01/2019

(Restated)

 
Concession financial assets related to the infrastructure            
Energy distribution concession (14.1)  530   460   396 
Gas distribution concession (14.1)  29   24   —   
Indemnifiable receivable – Generation (14.2)  816   816   816 
Concession grant fee – Generation concessions (14.3)  2,549   2,468   2,409 
   3,924   3,768   3,621 
Sector financial assets            
Amounts receivable from Parcel A (CVA) and Other Financial Components  (14.4)  133   882   1,081 
Total  4,058   4,650   4,702 
             
Current assets  258   891   890 
Non-current assets  3,799   3,759   3,812 

 

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Concession sector liabilities 2020  2019 
Amounts receivable from Parcel A (CVA) and Other Financial Components  (14.4)  231   —   
Total  231   —   
         
Current liabilities  231   —   
Non-current liabilities  —     —   

 

Concession sector liabilities

  2018   2017 

Amounts payable from Parcel A (CVA) and Other Financial Components (15.6)

   —      415 

Current liabilities

   —      415 

The changes in concession financial assets related to infrastructure are as follows:

  Transmission  Generation  Distribution  Gas  Total 
Balances at January 1st  2018 (Restated)  —     4,238   371   —     4,609 
Amounts received  —     (1,389)  —     —     (1,389)
Transfers from PP&E  —     —     27   —     27 
Others transfers  —     (1)  (1)  —     (2)
Monetary updating  —     377   —     —     377 
Disposals  —     —     (1)  —     (1)
Balances at January 1, 2019 (Restated)  —     3,225   396   —     3,621 
Amounts received  —     (259)  —     —     (259)
Transfers from contract assets  —     —     48   —     48 
Transfers from (to) intangible assets  —     —     (1)  24   23 
Monetary updating  —     318   18   —     336 
Disposals  —     —     (1)  —     (1)
Balances at December 31, 2019 (Restated)  —     3,284   460   24   3,768 
Amounts received  —     (266)  —     —     (266)
Transfers from contract assets  —         60       60 
Transfers from (to) intangible assets  —         (5)      (5)
Monetary updating  —     347   15   5   367 
Balances at December 31, 2020  —     3,365   530   29   3,924 

 

   Transmission   Generation   Distribution   Total 

Balances at December 31, 2016

   2,287    2,800    216    5,303 
  

 

 

   

 

 

   

 

 

   

 

 

 

Additions

   25    —      —      25 

Transfers of indemnity – plants not renewed

   —      1,082    —      1,082 

Amounts received

   (264)    (232)    —      (496) 

Transfers between PP&E, Financial assets and Intangible assets

   2    —      146    148 

Monetary updating

   224    317    —      541 

Adjustment of expectation of cash flow from the Concession financial assets

   54    —      9    63 

Disposals

   (2)    —      —      (2) 

Adjustment of BRR of Transmission Assets

   149    —      —      149 

Adjustment on indemnities of plants not renewed (Ministerial Order 291) – including financial updating

   —      271    —      271 
  

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2017

   2,475    4,238    371    7,084 
  

 

 

   

 

 

   

 

 

   

 

 

 

Effects of first-time adoption of IFRS (15.1, 15.3)

   (1,092)        (1,092) 

Amounts received

   (249)    (1,389)      (1,638) 

Transfers between PP&E and concession contract assets

   —        27    27 

Others transfers

   —      (1)    (1)    (2) 

Monetary updating

   162    377    —      539 

Disposals

   —      —      (1)    (1) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2018

   1,296    3,225    396    4,917 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

15.114.1

Distribution –- Financial assets

The energy and gas distribution concession contracts are within the scope of IFRIC 12. The financial assets under these contracts refer to the investments made in infrastructure for which the residual valuethat will be paid by grantor at the end of the concession period and theyperiod. These financial assets are measured at fair value through profit or loss.

 

15.2

Transmission – Indemnifiable receivable

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On August 16, 2016, the regulator homologated the amount of R$ 892 as of November 2012, for the portion of the residual value of assets to be indemnify to the Company. Such amount was recorded as a financial asset, with specific maturity and interest rate, in accordance with its characteristics.

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The amount of the indemnity receivable, updated to December 31, 2018, of R$1,296 (R$1,928 on December, 31, 2017) is classified as a financial asset, at amortized cost, in accordance with IFRS 9, as follows:

 

Table of Contents•

Portion of remuneration and depreciation not paid since the extensions of concessions

 

An amount of R$ 937 (R$993 in 2017), corresponding to remuneration and depreciation not paid since the extension of the concessions, until the tariff adjustment of 2017, which will be inflation adjusted using the IPCA (Expanded National Customer Price) index and remunerated at the weighted average cost of capital of the transmission segment as defined by the regulator for the periodic tariff review, to be paid over a period of eight years through the RAP, since July of 2017.

 

14.2•

Residual Value of transmission assets – injunction awarded to industrial customers

On April 10, 2017, a preliminary injunction was granted to the Brazilian Large Free Customers’ Association (Associação Brasileira de Grandes Consumidores Livres), the Brazilian Auto Glass Industry Technical Association (Associação Técnica Brasileira das Indústrias Automáticas de Vidro) and the Brazilian Ferro-alloys and Silicon Metal Producers’ Association (Associação Brasileira dos Produtores de Ferroligas e de Silicio Metálico) in their legal action against the regulator and the Federal Government requesting suspension of the effects on their tariffs of payment of the residual value of the Existing Basic Network System (RBSE).

The preliminary injunction was partial, with effects related to suspension of the inclusion in the customer tariffs paid by these associations of the portion of the indemnity corresponding to the remuneration at cost of capital included since the date of extension of the concessions – amounting to R$359 at December 31, 2018 (R$316 at December 31, 2017, inflation-adjusted by the IPCA index.

In compliance with the court decision, the regulator, presented a new calculation, excluding the amounts that refer to the cost of own capital. The Company and its subsidiary Cemig GT believe that this is a provisional decision, and that its right to receive the amount referring to the assets of RBSE is guaranteed by law, so that no adjustment to the amount recorded at December 31, 2018 is necessary.

•

Adjustment of the BRR of Transmission Assets

The regulator (Aneel), accepted Cemig GT’s claim for inclusion of certain conducting cables in the tariff calculation, and calculated the differences between the revenue amounts ratified in the tariff reviews of June 23, 2009 and June 8, 2010. The new amounts, calculated to include the value of these cables in the Remuneration Assets Base (Base deRemuneração de Ativos, or BRR), for the period from July 2005 through December 2012, resulted in a credit of R$ 149 when updated to currency of July 2017, and Cemig GT received this amount in twelve months, through RAP, from July 2017 to June 2018.

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15.3

Transmission – Assets remunerated by tariff

Assets linked to transmission infrastructure, in the amount of R$ 1,092, were recognized as from 2018 as contract assets, as required by IFRS 15. Until December, 31, 2017, these assets were classified as financial assets under the criteria of IFRIC 12, as described in Note 16 – Concession contract assets.

15.4

Generation – Indemnity receivable

As from August 2013, with the extinction of the concession for various plants operated by Cemig GTCompany under Concession Contract 007/1997, the subsidiaryit has a right to receive an amount corresponding to the residual value of the infrastructure assets, as specified in the concession contract. These balances are recognized inrecorded as financial assets at fair value through profit or loss, and totaled R$816 on December 31, 2018 (R$ 816 on December 31, 2017).2020 and 2019.

 

Generation plant Concession expiration date Installed capacity (MW) Net balance of assets based on historical cost Net balance of assets based on fair value (replacement cost)
         
Lot D              
UHE Tress Marias July 2015  396   71   413 
UHE Salto Grande July 2015  102   11   39 
UHE Itutinga July 2015  52   3   7 
UHE Camargos July 2015  46   8   23 
PCH Piau July 2015  18.01   2   9 
PCH Gafanhoto July 2015  14   1   10 
PCH Peti July 2015  9.4   1   8 
PCH Dona Rita Sep. 2013  2.41   1   1 
PCH Tronqueiras July 2015  8.5   2   12 
PCH Joasal July 2015  8.4   1   8 
PCH Martins July 2015  7.7   2   4 
PCH Cajuru July 2015  7.2   4   4 
PCH Paciência July 2015  4.08   1   4 
PCH Marmelos July 2015  4   1   4 
Others              
UHE Volta Grande Feb. 2017  380   26   70 
UHE Miranda Dec. 2016  408   27   23 
UHE Jaguara Aug. 2013  424   40   174 
UHE São Simão Jan. 2015  1,710   2   3 
     3,601.70   204   816 

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Generation plant

  Concession expiration date   Installed
capacity (MW)		   Net balance of assets
based on historical cost		   Net balance of assets based
on fair value (replacement
cost)		 

Lot D

        

UHE Três Marias

   July 2015    396    72    413 

UHE Salto Grande

   July 2015    102    11    39 

UHE Itutinga

   July 2015    52    4    7 

UHE Camargos

   July 2015    46    8    23 

PCH Piau

   July 2015    18.01    1    9 

PCH Gafanhoto

   July 2015    14    1    10 

PCH Peti

   July 2015    9.4    1    8 

PCH Dona Rita

   Sep. 2013    2.41    1    1 

PCH Tronqueiras

   July 2015    8.5    2    12 

PCH Joasal

   July 2015    8.4    1    8 

PCH Martins

   July 2015    7.7    2    4 

PCH Cajuru

   July 2015    7.2    4    4 

PCH Paciência

   July 2015    4.08    1    4 

PCH Marmelos

   July 2015    4    1    4 

Others

        

UHE Volta Grande

   Feb. 2017    380    26    70 

UHE Miranda (1)

   Dec. 2016    408    27    23 

UHE Jaguara (1)

   Aug. 2013    424    40    174 

UHE São Simão (1)

   Jan. 2015    1,710    1    3 
    

 

 

   

 

 

   

 

 

 
     3,601.70    204    816 
    

 

 

   

 

 

   

 

 

 

(1)

Investments made after theJaguara, São Simãoand Miranda plants came into operation, in the amounts of R$174, R$3 and R$ 23, respectively, are recorded as concession financial assets, and the determination of the final amounts to be paid to Cemig GT is in a process of discussion with the regulator (Aneel). Management does not expect losses in realization of these amounts.

As specified by the regulatorgrantor (Aneel), in Normative Resolution 615/2014, the valuation reports that support the amounts to be received by the Company in relation to the residual value of the plants, previously operated by Cemig GT, that were included in Lot D and for theVolta Grande plant have been submitted to the regulator.grantor. The Company does not expect any losses in the realization of these amounts.

Miranda and

On December 31, 2020, investments made after the Jaguara, São Simão and Miranda plants – Basic plans

On August 31, 2018came into operation, in the subsidiary Cemig GT received indemnity,amounts of R$ 1,139 for174, R$3 and R$23, respectively, are recorded as concession financial assets, and the basic plan constructiondetermination of theSão Simão andMiranda plants. This amount had been inflation-adjusted final amounts to be received by the Selic rate upCompany is in discussion with Aneel (the grantor). The Company does not expect losses in realization of these amounts.

In 2019, Publicc Hearing 003/2019 was opened to obtain inputs on improvement of the criteria and procedures for calculation of investments in assets returnable to the dateGrantor, not yet amortized or not depreciated, of its receipt.generation concessions (whether extended or not), under Law 12,783/2013 and a Technical Note 096/2019 related to this matter was published on September 30, 2019. However the Normative Resolution has not yet been voted on by the Council of Aneel.

 

Plant

  Miranda   São Simão   Total 

Residual value of assets on 2017 based on deemed cost

   610    203    813 

Adjustment regarding MME Order 291/17

   174    41    215 
  

 

 

   

 

 

   

 

 

 

Amounts based on MME Order 291/17

   784    244    1,028 

Monetary adjustment

   25    31    56 
  

 

 

   

 

 

   

 

 

 

Residual value of assets of Basic Plans at Dec. 31, 2017

   809    275    1,084 

Monetary adjustment (1)

   42    13    55 

Amounts received

   (851)    (288)    (1,139) 
  

 

 

   

 

 

   

 

 

 

Residual value of assets of Basic Plan at Dec. 31, 2018

   —      —      —   
  

 

 

   

 

 

   

 

 

 
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(1)Table of Contents

Inflation adjustment, net of transfers, of R$ 323

 

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15.514.3

Concession grant fee – Generation concessions

The concession grant fee paid by the Company for a 30-year concession contractcontracts, related to 18 hydroelectric plants, foras an amount of R$2,216. The amount of the concession fee was recognized as a financial asset measured at amortized cost, as the Company has an unconditional right to receive the amount paid, updated by the IPCA Index and remuneratory interest (the total amount of which is equal to the internal rate of return on the project), during the period of the concession.

The changes in these concession financial assets are as follows:

SPE Plants 2019 Monetary updating Amounts received 2020
Cemig Geração Três Marias S.A. Três Marias  1,402   188   (143)  1,447 
Cemig Geração Salto Grande S.A. Salto Grande  440   59   (45)  454 
Cemig Geração Itutinga S.A. Itutinga  165   25   (19)  171 
Cemig Geração Camargos S.A. Camargos  124   18   (14)  128 
Cemig Geração Sul S.A. Coronel Domiciano, Joasal, Marmelos, Paciência and Piau  161   26   (20)  167 
Cemig Geração Leste S.A. Dona Rita, Ervália, Neblina, Peti, Sinceridade and Tronqueiras  110   19   (15)  114 
Cemig Geração Oeste S.A. Cajurú, Gafanhoto and Martins  66   12   (9)  69 
 Total    2,468   347   (265)  2,550 

SPE Plants 2018 Monetary updating Amounts received 2019
Cemig Geração Três Marias S.A. Três Marias  1,370   171   (139)  1,402 
Cemig Geração Salto Grande S.A. Salto Grande  430   54   (44)  440 
Cemig Geração Itutinga S.A. Itutinga  161   23   (19)  165 
Cemig Geração Camargos S.A. Camargos  120   17   (13)  124 
Cemig Geração Sul S.A. Coronel Domiciano, Joasal, Marmelos, Paciência and Piau  157   24   (20)  161 
Cemig Geração Leste S.A. Dona Rita, Ervália, Neblina, Peti, Sinceridade and Tronqueiras  107   18   (15)  110 
Cemig Geração Oeste S.A. Cajurú, Gafanhoto and Martins  64   11   (9)  66 
 Total    2,409   318   (259)  2,468 

SPE Plants 2017 Monetary updating Amounts received 2018
Cemig Geração Três Marias S.A. Três Marias  1,330   174   (134)  1,370 
Cemig Geração Salto Grande S.A. Salto Grande  417   55   (42)  430 
Cemig Geração Itutinga S.A. Itutinga  156   23   (18)  161 
Cemig Geração Camargos S.A. Camargos  116   17   (13)  120 
Cemig Geração Sul S.A. Coronel Domiciano, Joasal, Marmelos, Paciência and Piau  152   24   (19)  157 
Cemig Geração Leste S.A. Dona Rita, Ervália, Neblina, Peti, Sinceridade and Tronqueiras  103   18   (14)  107 
Cemig Geração Oeste S.A. Cajurú, Gafanhoto and Martins  63   11   (10)  64 
 Total    2,337   322   (250)  2,409 

Of the energy produced by these plants, 70% is sold in the Regulated Market (ACR) and 30% in the Free Market (ACL).

The changes in concession financial assets are as follows:

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SPE

  

Plants

  2017   Monetary
updating		   Amounts
received		   2018 

Cemig Geração Três Marias S.A.

  Três Marias   1,330    174    (134)    1,370 

Cemig Geração Salto Grande S.A.

  Salto Grande   417    55    (42)    430 

Cemig Geração Itutinga S.A.

  Itutinga   156    23    (18)    161 

Cemig Geração Camargos S.A.

  Camargos   116    17    (13)    120 

Cemig Geração Sul S.A.

  Coronel Domiciano, Joasal, Marmelos, Paciência e Piau   152    24    (19)    157 

Cemig Geração Leste S.A.

  Dona Rita, Ervália, Neblina, Peti, Sinceridade e Tronqueiras   103    18    (14)    107 

Cemig Geração Oeste S.A.

  Cajurú, Gafanhoto e Martins   63    11    (10)    64 
    

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2,337    322    (250)    2,409 
    

 

 

   

 

 

   

 

 

   

 

 

 

SPE

  

Plants

  2016   Monetary
updating		   Amounts
received		   2017 

Cemig Geração Três Marias S.A.

  Três Marias   1,283    172    (125)    1,330 

Cemig Geração Salto Grande S.A.

  Salto Grande   403    54    (40)    417 

Cemig Geração Itutinga S.A.

  Itutinga   150    23    (17)    156 

Cemig Geração Camargos S.A.

  Camargos   112    17    (13)    116 

Cemig Geração Sul S.A.

  Coronel Domiciano, Joasal, Marmelos, Paciência, Piau   147    23    (18)    152 

Cemig Geração Leste S.A.

  Dona Rita, Ervália, Neblina, Peti, Sinceridade, Tronqueiras   99    17    (13)    103 

Cemig Geração Oeste S.A.

  Cajurú, Gafanhoto, Martins   60    11    (8)    63 
    

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2,254    317    (234)    2,337 
    

 

 

   

 

 

   

 

 

   

 

 

 
Table of Contents 

Sector assets and liabilities

 

15.614.4

Account for compensation of variation of parcel A items (CVA) andOther financial components

The Amendment that extended

Cemig D concession period of Cemig Dcontract guarantees that, in the event of termination of the concession contract, for any reason, the remaining balances (assets and liabilities) of any shortfall in payment or reimbursement through the tariff must also be paid by the grantor. The balances on (i) the CVA (Compensation for Variation of Parcel A items) Account, (ii) the account for Neutrality of

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Sector Charges, and (iii)Other financial components in the tariff calculation, refer to the positive and negative differences between the estimate of the Company’snon-manageable non-controllable costs and the paymentscosts actually made.incurred. The variations are subject to monetary adjustment using the Selic rate and considered in the subsequent tariff adjustments.

The balance of these sector financial assets and liabilities, which are presented at net value, in assets or liabilities, in accordance with the tariff adjustments that have been authorized, or are to be ratified, are as follows:

 

   2018  2017 

Balance sheet

  Amounts
ratified by
Aneel in the
last tariff
adjustment		  Amounts to be
ratified by Aneel
in the next tariff
adjustments		  Total  Amounts
ratified by
Aneel in the
last tariff
adjustment		  Amounts to be
ratified by Aneel
in the next tariff
adjustments		  Total 

Assets

   1,184   2,545   3,729   382   2,331   2,713 

Current assets

   1,184   1,505   2,689   382   1,379   1,761 

Non-current assets

   —     1,040   1,040   —     952   952 

Liabilities

   (1,140)   (1,509)   (2,649)   (797)   (1,962)   (2,759) 

Current liabilities

   (1,140)   (902)   (2,042)   (797)   (1,221)   (2,018) 

Non-current liabilities

   —     (607)   (607)   —     (741)   (741) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total current, net

   44   603   647   (415)   158   (257) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalnon-current, net

   —     433   433   —     211   211 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total, net

   44   1,036   1,080   (415)   369   (46) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   

 

2018

  

 

2017

 

Financial components

  Amounts
ratified by
Aneel in the
last tariff
adjustment		  Amounts to be
ratified by Aneel
in the next tariff
adjustments		  Total  Amounts
ratified by
Aneel in the
last tariff
adjustment		  Amounts to be
ratified by Aneel
in the next tariff
adjustments		  Total 

Items of ‘Parcel A’

       

Energy Development Account (CDE) quota

   1   220   221   (154)   (90)   (244) 

Tariff for use of transmission facilities of grid participants

   24   (6)   18   9   24   33 

Tariff for transport of Itaipu supply

   2   16   18   2   2   4 

Alternative power source program (Proinfa)

   3   5   8   (5)   1   (4) 

ESS/EER System Service/Energy Charges

   (246)   (287)   (533)   (40)   (587)   (627) 

Energy bought for resale (1)

   667   1,402   2,069   (91)   1,327   1,236 

Other financial components

       

Over contracting of supply

   (204)   (13)   (217)   8   (211)   (203) 

Neutrality of Parcel A

   53   (15)   38   (30)   73   43 

Other financial items

   (236)   (212)   (448)   (112)   —     (112) 

Tariff Flag balances (2)

   —  (11)   (11)   —     (134)   (134) 

Excess demand and reactive power

   (21)   (62)   (83)   (2)   (36)   (38) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

TOTAL

   43   1,037   1,080   (415)   369   (46) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
Financial position 2020 2019
 Amounts ratified by Aneel in the last tariff adjustment Amounts to be ratified by Aneel in the next tariff adjustments Total Amounts ratified by Aneel in the last tariff adjustment Amounts to be ratified by Aneel in the next tariff adjustments Total
Assets  84   1,562   1,646   1,286   2,144   3,430 
Current assets  84   834   918   1,286   1,269   2,555 
Non-current assets  —     728   728   —     875   875 
                         
Liabilities  (246)  (1,498)  (1,744)  (882)  (1,666)  (2,548)
Current liabilities  (246)  (903)  (1,149)  (882)  (1,033)  (1,915)
Non-current liabilities  —     (595)  (595)  —     (633)  (633)
                         
Total current, net  (162)  (69)  (231)  404   236   640 
Total non-current, net  —     133   133   —     242   242 
Total, net  (162)  64   (98)  404   478   882 

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Financial components 2020 2019
 Amounts ratified by Aneel in the last tariff adjustment Amounts to be ratified by Aneel in the next tariff adjustments Total Amounts ratified by Aneel in the last tariff adjustment Amounts to be ratified by Aneel in the next tariff adjustments Total
Items of ‘Parcel A’            
Energy Development Account (CDE) quota  1   —     1   119   29   148 
Tariff for use of transmission facilities of grid participants  1   218   219   (18)  114   96 
Tariff for transport of Itaipu supply  —     18   18   9   16   25 
Alternative power source program (Proinfa)  —     6   6   11   (6)  5 
ESS/EER System Service/Energy Charges  (1)  39   38   (161)  (136)  (297)
Energy bought for resale  4   449   453   661   632   1,293 
                         
Other financial components                        
Over contracting of supply (1)  (56)  165   109   (84)  216   132 
Neutrality of Parcel A  (3)  110   107   (30)  (12)  (42)
Other financial items  (86)  (899)  (985)  (71)  (206)  (277)
Tariff Flag balances  —     —     —     —     (103)  (103)
Excess demand and reactive power  (22)  (42)  (64)  (32)  (66)  (98)
TOTAL  (162)  64   (98)  404   478   882 

 

(1)

The amountwholly-owned subsidiary Cemig D was over contracted in 2017 and 2018 and the gain arising from the sale of the CVA for energy supply constituted in 2018 after the Tariff Review, for inclusion in the tariff adjustment of 2019, is due mainly to the increased expenses on purchase of energy and coverage of hydrological risk, in view of the increase in the priceexcess of energy in the wholesalespot market was provisionally passed through to customers by Aneel in the tariff adjustments of 2018 and operation2019, including the portion in excess of the thermoelectric plants duelimit of 105% of the regulatory load – thus reducing the tariff that was determined. To establish whether this is a voluntary over contracting, the Company considers that the portion above the regulatory limit will be recovered in the subsequent tariff adjustment. On August 27, 2020, Aneel published the Dispatch 2,508/2020-SRM-SGT, which set new amounts for distributors’ over contracting for the years 2016 and 2017, based on a new valuation criterion established by Aneel Technical Note 97/2020-SRM-SGT – not contained in the regulatory rules which were currently in force. As a result, Cemig D filed an appeal with the Council of Aneel, for the amounts of distribution agents’ over contracting to be reset in accordance with the low level of reservoirs.

(2)

Billing arising from the ‘Flag’ Tariff System not yet homologatedcalculation criteria based on maximum effort contained in Aneel Normative Resolution 453/2011. The Company’s position on this case is reinforced by the regulator (Aneel).

fact that the Brazilian Energy Distributors’ Association (Abradee) filed a similar appeal, supported by the opinion of contracted legal advisors. The Company has no expectation of loss in relation to realization of these amounts. The Company recognizes this receivable asset, in the amount of R$222 on December 31, 2020, as ‘Other financial components’ to be ratified. At the reporting date for this financial statements, this matter was still pending analysis by Aneel.

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Changes in balances of financialthese sector assets and liabilities:

 

Balance at December 31, 2015

  1,350

Net constitution of financial liabilities

(858) 

Amortization

(597) 

Payments from the Flag Tariff Centralizing Account

(341) 

Transfer

(165) 

Updating – Selic rate

204

Balance at December 31, 2016

(407) 

Additions

811

Amortization

177

Payments from the Flag Tariff Centralizing Account

(586) 

Updating – Selic rate

(41) 

Balance at December 31, 2017

  (46)

Additions (1)

  1,638 

Amortization

  335 

Others – R&D Reimbursement (2)

  (115)

Payments from the Flag Tariff Centralizing Account

  (794)

Updating – Selic rate (Note 30)

31)		  62 

Balance at December 31, 2018

  1,080 
Additions 

724		 
Amortization(666)
Payments from the Flag Tariff Centralizing Account(361)
Updating – Selic rate (Note 31)105
Balance at December 31, 2019882
Additions611
Amortization(156)
Payments from the Flag Tariff Centralizing Account(63)
Receipt funds of “Covid-account” (1)(1,404)
Updating – Selic rate (Note 29)32
Balance at December 31, 2020(98)

 

(1)

The CVA asset recognizedamount received via ‘Covid-account’ will be reversed in a negative financial component in the period is mainly due to higher difference2021 or 2022 tariff processes, as detailed in 2018 between actual costsnote 1.

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Table of energy and the estimate figures used for future cost of energy in the tariff calculation (this difference generates a financial asset to be reimbursed to the Company through the next tariff adjustment).

Contents		 
(2)

Refers to reimbursement of the additional tax collected, of 0.3% of net operating revenue passed through to energy tariffs and paid to the National Treasury from January 2010 to December 2012. The aim of this collection was to reimburse states and municipalities for any loss of ICMS tax revenue, applying to fossil fuels used in the generation of energy in the 24 months following connection of the related isolated systems to the National Grid.

Payments from the Flag Tariff Centralizing Account

The ‘Flag Account’ (Conta Centralizadora de Recursos de Bandeiras Tarifárias – CCRBT or ‘Conta Bandeira’) manages the funds that are collected from captive customers of distribution concession and permission holders operating in the national grid, and are paid, on behalf of the CDE, directly to the Flag Account. The resulting funds are passed through by the WholesalePower Trading Chamber (CCEE) to distribution agents, based on the difference between the realized amounts of costs of thermal generation and the exposure to short term market prices, and the amount covered by the tariff in force.

Pass-throughs

Pass-through of funds from the Flag Account in 20182020 totaled R$ 79463 (R$586361 in 20172019 and R$341794 in 2016)2018) and were recognized as a partial realization in advance of the following tariff adjustment.

Cemig D tariff adjustment

On June 25, 2020, the grantor (Aneel) approved the Annual Adjustment for Cemig D, which would be in effect from May 28, 2020 to May 27, 2021, with an average increase for customers of 4.27%. This result reflected Cemig D’s manageable costs (Portion B), of 0.84% and the direct pass-through, within the tariff, of 3.43%, the latter having zero economic effect, not affecting profitability, relating to the following itens: (i) increase of 5.30% in non-manageable (‘Parcel A’) costs – mainly purchase of energy supply, regulatory charges and transmission charges; (ii) increase of 6.71% in the financial components of the current process, led by the CVA receivable previously constituted.currently being processed, which had an effect of 5.47%; and (iii) 8.58% was withdrawn from the financial components of the prior process.

Although the adjustment is effective from May 28, 2020 to May 27, 2021, its application was suspended until June 30, 2020, maintaining the previous tariffs during the suspension period. Cemig D also recognized the right to receive a total of R$51, based on the energy market, for non-receipt of the additional tariff component in the period. Considering that the amount of R$63 was received from Covid Account funds on July 31, 2020, completing the total amount established for Cemig D to receive in Covid Account funds, under Normative Resolution 885/2020, the Company recognized a net obligation of R$12, updated by the Selic rate until September 30, 2020. For more information on the Covid-account, see Note 1(e) to this financial statements.

Administrative appeals were filed with Aneel, contesting the ratification of the annual tariff increase of 4.27% to Cemig D, and requesting its annulment, with the restitution to Cemig D’s customers of the amounts of the escrow deposits released as a result of the Supreme Court judgment, as decribed in Note 12, in the form that creates overall precedent, which determined the exclusion of ICMS tax amounts from the basis for calculation of PIS/ Pasep and Cofins taxes payable. The current administrative appeals request a creation of a negative financial component in the calculation of Cemig D’s annual tariff adjustment.

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Aneel has given Cemig D the right of reply, and, based on internal assessments and those of its legal advisers, as well as the exceptional economic scenario caused by the Covid-19 pandemic, Cemig D, on August 5, 2020, has submitted to Aneel a proposal for a the restitution to its customers of a total amount of R$714 – corresponding to part of the escrow deposits released by the court due to Cemig’s success in the Claim.

On August 18, 2020, Aneel decided to grant the appeal, in part, and through its Ratifying Resolution 2,757/2020 reduced the average effect of Cemig D’s 2020 tariff adjustment to zero, due to the inclusion of the negative financial component of R$714.

Cemig’s decision represents an anticipation of the effects, and treatment in terms of regulations of the Supreme Court’s decision that determined the exclusion of ICMS tax amounts from the basis for calculation of PIS/ Pasep and Cofins taxes. These regulations will be applied equally to all energy distribution concessions through an Aneel normative ruling, which will be issued after conclusion of Public Consultation 005/2020 – during which there will be discussion on the merits, and in which Cemig will be able to take part in a wide-ranging discussion on the subject. The portion of the credits that Cemig D proposes to reimburse to its customers is recognized as a liability, as explained in Note 21. Of this amount, R$266, had been passed through to customers tariff by December 31, 2020. 

16. CONCESSION CONTRACT ASSETS

15.CONCESSION CONTRACT ASSETS

Under IFRS 15 – Revenue from contracts with customers, the infrastructure construction revenue for which the right to consideration depends on satisfaction of performance obligations related to the completion of its construction, or its future operation and maintenance are classified as contract assets as follows:

 

  2018   2017  2020 

2019

(Restated)

 

01/01/2019

(Restated)

Distribution – Infrastructure assets under construction

   518    —     1,142   740   518 

Gas – Infrastructure assets under construction

   82    —     94   68   81 

Transmission – Indemnity assets incorporated into the Assets Remuneration Base

   492    —   
Transmission – Assets reincorporated into the assets remuneration base  1,896   1,928   2,272 

Transmission – Assets remunerated by tariff

   637    —     1,848   1,147   637 
  

 

   

 

 
   1,729    —     4,980   3,883   3,509 
  

 

   

 

             

Current

   131    —     737   576   482 

Non-current

   1,598    —     4,243   3,307   3,026 

 

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Changes in concession contract assets are as follows:

 

   Transmission   Distribution   Gas   Total 

Balance at December 31, 2017

   —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Effects of IFRS 15 first-time adoption (Notes 15 and 19)

   1,092    532    90    1,714 

Additions (1) (Note 15e)

   96    727    70    893 

Inflation adjustment

   88    —      —      88 

Adjustment to expected contract cash flow from the concession

   13    —      —      13 

Amounts received

   (161)    —      —      (161) 

Transfers to financial assets

   —      (27)    —      (27) 

Transfers to intangible assets

   —      (672)    (78)    (750) 

Transfers to PP&E

   1      —      1 

Provision for impairment (2)

     (42)      (42) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2018

   1,129    518    82    1,729 
  

 

 

   

 

 

   

 

 

   

 

 

 
  Transmission Distribution Gas Total
Balances at January 1, 2018 - - - -
Effects of adoption of IFRS 15 (Restated)  2,927   532   90   3,549 
Additions  138   727   70   935 
Inflation adjustment  311   —     —     311 
Amounts received  (467)  —     —     (467)
Transfers to financial assets  —     (27)  —     (27)
Transfers to intangible assets  —     (672)  (78)  (750)
Impairment  —     (42)  —     (42)
Balances at January 1, 2019 (Restated)  2,909   518   82   3,509 
Additions  312   903   43   1,258 
Inflation adjustment  328   —     —     328 
Amounts received  (473)  —     —     (473)
Disposals  —     —     (2)  (2)
Transfers to financial assets  —     (48)  —     (48)
Transfers to intangible assets  —     (630)  (55)  (685)
Impairment  —     (3)  —     (3)
Balances at December 31, 2019 (Restated)  3,076   740   68   3,884 
Additions  201   1,346   50   1,597 
Inflation adjustment  438   —     —     438 
Results of the Periodic Tariff Review  552   —     —     552 
Amounts received  (623)  —     —     (623)
Disposals  (7)  —     (2)  (9)
Transfers to financial assets  —     (60) ��—     (60)
Transfers to intangible assets  —     (883)  (23)  (906)
Contract assets arising from business combination (Note 16d)  108   —     —     108 
Impairment  —     (1)  —     (1)
Balances at December 31, 2020  3.745   1,142   93   4,980 

 

(1)

The additions to distribution assets, of R$ 726, made during 2018, include R$ 26 of capitalized borrowing costs, as presented in Note 22.

The amount of additions in the period ended December 31, 2020 includes R$34 of borrowing costs, as presented in Note 29.

(2)

As of December, 31, 2018, the subsidiary Cemig D recognized a provision of R$ 42 for impairment of certain long-term assets in progress. The Company has not identified any additional indications of impairment of its other contract assets, which have defined useful lives. The Company has no contract assets with non-defined useful life.

Energy and gas distribution activities

In accordance with IFRS 15 –Revenue from contracts with customers, the

The concession infrastructure assets still under construction are recognized initially as contract assets, considering the right of the subsidiaries Cemig D and Gasmig to charge for the services provided to customers or receive an indemnity at the end of the concession for assets not yet amortized. New assets are recorded initially as contract assets, measured at amortized cost, including capitalized borrowing costs. When the asset startstarts operations, the construction performance obligation is concluded, and the assets are split into financial assets and intangible assets.

Until December 31, 2017 the distribution infrastructure under construction was classified as an intangible in accordance with the scope of IFRIC 12 and measured at amortized cost.

The transmission activity

In

For transmission concessions, the consideration to be paid to the Company arises from the concession contracts n. 006/97 and n. 079/00, as follows:

  2020 2019
(Restated)		 

01/01/2019

(Restated)

Current            
Concession contract - 004/05  19   —     —   
Concession contract - 079/00  29   21   19 
Concession contract - 006/97            
    Basic Network of the Existing System (BNES)  533   434   347 
    Basic Network of New Facilities (BNNF)  156   121   116 
   737   576   482 
Non-current            
Concession contract - 004/05  91   —     —   
Concession contract - 079/00  133   95   93 
Concession contract - 006/97            
    Basic Network of the Existing System (BNES)  1,363   1,494   1,714 
    Basic Network of New Facilities (BNNF)  1,421   911   620 
   3,008   2,500   2,427 
   3,745   3,076   2,909 

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a)Concession contract n. 006/97

The contract regulates the public service of commercial operation of transmission facilities that are classified as parts of the National Grid, pursuant to Law 9,074/1995 and to the regulation applicable, in effect until December 31, 2042.

The contract was renewed on December 4, 2012, for 30 years, from January 1, 2013, under Provisional Act 579 of September 11, 2012 (converted into Law 12,783/2013), which specified reimbursement for the assets that had not been depreciated on December 31, 2012.

The criteria for calculation of New Replacement Value (Valor Novo de Reposição – VNR) of the transmission facilities, for the purposes of reimbursement, were set by Aneel Normative Resolution 589 of December 10, 2013.

The process and period of payment of the reimbursement were set by Brazilian Ministry of Mining and Energy (MME), by Ministerial Order 120, of April 20, 2016, which specified that the amounts ratified by Aneel, through a Dispatch, for the National Grid facilities which had not yet been amortized, nor depreciated, nor indemnified by the concession-granting power (‘the Grantor’), associated to the concession contracts that were renewed under Law 12,783/2013, should become part of the Regulatory Remuneration Base as from the tariff process of 2017.

Aneel Normative Resolution 762/2017 set the procedures and criteria to be used in the calculation of the cost of capital to be added to the Permitted Annual Revenue, under Law 12,783/2013, in accordance with MME Ministerial Order 120/2016.

At the first adoption of IFRS 15, –Revenue fromon January 01, 2018, considering the characteristics of its concession contracts, with customers, the transmission the concession infrastructure assets wereCompany classified as contract assets: (i) the consideration to be received for the construction of power transmission infrastructure corresponding to the remaining balance of National Grid assets, re-incorporated into the remuneration base (the economic portion), and (ii) the assets remunerated by tariff, since the performance obligation of construction and upgrade depends on satisfaction of the performance obligation of operation and maintenance.

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On December 31, 2020, as described in Note 2.8, the Company reclassified to contract asset the amounts recorded as financial asset at the first adoption of IFRS 15, related to the National Grid (‘BNES’) financial portion, which represents the amount to be paid since the extension of the concessions until its incorporation into the tariff, to be received in 8 years, starting in June 2017, and exclusively by installments not paid from January 1, 2018, considering2013 to June 30, 2017, updated by the regulatory cost of capital of the transmission sector. The amounts reclassified in the statement of financial position at December 31, 2019 for January 01, 2019 are R$1,281 and R$1,296, respectively.

The classification of these assets as a contract asset is based on its inclusion in the Remuneration Assets Base – ‘BRR’ of the transmission concession agents. Although this new regulation determined that the amounts to be paid were subject to the regulatory rules applicable to the tariff process, including the mechanisms for measuring efficiency, the tariff review specific rules were not clear about the treatment that would be applied to the financial portion, especially related to the asset write-off in the period. The Periodic Tariff Review, which occurred in 2020, confirmed the impact of the write-off on this component in the period. In this new context, the consideration to be received is associated to the performance obligation duringto operate and maintain. Thus, the asset has the distinctive characteristics which is pertinent to its classification as a contract asset.

The next Periodic Tariff Review (RTP) will take place in June 2023, with effect from July 1, 2023. The indexer used to update the contract is the Expanded Consumer Price Index (Índice de Preços ao Consumidor Amplo – IPCA).

National Grid Assets - ‘BNES’ – the regulatory cost of capital updating

On April 10, 2017, a preliminary injunction was granted to the Brazilian Large Free Customers’ Association (Associação Brasileira de Grandes Consumidores Livres), the Brazilian Auto Glass Industry Technical Association (Associação Técnica Brasileira das Indústrias Automáticas de Vidro) and the Brazilian Ferro-alloys and Silicon Metal Producers’ Association (Associação Brasileira dos Produtores de Ferroligas e de Silicio Metálico) in their legal action against the grantor and the Federal Government requesting suspension of the effects on their tariffs of remuneration at cost of equity of portions of “National Grid” assets not yet paid from 2013 to 2017 owned to the agents that accepted the terms of Law 12,783/13.

The preliminary injunction was partial, with effects related to suspension of the inclusion in the customer tariffs paid by these associations of the portion of the indemnity corresponding to the remuneration at cost of equity included since the date of extension of the concessions.

In June 2020, due to revocation of the majority of the injunctions, and in compliance with the Execution Opinions issued by the Federal Public Attorneys’ Office to Aneel, the effects caused by the reversal of these injunctions were calculated, for inclusion of the cost of equity in the transmission revenue starting with the 2020-21 cycle, considering all retrospective effects, including those arising from the assumptions adopted in the 2018 RAP periodic reset.

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At this moment Aneel provisionally ratified only the inclusion of the cost of equity updated by IPCA index of the period between the 2017-18 and 2019-20 tariff cycles, considering the need for deeper examination of the legal conditions for analysis of the Company’s appeal, which require the inclusion of the WACC remuneration for the periods in which it was suspended.

On January 06, 2021, the Brazilian General Attorney's Office issued a legal opinion about the effects of the reversal of the court decision that had suspended the cost of equity remuneration of the transmission agents determined by Ministerial Order 120, of April 20, 2016.

The legal opinion concluded that the interest not received in the period of the concession, representedJanuary 2013 to June 2017 – cost of capital remuneration – must be updated by the cost of equity rate, as established in the MME Ministerial Order 120/2016 and in the Aneel Resolution 762/2017, until July 01, 2020, which is the date that the payment took place, and must be included to RAP as of July 1, 2020 (2020-2021 cycle) for eight years.

The Company believes that the treatment given to this component, which includes updating by the IPCA inflation index, plus the regulatory weighted average cost of capital, of the period from June 2017 to June 2020, appropriately reflects the regulations issued by the grantor authority. Company has no expectation of loss in relation to realization of these amounts.

b)Concession contract 079/00

The contract regulates commercial operation of public transmission service, comprising construction, operation, maintenance and availabilityoperation of transmission of the transmission lines.following facilities: The Itajubá 3 Substation; the Itajubá 3 – Poços de Caldas Transmission Line; and the Itajubá 3–Cachoeira Paulista Transmission Line, in effect until October 4, 2034.

The abovementioned assetscontract does not provide the review of the established revenue. Only of the revenues provisionally established, arising from enhancements and upgrades authorizations are reset. Thus, on December 15, 2020, the Resolution 2,825/2020 ratified the RAP Periodic Tariff Review of bid contracts of energy transmission, whose tariff review was scheduled for July 2019. More information on this matter is provided further in this Note.

The Periodic Tariff Reviews determined the tariff reset, with effects backdated to the date of the start of commercial operation, resulting in a repositioning factor of 57.5%. In addition, an adjustment portion relating to the backdating of the repositioning of RAP since the date of start of commercial operation in the amount of R$24.

The amounts will comprise the new RAP as from the adjustment for the 2021/2022 cycle and the adjustment portion relating to the backdating will be paid in 3 installments during the next adjustment processes.

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The next Periodic Tariff Review (RTP) of the enhancements that have been approved will take place in June 2024, and be in effect from July 1, 2024. The indexer used for adjustment of the contract is the General Market Prices Index (Índice Geral de Preços do Mercado – IGP-M).

Assumptions considered in the estimation of the expected consideration for the construction services related to enhancements and upgrades of infrastructure.

a)The margin is allocated to the performance obligation to construct the transmission infrastructure, using the cost incurred, plus margin;

b)Future RAPs are calculated based on management’s best estimates, considering the cost of capital, plus the remuneration specified by the regulations;

c)The discount rate used for calculation of present value of future RAPs is the implicit rate related to the financing component of the contract, corresponding to the best estimate of the amount that reflects the price that a customer would have paid for the promised goods or services if the customer had paid cash for the infrastructure construction services when (or as) they transfer to the customer (i.e. the cash selling price).

d)PIS/Pasep and Cofins taxes are included in the calculation of the revenues from the contracts, and these taxes deferral is recognized;

e)The estimated construction margin for the projects in service and in progress are obtained on the basis of the rate of profitability expected by management for the transmission activity in the period of commencement of the investments – this is considered individually, by an act of regulation (a concession contract or an Authorizing Resolution).

Periodic Tariff Revision of Permitted Annual Revenue – RAP

On June 30, 2020, Aneel ratified the results of the Periodic Tariff Review – RTP through Ratifying Resolution 2,712/2020, setting the revaluation of the Permitted Annual Revenue (RAP) to be applied from July 1, 2018. The result of the RAP Periodic Revision of the period 2018-2019 was a net increase of 9.13% compared to the provisional RAP of this same period. Although it was concluded only in 2020, the Revision had retrospective effects since July 2018.

The RTP comprised the reset of the BNES and BNNF (New National Grid Facilities) revenues, as follows:

 

 •

§

Remainingbalance to be received through RAP: The remaining balanceBasic Network of the indemnity for transmission,Existing System ('BNES')

Increase of 13.15% in revenues of this type, due to:

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(i)upward variation in the WACC, after tax, from 6.64% to acceptance7.71%;
(ii)incorporation of the termsamounts referring to the remuneration of Law 12,783/13,the Annual Cost of R$ 492, at December 31, 2018 (R$ 544 at December 31, 2017, classified as financial assets) wasAssets (Custo Anual do Ativos – CAA) of the National Grid not incorporated into revenue for the Assets Remuneration Baseperiod from January 2013 through June 2017 (Ke);
(iii)changes in the asset base, taking into account write-offs and is being recovered throughassets that have been fully depreciated. Due to these effects, the Annual Permitted Revenue (RAP)economic and financial components of Tariff Review Process (TRP) n. 120/2016 for the National Grid were increased, by 7% and 38%, respectively. The financial components include the remuneration of Ke (cost of equity).

The RAP of the National Grid also contains amounts for O&M, which were 3% lower.

 

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Basic Network of the New Facilities (BNNF)

LOGO

Reduction of 10% in relation to the RAP of the original authorization, due to:

 

(i)changing in the remuneration base due to the difference between the reference prices (‘banco de preços’) of the authorization and the prices used in the review;
(ii)effect of the diminishing profile of the RAP on the recalculation of the revenue for the new cycle. Since the repositioning has effect backdated to July 2018, an Adjustment Amount (‘Parcela de Ajuste – PA’) was established, referring to the difference between the amount of the repositioning and the provisional amount of the RAPs in effect in the period 2018–2020. This Adjustment Amount will undergo monetary updating by the IPCA index at each tariff adjustment and will be in effect in the cycles of 2020–2023. In spite of the reduction of the RAP in relation to the authorization, the review generated an increase in the present value of the contract asset, due mainly to the positive difference between the price of the transaction calculated on the basis of New Replacement Value (Valor Novo de Reposição – VNR) used in the review and the transaction price estimated based on the costs incurred.

Transmission – Assets remunerated

On December 15, 2020 Aneel ratified, bytariff: For new assets related to improvements and upgrades Authorizing Resolution 2825/2020, the result of facilities constructed by transmission concession holders, the regulator (ANEEL) calculates an additional portionPeriodic Tariff Reviews of Permitted Annual Revenue (RAP) of Transmission Contracts resulting from public bidding. The revenues from enhancements and upgrades with date of start of commercial operation up to January 31, 2019 were submitted to the Periodic Review, with effects backdated to the date that the new facilities enter commercial operation. In the periods between tariff reviews, the revenues associated with the improvements and upgrades of facilities are provisional. They are then ultimately determined in the review immediately subsequent to the start of commercial operationoperation. The enhancements and upgrades that were subject to review received a repositioning factor of 57.5%, plus an adjustment portion relating to the backdating of the facilities;repositioning of RAP since the date of start of commercial operation. The amounts will comprise the RAP of Itajubá as from the adjustment for the 2021/2022 cycle.

As a result of the RTP of the contract 006/1997, the Company recognized a revenue of R$528 in the statement of income. Of this review then has effect startingamount, R$321 refers to the BNNF assets whilst R$207 refers to BNES assets, the latter corresponding to the concessions extension, based on the date when commercial operations begin. AtLaw 12,783/13, which were incorporated in the regulatory remuneration base. The RTP of the contract 079/2020 resulted in the recognition of a revenue of R$23, in the statement of income for the year ended in December 31, 20182020. The revenue arising from the receivable amounts to R$ 637 (R$ 548 on December, 31, 2017, classified as financial assets).

revisions represents, mainly, the variation in the remuneration regulatory rate set for the transmission sector and the remeasurement of the New Replacement Value (Valor Novo de Reposição, or VNR) of the regulatory remuneration base – BRR. The infrastructure duringtotal amount recognized in the construction phase, grantsstatement of income relate to the operator a right to receive consideration due to performance obligations represented by the construction, operationPeriodic Tariff Revision, net of PIS/Pasep and maintenance of the transmission lines, and not only to the passage of time, being revenue and costs related to construction of these assets recognized as costs incurred.

Thus, the consideration for construction and upgrade services carried out on the concession assets as from January 1, 2018,Cofins taxes, is now recorded as a contract assets, since consideration for those services is conditional on the satisfaction of another performance obligation.

17. INVESTMENTSR$502.

 

   Control  2018   2017 

Hidrelétrica Cachoeirão

  Jointly-controlled   49    58 

Hidrelétrica Pipoca

  Jointly-controlled   31    26 

Retiro Baixo

  Jointly-controlled   171    158 

Aliança Norte (Belo Monte plant)

  Jointly-controlled   664    577 

Madeira Energia (Santo Antônio plant)

  Affiliated   270    535 

FIP Melbourne (Santo Antônio plant)

  Affiliated   470    582 

Baguari Energia

  Jointly-controlled   162    148 

Renova

  Jointly-controlled   —      282 

Aliança Geração

  Jointly-controlled   1,217    1,242 

Central Eólica Praias de Parajuru

  Subsidiary   —     60 

Central Eólica Volta do Rio

  Subsidiary   —     68 

Central Eólica Praias de Morgado

  Jointly-controlled   —     51 

Amazônia Energia (Belo Monte Plant)

  Jointly-controlled   1,013    867 

Light (1)

  Subsidiary   —     1,534 

Guanhães Energia (1)

  Subsidiary   —     25 

Axxiom Soluções Tecnológicas (1)

  Subsidiary   —      12 

Usina Hidrelétrica Itaocara S.A. (1)

  Subsidiary   —      4 

Lightger (1)

  Subsidiary   —      41 

Taesa

  Jointly-controlled   1,143    1,101 

Ativas Data Center

  Affiliated   16    17 

RME (2)

  Subsidiary   —     383 

UFV Janaúba Geração de Energia Elétrica Distribuída (3)

  Affiliated   9    —   

Companhia de Transmissão Centroeste de Minas

  Jointly-controlled   20    21 
    

 

 

   

 

 

 

Total of investments

     5,235    7,792 

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16.INVESTMENTS

  Control 2020 2019
Hidrelétrica Cachoeirão  Jointly-controlled   53   54 
Guanhães Energia  Jointly-controlled   131   131 
Hidrelétrica Pipoca  Jointly-controlled   36   31 
Retiro Baixo  Jointly-controlled   195   180 
Aliança Norte (Belo Monte plant)  Jointly-controlled   631   671 
Amazônia Energia (Belo Monte plant)  Jointly-controlled   965   1,028 
Madeira Energia (Santo Antônio plant)  Affiliated   209   167 
FIP Melbourne (Santo Antônio plant)  Affiliated   158   385 
Lightger  Jointly-controlled   131   128 
Baguari Energia  Jointly-controlled   159   157 
Aliança Geração  Jointly-controlled   1,167   1,192 
Taesa  Jointly-controlled   1,467   1,213 
Ativas Data Center  Affiliated   17   16 
UFV Janaúba Geração de Energia Elétrica Distribuída  Jointly-controlled   10   10 
UFV Manga Geração de Energia Elétrica Distribuída  Jointly-controlled   11   —   
UFV Corinto Geração de Energia Elétrica S.A.  Jointly-controlled   10   —   
UFV Bonfinópolis Geração de Energia Elétrica Distribuída  Jointly-controlled   6   —   
UFV Lagoa Grande Geração de Energia Elétrica Distribuída  Jointly-controlled   15   —   
UFV Lontra Geração de Energia Elétrica Distribuída  Jointly-controlled   17   —   
UFV Mato Verde Geração de Energia Elétrica Distribuída  Jointly-controlled   6   —   
UFV Mirabela Geração de Energia Elétrica Distribuída  Jointly-controlled   4   —   
UFV Porteirinha I Geração de Energia Elétrica Distribuída  Jointly-controlled   6   —   
UFV Porteirinha II Geração de Energia Elétrica Distribuída  Jointly-controlled   7   —   
Companhia de Transmissão Centroeste de Minas  Subsidiary   —     24 
Axxiom Soluções Tecnológicas  Jointly-controlled   4   13 
Total of investments      5,415   5,400 
Itaocara – equity deficit (1)  Jointly-controlled   (30)  (22)
Total      5,385   5,378 
(1)

UntilOn December 31, 2017 Light was a2020 and 2019, the investee has negative net equity. Thus, after reducing the accounting value of its interest to zero, the Company recognized the provision for losses to the extent of its obligations, in the amount of R$30 (R$22 on December 31, 2019), resulting from contractual obligations assumed with the jointly-controlled entity as described in Note 17.1. On November 30, 2018 Company obtained control of Light, and subsequently, in accordance with IFRS 5, reclassified the investment in Light, Axxion, Lightger, Guanhães and Itaocara asNon-current assets held for sale.

other shareholders.
(2)

On November 30, 2018 the Company acquired all RME’s shares, and therefore as from that date on it consolidates that company in its financial statements. RME’s sole asset is its holdings in the share capital of Light. Hence, the Comapay no longer presents the investment that it previously held at RME in its consolidated statement, presenting only the interest in Light.

(3)

Special-purpose Company (SPC) constituted by Efficientia and GD Energia (holding company of the Mori Group) to develop a 5MW photovoltaic generation plant in Janaúba, Minas Gerais, to be leased to customers of Cemig Distribuição that qualify under Aneel Resolution 482/2012.

The Company’s investees that are not consolidated are jointly-controlled entities, with the exception of the interests in theSanto affiliates Light, classified as asset held for sale, Madeira Energia ‘Santo Antônionio’ power plant and Ativas Data Center.

 

F-69

LOGO

On December 31, 2019, the investee ‘Usina Hidrelétrica Itaocara’ had negative shareholders’ equity. Thus, after reducing the accounting value of its interest to zero, the Company recognized the loss to the extent that it assumed contractual obligations with the subsidiary and the other shareholders, which on December 31, 2020 is R$30 (R$22 on December 31, 2019).

 

a) On December 31, 2020, management considered that there was some indication, due to the economic shock of the Covid-19 pandemic (Note 1e), of potential decline in value of assets, as referred to in IAS 36– Impairments of Assets. Considering, however, the pandemic’s effects on the economic context, and the fact that the long-term expectation of realization of the assets underwent no change, management of the Company assessed the recoverable amount of the assets for which there were indications that they may be impaired and concluded that the reported assets net carrying amount is recoverable, and thus that there was no need to recognize any impairment loss in the Company nor its subsidiaries as a result of the current economic scenario.

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Additionally, in relation to the above, the Company’s management has assessed the risk threatening all its investments ability to continue as a going concern, taking substantially into consideration: the economic-financial clauses of Cemig D and Gasmig; the guarantee of revenues of the transmission companies; the protection against force majeure reduction in regulated generation contracts; and all the legal measures that have been applied by the federal government and by Aneel – and has concluded that the Company and its subsidiaries’ ability to continue as going concern is secure.

a)Right to exploitation of the regulated activity

In the process of allocateallocating the purchase price for of the acquisition of the jointly-controlled subsidiaries and affilites,affiliates, a valuation was made for the intangible assets relating to the right to operate the infraestructure. This asset isinfrastructure. These assets are presented together with the acquisition cost of the investments in the previous table. These assets will be amortized over the remaining period of the concessions on a straight-line basis.

The rights of authorization to generate wind energy granted to Parajuru and Volta do Rio, valued at R$54 (R$60 on December 31, 2019) and R$74 (R$67 on December 31, 2019), respectively, are classified in the financial statements of the Company under Intangibles. These concession assets are amortized by the straight-line method, during the period of the concession. For further information see note 18.

Changes in these assets are as follows:

 

Investees

  2015   Addition   Amortization  Written
off		  2016   Amortization  Written
off		  2017   Addition   Amortization  Written
off		  2018 

Taesa

   415    —      (18)   (109)   288    (13)   (86)   189    —      (9)   —     180 

Light

   231    —      (22)   —     209    (23)   —     186    —      (22)   (164)   —   

Lepsa

   —      50    (1)   —     49    (6)   (43)   —      —      —     —     —   

RME

   —      49    (1)   —     48    (5)   —     43    20    (5)   (58)   —   
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total

   646    99    (42)   (109)   594    (47)   (129)   418    20    (36)   (222)   180 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

F-70

LOGO

b) This table shows the changes in investments in subsidiaries, jointly-controlled entities and affiliates:

Investee

  2017   Gain (loss)
by equity
method
(Income
statement)		  Remeasurement
of previously
held equity
interest in
subsidiaries
acquired (step-
acquisition)		  Dividends  Additions /
acquisitions		   Disposals  Reclassification
to held for sale		  Others  2018 

Companhia de Transmissão Centroeste de Minas

   21    5   —     (6)   —      —     —     —     20 

Light (1)

   1,534    19   (231)   (8)   —      —     (1,255)   (59)   —   

RME (1)/(5)

   383    3   (52)   (1)   104    —     (326)   (111)   —   

Axxiom Soluções Tecnológicas (1)

   12    (7)   —     —     —      —     (4)   (1)   —   

Lightger (1)

   41    3   84   (2)   —      —     (126)   —     —   

Guanhães Energia (1)

   25    30   —     —     57    —     (112)   —     —   

Usina Hidrelétrica Itaocara S.A. (1)

   4    (4)   —     —     5    —     (5)   —     —   

Hidrelétrica Pipoca

   26    7   —     (2)   —      —     —     —     31 

Madeira Energia (Santo Antônio plant) (2) (4)

   535    (163)   —     —     25    —     —     (127)   270 

FIP Melbourne (Santo Antônio plant) (4)

   582    (139)   —     —     27    —     —     —     470 

Hidrelétrica Cachoeirão

   58    10   —     (19)   —      —     —     —     49 

Baguari Energia

   148    28   —     (15)   —      —     —     1   162 

Central Eólica Praias de Parajuru (3)

   60    (6)   21   —     74    (3)   —     (146)   —   

Central Eólica Volta do Rio (3)

   68    (16)   59   —     92    (22)   —     (181)   —   

Central Eólica Praias de Morgado (3)

   51    (15)   —     —     —      (12)   —     (24)   —   

Amazônia Energia (Belo Monte Plant)

   867    80   —     —     69    —     —     (3)   1,013 

Aliança Norte (Belo Monte plant)

   577    44   —     —     43    —     —     —     664 

Ativas Data Center

   17    (1)   —     —     —      —     —     —     16 

Taesa (1)

   1,101    225   —     (208)   —      —     —     25   1,143 

Renova

   282    (282)   —     —     —      —     —     —     —   

Aliança Geração

   1,242    65   —     (90)   —      —     —     —     1,217 

Retiro Baixo

   158    10   —     (3)   6    —     —     —     171 

UFV Janaúba Geração de Energia Elétrica Distribuída

     0   —     —     9    —     —     —     9 

Total of investments

   7,792    (104)   (119)   (354)   511    (37)   (1,828)   (626)   5,235 
Investees 2017 Additions Amortization 

Written

off

 2018 Amortization 2019 Amortization 2020
Retiro Baixo  28   6   (2)  —     32   (1)  31   (1)  30 
Central Eólica Praias de Parajuru (1)  17   —     (2)  (15)  —     —     —     —     —   
Central Eólica Volta do Rio (1)  11   —     (1)  (10)  —     —     —     —     —   
Central Eólica Praias de Morgado (1)  24   —     (2)  (22)  —     —     —     —     —   
Madeira Energia (Santo Antônio plant)  151   —     (6)  (127)  18   (1)  17   (1)  16 
Lightger  —     84   —     —     84   (3)  81   (3)  78 
Aliança Geração  403   —     (25)  —     378   (25)  353   (25)  328 
Aliança Norte (Belo Monte plant)  55   —     (2)  —     53   (2)  51   (2)  49 
Taesa  189   —     (9)  —     180   (9)  171   (8)  163 
Light  186   —     (20)  (166)  —     —     —     —     —   
RME  44   20   (5)  (59)  —     —     —     —     —   
Total  1,108   110   (74)  (399)  745   (41)  704   (40)  664 

 

(1)

The movementAs from 2018 the investees Central Eólica Praias de Parajuru and Central Eólica Volta do Rio are being consolidated.

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b)This table shows the changes in investments in subsidiaries, jointly-controlled entities and affiliates:

Investee 2019 Gain (loss) by equity method
(Income statement) (3)		 Remeasurement of previously held equity interest in subsidiaries acquired  (step-acquisition) Dividends Additions / acquisitions Others Disposals 2020
Companhia de Transmissão Centroeste de Minas  24   —     37   —     45   14   (120)  —   
Hidrelétrica Cachoeirão  54   9   —     (10)  —     —     —     53 
Guanhães Energia (1)  131   —     —     —     —     —     —     131 
Hidrelétrica Pipoca  31   11   —     (6)  —     —     —     36 
Madeira Energia (Santo Antônio plant)  167   42   —     —     —     —     —     209 
FIP Melbourne (Santo Antônio plant)  385   (227)  —     —     —     —     —     158 
Lightger (1)  128   10   —     (7)  —     —     —     131 
Baguari Energia  157   23   —     (21)  —     —     —     159 
Amazônia Energia (Belo Monte plant)  1,028   (63)  —     —     —     —     —     965 
Aliança Norte (Belo Monte plant)  671   (40)  —     —     —     —     —     631 
Ativas Data Center  16   1   —     —     —     —     —     17 
Taesa  1,213   494   —     (240)  —     —     —     1,467 
Aliança Geração  1,192   89   —     (114)  —     —     —     1,167 
Retiro Baixo  180   15   —     —     —     —     —     195 
UFV Janaúba Geração de Energia Elétrica Distribuída  10   1   —     (1)  —     —     —     10 
UFV Corinto Geração de Energia Elétrica Distribuída  —     1   —     —     9   —     —     10 
UFV Manga Geração de Energia Elétrica Distribuída  —     1   —     —     10   —     —     11 
UFV Bonfinópolis II Geração de Energia Elétrica Distribuída  —     —     —     —     6   —     —     6 
UFV Lagoa Grande Geração de Energia Elétrica Distribuída  —     3   —     —     12   —     —     15 
UFV Lontra Geração de Energia Elétrica Distribuída  —     3   —     —     14   —     —     17 
UFV Mato Verde Geração de Energia Elétrica Distribuída  —     1   —     —     5   —     —     6 
UFV Mirabela Geração de Energia Elétrica Distribuída  —     —     —     —     5   (1)  —     4 
UFV Porteirinha I Geração de Energia Elétrica Distribuída  —     —     —     —     6   —     —     6 
UFV Porteirinha II Geração de Energia Elétrica Distribuída  —     1   —     —     6   —     —     7 
Axxiom Soluções Tecnológicas (1)  13   (9)  —     —     —     —     —     4 
Total of investments  5,400   366   37   (399)  118   13   (120)  5,415 
Itaocara – equity déficit (2)  (22)  (9)  —     —     1   —     —     (30)
Total  5,378   357   37   (399)  119   13   (120)  5,385 

(1)With the loss of control of Light, the remaining equity interest in these investees was recognized as an investment in affiliates or jointly-controlled subsidiaries, and measured by the equity method, in accordance with IFRS 10. More details see notes 1 and 33.
(2)On December 31, 2019, the investee had negative shareholders’ equity. Thus, after reducing the accounting value of its interest to zero, the Company recognized the provision for losses on investments, in the amount of R$22, resulting from contractual obligations assumed with the subsidiary and the other shareholders.
(3)Includes bargain purchase related to the acquisition of the joint-controlled entities UFV Corinto, UFV Manga, UFV Lagoa Grande, UFV Lontra, UFV Mato Verde and UFV Porteirinha II, in the amount of R$7.

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Investee 2018 Gain (loss) by equity method
(Income statement)		 Remeasurement of equity interest held in subsidiaries after loss of control Dividends Additions / acquisitions Others 2019
Companhia de Transmissão Centroeste de Minas  20   4   —     —     —     —     24 
Axxiom Soluções Tecnológicas  —     —     4   —     9   —     13 
Lightger  —     —     128   —     —     —     128 
Guanhães Energia  —     —     131   —     —     —     131 
Usina Hidrelétrica Itaocara S.A.  —     (50)  5   —     23   22   —   
Hidrelétrica Pipoca  31   4   —     (4)  —     —     31 
Madeira Energia (Santo Antônio plant)  270   (103)  —     —     —     —     167 
FIP Melbourne (Santo Antônio plant)  470   (85)  —     —     —     —     385 
Hidrelétrica Cachoeirão  49   11   —     (6)  —     —     54 
Baguari Energia  162   22   —     (27)  —     —     157 
Amazônia Energia (Belo Monte plant)  1,013   15   —     —     —     —     1,028 
Aliança Norte (Belo Monte plant)  664   6   —     —     1   —     671 
Ativas Data Center  16   —     —     —     —     —     16 
Taesa  1,143   210   —     (141)  —     1   1,213 
Aliança Geração  1,217   78   —     (103)  —     —     1,192 
Retiro Baixo  171   12   —     (3)  —     —     180 
UFV Janaúba Geração de Energia Elétrica Distribuída  9   1   —     —     —     —     10 
Total of investments  5,235   125   268   (284)  33   23   5,400 
Itaocara – equity deficit  —     —     —     —     —     (22)  (22)
Total  5,235   125   268   (284)  33   1   5,378 

(1)With the loss of control of Light, the remaining equity interest in these investees was recognized as an investment in affiliates or jointly-controlled subsidiaries, and measured by the equity method, in accordance with IFRS 10. More details see notes 1 and 32.
(2)On December 31, 2019, the investee had negative shareholders’ equity. Thus, after reducing the accounting value of its interest to zero, the Company recognized the provision for losses on investments, in the amount of R$22, resulting from contractual obligations assumed with the subsidiary and the other shareholders.

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Investee 2017 Gain (loss) by equity method
(Income statement)		 Remeasurement of previously held equity interest in subsidiaries acquired  (step-acquisition) Dividends Additions / acquisitions Disposals Reclassification to held for sale Others 2018
Companhia de Transmissão Centroeste de Minas  21   5   —     (6)  —     —     —     —     20 
Light (1)  1,534   19   (231)  (8)  —     —     (1,255)  (59)  —   
RME (1)  383   3   (52)  (1)  104   —     (326)  (111)  —   
Axxiom Soluções Tecnológicas (1)  12   (7)  —     —     —     —     (4)  (1)  —   
Lightger (1)  41   3   84   (2)  —     —     (126)  —     —   
Guanhães Energia (1)  25   30   —     —     57   —     (112)  —     —   
Usina Hidrelétrica Itaocara S.A. (!)  4   (4)  —     —     5   —     (5)  —     —   
Hidrelétrica Pipoca  26   7   —     (2)  —     —     —     —     31 
Madeira Energia (Santo Antônio plant) (2) (4)  535   (163)  —     —     25   —     —     (127)  270 
FIP Melbourne (Santo Antônio plant) (4)  582   (139)  —     —     27   —     —     —     470 
Hidrelétrica Cachoeirão  58   10   —     (19)  —     —     —     —     49 
Baguari Energia  148   28   —     (15)  —     —     —     1   162 
Central Eólica Praias de Parajuru (3)  60   (6)  21   —     74   (3)  —     (146)  —   
Central Eólica Volta do Rio (3)  68   (16)  59   —     92   (22)  —     (181)  —   
Central Eólica Praias de Morgado (3)  51   (15)  —     —     —     (12)  —     (24)  —   
Amazônia Energia (Belo Monte plant)  867   80   —     —     69   —     —     (3)  1,013 
Aliança Norte (Belo Monte plant)  577   44   —     —     43   —     —     —     664 
Ativas Data Center  17   (1)  —     —     —     —     —     —     16 
Taesa (1)  1,101   225   —     (208)  —     —     —     25   1,143 
Renova  282   (282)  —     —     —     —     —     —     —   
Aliança Geração  1,242   65   —     (90)  —     —     —     —     1,217 
Retiro Baixo  158   10   —     (3)  6   —     —     —     171 
UFV Janaúba Geração de Energia Elétrica Distribuída  —     —     —     —     9   —     —     —     9 
Total of investments  7,792   (104)  (119)  (354)  511   (37)  (1,828)  (626)  5,235 

(1)Others column arises from the first-timefirst adoption of the new accounting standards on January 1, 2018, recognized by the investees directly in equity without inclusion in the statement of income. For more details, please see Note 2.5.Income statement. The columnReclassification to ” held for salesale” includes the effect of the reclassification of the investment in Light, Axxion,Axxiom, Lightger, Guanhães and Itaocara toNon-current assets held for sale, in accordance with IFRS 5.

(2)

Due to the result of analysis of impairment indication, due to the recurring losses incurred by Madeira, a provision was recognized for loss of part of the residual added value of the investment in Madeira, to limit its balance to the minimum value of the excess of future economic benefits arising from use of the net fixed asset on December 31, 2018, using the nominal WACC of 9.59% as the discount rate. The provision is presented in the statement of income for the year ended December 31, 2018 asImpairment loss on Investments.

(3)

Movements arisingArising from the business combination between the Company and Energimp. The rights to exploitation of the regulated activity are classified in the consolidated statement of financial position under Intangible. Details of the transaction are in the topicParajuru, Volta do Rio and Morgado in this note.

(4)

In October 2018 the subsidiary Cemig GTCompany subscribed capital increases in Mesa and FIP Melbourne, of R$25 and R$ 27,26, respectively. These funds were entirely applied in capital contributions to Santo Antônio Energia S.A. (‘Saesa’ or ‘Santo AntônioHydroelectric Plant’).

(5)

As mentioned in note 38, on April 24, 2019 the merger of the subsidiaries Lepsa and RME into the Company was completed.

 

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   2016  Gain (loss) by
equity
method
(Income
statement)		  Gain (loss)
by equity method
(Other
comprehensive
income)		  Dividends  Additions /
acquisitions		   Disposals  Others  2017 

Companhia Transleste de Transmissão

   22   5   —     (7)   —      (20)   —     —   

Companhia Transudeste de Transmissão

   21   3   —     (12)   —      (12)   —     —   

Companhia Transirapé de Transmissão

   24   4   —     (6)   —      (22)   —     —   

Companhia de Transmissão Centroeste de Minas

   21   5   —     (5)   —      —     —     21 

Light (1)

   1,070   35   (3)   —     —      —     432   1,534 

Axxiom Soluções Tecnológicas

   19   (7)   —     —     —      —     —     12 

Lepsa (1)

   344   —     (2)   —     —      —     (342)   —   

RME

   339   7   (2)   —     38    —     1   383 

Hidrelétrica Cachoeirão

   50   10   —     (3)   —      —     1   58 

Guanhães Energia (2)

   —     (13)   —     —     97    —     (59)   25 

Hidrelétrica Pipoca

   32   2   —     (8)   —      —     —     26 

Madeira Energia (Santo Antônio plant)

   644   (109)   —     —     —      —     —     535 

FIP Melbourne (Santo Antônio plant)

   677   (95)   —     —     —      —     —     582 

Lightger

   42   2   —     (3)   —      —     —     41 

Baguari Energia

   162   17   —     (30)   —      —     (1)   148 

Central Eólica Praias de Parajuru

   63   (1)   —     —     —      —     (2)   60 

Central Eólica Volta do Rio

   81   (12)   —     —     —      —     (1)   68 

Central Eólica Praias de Morgado

   60   (8)   —     —     —      —     (1)   51 

Amazônia Energia (Belo Monte Plant)

   781   1   —     —     85    —     —     867 

Ativas Data Center

   18   (2)   —     —     —      —     1   17 

Taesa (3)

   1,583   216   —     (183)   —      (515)   —     1,101 

Renova

   689   (390)   (34)   —     18    —     (1)   282 

Usina Hidrelétrica Itaocara S.A.

   3   (2)   —     —     3    —     —     4 

Aliança Geração

   1,319   72   —     (149)   —      —     —     1,242 

Aliança Norte (Belo Monte plant)

   527   (2)   —     —     51    —     1   577 

Retiro Baixo

   162   10   —     (14)   —      —     —     158 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total of investments

   8,753   (252)   (41)   (420)   292    (569)   29   7,792 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Guanhães Energia – Uncovered liabilities of jointly-controlled entity (2)

   (59)   —     —     —     —      —     59   —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total

   8,694   (252)   (41)   (420)   292    (569)   88   7,792 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
F-90 

 

(1)Table of Contents

On November 30, 2017 the Company acquired all Lepsa’s shares, and therefore as from that date on it consolidates that company in its financial statements. Lepsa’s sole asset is its holdings in the share capital of Light. Hence, the Company no longer presents the investment that it previously held at Lepsa in its consolidated statement, presenting only the interest in Light.

(2)

Uncovered liability reversed through injection of capital.

(3)

On November 2017 the Company sold part of its equity interest in the jointly-controlled entity Taesa. The Company sold 34 million Units of Taesa at the price of R$ 21.10 per Unit. With the sale, the Company’s holding in the share capital of Taesa was reduced from 31.54% to 21.68%. The shares that were sold are not part of the controlling shareholding block of Taesa, and as a result Cemig continues to be in the controlling block of Taesa.

 

F-72

LOGO

 

  2015  Equity method
gain (Statement
of income)		  Gain (loss) by equity
method
(Other
comprehensive
income)		  Dividends  Additions /
acquisitions		  Disposals  Merger  Other  2016 

Companhia Transleste de Transmissão

  18   6   —     (2)   —     —     —     —     22 

Companhia Transudeste de Transmissão

  18   4   —     (1)   —     —     —     —     21 

Companhia Transirapé de Transmissão

  19   5   —     —     —     —     —     —     24 

Transchile

  108   2   (23)   —     —     (87)   —     —     —   

Companhia de Transmissão Centroeste de Minas

  18   5   —     (2)   —     —     —     —     21 

Light

  1,188   (121)   3   —     —     —     —     —     1,070 

Axxiom Soluções Tecnológicas

  24   (5)   —     —     —     —     —     —     19 

Lepsa

  —    (18)   1   (57)   252   —     166   —     344 

RME

  —    (20)   —     (58)   247   —     169   1   339 

Hidrelétrica Cachoeirão

  42   10   —     (2)   —     —     —     —     50 

Guanhães Energia (1)

  19   (103)   —     —     25   —     —     59   —   

Hidrelétrica Pipoca

  27   5   —     —     —     —     —     —     32 

Madeira Energia (Santo Antônio Plant through Madeira Energia)

  676   (71)   —     —     39   —     —     —     644 

FIP Melbourne (Santo Antônio Plant through Madeira Energia)

  703   (63)   —     —     40   —     —     (3)   677 

LightGer

  37   5   —     —     —     —     —     —     42 

Baguari Energia

  187   41   —     (14)   —     —     —     (52)   162 

Central Eólica Praias de Parajuru

  63   —     —     —     —     —     —     —     63 

Central Eólica Volta do Rio

  85   (4)   —     —     —     —     —     —     81 

Central Eólica Praias de Morgado

  62   (2)   —     —     —     —     —     —     60 

Amazônia Energia (Belo Monte Plant through Norte Energia)

  495   (6)   —     —     292   —     —     —     781 

Ativas Data Center (2)

  —     (31)   —     —     99   —     —     (50)   18 

Parati

  358   (24)   1   —     —     —     (335)   —    

Taesa

  2,242   342   —     (382)   —     (619)   —     —     1,583 

Renova (3)

  1,527   (372)   19   —     278   —     —     (763)   689 

Usina Hidrelétrica Itaocara S.A.

  —    —     —     —     3   —     —     —     3 

Aliança Geração

  1,327   104   —     (112)   —     —     —     —     1,319 

Aliança Norte (Belo Monte Plant through Norte Energia)

  354   (7)   —     —     180   —     —     —     527 

Retiro Baixo

  148   16   —     (2)   —     —     —     —     162 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total of investments

  9,745   (302)   1   (632)   1,455   (706)   —     (808)   8,753 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ativas Data Center – Uncovered liabilities of jointly-controlled entity

  (28)   —     —     —     —     —     —     28   —   

Guanhães Energia – Uncovered liabilities of jointly-controlled entity

  —     —     —     —     —     —     —     (59)   (59) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  9,717   (302)   1   (632)   1,455   (706)   —     (839)   8,694 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

1)

Transfer to uncovered liabilities.

2)

The amount of R$ 50 refers to the dilution of shareholding interest arising from subscription of share capital by a new shareholder.

3)

The amount of R$ 763 refers to the impairment of intangible concession assets resulting from the financial difficulties of Renova.

Changes in dividends receivable are as follows:

 

   2018   2017 

Initial balance

   77    11 

Investees’ dividends proposed

   354    420 

Amounts received

   (311)    (354) 
  

 

 

   

 

 

 

Final balance

   120    77 
  

 

 

   

 

 

 
  2020 2019
Opening balances  186   119 
Dividends proposed by investees  399   285 
Elimination of dividends due to business combination  (1)  —   
Dividends proposed by investee classified as held for sale  —     73 
Adjustment of dividends proposed by investee classified as held for sale  (1)  —   
Withholding income tax on Interest on equity  (8)  (8)
Amounts received  (387)  (283)
Ending balances  188   186 

 

F-73

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F-91 

 

c)Table of Contents

Information from 

c)Main information on the subsidiaries, jointly-controlled entities and affiliates:

affiliates, not adjusted for the percentage represented by the Company’s ownership interest:

 

Company

  

 

Number

of shares

   2018   2017   2016 
  Cemig
interest
%		   Share
capital		   Equity   Cemig
interest
%		   Share
capital		   Equity   Cemig
interest
%		   Share
capital		   Equity 

Cemig Geração e Transmissão

   2,896,785,358    100.00    2,600    4,980    100.00    1,838    4,794    100.00    1,838    4,583 

Madeira Energia

(Usina Santo Antônio)

   12,034,025,147    15.51    10,620    4,657    18.13    9,547    5,327    18.13    10,152    6,419 

Hidrelétrica Cachoeirão

   35,000,000    49.00    35    100    49.00    35    118    49.00    35    103 

Guanhães Energia

   396,401,600    49.00    396    228    49.00    331    51    49.00    186    - 

Hidrelétrica Pipoca

   41,360,000    49.00    41    63    49.00    41    53    49.00    41    65 

Baguari Energia (1)

   26,157,300,278    69.39    187    234    69.39    187    214    69.39    187    248 

Central Eólica Praias de Parajuru (4)

   71,834,843    100.00    72    80    49.00    71    89    49.00    71    89 

Central Eólica Volta do Rio (4)

   138,867,440    100.00    139    84    49.00    117    116    49.00    117    137 

Central Eólica Praias de Morgado (4)

   —      —      —      —      49.00    53    54    49.00    53    65 

Lightger

   79,078,937    49.00    79    86    49.00    79    83    49.00    79    85 

Aliança Norte (Usina Belo Monte)

   41,437,698,407    49.00    1,206    1,247    49.00    1,119    1,066    49.00    1,014    1,077 

Amazônia Energia (Usina Belo Monte) (1)

   1,322,427,723    74.50    1,322    1,359    74.50    1,230    1,163    74.50    1,116    1,048 

Aliança Geração

   1,291,582    45.00    1,291    1,858    45.00    1,291    1,858    45.00    1,291    1,973 

Retiro Baixo

   222,850,000    49.90    223    278    49.90    223    258    49.90    223    264 

Renova (1)

   41,719,724    36.23    2,919    -76    36.23    2,919    780    34.15    2,856    1,956 

Usina Hidrelétrica Itaocara S.A.

   22,165,114    49.00    22    10    49.00    11    8    49.00    6    6 

Cemig Ger.Três Marias S.A.

   1,291,423,369    100.00    1,291    1,396    100.00    1,291    1,392    100.00    1,291    1,410 

Cemig Ger.Salto Grande S.A.

   405,267,607    100.00    405    440    100.00    405    440    100.00    405    444 

Cemig Ger. Itutinga S.A.

   151,309,332    100.00    151    179    100.00    151    171    100.00    151    170 

Cemig Geração Camargos S.A.

   113,499,102    100.00    113    132    100.00    113    130    100.00    113    127 

Cemig Geração Sul S.A.

   148,146,505    100.00    148    176    100.00    148    168    100.00    148    167 

Cemig Geração Leste S.A.

   100,568,929    100.00    101    121    100.00    101    116    100.00    101    116 

Cemig Geração Oeste S.A.

   60,595,484    100.00    61    70    100.00    61    69    100.00    61    70 

Rosal Energia S.A. (3)

   46,944,467    100.00    47    125    —      —      —      —      —      —   

Sá Carvalho S.A. (3)

   361,200,000    100.00    37    94    —      —      —      —      —      —   

Horizontes Energia S.A. (3)

   39,257,563    100.00    39    55    —      —      —      —      —      —   

Cemig PCH S.A. (3)

   45,952,000    100.00    46    93    —      —      —      —      —      —   

Usina Termelétrica do Barreiro S.A. (3)

   16,902,000    100.00    17    18    —      —      —      —      —      —   

Empresa de Serviços de Comercialização de Energia Elétrica S.A. (3)

   486,000    100.00    —      27    —      —      —      —      —      —   

Cemig Comercializadora de Energia Incentivada S.A. (3)

   1,000,000    100.00    1    3    —      —      —      —      —      —   

Cemig Trading S.A. (3)

   1,000,000    100.00    1    28    —      —      —      —      —      —   

Cemig Distribuição

   2,359,113,452    100.00    2,772    4,642    100.00    2,772    3,737    100.00    2,362    2,5 

Rosal Energia (3)

   —      —      —      —      100.00    47    107    100.00    47    141 

Sá Carvalho (3)

   —      —      —      —      100.00    37    103    100.00    37    106 

Horizontes Energia (3)

   —      —      —      —      100.00    39    53    100.00    39    52 

Cemig PCH (3)

   —      —      —      —      100.00    36    97    100.00    36    92 

UTE Barreiro (3)

   —      —      —      —      100.00    17    18    100.00    31    39 

Empresa de Comercialização de Energia Elétrica (3)

  

 

—  

 

   —      —      —      100.00    —      18    100.00    —      20 

Cemig Comercializadora de Energia Incentivada (3)

  

 

—  

 

   —      —      —      100.00    1    2    100.00    1    2 

Cemig Trading (3)

   —      —      —      —      100.00    1    29    100.00    1    29 

Light

   203,934,060    26.06    2,226    3,389    26.06    2,226    3,462    26.06    2,226    3,354 

TAESA

   1,033,496,721    21.68    3,042    4,572    21.68    3,042    4,347    31.54    3,042    4,308 

Cemig Telecom (2)

   —      —      —      —      100.00    292    247    100.00    242    192 

Ativas Data Center

   456,540,718    19.60    182    84    —      —      —      —      —      —   

Gasmig

   409,255,483    99.57    665    1,001    99.57    665    1,224    99.57    665    1,426 

Cemig Geração Distribuída (5)

   174,281    100.00    0    3    100.00    0    5    100.00    —      4 

LEPSA

   1,379,839,905    100.00    406    447    100.00    406    456    66.62    438    443 

RME

   1,365,421,406    100.00    403    423    75.00    403    453    66.27    434    440 

Efficientia

   15,121,845    100.00    15    18    100.00    6    7    100.00    6    5 

Companhia de Transmissão Centroeste de Minas

  

 

28,000,000

 

   51.00    28    39    51.00    28    40    51.00    28    42 

Companhia Transleste de Transmissão

   49,569,000    —      —      —      —      —      —      25.00    50    81 

Companhia Transudeste de Transmissão

   30,000,000    —      —      —      —      —      —      24.00    30    85 

Companhia Transirapé de Transmissão

   22,340,490    —      —      —      —      —      —      24.50    22    98 

Axxiom Soluções Tecnológicas

   46,600,000    49.00    47    17    49.00    47    24    49.00    47    39 
Investee Number
of shares		 2020 2019 01/01/2019
  

Cemig interest

%

 Share
capital		 Equity 

Cemig interest

%

 Share
capital		 Equity 

Cemig interest

%

 Share
capital		 Equity
Cemig Geração e Transmissão  2,896,785,358   100.00   4,000   5,842   100.00   2,600   5,348   100.00   2,600   5,125 
Madeira Energia
(Santo Antônio plant)		  12,034,025,147   15.51   10,620   2,259   15.51   10,620   3,705   15.51   10,620   4,657 
Hidrelétrica Cachoeirão  35,000,000   49.00   35   110   49.00   35   110   49.00   35   100 
Guanhães Energia  548,626,000   49.00   549   268   49.00   549   268   49.00   396   228 
Hidrelétrica Pipoca  41,360,000   49.00   41   73   49.00   41   63   49.00   41   63 
Baguari Energia (1)  26,157,300,278   69.39   187   229   69.39   187   227   69.39   187   234 
Central Eólica Praias de Parajuru  70,560,000   100.00   71   107   100.00   72   89   100.00   72   80 
Central Eólica Volta do Rio  117,230,000   100.00   117   171   100.00   139   58   100.00   139   84 
Lightger  79,078,937   49.00   79   106   49.00   79   95   49.00   79   86 
Aliança Norte
(Belo Monte plant)		  41,923.360.811   49.00   1,209   1,189   49.00   1,208   1,266   49.00   1,206   1,247 
Amazônia Energia
(Belo Monte plant) (1)		  1,322,597,723   74.50   1,323   1,296   74.50   1,323   1,380   74.50   1,322   1,359 
Aliança Geração  1,291,500   45.00   1,291   1,858   45.00   1,291   1,858   45.00   1,291   1,858 
Retiro Baixo  225,350,000   49.90   225   325   49.90   225   300   49.90   223   278 
Renova (1) (2)  41,719,724   36.23   2,961   (1,108)   36.23   2,961   (1,130)  36.23   2,919   (76)
Usina Hidrelétrica Itaocara S.A.  71,708,500   49.00   72   (60)  49.00   69   (45)  49.00   22   10 
Cemig Ger.Três Marias S.A.  1,291,423,369   100.00   1,291   1,452   100.00   1,291   1,408   100.00   1,291   1,396 
Cemig Ger.Salto Grande S.A  405,267,607   100.00   405   455   100.00   405   446   100.00   405   440 
Cemig Ger. Itutinga S.A.  151,309,332   100.00   151   180   100.00   151   184   100.00   151   179 
Cemig Geração Camargos S.A.  113,499,102   100.00   113   144   100.00   113   136   100.00   113   132 
Cemig Geração Sul S.A.  148,146,505   100.00   148   174   100.00   148   179   100.00   148   176 
Cemig Geração Leste S.A.  100,568,929   100.00   101   127   100.00   101   127   100.00   101   121 
Cemig Geração Oeste S.A.  60,595,484   100.00   61   84   100.00   61   73   100.00   61   70 
Rosal Energia S.A.  46,944,467   100.00   47   127   100.00   47   128   100.00   47   125 
Sá Carvalho S.A.  361,200,000   100.00   37   115   100.00   37   124   100.00   37   94 
Horizontes Energia S.A.  39,257,563   100.00   39   55   100.00   39   57   100.00   39   55 
Cemig PCH S.A.  45,952,000   100.00   46   90   100.00   46   98   100.00   46   93 
Cemig Geração Poço Fundo S.A.  1,402,000   100.00   1   4   100.00   1   4   100.00   17   18 
Empresa de Serviços de Comercialização de Energia Elétrica S.A.  486,000   100.00   —     57   100.00   —     28   100.00   —     27 
Cemig Comercializadora de Energia Incentivada S.A. (3)  —     —     —     —     100.00   1   3   100.00   1   3 
Cemig Trading S.A.  1,000,000   100.00   1   30   100.00   1   31   100.00   1   28 
Cemig Distribuição  2,359,113,452   100.00   5,372   6,022   100.00   5,372   4,708   100.00   2,772   4,708 
TAESA  1,033,496,721   21.68   3,042   6,026   21.68   3,042   4,927   21.68   3,042   4,572 
Ativas Data Center  456,540,718   19.60   182   86   19.60   182   82   19.60   182   84 
Gasmig  409,255,483   99.57   665   1,079   99.57   665   988   99.57   665   1,001 
Cemig Geração Distribuída (4)  —     —     —     —     100.00   —     11   100.00   —     3 
LEPSA  —     —     —     —     —     —     —     100.00   406   447 
RME  —     —     —     —     —     —     —     100.00   403   423 
Cemig Sim (Efficientia) (5)  24,431,845   100.00   24   94   100.00   15   17   100.00   15   18 
Companhia de Transmissão Centroeste de Minas (6)  28,000,000   51.00   28   118   51.00   28   47   51.00   28   39 
Axxiom Soluções Tecnológicas  65,165,000   49.00   65   9   49.00   58   27   49.00   47   17 
UFV Janaúba Geração de Energia Elétrica Distribuída  18,509,900   49.00   19   22   —     —     —     —     —     —   
UFV Corinto Geração de Energia Elétrica Distribuída  18,000,000   49.00   18   20   —     —     —     —     —     —   
UFV Manga Geração de Energia Elétrica Distribuída  21,235,933   49.00   21   24   —     —     —     —     —     —   
UFV Bonfinópolis Geração de Energia Elétrica Distribuída  13,197,187   49.00   13   13   —     —     —     —     —     —   
UFV Lagoa Grande Geração de Energia Elétrica Distribuída  25,471,844   49.00   25   26   —     —     —     —     —     —   
UFV Lontra Geração de Energia Elétrica Distribuída  29,010,219   49.00   29   29   —     —     —     —     —     —   
UFV Mato Verde Geração de Energia Elétrica Distribuída  11,030,391   49.00   11   12   —     —     —     —     —     —   
UFV Mirabela Geração de Energia Elétrica Distribuída  9,320,875   49.00   9   9   —     —     —     —     —     —   
UFV Porteirinha I Geração de Energia Elétrica Distribuída  12,348,392   49.00   12   13   —     —     —     —     —     —   
UFV Porteirinha II Geração de Energia Elétrica Distribuída  11,702,733   49.00   12   12   —     —     —     —     —     —   

 

(1)

Jointly-control under a Shareholders’ Agreement.

(2)

On MarchIn view of Renova’s negative net equity, the Company reduced to zero the carrying value of its equity interests in this investee, at December 31, 2018. Renova adjusted its equity interest in the joint-venture Brasil PCH and recognized adjustments in its financial statements related to shares in profits and losses arising from this investee from the year of 2018, Cemig Telecom was merged into the Company.

which resulted in restatement of its financial statements of December 31, 2019.
(3)

On November 30, 2018 ownershipOctober 1, 2020, Cemig GT completed the merger of the Company’s wholly-owned subsidiaries Rosal Energia, Sá Carvalho, Horizontes Energia, Cemig PCH, UTE Barreiro, Empresa de Comercialização de Energia Elétrica,its subsidiary Cemig Comercializadora de Energia Incentivada S.A., at book value, with consequent extinction of this investee, and the Cemig Trading was transferred to the wholly-owned subsidiary Cemig GT.

GT becoming its successor in all its assets, rights and obligations.
(4)

Movements arising fromOn October 19, 2020, the business combination betweenCemig Geração Distribuída was merged with the Company, at book value, with consequent extinction of this investee, and Energimp. Thethe Company becoming its successor in all its assets, rights to exploitation of the regulated activity are classified in the consolidated statement of financial position under Intangible. Details of the transaction are in the topicParajuru, Volta do Rio and Morgado in this note.

obligations.
(5)

Previously named “Usina Térmica Ipatinga S.A” until December, 2017.On April 14, 2020, the minute of the Annual General Meeting that decided about changes in this subsidiary’s By-laws was registered in the commercial registry authority, changing the name of this subsidiary to Cemig Soluções Inteligentes em Energia S.A.-CEMIG SIM.

(6)On January 13, 2020, the Company concluded acquisition of the equity interest of 49% of the share capital held by Eletrobras in Centroeste.
F-92 

Table of Contents 

On December 31, 2020, the Company had indirect equity interests in the following investees:

  2020 and 2019 (1)
 Direct interest %  Indirect interest % 
Amazônia  74.50%  5.76%
LightGer  49.00%  11.52%
Guanhães  49.00%  11.52%
Axxiom  49.00%  11.52%
UHE Itaocara  49.00%  11.52%
(1)After selling the shares held in Light, on January 22, 2021, the Company no longer holds the indirect interest above.

 

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F-93 

Table of Contents 

 

The main balances for the affiliated and jointly-controlled entities, at December 31, 2018, 20172020, 2019 and 2016,2018, are as follows:

 

2018

  Centroeste Ativas Data
Center		 Taesa Hidrelétrica
Cachoeirão		 Hidrelétrica
Pipoca		 Retiro Baixo Aliança Norte 
2020 Hidrelétrica Itaocara S.A. Ativas Data Center Taesa Axxiom Soluções Tecnológicas Lightger Hidrelétrica Cachoeirão

Assets

                    

Current

   19  17  1,679  23  12  47   —     3   39   2,360   20   103   30 

Cash and cash equivalents

   —    1  19  18  4  36   —     2   12   896   3   80   26 

Non-current

   36  106  6,750  85  95  354  1,247   10   104   11,745   21   129   80 
Total assets  13   143   14,105   41   232   110 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

                         

Total assets

   55   123   8,429   108   107   401   1,247 

Liabilities

                                

Current

   6  23  606  7  11  32   —     73   39   841   25   72   2 

Loans and financings – Current

   3  9  8   —    7  14   —     —     27   121   7   9   —   

Non-current

   10  16  3,252   —    33  91   —     —     18   7,238   7   54   —   

Loans and financings –Non-Current

   10  13  402   —    33  82   —     —     16   923   1   54   —   

Equity

   39  84  4,572  100  63  278  1,247   (60)  86   6,026   9   106   108 
Total liabilities and equity  13   143   14,105   41   232   110 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

                         

Total liabilities

   55   123   8,430   107   107   401   1,247 

Statement of income

                                

Net sales revenue

   14  70  1,245  50  29  71   —     —     94   3,561   41   52   34 

Cost of sales

   (1)  (72)  (185)  (29)  (12)  (29)   —     (13)  (78)  (1,048)  (38)  (9)  (15)

Depreciation and amortization

   —     —    —    (3)  (3)  (10)   —     —     (15)  (7)  (2)  (11)  (3)

Gross profit (loss)

   13  (2)  1,060  21  17  42   —     (13)  16   2,513   3   43   19 

General and administrative expenses

   —    (16)  (138)   —     —    (4)  (3)   —     (8)  (153)  (5)  (1)  —   

Finance income

   1   —    53  1   —    2  1   —     —     39   —     2   1 

Finance expenses

   (3)  (3)  (275)   —    (4)  (11)  (1)   (5)  (3)  (514)  (1)  (16)  —   

Operational profit (loss)

   11  (21)  700  22  13  29  (3)   (18)  5   1,885   (3)  28   20 

Share of (loss) profit, net, of subsidiaries and joint ventures

   —    —   481   —     —     —    97   —     —     834   —     —     —   

Income and Social Contribution taxes

   (1)   —   (110)  (2)  (1)  (3)   —   
  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
Income tax and social contribution tax  —     (2)  (456)  —     (2)  (1)

Net income (loss) for the year

   10   (21)   1,071   20   12   26   94   (18)  3   2,263   (3)  26   19 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

                         

Comprehensive income (loss) for the year

          (18)  3   2,263   (3)  26   19 

Net income (loss) for the year

   10  (21)  1,071  20  12  26  94 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Comprehensive income (loss) for the year

   10   (21)   1,071  20  12  26  94 
  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

F-75

LOGO

 

2018

  Amazônia Energia  Madeira Energia  Baguari Energia  Renova  Aliança Geração 

Assets

      

Current

   —     618   44   295   712 

Cash and cash equivalents

   —     69   8   —     344 

Non-current

   1,360   22,453   201   1,229   2,277 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

   1,360   23,071   245   1,524   2,989 

Liabilities

      

Current

   1   1,281   7   442   534 

Loans and financings – Current

   —     53   —     342   149 

Non-current

   —     17,134   5   1,158   597 

Loans and financings –Non-Current

   —     10,220   —     —     140 

Equity

   1,359   4,656   233   (76)   1,858 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities

   1,360   23,071   245   1,524   2,989 

Statement of income

      

Net sales revenue

   —     3,005   74   —     907 

Cost of sales

   —     (2,689)   (31)   (4)   (555) 

Depreciation and amortization

   —     —     (9)   (4)   (125) 

Gross profit (loss)

   —     316   43   (4)   352 

General and administrative expenses

   (1)   (195)   —     (93)   (31) 

Finance income

   2   128   3   1   30 

Finance expenses

   (2)   (1,881)   (1)   (84)   (67) 

Operational profit (loss)

   (1)   (1,632)   45   (180)   284 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Share of (loss) profit, net, of subsidiaries and joint ventures

   105   —     —     (676)   10 

Income and Social Contribution taxes

   (1)   (112)   (4)   —     (96) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) for the year

   103   (1,744)   41   (856)   198 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

      

Net income (loss) for the year

   103   (1,744)   41   (856)   198 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

   103   (1,744)   41   (856)   198 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

2017 (1)

  Centroeste  RME  Light  Taesa  Axxiom  Aliança
Norte		  Itaocara  Lightger  Amazônia
Energia		  Aliança
Geração		 

Assets

           

Current

   56   2   4,250   1,970   46   1   5   51   —     622 

Cash and cash equivalents

   17   1   342   2   3   —     5   1   —     468 

Non-current

   1   451   11,181   6,608   11   1,065   11   142   1,163   2,398 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

   57   453   15,431   8,578   57   1,066   16   193   1,163   3,020 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Liabilities

           

Current

   4   —     5,575   736   29   —     1   31   —     448 

Suppliers

   —     —     2,023   48   1   —     1   20   —     44 

Loans and financings – Current

   3   —     1,373   —     5   —     —     —     —     84 

Non-current

   13   —     6,394   3,495   4   —     7   79   —     714 

Equity

   40   453   3,462   4,347   24   1,066   8   83   1,163   1,858 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities

   57   453   15,431   8,578   57   1,066   16   193   1,163   3,020 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Statement of income

           

Net sales revenue

   15   —     11,315   1,104   43   —     —     42   —     920 

Cost of sales

   (4)   —     —     (209)   (55)   —     (4)   (28)   —     (554) 

Depreciation and amortization

   (1)   —     —     (1)   (2)   —     —     (11)   —     (127) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit (loss)

   11   —     11,315   895   (12)   —     (4)   14   —     366 

General and administrative expenses

   —     (1)   (9,941)   (124)   (7)   (1)   —     (2)   (1)   (11) 

Finance income

   2   16   136   368   1   —     —     4   2   30 

Finance expenses

   (2)   —     (1,212)   (434)   (1)   —     —     (9)   —     (65) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operational profit (loss)

   11   15   298   705   (19)   (1)   (4)   7   1   320 

Income and Social Contribution taxes

   (1)   —     (174)   (58)   6   —     —     (3)   —     (104) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) for the year

   10   15   124   647   (13)   (1)   (4)   4   1   216 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

           

Net income (loss) for the year

   10   15   124   647   (13)   (1)   (4)   4   1   216 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

   10   15   124   647   (13)   (1)   (4)   4   1   216 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

F-94 

 

(1)Table of Contents

The ‘Transmineiras’ companies (Companhia Transleste de Transmissão S.A.; Companhia Transudeste de Transmissão S.A. and Companhia Transirapé de Transmissão S.A.) were removed from the table for 2017, due to their sale in November 2017. LEPSA is not presented in the 2017 table due to the fact that it has been under the Company’s control since November 2017.

 

2020 Hidrelétrica Pipoca Retiro Baixo Aliança Norte Guanhães Energia Amazônia Energia Renova Madeira Energia
Assets                            
Current  21   87   —     13   —     998   945 
  Cash and cash equivalents  8   74   —     6   —     29   263 
Non-current  89   331   1,189   405   1,296   1,299   21,370 
Total assets  110   418   1,189   418   1,296   2,297   22,315 
                             
Liabilities                            
Current  17   30   —     27   —     725   1,150 
  Loans and financings – Current  7   14   —     12   —     380   108 
Non-current  20   63   —     123   —     2,680   18,906 
  Loans and financings – Non-Current  20   55   —     106   —     1,083   4,902 
Equity  73   325   1,189   268   1,296   (1,108)  2,259 
Total liabilities and equity  110   418   1,189   418   1,296   2,297   22,315 
                             
Statement of income                            
Net sales revenue  33   73   —     49   —     70   3,200 
Cost of sales  (6)  (29)  —     (36)  —     (46)  (2,720)
  Depreciation and amortization  (3)  (11)  —     (17)  —     (7)  (869)
Gross profit (loss)  27   44   —     13   —     24   480 
General and administrative expenses  (1)  (4)  (1)  —     —     (122)  (82)
Finance income  —     2   —     —     —     —     258 
Finance expenses  (2)  (6)  —     (10)  —     26   (2,112)
Operational profit (loss)  24   36   (1)  3   —     (72)  (1,456)
Share of (loss) profit, net, of subsidiaries and joint ventures  —     —     (77)  —     (84)  95   —   
Income tax  and social contribution tax  (2)  (3)  —     (2)  —     (1)  10 
Net income (loss) for the year  22   33   (78)  1   (84)  22   (1,446)
                             
Comprehensive income (loss) for the year  22   33   (78)  1   (84)  22   (1,446)

 

F-76

2020 Baguari Energia Aliança Geração UFV Janaúba UFV Corinto UFV Manga Manga UFV Bonfinópolis II
Assets                        
Current  63   805   3   2   1   —   
  Cash and cash equivalents  10   385   2   1   —     —   
Non-current  209   2,461   19   18   23   13 
Total assets  272   3,266   22   20   24   13 
                         
Liabilities                        
Current  22   503   —     —     —     —   
  Loans and financings – Current  —     19   —     —     —       
Non-current  21   905   —     1   2   —   
  Loans and financings – Non-Current  —     261   —     —     —     —   
Equity  229   1,858   22   19   22   13 
Total liabilities and equity  272   3,266   22   20   24   13 
                         
Statement of income                        
Net sales revenue  73   1,042   —     3   3   —   
Cost of sales  (30)  (580)  3   —     —     —   
  Depreciation and amortization  (11)  (154)  (1)  (1)  (1)  —   
Gross profit (loss)  43   462   3   3   3   —   
General and administrative expenses  5   (47)  —     (1)  (2)  —   
Finance income  2   28   —     —     —     —   
Finance expenses  (1)  (63)  —     —     —     —   
Operational profit (loss)  49   380   3   2   1   —   
Share of (loss) profit, net, of subsidiaries and joint ventures  —     —     —     —     —     —   
Income tax  and social contribution tax  (17)  (126)  —     —     —     —   
Net income (loss) for the year  32   254   3   2   1   —   
                         
Comprehensive income (loss) for the year  32   254   3   2   1   —   

LOGO

 

2017

 Hidrelétrica
Cachoeirão		  Baguari
Energia		  Guanhães
Energia		  Madeira
Energia		  Hidrelétrica
Pipoca		  Retiro
Baixo		  Renova  Central
Eólica de
Parajuru		  Central
Eólica de
Morgado		  Central
Eólica
Volta do
Rio		 

Assets

          

Current

  51   29   11   557   15   23   32   41   11   16 

Cash and cash equivalents

  46   5   7   55   6   14   —     35   7   5 

Non-current

  87   209   42   23,594   95   366   1,679   121   136   233 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

  138   238   53   24,151   110   389   1,711   162   147   249 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Liabilities

          

Current

  10   18   2   2,031   18   27   395   26   90   126 

Suppliers

  1   10   —     203   6   3   25   1   2   1 

Non-current

  10   6   —     16,793   39   104   536   47   3   7 

Equity

  118   214   51   5,327   53   258   780   89   54   116 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities

  138   238   53   24,151   110   389   1,711   162   147   249 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Statement of income

          

Net sales revenue

  39   64   —     2,971   29   67   —     21   14   22 

Cost of sales

  (17)   (37)   (1)   (1,859)   (18)   (34)   (5)   (16)   (17)   (28) 

Depreciation and amortization

  (4)   (9)   —     —     (3)   (10)   (5)   (10)   (10)   (17) 

Gross profit (loss)

  22   27   (1)   1,112   11   33   (5)   5   (3)   (6) 

General and administrative expenses

  —     —     —     (817)   (1)   —     —     (2)   (1)   (3) 

Provision for loss

  —     —     (22)   —     —     —     —     —     —     —   

Financial income

  4   6   1   115   2   3   4   3   2   3 

Finance expenses

  (2)   —     (3)   (1,551)   (5)   (11)   (1,260)   (6)   (8)   (12) 

Operational profit (loss)

  24   33   (25)   (1,141)   7   25   (1,261)   —     (10)   (18) 

Income and Social Contribution taxes

  (3)   (11)   —     49   (2)   (3)   121   —     (1)   (3) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) for the year

  21   22   (25)   (1,092)   5   22   (1,140)   —     (11)   (21) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

          

Net income (loss) for the year

  21   22   (25)   (1,092)   5   22   (1,140)   —     (11)   (21) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

  21   22   (25)   (1,092)   5   22   (1,140)   —     (11)   (21) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
F-95 

 

2016

 Parati  Transleste  Transirapé  Centroeste  Transudeste  Lepsa  RME  Light  Taesa  Axxiom  Aliança
Norte		 

Assets

           

Current

  12   50   41   61   32   6   3   3,612   1,955   66   2 

Cash and cash equivalents

  8   3   2   20   4   —     —     668   102   9   2 

Non-current

  1,327   123   122   1   78   437   437   10,718   6,456   13   1,075 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

  1,339   173   163   62   110   443   440   14,330   8,411   79   1,077 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  —     —     —     —     —     —     —     —     —     —     —   

Liabilities

  —     —     —     —     —     —     —��    —     —     —     —   

Current

  —     28   33   5   22   —     —     4,871   1,074   32   —   

Suppliers

  —     —     —     —     —     —     —     1,342   37   1   —   

Loans and financings

  —     18   19   3   19   —     —     15,568   9   10   —   

Non-current

  —     63   32   15   3   —     —     6,105   3,029   8   —   

Equity

  1,339   82   98   42   85   443   440   3,354   4,308   39   1,077 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities

  1,339   173   163   62   110   443   440   14,330   8,411   79   1,077 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  —     —     —     —     —     —     —     —     —     —     —   

Statement of income

  —     —     —     —     —     —     —     —     —     —     —   

Net sales revenue

  —     34   45   13   22   —     —     9,645   1,391   57   —   

Cost of sales

  —     (2)   (19)   (2)   (1)   —     —     (8,042)   (149)   (64)   —   

Depreciation and amortization

  —     —     —     (1)   —     —     —     (452)   (1)   (2)   —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit (loss)

  —     32   26   11   21   —     —     1,603   1,242   (7)   —   

General and administrative expenses

  (6)   —     (1)   —     (1)   (1)   (1)   (753)   (107)   (8)   (2) 

Finance income

  4   2   1   4   1   —     1   148   58   1   —   

Finance expenses

  (60)   (11)   (5)   (3)   (4)   (41)   (41)   (1,281)   (223)   —     (7) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operational profit (loss)

  (62)   23   21   12   17   (42)   (41)   (283)   970   (14)   (9) 

Income tax and the Social Contribution tax

  —     (2)   (2)   (1)   (1)   —     —     (30)   (108)   5   —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) for the year

  (62)   21   19   11   16   (42)   (41)   (313)   862   (9)   (9) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) effects

  1   —     —     —     —     —     —     3   —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

  (61)   21   19   11   16   (42)   (41)   (310)   862   (9)   (9) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
Table of Contents 

 

F-77

2020 UFV Lagoa Grande  UFV Lontra  UFV Mato Verde  UFV Mirabela  UFV Porteirinha I  UFV Porteirinha II 
Assets                  
Current  2   —     1   —     1   —   
  Cash and cash equivalents  1   —     —     —     —     —   
Non-current  24   29   11   9   12   12 
Total assets  26   29   12   9   13   12 
                         
Liabilities                        
Current  —     1   —     —     —     —   
Non-current  —     1   —     —     —     —   
Equity  26   27   12   9   13   12 
Total liabilities and equity  26   29   12   9   13   12 
                         
Statement of income                        
Net sales revenue  2   —     —     1   —     —   
Cost of sales  —     (1)  —     —     —     —   
Gross profit (loss)  2   (1)  —     1   —     —   
General and administrative expenses  (1)  (1)  —     —     —     (1)
Operational profit (loss)  1   (2)  —     1   —     (1)
Income tax  and social contribution tax  —     —     —     —     —     1 
Net income (loss) for the year  1   (2)  —     1   —     —   
                         
Comprehensive income (loss) for the year  1   (2)  —     1   —     —   

LOGO

 

2016

 Hidrelétrica
Cachoeirão		  Baguari
Energia		  Guanhães
Energia		  Madeira
Energia		  Hidrelétrica
Pipoca		  Retiro
Baixo		  Renova  Central
Eólica de
Parajuru		  Central
Eólica de
Morgado		  Central
Eólica
Volta
do Rio		  Lightger  Amazônia
Energia		  Aliança
Geração		 

Assets

             

Current

  43   45   16   1,520   20   30   136   38   24   37   35   —     388 

Cash and cash equivalents

  40   11   1   58   17   19   36   18   17   27   32   —     147 

Non-current

  86   220   65   23,557   98   377   5,765   128   142   245   152   1,048   2,512 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

  129   265   81   25,077   118   407   5,901   166   166   282   187   1,048   2,900 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  —     —     —     —     —     —     —     —     —     —     —     —     —   

Liabilities

  —     —     —     —     —     —     —     —     —     —     —     —     —   

Current

  9   12   191   3,131   8   25   3,347   19   27   37   16   —     592 

Suppliers

  2   6   —     662   —     1   547   1   1   1   6   —     101 

Non-current

  17   5   11   15,527   45   118   598   58   74   108   86   —     335 

Equity

  103   248   (121)   6,419   65   264   1,956   89   65   137   85   1,048   1,973 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities

  129   265   81   25,077   118   407   5,901   166   166   282   187   1,048   2,900 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  —     —     —     —     —     —     —     —     —     —     —     —     —   

Statement of income

  —     —     —     —     —     —     —     —     —     —     —     —     —   

Net sales revenue

  34   65   —     2,803   25   62   484   27   22   29   36   —     804 

Cost of sales

  (10)   (12)   —     (1,845)   (6)   (29)   (454)   (17)   (17)   (27)   (17)   —     (314) 

Depreciation and amortization

  (3)   (9)   —     (673)   (3)   (9)   (93)   (10)   (10)   (17)   (11)   —     (125) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit (loss)

  24   53   —     958   19   33   30   10   5   2   19   —     490 

General and administrative expenses

  —     (1)   —     (146)   (2)   —     (41)   (1)   (1)   (2)   (1)   (1)   (58) 

Impairment of PP&E

  —     —     —     —     —     —     (281)   —     —     —     —     —     —   

Adjustment for losses on investment

  —     —     —     —     —     —     (455)   —     —     —     —     —     —   

Finance income

  4   15   —     146   2   2   16   3   3   5   3   —     46 

Finance expenses

  (3)   (1)   (208)   (1,552)   (6)   (15)   (424)   (7)   (10)   (15)   (10)   (8)   (58) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operational profit (loss)

  25   66   (208)   (594)   13   20   (1,155)   5   (3)   (10)   11   (9)   420 

Income tax and the Social Contribution tax

  (2)   (7)   —     (23)   (2)   (3)   54   (2)   1   3   (3)   —     (127) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) for the year

  23   59   (208)   (617)   11   17   (1,101)   3   (2)   (7)   8   (9)   293 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) effects

  —     —     —     —     —     —     99   —     —     —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss) for the year

  23   59   (208)   (617)   11   17   (1,002)   3   (2)   (7)   8   (9)   293 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

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2019 

 

Centroeste

 Ativas Data Center Taesa Axxiom Soluções Tecnológicas Hidrelétrica Cachoeirão Hidrelétrica Pipoca Retiro Baixo Aliança Norte
Assets                
Current  29   33   3,568   34   35   11   68   1 
  Cash and cash equivalents  27   8   83   7   30   2   56   1 
Non-current  35   107   7,662   26   82   89   343   1,266 
Total assets  64   140   11,230   60   117   100   411   1,267 
                                 
Liabilities                                
Current  6   24   996   28   7   11   34   1 
  Loans and financings – Current  3   13   10   8   —     7   14   —   
Non-current  11   34   5,307   5   —     26   77   —   
    Loans and financings – Non-Current  8   31   4,159   —     —     26   68   —   
Equity  47   82   4,927   27   110   63   300   1,266 
Total liabilities and equity  64   140   11,230   60   117   100   411   1,267 
                                 
Statement of income                                
Net sales revenue  17   83   1,795   53   38   30   70   —   
Cost of sales  (5)  (75)  (574)  (54)  (17)  (15)  (30)  —   
  Depreciation and amortization  (1)  (18)  (5)  (2)  (3)  (3)  (9)  —   
Gross profit (loss)  12   8   1,221   (1)  21   15   40   —   
General and administrative expenses  (2)  (7)  (122)  (11)  —     —     (4)  (2)
Finance income  2   —     97   —     1   —     3   —   
Finance expenses  (2)  (3)  (356)  (2)  —     (3)  (8)  —   
Operational profit (loss)  10   (2)  840   (14)  22   12   31   (2)
Share of (loss) profit, net, of subsidiaries and joint ventures  —     —     306   —     —     —     —     19 
Income tax and social contribution tax  (1)  —     (144)  5   (2)  (1)  (3)  —   
Net income (loss) for the year  9   (2)  1,002   (9)  20   11   28   17 
           —                       
Comprehensive income (loss) for the year  9   (2)  1,002   (9)  20   11   28   17 

2019 Amazônia Energia Madeira Energia Baguari Energia Renova
(restated)		 Lightger Guanhães Energia Aliança Geração
Assets              
Current  —     750   60   21   87   11   935 
  Cash and cash equivalents  —     78   9   5   69   5   435 
Non-current  1,380   21,680   187   2,269   124   419   2,409 
Total assets  1,380   22,430   247   2,330   211   430   3,344 
                       —       
Liabilities                      —       
Current  1   1,177   16   2,928   53   27   610 
  Loans and financings – Current  —     73   —     1,507   9   12   161 
Non-current  —     17,548   4   493   63   136   876 
  Loans and financings – Non-Current  —     10,925   —     55   63   127   276 
Equity  1,379   3,705   227   (1,130)  95   267   1,858 
Total liabilities and equity  1,380   22,430   247   2,291   211   430   3,344 
                             
Statement of income                            
Net sales revenue  —     3,198   68   98   50   51   1,103 
Cost of sales  —     (2,508)  (23)  (66)  (27)  (38)  (681)
  Depreciation and amortization  —     (869)  (9)  (9)  (11)  (14)  (151)
Gross profit (loss)  —     690   45   32   23   13   422 
General and administrative expenses  —     (99)  —     (660)  (2)  (5)  (31)
Finance income  —     131   4   3   4   1   39 
Finance expenses  —     (1,683)  (1)  (448)  (7)  (9)  (90)
Operational profit (loss)  —     (961)  48   (1,073)  18   —     340 
Share of (loss) profit, net, of subsidiaries and joint ventures  20       —     66   —     —       
Income tax  and social contribution tax  —     10   (16)  (7)  (3)  (2)  (111)
Net income (loss) for the year  20   (951)  32   (1,014)  15   (2)  229 
                             
Comprehensive income (loss) for the year  20   (951)  32   (1,014)  15   (2)  229 

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2018 Centroeste Ativas Data Center Taesa Hidrelétrica Cachoeirão Hidrelétrica Pipoca Retiro Baixo Aliança Norte
Assets              
Current  19   17   1,927   23   12   47   —   
  Cash and cash equivalents  —     1   21   18   4   36   —   
Non-current  36   106   6,689   85   95   354   1,247 
Total assets  55   123   8,616   108   107   401   1,247 
                             
Liabilities                            
Current  6   23   647   8   11   32   —   
  Loans and financings – Current  3   9   11   —     7   14   —   
Non-current  10   16   3,397   —     33   91   —   
    Loans and financings – Non-Current  10   13   410   —     33   82   —   
Equity  39   84   4,572   100   63   278   1,247 
Total liabilities and equity  55   123   8,616   108   107   401   1,247 
                             
Statement of income                            
Net sales revenue  14   70   1,635   50   29   71   —   
Cost of sales  (1)  (72)  (362)  (29)  (12)  (29)  —   
  Depreciation and amortization  —     —     —     (3)  (3)  (10)  —   
Gross profit (loss)  13   (2)  1,273   21   17   42   —   
General and administrative expenses  —     (16)  (144)  —     —     (4)  (3)
Finance income  1   —     63   1   —     2   1 
Finance expenses  (3)  (3)  (274)  —     (4)  (11)  (1)
Operational profit (loss)  11   (21)  918   22   13   29   (3)
Share of (loss) profit, net, of subsidiaries and joint ventures  —     —     301   —     —     —     97 
Income tax and social contribution tax  (1)  —     (147)  (2)  (1)  (3)  —   
Net income (loss) for the year  10   (21)  1,072   20   12   26   94 
                             
Comprehensive income (loss) for the year  10   (21)  1,072   20   12   26   94 

2018 Amazônia Energia Madeira Energia Baguari Energia Renova (restated) Aliança Geração
Assets          
Current  —     618   44   1,738   791 
  Cash and cash equivalents  —     69   8   15   381 
Non-current  1,360   22,453   201   867   2,440 
Total assets  1,360   23,071   245   2,605   3,231 
                     
Liabilities                    
Current  1   1,281   7   2,195   564 
  Loans and financings – Current  —     53   —     349   168 
Non-current  —     17,134   5   510   809 
  Loans and financings – Non-Current  —     10,220   —     64   348 
Equity  1,359   4,656   233   (100)  1,858 
Total liabilities and equity  1,360   23,071   245   2,605   3,231 
                     
Statement of income                    
Net sales revenue  —     3,006   74   710   984 
Cost of sales  —     (2,689)  (31)  (834)  (599)
  Depreciation and amortization  —     (887)  (9)  (10)  (153)
Gross profit (loss)  —     317   43   (124)  385 
General and administrative expenses  (1)  (195)  —     (458)  (31)
Finance income  2   128   3   3   33 
Finance expenses  (2)  (1,881)  (1)  (320)  (89)
Operational profit (loss)  (1)  (1,631)  45   (899)  298 
Share of (loss) profit, net, of subsidiaries and joint ventures  105   —     —     49   —   
Income tax and social contribution tax  (1)  (112)  (4)  (6)  (100)
Net income (loss) for the year  103   (1,743)  41   (856)  198 
       —         —       
Comprehensive income (loss) for the year  103   (1,743)  41   (856)  198 

Madeira Energia S.A. (‘MESA’) and FIP Melbourne

MESA is the parent company of Santo Antônio Energia S.A (‘SAESA’), whose objects are operation and maintenance of the Santo Antônio Hydroelectric Plant and its transmission system, on the Madeira River. MESA’s shareholders include Furnas, Odebrecht Energia, SAAG and the Company.

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On December 31, 2018 the investee2020 MESA reported a loss of R$1,7431,445 (R$1,091951 on 20172019) and negative net working capital of R$ 617)205 (R$427 on 2019). Hydroelectric plants project finances structurally present negative net working capital in the first years of operation, because they are built using high levels of financial leverage. On the other hand, they have firm long term contracts for energy supply as support and current liabilities in excessguarantee of current assets by R$663 (R$ 1,474 on 2017).payment of their debts. To balance the situation of negative working capital, in addition to its long-term sale contracts that ensure regularity in its operational cash flow;flow, MESA concluded in December 2018, the reprofiling ofbenefits from its debt with BNDES, adjusting thereprofiling, which adjusted its debt repayments flow of payments of the debt to its cash generation capacity. The values forcapacity, so that the guarantee provided byinvestee does not depend on additional investment from the Company in relation to these debts are given in Note 27. Additionally, to ensure its liquidity, MESA also rely on financial support from its shareholders, under an equity support agreement signed for this purpose. Under this agreement the Company is required, in accordance with a limit defined by its shareholding interest, to fund any cash shortfalls that occur, or any frustrations of sources of funds specified in the project.

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shareholders.

The FID (Availability Factor)

On April 10, 2018 the Federal Supreme Court re-established the requirement for application of the Availability Factor (FID) in relation to the generating units of theSanto Antônio Hydroelectric Plant not dispatched by the National System Operator (ONS). Obeying this decision, the CCEE agreed to accept payment of the FID in installments, for a total of approximately R$738, recorded as liabilities underSuppliers, that has being paid in 36 equal installments, from September 2018, with the addition of inflation adjustment and interest.

Arbitration proceedings

In 2014, Cemig GT and SAAG Investimentos S.A. (SAAG), a vehicle through which Cemig GT holds an indirect equity interest in MESA, opened arbitration proceedings, in the Market Arbitration Chamber, challenging the following: (a) the approved increase approved in the capital of MESA of approximately R$ 750678 partially to be allocated to payment of the claims by the Santo Antonio Construction Consortium (‘CCSA’), based on absence of quantification of the amounts supposedly owed, and absence of prior approval by the Board of Directors, as required by the bylaws and Shareholders’ Agreement of MESA; and also on the existence of credits owed to MESA by CCSA, for an amount greater than the claims; and (b) against the adjustment for impairment carried out by the Executive Board of MESA, in the amount of R$ 750,678, relating to certain credits owed to Mesa by CCSA, on the grounds that those credits are owed in their totality by express provision of contract.

The arbitration judgment recognized the right of Cemig GT and SAAG in full, and ordered the annulment of the acts being impugned. As a consequence of this decision, MESA reversed the impairment, and posted a provision for receivables in the amount of R$ 679678 in its financial statements as of December 31, 2017.

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On December 31, 2020, the investee confirmed its assets recoverability expectation and maintained the provision for receivables in the amount of R$678.

 

To resolve the question of the liability of the CCSA consortium to reimburse the costs of re-establishment of the collateral and use of the contractual limiting factor, the affiliated company opened arbitration proceedings with the International Chamber of Commerce (ICC) against CCSA, which are in progress. This process is confidential under the Arbitration Regulations of the ICC.

Cemig GT and SAAG Investimentos S.A. applied to the judiciary for provisional remedy prior to the arbitration proceeding, to suspend the effects of the capital increase approved by an Extraordinary General Meeting of Shareholders of Mesa held on August 28, 2018. This process is also confidential under the Arbitration Regulations of the Market Arbitration Chamber.

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Renova Energia S.A. - court-supervised reorganization (‘Renova’)

Going concern

The investee Renova, currently in court-supervised reorganization, has been reporting recurring losses and presenting negative net working capital, net equity (uncovered liabilities) throughout the past years.

On December 31, 20182020, the jointly controlledjointly-controlled investee Renova, reported a consolidated lossprofit of R$ 856 (R$ 1,139 on 201722 (loss of R$1,014 in 2019 and R$1,101 on 2016)856 in 2018), accumulated losses of R$ 3,0513,994 (R$ 2,195 on 2017), current liabilities4,017 in excess of current assets by2019 and R$ 458 (R$ 1,607 on 2017)3,058 in 2018), an equity deficit of R$ 76,1,108 (R$1,130 in 2019 and R$100 in 2018). Renova reported a positive net working capital in 2020 of R$273, in contrast to the negative gross marginnet working capital reported in the past years of R$2,907 in 2019 and needsR$457 in 2018. This scenario reflects the court-supervised reorganization plan, which provide the agreements to obtain capital to comply with its commitments, including those for constructionbalance the group liabilities, the renegociation of wind and solar power plants..

These events or conditions indicate the existence of relevant uncertainty that may raise significant doubt about its ability to continue as a going concern as of December 31, 2018.

In this scenario, the investee and its shareholders, including the Company, approved a corporate and financing restructuring plan with the aim of rebalancing its liquidity and cash flow structure, resolving the capital structure and honoring its commitments, including the approval of a binding proposal from AES Tietê Energia S.A. for purchase of the investee’s wind farms and renegotiation of debt with financial creditors. Management of the Companyinterest rates and the investee believe that, with the successextension of the measures approved, it will be possible to recover economic, financial and liquidity balance to continue the investee’s business in the future.debts maturity.

However, in

In view of the investee’s equity deficit, the Company has reduced the carrying value of its equity interests in Renova, at RenovaDecember 31, 2018, to zero and no further losses have been recognized, considering the non-existence of any legal or constructive obligations to the investee.

Additionally, the Company recorded, since June 30, 2019, an impairment of the receivables with the jointly-controlled entity in the amount of R$688.

Renova for court-supervised reorganization

On October 16, 2019, was granted court-supervised reorganization petition applied by Renova, and by the other companies of the group (‘the Renova Group’).

On October 25, 2019, Cemig GT made an Advance for Future Capital Increase to Renova, of R$5 and subsenquently was agreeded between the Company and Renova a Debtor in Possession (DIP) loan agreements in the total amount of R$37. The continuityfunds of these loans, made under specific rules of court-supervised reorganization proceedings, were necessary to support the expenses of maintaining the activities of Renova, and were authorized by the second State of São Paulo Bankruptcy and Court-supervised Reorganization Court. They are guaranteed by a fiduciary assignment of shares in a company owning assets of a wind power project owned by Renova, and they also have priority of receipt in the court-supervised reorganization process.

On May 2, 2020, the State of São Paulo Bankruptcy and Court-supervised Reorganization Court issued a decision ordering that the DIP loan, in the total amount of R$37, with asset guarantee, already constituted and registered, would be subscribed as a going concern dependscapital increase in Renova. Company has filed a Motion for Clarification and in a virtual and permanent session of the 2nd Chamber of Business Law of the São Paulo Court of Justice, decided to uphold the appeal. Thus, the clauses of the court-supervised plan that deal with the loan contracts signed by the Company are maintained, for a while.

On September 21, 2020, Renova approved the proposal made by the Company for suspension of the obligations in the PPA signed between them, as amended from time to time, for incentive-bearing wind power which were linked to phase A of the Alto Sertão III Wind Complex. The suspension will remain in effect until the beginning of the commercial operation of the facilities aimed at the Free Market, planned for December 2022, and is duly aligned with the strategic planning set out for compliance with the Renova reorganization plan.

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On October 8, 2020, the Board of Renova approved acceptance of the binding proposal presented by Prisma Capital Ltda. for acquisition of the rights and assets related to Phase B of the Alto Sertão III Wind Complex, under first proposer (‘Stalking Horse’) conditions, with right of preference in the acquisition, subject to the usual conditions precedent, including approval by a General Meeting of Creditors, which occurred on December 18,2020. The proceeds obtained will be specifically directed to compliance with its obligations under the Court-Supervised Reorganization Plan and restart of the works on Phase A of the Alto Sertão III Wind Complex.

On December 18, 2020, the General Meeting of Creditors approved the court-supervised reorganization plans submitted to the court by Renova. The economic and financial reasonableness of the two plans was presented at the creditors’ meeting, as follows:

(i)raising of a bridge loan for completion of the Alto Sertão III wind complex – this was signed on December 17, 2020, in the amount of R$350, in the Debtor in Possession (DIP) financing form, by the subsidiary Chipley SP Participações S.A., with co-obligations by Renova Energia S.A. And Renova Participações S.A., to be allocated specifically to resumption of the works on Phase A of the Alto Sertão III Wind Complex;
(ii)sale of assets, principally the shareholding in Brasil PCH, and some wind power ongoing projects;
(iii)renegotiation of the period for settlement of liabilities, with alteration only of maturities, and not amounts; and
(iv)conclusion of the works on the Alto Sertão III Wind Complex.

In this sense, the plans describe the means of recovery in detail, give details of the DIP bridge loan, identify the Isolated Production Units (UPIs) and specify the procedure for resources disposal and allocation.

The mainly effects of the approval of the court-supervised reorganization plan on Renova’s financial statements at December 2020 are as follow:

(i)the investments in Brazil PCH, Enerbras, AS III Phase B and Mina de Ouro are presented as held for sale, in current assets;
(ii)liabilities were updated from the date of application for court-supervised reorganization until December 31, 2020 at 100% of the CDI rate;
(iii)the liabilities to controlling shareholders were updated from the date of approval of the application for court-supervised reorganization, at 100% of the CDI rate; and
(iv)the interest provisioned for the period between approval of the application and approval of the plan was reversed.

On February 11, 2021, PSS Principal Fundo de Investimento em Participações Multiestratégia, managed by Prisma Capital Ltda., won the competitive tender for sale of the Phase B UPI specified in the Renova Group’s court-supervised reorganization Plan, with the proposal of R$58, 16.77% higher than the minimum value specified in the Plan. Renova and the PSS Principal Fund will sign the final instruments for acquisition, in the terms of the Tender of the Phase B UPI, in order to begin compliance with the precedent conditions that are usual in such transactions.

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Further, on March 1, 2021 the Board of Directors of Renova approved an increase in the share capital of this investee of until R$1,421, with the condition that partial subscription of R$ 332 or more, corresponding to the amount of the credits to be capitalized under the Plans, will be accepted. The capital increase and its final amount are subject to approval by the Board of Directors, after expiry of the periods for exercise of rights of first refusal and subscription of leftover shares by holders of subscription rights. The Company is not part of the group of creditors that requested conversion of their credits into equity, and also will not subscribe any part of the capital increase. As a result, the equity interest held by the Company in Renova will be reduced from 29.81% to 15.15% of the total capital, considering that no other shareholder subscribes the capital increase. There will be no effect on the successpresent jointly control of Renova.

On March 2, 2021 the contract for sale of shares of the Phase B UPI was signed, on the terms specified in the Tender of that UPI and in the Renova Group’s court-supervised reorganization Plan, subject to implementation of these measures, continuitythe suspensive conditions that are usual in the market.

On March 5, 2021, in the context of the flowcourt-supervised reorganization, Renova received R$362 from the Debtor in Possession financing contracted by its subsidiary Chipley SP Participações S.A. – in court-supervised reorganization with co-obligations by Renova and Renova Participações S.A. – in court-supervised reorganization, through a Bank Credit Note structured by Quadra Gestão de Recursos S.A. (‘Quadra Capital’) and issued in favor of dividends from its investees,QI Sociedade de Crédito Ltda., as specified and obtainingauthorized in the court-supervised reorganization proceedings of the necessary funding, fromRenova Group, currently under the 2nd Court for Bankruptcies and Court-Supervised Reorganization of the Legal District of São Paulo State. The funds obtained will enable resumption of the works for conclusion of construction and start of commercial operation of Phase A of Alto Sertão III.

Considering the non-existence of any legal or constructive obligations to the investee, the Company has concluded that the granted of court-supervised reorganization filed by Renova and approved by the court does not have any additional impact in its shareholders and/or from outside parties.financial statements.

Amazônia Energia S.A. and Aliança Norte Energia S.A.

Amazônia Energia and Aliança Norte are shareholders of Norte Energia S.A. (‘NESA’), which holds the concession to operate theBelo Monte Hydroelectric Plant. Through the jointly-controlled entities referred to above, Cemig GT owns an indirect equity interest in NESA of 11.69%.

On December 31, 2020 NESA has expended significant funds for costs of organization, development andpre-operating costs, resulting inpresents negative net working capital of R$ 2,762 as of160 (R$3.309 on December 31, 2018 (R$2,651 as of December 31, 2017). The completion2019), and will spend further amounts on projects specified in its concession contract, even after conclusion of the construction of theBelo Monte plant, and consequent generation of revenues, in turn, depend on the capacityfull operation of the investeeBelo Monte Hydroelectric Plant. According to continuethe estimates and projections, the negative net working capital, and the future demands for investments in the hydroelectric plant, will be supported by revenues from future operations and/or raising of bank loans.

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NESA joined the BNDES Program to comply withSupport Maintenance of Productive Capacity, Employment and Income, in the planned construction schedule, as well ascontext of the Covid-19 pandemic crisis, obtaining suspension of the necessary financial resources, eitherFINEM Direct Installment payment from June to November 2020, and the FINEM Indirect Installment payment from July to December 2020, and in consequence, it cannot distribute dividends greater than 25% in 2020. The investee’s adherence to this program contributed significantly to reduction of its shareholders and / or from third parties.negative net working capital on December 31, 2020.

On April 7,September, 2015, NESA was awarded a preliminary injunction ordering the regulatorgrantor to ‘abstain, until hearing of the application for an injunction made in the original case, from applying to Appellant any penalties or sanctions in relation to the Belo Monte Hydroelectric Plant not starting operations on the date established in the original timetable for the project, including those specified in an the regulatorgrantor (Aneel) Normative Resolution 595/2013 and in the Concession Contract for the Belo Monte Hydroelectric Plant’. The legal advisersadvisors of NESA have classified the probability of loss as ‘possible’ and estimated the potential loss on December 31, 20182020 to approximately R$ 1,6432,407 (R$2861,962 on December 31, 2017)2019).

 

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d)Business combination - Centroeste

 

Companhia de TransmissãoOn January 13, 2020, Centroeste de Minas

On December 20, 2018 Cemig stated to Eletrobras its intentionbecame a wholly own subsidiary of the Company through the acquisition of the remaining equity interest of 49% held by Eletrobras. The acquisition, which resulted in the Company obtaining control, is the result of exercise itsof the right of first refusal for acquisition of the equity interest held by Eletrobras in Companhia de Transmissão Centroeste de Minas S.A. (‘Centroeste’) which was the subject of Lot Pshareholding offered in Eletrobras Auction 01/2018, Lot P, held on September 27, 2018.

On2018, and confirmed on January 15, 2019 Cemig became aware2019.

Centroeste operates in construction, operation and maintenance of the ratification by Eletrobrastransmission facilities of the objectFurnas-Pimenta transmission line – part of the national grid.

The cash consideration paid for the acquisition was R$45, resulting from the price in the Tender Announcement, adjusted by the accumulated variation of the Selic rate up to the date of conclusion of the transaction, less all dividends and/or interest on equity paid or declared by Centroeste in favor of Eletrobras Auction 01/2018, referring to the exercise of first refusal, by the Company, in acquisition of the shareholding interest in Centroeste, conclusion of which will take place in 2019.

17.1 – Business combination

Light S.A. (‘Light’)

Acquisition of additional equity interest in RME, and control of Light.

Until November 27, 2018, the Company held, through the holding companies, RME (jointly controlled entity at that time) and Lepsa, an aggregate direct and indirect equity interest of 48.9% in Light. On that same date, RME sold 2.13% of its equity interest in Light, for R$ 65, and, as a result, a loss of R$ 7 was recognized in the RME’s statement of income.period.

On November 30, 2018, BB-Banco de Investimento S.A., BV Financeira S.A. – Crédito, Financiamento e Investimento

The Company applied the acquisition method to account for the business combination and Banco Santander (Brasil) S.A. exercisedmeasured the identifiable assets and liabilities assumed at their put option to sell to the Company the remaining interests in the shares of RME, equivalent to 25% interest, for R$ 659. Of the total amount paid, R$104 represented theacquisition-date fair value, of the shares of RME acquired, and R$556 corresponded to the loss already recognized by the Company upon valuation of the put, as disclosed in Note 32.

As a result of the above, the Company holds 100% of the share of RME.

Acquisition of control of Light

Due to the exercise of the put option on the RME’s shares, by the other shareholders of RME, the Shareholders’ Agreement related to the jointly control of the investee Light lost effect, and the Company directly and indirectly holds an aggregated 49.99% of Light’s voting shares. As a result the Company currently controls Light, in accordance with the provisions of IFRS 103.

Assets acquired –Consolidated financial statements.

In addition, upon obtaining control of Light, the investments Lightger, Axxiom, Guanhães Energia and Itaocara in which the Company exercised joint control with Light, became controlled subsidiaries of the Company.

As specified in IFRS 3 –Business combinations, the Company remeasured the interest previously held in the investments at fair Fair value and any difference between the fair value and the carrying value of the previously held interest was recognized in the statement of income for the year, as follows:

   Light  Lightger  Total 

Fair value at November 30, 2018

   3,198   257   3,455 

Equity interest held by the Company before the acquisition of control

   47.25%   49.00%  

Company’s original interest, valued at fair value on the acquisition date

   1,511   126   1,637 

Original book value

   (1,794)   (42)   (1,836) 
  

 

 

  

 

 

  

 

 

 

Gain (loss) on remeasurement of previously held equity interest in subsidiaries acquired

   (283)   84   (199) 
  

 

 

  

 

 

  

 

 

 

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calculation

 

The fair value of the net assets acquired and the remeasurement of the previouspreviously held interest, which impacts were recognized in 2020, are as follows:

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Centroeste
Fair value on the acquisition date120
Equity interest held by the Company before the acquisition of control51%
Previously held interest at fair value on the date control was obtained61
Carrying value of the investment(24)
Remeasurement of previously held equity interest in subsidiaries acquired37

The fair value of interest acquired in relation to cash consideration is as follows:

 

   Light   Lightger   Total 

Total consideration paid (1)

   104    —      104 

Previously held interest, valued at fair value on the acquisition date

   1,511    257    1,768 
  

 

 

   

 

 

   

 

 

 

Total

   1,615    257    1,872 
  

 

 

   

 

 

   

 

 

 

Intangible – Right to exploitation of the regulated activity

   475    127    602 

Fair value of other assets and liabilities identified

   1,140    130    1,270 
  

 

 

   

 

 

   

 

 

 

Total

   1,615    257    1,872 
  

 

 

   

 

 

   

 

 

 

(1)

The

Centroeste
Cash consideration paid for 49% of the equity of Centroeste45
Previously held interest, in LightGer was acquired indirectly and did not involve a payment of consideration.

valued at fair value on the acquisition date – 51%		61
Bargain purchase14
Total120

The above, related to the right to exploitation of the regulated activity and the fair value of other assets and liabilities identified are presented in the operating segments of generation and distribution. No material effects were identified between the fair value and the book value of the assets and liabilities acquired at the acquisition date, is as follows:

Assets Fair value Liabilities Fair value
Current  29  Current  6 
Cash and cash equivalents  27   Loans and financings  3 
Other current assets  2   Interest on equity and dividends payable  2 
Non-current  108   Other current liabilities  1 
Contract assets  108  Non-current  11 
       Loans and financings  8 
       Provisions  3 
      Fair value of net identifiable assets  120 

Effect upon profit or loss in 2020

Regarding the adjustments mentioned above, the total amounts recognized in profit or loss in 2020 arising from the acquisition of Axxiom, Guanhães and Itaocara.

As described in Note 33, on November 30, 2018, the Company classified its investment in Light, Lightger, Axxiom, Guanhães Energia and Itaocara as Assets held for sale and discontinued operations.

Parajuru, Volta do Rio and Morgado

On May 17, 2018, Company signed a ‘Private Transaction Agreement’ with Energimp S.A. (‘Energimp’), in relation to investments held by both, the Company and Energimp in Central Eólica Praias de Parajuru S.A. (‘Parajuru’), Central Eólica Volta do Rio S.A. (‘Volta do Rio’) and Central Eólica Praia de Morgado S.A. (‘Morgado’), and settlement of the debt owed by Energimp to the Company.

Energimp debt arose due to a contractual penalty for the delay in the start of the operations of the three wind farms, in which the Company acquired a 49% interest in 2009. As a result of this delay, an adjustment was made to the original purchase price for an amount of R$37.

On December 20, 2018, the Company acquired 51%Centroeste’s equity interest held by Energimp in Parajuru and Volta do Rio, which became wholly-owned subsidiaries, in exchange for itsof 49% interest in Morgado.

Consideration paid for the 51% interest in Parajuru and Volta do Rio wasis as follows:

 

  Centroeste

Amount owed by Energimp due toGain on remeasurement of previously held equity interest in the adjustment of the original acquisition price of the investees

subsidiaries acquired (51%)		  37 

Inflation adjustmentBargain purchase – gain arising from the acquisition of the adjustment to the acquisition price (Note 30).

additional equity interest of 49%		  7714 

Indemnities

Total		  2

Adjustments under the negotiation for elimination of crossover holdings of the assets (1)

(12) 

Total amount owed to the Company by Energimp as a result of the arbitration process.

104

49% equity interest held by the Company in Morgado (2).

39

Cash consideration (3).

24

Consideration paid for a 51% interest in Parajuru and Volta do Rio

167

51		 

 

(1)

Amounts have been adjusted in accordance with the terms of the agreement. On December 20, 2018, a valuation was made to determine the fair value of the net assets acquired, resulting in an adjustment for the difference between the fair value of the net assets and the value used as a reference.

(2)

The fair value of Morgado was calculated by independent appraisal using of the discounted cash flow valuation model.

(3)

Cash payment to Energimp for the reimbursement of amounts paid in excess of the final settled amount comprised of: R$ 5 already been paid in 2018, R$ 16 that will be paid in 2019, and R$ 3 that were deposited in an escrow account as guarantee against future contingencies.

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Prior to the transaction above, the Company owned a joint controlled interest of 49% in the share capital of Parajuru and Volta do Rio. As such these investment were accounted for under the equity method.

Upon obtaining control, the Company remeasured the previously held interest in these investments at fair value, and the difference between the fair value and the carrying value was recognized in the statement of income for the year, as follows:

   Parajuru  Volta do Rio  Total 

Fair value on the transaction date

   146   181   327 

Previously held interest before the acquisition of control

   49%   49%  
  

 

 

  

 

 

  

 

 

 

Previously held interest at fair value on the acquisition date

   71   89   160 

Carrying value as of acquisition date

   50   30   80 
  

 

 

  

 

 

  

 

 

 

Gain on remeasurement of previously held equity interest in subsidiaries acquired

   21   59   80 
  

 

 

  

 

 

  

 

 

 

The allocation of the fair value of the interest acquired, and the remeasurement of the previous equity interest in the subsidiaries are as follows:

   Parajuru   Volta do Rio   Total 

Total consideration paid for 51% interest in Parajuru and Volta do Rio.

   75    92    167 

Previously held interest, of 49%, at fair value on the acquisition date

   71    89    160 
  

 

 

   

 

 

   

 

 

 

Total

   146    181    327 
  

 

 

   

 

 

   

 

 

 

Intangible – Right to exploitation of the regulated activity (1)

   66    96    162 

Fair value of other assets and liabilities identified

   80    85    165 
  

 

 

   

 

 

   

 

 

 

Total

   146    181    327 
  

 

 

   

 

 

   

 

 

 

(1)

Intangible corresponding to the right of authorization to generate wind power granted to the investees, identifiable and with defined useful life.

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The above mentioned effects are presented in the operating segment of transmission.

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e)Acquisition of interest in special-purpose companies (‘SPCs’) operating in photovoltaic solar generation.

 

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LOGO

On November 25, 2020, the Company’s wholly-owned subsidiary Cemig Soluções Inteligentes em Energia S.A. (‘Cemig Sim’) acquired 49% of interest in seven special-purpose companies operating in photovoltaic solar generation for the distributed generation market (‘geração distribuída’), with total installed capacity of 29.45MWp, for R$55. On August 19, 2020 and on September 30, 2020, this wholly-owned subsidiary also acquired 49% of interest in two others SPCs operating in the same market segment for R$8 and R$10, respectively, with total installed capacity of 11.62 MWp.

 

17.2 - Cemig Sim acquired the shares as result of exercising a call option, which granted Cemig Sim the right to buy 49% of the shares of the special-purpose companies that were owned by Mori Energia Holding S.A, as established in the Memorandum of Understanding (MOU) signed in June 2019. The conditions established in the shareholders agreements signed by Cemig Sim and Mori Energia in order to determine the entities management composition and their corporate governance lead to the their qualification as jointly controlled entities.

The acquisition-date fair values of the identifiable assets and liabilities and other related information are presented below:

Entity Generation Capacity  (MW) Generation Capacity  (MWp) Acquisition date Net fair value of the identifiable assets and liabilities – Cemig Sim shareholding (49%) Transaction price  - R$ Bargain purchase /Loss
Corinto  5   5.28   19/08/2020   9   9   —   
Manga  5   6.34   30/09/2020   11   10   1 
Bonfinópolis  2.5   3.45   25/11/2020   6   6   —   
Lagoa Grande  5   7.33   25/11/2020   15   12   3 
Lontra  5   6.38   25/11/2020   17   14   3 
Mato Verde  2.5   3.23   25/11/2020   6   5   1 
Mirabela  2   2.59   25/11/2020   4   5   (1)
Porteirinha  2.5   3.23   25/11/2020   6   6   —   
Porteirinha II  2.5   3.23   25/11/2020   6   6   —   
Total  32   41.06   —     80   73   7 

The excess of the Cemig Sim’s share of the net fair value of the investee’s identifiable assets and liabilities over the cost of the investment (bargain purchase) was included as income in the determination of the Cemig Sim’s share of the entities’ profit or loss in the period in which the investment was acquired. The deferred tax liability was recognized, according to IAS 12.

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f)Risks related to compliance with law and regulations

Jointly controlled investees:entities and affiliates:

Norte Energia S.A. (‘NESA’) - through Amazônia Energia and Aliança Norte

Investigations and other legal measures are in progress since 2015, conducted by the Federal Public Attorneys’ Office, which involve other shareholders of NESA and certain executives of those other shareholders. In this context, the Federal Public Attorneys have started investigations on irregularities involving contractors and suppliers of NESA and of its other shareholders, which are still in progress. At present, it is not possible to determine the outcome of these investigations, and their possible consequences. These might at some time in the future affect the investee. In addition, based on the results of the independent internal investigation conducted by NESA and its other shareholders, an infrastructure write-down of the R$183 was already recorded at NESA, and reflected in the Company’s consolidated financial statements through the equity pick effect in 2015.

On March 9, 2018 ‘Operação FortunaBuona Fortuna’ started, as a 49th phase of ‘Operation Lava Jato’ (‘Operation Carwash’). According to what has been disclosed by the media this operation investigates payment of bribes by the construction consortium of theBelo Monte power plant, comprising the companies Camargo Corrêa, Andrade Gutierrez, Odebrecht, OAS eand J. Malucelli. Management of NESA believes that so far there are no new facts that have been disclosed by the 49th phase of ‘Operation Carwash’ that require additional procedures and internal independent investigation in addition to those already carried out.

The Company’s management, based on its knowledge of the matters described above and on the independent procedure carried out, believes that the conclusions presented in the report of the independent investigation are adequate and appropriate. As a result, no adjustment has been made on its financial statements. The effects of any future changes in the existing scenario will be reflected appropriately in the Company’s financial statements.

Madeira Energia S.A. (‘MESA’)

Investigations

There are ongoing Investigation and other legal measures are in progress since 2015, conducted by the Federal Public Attorneys’ Office, which involve other indirect shareholders of MESA and certain executives of those other indirect shareholders. In this context, the Federal Public Attorneys have started investigations searching for irregularities involving contractors and suppliers of MESA and of its other shareholders. In response to allegations of possible illegal activities, the investee and its other shareholders started an independent internal investigation.

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The independent internal investigation, concluded in February 2019, in the absence of any future developments such as any leniency agreements by third parties that may come to be signed or collaboration undertakings that may be signed by third parties with the Brazilian authorities, found no objective evidence enabling it to be affirmed that there were any supposed undue payments by MESA (SAESA) that should be considered for possible accounting write-off, passthroughpass-through or increase of costs to compensate undue advantages and/or linking of MESA with the acts of its suppliers, in the terms of the witness accusations and/or cooperation statements that have been made public.

The Company’s management, based on its knowledge of the matters described above and on the independent procedures carried out, believes that the conclusions presented in the report of the independent investigation are adequate and appropriate. As a result, no adjustment has been made on its financial statements. The effects of any future changes in the existing scenario will be reflected appropriately in the Company’s financial statements.

Renova Energia S.A. (‘Renova’)

Since 2017 Renova ishas been part of a formal investigation by the Civil Police of Minas Gerais State and other public authorities related to certain capital injections made by some of its controlling shareholders, including Cemig GTthe Company and capital injections made by Renova in certain projects under development in previous years. As a consequence, the Board of Directors of Renova requested an internal independent investigation, which is being conducted by a third party investigator. A separate independent internal monitoring committee was also set up to accompany the internal investigation, jointly with the Audit Committee.

On April 11, 2019, the Brazilian Federal Police commenced the “Operation‘Operation E o Vento Levou”Levou’ as part of the Lava Jato Investigation, and executed a search and seizure warrant issued by a Federal Court of São Paulo at Renova’s head office in São Paulo, based on allegations and indications of misappropriation of funds harmful to the interests of Cemig. Based on the allegations being investigated, these events are alleged to have taken place before 2015. On July 25, 2019 the second phase of such investigation initiated.

The ‘Operation E o Vento Levou’ and the police investigation by the Minas Gerais State Civil Police have not yet concluded. Thus, there is a possibility that material information may be revealed in the future. If a criminal action is filed against agents who damaged Renova, Renova intends to act as auxiliary to the prosecution in any criminal proceedings, and subsequently sue for civil recovery of the damages suffered.

Due to these third party investigations, the governance bodies of Renova requested opening of an internal investigation, conducted by an independent company with the support of an external law firm, the scope of which comprises assessment of the existence of irregularities, including noncompliance with: the Brazilian legislation related to acts of corruption and money laundering; Renova’s Code of Ethics; and its integrity policies. Additionally, a Monitoring Committee was established in Renova which, jointly with the Audit Committee, accompanied this investigation. The internal investigation iswas concluded on February 20, 2020, and no concrete evidences of acts of corruption or diversion of funds to political campaigns was identified.

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However, the independent investigators identified irregularities in progressthe conducting of business and althoughagreement of contracts by Renova, including: (i) payments without evidence of the performance of services, in the total amount of approximately R$40; (ii) payments not in accordance with the company’s internal policies and best governance practices, in the total amount of approximately R$137; and (iii) deficiencies in the internal controls were noted in relation to the documentation of certain payments and the archiving of support documentation for services provided by third parties, no evidence supporting the allegations has been uncovered so far. Additional procedures are still required to complete the last phase of the investigation. investee.

As a result of the analysis of the above mentioned values, Renova concluded that R$35 relates to effective assets and therefore no adjustments were recordedimpairment is necessary. The remaining amount of R$142 was already impaired in previous years, producing no impact on the financial statements of jointly controlled Renova nor on the Company’s consolidated financial statements for the year ended December 31, 2018.2019 and December 31, 2020.

 

F-85In response to the irregularities found, and based on the recommendations of the Monitoring Committee and legal advisers, the Board of Directors of Renova decided to take all the steps necessary to preserve the rights of the investee, continue with the measures to obtain recovery of the losses caused, and strengthen the company’s internal controls.

LOGO

Since the investment at Renova is fully impaired at December 31, 2020, and since no contractual or constructive obligations in relation to the investee have been assumed by the Company, it is not expected that effects resulting from the court-supervised reorganization process, or the investigations, or the operational activities of this investee can significantly impact the Company’s financial statements, even if such effects may not yet recorded by Renova.

 

Other investigations

In addition to the cases above, there are investigations being conducted by the Public Attorneys’ Office of the State of Minas Gerais (‘MPMG’) and by the Civil Police of the State of Minas Gerais (‘PCMG’), which aim to investigate possible irregularities in the investments made by Cemig GT atthe Company in Guanhães Energia and also atin MESA. These proceedings are being investigated through the analysis of documents demanded by the respective authorities, and by hearing of witnesses.

Internal procedures for risks related to compliance with law and regulations

Taking into account the investigations that are being conducted at the Company, at Cemig GT and at certain investees, as described above, the governance bodies of the Company have authorized contracting a specialized company to analyze the internal procedures related to these investments. This independent investigation is subject to oversight of an independent committee whose creation was approved by our Board of DirectorsAdditionally, on October 5, 2018. (Comitê Especial de Investigação) (the “Independent Committee”).

On April 11, 2019 agents of the Brazilian Federal Police presented themselves atwere in the Company’s head office in Belo Horizonte to execute a search and seizure warrant issued by a Federal Court of São Paulo Federal Court in connection with the operation named ‘Operação e‘Operation E o Vento Levou’, as previously described.described above.

These proceedings are being performed through reviewing documents demanded by the respective authorities, and by hearing of witnesses.

Internal procedures for risks related to compliance with law and regulations

Taking into account the investigations that are being conducted by public authorities relating to the Company and to certain investees, the governance bodies of the Company have authorized contracting specialized advisers to analyze the internal procedures related to these investments, as well as internal proceedings related to the acquisition of Light’s interest in Enlighted (see Note 25 of the Financial Statements). This independent investigation was subject to oversight of an independent Special Investigation Committee whose creation was approved by our Board of Directors.

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The first phase of Company’s internal investigation was completed and the corresponding report was deliveredissued on May 14, 2019,8, 2020, and consideringidentified no objective evidence substantiating illegal acts made by Company in the current status and preliminary resultsCompany’s investments that were the subjects of the investigation. Therefore, there was no impact in the Company consolidated financial statements, neither for the year ended in December 31, 2020 nor for prior periods.

Due to the completion of the internal investigations no effectfor which the Special Investigating Committee was recordedconstituted, the governance bodies of the Company decided to extinguish that Committee. If future needs arise from developments in this matter, the consolidated financial statements asCommittee can be reinstated.

In 2020, the Company began internal procedures for investigation of December 31, 2018.allegations that are the subject of inquiries by the Minas Gerais State Public Attorneys’ Office regarding certain alleged irregularities in public bidding purchasing processes. The investigation is being conducted by a new Special Investigation Committee (Comitê Especial de Investigação – CEI), with support from specialized independent advisers.

In the second semester of 2019, Company signed tolling agreements with the Securities and Exchange Commission (SEC) and US Department of Justice (DOJ), which was extended in February 2021 for an additional period of six months. Cemig continues to cooperate with the SEC and the DOJ.

The Company will evaluate any changes in the future scenario and eventualpotential impacts that could affect the Financial Statements, when applicable.financial statements, if appropriate. The Company will collaboratecontinue to cooperate with the relevant domestic and foreign authorities and their analysis related to the investigations in progress.these investigations.

18. PROPERTY, PLANT AND EQUIPMENT

 

   2018   2017 
  Historical
cost		   Accumulated
depreciation		  Net
value		   Historical
cost		   Accumulated
depreciation		  Net
value		 

In service

          

Land

   231    (16)   215    225    (14)   211 

Reservoirs, dams and watercourses

   3,282    (2,132)   1,150    3,285    (2,051)   1,234 

Buildings, works and improvements

   1,114    (800)   314    1,117    (786)   331 

Machinery and equipment

   2,773    (1,919)   854    2,936    (2,062)   874 

Vehicles

   32    (27)   5    29    (26)   3 

Furniture and utensils

   16    (12)   4    16    (13)   3 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 
   7,448    (4,906)   2,542    7,608    (4,952)   2,656 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

In progress

   120    —     120    106    —     106 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Net property, plant and equipment

   7,568    (4,906)   2,662    7,714    (4,952)   2,762 
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

 

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17.PROPERTY, PLANT AND EQUIPMENT
  2020 2019
  Historical cost Accumulated depreciation Net value Historical cost Accumulated depreciation Net value
In service                        
Land  247   (23)  224   248   (19)  229 
Reservoirs, dams and watercourses  3,300   (2,280)  1,020   3,280   (2,200)  1,080 
Buildings, works and improvements  1,100   (836)  264   1,092   (818)  274 
Machinery and equipment  2,647   (1,930)  717   2,598   (1,869)  729 
Vehicles  21   (19)  2   20   (18)  2 
Furniture and utensils  14   (11)  3   14   (11)  3 
   7,329   (5,099)  2,230   7,252   (4,935)  2,317 
                         
In progress  177   —     177   133   —     133 
Net property, plant and equipment  7,506   (5,099)  2,407   7,385   (4,935)  2,450 

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Changes in PP&E are as follows:

 

  2017   Additions   Disposals Depreciation Transfer to
Held for sale		 Adjustment
for business
combination		   Transfers /
capitalizations		 2018  2019 Additions Disposals (3) Depreciation 

Transfers / capitalizations

(2)

 2020

In service

                                    

Land

   211    —      —    (2)   —     —      6  215 
Land (1)  229   —     (1)  (4)  —     224 

Reservoirs, dams and watercourses

   1,234    —      (2)  (82)   —     —      —    1,150   1,080   —     —     (80)  20   1,020 

Buildings, works and improvements

   331    —      —    (19)   —     —      2  314   274   —     —     (18)  8   264 

Machinery and equipment

   874    —      (9)  (70)  (256)  296    19  854   729   20   (2)  (79)  49   717 

Vehicles

   3    —      (2)   —     —      4  5   2   —     —     —     —     2 

Furniture and utensils

   3    —      —     —     —     —      1  4   3   —     —     —     —     3 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

  

 

   2,317   20   (3)  (181)  77   2,230 
   2,656    —      (11)   (175)   (256)   296    32   2,542 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

  

 

 

In progress

   106    77    (22)       (41)   120   133   112   11   —     (79)  177 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

  

 

 

Net property, plant and equipment

   2,762    77    (33)   (175)   (256)   296    (9)   2,662   2,450   132   8   (181)  (2)  2,407 
  

 

   

 

   

 

  

 

  

 

  

 

   

 

  

 

 

 

   2016   Additions   Jaguara,
Miranda and
Volta Grande
Plants (1)		  Disposals  Depreciation  Transfers /
capitalizations		  2017 

In service

          

Land

   279    —      (61)   (1)   (6)   —     211 

Reservoirs, dams and watercourses

   1,761    —      (441)   (4)   (85)   3   1,234 

Buildings, works and improvements

   418    —      (69)   —     (20)   2   331 

Machinery and equipment

   1,172    —      (305)   (5)   (93)   105   874 

Vehicles

   4    —      —     —     (1)   —     3 

Furniture and utensils

   3    —      —     —     —     —     3 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   3,637    —      (876)   (10)   (205)   110   2,656 

In progress

   138    83     (17)   —     (98)   106 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net property, plant and equipment

   3,775    83    (876)   (27)   (205)   12   2,762 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
(1)Certain land sites linked to concession contracts and without provision for reimbursement are amortized in accordance with the period of the concession.
(2)Balances of R$2 were transferred to Intangible assets from PP&E.
(3)Includes the impairment loss recognized for assets in progress.

 

   2015   Additions   Disposals  Depreciation  Transfers /
capitalizations		  2016 

In service

         

Land

   279    —      —     —     —     279 

Reservoirs, dams and watercourses

   1,830    —      —     (99)   30   1,761 

Buildings, works and improvements

   437    —      (1)   (23)   5   418 

Machinery and equipment

   1,192    —      (42)   (110)   132   1,172 

Vehicles

   8    —      —     (2)   (2)   4 

Furniture and utensils

   4    —      —     —     (1)   3 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
   3,750    —      (43)   (234)   164   3,637 

In progress

   190    120    (13)   —     (159)   138 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Net property, plant and equipment

   3,940    120    (56)   (234)   5   3,775 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

The average annual depreciation rate for the year 2018 is 3.72% (3.14% in 2017 and 3.51% in 2016).

  2018 Additions Disposals Depreciation 

Transfers / capitalizations

(2)

 2019
In service                        
Land (1)  215   —     —     (3)  17   229 
Reservoirs, dams and watercourses  1,150   —     (4)  (80)  14   1,080 
Buildings, works and improvements  314   —     (5)  (19)  (16)  274 
Machinery and equipment  854   —     (81)  (78)  34   729 
Vehicles  5   —     —     (3)  —     2 
Furniture and utensils  4   —     (1)  —     —     3 
   2,542       (91)  (183)  49   2,317 
In progress  120   70   (12)  —     (45)  133 
Net property, plant and equipment  2,662   70   (103)  (183)  4   2,450 

(1)Certain land sites linked to concession contracts and without provision for reimbursement are amortized in accordance with the period of the concession.
(2)Balances of R$4 were transferred between Intangible assets, concession contract assets and PP&E.

  2017 Additions Disposals Depreciation 

Transfer to Held for sale

 

 

Adjustment for business combination

 

 Transfers / capitalizations 2018
In service                                
Land (1)  211   —     —     (2)  —     —     6   215 
Reservoirs, dams and watercourses  1,234   —     (2)  (82)  —     —     —     1,150 
Buildings, works and improvements  331   —     —     (19)  —     —     2   314 
Machinery and equipment  874   —     (9)  (70)  (256)  296   19   854 
Vehicles  3   —         (2)  —     —     4   5 
Furniture and utensils  3   —     —     —     —     —     1   4 
   2,656   —     (11)  (175)  (256)  296   32   2,542 
In progress  106   77   (22)              (41)  120 
Net property, plant and equipment  2,762   77   (33)  (175)  (256)  296   (9)  2,662 

(1)Certain land sites linked to concession contracts and without provision for reimbursement are amortized in accordance with the period of the concession.

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Depreciation rates, which take into consideration the expected useful life of the assets, are revised annually by Management.Management and are as follows:

 

Generation (%) Administration (%)
Reservoirs, dams and watercourses  2  Software  20 
Buildings – Machine room  2  Vehicles  14.29 
Buildings – Other  3.33  IT equipment in general  16.67 
Generator  3.33  General equipment  6.25 
Water turbine  2.5  Buildings – Other  3.33 
Pressure tunnel  3.13       
Command station, panel and cubicle  3.57       
Floodgate  3.33       

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The average annual depreciation rate for the year 2020 is 3.14% (3.13% in 2019 and 3.72% in 2018). The segregation by activity is as follows:

 

Generation

  (%)   

Administration

  (%) 

Reservoirs, dams and watercourses

   2   Software   20 

Buildings – Machine room

   2   Vehicles   14.29 

Buildings – Other

   3.33   IT equipment in general   16.67 

Generator

   3.33   General equipment   6.25 

Water turbine

   2.5   Buildings – Other   3.33 

Pressure tunnel

   3.13     

Command station, panel and cubicle

   3.57     

Town planning and improvements

   3.33     
Hydroelectric Generation Wind Power Generation Administration
 2.96%  4.94%  6,19%

The Company has not identified any evidence of impairment of its Property, plant and equipment assets. The generation concession contracts provide that at the end of each concession the grantor must determine the amount to be indemnified to Cemig GTthe Company for the residual value of the infrastructure assets.value. Management believes that the amounts ultimately received will be higher than the historical residual value.

The residual value of the assets is the residual balance of the assets at the end of the concession contract which will be transferred to the grantor at the end of the concession contract and for which Cemig is entitled to receive in cash. For contracts under which Cemig does not have a right to receive such amounts or there is uncertainty related to collection of the amounts, such as in the case of thermal generation and hydroelectric generation as an independent power producer, no residual value is recognized, and the depreciation rates are adjusted so that all the assets are depreciated within the concession term.

Consortium

The Company is a partner in an energy generation consortium for the Queimado plant, for which no separate company with independent legal existence was formed to manage the object of the concession. The Company’s portion in the consortium is recorded and controlled individually in the respective categories of PP&E and Intangible assets.

  Stake in power output (%) Average annual depreciation rate (%) 2020 2019
In service                
Usina de Queimado  82.50   3.93   218   217 
Accumulated depreciation          (117)  (109)
Total          101   108 
                 
In progress                
Usina de Queimado  82.50   —     2   1 
Total          2   1 

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19. INTANGIBLE ASSETS

18.INTANGIBLE ASSETS

The composition of the balance at December 31, 20182020 and 20172019 is as follow:

  2018   2017  2020  2019 
Historical cost   Accumulated
amortization		 Residual
value		   Historical cost   Accumulated
amortization		 Residual
value		  Historical cost Accumulated amortization Residual value Historical cost Accumulated amortization Residual value 

In service

                                  

Useful life defined

                                  

Temporary easements

   11    (3)  8    12    (2)  10   13   (4)  9   12   (4)  8 

Onerous concession

   19    (12)  7    19    (11)  8   19   (13)  6   20   (13)  7 

Assets of concession

   18,674    (7,994)  10,680    17,837    (7,402)  10,435 
Assets of concession (1)  20,781   (9.107)  11,674   20,039   (8,522)  11,517 

Others

   85    (66)  19    82    (65)  17   78   (70)  8   77   (67)  10 
  

 

   

 

  

 

   

 

   

 

  

 

   20,891   (9,194)  11,697   20,148   (8,606)  11,542 
   18,789    (8,075)  10,714    17,950    (7,480)  10,470 

In progress

   63    63    686    —    686   113   —     113   82   —     82 
  

 

   

 

  

 

   

 

   

 

  

 

 

Net intangible assets

   18,852    (8,075)  10,777    18,636    (7,480)  11,156   21,004   (9,194)  11,810   20,230   (8,606)  11,624 
  

 

   

 

  

 

   

 

   

 

  

 

 

 

(1)

The rights of authorization to generate wind power granted to the investees, which are considered insubsidiary Parajuru and Volta do Rio, at the financial statementsnet value of Cemig GT as investments,R$128, and of the gas distribution concession, granted to Gasmig, valued at R$412, are classified in the consolidated statement of financial position of Cemig GTunder intangibles assets and are amortized by the straight-line method, for the period of the Company under Intangible assets.

concessions.

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Changes in Intangible assets are as follow:

  2019  Additions  Disposals (1)  Amortization  Transfers (2)  2020 
In service                        
Useful life defined                        
Temporary easements  8   —     —     —     1   9 
Onerous concession  7   —     —     (1)  —     6 
Assets of concession  11,517   —     (24)  (738)  919   11,674 
Others  10   —     —     (5)  3   8 
   11,542   —     (24)  (744)  923   11,697 
In progress  82   41   —     —     (10)  113 
Net intangible assets  11,624   41   (24)  (744)  913   11,810 

 

   2017   Assets arising
from business
combination
(2)		   Additions   Disposals  Effects of first-
time adoption
of IFRS 15 (1)		  Amortization  Transfer to
Held for sale		  Transfers  2018 

In service

             

Useful life defined

             

Temporary easements

   10    —      —      —     —     (1)   —     —     9 

Onerous concession

   8    —      —      —     —     (1)   —     —     7 

Assets of concession

   10,435    162    —      (23)   —     (668)   —     774   10,680 

Others

   17    4    1    —     —     (5)   (7)   8   18 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   10,470    166    1    (23)   —     (675)   (7)   782   10,714 

In progress

   686    —      33    (4)   (621)   —     —     (31)   63 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net intangible assets

   11,156    166    34    (27)   (621)   (675)   (7)   751   10,777 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

Amount transferred to Concession contract assets on January 1, 2018,This includes the impairment reversal, in the amount of R$14, recognized in the Income Statement under “Other expenses”, as a result of the first-time adoptiontest of IFRS 15, as described in Note 16.

impairment of intangible assets, relating to the authorization for wind power generation granted to Volta do Rio, on December 31, 2020. More information is available on this note.

(2)

The added value oftransfers were made between Intangible assets, concession contract assets, financial assets and property, plant and equipment are as follows: (1) R$906 from concession contract assets to intangible assets; (2) R$2 from property, plant and equipment to intangible assets; and (3) R$5 from concession financial asset to intangible assets.

  2018 Additions Disposals (1) Amortization Transfers (2) 2019
In service                        
Useful life defined                        
Temporary easements  9   —     —     (1)  —     8 
Onerous concession  7   —     —     —     —     7 
Assets of concession  10,680   891   (41)  (698)  685   11,517 
Others  18   7   —     (5)  (10)  10 
   10,714   898   (41)  (704)  675   11,542 
In progress  63   36   —     —     (17)  82 
Net intangible assets  10,777   934   (41)  (704)  658   11,624 

(1)This includes the wind generation concessions,impairment, in the amount of R$162, acquired22 recognized in athe Income Statement under “Other expenses”. The test of impairment of intangible assets, relating to the authorization for wind power generation granted to Volta do Rio, recognized in 2018 as part of the its business combination, as per Note 17.2, refersarises from non-achievement of the operational performance expected in 2019 for the wind generation assets of the subsidiary. The Value in Use of the assets was calculated based on the projection of future expected cash flows for the operation of the assets of the subsidiary, brought to present value by the rightsweighted average cost of authorization of commercial operation, which are consideredcapital defined for the consolidated statement of financial position as intangible assets.

company’s activity, using the Firm Cash Flow (FCFF) methodology.

   2016   Additions   Disposals  Amortization  Transfer
(1)		  2017 

In service

         

Useful life defined

         

Temporary easements

   10    —      —     —     —     10 

Onerous concession

   9    —      —     (1)   —     8 

Assets of concession

   9,248    —      (11)   (638)   1,836   10,435 

Others

   18    —      —     (7)   6   17 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
   9,285    —      (11)   (646)   1,842   10,470 

In progress

   1,535    1,105    (8)   —     (1,946)   686 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Net intangible assets

   10,820    1,105    (19)   (646)   (104)   11,156 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(1)

Balances transferred to financial assets.

   2015     Additions     Special
obligations –
write-down (1)		     Disposals   Amortization   Transfers
(2)		   2016 

In service

                    

Useful life defined

                    

Temporary easements

   10      —        —        —      —      —      10 

Onerous concession

   9      —        —        —      —      —      9 

Assets of concession

   8,967      6      98      (32)    (595)    804    9,248 

Others

   14      —        —        —      (4)    8    18 
  

 

 

     

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 
   9,000      6      98      (32)    (599)    812    9,285 

In progress

   1,275      1,157      —        (8)    —      (889)    1,535 
  

 

 

     

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

Net intangible assets

   10,275      1,163      98      (40)    (599)    (77)    10,820 
  

 

 

     

 

 

     

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

(1)

The write-down of a Special Obligation arises from signature of a Debt Recognition Contract by Eletrobras, in the amount of R$ 98, for restitution of amounts calculated in the final settlement of Financing and Subsidy Contracts for theLuz Para Todos (‘Light for All’) program, with funds from the CDE account, and return of funds related to the Global Reversion Reserve (RGR).

(2)

Balances transferredThe transfers were made between Intangible assets, concession contract assets and property, plant and equipment are as follows: (1) R$685 from concession contract assets to intangible assets; (2) (R$4) from intangible assets to property, plant and equipment and; and (3) (R$23) from intangible assets to concession financial assets.

 

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  2017 Assets arising from business combination Additions Disposals Effects of first-time adoption of IFRS 15 Amortization Transfer to Held for sale Transfers 2018
In service                                    
Useful life defined                                    
Temporary easements  10   —     —     —     —     (1)  —     —     9 
Onerous concession  8   —     —     —     —     (1)  —     —     7 
Assets of concession  10,435   162   —     (23)  —     (668)  —     774   10,680 
Others  17   4   1   —     —     (5)  (7)  8   18 
   10,470   166   1   (23)  —     (675)  (7)  782   10,714 
In progress  686   —     33   (4)  (621)  —     —     (31)  63 
Net intangible assets  11,156   166   34   (27)  (621)  (675)  (7)  751   10,777 

 

Concession assets

Due to adoption of IFRS 15, as from January 1, 2018 the

The energy and gas distribution concession infrastructure assets already in service and that will be fully amortized during the concession term are recorded as intangible assets. Assets linked to the infrastructure of the concession that are still under construction began to be recognizedare posted initially as contract assets. For further details, seeassets, as detailed in Note 16.15.

The Company has not identified any evidence of impairment of the intangible asset with useful life defined.

The intangible asset easements, onerous concessions, assets of concession, and others, are amortized by the straight-line method taking into account the consumption pattern of these rights.

The amount of additions in 20182020 includes R$4 (R$711(R$2 in 20172019 and R$ 1424 in 2016)2018) of capitalized borrowing costs, as presented in Note 22.23.

The annual average amortization rate is 4.12%.

The main amortization rates, which take into account the useful life that management expects for the asset, and reflect the expected pattern of their consumption, are as follows:

 

Energy

  (%)   

Administration

  (%)  (%) Administration (%)

System cable – below 69 KV

   6.67   Software   20   6.67  Software  20.00 

System cable – below 69 KV

   3.57   Vehicles   14.29   3.57  Vehicles  14.29 

Structure – Posts

   3.57   General equipment   6.25   3.57  General equipment  6.25 

Overhead distribution transformer

   4   Buildings   3.33   4.00  Buildings  3.33 

Circuit breaker – up to 69 kV

   3.03       3.03       

Capacitor bank – up to 69 kV

   6.67       6.67       

Voltage regulator – up to 69 kV

   4.35       4.35       

 

    

Gas

  (%)   

Administration

  (%)  (%) Administration (%)

Tubing

   3.33   Software   20   3.33  Software  20.00 

Buildings, works and improvements

   4   Vehicles   20   4.00  Vehicles  20.00 

Improvements in leased properties

   10   Data processing equipment   20   10.00  Data processing equipment  20.00 

Machinery and equipment

   5 a 20   Furniture   10   5.00 a 20.00  Furniture  10.00 

The annual average amortization rate is 4.05%. The segregation by activity is as follows:

Hydroelectric Generation Wind Power Generation Gas Distribution Administration
 9.06%  8.88%  3.48%  3.90%  15.74%

Under the regulations of the energy segment, property, plant and equipment used in the distribution concession are linked to these services, and cannot be withdrawn, disposed of, assigned or provided in guarantee without the prior express authorization of the Regulator.

20. SUPPLIERSGrantor.

 

   2018   2017 

Energy on spot market – CCEE

   139    468 

Charges for use of energy network

   122    153 

Energy purchased for resale

   775    871 

Itaipu Binacional

   268    240 

Gas purchased for resale

   124    187 

Materials and services

   373    424 
  

 

 

   

 

 

 
   1,801   2,343 
  

 

 

   

 

 

 

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21. TAXES PAYABLE, AMOUNTS TO BE RESTITUTED TO CUSTOMERS, INCOME TAX AND SOCIAL CONTRIBUTION

a) Taxes payable and amounts to be restituted to customers

   2018   2017 

Current

    

ICMS (I)

   168    497 

COFINS

   146    126 

PASEP

   32    27 

INSS

   23    20 

Outros

   41    35 
  

 

 

   

 

 

 
   410    705 
  

 

 

   

 

 

 

Non-current

    

COFINS

   25    24 

PASEP

   4    4 
  

 

 

   

 

 

 
   29    28 
  

 

 

   

 

 

 
   439    733 
  

 

 

   

 

 

 

Amounts to be restituted to customers

    

Non-current

    

PASEP/COFINS (II)

   1,124    1,087 
  

 

 

   

 

 

 
   1,124    1,087 
  

 

 

   

 

 

 
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ICMS (value added) tax

 

In 2017,

The rights of authorization to generate wind power granted to the subsidiary Cemig D acceptedParajuru and Volta do Rio, in the Minas Gerais State tax amnesty plan (PRCT)total amount of R$128 (R$127 on December 31, 2019) and of the gas distribution concession, granted to Gasmig, valued at R$412 (R$427 on December 31, 2019), are classified in the consolidated statement of financial position under intangibles assets and are amortized by the straight-line method, for settlement the ICMS tax on the CDE subsidy from the period of January 2013the concessions.

In 2019, the Company recognized an impairment loss for the intangible asset related to October 2016, and also the ICMS taxright of authorization for wind power generation granted to the subsidiary Volta do Rio, in the amount of R$22, recorded in “Other expenses” arising from classification of residential condominiums in the commercial customer category, from 2013 to 2015. The amount included in the PRCT for Cemig D, R$ 557 (netnon-achievement of the 90% reductionoperational performance expected in interest and penalty), was paid in 6 (six) installments, updated at 50%2019 for the wind generation assets of the Selic ratesubsidiary.

On December 31, 2020, upon conclusion of the refurbishment of the 19 aero generators of the subsidiary Volta do Rio and full resumption of its generation capacity, the Company tested its operation assets for impairment, and it was found that economic and financial equilibrium, and the last payment was done on April 2, 2018.

(II)

The non-current obligations for Pasep and Cofins taxes include amounts relating to the Court challenge of the constitutionality of inclusion of ICMS tax within the basis on which these contributions are calculated. The subsidiaries Cemig D and Cemig GT obtain interim relief from the Court allowing them not to make the payment and authorizing payment of the deposits into court (starting in 2008), and maintained this procedure until August 2011. After that date, while continuing to challenge the basis of the calculation in court, it opted to pay the taxes monthly.

In October 2017, the Federal Supreme Court (STF) published its Joint Judgment on the Extraordinary Appeal, in the form that creates overall precedent, in favorliquidity, of the argumentsubsidiary will be re-established. As a result, the Company reversed part of the two subsidiaries. Basedloss that had been recognized, resulting in a net reversal of R$ 14 on the opinion of its legal advisers, the subsidiaries write off the liabilities for these contributions, and Cemig D recorded a liability for the reimbursement of these amounts to its customers. At the end of 2018 this liability was R$ 1,124 (R$ 1,087 in 2017),December 31, 2020, which is equivalent to the updated value of the escrow deposits

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amounting R$ 1,149 (R$ 1,110posted in 2017), net of the Pasep and Cofins taxes applicable to the amounts of the inflation-adjustment updating, which was R$ 25 (R$ 23 in 2017). This liability has been constituted since Cemig D passes through to its customers the tax effects which are incident upon energy bills, maintaining what is referred to as ‘tariff neutrality’. The restitution to customers will depend upon the court escrow deposit being lifted and decision by the regulator (Aneel) on the mechanisms to be adopted. There were no effects on the statement of income resultingas other expenses.

The Value in Use of the assets was calculated based on the projection of future expected cash flows for the operation of the assets of the subsidiary, brought to present value by the weighted average cost of capital defined for the company’s activity, using the Firm Cash Flow (FCFF) methodology.

The Company has not identified any evidence of impairment in any other intangible asset, whose useful life is finite.

Renegotiation of hydrological risk – the Generation Scaling Factor (GSF)

On September 9, 2020, the Law 14,052 was issued, changing the Law 13,203/2015 and establishing new conditions for renegotiation of hydrological risk in relation to the portion of costs incurred due to the GSF, borne by the holders of hydroelectric plants participating in the Energy Reallocation Mechanism (MRE) between 2012 and 2017, when there was a serious crisis in water sources.

The aim of this new law is to compensate the holders of hydroelectric plants participating in the MRE for non-hydrological risks caused by:

(i)generation ventures classified as structural, related to bringing forward of physical guarantee of the plants;
(ii)the restrictions on start of operation of the transmission facilities necessary for outflow of the generation output of structural projects; and
(iii)generation outside the merit order system, and importation.

This compensation will take the form of extension of the grant of concession or authorization to operate, limited to 7 years, calculated on the basis of the parameters applied by Aneel.

On December 1, 2020, Aneel issued its Normative Resolution 895, which established the methodology for calculation of the compensation, and the procedures for renegotiation of hydrological risk. To be eligible for the compensations under Law 14,052, the holders of hydroelectric plants participating in the MRE are required to:

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(i)cease any legal actions which claimed exemption from or mitigation of hydrological risks related to the MRE;
(ii)relinquishing any claims and/or further legal actions in relation to exemptions from or mitigation of hydrological risks related to the MRE; and
(iii)not to have renegotiated hydrological risk under Law 13,203/2015.

On March 2, 2021 the CCEE sent to Aneel the calculations for the concessions extensions in the Free Market (ACL) that have opted to accept the conditions proposed by Aneel Normative Resolution 895/2020 and Law 14,052/2020. The Company’s management is awaiting ratification and publication by Aneel of its extensions of the concessions grants, for subsequent submission to the Company’s governance bodies for approval. Thus, no impact arising from this matter.

b) Income tax and social contribution

   2018   2017 

Current

    

Income tax

   83    88 

Social contribution

   29    27 
  

 

 

   

 

 

 
   112    115 
  

 

 

   

 

 

 

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subject has been recorded in the financial statements at December 31, 2020.

 

22. LOANS, FINANCING AND DEBENTURESBased on the data supplied by CCEE to Aneel, the Company’s plants will have the right to the following periods of extension:

 

Financing source

  Principal
maturity		   

Annual financial cost %

  Currency   2018  2017 
  Current  Non-current  Total  Total 

FOREIGN CURRENCY

           

Banco do Brasil: Various Bonds (1) (4)

   2024   Diversas   US$    2   24   26   24 

Eurobonds (2)

   2024   9.25%   US$    44   5,812   5,856   3,333 

KfW (2)

   2019   1.78%   EURO    0    0   4 

(-)Transaction costs

          (21)   (21)   (15) 

(±) Interest paid in advance (3)

          (34)   (34)   (48) 
        

 

 

  

 

 

  

 

 

  

 

 

 

Debt in foreign currency

         46   5,781   5,827   3,298 

BRAZILIAN CURRENCY

           

Banco do Brasil S.A. (2)

   2018   140.00% do CDI   R$    —     —     —     742 

Banco do Brasil S.A.(4)

   2022   146.50% do CDI   R$    37   466   503   500 

Caixa Econômica Federal (4)

   2018   119.00% do CDI   R$       8 

Caixa Econômica Federal (4)

   2022   146.50% do CDI   R$    44   583   627   627 

Caixa Econômica Federal (5)

   2021   TJLP + 2.50%   R$     56   56   —   

Caixa Econômica Federal (6)

   2022   TJLP + 2.50%   R$     108   108   —   

Eletrobrás (4)

   2023   UFIR + 6.00% a 8.00%   R$    13   20   33   50 

Large customers (4)

   2024   IGP-DI + 6.00%   R$    2   3   5   4 

FINEP (2)

   2018   TJLP+5.00% e TJLP+8.00%   R$    —     —     —     2 

—Banco da Amazônia S.A. (2)

   2018   CDI + 1.90%   R$    —     —     —     122 

Sonda (7)

   2021   110.00% do CDI   R$    —    46   46   42 

Promissory Notes – 9th Issue - Single series (4)

   2019   151.00% do CDI   R$    426    426   —   

(-) FIC Pampulha - Marketable securities of subsidiary companies (9)

         (25)   —    (25)   —   

(-)Transaction costs

         (2)   (11)   (13)   (26) 

Debt in Brazilian currency

         495   1,271   1,766   2,071 
        

 

 

  

 

 

  

 

 

  

 

 

 

Total of loans and financings

         541   7,052   7,593   5,369 
        

 

 

  

 

 

  

 

 

  

 

 

 

Debentures – 3th Issue – 2nd Serie (2)

   2019   IPCA + 6.00%   R$    156   —     156   301 

Debentures - 3th Issue – 3rd Serie (2)

   2022   IPCA + 6.20%   R$    53   996   1,049   1,011 

Debentures - 5th ª Issue – Single serie (2)

   2018   CDI + 1.70%   R$    —     —     —     703 

Debentures - 6th Issue – 1st Serie (2)

   2018   CDI + 1.60%   R$    —     —     —     508 

Debentures - 6th Issue – 2nd Serie (2)

   2020   IPCA + 8.07%   R$    17   16   33   32 

Debentures - 7th Issue – Single Serie (2)

   2021   140.00% do CDI   R$    342   681   1,023   1,683 

Debentures - 3th Issue – 1st Serie (4)

   2018   CDI + 0.69%   R$    —     —     —     447 

Debentures - 3th Issue – 2nd Serie (4)

   2021   IPCA + 4.70%   R$    569   1,027   1,596   1,537 

Debentures - 3th Issue – 3rd Serie (4)

   2025   IPCA + 5.10%   R$    41   916   957   921 

Debentures - 4th Issue – Single Serie (4)

   2018   CDI + 4.05%   R$    —     —     —     20 

Debentures - 5th Issue - Single Serie (4)

   2022   146.50% do CDI   R$    112   1,468   1,580   1,576 

Debentures - 6th Issue - Single Serie (4)

   2020   CDI + 1.75%   R$    276   275   551   —   

Debentures (8)

   2018   CDI + 1.60%   R$    —     —     —     100 

Debentures (8)

   2018   CDI + 0.74%   R$    —     —     —     34 

Debentures (8)

   2022   TJLP+1.82% (69%) e Selic+1.82% (31%)   R$    33   92   125   155 

Debentures (8)

   2019   116.50% do CDI   R$    50    50   50 

Debentures (8)

   2023   CDI + 1.50%   R$    20   80   100   —   

Debentures 2th Issue – Single Serie (7)

   2019   128.50% do CDI   R$    —     —     —     26 

(-)FIC Pampulha: Marketable securities of subsidiary companies (9)

         —     —     —     (25) 

(-) Transaction costs

         (12)   (29)   (41)   (50) 
        

 

 

  

 

 

  

 

 

  

 

 

 

Total, debentures

         1,657   5,522   7,179   9,029 
        

 

 

  

 

 

  

 

 

  

 

 

 

Total

         2,198   12,574   14,772   14,398 
        

 

 

  

 

 

  

 

 

  

 

 

 
Power plant 

Physical Guarantee

(average MW)

 

Concession extension

(months)

Emboração  500   23 
Nova Ponte  270   25 
Sá Carvalho  56   22 
Rosal  29   46 
Others (1)  399   —   
         
(1)Includes 11 power plants, of which 7 are owned by Cemig GT, 1 is owned by Cemig PCH and 3 are owned by Horizontes. The average concession extension in months varies between 1 and 84 months.

The accounting effect arising from renegotiation of hydrological risk comprises: recognition of an intangible asset, related to the right of grant arising from the compensation for costs incurred in prior years, based on fair value, with counterpart in energy cost compensation in statement of income. These effects will be recognized after approval by the Company’s governance bodies of the proposal for renegotiation of hydrological risk. This is expected to take place at the end of the first half of 2021.

With the approval of Law 14,120/2021, the right to reimbursement for the generation plants of Lot D was recognized, enabling the CCEE to make a new calculation, including these plants, indicating the right to their concession extension by the allowed maximum (seven years). Official confirmation of these amounts is pending regulations to be issued by Aneel.

19.LEASING TRANSACTIONS

The Company recognized a right to use and a lease liability for the following contracts which contain a lease in accordance with IFRS 16:

§Leasing of commercial real estate used for serving customers;
§Leasing of buildings used as administrative headquarters;
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§Leasing of commercial vehicles used in operations.

The Company has elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying asset is of low value (low-value assets). Thus, these leasing agreements are recognized as an expense in the income statement on the straight-line basis, over the period of the leasing. Their effects on net income from January to December 2020 were immaterial.

The discount rates were obtained by reference to the Company’s incremental borrowing rate, based on the debts contracted by the Company and through quotations with potential financial institutions and reflect the Company’s credit risk and the market conditions at the lease agreement date, as follows:

Marginal rate Annual rate (%) Monthly rate (%)
Initial application    
Up to two years  7.96   0.64 
Three to five years  10.64   0.85 
Six to twenty years  13.17   1.04 
         
Contracts entered – 2019 and 2020        
Up to three years  6.87   0.56 
Three to four years  7.33   0.59 
Four to twenty years  8.08   0.65 

a)Right-of-use assets

The right-of-use assets were valued at cost, corresponding to the amount of the initial measurement of the lease liabilities, adjusted by its remeasurements, and amortized on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

Changes in the right-of-use assets are as follows:

  Real estate property Vehicles Total
Balances at December 31, 2018 - - -
Adoption on January  1, 2019  238   104   342 
Disposals (contracts terminated)            
Addition  28   4   32 
Disposals (contracts terminated)  (13)  —     (13)
Amortization (1)  (37)  (39)  (76)
Remeasurement (2)  (10)  2   (8)
Balances at December 31, 2019  206   71   277 
Disposals (contracts terminated)  (9)  —     (9)
Amortization (1)  (25)  (40)  (65)
Addition  6   —     6 
Remeasurement (2)  7   (4)  3 
Balances at December 31, 2020  185   27   212 

 

(1)Amortization of the right-of-use assets is recognized in the Income Statement is net of use of the credits of PIS, Pasep and Cofins taxes on leasing payments of R$2.
(2)The Company has identified events giving rise to modifications of their principal contracts. When occurred, the lease liabilities adjustments are recognized in counterpart of the right-of-use assets.

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b)Lease liabilities

The liability for leasing agreements is measured at the present value of lease payments to be made over the lease term, discounted at the Company’s incremental borrowing rate. The liability carring amount is remeasured to reflect leases modifications as specified in IFRS 16.

The changes in the lease liabilities are as follows:

2019
Balances at December 31, 2018
January 1, 2019 (1)342
Addition32
Disposals (contracts terminated)(13)
Accrued interest (2)36
Payment of principal portion of lease liability(96)
Payment of interest(5)
Remeasurement (3)(8)
Balances at December 31, 2019288
Addition6
Disposals (contracts terminated)(10)
Accrued interest (2)29
Payment of principal portion of lease liability(84)
Payment of interest(3)
Remeasurement (3)2
Balances at December 31, 2020227
Current liabilities48
Non-current liabilities179

(1)Financial expenses recognized in the income statement are net of PIS/Pasep and Cofins taxes credits on lease payments in the amounts of R$2 (R$2 on December 31, 2019).
(2)The Company identified events that give rise to modifications of their principal contracts. When occurred, the lease liabilities adjustments are recognized in counterpart of the right-of-use assets.

The potential right to recovery of PIS/Pasep and Cofins taxes embedded in the leasing consideration, according to the periods specified for payment, is as follows:

Cash flow Nominal Adjusted to present value
Consideration for the leasing  644   227 
Potential PIS/Pasep and Cofins (9.25%)  55   18 

The cash flows of the contracts containing a lease are, in their majority, indexed to the IPCA inflation index on an annual basis. Below is an analysis of maturity of lease contracts:

   
 2021   56 
 2022   27 
 2023   26 
 2024   26 
 2025   26 
 2026 at 2045   483 
 Undiscounted values   644 
 Embedded interest   (417)
 Lease liabilities   227 

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20.SUPPLIERS

  2020 2019
Energy on spot market – CCEE  490   401 
Charges for use of energy network  192   145 
Energy purchased for resale  808   764 
Itaipu Binacional  325   243 
Gas purchased for resale  127   143 
Materials and services  416   384 
   2,358   2,080 

21.TAXES PAYABLE AND AMOUNTS TO BE REFUNDED TO CUSTOMERS

  2020  

2019

(Restated)

  

01/01/2019

(Restated)

 
Current         
ICMS  112   112   168 
COFINS (2)  184   177   182 
PIS/PASEP (2)  41   39   39 
INSS  29   25   23 
Others (1)  140   58   41 
   506   411   453 
             
Non-current            
COFINS (3)  216   186   206 
PIS/PASEP  (3)  47   41   43 
   263   227   249 
   769   638   702 
             
Amounts to be refunded to customers            
Current            
PIS/PASEP and COFINS  448   —     —   
Non-current            
PIS/PASEP and COFINS  3,570   4,193   1,124 
   4,018   4,193   1,124 

(1)This includes the withholding income tax on Interest on equity paid in January 2020, in accordance with the tax legislation.
(2)Includes Cofins and PIS/Pasep recognized in current liability includes the deferred taxes related to the interest revenue arising from the financing component in contract asset and to the revenue of construction and upgrade associated with the transmission concession contract, whose consideration will be received in at least twelve months after the reporting period. For more information, see note 2.8 and 15.
(3)The deferral of PIS/Pasep and Cofins taxes related to the interest revenue arising from the financing component in contract asset and to the revenue of construction and upgrade associated with the transmission concession contract, whose consideration will be received in at least twelve months after the reporting period. For more information, see note 2.8 and 15.

The amounts of PIS/Pasep and Cofins taxes to be refunded to customers refer to the credits to be received by the Company following the inclusion of the ICMS value added tax within the taxable amount for calculation of those taxes. According note 9 (a), the Company recognized, in 2019, its right to offsetting of amounts unduly paid for the 10 years prior to the action being filed, with monetary updating by the Selic rate, due to the final judgment – against which there is no appeal – on the Ordinary Action, in favor of the Company.

The Company has a liability corresponding to the credits to be reimbursed to its customers, which comprises the period of the last 10 years, from June 2009 to May 2019, net of PIS/Pasep and Cofins taxes over monetary updating.

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The definitive criteria for the refunding of PIS/Pasep and Cofins taxes to customers are pending, awaiting conclusion of discussions with Aneel and the mechanisms and criteria for reimbursement, when actual offsetting of the tax credits takes place.

On August 18, 2020, Aneel ratified the inclusion into the tariff readjustment for 2020 of a negative financial component of R$714, in effect from August 19, 2020 to May 27, 2021 – this corresponds to the release of the escrow funds deposited in court following final judgment in the Company’s favor against which there is no further appeal. For more information see Note 14.5.

22.LOANS, FINANCING AND DEBENTURES

Financing source Principal maturity Annual financial cost % Currency 2020 2019
    Current Non-current Total Total
FOREIGN CURRENCY                          
Banco do Brasil: Various Bonds (1) (4)  2024  Diverse  US$   2   10   12   18 
Eurobonds (2)  2024  9.25%  US$   59   7,795   7,854   6,092 
(-)Transaction costs            —     (16)  (16)  (19)
(±) Interest paid in advance (3)            —     (25)  (25)  (30)
Debt in foreign currency            61   7,764   7,825   6,061 
BRAZILIAN CURRENCY                          
Caixa Econômica Federal (5)  2021  TJLP + 2.50%  R$   17   —     17   61 
Caixa Econômica Federal (6)  2022  TJLP + 2.50%  R$   14   —     14   118 
Eletrobrás (4)  2023  UFIR + 6.00% at 8.00%  R$   3   5   8   20 
Large customers (4)  2024  IGP-DI + 6.00%  R$   —     —     —     5 
Sonda (7)  2021  110.00% of CDI  R$   50   —     50   49 
Promissory Notes – 1st Issue - Single series (8)  2020  107.00% of CDI  R$   —     —     —     875 
(-) FIC Pampulha - Marketable securities of subsidiary companies (9)            —     —     —     (3)
Debt in Brazilian currency            84   5   89   1,125 
Total of loans and financings            145   7,769   7,914   7,186 
Debentures - 3th Issue – 3rd Series (2)  2022  IPCA + 6.20%  R$   395   367   762   1,088 
Debentures - 6th Issue – 2nd Series (2)  2020  IPCA + 8.07%  R$   —     —     —     17 
Debentures - 7th  Issue – Single series (2) (11)  2021  140.00% of CDI  R$   289   —     289   578 
Debentures - 3th Issue – 2nd Series (4)  2021  IPCA + 4.70%  R$   588   —     588   1,109 
Debentures - 3th Issue – 3rd Series (4)  2025  IPCA + 5.10%  R$   43   992   1,035   991 
Debentures - 7th Issue – 1st Series (4)  2024  CDI + 0.45%  R$   542   1,350   1,892   2,165 
Debentures - 7th Issue – 2nd Series (4)  2026  IPCA + 4.10%  R$   3   1,585   1,588   1,520 
Debentures – 4th Issue – 1st Series (8)  2022  TJLP+1.82%  R$   10   10   20   31 
Debentures – 4th Issue – 2nd Series (8)  2022  Selic + 1,82%  R$   5   4   9   14 
Debentures – 4th Issue – 3th Series (8)  2022  TJLP + 1,82%  R$   12   10   22   34 
Debentures – 4th Issue – 4th Series (8)  2022  Selic + 1,82%  R$   5   5   10   15 
Debentures – 7th Issue – Single series (8)  2023  CDI + 1.50%  R$   20   40   60   80 
Debentures – 8th Issue – Single series (8)  2031  IPCA + 5.27%  R$   14   876   890   —   
(-) Discount on the issuance of debentures (10)            —     (18)  (18)  (22)
(-) Transaction costs            (12)  (29)  (41)  (29)
Total, debentures            1,914   5,192   7,106   7,591 
Total            2,059   12,961   15,020   14,777 

(1)Net balance of the Restructured Debt comprising bonds at par and discounted, with balance of R$ 175,234, less the amounts given as Deposits in guarantee, with balance of R$ 149.222. Interest rates vary – from 2 to 8% p.a.;six-month Libor plus spread of 0.81% to 0.88% p.a.

(2)

Cemig Geração e Transmissão;

(3)

Advance of funds to achieve the yield to maturity agreed in the Eurobonds contract.

(4)

Cemig Distribuição;

(5)

Central Eólica Praias de Parajuru, resulting from the business combination. For more details please see Note 17.

Parajuru;
(6)

Central Eólica Volta do Rio – result from the business combination. For more details please see Note 17.

Rio;
(7)

Arising from merger of Cemig Telecom.

(8)

Gasmig;

Gasmig. The proceeds from the 8th debenture issue, concluded by Gasmig on September 10, 2020, in the amount of R$850, were used to redeem the Promissory Notes issued on September 26, 2019, with maturity at 12 months, whose proceeds were used in their entirety for payment of the concession grant fee for the gas distribution concession contract.
(9)

FIC Pampulha has financial investments in marketable securities issued by subsidiaries of the Company. For more information on this fund, see Note 31.

(10)Discount on the sale price of the 2nd series of the Seventh issue of Cemig Distribuição.
(11)On February 02, 2021, the Company made the mandatory early redemption of this debentures, in the amount of R$264, with 20% discount of the funds obtained by the sale of the Company’s interest in Light. For more information about the sale of the Company’s interest in Light, see Note 32.
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The debentures issued by the subsidiaries arenon-convertible; non-convertible, there are no agreements for renegotiation, nor debentures held in treasury.

There are early maturity clauses for cross-default in the event ofnon-payment by Cemig GT or by the Company, of any pecuniary obligation with individual or aggregate value greater than R$50 million.

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(“cross default”).

 

Funding raised

This table provides the totals of funds raised in 2018, 2017 and 2016:

 

Financing source 2018

  Signature date   Principal
maturity		   Annual financial
cost %		   Amount 

FOREIGN CURRENCY

        

Eurobonds (1)

   July, 2018    2024    9.25%    1,946 

(-) Transactions costs

         (8) 

(±)Interest paid in advance (2)

         10 
        

 

 

 
         1,948 

BRAZILIAN CURRENCY

        

Promissory Notes – 9th Issue - Single Serie (3)

   May, 2018    2019    
151%
do CDI		 
 		   400 

(-)Transactions costs

         (4) 

Debentures

         —   

Debentures (4)

   August, 2018    2023    CDI + 1.50%    100 

Debentures – 6th Issue – Single Serie (5)

   December, 2018    2020    CDI + 1.75%    550 

(-)Transactions costs

         (4) 
        

 

 

 
         1,042 
        

 

 

 

Total raised

         2,990 
        

 

 

 

On September 10, 2020 Gasmig concluded its eighth non-convertible debenture issue, for R$850, in a single series, with 11-year maturity, monetary updating by the IPCA inflation index, and remuneratory interest of 5.27% per year on the 252 business days basis. The total of the net proceeds was used for the obligatory early redemption of Gasmig’s first Commercial Promissory Note issue, in a single series, totaling R$850 on the issue date.

Financing source

2020

 Signature date Principal maturity Annual financial cost % Amount
BRAZILIAN CURRENCY            
Debentures – 8th Issue – Single series September 2020  2031  IPCA + 5.27%  850 
(-)Transactions costs          (24)
             
Total raised          826 

Financing source

2019

 Signature date Principal maturity Annual financial cost % Amount
BRAZILIAN CURRENCY            
Debentures – 7th Issue – 1st Series (1) July 2019  2024  CDI + 0.454%  2,160 
Debentures – 7th Issue – 2nd Series (1) July 2019  2026  4.10% of IPCA  1,500 
Promissory Notes – 1st Issue (2) September 2019  2020  107.00% of CDI  850 
(-)Transactions costs          (10)
(-)Discount on the issuance of debentures (3)          (23)
             
Total raised          4,477 

 

(1)Cemig Distribuição
(2)Gasmig
(3)Discount on the sale price of the 2nd series of the debentures issued by Cemig Distribuição.

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Financing source

2018

 Signature date Principal maturity Annual financial cost % Amount
FOREIGN CURRENCY              
Eurobonds (1) July 2018  2024   9.25%  1,946 
(-) Transactions costs            (8)
(±)Interest paid in advance (2)            10 
             1,948 
BRAZILIAN CURRENCY              
Promissory Notes – 9th Issue - Single Series (3) May 2018  2019   151% of CDI   400 
(-)Transactions costs            (4)
Debentures            —   
Debentures (4) August 2018  2023   CDI + 1.50%   100 
Debentures – 6th Issue – Single Series (5) December 2018  2020   CDI + 1.75%   550 
(-)Transactions costs            (4)
             1,042 
Total raised            2,990 

(1)In July 2018, Cemig GT completed financial settlement of an additional tranche to its initial Eurobond issue completed on December 5, 2017. The new tranche, of US$ 500, million, which brought the total of the issuance to R$ 1.9461,946 billion, has half-yearly coupon of 9.25% p.a., with maturity of the principal in 2024.

(2)

Advance of funds to achieve the yield to maturity agreed in the Eurobonds contract.

(3)

In May 2018 Cemig D made its 9th Promissory Note issue, with maturity at 18 months, annual remuneration of 151% of the CDI rate, and single bullet amortization on October 24, 2019.

(4)

In August 2018 Gasmig completed its 7th debenture issue, with maturity at 5 years, paying CDI + 1.50%, with annual amortization from August 2019.

(5)

In December 2018 the 6th Debenture Issue was placed, with maturity at 18 months, annual remuneration of CDI +1.75%, and monthly amortization in 12 payments from July 3, 2019.

Financing source 2017

  Signature date   Principal
maturity		   Annual financing
cost – %		 Amount (*) 

Foreign currency

       

Eurobonds

   12/05/2017    2024   9.25%  3,252 

(–) Transaction costs (*)

        (16) 

Interest paid in advance (*)

        (48) 

Brazilian currency

       

Debentures (1)

   11/04/2013    2022   CDI + 0.74%  34 

Debentures (2)

   04/22/2017    2019   128.50% of CDI  26 

Debentures–5th Issue, single series (3)

   12/14/2017    2022   146.50% of CDI  1,575 

(–) Transaction costs (3)

        (11) 
       

 

 

 

Total raised

        4,812 
       

 

 

 

(*)

Includes taxes without cash effect, of R$ 10.

(1)

Subscription by BNDESPar of Gasmig’s 4th debentures Issue, in June 2017, to support the plan for investment in expansion of the gas distribution network.

(2)

CemigTelecom (merged into Company in 2018) completed its second issue ofnon-convertible debentures in May 2017 with real guarantees and additional surety, in a single series, to roll over debt and strengthen cash position.

(3)

On December 14, 2017 CemigTelecom made its 5th issue ofnon-convertible debentures, with maturity 4.5 years, annual remuneration of 146.50% of the CDI, to be amortized in 36 monthly installments due as from July 2019. Payment for subscription of the Debentures of the5th issue was made with debentures of the4th issue – thus there was no cash effect.

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Financing source 2016

  Principal
maturity		   Annual financial
cost, %		   Amount 

Brazilian currency

      

Caixa Econômica Federal – Cemig D

   2020    132.14% of CDI    674 

Debentures (Cemig D)

   2018    CDI + 4.05%    1,575 

KfW (Cemig GT)

   2018    1.78%    2 

Promissory Notes – Cemig GT–7th Issue

   2017    128% of CDI    606 

Debentures–4th Issue, 7th Series (Gasmig)

   2020    TJLP    24 

Debentures: 7th Issue (CEMIG GT)

   2021    140% of CDI    2,195 

Banco do Brasil

   2018    132.90% of CDI    580 

Sonda (Cemig Telecom)

   2021    110% of CDI    81 
      

 

 

 

Total raised

       5,737 
      

 

 

 

In December 2017 and July 2018 two tranchs, of US$1 billion (R$ 3.2 billion) and US$ 500 million (R$ 1.9 billion), respectively, were raised in a Eurobond issue outside Brazil, with maturity of the principal in 2024. Also, in 2018 early repayment was made of R$ 1.5 billion in debt – which was borrowed at a cost of 140% of the CDI rate, with original maturity in 2021. These initiatives of 2017 and 2018 have balanced Company’s and Cemig GT’s cash flows, extended average debt maturities, and improved credit quality.

The Company measured the effects related to debt reprofiling in 2017 and did not identify a substantial difference between the terms of the original and refinanced debt. Therefore, in accordance with IAS 39 – Financial Instruments, no gain or loss was recognized in the Company’s consolidated net income for the year ended December 31, 2017.

Guarantees

The guarantees of the debt balance on loans and financing, on December 31, 2018,2020, were as follows:

  20182020

Promissory notes and Sureties

  9,59010,197 

Guarantee and Receivables

  3,8843,454 

Shares

Receivables		  1,141112 

Unsecured

Shares		  157330 

TOTAL

Unsecured		  14,772927 
TOTAL 

15,020		 

The composition of loans, financing and debentures, by currency and index, with the respective amortization, is as follows:

  2021 2022 2023 2024 2025 2026 Total
Currency              
US dollar  61   —     —     7,805   —     —     7,866 
Total, currency denominated  61   —     —     7,805   —     —     7,866 
Index                            
IPCA (1)  1,043   615   248   341   1,138   1,478   4,863 
UFIR/RGR (2)  3   3   2   —     —     —     8 
CDI (3)  912   570   560   268   —     —     2,310 
URTJ/TJLP (4)  53   20   —     —     —     —     73 
Total by index  2,011   1,208   810   609   1,138   1,478   7,254 
(-)Transaction costs  (12)  (1)  (1)  (18)  (5)  (20)  (57)
(±)Interest paid in advance  —     —     —     (25)  —     —     (25)
(-) Discount  —     —     —     —     (9)  (9)  (18)
Overall total  2,060   1,207   809   8,371   1,124   1,449   15,020 

 

   2019  2020  2021  2022  2023   2024  2025   Total 

Currency

           

US dollar

   46   —     —     —     —      5,836   —      5,882 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total, currency denominated

   46   —     —     —     —      5,836   —      5,882 

Index

           

IPCA (1)

   836   851   850   567   229    229   229    3,791 

UFIR/RGR (2)

   13   12   3   3   2    —     —      33 

CDI (3)

   1,292   1,009   1,145   1,454   20    —     —      4,920 

URTJ/TJLP (4)

   23   68   114   44   —      —     —      249 

IGP-DI (5)

   3   1   1   1   —      —     —      6 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total by index

   2,167   1,941   2,113   2,069   251    229   229    8,999 

(-)Transaction costs

   (15)   (14)   (15)   (9)   0    (22)   0    (75) 

(±)Interest paid in advance

   —    —    —     —     —      (34)   —     (34) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Overall total

   2,198   1,927   2,098   2,060   251    6,009   229    14,772 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

(1) Expanded National Customer Price (IPCA) Index.

(2) Fiscal Reference Unit (Ufir / RGR).

(3) CDI: Interbank Rate for Certificates of Deposit.

(4) Interest rate reference unit (URTJ) / Long-Term Interest Rate (TJLP)

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(1)Table of Contents

Expanded National Customer Price (IPCA) Index.

(2)

Fiscal Reference Unit (Ufir / RGR).

(3)

CDI: Interbank Rate for Certificates of Deposit.

(4)

Interest rate reference unit (URTJ) / Long-Term Interest Rate (TJLP)

(5)

IGP-DI (‘General – Domestic Availability’) Price Index.

 

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The principal currencies and index used for monetary updating of loans and financings had the following variations:

Currency Accumulated change in 2020, % Accumulated change in 2019, % Indexer Accumulated change in 2020, % Accumulated change in 2019, %
US dollar  28.93   4.02   IPCA   4.52   4.31 
           CDI   2.77   5.97 
           TJLP   (18.31)  (20.20)

 

Currency

  Accumulated
change in 2018,
%		   Accumulated
change in 2017,
%		   Indexer  Accumulated
change in 2018,
%		  Accumulated
change in 2017,
%		 

US dollar

   17.13    1.50   IPCA   3.75   2.95 

Euros

   11.83    15.41   CDI   6.40   9.93 
      TJLP   (0.29)   (6.67) 

The changes in loans, financing and debentures are as follows:

 

  Consolidated 

Balance at December 31, 2015

15,167

Loans and financing obtained

5,878

(-) Transaction costs

(141) 

Financing obtained, net

5,737

Monetary and exchange rate variation

231

Financial charges provisioned

2,002

Amortization of transaction cost

68

Financial charges paid

(2,369) 

Amortization of financing

(5,592) 

Subtotal

15,244

(–) FIC Pampulha: Marketable securities of subsidiary companies

(65) 

Balance at December 31, 2016

15,179

Loans and financing obtained

3,363

(–) Transaction costs (1)

(16) 

(–) Interest paid in advance (1)

(48) 

Financing obtained, net

3,299

Transaction costs (2)

(11) 

Monetary variation

109

Exchange rate variation

59

Financial charges provisioned

1,537

Amortization of transaction cost

67

Financial charges paid

(1,749) 

Amortization of financing

(4,131) 

Subtotal

14,359

FIC Pampulha: Marketable securities of subsidiary companies

39

Balance at December 31, 2017

  14,398 

Liabilities arising from business combination (3)

  163 

Initial balance for consolidation purposes

  14,561 

Loans and financing obtained

  2,996 

(–) Transaction costs

  (16)

(–) Interest paid in advance

  10 

Financing obtained, net

  2,990 

Monetary variation

  134 

Exchange rate variation

  582 

Financial charges provisioned

  1,287 

Amortization of transaction cost

  33 

Financial charges paid

  (1,290)

Amortization of financing

  (3,527)

Subtotal

  14,770 

FIC Pampulha: Marketable securities of subsidiary companies

  2 

Balance at December 31, 2018

  14,772 
Loans and financing obtained 

4,510
(–) Transaction costs(10)
  (–) Discount in the issues of securities(23)
  Financing obtained, net4,477
Monetary variation142
Exchange rate variation226
Financial charges provisioned1,250
Amortization of transaction cost38
Financial charges paid(1,265)
Amortization of financing(4,883)
Subtotal14,757
FIC Pampulha: Marketable securities of subsidiary companies20
Balance at December 31, 201914,777
Liabilities arising from business combination (1)10
Initial balance for consolidation purposes14,787
Loans and financing obtained850
(–) Transaction costs(24)
Monetary variation187
Exchange rate variation1,742
Financial charges provisioned1,211
Amortization of transaction cost15
Financial charges paid (2)(1,212)
Amortization of financing(2,531)
Reclassification to “Other obligations” (3)(8)
Subtotal15,017
FIC Pampulha: Marketable securities of subsidiary companies3
Balance at December 31, 202015,020 

 

(1)

Includes taxes with no cash effect,Loans arising from business combinations due to the acquisition of R$10.

the remaining equity interest in Companhia Centroeste de Minas, settled in full in August 2020.
(2)

Transaction costs arising from the 5th issueWithholding income tax on remittance of debentures by Cemig D, which was subscribed by transfer of the debentures of the 4th issue – thus there was no cash effectinterest on Eurobonds, in the Company.

amount of R$130, was offset against PIS/Pasep and Cofins credits.
(3)

RefersReclassification to the balance of loans of the Volta do RioCemig D’s customers (CMM and Praias de Parajuru wind farms, arising from the business combination.

Serra da Fortaleza).

 

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Borrowing costs, capitalized

Costs of loans directly related to acquisition, construction or production of an asset which necessarily requires a significant time to be concluded for the purpose of use or sale are capitalized as part of the cost of the corresponding asset. All other costs of loans are recorded as finance costs in the period in which they are incurred. Costs of loans include interest and other costs incurred by the Company in relation to the loan.

The subsidiaries Cemig D and Gasmig transferred to intangible assets and to concession contract assetsconsidered the costs of loans and financing linked to construction in progress as construction costs of intangible and concession contract assets, as follows:

  2018   2017   2016  2020 2019 2018

Costs of loans and financing

   1,287    1,604    2,070   1,211   1,250   1,287 

Financing costs on intangible assets (1) (note 19)

   (4)    (71)    (142) 

Financing costs on concession contract assets (note 16)

   (26)    —      —   
  

 

   

 

   

 

 
Financing costs on intangible assets and contract assets (1) (Notes 15 and 18)  (33)  (23)  (30)

Net effect in Profit or loss

   1,257    1,533    1,928   1,178   1,227   1,257 
  

 

   

 

   

 

 

 

(1)

The average capitalization rate p.a. in 20182020 was 9.37% (14.28%5.39% (6.79% in 20172019 and 18.02%9.64% in 2016)2018).

The amounts of the capitalized borrowing costs have been excluded from the statement of cash flows, in the additions to cash flow of investment activities, as they do not represent an outflow of cash for acquisition of the related asset.

 

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Restrictive covenants

The Company has contracts with financial covenants as follows:

 

Title - Security

Covenant

Covenant

Ratio required – Issuer

Ratio required

Cemig (guarantor)

RatioCompliance required

Cemig (guarantor)

Ratio required –
Parajuru and Volta
do Rio

Compliance
required

7th Debentures

Issue

Cemig GT (1)

Net debt

/

(Ebitda + Dividends received)

The following or less:

5.0 in 2018

4.5 in 2019

3.0 in 2020

2.5 in 2021

The following or less:

4.25 in 2018

3.5 in 2019

3.0 in 2020

2.5 in 2021

—  Half-yearlySemi-annual and annual

Eurobonds

Cemig GT (3)(2)

Net debt

/

Ebitda adjusted for the Covenant (6)

The following or less:

5.5 on June, 30, 2018

5.0 on Dec. 31, 2018

5.0 on June, 30, 2019

4.5 on Dec. 31, 2019

4.5 on June, 30, 2020

3.0 on Dec. 31, 2020

3.0 on June 30, 2021

2.5 on/after Dec. 31, 2021

The following or less:

5.0 on June, 30, 2018

4.25 on Dec. 31, 2018

4.25 on June, 30, 2019

3.5 on Dec. 31, 2019

3.5 on June, 30, 2020

3.0 on Dec. 31, 2020

3.0 on June 30, 2021

3.0 on/after Dec. 31, 2021

—  

Half-yearlySemi-annual and annual

Bank Credit Notes of

Banco do Brasil and

Caixa Econômica

Federal; and

5th and 6th

7th Debentures Issue

and 9th Note

Issue

Cemig D (3)

Net debt

/

(Ebitda + Dividends received)

Current liquidity

adjusted

The following or less:

7.5 on June, 30. 2018

4.5 on Dec, 31. 2018

3.8 on June, 30. 2019

3.8 on Dec, 31. 2019

3.3 on June, 30. 2020

3.3 on Dec, 31. 2020

3.3 on June, 30. 2021

3.3 on/after Dec, 31. 2021

0.6x or more on/after June. 30. 2018

Less than 3.5

The following or less:

4.5 on June, 30, 2018

4.25 on December, 31, 2018

4.25 on June, 30, 2019

3.5 on December, 31, 2019

3.5 on June, 30, 2020

Less than 3.0 on December, 31, 2020

3.0 on June, 30, 2021

2.5 on/after December, 31, 2020

0.6x or more on/after June. 30. 2018

—  

—  

Half-yearlySemi-annual and annual

Debentures

GASMIG (4)(3)

Overall indebtedness (Total liabilities/Total assets)Less than 0.6—  —  -Annual
Ebitda / Debt servicing1.3 or more—  —  -Annual
Ebitda / Net finance income (expenses)2.5 or more—  —  -Annual
Net debt / Ebitda

The following or less:

2.5 on/after Dec, 31.2020

2.5 or more—  —  -Annual

8th Debentures Issue

Gasmig

Single series (4)

EBITDA/Debt servicing coverage index

—  —  1.20 or moreAnnual (during amortization)

Financiamento

Caixa Econômica

FederalNet debt/EBITDA

Equity / Total liabilities—  —  

20.61%

1.3 or more (Parajuru)as of Dec, 31.2020

20.63%

3.0 or more (Volta do Rio)less as of Dec, 31.2020

-

-

AlwaysAnnual

Annual

 

Financings Caixa Econômica Federal (CEF)

Parajuru eand Volta

do Rio (5)

Debt servicing coverage index

Equity / Total liabilities

Share capital subscribed in investee / Total investments made in the project financed

— 

—  1.20 or more

 

20.61% or more (Parajuru)

20.63% or more (Volta do Rio)

20.61% or more (Parajuru)

20.63% or more (Volta do Rio)

-

-

-

Annual (during amortization)

Always

Always

  

(1)

7th Issue of Debentures by Cemig GT, as of December 31, 2016, of R$2,240.

(2)

In the event of a possible breach of the financial covenants, interest will automatically be increased by 2% p.a. during the period in which they remain exceeded. There is also an obligation to comply with a ‘maintenance’ covenants – that the consolidated debt, shall have a guarantee for debt of 1.75x Ebitda (2.0 as of December 31, 2017); and a ‘damage’ covenant, requiring real guarantee for debt at Cemig GT of 1.5x Ebitda.

(3)

The instruments described above have compliance requirements for their covenants with specific ratios up to their maturity dates, as shown in the detail table at the beginning of this Note.

(4)

If Gasmig does not achieve the required covenants, it must, within 120 days from the date of notice in writing from BNDES or BNDESPar, constitute guarantees acceptable by the debenture holders byfor the total amount of the debt, subject to the rules of the National Monetary Council (CMN), unless the required ratios are restored within that period. Certain contractually specified situations can cause early maturity of other debts (cross-default).

(4)Non-compliance with the financial covenants results in automatic early maturity. If early maturity is declared by the debenture holders, Gasmig must make the payment after receipt of notification.
(5)

The financing contracts with Caixa Econômica Federal for the Praias de Parajuru and Volta do Rio wind power plants have financial covenants with compliance relating to early maturity of the debt remaining balance. Compliance with the debt servicing coverage index is considered to be demandable only annually and during the period of amortization, which begins in July 2020.

(6)Ebitda is defined as: (i) Profit before interest, income tax and Social Contribution tax on profit; depreciation; and amortization, calculated in accordance with CVM Instruction 527, of October 4, 2012; – less: (ii) non-operational profit; any non-recurring non-monetary credits or gains that increase net profit; any payments in cash made on consolidated basis during the period relating to non-monetary charges that were newly added in the calculation of Ebitda in any prior period; and any non-recurring non-monetary expenses or charges.

As

The covenants remain in compliance as of December 31, 2018,2020, with the exception non-compliance with the non-financial covenant of the loan contracts with the CEF of the subsidiaries Central Eólica Praias de Parajuru and Central Eólica Volta do Rio. Thus, exclusively to comply with the requirement of item 69 IAS 1, the Company isreclassified R$2 to current liabilities, referring to the loans of those subsidiaries, which were originally classified in compliance with all financial covenants.non-current liabilities. Additionally, the Company assessed the possible consequences arising from this matter in their other contracts for loans, financings and debentures, and concluded that no further adjustments were necessary.

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The information on the derivative financial instruments (swaps) contracted to hedge the debt servicing of the Eurobonds (principal, in foreign currency, plus interest), and the Company’s exposure to interest rate risks, are disclosed in Note 32.31.

23.REGULATORY CHARGES

  

 

2020 

 2019
Liabilities    
Global Reversion Reserve (RGR)  28   31 
Energy Development Account (CDE)  64   58 
Grantor inspection fee – ANEEL  3   3 
Energy Efficiency Program  265   255 
Research and development (R&D)  225   199 
Energy System Expansion Research  4   3 
National Scientific and Technological Development Fund  8   6 
Proinfa – Alternative Energy Program  7   8 
Royalties for use of water resources  13   10 
Emergency capacity charge  26   26 
Customer charges – Tariff flags  90   —   
Others  4   5 
   737   604 
         
Current liabilities  446   457 
Non-current liabilities  291   147 

23. REGULATORY CHARGES

24.POST-EMPLOYMENT OBLIGATIONS

      

   2018   2017 

Liabilities

    

Global Reversion Reserve (RGR)

   29    37 

Energy Development Account (CDE)

   122    206 

Regulator inspection fee – ANEEL

   2    2 

Energy Efficiency Program

   258    224 

Research and development (R&D)

   225    233 

Energy System Expansion Research

   2    3 

National Scientific and Technological Development Fund

   5    5 

Proinfa – Alternative Energy Program

   7    7 

Royalties for use of water resources

   6    15 

Emergency capacity charge

   31    31 

Others

   6    —   
  

 

 

   

 

 

 
   693    763 
  

 

 

   

 

 

 

Current liabilities

   514    513 

Non-current liabilities

   179    250 

24. POST-EMPLOYMENT OBLIGATIONS

Forluz Pension plan (a Supplementary retirement pension plan)

Cemig

Company and its subsidiaries are sponsors of Forluz – Forluminas Social Security Foundation, anon-profit legal entity whose object is to provide its associates and participants and their dependents with a finance income to complement retirement and pension, in accordance with the pension plan that they are subscribed in.

Forluz provides the following supplementary pension benefit plans available to its participants:

Mixed Benefit Plan (‘Plan B’): This plan operates as a defined-contribution plan in the fund accumulation phase for retirement benefits for normal time of service, and as a defined-benefit plan for disability or death of participants still in active employment, and for receipt of benefits for time of contribution. The Sponsors match the basic monthly contributions of the participants. This is the only plan open for joining by new participants. The actuarial risks related to Plan B occur only as from the option for the lifetime benefit at the moment of the participant’s retirement. In this specific case the responsibility for the risk of insufficiency of reserves for coverage of the benefits (deficits) is in parity between sponsors and participants.

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Funded Benefit Plan (‘Plan A’): This plan includes all currently employed and assisted participants who opted to migrate from the Company’s previously sponsored defined benefit plan, and are entitled to a benefit proportional to those balances. For participants who are still working, this benefit has been deferred to the retirement date. The benefit balances of Plan A have the characteristic of lifetime payment, and the responsibility for the risk of insufficiency of reserves to cover the benefits (deficits) is exclusively of the sponsors.

Cemig, Cemig GT

Company and Cemig Dits subsidiaries also maintain, independently of the plans made available by Forluz, payments of part of the life insurance premium for the retirees, and contribute to a health plan and a dental plan for the active employees, retired employees and dependents, administered by Cemig Saúde.

 

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Actuarial obligations and recognition in the financial statements

On this Note the Company discloses its obligations and expenses incurred for purposes of the Retirement Plan, Health Plan, Dental Plan and the Life Insurance Plan in accordance with the terms of IAS 19—19 - Employee Benefits, and the independent actuarial opinion issued as of December 31, 2018.2020.

Debt with the pension fund (Forluz)

The Company has recognized an obligation for past actuarial deficits relating to the pension fund in the amount of R$652473 on December 31, 20182020 (R$721566 on December 31, 2017)2019). This amount has been recognized as an obligation payable by Cemig and its subsidiaries, and will be amortized until June of 2024, through monthly installments calculated by the system of constant installments (known as the ‘Price’ table), and adjusted by the IPCA (Expanded National Customer Price) inflation index (published by the Brazilian Geography and Statistics Institute – IBGE) plus 6% per year. The Company is required to pay this debt even if Forluz has a surplus, thus, the Company maintain recorded the debt in full, and record the effects of monetary updating and interest in finance income (expenses) in the Statementstatement of income.

Agreement to cover the deficit on Forluz Pension Plan ‘A’

Forluz and the sponsors Cemig, Cemig GT and Cemig DCompany have signed a Debt Assumption Instrument to cover the deficit of Plan A for the years of 2015, 2016 and 2016.2017. On December 31, 20182020 the total amount payable by Cemig and its subsidiaries as a result of the Plan A deficitdeficits is R$ 378540 (R$283550 on December 31, 2017) with2019, referring to the Plan A deficits of 2015 and 2016). The monthly amortizations, calculated by the constant installments system (Price Table), will be paid until 2031 for the 2015 and 2016 deficits, in the amount of R$363, and up to June 2031.

On March 28, 2019, Cemig’s Board of Directors authorized the signature of a new Debt Assumption Instrument between Forluz and the sponsors Cemig, Cemig GT and Cemig D, in accordance with a plan2033 for coverage of the deficit of Plan A related to 2017. The total amount to be paid by Cemig and its subsidiaries as a result of the 2017 Plan A deficit, isin the amount of R$178, through 167 monthly installments.

177. Remuneratory interest applicable to the outstanding balance is 6% p.a., plus the effect of the IPCA. If the plan reaches actuarial surplus before the full period of amortization of the debt, also Company will not be required to pay the remaining installments and the contract will be extinguished.

 

F-100In December 2020, in accordance with the applicable legislation, Forluz proposed to Cemig a new Debt Assumption Instrument to be signed, if approved, by Forluz, Cemig, Cemig GT and Cemig D, in accordance with the plan to cover the deficit of Plan A, that occurred in 2019. The total amount to be paid by the Company to cover the deficit is R$160, through 166 monthly installments. The remuneration interest rate over the outstanding balance is 6% per year, plus the effect of the IPCA. If the plan reaches actuarial balance before the full period of amortization of the debt, the Company will not be required to pay the remaining installments and the contract will be extinguished.

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Actuarial information

 

2018

  Pension plans and
retirement supplement
plans		 Health plan   Dental plan   Life
insurance		   Total 
2020 Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total

Present value of obligations

   11,073  2,344    48    427    13,892   13,308   3,319   64   551   17,242 

Fair value of plan assets

   (9,062)   —      —      —      (9,062)   (10,420)  —     —     —     (10,420)
  

 

  

 

   

 

   

 

   

 

 

Initial net liabilities

   2,011  2,344    48    427    4,830   2,888   3,319   64   551   6,822 

Adjustment to asset ceiling

   159   —      —      —      159   21   —     —     —     21 
  

 

  

 

   

 

   

 

   

 

 

Net liabilities in the statement of financial position

   2,170  2,344    48    427    4,989   2,909   3,319   64   551   6,843 
  

 

  

 

   

 

   

 

   

 

 

 

2017

  Pension plans and
retirement supplement
plans		 Health plan   Dental plan   Life
insurance		   Total 

Present value of funded obligations

   10,545  1,809    39    270    12,663 
2019 Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total
Present value of obligations  13,285   3,102   61   574   17,022 

Fair value of plan assets

   (8,546)   —      —      —      (8,546)   (10,366)  —     —     —     (10,366)
  

 

  

 

   

 

   

 

   

 

 

Initial net liabilities

   1,999   1,809    39    270    4,117   2,919   3,102   61   574   6,656 

Adjustment to asset ceiling

   69   —      —      —      69   53   —     —     —     53 
  

 

  

 

   

 

   

 

   

 

 

Net liabilities in the statement of financial position

   2,068   1,809    39    270    4,186   2,972   3,102   61   574   6,709 
  

 

  

 

   

 

   

 

   

 

 

Theasset ceiling is the present value of any economic benefits available in the form of restitutions coming from the plan or reductions in future contributions to the plan.

The present value of the liabilities of the pension plan is adjusted to the asset ceiling, which corresponds to the surplus result of Plan B, which has a specific destination allocation under the regulations of the National Private Pension Plans Council (CNPC).

 

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The changes in the present value of the defined benefit obligation are as follows:

 

 Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total
  Pension plans and
retirement
supplement plans		 Health
plan		 Dental plan Life
insurance		 Total 

Defined-benefit obligation at December 31. 2015

   8,049   1,323   30   554   9,956 
Defined-benefit obligation at December 31, 2017  10,545   1,809   39   270   12,663 

Cost of current service

   5  9   —    3  17   3   10   —     2   15 

Interest on actuarial obligation

   1,013  174  4  72  1,263   959   173   4   25   1,161 

Actuarial losses (gains):

                          

Due to changes in demographic assumptions

   (1)   —     —     —    (1)                     

Due to changes in financial assumptions

   1,253  391  9  175  1,828   467   402   8   26   903 

Due to adjustments based on experience

   231  (87)  (3)  21  162   (20)  68   —     113   161 
  

 

  

 

  

 

  

 

  

 

   447   470   8   139   1,064 
   1,483  304  6  196  1,989                     

Benefits paid

   (807)  (99)  (2)  (11)  (919)   (881)  (118)  (3)  (9)  (1,011)
  

 

  

 

  

 

  

 

  

 

 

Defined-benefit obligation at December 31. 2016

   9,743   1,711   38   814   12,306 
Defined-benefit obligation at December 31, 2018  11,073   2,344   48   427   13,892 

Cost of current service

   5   11   —    3  19   1   14   —     3   18 

Interest on actuarial obligation

   980  178  3  85  1,246   963   208   4   38   1,213 

Actuarial losses (gains):

                          

Due to changes in demographic assumptions

   191   —     —     —    191   6   —     —     —     6 

Due to changes in financial assumptions

   414  66  2  55  537   2,058   576   11   130   2,775 

Due to adjustments based on experience

   53  (44)  (2)  (60)  (53)   83   91   —     (14)  160 
  

 

  

 

  

 

  

 

  

 

   2,147   667   11   116   2,941 
   658  22   —    (5)  675 

Plan amendment – Past service

   —     —     —    (619)  (619) 

Benefits paid

   (841)  (113)  (2)  (8)  (964)   (899)  (131)  (2)  (10)  (1,042)
  

 

  

 

  

 

  

 

  

 

 

Defined-benefit obligation at December 31. 2017

   10,545   1,809   39   270   12,663 
  

 

  

 

  

 

  

 

  

 

 
Defined-benefit obligation at December 31, 2019  13,285   3,102   61   574   17,022 

Cost of current service

   3  10   —    2  15   1   21   1   3   26 

Interest on actuarial obligation

   959  173  4  25  1,161   887   215   4   41   1,147 

Actuarial losses (gains):

                          

Due to changes in demographic assumptions

        135   395   4   —     534 

Due to changes in financial assumptions

   467  402  8  26   903   (375)  (152)  (4)  (34)  (565)

Due to adjustments based on experience

   (20)  68   —    113   161   289   (119)  1   (23)  148 
  

 

  

 

  

 

  

 

  

 

   49   124   1   (57)  117 
   447  470  8  139  1,064 

Benefits paid

   (881)  (118)  (3)  (9)   (1,011)   (914)  (143)  (3)  (10)  (1,070)
  

 

  

 

  

 

  

 

  

 

 

Defined-benefit obligation at December 31. 2018

   11,073   2,344   48   427   13,892 
  

 

  

 

  

 

  

 

  

 

 
Defined-benefit obligation at December 31, 2020  13,308   3,319   64   551   17,242 

On 2017, the Company changed its life insurance policy, resulting in reduction of the retirees’ capital insured by 20% at each 5-year interval, from aged 60, down to a minimum of 20%. These changes resulted in a reduction of R$ 619 in the post-employment obligations reported on December 31, 2017, with counterpart in the Statement of income in 2017.

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Changes in the fair values of the plan assets are as follows:

  Pension plans and
retirement supplement
plans

Fair value of plan assets at December 31, 2015

6,703

Return on investments

2,105

Contributions from employer

127

Benefits paid

(807) 

Fair value of plan assets at December 31, 2016

8,128

Return on investments

1,100

Contributions from employer

159

Benefits paid

(841) 

Fair value of plan assets at December 31, 2017

  8,546 

Return on investments

  1,220 

Contributions from employer

  178 

Benefits paid

  (881)

Fair value of the plan assets at December 31, 2018

  9,063 
Return on investments 

2,003
Contributions from employer199
Benefits paid(899)
Fair value of the plan assets at December 31, 201910,366
Return on investments757
Contributions from employer211
Benefits paid(914)
Fair value of the plan assets at December 31, 202010,420 

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The amounts recognized in 2018, 20172020, 2019 and 20162018 statement of income are as follows:

 

2018

  Pension plans
and retirement
supplement
plans		 Health
plan		   Dental plan   Life
insurance		   Total 
2020 Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total

Current service cost

   4  10    0    1    15   1   21   1   3   26 

Interest on the actuarial obligation

   959  172    4    26    1,161   887   215   4   41   1,147 

Expected return on the assets of the Plan

   (771)   —      —      —      (771)   (682)  —     —     —     (682)
  

 

  

 

   

 

   

 

   

 

 

Expense (recovery of expense) in 2018 according to actuarial calculation

   192  182    4    27    405 
  

 

  

 

   

 

   

 

   

 

 

Expense (recovery of expense) in 2020

according to actuarial calculation

  206   236   5   44   491 

 

2017

  Pension plans
and retirement
supplement
plans		  Health
plan		   Dental plan   Life
insurance		  Total 

Current service cost

   5   11    —      3   19 

Interest on the actuarial obligation

   980   178    3    85   1,246 

Expected return on the assets of the Plan

   (810)   —      —      —     (810) 

Past service cost

   —     —      —      (619)   (619) 
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Expense (recovery of expense) in 2017 according to actuarial calculation

   175   189    3    (531)   (164) 
  

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

 

2016

  Pension plans
and retirement
supplement
plans		 Health
plan		   Dental plan   Life
insurance		   Total 
2019 Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total

Current service cost

   5  9    —      3    17   1   14   —     2   17 

Interest on the actuarial obligation

   1,014  173    4    72    1,263   963   208   5   38   1,214 

Expected return on the assets of the Plan

   (833)   —      —      —      (833)   (767)  —     —     —     (767)
  

 

  

 

   

 

   

 

   

 

 

Total expense in 2016 according to actuarial calculation

   186   182    4    75    447 
  

 

  

 

   

 

   

 

   

 

 

Expense (recovery of expense) in 2019

according to actuarial calculation

  197   222   5   40   464 

2018 Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total
Current service cost  4   10   0   1   15 
Interest on the actuarial obligation  959   172   4   26   1,161 
Expected return on the assets of the Plan  (771)  —     —     —     (771)

Expense (recovery of expense) in 2018

according to actuarial calculation

  192   182   4   27   405 

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Changes in net liabilities were as follows:

   Pension plans
and retirement
supplement
plans		  Health
plan		  Dental plan  Life
insurance		  Total 

Net liabilities at December 31, 2015

   1,346   1,323   30   554   3,253 

Expense recognized in Statement of income

   187   182   4   75   448 

Contributions paid

   (128)   (99)   (2)   (11)   (240) 

Actuarial losses ( 1 )

   274   305   6   196   781 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net liabilities at December 31, 2016

   1,679   1,711   38   814   4,242 

Expense recognized in Statement of income

   175   189   3   88   455 

Contributions paid

   (160)   (113)   (2)   (7)   (282) 

Plan amendment – Past service

   —     —     —     (619)   (619) 

Actuarial losses (gains) ( 1 )

   374   22   (1)   (5)   390 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net liabilities at December 31, 2017

   2,068   1,809   38   271   4,186 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Expense recognized in Statement of income

   193   183   4   25   405 

Contributions paid

   (178)   (118)   (2)   (9)   (307) 

Actuarial losses ( 1 )

   87   470   8   140   705 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net liabilities at December 31, 2018

   2,170   2,344   48   427   4,989 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

   2018   2017 

Current liabilities

   253    232 

Non-current liabilities

   4,736    3,954 

(1)

Recognized directly in Comprehensive income.

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  Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total
Net liabilities at December 31, 2017  2,068   1,809   38   271   4,186 
Expense recognized in Statement of income  193   183   4   25   405 
Contributions paid  (178)  (118)  (2)  (9)  (307)
Actuarial gains (losses)  87   470   8   140   705 
Net liabilities at December 31, 2018  2,170   2,344   48   427   4,989 
                     
Expense recognized in Statement of income  197   222   5   40   464 
Contributions paid  (200)  (131)  (2)  (10)  (343)
Actuarial gains (losses)  805   667   10   117   1,599 
Net liabilities at December 31, 2019  2,972   3,102   61   574   6,709 
                     
Expense recognized in Statement of income  206   236   5   44   491 
Contributions paid  (211)  (143)  (3)  (10)  (367)
Actuarial gains (losses)  (58)  124   1   (57)  10 
Net liabilities at December 31, 2020  2,909   3,319   64   551   6,843 
                     
               2020   2019 
Current liabilities              305   288 
Non-current liabilities              6,538   6,421 

 

Amounts recorded as current liabilities refer to contributions to be made by Cemig and its subsidiaries in the next 12 months for the amortization of the actuarial liabilities.

The amounts reported as ‘Expense recognized in the Statement of income’ refer to the costs of post-employment obligations, totaling R$438 in 2020 (R$408 in 2019 and R$337 in 2018 (R$ 391 in 2017 and R$ 345 in 2016)2018), plus the finance expenses and monetary updating on the debt with Forluz, in the amounts of R$53 in 2020 (R$56 in 2019 and R$68 in 2018 (R$ 65 in 2017 and R$103 in 2016)2018).

The independent actuary’s estimation for the expense to be recognized for 20192021 is as follows:

 

  Pension plans
and retirement
supplement
plans		 Health
plan		   Dental plan   Life
insurance		   Total  Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total

Current service cost

   1  14    —      3    18   2   21   1   3   27 

Interest on the actuarial obligation

   978  208    4    38    1,228   884   231   5   39   1,159 

Expected return on the assets of the Plan

   (782)   —      —      —      (782)   (685)  —     —     —     (685)
  

 

  

 

   

 

   

 

   

 

 

Estimated total expense in 2019 as per actuarial report

   197  222    4    41    464 
  

 

  

 

   

 

   

 

   

 

 
Estimated total expense in 2020 as per actuarial report  201   252   6   42   501 

The expectation for payment of benefits for 20192021 is as follows:

 

   Pension plans
and retirement
supplement
plans – Forluz		   Health
plan		   Dental plan   Life
insurance		   Total 

Estimated payment of benefits

   863    127    3    17    1,010 
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  Pension plans and retirement supplement plans – Forluz Health plan Dental plan Life insurance Total
Estimated payment of benefits  928   172   3   18   1,121 

The Company and its subsidiaries Cemig GT and Cemig D have expectation of making contributions to the pension plan in 20192021 of R$ 184221 for amortization of the deficit of Plan A, and R$ 8281 for the Defined Contribution Plan (recorded directly in the Statement of income for the year).

The average maturity periods of the obligations of the benefit plans, in years, are as follows:

Pension plans and retirement supplement plans Health plan Dental plan Life insurance
Plan A Plan B 
11.58  12.81   13.8   15.01   18.66 

 

Pension plans and retirement supplement plans

  Health plan   Dental plan   Life insurance 

Plan A

  

Plan B

9.59

  11.31   12.72    12.67    16.50 

The main categories plan’s assets, as a percentage of total plan’s assets are as follows:

 

   2018  2017 

Shares of Brazilian companies

   7.11%   6.63% 

Fixed income securities

   71.92%   74.12% 

Real estate property

   4.69%   8.05% 

Others

   16.28%   11.20% 
  

 

 

  

 

 

 

Total

   100.00%   100.00% 
  

 

 

  

 

 

 

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  2020 2019
Shares  9.25%  9.51%
Fixed income securities  72.17%  72.28%
Real estate property  3.71%  3.79%
Others  14.87%  14.42%
Total  100.00%  100.00%

 

The following assets of the pension plan, measured at fair value, are related to the Company:

 

   2018   2017 

Non-convertible debentures issued by the Company and subsidiaries

   380    363 

Shares issued by the Company

   35    10 

Real estate properties of the Foundation, occupied by the Company and subsidiaries

   662    725 
  

 

 

   

 

 

 
   1,077    1,098 
  

 

 

   

 

 

 
  2020 2019
Non-convertible debentures issued by the Company  338   398 
Shares issued by the Company  4   24 
Real estate properties of the Foundation, occupied by the Company  285   503 
   627   925 

This table provides the main actuarial assumptions:

 

  2018  2020
  Pension plans and retirement
supplement plans		   Health plan and
Dental plan		   Life insurance  Pension plans and retirement supplement plans Health plan and Dental plan Life insurance

Annual discount rate for present value of the actuarial obligation

   9.02%    9.13%    9.16%   6.83% 7.14%  7.25%

Annual expected return on plan assets

   9.02%    9.13%    9.16%   6.83% Not applicable  Not applicable 

Long-term annual inflation rate

   4.01%    4.01%    4.01%   3.32% 3.32%  3.32%

Estimated future annual salary increases

   4.01%    Not applicable    5.26%   3.32% Not applicable  4.56%

General mortality table

   AT-2000 M S10% D10%    AT-2000 M S10% D20%    AT-2000 M S10% D20%   AT-2000 M S10% D10%  AT-2000 M S10% D20%  AT-2000 M S10% D20% 

Disability table

   Not applicable    Álvaro Vindas D30%    Álvaro Vindas D30%   Not applicable  Álvaro Vindas D30%  Álvaro Vindas D30% 

Disabled mortality table

   AT 49 M    Winklevoss D30%    Winklevoss D30%   AT-49 M  MI-85 F  MI-85 F 

Real growth of contributions above inflation (1)

   —      1.00%    —     —    1%  —   

 

(1)

Starting in 2018, Company adopted the assumption of real growth of the contributions above inflation at the rate of 1% p.a.

 

  2017  2019
  Pension plans and retirement
supplement plans		   Health and
Dental plans		   Life insurance  Pension plans and retirement supplement plans Health plan and Dental plan Life insurance

Annual discount rate for present value of the actuarial obligation

   9.48%    9.60%    9.57%   6.87% 7.09%  7.19%

Annual expected return on plan assets

   9.48%    9.60%    9.57%   6.87% Not applicable  Not applicable 

Long-term annual inflation rate

   4.00%    4.00%    4.00%   3.61% 3.61%  3.61%

Estimated future annual salary increases

   4.00%    Not applicable    6.08%   3.61% Not applicable  4.85%

General mortality table

   AT-2000 M S10% D10%    AT-2000 M S10% D20%    AT-2000 M S10% D20%   AT-2000 M S10% D10%  AT-2000 M S10% D20%  AT-2000 M S10% D20% 

Disability table

   Not applicable    Álvaro Vindas D30%    Álvaro Vindas D30%   Not applicable  Álvaro Vindas D30%  Álvaro Vindas D30% 

Disabled mortality table

   AT 49 M    Winklevoss D30%    Winklevoss D30%   AT-49 M  MI-85 F  MI-85 F 
Real growth of contributions above inflation (1)  —    1%  —   

 

   2016 
   Pension plans and retirement
supplement plans		   Health and
Dental plans		   Life insurance 

Annual discount rate for present value of the actuarial obligation

   10.47%    10.40%    10.50% 

Annual expected return on plan assets

   10.47%    10.40%    10.50% 

Long-term annual inflation rate

   4.50%    4.50%    4.50% 

Estimated future annual salary increases

   4.50%    Not applicable    6.59% 

General mortality table

   AT-2000 M S10% D10%    AT-2000 M S10% D20%    AT-2000 M S10% D20% 

Disability table

   Álvaro Vindas    Álvaro Vindas D10%    Álvaro Vindas D10% 

Disabled mortality table

   AT 49 M    Winklevoss D30%    Winklevoss D30% 
(1)Starting in 2018, Company adopted the assumption of real growth of the contributions above inflation at the rate of 1% p.a.

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  2018
  Pension plans and retirement supplement plans Health plan and Dental plan Life insurance
Annual discount rate for present value of the actuarial obligation  9.02% 9.60%  9.57%
Annual expected return on plan assets  9.02% Not applicable  Not applicable 
Long-term annual inflation rate  4.01% 4.00%  4.00%
Estimated future annual salary increases  4.01% Not applicable  6.08%
General mortality table  AT-2000 M S10% D10%  AT-2000 M S10% D20%  AT-2000 M S10% D20% 
Disability table  Not applicable  Álvaro Vindas D30%  Álvaro Vindas D30% 
Disabled mortality table  AT 49 M  Winklevoss D30%  Winklevoss D30% 
Real growth of contributions above inflation (1)  —    1%  —   

Below is a

(1)Starting in 2018, Company adopted the assumption of real growth of the contributions above inflation at the rate of 1% p.a.

The sensitivity analysis of the effects of changes in the main actuarial assumptions used to determine the defined-benefit obligation at December 31, 2018:2020 is shown below:

 

Effects on the defined-benefit obligation

  Pension plans
and retirement
supplement
plans		 Health
plan		 Dental plan Life
insurance		 Total  Pension plans and retirement supplement plans Health plan Dental plan Life insurance Total

Reduction of one year in the mortality table

   229  45  1  (15)  260   336   79   1   (15)  401 

Increase of one year in the mortality table

   (233)  (45)  (1)  16  (263)   (338)  (80)  (1)  16   (403)

Reduction of 1% in the discount rate

   1,183  327  7  78  1,595   1,513   483   10   111   2,117 

In the presentation of the sensitivity analysis, the present value of the defined-benefit obligation was calculated using the Unit Projected Credit method, the same method used to calculate the defined-benefit obligation recognized in the Statement of financial position.

The Company has not made changes in the methods used to calculate its post-employment obligations for the business years ended December 31, 20182020 and 2017.2019.

25. PROVISIONS

25.PROVISIONS

Company and its subsidiaries areis involved in certain legal and administrative proceedings at various courts and government bodies, arising in the normal course of business, regarding employment-law, civil, tax, environmental and regulatory matters, and other issues.

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Actions in which the Company and its subsidiaries areis defendant

Company recorded provisions for contingencies in relation to the legal actions in which, based on the assessment of the Company’s management and its legal advisors, the chancesprobability of loss are assessed as ‘probable’ (i.e. an outflow of funds to settle the obligation will be necessary), as follows:

  

  2019  Additions  Reversals  Settled / Reversal (1)  Provisions arising from business combination (2)  2020 
Labor  497   106   (60)  (116)  —     427 
Civil                        
Customer relations  19   22   —     (18)  —     23 
Other civil actions  18   21   —     (7)  —     32 
   37   43   —     (25)  —     55 
Tax  1,260   113   (38)  (41)  —     1,294 
Regulatory  36   16   —     —     —     52 
Others  58   13   (7)  (3)  3   64 
Total  1,888   291   (105)  (185)  3   1,892 

(1)This includes the amount of R$39, corresponding to the reversal of the contingency provisions relating to ICMS credits, recognized as recoverable taxes, due to a final judgment, against which there is no further appeal, in favor of the subsidiary Gasmig, on June 9, 2020.
(2)On January 13, 2020, the Company obtained the Centroeste control, which is consolidated as of 2020 first quarter. More details see note 16.

  2018 Additions Reversals Settled 2019
Labor  457   180   (44)  (96)  497 
Civil                    
Customer relations  19   21   (1)  (20)  19 
Other civil actions  29   16   (12)  (15)  18 
   48   37   (13)  (35)  37 
Tax  52   1,236   (8)  (20)  1,260 
Environmental  1   —     (1)  —     —   
Regulatory  37   2   (1)  (2)  36 
Others  46   13   (1)  —     58 
Total  641   1,468   (68)  (153)  1,888 

  2017 Additions Reversals Settled 2018
Labor  474   67   (25)  (59)  457 
Civil           ��        
Customer relations  18   17   —     (16)  19 
Other civil actions  43   10   (14)  (10)  29 
   61   27   (14)  (26)  48 
Tax  57   5   (10)      52 
Environmental  —     1   —     —     1 
Regulatory  40   8   (10)  (1)  37 
Others  46   7   (5)  (2)  46 
Total  678   115   (64)  (88)  641 

 

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   2016   Additions   Reversals  Settled  2017 

Labor

   350    210    (4)   (82)   474 

Civil

        

Customer relations

   15    21    (2)   (16)   18 

Other civil actions

   40    10    (2)   (5)   43 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
   55    31    (4)   (21)   61 

Tax

   68    9    (2)   (18)   57 

Regulatory

   44    15    (18)   (1)   40 

Corporate

   239    —      (239)   —     —   

Other

   59    13    (19)   (7)   46 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total

   815    278    (286)   (129)   678 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

   2015   Additions   Reversals  Settled  2016 

Labor

   290    125    (5)   (60)   350 

Civil

        

Customer relations

   18    15    (3)   (15)   15 

Other civil actions

   28    18    —     (6)   40 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 
   46    33    (3)   (21)   55 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Tax

   67    3    (1)   (1)   68 

Regulatory

   46    3    (3)   (2)   44 

Corporate

   269    —      (30)   —     239 

Other

   37    35    (4)   (9)   59 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Total

   755    199    (46)   (93)   815 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

The Company’s management, in view of the extended period and the Brazilian judiciary, tax and regulatory systems, believes that it is not practical to provide information that would be useful to the users of these financial statements in relation to the the timing of any cash outflows, or any possibility of reimbursements, might occur.

The Company’s believes that any disbursements in excess of the amounts provisioned, when the respective claims are completed, will not significantly affect the Company’s result of operations or financial position.

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The details on the main provisions and contingent liabilities are provided below, with the best estimation of expected future disbursements for these contingencies:

Provisions, made for legal actions in which the chancesprobability of loss have been assessed as ‘probable’ and contingent liabilities, for actions in which the chancesprobability of loss are assessed as ‘possible’

Labor claims

The Company and its subsidiaries areis involved in various legal claims filed by its employees and by employees of service providing companies. Most of these claims relate to overtime and additional pay, severance payments, various benefits, salary adjustments and the effects of such items on a supplementary retirement plan. In addition to these actions, there are others relating to outsourcing of labor, complementary additions to orre-calculation of retirement pension payments by Forluz, and salary adjustments.

The aggregate amount of the contingency is approximately R$ 1,7251,386 (R$ 1,8541,679 at December 31, 2017)2019), of which R$ 457427 (R$ 474497 at December 31, 2017)2019) has been recorded – the amount estimated as probably necessary for settlement of these disputes.

F-107Alteration of the monetary updating index of employment-law cases

LOGO

In December 2020 the Federal Supreme Court gave partial judgment in favor of two actions for declaration of constitutionality, and ruled that monetary adjustment applied to employment-law liabilities should be by the IPCA-E index until the stage of service of notice in a legal action, and thereafter by application of the Selic rate, and the Reference Rate (TR) is not applicable to any employment-law obligations as well. The effects of this decision were modulated as follows:

 

§payments already made in due time and in the appropriate manner, using application of the TR, the IPCA-E or any other indexer, will remain valid and may not be the subject of any further contestation;
§actions in progress that are at the discovery phase, should be subject to backdated application of the Selic rate, on penalty of future allegation of non-demandability of judicial title based on an interpretation contrary to the position of the Supreme Court; and;
§the decision is automatically applicable to actions in which final judgment has been given against which there is no appeal, provided that there is no express submission in relation to the monetary adjustment indices and interest rates; and this also applies to cases of express omission, or simple consideration of following the legal criteria.
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Customers claims

The Company and its subsidiaries areis involved in various civil actions relating to indemnity for moralpersonal injury and for material damages, arising, principally, from allegations of irregularity in measurement of consumption, and claims of undue charging, in the normal course of business, totaling R$ 66142 (R$ 5668 at December 31, 2017)2019), of which R$ 1923 (R$19 at December 31, 2017)2019) has been recorded – this being the probable estimate for funds needed to settle these disputes.

Other civil proceedings

The Company and its subsidiaries areis involved in various civil actions claiming indemnity for moralpersonal injury and for material damages, among others, arising from incidents occurred in the normal course of business, in the amount of R$ 277359 (R$ 218300 at December 31, 2017)2019), of which R$ 2932 (R$ 4318 at December 31, 2017)2019) has been recorded – the amount estimated as probably necessary for settlement of these disputes.

Tax

The Company and its subsidiaries areis involved in numerous administrative and judicial claims actions relating to taxes, including, among other matters, subjects relating to the Urban Property Tax (Imposto sobre a Propriedade Territorial Urbana, or IPTU); the Rural Property Tax (ITR); the Tax on Donations and Legacies (ITCD); the Social Integration Program (Programa de Integração Social, or PIS); the Contribution to Finance Social Security (Contribuição para o Financiamento da Seguridade Social, or Cofins); Corporate Income tax (Imposto de Renda Pessoa Jurídica, or IRPJ); the Social Contribution (Contribuição Social sobre o Lucro Líquido, or CSLL); and motions to tax enforcement. The aggregate amount of this contingency is approximately R$ 160166 (R$ 159204 at December 31, 2017)2019), of which R$ 4614 (R$ 4443 at December 31, 2017)2019) has been recorded – the amount estimated as probably necessary for settlement of these disputes.

In addition to the issues above the Company and its subsidiaries areis involved in various proceedings on the applicability of the IPTU Urban Land Tax to real estate properties that are in use for providing public services. The aggregate amount of the contingency is approximately R$ 14285 (R$ 12279 at December 31, 2017)2019). Of this total, R$ 54 has been recognized (R$ 134 at December 31, 2017)2019) – this being the amount estimated as probably necessary for settlement of these disputes. The lower total provision at December, 31, 2018 arises from re-evaluation of the chances of loss from ‘probable’company has been successful in its efforts to ‘possible’, due to new case lawhave its IPTU tax liability suspended, winning judgments in favor of the subsidiaries.

Environmental

Company and its subsidiaries are involved in environmental matters, in which the subjects include protected areas, environmental licenses, recovery of environmental damage, and other matters, in the approximate total amount of R$ 15 (R$ 68 at December 31, 2017). Of this total, R$1 has been recognizedsome cases – this being the amount estimated as probably necessaryprincipal factor in the reduction of the total value of the contingency.

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Social Security contributions on profit sharing payments

The Brazilian tax authority (Receita Federal) has filed administrative and court proceedings against the Company, relating to social security contributions on the payment of profit sharing to its employees over the period 1999 to 2016, alleging that the Company did not comply with the requirements of Law 10,101/2000 on the argument that it did not previously establish clear and objective rules for settlementthe distribution of these amounts. In August 2019, the Regional Federal Court of the First Region published a decision against the Company on this issue. As a result the Company, based on the opinion of its legal advisers, reassessed the probability of loss from ‘possible’ to ‘probable’ for some portions paid as profit-sharing amounts, maintaining the classification of the chance of loss as 'possible' for the other portions, since it believes that it has arguments on the merit for defense and/or because it believes that the amounts questioned are already within the period of limitation.

The amount of the contingencies is approximately R$1,520 (R$1,451 on December 31, 2019), of which R$1,276 (R$1,213 on December 31, 2019) has been provisioned, this being the estimate of the probable amount of funds to settle these disputes.

 

F-108Non-homologation of offsetting of tax credit

LOGO

The federal tax authority did not ratify the Company’s declared offsetting, in Corporate income tax returns, of carry-forwards and undue or excess payment of federal taxes – IRPJ, CSLL, PIS/Pasep and Cofins – identified by official tax deposit receipts (‘DARFs’ and ‘DCTFs’). The Company is contesting the non-homologation of the amounts offset. The amount of the contingency is R$203 (R$160 at December 31, 2019), and the probability of loss was classified as ‘possible’, since the relevant requirements of the National Tax Code (CTN) have been complied with.

 

Regulatory

The Company and its subsidiaries areis involved in numerous administrative and judicial proceedings, challenging, principally: (i) tariff charges in invoices for use of the distribution system by a self-producer; (ii) alleged violation of targets for continuity indicators in retail supply of energy; and (iii) the tariff increase made during the federal government’s economic stabilization plan referred to as the ‘Cruzado Plan’, in 1986. The aggregate amount of the contingency is approximately R$ 260345 (R$ 222280 at December 31, 2017)2019), of which R$ 3752 (R$ 4036 at December 31, 2017)2019) has been recorded as provision – the amount estimated as probably necessary for settlement of these disputes.

Other legal actions in the normal course of business

Breach of contract – Power line pathways and accesses cleaning services contract

Company and its subsidiaries areis involved in disputes alleging losses suffered as a result of supposed breaches of contract at the time of provision of services of cleaning of power line pathways and firebreaks. The amount recorded is R$ 3646 (R$ 3241 at December 31, 2017)2019), this being estimated as the likely amount of funds necessary to settle this dispute.

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‘Luz Para Todos’ Program

The Company is a party in disputes alleging losses suffered by third parties as a result of supposed breach of contract at the time of implementation of part of the rural electrification program known as the ‘Luz Para Todos’. The estimated amount of the contingency is approximately R$356 (R$322 on December 31, 2019). Of this total, R$1 has been provided for the amount estimated as probably necessary for settlement of these disputes.

Other legal proceedings

The Company and its subsidiaries are is involved as plaintiff or defendant, in other less significant claims, related to the normal course of their operations including: environmental matters; provision of cleaning service in power line pathways and firebreaks, removal of residents from risk areas; and indemnities for rescission of contracts, on a lesser scale, related to the normal course of its operations, with an estimated total amount of R$189621 (R$196452 at December 31, 2017)2019), of which R$1117 (R$1413 at December 31, 2017)2019), the amount estimated as probably necessary for settlement of these disputes – has been provisioned. Management believes that it has appropriate defense for these proceedings, and does not expect these issues to give rise to significant losses that could have an adverse effect on the financial position or profit of the Company or its subsidiaries.

Contingent liabilities – whose loss are assessed as ‘possible’, and the Company and its subsidiaries believe it has arguments of merit for legal defense

Taxes and contributions

The Company and its subsidiaries areis involved in numerous administrative and judicial proceedings in relation to taxes. Below are details of the main claims:

Indemnity of employees’ future benefit (the ‘Anuênio’)

 

F-109

LOGO

In 2006 the Company and its subsidiaries paid an indemnity to its employees, totaling R$178, in exchange for rights to future payments (referred to as theAnuênio) for time of service, which would otherwise be incorporated, in the future, into salaries. The Company and its subsidiaries did not pay income tax and Social Security contributions on this amount because it considered that those obligations are not applicable to amounts paid as an indemnity. However, to avoid the risk of a future fine, the CompanyobtainedCompany obtained an injection, which permitted to make an escrow deposit of R$122, which updated now represents the amount of R$ 275286 (R$ 267282 at December 31, 2017)2019). The updated amount of the contingency is R$ 304295 (R$ 311289 at December 31, 2017)2019) and, based on the arguments above, management has classified the chance of loss as ‘possible’.

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Social Security contributions

The Brazilian federal tax authority (Secretaria da Receita Federal) has filed administrative proceedings related to various matters: employee profit sharing; the Workers’ Food Program (Programa de Alimentação do Trabalhador, or PAT); education benefit; food benefit; Special Additional Retirement payment; payment; overtime payments; hazardous occupation payments; matters related to Sest/Senat (transport workers’ support programs); and fines fornon-compliance with accessory obligations. The Company have presented defenses and await judgment. The amount of the contingency is approximately R$ 1,420110 (R$ 1,334112 at December 31, 2017)2019). Management has classified the chance of loss as ‘possible’, also taking into account assessment of the chance of loss in the judicial sphere, (the claims mentioned are in the administrative sphere), based on the evaluation of the claims and the related case law.

Non-homologation of offsetting of tax credit

The federal tax authority did not ratify the Company’s declared offsetting, in Corporate income tax returns, of carry-forwards and undue or excess payment of federal taxes – IRPJ, CSLL, PIS and Cofins – identified by official tax deposit receipts (‘DARFs’ and ‘DCTFs’). The Company is contesting thenon-homologation of the amounts offset. The amount of the contingency is R$ 146 (R$ 275 at December 31, 2017), and the chance of loss was classified as ‘possible’, since the relevant requirements of the National Tax Code (CTN) have been complied with.

Corporate tax return – restitution and offsetting

The Company and its subsidiaries were party in an administrative case involving requests for restitution and compensation of credits arising from tax losses carry-forward balances indicated in the corporate tax returns for the calendar years from 1997 to 2000, and also for over payments identified in the corresponding tax payment receipts (DARFs and DCTFs). This case was settled after the Company won the case on final appeal. On December 31, 2017 the amount of the contingency was approximately R$ 576.

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Income tax withheld on capital gain in a shareholding transaction

The federal tax authority issued a tax assessment against Cemig as a jointly responsible party with its jointly-controlled entity Parati S.A. Participações em Ativos de Energia Elétrica (Parati), relating to withholding income tax (Imposto de Renda Retido na Fonte, or IRRF) allegedly applicable to returns paid by reason of a capital gain in a shareholding transaction relating to the purchase by Parati, and sale, by Enlighted, at July 7, 2011, of 100.00% of the equity interests in Luce LLC (a company with head office in Delaware, USA), holder of 75.00% of the shares in the Luce Brasil equity investment fund (FIP Luce), which was indirect holder, through Luce Empreendimentos e Participações S.A., of approximately 13.03% of the total and voting shares of Light S.A. (Light). The amount of the contingency is approximately R$ 221234 (R$ 212230 at December 31, 2017)2019), and the loss has been assessed as ‘possible’.

The Social Contributionsocial contribution tax on net income (CSLL)

The federal tax authority issued a tax assessment against the Company for the years of 2012 and 2013, alleging unduenon-addition, or deduction, of amounts relating to the following items in calculating the Social Contributionsocial contribution tax on net income: (i) taxes with liability suspended; (ii) donations and sponsorship (Law 8,313/91); and (iii) fines for various alleged infringements. The amount of this contingency is R$ 350425 (R$ 322400 at December 31, 2017)2019). The Company has classified the chancesprobaility of loss as ‘possible’, in accordance with the analysis of the case law on the subject.

ICMS (local state value added tax)

From December 2019 to March 2020 the Tax Authority of Minas Gerais State issued infraction notices against the subsidiary Gasmig, in the total amount of R$55, relating to reduction of the calculation base of ICMS tax in the sale of natural gas to its customers over the period from December 2014 to December 2015, alleging a divergence between the form of calculation used by Gasmig and the opinion of that tax authority.

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The claims comprises: principal of R$17, penalty payments of R$27 and interest of R$11. Considering that the State of Minas Gerais, over a period of more than 25 years, has never made any allegations against the methodology of calculation by the Company, Management and Company’s legal advisors, believe that there is a defense under Article 100, III of the National Tax Code, which removes claims for penalties and interest; and that the contingency for loss related to these amounts is ‘remote’. In relation to the argument on the difference between the amount of ICMS tax calculated by Gasmig and the new interpretation by the state tax authority, the probability of loss was considered ‘possible’. On December 31, 2020 the amount of the contingency for the period relating to the rules on expiry by limitation of time is R$107.

Regulatory matters

Public Lighting Contribution (CIP)

Cemig and Cemig D are defendants in several public civil claims (class actions) requesting nullity of the clause in the Electricity Supply Contracts for public illumination signed between the Company and the various municipalities of its concession area, and restitution by the Company of the difference representing the amounts charged in the last 20 years, in the event that the courts recognize that these amounts were unduly charged. The actions are grounded on a supposed error by Cemig in the estimation of the period of time that was used in calculation of the consumption of energy for public illumination, funded by the Public Lighting Contribution (Contribuição para Iluminação Pública, or CIP).

The Company and its subsidiary believes it has arguments of merit for defense in these claims, since the charge at present made is grounded on Aneel Normative Resolution 456/2000. As a result, it has not constituted a provision for this action, the amount of which is estimated at R$ 9751,072 (R$ 1,224959 at December 31, 2017)2019). The Company has assessed the chancesprobability of loss in this action as ‘possible’, due to the Customer Defense Code (Có(Código de Defesa do Consumidor,, or CDC) not being applicable, because the matter is governed by the specific regulation of the electricity sector, and because Cemig complied with Aneel Resolutions 414 and 456, which deal with the subject.

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Accounting of energy sale transactions in the ElectricityPower Trading Chamber (CCEE)

In a claim dating from August 2002, AES Sul Distribuidora challenged in the court the criteria for accounting of energy sale transactions in the wholesale energy market (Mercado Atacadista de Energia, or MAE) (predecessor of the present Wholesale ElectricityPower Exchange Chamber –Câmara de Comercialização de Energia Elétrica, or CCEE), during the period of rationing. It obtained a favorable interim judgment on February 2006, which ordered the regulatorgrantor (Aneel), working with the CCEE, to comply with the claim by AES Sul and recalculate the settlement of the transactions during the rationing period, not considering the regulatorgrantor (Aneel) Dispatch 288 of 2002.

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This should take effect in the CCEE as from November 2008, resulting in an additional disbursement for Cemig GT, related to the expense on purchase of energy in the spot market on the CCEE, in the approximate amount of R$ 317376 (R$288343 at December 31, 2017)2019). On November 9, 2008 Cemig GT obtained an interim decision in the Regional Federal Appeal Court (Tribunal Regional Federal, or TRF) suspending the obligatory nature of the requirement to pay into court the amount that would have been owed under the Special Financial Settlement made by the CCEE. Cemig GT has classified the chance of loss as ‘possible’, since this action deals with the General Agreement for the Electricity Sector, in which the Company has the full documentation to support its arguments.

System Service Charges (ESS) – Resolution of the National Energy Policy Council

Resolution 3 of the National Energy Policy Council (Conselho Nacional de Política Energética, or CNPE) of March 6, 2013 established new criteria for the prorating of the cost of additional dispatch of thermal plants. Under the new criteria, the costs of the System Service Charges for Electricity Security (Encargos do Serviço do Sistema, or ESS), which were previously prorated in full between free customers and distributors, was now to be prorated between all the agents participating in the National Grid System, including generators and traders.

In May 2013, the Brazilian Independent Electricity Producers’ Association (Associação Brasileira dos Produtores Independentes de Energia Elétrica, or Apine), of which Cemig GT is a member, obtained an interim court decision suspending the effects of Articles 2 and 3 of Resolution CNPE 3, exempting generators from payment of the ESS under that Resolution.

As a result of the interim decision, the CCEE carried out the financial settlement for transactions from April through December 2013 using the criteria prior to Resolution. As a result, Cemig GT recorded the costs of the ESS in accordance with the criteria for financial settlement published by the CCEE, without the effects of Resolution CNPE 3.

The applications by the plaintiff (Apine) were granted in the first instance, confirming the interim decision granted in favor of its members, which include Cemig GT and its subsidiaries. This decision was subject of an appeal, which is still pending of judgment.

The amount of the contingency is approximately R$ 225 (R$ 202 at December 31, 2017). In spite of the successful judgment at first instance, the Association’s legal advisers still considered the chances of loss of this contingency as ‘possible’. Cemig GT agrees with this, since there are not yet elements to make it possible to foresee the outcome of the Appeal filed by the Federal Government.

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LOGO

Tariff increases

Exclusion of customers classified aslow-income

The Federal Public Attorneys’ Office filed a class action against the Company and the regulatorgrantor (Aneel), to avoid exclusion of customers from classification in theLow-income residential tariffsub-category, requesting an order for Cemig D to pay twice the amount paid in excess by customers. A decision was given in favor of the plaintiffs, but the Company and the regulatorgrantor (Aneel) have filed an interlocutory appeal and await judgment. The amount of the contingency is approximately R$ 303357 (R$ 275327 at December 31, 2017)2019). Cemig D has classified the chancesprobability of loss as ‘possible’ due to other favorable decisions on this matter.

Environmental claims

Impact arising from construction of power plants

The Public Attorneys of Minas Gerais State, together with an association and individuals, have brought class actions requiring Cemig GT to invest, since 1997, at least 0.5% of the annual gross operating revenue of theEmborcação, Pissarrão, Funil, Volta Grande, Poquim, Paraúna, Miranda, Nova Ponte, Rio de PedrasandPeti plants in environmental protection and preservation of the water tables of the counties where these power plants are located, and proportional indemnity for allegedly irrecoverable environmental damage caused, arising from omission to comply with Minas Gerais State Law 12,503/1997. Cemig GT has filed appeals to the Higher Appeal Court (STJ) andIn May 2020, the Federal Supreme Court (STF). Based on declared unconstitutional the opinions of its legal advisers, Cemig GT believes that this is a matter involving legislation at infra-constitutional level (there is a Federal Law with an analogous object) and thus a constitutional matter, on the issue of whetherrule from the state law is constitutional or not, so that requires the final decision is oneinvestment of a portion of the revenue from the distribution agent’s in the protection and preservation of water resources, since it characterizes undue State intervention in the concession contract for the national Higher Appeal Court (STJ) andexploitation of the Federal Supreme Court (STF). No provision has been made, since based onenergy use of watercourse, which is compentence of the opinion of its legal advisers management has classifiedUnion. As a result, the chanceCompany reassessed the probability of loss as ‘possible’. Theto remote, in the amount of the contingency is R$ 148186 on December 31, 2020 (R$ 127165 at December 31, 2017)2019).

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The Public Attorneys’ Office of Minas Gerais State has filed class actions requiring the formation of a Permanent Preservation Area (APP) around the reservoir of theCapim Branco hydroelectric plant, suspension of the effects of the environmental licenses, and recovery of alleged environmental damage. Based on the opinion of its legal advisers in relation to the changes that have been made in the new Forest Code and in the case law on this subject, Cemig GT has classified the chance of loss in this dispute as ‘possible’. The estimated value of the contingency is R$ 87106 (R$ 7995 at December 31, 2017)2019).

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Other contingent liabilities

Early settlement of the CRC (Earnings Compensation) Account

The Company is involved in an administrative proceeding at the Audit Court of the State of Minas Gerais which challenges:

(i) a difference of amounts relating to the discount offered by Cemig for early repayment of the credit owed to Cemig by the State under the Receivables Assignment Contract in relation to the CRC Account (Conta de Resultados a Compensar, or Earnings Compensation Account) – this payment was completed in the first quarter of 2013; and also (ii) possible undue financial burden on the State after the signature of the Amendments that aimed tore-establish the economic and financial balance of the Contract. The amount of the contingency is approximately R$ 412448 (R$ 398426 at December 31, 2017)2019), and, based on the Opinion of the Public Attorneys’ Office of the Audit Board of the State of Minas Gerais (Tribunal de Contas), the Company believes that it has met the legal requirements. Thus, it has assessed the chancesprobability of loss as ‘possible’, since it believes that the adjustment was made in faithful obedience to the legislation applicable to the case.

Contractual imbalance

Cemig DCompany is a party in disputes alleging losses suffered by third parties as a result of supposed breach of contract at the time of implementation of part of the rural electrification program known asLuz Para Todos (‘Light for All’). The estimated amount is R$ 291 (R$ 261 at December 31, 2017), and no provision has been made. Cemig D has classified the chances of loss as ‘possible’ as a result of the analysis that has been made of the argument and documentation used by the contracted parties in attempting to make the Company liable for any losses that allegedly occurred.

Cemig D is also a party in other disputes arising from allegednon-compliance with contracts in the normal course of business, for an estimated total of R$ 90167 (R$ 80149 at December 31, 2017)2019). Cemig DCompany has classified the chance of loss as ‘possible’, after analysis of the case law on this subject.

ChangeRenova: Application to override corporate identity

A Receivables Investment Fund (Fundo de Investimento em Direitos Creditórios – FIDC) filed an application for Override of Legal Identity (Incidente de Desconsideração da Personalidade Jurídica – IDPJ) in relation to certain companies of the monetary updating indexRenova group, aiming to include some shareholders of labor claims

Renova, including the Company and its subsidiary Cemig GT, as defendants jointly and severally liable. The Higher Labor Appeal Court (Tribunal Superior do Trabalho, or TST), considering a position adopted by the Federal Supreme Court (Supremo Tribunal Federal, STF)amount involved in two actions on constitutionality that dealt with the index for monetary updating of federal debts, decided on August 4, 2015 that labor claims not yet decided that discuss debts subsequent to June 30, 2009 should be updated based on the variation of theIPCA-E (Expanded National Customer Price) Index, rather than of the TR reference interest rate. On October 16, 2015 an interim injunction was given by the STF that suspended the effects of the TST decision, on the grounds that decisions on matters of general constitutional importance should be decided exclusively by the STF.

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In a public joint judgment of November 1, 2018, the Higher Employment Appeal Court decided that theIPCA-E should be adopted as the index for inflation adjustment ofemployment-law debts for proceedings filed from March 25, 2015 to November 10, 2017, and the TR continue to be used for the other periods. This results in a reduction of thethis dispute is estimated value of the difference between the inflation adjustment indices foremployment-law proceedings, which isat R$88 (R$220 76 at December 31, 2017). No additional provision has been made, since2020. The Company, based on the assessment by its legal advisers, has assessed the chancesprobability of loss in the actionhave been assessed as ‘possible’, as a result of the decision by the STF, and of there being no established case law, nor analysis by legal writers on the subject after the injunction given by the Federal Supreme Court..

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26.EQUITY AND REMUNERATION TO SHAREHOLDERS

26.EQUITY AND REMUNERATION TO SHAREHOLDERS

a)

a)Share capital

As of December 31, 2018,2020, the Company’s issued and share capital is R$7,594 (R$7,294 (6,294 at December 31, 20172019 and 2016)2018), represented by 487,614,213507,670,289 common shares (420,764,708(487,614,213 at December 31, 2017)2019) and 971,138,3881,011,082,312 preferred shares (838,076,946(971,138,388 at December 31, 2017)2019), both of them with nominal value of R$5.00 (five Reais), as follows:

 

Shareholders

  Number of shares on December 31, 2018  Number of shares on December 31, 2020
Common   %   Preferred   %   Total   % Common % Preferred % Total %

State of Minas Gerais

   248,480,146    51    —      —      248,480,146    17   258,738,711   51   11,788   —     258,750,499   17 

Other entities of Minas Gerais State

   56,703    —      647,647    —      704,350    —     20,713   —     7,442,037   1   7,462,750   —   

FIA Dinâmica Energia S.A.

   48,200,000    10    55,905,344    6    104,105,344    7   114,172,677   22   43,975,272   4   158,147,949   10 
BNDES Participações  56,578,175   11   27,299,432   3   83,877,607   6 
BlackRock  —     —     153,689,970   15   153,689,970   10 

Others

                                    

In Brazil

   159,745,194    33    396,559,885    41    556,305,079    38   55,717,246   11   212,704,725   21   268,421,971   18 

Foreign shareholders

   31,132,170    6    518,025,512    53    549,157,682    38   22,442,767   5   565,959,088   56   588,401,855   39 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   487,614,213    100    971,138,388    100    1,458,752,601    100   507,670,289   100   1,011,082,312   100   1,518,752,601   100 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

Shareholders

  Number of shares on December 31, 2017  Number of shares on December 31, 2019
Common   %   Preferred   %   Total   % Common % Preferred % Total %

State of Minas Gerais

   214,414,739    51    —      —      214,414,739    17   248,516,953   51   11,323   —     248,528,276   17 

Other entities of Minas Gerais State

   56,703    —      4,860,228    1    4,916,931    1   19,896   —     1,411,276   —     1,431,172   —   

FIA Dinâmica Energia S.A.

   41,635,754    10    62,469,590    7    104,105,344    8   48,700,000   10   55,133,744   6   103,833,744   7 
BNDES Participações  54,342,992   11   26,220,938   3   80,563,930   6 

Others

                                    

In Brazil

   110,343,209    26    237,174,007    28    347,517,216    27   101,170,317   21   328,982,856   34   430,153,173   29 

Foreign shareholders

   54,314,303    13    533,573,121    64    587,887,424    47   34,864,055   7   559,378,251   57   594,242,306   41 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   420,764,708    100    838,076,946    100    1,258,841,654    100   487,614,213   100   971,138,388   100   1,458,752,601   100 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

Shareholders

  Number of shares on December 31, 2016  Number of shares on December 31, 2018
Common   %   Preferred   %   Total   % Common % Preferred % Total %

State of Minas Gerais

   214,414,739    51    —      —      214,414,739    17   248,480,146   51   —     —     248,480,146   17 

Other entities of Minas Gerais State

   56,703    —      4,860,228    1    4,916,931    1   56,703   —     647,647   —     704,350   —   

AGC Energia S.A.

   84,357,856    20    —      —      84,357,856    7 

Other

   —      —      —      —      —      —   
FIA Dinâmica Energia S.A.  48,200,000   10   55,905,344   6   104,105,344   7 
BNDES Participações  54,342,992   11   26,220,938   3   80,563,930   5 
Others                        

In Brazil

   112,584,011    27    252,478,755    30    365,062,766    28   105,402,202   22   370,338,947   38   475,741,149   33 

Foreign shareholders

   9,351,399    2    580,737,963    69    590,089,362    47   31,132,170   6   518,025,512   53   549,157,682   38 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

   420,764,708    100    838,076,946    100    1,258,841,654    100   487,614,213   100   971,138,388   100   1,458,752,601   100 
  

 

   

 

   

 

   

 

   

 

   

 

 

The Company’s Share Capital may be increased by up to a limit of 10% (ten percent) of the share capital set in theby-laws, without need for change in theby-laws and upon decision of the Board of Directors, having previously heard statement of opinion issued by the Fiscal Council.

 

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Capital increase

 

Capital increase

On April 23, 2018 a Shareholders’ ExtraordinaryThe Annual General Meeting held on July 31, 2020 approved an increaseManagement's proposal for allocation of the profits for 2019, disclosed in the Company’s2019 financial statements, and a capital of R$ 999,increase from R$ 6,2947,294 to R$ 7,294,7,594, as per Article 199 of the Brazilian Corporate Law (Law 6,404/76), since the profit reserves at December 31, 2019 (excluding tax incentive reserve and unrealized profit reserve) exceeded the share capital, by R$537. This capital increase was made through the issuance of 199,910,94760,000,000 new shares, each with nominal value of R$ 5.00, comprising 66,849,505which 20,056,076 were common shares and 133,061,442,39,943,924 preferred shares.shares, by capitalization of R$300 from profit reserves, and as a result, a share bonus of 4.11% in new shares was issued to shareholders, of the same type as those held, and with nominal unit value of R$5.00.

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In addition, the Annual General Meeting held on April 30, 2021 approved the Management’s proposal for increase of the registered share capital from R$7,594 to R$8,467, also pursuant to Article 199 of the Brazilian Corporate Law, since the profit reserve at December 31, 2020, (excluding tax incentive reserve and the unrealized profit reserve), exceed the registered share capital by R$1,529. This capital increase was made through the issuance of 174,609,467 new shares, of which 58,366,345 were common shares and 116,243,122 preferred shares, with nominal unit value of R$5.00, by the capitalization of R$873 from retained earnings reserve.

b)Earnings per share

The amount subscribed andpaid-up by the shareholders was R$ 1,325. The difference between the capital increase and the amount subscribed,number of R$ 325 was allocated to the Capital reserve.

Shareholders’ agreement

On August 1, 2011, the government of Minas Gerais State signed a Shareholders’ Agreement with AGC Energia S.A., with BNDES Participações S.A. as consenting party, valid for 15 years. The agreement maintained the State of Minas Gerais as dominant, sole and sovereign equity holder of the Company, and attributes to AGC Energia certain prerogatives for the purpose of contributing to the sustainable growth of the Company, among other provisions. On September 7, 2017 AGC Energia unilaterally resiled the Shareholders’ agreement.

b) Earnings per share

In view of the capital increase on April, 23, 2018, described above,shares included in the calculation of the basic and diluted earnings, considering the new shares issued in 2020 and in 2021, is as follows:described in the table below. The comparative information for 2019 and 2018 was adjusted retrospectively in order to reflect the capital increases.

 

Number of shares

  2018   2017   2016  2020 2019 2018

Common shares already paid up

   487,614,213    420,764,708    420,764,708   566,036,634   566,036,634   566,036,634 

Common shares to be paid up

   —      66,849,505    —   

Shares in treasury

   (69)    (69)    (69)   (79)  (79)  (79)
  

 

   

 

   

 

   566,036,555   566,036,555   566,036,555 
   487,614,144    487,614,144    420,764,639             

Preferred shares already paid up

   971,138,388    838,076,946    838,076,946   1,127,325,434   1,127,325,434   1,127,325,434 

Preferred shares to be paid up

   —      133,061,442    —   

Shares in treasury

   (560,649)    (560,649)    (560,649)   (650,817)  (650,817)  (650,817)
  

 

   

 

   

 

   1,126,674,617   1,126,674,617   1,126,674,617 
   970,577,739    970,577,739    837,516,297 
  

 

   

 

   

 

 

Total

   1,458,191,883    1,458,191,883    1,258,280,936   1,692,711,172   1,692,711,172   1,692,711,172 
  

 

   

 

   

 

 

Basic and diluted earnings per share

The Company’s preferred shares carry the right to a minimum mandatory dividend, as shown in more detail in item ‘e’.

The shares that were subscribedpurchase and sale options of investments described in Note 32 could potentially dilute basic earning per share in the capital increasefuture; however, they have not caused dilution of April 23, 2018, were consideredenaring per share in full in the calculation of basic2020, 2019 and diluted profit for 2017, since the proposal for subscription of new shares was decided in an Extraordinary Shareholders’ Meeting on October 26, 2017, and these new shares already had potential for subscription since that date, as decided by the shareholders.2018.

The calculation of basic earnings per share is as follows:

   2018   2017   2016 

Net income for the year attributed to equity holders of the parent

   1,700    1,001    334 
   —      —     

Minimum mandatory dividend from net income for the year – preferred shares

   577    486    204 

Net income for the year not distributed – preferred shares

   554    333    87 
  

 

 

   

 

 

   

 

 

 

Total earnings – preferred shares (A)

   1,131    819    291 

Minimum mandatory dividend from net income for the year – common shares

   290    15    —   

Net income for the year not distributed – common shares

   279    167    44 
  

 

 

   

 

 

   

 

 

 

Total earnings – common shares (B)

   569    182    44 

Basic earnings per preferred share (A / number of preferred shares)

   1.17    0.84    0.35 

Basic earnings per common share (B / number of common shares)

   1.17    0.37    0.10 

   2018   2017   2016 

Net income for the year from continuing operations attributed to equity holders of the parent

   1,378    1,001    334 

Minimum mandatory dividend from net income for the year from continuing operations – preferred shares

   527    486    204 

Net income for the year from continuing operations not distributed – preferred shares

   390    333    87 
  

 

 

   

 

 

   

 

 

 

Total earnings from continuing operations - preferred shares (A.1)

   917    819    291 

Minimum mandatory dividend from net income for the year from continuing operations – common shares

   290    15    - 

Net income for the year from continuing operations not distributed – common shares

   171    167    44 
  

 

 

   

 

 

   

 

 

 

Total earnings from continuing operations - common shares (B.1)

   461    182    44 

Basic earnings from continuing operations per preferred share (A.1 / number of preferred shares)

   0.95    0.84    0.35 

Basic earnings from continuing operations per common share (B.1 / number of common shares)

   0.95    0.37    0.10 

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The put and call options described in more detail on Note 32 have potential to dilute basic earnings per share. The calculation of diluted earnings per share is as follows:

 

   2018   2017   2016 

Net income for the year attributed to equity holders of the parent

   1,700    1,001    334 
   —           

Total basic earnings – preferred shares (A)

   1,131    819    291 

Dilution effect related to the RME/Lepsa Option

   —      —      (22) 

Dilution effect related to the Ativas Option

   —      —      (5) 
  

 

 

   

 

 

   

 

 

 

Total diluted earnings – preferred shares (C)

   1,131    819    264 
       —       

Total basic earnings – common shares (B)

   569    182    44 

Dilution effect related to the RME/Lepsa Option

   —      —      (11) 

Dilution effect related to the Ativas Option

   —      —      (3) 
  

 

 

   

 

 

   

 

 

 

Total diluted earnings – common shares (D)

   569    182    30 

Diluted earnings per preferred share (C / number of preferred shares)

   1.17    0.84    0.32 

Diluted earnings per common share (D / number of common shares)

   1.17    0.37    0.07 
  2020 

2019

(Restated)

 

2018

(Restated)

Net income for the year attributed to equity holders of the parent  2,864   3,194   1,722 
             
Minimum mandatory dividend from net income for the year - preferred shares  986   509   577 
Net income for the year not distributed - preferred shares  920   1,617   569 
Total earnings - preferred shares (A)  1,906   2,126   1,146 
             
Minimum mandatory dividend from net income for the year - common shares  496   256   290 
Net income for the year not distributed - common shares  462   812   286 
Total earnings - common shares (B)  958   1,068   576 
             
Basic and diluted earnings per preferred share (A / number of preferred shares)  1.69   1.89   1,02 
Basic and diluted earnings per common share (B / number of common shares)  1.69   1.89   1,02 

 

   2018   2017   2016 

Net income for the year from continuing operations attributed to equity holders of the parent

   1,378    1,001    334 
   —       

Total basic earnings from continuing operations - preferred shares (A.1)

   917    819    291 

Dilution effect related to the RME/Lepsa Option

   -    -    (22) 

Dilution effect related to the Ativas Option

   -    -    (5) 
  

 

 

   

 

 

   

 

 

 

Total diluted earnings from continuing operations - preferred shares (C.1)

   917    819    264 
     —     

Total basic earnings from continuing operations - common shares (B.1)

   461    182    44 

Dilution effect related to the RME/Lepsa Option

   —      —      (11) 

Dilution effect related to the Ativas Option

   —      —      (3) 
  

 

 

   

 

 

   

 

 

 

Total diluted earnings from continuing operations - common shares (D.1)

   461    182    30 

Diluted earnings from continuing operations per preferred share (C.1 / number of preferred shares)

   0.95    0.84    0.32 

Diluted earnings from continuing operations per common share (D.1 / number of common shares)

   0.95    0.37    0.07 
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c)

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  2020 

2019

(Restated)

 

2018

(Restated)

Net income for the year from continuing operations attributed to equity holders of the parent  2,864   2,970   1,400 
             
Minimum mandatory dividend from net income for the year from continuing operations – preferred shares  986   509   577 
Net income for the year from continuing operations not distributed – preferred shares  920   1,468   355 
Total earnings from continuing operations - preferred shares (A.1)  1,906   1,977   932 
             
Minimum mandatory dividend from net income for the year from continuing operations - common shares  496   256   290 
Net income for the year from continuing operations not distributed – common shares  462   737   178 
Total earnings from continuing operations - common shares (B.1)  958   993   468 
             
Basic and diluted earnings from continuing operations per preferred share (A.1 / number of preferred shares)  1.69   1.75   0.83 
Basic and diluted earnings from continuing operations per common share (B.1 / number of common shares)  1.69   1.75   0.83 

Considering that each class of share participates equally in the profit reported, the earning per share in the fiscal years ended in December 31, 2020, 2019 and 2018 were, respectively, R$1.69, R$1.89 and R$1.02. These figures are calculated based on the Company’s number of shares on December 31, 2020, adjusting the earning per share of the comparative prior years, 2019 and 2018.

c)Equity valuation adjustments

   
  2020 2019 2018
Adjustments to actuarial liabilities – Employee benefits  (340)  (343)  (257)
Subsidiary and jointly-controlled entity            
Adjustments to actuarial liabilities – Employee benefits  (2,660)  (2,650)  (1,681)
Deemed cost of PP&E  569   586   611 
   (2,091)  (2,064)  (1,070)
Equity valuation adjustments  (2,431)  (2,407)  (1,327)

The adjustments to post-employment benefit obligations comprise gains or losses resulting from re-measurements of the net defined-benefit obligation, in accordance with the actuarial report.

The amounts recorded as deemed cost of the generation assets represents its fair value determined using the replacement cost at initial adoption of IFRS on January 1, 2009. The valuation of the generation assets resulted in an increase in their book value, recorded in a specific line in Equity, net of the tax effects. These values are being realized based on the depreciation of the assets.

d)Reserves

Capital reserves

 

  2018   2017   2016  2020 2019 2018

Investment-related donations and subsidies

   1,857    1,857    1,857   1,857   1,857   1,857 

Goodwill on issuance of shares

   394    69    69   394   394   394 

Shares in treasury

   (1)    (1)    (1)   (1)  (1)  (1)
  

 

   

 

   

 

   2,250   2,250   2,250 
   2,250    1,925    1,925 
  

 

   

 

   

 

 

 

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The Reserve for investment-related donations and subsidies basically refers to the compensation by the Federal Government for the difference between the profitability obtained by Cemig up to March 1993 and the minimum return guaranteed by the legislation in effect at the time.

The reserve for treasury shares refers to the pass-through by Finor of shares arising from funds applied in Cemig projects in the area covered by Sudene (the development agency for the Northeast) under tax incentive programs.

Profit reserves

 

  2018   2017   2016  2020 

2019

(Restated)

 

2018

(Restated)

Legal reserve

   853    853    853   995   853   853 

Statutory reserve

   57    57    57   57   57   57 

Retained earnings reserve

   3,965    3,341    2,813   6,650   5,500   3,965 
Unrealized profit reserve  835   835   —   

Incentive tax reserve

   67    58    57   103   85   67 

Reserve for mandatory dividends not distributed

   1,420    1,420    1,420   1,420   1,420   1,420 
  

 

   

 

   

 

   10,060   8,750   6,362 
   6,362    5,729    5,200 
  

 

   

 

   

 

 

Legal reserve

Constitution of the legal reserve is mandatory, up to the limits established by law. The purpose of the reserve is to ensure the security of the share capital, its use being allowed only for offsetting of losses or increase capital. The Company did not record legalThis reserve dueconstitution corresponds to that reserve had reached its legal limit.5% of the net income for the year, less the amount allocated to incentive tax reserve.

Statutory reserve

The reserve under theBy-laws is for future payment of extraordinary dividends, in accordance with Article 28 of theby-laws.

Retained earnings reserve

Retained earnings reserves refers to profits not distributed in prior years, to guarantee execution of the Company’s Investment Program, and amortization of loans and financing. The retentions are supported by capital budgets approved by the Board of Directors in the respective years.

Unrealized profit reserve

Article 197 of the Brazilian corporate law nº 6,404/76 allows the Company to pay the mandatory dividend, calculated as required by the Bylaws (see e) below), up to the amounts of the realized portion of the net income for the year (received in cash). The excess between such mandatory dividend amount and the dividends that will be actually paid was recorded in the “Unrealized profit reserve”.

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In 2020, Company presented a positive net share of profit of subsidiaries, jointly-controlled entities and affiliates of R$2,704, which can be regarded as unrealized portion of net income for the year, in accordance with the Brazilian corporate law.

Additionally, the above does not apply to the payment of the minimum mandatory dividends on preferred shares, which are required to be paid in full for an amount of R$506, as described in further details in f) below. In addition, since the creation of the unrealized profit reserve is optional, Management decided to propose the same proportion of dividend payment to shareholders owning common shares, considering Company’s expected financial capacity.

The calculationoutstanding balance of the retained earningsunrealized profit reserve is as follows:will remain R$835, considering the reversal of the reserve recorded in 2019 and the creation of a new one in 2020, in the same amount.

 

   2018   2017   2016 

Net income for the year

   1,700    1,001    334 

Expired dividends

   42    —      —   

Incentives tax reserve

   (9)    (1)    (7) 

Deemed cost realization

   42    28    37 

Adjustment for initial adoption of IFRS 9 and IFRS 15.

   (157)    —      —   

Dividends proposed

   (867)    (500)    (203) 
  

 

 

   

 

 

   

 

 

 

Retained earnings reserve

   751    528    161 
  

 

 

   

 

 

   

 

 

 

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The unrealized profit reserve amounts can only be used to pay mandatory dividends. Hence, when the Company realizes such profits in cash, it must distribute the corresponding dividend in the subsequent period, after offsetting of any losses in subsequent years.

 

Incentives tax reserve

The federal tax authority (‘Receita Federal’) recognized theCompany has a right of the subsidiaries Cemig D and Cemig GT to a 75% reduction of 75% in income tax, including the tax paid at the additional rate, calculated on the basis of the operating profit in the region of Sudene (the Development Agency for the Northeast), for 10 years starting in 2014. The amount of the incentive recognized in the Statement of income was R$18 in 2020 (R$18 in 2019 and R$9 in 2018 (R$ 1 in 2017 and R$ 7 in 2016)2018), and it was subsequently transferred to the Incentives Tax reserve. The amount of the Tax incentives reserve on December 31, 20182020 was R$ 67103 (R$ 5885 at December 31, 2017)2019). This reserve cannot be used for payment of dividends.

Reserve for mandatory dividends not distributed

 

  20182020

Dividends withheld, arising from the net income of 2015

  623 

Dividends withheld, arising from the net income of 2014

  797 

  1,420

 

These dividends were retained in Equity, in years 2015 and 2014, in the account Reserve for mandatory dividends not distributed; and as per the proposal approved in the Annual General Meetings of 2016 and 2015, the dividends retained will be paid as soon as the Company’s financial situation permits.

d) Rights and preferences The Company's Management, in view of the common and preferred shares.

Every holder of Cemig common shares has a tag-along right to receive 80% of the value paid per share owned by the controlling stockholderuncertainties present in the eventcurrent macroeconomic scenario and the estimated cash requirement for the nex year, concluded that the financial situation does not yet allow the payment of a change of control.these retained dividends.

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e)Rights and preferences of the common and preferred shares

Every holder of Cemig common shares has the right to vote in an election for members of our Board of Directors. Under the Brazilian Corporate Law, any shareholder holding at least 5% of Cemig’s common shares in circulation may request adoption of a multiple vote procedure, which confers upon each share a number of votes equal to the present number of members of the Board of Directors and gives the shareholder the right to accumulate his or her votes in one sole candidate, or distribute them among several.

Under the Brazilian Corporate Law, holders of preferred shares representing at least 10% of Cemig’s share capital, and also holders of common shares representing at least 15% of its share capital (other than the controlling shareholder) have the right to appoint a member of the Board of Directors and his or her respective substitute member in a separate election. If none of the holders of common or preferred shares qualifies under the minimum limits specified above, shareholders representing, in the aggregate, a minimum of 10% of the share capital may combine their holdings to elect a member of the Board of Directors, and that member’s substitute member.

Under Article 171 of the Corporate Law, every shareholder has a generic right of first refusal in subscription of new shares, or securities convertible into shares, issued in any capital increase, in proportion to their percentage shareholding, except in the event of exercise of any option to acquire shares in our share capital. Shareholders are required to exercise their right of first refusal within 30 days from publication of the notice of increase of capital.

Every holder of Cemig preferred shares has preference in the event of share redemption.

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The dividend rights of the preferred and common shares are described below:below.

e) Dividends

f)Dividends

Under itsby-laws, Cemig is required to pay to its shareholders, as mandatory dividends, 50% of the net income of each year.

The preferred shares have preference in the event of reimbursement of capital and participate in profits on the same conditions as the common shares have the right, when there is net income, to a minimum annual dividends equal to the greater of:

(a) 10% of their par value, and

(b) 3% of the portion of equity that they represent.

Under itsby-laws, Cemig’s shares held by private individuals and issued up to August 5, 2004 have the right to a minimum dividend of 6% per year on their par value in all years when Cemig does not obtain sufficient profits to pay dividends to its Shareholders. This guarantee is given by the State of Minas Gerais by Article 9 of State Law 828 of December 14, 1951 and by State Law 15,290 of August 4, 2004.

Under theby-laws, if the Company is able to pay dividends higher than the mandatory minimum dividends required for the preferred Shareholders, and the remaining net income is sufficient to offer equal dividends for both the common and preferred shares, then the dividends per share will be the same for the holders of common shares and preferred shares. Dividends declared are paid in two equal installments, the first by June 30 and the second by December 30, of the year following the generation of the profit to which they refer. The Executive Board decides the location and processes of payment, subject to these periods.

Under its by-laws, Cemig is required to pay to its shareholders, as mandatory dividends, 50% of the net income of each year.

F-120The preferred shares have preference in the event of reimbursement of capital and participate in profits on the same conditions as the common shares have the right, when there is net income, to a minimum annual dividends equal to the greater of:

(a) 10% of their par value, and

LOGO(b) 3% of the portion of equity that they represent.

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Under its by-laws, Cemig’s shares held by private individuals and issued up to August 5, 2004 have the right to a minimum dividend of 6% per year on their par value in all years when Cemig does not obtain sufficient profits to pay dividends to its Shareholders. This guarantee is given by the State of Minas Gerais by Article 9 of State Law 828 of December 14, 1951 and by State Law 15,290 of August 4, 2004.

 

-TheCalculation of the minimum dividends proposed

The calculation of the minimum dividends proposed for distribution to Shareholders, as a result ofconsidering the 2018, as2020 unrealized profit assumption mentioned in the previous paragraph,paragraphs, is as follows:

 

  2018 2017 2016  2020 2019 2018

Calculation of Minimum Dividends required by theBy-laws for the preferred shares

                

Nominal value of the preferred shares

   4,856  4,191  4,190   5,055   4,856   4,856 

Nominal value of the preferred shares to be capitalized

   —    665   —   
  

 

  

 

  

 

 
   4,856  4,856  4,190   5,055   4,856   4,856 

Percentage applied to the nominal value of the preferred shares

   10.00%  10.00%  10.00%   10.00%  10.00%  10.00%
Amount of the dividends by the first payment criterion  506   486   486 
  

 

  

 

  

 

             

Amount of the dividends by the first payment criterion

   486  486  419 

Equity

   14,579  14,326  12,930   17,473   15,887   14,579 

Preferred shares as a percentage of Equity (net of shares held in Treasury)

   66.58%  66.58%  66.58%   66.56%  66.56%  66.56%
  

 

  

 

  

 

 

Portion of Equity represented by the preferred shares

   9,704  9,538  8,609   11,630   10,574   9,704 

Percentage applied to the portion of Equity represented by the preferred shares

   3.00%  3.00%  3.00%   3.00%  3.00%  3.00%
  

 

  

 

  

 

 

Amount of the dividends by the second payment criterion

   291  286  258   349   317   291 
  

 

  

 

  

 

             

Minimum Dividends required by the Bylaws for the preferred shares

   486  486  419   506   486   486 
  

 

  

 

  

 

             

Calculation of the Minimum Dividend under theby-laws based on the net income for the period

    
Calculation of the Minimum Dividend under the by-laws based on the net income for the year            

Mandatory dividend

                

Net income for the year

   1,700  1,001  334   2,864   3,127   1,700 
            

Mandatory dividends – 50% of Net income

   850  500  167   1,432   1,564   850 
Unrealized profit reserve  (835)  (835)    
Reversal of the unrealized profit reserve established in 2019  835   —     —   

Withholding income tax on Interest on equity

   17   —     —     50   35   17 
  

 

  

 

  

 

 
   867  500  167   1,482   764   867 

Dividends recorded, as specified in theby-laws

                

Interest on Equity

   210   —     —     553   400   210 

Ordinary dividends

   657  500  167   929   364   657 
  

 

  

 

  

 

   1,482   764   867 
   867  500  167             

Total dividends for the preferred shares

   577  486  419   986   509   577 

Total dividends for the common shares

   290  14   —     496   255   290 
            

Unit value of dividends – R$

                

Minimum dividends required by theby-laws for the preferred shares

   0.50  0.50  0.50   0.50   0.50   0.50 

Mandatory dividends (including withholding income tax on Interest on Equity)

   0.59  0.34  0.50   0.99   0.52   0.59 

Dividends proposed: Common (ON) shares

   0.59  0.50   —     0.99   0.52   0.59 

Dividends proposed: Preferred (PN) shares

   0.59  0.03  0.50   0.99   0.52   0.59 

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This table provides the changes on dividends and interest on capital payable:

 

Balances at December 31, 2017

2018		  428864 

Dividends and interest on equity

Proposed dividends		  867764 

Withholding income tax on interest on capital

  (1735)

Dividends proposed fornon-controlling shareholder.

127

Proposed dividends of previous years

(42) 

Expired dividends

(8) 

Dividends retained – Minas Gerais state government (Note 12)

11)		  (491148)
Dividends paid 

(701		)

Balances at December 31, 2018

2019		  864744
Proposed dividends1,482
Proposed dividends - Non-controlling interests1
Withholding income tax on interest on capital(50)
Dividends retained – Minas Gerais state government (Note 11)(130)
Dividends paid(598)
Balances at December 31, 20201,449 

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Allocation of net income for 20182020 – Management’s proposal

The Board of Directors decided to propose to the Annual General Meeting to be(AGM) held on April 30, 20192021 approved the following allocation of the net income for 2018,2020, totaling R$ 1,700, and the negative balance of retained earnings, amounting R$ 72, referring to the initial adoption of IFRS 9 and IFRS 15, in the amount of R$ 157,2,864, less R$ 4217 from realization of the deemed cost of PP & E and reversal of&E, added to R$ 42 of expired dividends.

R$867 for payment835 from the realization of the mandatory minimum dividends to Company’s holders, as follows:

R$ 210 in the form of Interest on Equity, to be paid in two equal installments, by June 28, 2019unrealized profit reserve and by December 30, 2019, to shareholders whose names were on the Company’s Nominal Share Registry on December 21, 2018;R$212 from prior periods adjustments:

R$657 as dividends of 2018, to be paid by December 30, 2019, to holders whose names are in the Company’s Nominal Share Registry on the date of the AGM.

R$751 to be held in the Retained earnings reserve, to ensure the Company’s consolidated investments planned for 2019, as per capital budget.

R$9 to be recorded as Incentives Tax reserve, in reference to the tax incentive amounts obtained in 2018 in relation to the investments made in the region of Sudene.

f) Equity valuation adjustments

   2018   2017   2016 

Adjustments to actuarial liabilities – Employee benefits

   (257)    (235)    (169) 
  

 

 

   

 

 

   

 

 

 

Subsidiaries, jointly-controlled entities and affiliated company

      

Adjustments to actuarial liabilities – Employee benefits

   (1,681)    (1,241)    (1,042) 

Deemed cost of PP&E (1)

   611    639    685 

Variation in fair value of financial asset available for sale

   —      —      37 
  

 

 

   

 

 

   

 

 

 
   (1,070)    (602)    (320) 
  

 

 

   

 

 

   

 

 

 

Equity valuation adjustments

   (1,327)    (837)    (489) 
  

 

 

   

 

 

   

 

 

 
§R$142 to be held in the Legal Reserve, as established in Brazilian corporate law.
§R$1,482 for payment of the mandatory minimum dividends to Company’s holders, as follows:

 

1)

The variation-

R$553 in the balanceform of deemed costInterest on Equity, to be paid in two equal installments, by June 30, 2021 and by December 31, 2021, to shareholders whose names were on the Company’s Nominal Share Registry on September 22, 2020 and December 23, 2020;
-R$929 as dividends of fixed assets2020, to be paid by December 31, 2021, to holders whose names are in 2018 is netthe Company’s Nominal Share Registry on the date of the reversal of deferred taxes on the deemed cost. The change is mainly dueAGM.

§R$1,451 to a reversal of R$ 18be held in the subsidiary Rosal Energia, arising fromRetained earnings reserve, to ensure the changeCompany’s consolidated investments planned for 2021, as per capital budget.

§R$18 to be recorded as Incentives Tax reserve, in reference to the tax incentive amounts obtained in 2019 in relation to the investments made in the taxation criterionregion of this subsidiary from the real profit method to the presumed profit method.

Sudene.

The adjustments to post-employment benefit obligations comprise gains or losses resulting fromre-measurementsamount of R$835 remains as unrealized profit reserve, considering the reversal of the net defined-benefit obligation,reserve constituted in accordance with2019 and the actuarial report.

The amounts recorded as deemed costnew constitution in 2020, of the generation assets represents its fair value determined using the replacement cost at initial adoption of IFRS on January 1, 2009. The valuation of the generation assets resulted in an increase in their book value, recorded in a specific line in Equity, net of the tax effects. These values are being realized based on the depreciation of the assets.same amount.

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27.SUBSIDIARIES WITH SIGNIFICANT INTERESTS HELD BYNON-CONTROLLING SHAREHOLDERS

The following is the information for the subsidiaries in whichnon-controlling shareholders have significant interests:

27.REVENUE

 

Company

  Equity interest held by
non-controlling partner		 
  2018  2017  2016 

Gasmig

   0.43%   0.43%   0.43% 

Light S.A

   50.01%   —     —   

LightGer

   25.51%   —     —   

Guanhães

   25.51%   —     —   

Axxion

   25.51%   —     —   

Amazônia

   12.75%   —     —   

UHE Itaocara

   25.51%   —     —   

Total equity held bynon-controlling shareholders:

   2018   2017   2016 

Gasmig

   4    4    6 

Light S.A

   1,277    —      —   

LightGer

   22    —      —   

Guanhães

   50    —      —   

Axxion

   5    —      —   

UHE Itaocara

   3    —      —   
  

 

 

   

 

 

   

 

 

 

Total

   1,361    4    6 
  

 

 

   

 

 

   

 

 

 

Net income (loss) allocated tonon-controlling interests:

   2018   2017   2016 

Gasmig

   1    1    1 

Light S.A

   31    —      —   

LightGer

   —      —      —   

Guanhães

   8    —      —   

Axxion

   2    —      —   

UHE Itaocara

   0    —      —   
  

 

 

   

 

 

   

 

 

 

Total

   42    1    1 
  

 

 

   

 

 

   

 

 

 

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28. REVENUE

Revenues are measured at the fair value of the consideration received or to be received and are recognized on a monthly basis as and when: (i) Rights and obligations of the contract with the customer are identified; (ii) the performance obligation of the contract is identified; (iii) the price for each transaction has been determined; (iv) the transaction price has been allocated to the performance obligations defined in the contract; and (v) the performance obligations have been complied.

 

   2018   2017   2016 

Revenue from supply of energy(a)

   24,872    23,701    23,430 

Revenue from use of the electricity distribution systems (TUSD) (b)

   2,045    1,611    1,705 

CVA, and Other financial components (c)

   1,973    988    (1,455) 

Transmission revenue

      

Transmission concession revenue (d)

   411    371    312 

Transmission construction revenue (e)

   96    25    54 

Transmission indemnity revenue (f)

   250    373    751 

Generation Indemnity Revenue (g)

   55    271    —   

Distribution construction revenue (e)

   802    1,094    1,139 

Adjustment to expectation of cash flow from indemnifiable financial assets of distribution concession (h)

   —      9    8 

Revenue on financial updating of the Concession Grant Fee (i)

   321    317    300 

Energy transactions on the CCEE (i)

   217    860    161 

Supply of gas

   1,995    1,759    1,444 

Fine for violation of service continuity indicator (1)

   (44)    —      —   

Other operating revenues (k)

   1,585    1,484    1,421 

Deductions on revenue (l)

   (12,312)    (11,151)    (10,497) 
  

 

 

   

 

 

   

 

 

 

Net operating revenue

   22,266    21,712    18,773 
  

 

 

   

 

 

   

 

 

 
  2020 

2019

(Restated)

 

2018

(Restated)

Revenue from supply of energy (a)  26,432   26,928   24,872 
Revenue from use of the electricity distribution systems (TUSD) (b)  3,022   2,722   2,045 
CVA, and Other financial components (c)  455   58   1,973 
Reimbursement of  PIS/Pasep and Cofins over ICMS credits to customers– realization (1)  266   —     —   
Transmission revenue            
   Transmission operation and maintenance revenue (d)  280   352   343 
   Transmission construction revenue (d) (note 14)  201   312   138 
   Interest revenue arising from the financing component in the transmission contract asset (d) (note 14)  438   328   311 
Generation assets - indemnity revenue  —     —     55 
Distribution construction revenue (e)  1,436   980   802 
Adjustment to expectation of cash flow from indemnifiable financial assets of distribution concession (g)  16   18   —   
Revenue on financial updating of the Concession Grant Fee (h)  347   318   321 
Energy transactions on the CCEE (i)  154   432   217 
Mechanism for the sale of surplus (h)  234   —     —   
Supply of gas  2,011   2,298   1,995 
Fine for violation of service continuity indicator  (51)  (58)  (44)
Recovery of PIS/Pasep and Cofins (note 9)  —     1,428   —   
Other operating revenues (j)  1,709   1,721   1,585 
Deductions on revenue (k)  (11,722)  (12,351)  (12,314)
Net revenue  25,228   25,486   22,299 
(1)For more information, see note 9 from this financial statements.

 

(1)a)

As mentioned in Note 2.5, as from January 1, 2018 these amounts began to be recognized as a reduction of revenue, rather than as operational expenses, as per the change contained in IFRS 15.

For further details about discontinued operations, see Note 33.

a) Revenue from energy supply

These items are recognized upon delivery of supply, and the revenue is recorded as and when billed, based on the tariff specified in the contractual terms and approved by the regulatorgrantor for each class of customer.customer or in effect in the market. Unbilled supply of energy, from the period between the last billing and the end of each month, is estimated based on the supply contracted. For the distribution concession contract, the unbilled supply is estimated based on the volume of energy delivered but not yet billed.

 

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This table shows energy supply by type of customer:

   GWh (1)   R$ 
  2018   2017   2016   2018  2017   2016 

Residential

   10,267    10,008    9,916    8,658   7,842    7,819 

Industrial

   17,689    17,761    19,494    4,893   4,907    5,396 

Commercial, services and others

   8,380    7,507    6,573    4,683   4,342    4,359 

Rural

   3,615    3,651    3,575    1,794   1,629    1,463 

Public authorities

   871    866    886    575   532    545 

Public lighting

   1,384    1,367    1,350    585   537    528 

Public services

   1,316    1,301    1,252    646   589    547 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Subtotal

   43,522    42,461    43,046    21,834   20,378    20,657 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Own consumption

   41    37    37    48   —      —   

Unbilled revenue

     —      —      —     61    (199) 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 
   43,563    42,498    43,083    21,882   20,439    20,458 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Wholesale supply to other concession holders (2)

   11,992    12,777    12,509    3,002   1,727    2,713 

Wholesale supply unbilled, net

   —      —      —      (12)   1,535    259 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 

Total

   55,555    55,275    55,592    24,872   23,701    23,430 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

 
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  GWh (1) R$
  2020 2019 2018 2020 2019 2018
Residential  10,981   10,538   10,267   9,875   9,668   8,658 
Industrial  12,731   14,873   17,689   4,171   4,760   4,893 
Commercial, services and others  8,571   9,335   8,380   4,979   5,439   4,683 
Rural  3,766   3,795   3,615   2,190   2,058   1,794 
Public authorities  714   905   871   522   654   575 
Public lighting  1,243   1,357   1,384   550   614   585 
Public services  1,362   1,373   1,316   722   725   646 
Subtotal  39,368   42,176   43,522   23,009   23,918   21,834 
Own consumption  34   38   41   —     —     —   
Unbilled revenue  —     —     —     9   134   48 
   39,402   42,214   43,563   23,018   24,052   21,882 
Wholesale supply to other concession holders (2)  13,907   11,920   11,992   3,363   2,943   3,002 
Wholesale supply unbilled, net  —     —     —     51   (67)  (12)
Total  53,309   54,134   55,555   26,432   26,928   24,872 
(1)

Data not audited by external auditors.

(2)

Includes a CCEAR (Regulated Market Sales Contract), ‘bilateral contracts’ with other agents, and the revenues from management of generation assets (GAG) for the 18 hydroelectric plants of Lot D of Auction no 12/2015.

b)
b)Revenue from Use of the Distribution System (the TUSD charge)

These are recognized upon the distribution infrastructure becomebecoming available to customers, and the fair value of the consideration is calculated according to the TUSD tariff of those customers, set by the regulator.grantor. The total amount of energy transported, in MWh, is as follows:

c) The CVA account, andOther financial components

  GWh (1)
  2020 2019
 Industrial   18,612   17,723 
 Commercial   1,300   1,320 
 Rural   32   17 
 Concessionaires   315   341 
 Total   20,259   19,401 
(1)Data not reviewed by external auditors

c)The CVA account, and Other financial components

The results from variations in (i) the CVA account (Parcel(Parcel A Costs Variation Compensation Account)Account), and in (ii)Other financial components in calculation of tariffs, refer to the positive and negative differences between the estimatednon-manageable costs of the subsidiary Cemig D and the cost actually incurred. The amounts recognized arise from balances recorded in the current year, homologated or to be homologated in tariff adjustment processes. For more information please see Note 15.14.

d)

d)Transmission concession revenue
§Construction revenue corresponds to the performance obligation to build the transmission infrastructure, recognized based on the satisfaction of performance obligation over time. They are measured based on the cost incurred, including PIS/Pasep and Cofins taxes over the total revenues and the profit margin of the project. For more information, see note 15.
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§Operation and maintenance revenue correspondes to the performance obligation of operation and maintenance specified in the transmission concession contract, after termination of the construction phase. They are recognized when the services are rendered and he invoices for the RAPs are issued.
§Interest revenue in the contract asset recognized, recorded as transmission concession gross revenue in statement income. Revenue corresponds to the significant financing component in the contract asset, and is recognized by the linear effective interest rate method based on the rate determined at the start of the investments, which is not subsequently changed. The average of the implicit rates is 6.86%. The rates are determined for each authorization and are applied on the amount to be received (future cash flow) over the contract duration. This includes financial updating by the inflation index specified for each transmission contract.

Transmission revenue comprises the amount received from agents of the energy sectorThe margin defined for operation and maintenance of transmission lines of the national grid, in the form of the Permitted Annual Revenue (Receita Anual Permitida, or RAP), plus an adjustment for expectation of cash flow arisingeach performance obligation from the variation in the fair value of the Remuneration Assets Base, in the amout of R$13 in 2018.transmission concession contract is as follows:

e) Construction revenue

  2020 2019 2018
Construction and upgrades revenue  201   312   138 
Construction and upgrades costs  (147)  (220)  (96)
Margin  54   92   42 
Mark-up (%)  36.73%  41.82%  43.75%
Operation and maintenance revenue  279   352   343 
Operation and maintenance cost  (223)  (388)  (215)
Margin  56   (36)  128 
Mark-up (%)  25,11%  (9.28%)  59.53%

(1)The negative margin observed in 2019 related to the performance obligation to operate and maintain is due the recognition of the non-recurring tax provision, in the amount of R$135.

e)Distribution construction revenue

Construction revenue corresponds to the performance obligation to build the distribution infrastructure which becomesduring the investment in concession assets made by the subsidiaries in the year. Recognition of this revenue is directly related to the expenditure incurred on the addition of the contracted assets.construction phase. Considering that the regulatory model does not

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provide for specific remuneration for construction or improvement of the infrastructure of the concession; that constructions and improvements are substantially executed through outsourced parties; and that all construction revenues is related to the construction of the infrastructure of the energy distribution and transmission services, Company’s management concluded that construction contract revenue has zero profit margin.

f) Transmission indemnity revenue

On 2018 Cemig GT recognized revenue in the total amount of R$250 (R$373 on 2017 and R$751 on 2016), corresponded to updating, by the IPCA index, of the balance of transmission indemnity receivable . For further information, please see Note 15.

g) Generation indemnity revenue

On 2018 Cemig GT recognized revenue of R$55 (R$ 271 on 2017), for the adjustment to the balance of the financial asset related to indemnities for the concessions of theSão Simão andMiranda Hydroelectric Plants as described in Note 15.

h)
f)Adjustment to expected cash flow from financial assets on residual value of infrastructure asses of distribution concessions

Income from adjustment of expectation of cash flow from indemnifiable distribution concession financial assets, due to inflation adjustmentfair value change of the Regulatory Remuneration Asset Base.

i)

g)Revenue on financial updating of the Concession Grant Fee

Represents the inflation adjustment using the IPCA inlfation index, plus interest, on the Concession Grant Fee for the concession awarded as Lot D of Auction 12/2015. See Note 15.14.

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h)Energy transactions on the CCEE (Power Trading Chamber)

The revenue from transactions made through the Wholesale Electricity ExchangePower Trading Chamber (Câmara de Comercialização de Energia Elétrica, or CCEE) is the monthly positive net balance of settlements of transactions for purchase and sale of energy in the Spot Market, through the CCEE, for which the consideration corresponds to the product of energy sold at the Spot Price.

 

i)Mechanism for the sale of energy surplus

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The revenue from the surplus sale mechanism (‘Mecanismo de Venda de Excedentes – MVE’) refers to the sale of power surpluses by distributor agents. This mechanism is an instrument regulated by Aneel enabling distributors to sell over contracted supply – the energy amount that exceeds the quantity required to supply captive customers.

 

k) Other operating revenues

   2018   2017   2016 

Charged service

   14    10    6 

Telecoms services (1)

   0    149    137 

Services rendered

   188    156    167 

Subsidies (2)

   1,136    1,034    1,001 

Rental and leasing

   90    121    105 

Reimbursement for decontracted supply (3)

   145    —      —   

Other

   12    14    5 
  

 

 

   

 

 

   

 

 

 
   1,585    1,484    1,421 
  

 

 

   

 

 

   

 

 

 
j)Other operating revenues
  2020 2019 2018
Charged service  11   17   14 
Services rendered  139   183   188 
Subsidies (1)  1,395   1,266   1,136 
Rental and leasing  164   189   90 
Reimbursement for decontracted supply (2)  —     65   145 
Other  —     1   12 
   1,709   1,721   1,585 

 

(1)

Due toIncludes the classification of certain telecommunications assets as held for sale, the revenues from the discontinued operations were segregated. The sale of the telecom assets previously classified as held for sale took place in November 2018, as described in Note 33.

(2)

Revenuerevenue recognized for the tariff subsidies applied to users of the distribution system, in accordance with the Decree n.7,891/2013, in the amount of R$1,035 in 2020 (R$1,079 in 2019). Includes the subsidies for sources that are subject to incentive, rural, irrigators, public services reimbursedand the generation sources that are subject to the incentive; and also includes the tariff flag revenue in the amount of R$47 in 2020, recognized because of the creditor position assumed by Eletrobras.

the Company in CCRBT.
(3)(2)

The amountReimbursement for suspension of R$84 refers to the reimbursement of the contracted energy supply agreed between Santo Antônio Energia S.A., a subsidiary of Madeira Energia, and Cemig Distribuição, due to change in the power purchase agreements (CCEARs). The amount will be settled in 24 monthly installments, with monthly inflation correction at the Selic rate; R$50 refers to the reimbursement of the contracted supply agreed between Renova and Cemig GT due to suspension by Renova of supply of contracted energy for the period July to December 2018. The advances made by Cemig GT related to this period will be settled in a single payment in January 2019, with inflation adjustment at 155% of the DI rate (published by Cetip).

–Renova.

l) Deductions on revenue

   2018   2017   2016 

Taxes on revenue

      

ICMS(1)

   5,657    5,847    5,211 

Cofins

   2,547    2,237    2,041 

PIS and Pasep

   553    455    443 

Others

   8    8    7 
  

 

 

   

 

 

   

 

 

 
   8,765    8,547    7,702 

Charges to the customer

      

Global Reversion Reserve (RGR)

   19    17    (18) 

Energy Efficiency Program (PEE)

   64    56    58 

Energy Development Account (CDE)

   2,603    1,822    2,074 

Research and Development (R&D)

   38    38    48 

National Scientific and Technological Development Fund (FNDCT)

   38    38    48 

Energy System Expansion Research (EPE of MME)

   19    19    24 

Customer charges – Proinfa alternative sources program

   40    39    43 

Energy services inspection fee

   26    29    35 

Royalties for use of water resources

   45    92    123 

Customer charges – the ‘Flag Tariff’ system

   655    454    360 
  

 

 

   

 

 

   

 

 

 
   3,547    2,604    2,795 
  

 

 

   

 

 

   

 

 

 
   12,312    11,151    10,497 
  

 

 

   

 

 

   

 

 

 

 

(1)k)

As from January 1, 2016, the rate for customers in the Commercial, services and other activities category was changed from 18% to 25% (Decree nº 46.924, of December 29, 2015).

Deductions on revenue

 

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  2020 

2019

(Restated)

 

2018

(Restated)

Taxes on revenue            
ICMS  6,098   6,358   5,657 
Cofins  2,214   2,408   2,549 
PIS/Pasep  481   524   553 
Others  5   7   8 
   8,798   9,297   8,767 
Charges to the customer            
Global Reversion Reserve (RGR)  16   16   19 
Energy Efficiency Program (PEE)  73   69   64 
Energy Development Account (CDE)  2,443   2,448   2,603 
Research and Development (R&D)  43   41   38 
National Scientific and Technological Development Fund (FNDCT)  43   41   38 
Energy System Expansion Research (EPE of MME)  21   20   19 
Customer charges – Proinfa alternative sources program  39   52   40 
Energy services inspection fee  35   30   26 
Royalties for use of water resources  62   43   45 
Customer charges – the ‘Flag Tariff’ system  149   294   655 
   2,924   3,054   3,547 
   11,722   12,351   12,314 

 

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29. OPERATING COSTS AND EXPENSES

28.OPERATING COSTS AND EXPENSES

The operating costs are as follows:

 

  2018   2017   2016  2020 

2019

(Restated)

 2018

Personnel (a)

   1,410    1,627    1,643   1,276   1,272   1,410 

Employees’ and managers’ profit sharing

   77    5    7   142   263   77 

Post-employment benefits –Note 24

   337    (229)    345 
Post-employment benefits (reversals) – Note 24  438   408   337 

Materials

   104    61    58   79   91   104 

Raw materials and inputs for production of energy

   —      10    —   

Outsourced services (b)

   1,087    974    867   1,265   1,239   1,087 

Energy bought for resale (c)

   11,084    10,919    8,273   12,111   11,286   11,084 

Depreciation and amortization

   835    850    834 

Operating provisions (reversals) and adjustments for operating losses (d)

   466    854    704 
Depreciation and amortization (1)  989   958   835 
Operating provisions and adjustments for operating losses (d)  423   2,401   466 

Charges for use of the national grid

   1,480    1,174    947   1,748   1,426   1,480 

Gas bought for resale

   1,238    1,071    878   1,083   1,436   1,238 

Construction costs (e)

   897    1,119    1,193   1,581   1,200   897 

Other operating expenses, net (f)

   405    383    155   297   494   405 
  

 

   

 

   

 

   21,432   22,474   19,420 
   19,420    18,818    15,904 
  

 

   

 

   

 

 

(1)Net of PIS/Pasep and Cofins taxes applicable to amortization of the right-of-use assets in the amount of R$2.

For details about the discontinued operating costs and expenses, see Note 33.32.

 

a)

Personnel

20182020 Programmed Voluntary Retirement Plan (‘PDVP’)

On March 2018,April 2020, the Company approved the Programmed Voluntary Retirement Plan for 2020 (‘the 2018 PDVP’). Those eligible to take part were any employees who will have worked with the Company for 25 years or more by December 31, 2018, and would join the program between April 2 and 30, 2018. The program will pay the standard legal payments for severance – including: payment for the period of notice, and especially, an amount equal to the ‘penalty’ payment of 40% of the base value of the employee’s FGTS fund, as well as the other payments under the legislation, but with no additional premium.

The amount appropriated as expense in the year for this program, including the severance payments, was R$ 26, corresponding to acceptance of the plan by 151 employees.

In 2017, the amount appropriated as expense on the 2017 PDVP (including severance payments) was R$ 214, corresponding to acceptance of the plan by 1,189 employees. In 2016, the amount appropriated to Personnel as expense on the PDVP in effect at that time was R$ 93.

2019 Programmed Voluntary Retirement Plan (‘PDVP’)

On December 2018, the Company launched the Programmed Voluntary Retirement Plan for 2019 (‘the 20192020 PDVP’). Those eligible – any employees who had worked with the Company for 25 years or more by December 31, 20182020 – wereare able to join from January 7May 4 to 31, 2019.22, 2020. The program will payprovided the standard legal payments for severance, – including: payment for50% of the period of notice, and especially, an amount equal to 20% of the ‘penalty’ paymentBase Value of 40%the employee’s FGTS fund, an additional premium equal to 50% of the period of notice plus 20% of the Base Value of the employee’s FGTS fund, as well as the other payments under the legislation, but with no additional premium.

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Alegislation. The total amount of R$ 6659 has been recorded as expense related to this program, corresponding to acceptance by 396 employees. In March 2019, has been appropriated as expense, in 2018 related to the 2019 PDVP, including severance payments, corresponding to acceptance by 458 employees.

2019 Programmed Voluntary Retirement Plan (‘PDVP’) reopened

On March 2019 the Company launch again the 2019 PDVP program, for those joining between April 1 and 10, 2019, with some changes in the requirements for joining, but with the same financial conditions. Aa total of R$21 has been appropriated as expense in 2019 related to the relaunch of 2019 PDVP, including severance payments, corresponding to acceptance by 155 employees.

b) Outsourced services(155 employees).

 

   2018   2017   2016 

Meter reading and bill delivery

   129    142    140 

Communication

   80    66    55 

Maintenance and conservation of electrical facilities and equipment

   323    266    246 

Building conservation and cleaning

   110    108    97 

Contracted labor

   21    15    13 

Freight and airfares

   7    8    7 

Accommodation and meals

   12    13    13 

Security services

   20    23    25 

Consultant

   16    16    15 

Maintenance and conservation of furniture and utensils

   4    4    4 

Information technology

   59    62    49 

Maintenance and conservation of vehicles

   2    2    8 

Disconnection and reconnection

   62    35    7 

Environmental services

   14    11    19 

Legal services

   25    22    26 

Legal procedural costs

   2    3    4 

Tree pruning

   28    21    14 

Cleaning of power line pathways

   41    16    8 

Copying and legal publications

   21    23    16 

Inspection of customer units

   10    1    1 

Printing of tax invoices and energy bills

   —      3    3 

Other expenses

   101    114    97 
  

 

 

   

 

 

   

 

 

 
   1,087    974    867 
  

 

 

   

 

 

   

 

 

 

c) Energy purchased for resale

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   2018   2017   2016 

Supply from Itaipu Binacional

   1,351    1,243    1,144 

Physical guarantee quota contracts

   679    461    537 

Quotas for Angra I and II nuclear plants

   267    244    217 

Spot market

   1,818    1,498    761 

Proinfa Program

   324    303    323 

‘Bilateral’ contracts

   484    385    292 

Energy acquired in Regulated Market auctions

   3,346    3,555    2,540 

Energy acquired in the Free Market

   3,871    4,283    3,279 

Pasep and Cofins credits

   (1,056)    (1,053)    (820) 
  

 

 

   

 

 

   

 

 

 
   11,084    10,919    8,273 
  

 

 

   

 

 

   

 

 

 
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b)Outsourced services

 

d) Operating provision (reversals) and adjustments for operating losses

  2020 2019 2018
Meter reading and bill delivery  127   128   129 
Communication  71   69   80 
Maintenance and conservation of electrical facilities and equipment  443   404   323 
Building conservation and cleaning  108   110   110 
Contracted labor  9   17   21 
Freight and airfares  2   7   7 
Accommodation and meals  9   14   12 
Security services  19   18   20 
Consultant  41   24   16 
Maintenance and conservation of furniture and utensils  6   5   4 
Information technology  80   63   59 
Maintenance and conservation of vehicles  2   3   2 
Disconnection and reconnection  39   70   62 
Environmental services  10   14   14 
Legal services  21   28   27 
Tree pruning  48   46   28 
Cleaning of power line pathways  75   61   41 
Copying and legal publications  17   21   21 
Inspection of customer units  35   14   10 
Other expenses  103   123   101 
   1,265   1,239   1,087 

 

   2018   2017   2016 

Estimated losses on doubtful accounts receivables (Note 8)

   264    248    382 

Estimated losses on other accounts receivables

   (4)    27    40 

Contingency provisions (reversals) (Note 25)

      

Labor claims

   42    206    120 

Civil

   13    27    30 

Tax

   (5)    7    2 

Environmental

   1    —      —   

Regulatory

   (2)    (3)    —   

Other

   2    (6)    31 
  

 

 

   

 

 

   

 

 

 
   51    231    183 
  

 

 

   

 

 

   

 

 

 
   311    506    605 
  

 

 

   

 

 

   

 

 

 

Adjustment for losses

      

Put option – Sonda

   —      1    (5) 

Put option – RME and LEPSA (Note 32)

   48    231    55 

Put option – SAAG (Note 32)

   107    116    49 
  

 

 

   

 

 

   

 

 

 
   155    348    99 
  

 

 

   

 

 

   

 

 

 
   466    854    704 
  

 

 

   

 

 

   

 

 

 

e) Construction costs

c)Energy purchased for resale

 

   2018   2017   2016 

Personnel and managers

   70    36    58 

Materials

   379    550    534 

Outsourced services

   364    406    448 

Others

   84    127    153 
  

 

 

   

 

 

   

 

 

 
   897    1,119    1,193 
  

 

 

   

 

 

   

 

 

 
  2020 2019 2018
Supply from Itaipu Binacional  1,990   1,429   1,351 
Physical guarantee quota contracts  780   715   679 
Quotas for Angra I and II nuclear plants  303   269   267 
Spot market  1,497   1,886   1,818 
Proinfa Program  318   376   324 
‘Bilateral’ contracts  333   311   484 
Energy acquired in Regulated Market auctions  3,334   3,021   3,346 
Energy acquired in the Free Market  3,977   4,098   3,871 
Distributed generation (‘Geração distribuída’)  678   207   —   
PIS/Pasep and Cofins credits  (1,099)  (1,026)  (1,056)
   12,111   11,286   11,084 

 

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d)Operating provision (reversals) and adjustments for operating losses

 

f) Other operating expenses (revenues), net

   2018   2017   2016 

Leasing and rentals

   93    103    112 

Advertising

   19    30    13 

Own consumption of energy

   27    24    22 

Subsidies and donations

   22    19    17 

Onerous concession

   3    3    3 

Insurance

   7    8    9 

CCEE annual charge

   6    8    8 

Net loss (gain) on deactivation and disposal of assets

   7    193    112 

Forluz – Administrative running cost

   28    26    25 

Collection agents

   78    71    70 

Gain on disposal, Taesa (1)

   —      (207)    (181) 

Gain on disposal, Transchile

   —      —      (134) 

Fine for violation of service continuity standard (2)

   —      42    —   

Taxes and charges

   9    —      —   

Other expenses

   106    63    79 
  

 

 

   

 

 

   

 

 

 
   405    383    155 
  

 

 

   

 

 

   

 

 

 
  2020 2019 2018
Estimated losses on doubtful accounts receivables (Note 8) (1)  147   238   264 
Estimated losses on other accounts receivables (2)  —     11   (4)
Estimated losses on accounts receivables from related parties (3) (note 30)  37   688   —   
             
Contingency provisions (reversals) (Note 25) (4)            
Labor claims  46   136   42 
Civil  43   24   13 
Tax (5)  75   1,228   (5)
Other  22   12   1 
   186   1,400   51 
   370   2,337   311 
Adjustment for losses            
Put option – RME and LEPSA  —     —     48 
Put option – SAAG (Note 31)  53   64   107 
   53   64   155 
   423   2,401   466 

 

(1)

On 2017 and 2016 the Company sold part of its equity interestThe expected losses on receivables are presented as selling expenses in the jointly-controlled entity Taesa.

(2)

As stated in Note 2.2, as from January 1, 2018 these amounts started to be recognized as reductionStatement of revenue instead of operational expenses, as per a change contained in IFRS 15.

Operating leasing

The Company and its subsidiaries have operating lease contracts relating to, mainly, vehicles and buildings used in its operating activities. Related amounts are not material in relation to the total costs of the Company.

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30.FINANCE INCOME AND EXPENSES

   2018   2017   2016 

FINANCE INCOME

      

Income from financial investments

   116    205    317 

Interest on sale of energy

   352    261    277 

Foreign exchange variations

   —     19    62 

Monetary variations

   19    46    106 

Monetary variations – CVA (Note 15)

   62    —      204 

Monetary updating of escrow deposits

   34    191    46 

Pasep and Cofins charged on finance income (2)

   (68)    (53)    (88) 

Gains on financial instruments – swap (Note 32)

   893    —      —   

Finance income from advance payments

   29    —      —   

Inflation adjustment in arbitration case (1) (Note 17)

   77    —      —   

Borrowing costs paid by related parties (Note 31)

   56    —      —   

Other

   136    135    117 
  

 

 

   

 

 

   

 

 

 
   1,706    804    1,041 

FINANCE EXPENSES

      

Charges on loans and financings

   (1,257)    (1,466)    (1,860) 

Cost of debt – amortization of transaction cost (Note 22)

   (33)    (67)    (68) 

Foreign exchange variations – loans and financing (Note 22)

   (582)    (73)    (35) 

Foreign exchange variations – Itaipu

   (29)     

Monetary updating – loans and financings (Note 22)

   (134)    (109)    (245) 

Monetary updating – onerous concessions

   (3)    —      (3) 

Charges and monetary updating on post-employment obligations (Note 24)

   (68)    (65)    (103) 

Losses on financial instruments (Note 32)

   —     (32)    —   

Monetary updating – CCEE obligations

   —      —      (10) 

Monetary updating – CVA

   —     (41)    —   

Monetary updating – AFAC

   —     239    —   

Monetary updating – Advance sales of energy supply (Note 8)

   (11)    (45)    —   

Adjustment to present value

   —     (2)    —   

Other

   (107)    (139)    (154) 
  

 

 

   

 

 

   

 

 

 
   (2,224)    (1,800)    (2,478) 
  

 

 

   

 

 

   

 

 

 

NET FINANCE INCOME (EXPENSES)

   (518)    (996)    (1,437) 
  

 

 

   

 

 

   

 

 

 

(1)

inflation and other adjustments on the debt assumed by Energimp arising from the decision in favor of the company in arbitration, originating fromnon-compliance with the deadline for wind farms to start operation, agreed in the acquisition of a 49% interest in them, in 2009. For more information see Note 17.

Income.

 

(2)

The estimated losses on other accounts receivable are presented in the consolidated Statement of income as operating expenses.

(3)Estimated losses on accounts receivable from Renova, as a result of the assessment of the jointly-controlled entity credit risk.
(4)The provisions for contingencies of the holding company are presented in the consolidated statement of income for the year as operating expenses.
(5)The provision recognized in 2019 is due to the Company’s reassessment, based on the opinion of its legal advisers, of the probability of loss in legal actions disputing social security contributions on the payments of profit-sharing to its employees from 1999 to 2016. For more information, see note 25.

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e)Construction costs

  2020 2019 2018
Personnel and managers  83   85   70 
Materials  775   595   379 
Outsourced services  598   421   364 
Others  125   99   84 
   1,581   1,200   897 

f)Other operating expenses (revenues), net

  2020 

2019

(Restated)

 2018
Leasing and rentals  11   20   93 
Advertising  7   9   19 
Own consumption of energy  24   21   27 
Subsidies and donations  22   40   22 
Onerous concession  3   3   3 
Insurance  25   12   7 
CCEE annual charge  6   6   6 
Net loss (gain) on deactivation and disposal of assets  81   88   7 
Forluz – Administrative running cost  30   30   28 
Collection agents  86   88   78 
Obligations deriving from investment contracts (1)  9   32   —   
Taxes and charges  7   10   9 
Other expenses (2)  (14)  135   106 
   297   494   405 

(1)This refers to claims under the agreement made between Aliança Geração, Vale S.A. and Cemig. The action is provisioned at the cost of R$119 (R$98 on December 31, 2019), of which Cemig is responsible for R$41 (R$32 on December 31, 2019).
(2)Includes the impairment loss recognized for intangible asset relating to the authorization for wind power generation granted to Volta do Rio in the amount of R$22.

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29.FINANCE INCOME AND EXPENSES

  2020 2019 2018
FINANCE INCOME            
Income from financial investments  95   102   116 
Interest on sale of energy  399   361   352 
Monetary variations  42   30   19 
Monetary variations – CVA (Note 14)  32   105   62 
Monetary updating of escrow deposits  53   50   34 
PIS/Pasep and Cofins charged on finance income (1)  (96)  (128)  (68)
Gains on financial instruments –swap (Note 31)  1,753   998   893 
Inflation adjustment in arbitration case  —     —     77 
Borrowing costs paid by related parties  30   48   56 
Monetary updating on PIS/Pasep and Cofins taxes credits over ICMS (Note 9)  42   1,580   —   
Others  95   61   165 
   2,445   3,207   1,706 
FINANCE EXPENSES            
Charges on loans and financings (Note 22)  (1,178)  (1,227)  (1,257)
Cost of debt – amortization of transaction cost (Note 22)  (15)  (38)  (33)
Foreign exchange variations - loans and financing (Note 22)  (1,742)  (226)  (582)
Foreign exchange variations – Itaipu  (47)  (13)  (29)
Monetary updating – loans and financings (Note 22)  (187)  (142)  (134)
Monetary updating – onerous concessions  (9)  (3)  (3)
Charges and monetary updating on post-employment obligations (Note 24)  (53)  (56)  (68)
Monetary updating – Lease liabilities (Note 19)  (27)  (34)  —   
Finance income of P&D and PEE  (21)  (24)  (23)
Others  (71)  (84)  (95)
   (3,350)  (1,847)  (2,224)
NET FINANCE INCOME (EXPENSES)  (906)  1,360   (518)

(1)The PIS/Pasep and Cofins expenses apply to Interest on Equity.

 

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31.RELATED PARTY TRANSACTIONS

30.RELATED PARTY TRANSACTIONS

Cemig’s main balances and transactions with related parties and its jointly-controlled entities are as follows:

COMPANY ASSETS LIABILITIES REVENUE EXPENSES
  2020 2019 2020 2019 2020 2019 2018 2020 2019 2018
Shareholder                                        
Minas Gerais State Government                                        
Current                                        
Receivables from customers and traders (1)  335   346       —     127   166   163       —     —   
ICMS tax – early payment      —         —             11       —     —   
Non-current                                        
Accounts Receivable – AFAC (2)  12   115       —     27   17   18       —     —   
                                         
Affiliated (3)                                        
Madeira Energia  2   6   92   58   35   68   70   (1,200)  (730)  (778)
Current                                        
Transactions with energy (4)                  35                     
                                         
Jointly-controlled entity                                        
Aliança Geração                                        
Current                                        
Transactions with energy (4)  —     —     14   14   42   40   35   (174)  (166)  (165)
Provision of services (5)  —     1   —     —     5   7   12   —     —     —   
Interest on Equity, and dividends  114   103   —     —     —     —     —     —     —     —   
Contingency (6)  —     —     41   32   —     —     —     (9)  (32)  —   
                                         
Baguari Energia                                        
Current                                        
Transactions with energy (4)  —     —     1   1   —     —     —     (8)  (8)  (11)
Provision of services (5)  —     —     —     —     —     1   1   —     —     —   
                                         
Norte Energia                                        
Current                                        
Transactions with energy (4)  —     —     25   24   28   22   16   (265)  (228)  (202)
Advance for future power supply (7)  —     40   —     —     —     —     —     —     —     —   
                                         
Lightger                                        
Current                                        
Transactions with energy (4)  —     —     2   2   —     —     —     (23)  (21)  (21)
                                         
Hidrelétrica Pipoca                                        
Current                                        
Transactions with energy (4)  —     —     3   1   —     —     —     (26)  (19)  (19)
Interest on Equity, and dividends  3   —     —     —     —     —     —     —     —     —   
                                         
Retiro Baixo                                        
Current                                        
Transactions with energy (4)  —     —     —     1   5   5   4   (5)  (5)  (5)
Interest on Equity, and dividends  —     6   —     —     —     —     —     —     —     —   
                                         
Hidrelétrica Cachoeirão                                        
Current                                      —   
Transactions with energy (4)  —     —     —     —     2   —     —     —     —     —   
Interest on Equity, and dividends  —     3   —     —     —     —     —     —     —     —   
                                         
Renova                                        
Current                                        
Transactions with energy  —     —     —     —     —     4   —     (7)  —     (81)
Non-current                                        
Accounts Receivable (8)  —     —     —     —     —     94   106   —     (688)  —   
Loans from related parties (9)  —     17   —     6   —     —     —     (37)  —     —   
                                         
Light                                        
Current                                        
Transactions with energy (4)  6   6   —     1   67   98   60   (2)  (9)  (1)
Interest on Equity, and dividends  71   73   —     —     —     —     —     —     —     —   
                                         
Taesa                                        
Current                                        
Transactions with energy (4)  —     —     8   9   —     —     —     (100)  (96)  (109)
Provision of services (5)  —     —     —     —     —     1   1   —     —     —   
                                         
Hidrelétrica Itaocara                                        
Current                                        
Adjustment for losses (10)  —     —     30   22   —     —     —     —     —     —   
                                         
Axxiom                                        
Current                                        
Provision of services (11)  —     —     4   3   —     —     —     —     —     —   
                                         
Other related parties                                        
FIC Pampulha                                        
Current                                        
Cash and cash equivalents  171   36   —     —     —     —     —     —     —     —   
Marketable securities  3,356   743   —     —     33   8   1,106   —     —     —   
(-) Marketable securities issued by subsidiary companies (Note 22)  —     (3)  —     —     —     —     —     —     —     —   
Non-current                                        
Marketable securities  755   2   —     —     —     —     —     —     —     —   
                                         
Forluz                                        
Current                                        
Post-employment obligations (12)  —     —     159   145   —     —     —     (206)  (197)  (192)
Supplementary pension contributions – Defined contribution plan (13)  —     —     —     —     —     —     —     (77)  (78)  (78)
Administrative running costs (14)  —     —     —     —     —     —     —     (30)  (30)  (28)
Operating leasing (15)  167   179   22   35   —     —     —     (2)  (55)  (46)
Non-current                                        
Post-employment obligations (12)  —     —     2,750   2,827   —     —     —     —     —     —   
Operating leasing (15)  —     —     156   149   —     —     —     —     —     —   
                                         
Cemig Saúde                                        
Current                                        
Health Plan and Dental Plan (16)  —     —     154   141   —     —     —     (241)  (227)  (186)
Non-current                                        
Health Plan and Dental Plan (16)  —     —     3,229   3,022   —     —     —     —     —     —   
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COMPANY / item

  ASSETS   LIABILITIES   REVENUE   EXPENSES 
  

 

 

   

 

 

   

 

 

   

 

 

 
  2018   2017   2018   2017   2018   2017   2016   2018  2017  2016 

Shareholder

                  

Minas Gerais State Government

                  

Current

                  

Customers and traders (1)

   245    55    —      —      163    136    152    —     —     —   

Public Lighting Contribution (CIP) (1)

   2    1    —      —      —      —      —      —     —     —   

Accounts Receivable (2)

   —      235    —      —      —      42    —      —     —     —   

ICMS tax – early payment (3)

   —      —      —        12    —      —      —     —     —   

Non-current

       —        —        —      —     —     —   

Customers and traders (1)

   —      50    —      —      —      —      —      —     —     —   

Public Lighting Contribution (CIP) (1)

   —      1    —      —      18    —      —      —     —     —   

Accounts Receivable – AFAC (2)

   246    —      —               

Jointly-controlled entity

                  

Aliança Geração

                  

Current

                  

Transactions with energy (4)

   —      —      13    7    34    30    —      (165)   (147)   (142) 

Provision of services (5)

   2    2    —      —      12    13    14    —     —     —   

Interest on Equity, and dividends

   91    72    —      —      —      —      —      —     —     —   

Baguari Energia

                  

Current

                  

Transactions with energy (4)

   —      —      1    1    —      —      —      (10)   (7)   (7) 

Services (5)

   —      —      —      —      1    1    1    —     —     —   

Madeira Energia

                  

Current

                  

Transactions with energy (4)

   5    —      64    57    70    27    8    (778)   (686)   (574) 

Advance for future energy supply (6)

   7    66    —      —      9    —      —       —     —   

Reimbursement due to cancelled contract (7)

   42    —      —      —      2    —      —      —     —     —   

Non-current

                  

Advance for future energy supply (6)

   —      7      —      —      —      —      —     —     —   

Reimbursement for cancelled contract (7)

   3    —      —      —      —      —      —      —     —     —   

Norte Energia

                  

Current

                  

Transactions with energy (4)

   —      —      6    4    16    9    2    (202)   (122)   (49) 

Lightger

                  

Current

                  

Transactions with energy (4)

   —      —      —      —      —      —      —      (21)   (19)   (19) 

Hidrelétrica Pipoca

                  

Current

                  

Transactions with energy (4)

   —      —      1    —        —      —      (19)   (15)   (16) 

Interest on Equity, and dividends

   —      1    —      —        —      —      —     —     —   

Retiro Baixo

                  

Current

                  

Transactions with energy (4)

   —      —      1    1      —      —      (5)   (6)   (6) 

Interest on Equity, and dividends

   5    3      —        —      —       —     —   

Hidrelétrica Cachoeirão

                  

Current

           2    2    —      —     —     —   

Transactions with energy (4)

   —      —      —      —      —      —      —      —     —     —   

Interest on Equity, and dividends

   3    —      —      —             

Renova

                  

Current

                  

Transactions with energy (4)

   —      —      1    2    —      —      —      (81)   (179)   (159) 

Non-current

                  

Advance for future energy supply (8)

   87    —      —      —      7    —      17    —     —     —   

Accounts Receivable (9)

   445    350    —      —      37    —      14    —     —     —   

Reimbursement for suspension of supply of power (10)

   52    —      —      —      52    —      —      —     —     —   

Reimbursement for cessation of power purchase agreement (11)

   10    —      —      —      10    —      —      —     —     —   

Empresa Amazonense de Transmissão de Energia (EATE)

                  

Current

                  

Transactions with energy (4)

   —      —      2    3    —      —      —      (19)   (26)   (25) 
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COMPANY

  ASSETS  LIABILITIES   REVENUE   EXPENSES 
   2018  2017  2018   2017   2018   2017   2016   2018  2017  2016 

Light

                

Current

                

Transactions with energy (4)

   —     1   1    —      60    54    59    (1)   (1)   (1) 

Interest on Equity, and dividends

   10   —     —      —      —      —      —      —     —     —   

Taesa

                

Current

                

Transactions with energy (4)

   —     —     8    12    —      —      —      (109)   (127)   (110) 

Services (5)

   —     —     —      —      —      1    1    —     —     —   

Taesa

                

Cia. Transirapé de Transmissão

                

Current

                

Transactions with energy (4)

   —     —     1    1    —      —      —      (10)   (10)   (9) 

Provision of services (5)

   —     —       —      1    1    1    —     —     —   

Interest on Equity, and dividends

   —     1   —      —      —      —      —      —     —     —   

Axxiom

                

Current

                

Provision of services (12)

   —     —     —      3    —      —      —      —     —     —   

Transudeste

                

Current

                

Transactions with energy (4)

   —     —     —      —      —      —      —      (1)   (2)   (1) 

Provision of services (5)

   —     —     —      —      1    1    1    —     —     —   

Transleste

                

Current

                

Transactions with energy (4)

   —     —     —      —      —      —      —      (2)   (3)   (2) 

Provision of services (5)

   —     —     —      —      1    1    1    —     —     —   

Centroeste

                

Current

                

Interest on Equity, and dividends

   1   —     —      —      —      —      —      —     —     —   

LUCE

                

Current

                

Interest on Equity, and dividends

   5   —     —      —      —      —      —      —     —     —   

RME

                

Current

                

Interest on Equity, and dividends

   2   —     —      —      —      —      —      —     —     —   

Other related parties

                

FIC Pampulha

                

Current

                

Cash and cash equivalents

   274   322   —      —      —      —      —      —     —     —   

Marketable securities

   727   1,037   —      —      1,106    9    197    —     —     —   

(-) Marketable securities issued by subsidiary companies (Note 22)

   (24)   (25)   —      —      —      —      —      —     —     —   

Non-current

     —        —          —     

Marketable securities

   101   30   —      —      —      —      —      —     —     —   

Forluz

                

Current

                

Post-employment obligations (13)

   —     —     123    109    —      —      —      (192)   (174)   (186) 

Supplementary pension contributions – Defined contribution plan (14)

   —     —       —      —      —      —      (78)   (84)   (100) 

Administrative running costs (15)

   —     —       —      —      —      —      (28)   (26)   (25) 

Operating leasing (16)

   —     —     2    5    —      —      —      (46)   (55)   (39) 

Non-current

                

Post-employment obligations (13)

   —     —     2,046    1,960    —      —      —      —     —     —   

Cemig Saúde

                

Current

                

Health Plan and Dental Plan (17)

   —     —     120    115    —      —      —      (186)   (193)   (187) 

Non-current

                

Health Plan and Dental Plan (17)

   —     —     2,271    1,633    —      —      —      —     —     —   

The main conditions and characteristics of interest with reference to the related party transactions are:

 

(1)

Refers to sale of energy supply to the Minas Gerais State government. The price of the supply is set by the regulatorgrantor (Aneel) through a Resolution relating to the annual tariff adjustment of Cemig DD. In 2017 the government of Minas Gerais State signed a debt recognition agreement with Cemig D for payment of debits relating to the supply of power due and unpaid, in the amount of R$113, , to be settled in 24 installments, updated monthly by the variation of theIGP-M index, up to November 2019. The first installment, of R$ 5, was paid in December 2017. NineTwenty installments were unpaid at December 31, 2018.2020. These receivables have guarantee in the form of Cemig’s right to retain dividends and Interest on Equity otherwise payable to the State (in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default. TheCemig D filed an application with the tax authority of Minas Gerais state to accept the terms of State Law 23,510/2020, to enable part of the ICMS tax payable to be offset against the debt owed by the government of Minas Gerais state to the Company. At present, the state tax authority is validating the invoices presented, to authorize the compensation of credits. As a result, the Company has reversed the amount of the Public Lighting Contribution relating to the debt recognition agreement at January 31, 2018 is R$ 2.

210 previously recognized as expected losses for doubtful receivables.
(2)

RefersThis refers to the recalculation of the inflation adjustment of amounts relating to the Advance foragainst Future Capital Increase (AFAC), which were returned to the State of Minas Gerais. Amount transferred from administrative depositThese receivables have guarantee in the form of Cemig’s right to Accounts receivable from Minas Geraisretain dividends and Interest on Equity otherwise payable to the State on September 30, 2017 (see(in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default. For further information, see Note 12).

11.

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(3)

Refers to financial income from ICMS tax anticipation, as per Minas Gerais State Decree 47,488.

The relationship between Cemig and its investees are described in Note 16 – Investments.
(4)

Transactions withThe transactions in sale and purchase of energy between generators and distributors were madetake place through auctions in auctionsthe Regulated Market, and are organized by the Federal Government;federal government. In the Free Market, transactions are made through auctions or through direct contracting, under the applicable legislation. Transactions for transport of energy, madeon the other hand, are carried out by transmission companies and arise from the centralized operation of the National Grid, carried outexecuted by the National System Operator (ONS).

(5)

Refers to a contract to provide plant operation and maintenance services.

(6)

In 2017, payments of R$ 70 were made to Santo Antônio Energia, subsidiary of Madeira Energia: R$ 52 was advanced by Cemig GT; R$ 12 by Sá Carvalho; and R$ 6 by Rosal. The last installment was paid in January 2019.

(7)

Refers to reimbursement due to termination of contract related to change of the “power purchase agreements” (CCEARs) between Santo Antônio Energia S.A., a subsidiary of Madeira Energia, and Cemig Distribuição – totaling R$ 84, to be settled in 24 monthly installments, with inflation adjustment by the Selic rate and maturities up to January 2020. The outstanding amount at December 31, 2018 was R$ 45.

(8)

This refers to advancedthe aggregate amounts of legal actions realized and legal actions provisioned arising from the agreement made between Aliança Geração, Vale S.A. and Cemig. The action is provisioned in the amount of R$119 (R$98 on December 31, 2019), of which Cemig’s portion is R$41 (R$32 on December 31, 2019).

(7)Refers to advance payments under a Purchase Agreement for Incentive-Bearing Power becoming dueenergy supply made in January through October 2019 to be settledNorte Energia, established by July 9, 2019,auction and by contract registered with monetarythe CCEE (Power Trading Chamber). Norte Energia delivered contracted supply until December 31, 2020, starting on January 01, 2020. There is no financial updating at 155% of the CDI rate. The advanced payment has guarantees, shared between Cemig and Light,contract.
(8)As mentioned in Note 16 (b), in June 2019, due to the uncertainties related to their shareholdingcontinuity of Renova, an estimated loss on realization of the receivables was recorded for the full value of the balance in the amount of R$688.
(9)On November 25 and December 27, 2019, DIP loan contracts under court-supervised reorganization proceedings, referred to as ‘DIP’ and ‘DIP 2’, “DIP 3’ were entered into between the Company and Renova Energia S.A., in the amounts of R$10, R$6.5 and R$20, respectively. The contracts specify interest atequal to 100% of the accumulated variation in the DI rate, plus an annual spread, applied pro rata die (on 252-business-days basis), of 1.083% for the DIP contract, 2.5% for the DIP2 contract and 1.5% for the DIP3, until the date of respective full payment. The Company recognized an impairment loss for the receivables from Renova, dividends of its investees, and wind projects to be developed.

total carrying amount of R$3, in the second semester of 2020. For further information, see note 16 (c).
(9)

Cemig GT has R$445 receivable from Renova that is expected toll be paid in monthly installments up to December 2021 with financial updating at 150% to 155% of the CDI rate. The accounts receivable have guarantees, shared between Cemig and Light, related to their shareholding interest at Renova, dividends of its investees, and wind power projects to be developed.

(10)

On February 20, 2019 the Company signed the 8th amendmentA liability was recognized corresponding to the wind power purchase agreement with Renova, extendingCompany’s interest in the share capital of Hidrelétrica Itaocara, due date of the sole payment from January 10, 2019 to July 9, 2019. The financial updating is calculated on the basis of 155% of the CDI rate. On December, 31, 2018 the amount to be reimbursed by Renova as indemnity for suspension of supply of power from July to September 2018 is R$ 52. The amount to be reimbursed by Renova is covered by guarantees, shared between Cemig and Light, related to their shareholding interest and dividends of investees of Renova and also wind projects to be developed.

its negative equity (see Note 16).
(11)

On February 20, 2019, the Company signed the reimbursement contract arising from a term of assignment of a power purchase agreement for the period December 1 to 31, 2018. The amount of R$ 10 is to be settled by July 9, 2019 with monetary adjustment at 155% of the CDI rate. The amount to be reimbursed by Renova is covered by guarantees, shared between Cemig and Light, related to their shareholding interest and dividends of investees of Renova and also wind projects to be developed.

(12)

RefersThis refers to a contract for development of management software between Cemig D and Axxiom Soluções Tecnológicas S.A., instituted in the regulator (Aneel)Aneel Dispatch 2657/2017.

2017;
(13)(12)

The contracts of Forluz are updated by the Expanded Customer Price Index (Índice Nacional de Preços ao Consumidor Amplo, or IPCA) calculated by the Brazilian Geography and Statistics Institute (IBGE) plus interest of 6% p.a. and will be amortized up to the business year of 2031 (see Note 24).

(14)(13)

The Company’s contributions to the pension fund for the employees participating in the Mixed Plan, and calculated on the monthly remuneration, in accordance with the regulations of the Fund.

(15)(14)

Funds for annual current administrative costs of the Pension Fund in accordance with the specific legislation of the sector. The amounts are estimated as a percentage of the Company’s payroll.

(16)(15)

Rental of the Company’s administrative head offices, effective starting Octoberin effect until November 2020 (able to be extended every five years, up to 2035) and February 2019 (contract in the process of renewal, ableAugust 2024 (able to be extended every five years, up to 2034), with annual inflation adjustment by the IPCA index and price reviewed every 60 months.

Aiming at costs reduction, in November 2019, Cemig returned the Aureliano Chaves building to Forluz and on November, 2020. By the end of the contract term, the Company decided not to renew the lease contract and, therefore, the Company vacated the Aureliano Chaves building facilities.
(17)(16)

Post-employment obligations relating to the employees’ health and dental plan (see Note 24).

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Dividends receivable from equity investees’ investmentsinvestees

Dividends receivable from Company’s equity investees are as follows:

Dividends receivable 2020 2019
Light  71   73 
Aliança Geração  114   103 
Others  3   10 
   188   186 

 

   2018   2017 

Aliança Geração

   91    72 

Retiro Baixo

   6    3 

Hidrelétrica Cachoeirão

   3    - 

Companhia de Transmissão Centroeste de Minas

   1    - 

Others

   19    2 
  

 

 

   

 

 

 
   120    77 
  

 

 

   

 

 

 

Loans from related parties

On September 18, 2018 a loan agreement of R$ 400 was signed between Cemig GT (lender) and Cemig (borrower) to be settled in a single payment in December 2019, bears interest at 125.52% of the CDI rate. As a guarantee, Cemig signed a promissory note in the amount of R$ 442, corresponding to the amount of the debt plus the estimated interest for the15-month period of the agreement.

In the same period, Cemig GT (lender) and Cemig D (borrower) also signed a loan contract for R$ 630, settled in November and December 2018 with interest of R$ 9 corresponding to 125.52% of the CDI rate. As guarantee, Cemig D signed a promissory note in the amount of R$ 639, corresponding to the amount of the debt plus the estimated interest for the 104 day duration of the agreement. The loan had the consent of the regulator (Aneel).

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Guarantees on loans, financing and debentures

Cemig has provided guarantees on loans, financing and debentures of the following related parties – not consolidated in the financial statements because they relate to jointly-controlled entities or affiliated companies:

Related party Relationship Type Objective 2020 Maturity
Norte Energia (NESA) (1)  Affiliated   Surety   Financing   2,601   2042 
Light  Affiliated   Counter-guarantee   Financing   684   2042 
Santo Antônio Energia (SAESA) (2)  Jointly-controlled   Surety   Debentures   445   2037 
Santo Antônio Energia (SAESA)  Jointly-controlled   Guarantee   Financing   1,023   2034 
Norte Energia (NESA)  Affiliated   Surety   Debentures   67   2030 
              4,820     

Related party

  

Relationship

  

Type

  Objective  2018   Maturity 

Norte Energia (NESA)

  Affiliated  Surety  Financing   2,571    2042 

Light (1)

  

Subsidiary

  Counter-guarantee  Financing   684    2042 

Santo Antônio Energia (SAESA) (2)

  Jointly-controlled entity  Surety  Financing   875    2034 

Santo Antônio Energia (SAESA) (2)

  Jointly-controlled entity  Surety  Debentures   401    2037 

Centroeste

  Jointly-controlled entity  Surety  Financing   7    2023 
        

 

   
         4,538   
        

 

   

 

(1)

Related to execution of guarantees of the Norte Energia financing.

(2)

Corporate guarantee given by Cemig to Saesa. More details in Note 17.

At December 31, 2018,2020, Management believes that there is no need to recognize any provisions in the Company’s financial statements for the purpose of meeting any obligations arising under these sureties and/or guarantees.

Cash investments atin FIC Pampulha – the investment fund of Cemig and its subsidiaries and affiliates

Cemig and its subsidiaries and affiliates invest part of their financial resources in an investment fund which has the characteristics of fixed income and obeys the Company’s cash investment policy. The amounts invested by the fund at December 31, 20182020 are reported in Marketableas Cash and cash equivalents, marketable securities in current ornon-current assets, or presented afteras a deduction of thedebentures account line Debentures in Current orNon-current liabilities.balances.

The funds applied are allocated only in public and private fixed income securities, subject only to credit risk, with various maturity periods, obeying the unit holders’ cash flow needs.

The financial investments of the investment fund in marketable securities of related parties are as follows:

Issuer of security

  

Type

  

Annual

contractual
conditions

  

Maturity

  2018 
  Cemig
4.65%		   Cemig D
24.47%		   Other subsidiaries
14.33 (2)		   Total
44.20%		 

ETAU (1)

  Debentures  108.00% of CDI  Dec. 01, 2019   1    2    2    5 

Light

  Promissory Note  CDI + 3.50%  Jan. 22, 2019   —      2    1    3 
        

 

 

   

 

 

   

 

 

   

 

 

 
         1    4    3    8 
        

 

 

   

 

 

   

 

 

   

 

 

 

Issuer of security

  

Type

  

Annual contractual
conditions

  

Maturity

  2017 
  Cemig
4.17%		   Cemig GT
26.85%		   Cemig D
19.90%		   Other
subsidiaries
21.36% (2)		   Total
72.28%		 

ETAU (1)

  Debentures  108.00% of CDI  Dec. 01, 2019   —      3    2    2    7 

Light

  Promissory Note  CDI + 3.50%  Jan. 22, 2019   1    5    4    4    14 
        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         1    8    6    6    21 
        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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Issuer of security

  Type   

Annual contractual
conditions

  

Maturity

  2016 
  Cemig
10.12%		   Cemig GT
20.86%		   Cemig D
24.94%		   Other
subsidiaries
22.39% (2)		   Total
78.31%		 

Axxiom

   Debentures   109.00% of CDI Rate  Jan 29, 2017   1    1    1    1    4 

ETAU (1)

   Debentures   108.00% of CDI  Dec. 01, 2019   1    2    3    2    8 
        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         2    3    4    3    12 
        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(2)

Transmissão do Alto Uruguai S.A.

(3)

Refers to the other companies consolidated by Cemig, which also have participation in the investment funds.

Remuneration of key management personnel

The total costs of key personnel, comprising the Executive Board, the Fiscal Council, the Audit Committee and the Board of Directors in 2018, 20172020, 2019 and 2016,2018, are within the limits approved at a General Shareholders’ Meeting, and the effects on the income statements of the years ended, are as follows:

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   2018   2017   2016 

Remuneration

   34    32    25 

Profit sharing (reversal)

   4    1    (1) 

Assistance benefits

   3    2    2 
  

 

 

   

 

 

   

 

 

 

Total

   41    35    26 
  

 

 

   

 

 

   

 

 

 
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  2020 2019 2018
Remuneration  27   25   34 
Profit sharing (reversal)  9   6   4 
Pension plans  1   1   3 
Total  37   32   41 

 

32. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

31.FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

a)

a)Financial instruments classification and fair value

The main financial instruments, classified in accordance with the accounting principles adopted by the Company, are as follows:

 

  Level   2018 2017  Level 2020 

2019

(Restated)

  Balance Fair value Balance Fair value  Balance Fair value Balance Fair value

Financial assets

                         

Amortized cost (1)

                         

Marketable securities – Cash investments

   2    117  117  45  45   2   1,214   1,214   102   102 

Customers and Traders; Concession holders (transmission service)

   2    3,928  3,928  4,035  4,035 
Accounts receivable from Customers and traders; Concession holders (transmission service)  2   4,534   4,534   4,601   4,601 

Restricted cash

   2    91  91  106  106   2   64   64   12   12 

Advances to suppliers

   2    94  94  123  123 

Customers – Accounts receivable from the State of Minas Gerais

     245  245  105  105 

Other accounts receivable from the State of Minas Gerais (CIP)

     2  2  1  1 

Accounts receivable from the State of Minas Gerais (AFAC)

   2    246  246  235  235   2   12   12   115   115 

Concession financial assets –CVA (Parcel ‘A’ Costs Variation Compensation) Account andOther financial components

   3    1,081  1,081  369  369   3   133   133   882   882 

Reimbursement of tariff subsidies

   2    91  91  77  77   2   88   88   97   97 

Low-income subsidy

   2    30  30  27  27   2   43   43   30   30 

Escrow deposits

   2    2,502  2,502  2,336  2,336   2   1,056   1,056   2,540   2,540 

Concession grant fee – Generation concessions

   3    2,409  2,409  2,337  2,337   3   2,549   2,549   2,468   2,468 

Reimbursements receivable – Transmission

     1,296  1,296  1,928  1,928 

Accounts receivable – Renova

   2    532  532  350  350 

Reimbursement – Decontracting of supply

   2    97  97   —     —   

Reimbursement – Assignment of contract

     10  10   —     —   
    

 

  

 

  

 

  

 

 
     12,771  12,771  12,074  12,074     9,693   9,693   10,847   10,847 

Fair value through profit or loss

                         

Cash equivalents – Cash investments

     783  783  917  917     1,587   1,587   326   326 

Marketable securities

     —     —     —     —                     

Bank certificates of deposit

   2    —     —    3  3 
Bank certificates of deposit (CDBs)    545   545   —     —   

Treasury Financial Notes (LFTs)

   1    254  254  740  740   1   731   731   94   94 

Financial Notes – Banks

   2    435  435  289  289   2   1,635   1,635   557   557 

Debentures

   2    7  7  11  11 
    

 

  

 

  

 

  

 

     4,498   4,498   977   977 
     1,479  1,479  1,960  1,960 

Transmission concession financial assets – remunerated by tariff

     —     —    547  547 

Derivative financial instruments (Swaps)

   3    813  813  9  9   3   2,949   2,949   1,691   1,691 

Derivative financial instruments (Ativas and Sonda Put options)(2)

   3    4  4  4  4 
Derivative financial instruments (Ativas and Sonda Put options)  3   3   3   3   3 

Concession financial assets – Distribution infrastructure

   3    396  396  371  371   3   559   559   484   484 

Reimbursements receivable – Generation

   3    816  816  1,901  1,901 
    

 

  

 

  

 

  

 

 
     3,508  3,508  4,792  4,792 
    

 

  

 

  

 

  

 

 
Indemnifiable receivable – Generation  3   816   816   816   816 
     16,279  16,279  16,866  16,866      8,825   8,825   3,971   3,971 
    

 

  

 

  

 

  

 

      18,518   18,518   14,818   14,818 

Financial liabilities

                         

Amortized cost (1)

                         

Loans, financing and debentures

   2    (14,772)  (14,772)  (14,398)  (14,398)   2   (15,020)  (15,020)  (14,777)  (14,777)

Debt with pension fund (Forluz)

   2    (652)  (652)  (720)  (720)   2   (473)  (473)  (566)  (566)

Deficit of pension fund (Forluz)

   2    (378)  (378)  (283)  (283)   2   (540)  (540)  (550)  (550)

Concession financial liabilities –CVA (Parcel ‘A’ Costs Variation) Account andOther financial components

   3    —     —    (415)  (415) 

Concessions payable

   3    (19)  (19)  (21)  (21)   3   (23)  (23)  (20)  (20)

Minas Gerais State tax amnesty plan (PRCT)

   2    —     —    (283)  (283) 

Suppliers

   2    (1,801)  (1,801)  (2,343)  (2,343)   2   (2,358)  (2,358)  (2,080)  (2,080)

Advances from customers

   2    (79)  (79)  (233)  (233) 
    

 

  

 

  

 

  

 

 
Leasing transactions  2   (227)  (227)  (288)  (288)
Sector financial liabilities  2   (231)  (231)  —     —   
     (17,701)  (17,701)  (18,696)  (18,696)     (18,872)  (18,872)  (18,281)  (18,281)

Fair value through profit or loss

                         

Derivative financial instruments (Swaps)

   3    —     —    (41)  (41) 

Derivative financial instruments (RME put options)

   2    —     —    (507)  (507) 

Derivative financial instruments (SAAG put options)

   3    (419)  (419)  (312)  (312)   3   (536)  (536)  (483)  (483)
    

 

  

 

  

 

  

 

      (536)  (536)  (483)  (483)
     (419)  (419)  (860)  (860)      (19,408)  (19,408)  (18,764)  (18,764)
    

 

  

 

  

 

  

 

 
     (18,120)  (18,120)  (19,556)  (19,556) 
    

 

  

 

  

 

  

 

 

 

(1)

On December 31, 20182020 and 2017,2019, the book values of financial instruments reflect their fair values.

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Options in shares of Sonda in the amount of R$ 4, recognized in the Company’s assets due to the merger of Cemig Telecom.

 

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At initial recognition the Company measures its financial assets and liabilities at fair value and classifies them according to the accounting standards currently in effect.Fair value is a measurement based on assumptions that market participants would use in pricing an asset or liability. The Company uses the following classification to its financial instruments:

Level 1 – Activeliability, assuming that market – Quoted prices: A financial instrument is considered to be quotedparticipants act in an active market if the prices quoted are promptlytheir economic best interest. To increase consistency and regularly made available by an exchange or organizedover-the-counter market, by operators, by brokers or by a market association, by entities whose purpose is to publish prices, or by regulatory agencies, and if those prices represent regular arm’s length market transactions made without any preference.

Level 2 – No active market – Valuation technique: For an instrument that does not have an active market,comparability in fair value should be found by using a method of valuation/pricing. Criteria such as data onmeasurements and related disclosures, the current fair value of another instrument that is substantially similar, or discounted cash flow analysis or option pricing models, may be used. The objective ofhierarchy categorizes into three levels the inputs to valuation technique istechniques used to establish what would be the transaction price on the measurement date in anarm’s-length transaction motivated by business model.measure fair value as follows:

 

§•Level 1 – Active market – Quoted prices: A financial instrument is considered to be quoted in an active market if the prices quoted are promptly and regularly made available by an exchange or organized over-the-counter market, by operators, by brokers or by a market association, by entities whose purpose is to publish prices, or by regulatory agencies, and if those prices represent regular arm’s length market transactions made without any preference.

§Level 2 – No active market – Valuation technique: For an instrument that does not have an active market, fair value should be found by using a method of valuation/pricing. Criteria such as data on the current fair value of another instrument that is substantially similar, or discounted cash flow analysis or option pricing models, may be used. The objective of the valuation technique is to establish what would be the transaction price on the measurement date in an arm’s-length transaction motivated by business model.

§

Level 3 – No active market – No observable inputs: The fair value of investments in securities for which there are no prices quoted on an active market, and/or of derivatives linked to them which are to be settled by delivery of unquoted securities. Fair value is determined based on generally accepted valuation techniques, such as on discounted cash flow analysis or other valuation techniques such as, for example, New Replacement Value (Valor novo de reposição, or VNR).

For assets and liabilities that are recognized at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization.

Fair value calculation of financial positions

Distribution infrastructure concession financial assets and transmission concession financial assets – Assets remunerated by tariff: These are measured at New Replacement Value (Valor novo de reposição, or VNR), according to criteria established by the Concession-granting power (‘Grantor’), based on fair value of the concession assets in service and which will be revertible at the end of the concession, and on the weighted average cost of capital (WACC) defined by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the WACC are public information disclosed by the Grantor and by Cemig respectively. Changes in concession financial assets are disclosed in Note 15.16.

 

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Indemnifiable receivable – transmission: These are measured at New Replacement Value (Valor novo de reposição, or VNR), according to criteria established by the Concession-granting power (‘Grantor’), based on fair value of the assets to be indemnify as a result of acceptance of the terms of Law 12,783/13, and on the weighted average cost of capital (WACC) used by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the WACC are public information disclosed by the Grantor and by Cemig, respectively.

Indemnifiable receivable – generation: measured at New Replacement Value (VNR), as per criteria set by regulations of the grantor power, based on the fair value of the assets to be indemnify at the end of the concession.

Marketable securities: Fair value of marketable securities is determined taking into consideration the market prices of the investment, or market information that makes such calculation possible, considering future interest rates and exchange of investments to similar securities. The market value of the security is deemed to be its maturity value discounted to present value by the discount rate obtained from the market yield curve.

Put options: The Company adopted the Black-Scholes-Merton method for measuring fair value of the SAAG, RME and Sonda options. The fair value of these options was calculated on the basis of the estimated exercise price on the day of exercise of the option, less the fair value of the underlying shares, also estimated for the date of exercise, brought to present value at the reporting date.

Swaps: Fair value was calculated based on the market value of the security at its maturity adjusted to present value by the discount rate from the market yield curve.

Other financial liabilities: Fair value of its loans, financing and debentures were determined using 141.90%133.82% of the CDI rate – based on its most recent funding. For the loans, financing, debentures and debt renegotiated with Forluz, with annual rates between IPCA + 4.70%4.10% to 8.07% and CDI + 0.64%0.16% to 3.26%0.97%, Company believes that their carrying amount is approximated to their fair value.

b) Derivative financial instruments

b)Derivative financial instruments

Put options

Company holds options to sell certain securities (put options) for which it has calculated the fair value based on theBlack and Scholes Merton (BSM) model, considering the following assumptions: exercise price of the option; closing price of the underlying asset as of December 31, 2018; risk-free interest rate; volatility of the price of the underlying asset; and the time to maturity of the option.

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Analytically, calculation of the exercise price of the options, the risk-free interest rate and the time to maturity is primarily deterministic, so that the main divergence in the put options takes place in the measurement of the closing price and the volatility of the underlying asset.

On December 31, 20182020 and 2017,2019, the options values were as follows:

 

 2020 2019
  2018   2017 

Put option for shares in RME

   —      507 

Put option – SAAG

   419    312   536   483 

Put / call options – Ativas and Sonda

   (4)    (4)   (3)  (3)
  

 

   

 

   533   480 
   415    815 
  

 

   

 

 

Put option – SAAG

Option contracts were signed between Cemig GT and the private pension entities that participate in the investment structure of SAAG (comprising FIP Melbourne, Parma Participações S.A. and FIP Malbec, jointly, ‘the Investment Structure’), giving those entities the right to sell units in the Funds that comprise the Investment Structure, at the option of the Funds, in the 84th84th (eighty-fourth) month from June 2014. The provision of exercise price of the Put Options will correspond to the amount invested by each private pension plan in the Investment Structure, updated pro rata temporis by the Expanded National Customer Price (IPCA) index published by the IBGE, plus interest at 7% per year, less such dividends and Interest on Equity as shall have been paid by SAAG to the pension plan entities. This option was considered to be a derivative instrument until the early exercise of the option (for further details, see the next topic of this note), of accounted at fair value through profit and loss.

For measurement of the fair value of SAAG put options Cemig GT usesloss, measured using the Black-Scholes-Merton (‘BCM’(“BSM”) model. The assumption was made that the future expenditures of FIP Malbec and FIP Melbourne are insignificant, so that the options are valued as if they hold direct equity interests at Mesa. However, neither SAAG nor Mesa have its share traded on a securities exchange, so that some assumptions are necessary for calculation of the price of the asset and its volatility for application of the BSM model. The closing price of the share of Mesa on December 31, 2018 is ascertained based on free cash flow (FCFE), expressed by equity pick-up of the indirect interests held by the FIPs. Volatility, in turn, is measured as an average of historic volatility (based on the hypothesis that the series of the difference of continuously capitalized returns follows a normal distribution) of comparable companies in the energy generation sector that are traded at Bovespa.

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Based on the analysis performed, a liability of R$419536 was recorded in the Company’s financial statements (R$312482,841 on December 31, 2017)2019), for the difference between the exercise price and the estimated fair value of the assets.

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Since the option is due to be settled within twelve months after December 31, 2020, this amount was classified as current liabilities.

 

The changes in the value of the options are as follows:

 

Balance at December 31, 2015

  148

Adjustment to fair value

48

Balance at December 31, 2016

196

Variation in fair value

121

Reversals

(5) 

Balance at December 31, 2017

  312 

Adjustment to fair value

  107 

Balance at December 31, 2018

  419 
Adjustment to fair value 

64
Balance at December 31, 2019483
Adjustment to fair value53
Balance at December 31, 2020536 

Cemig GT performed the sensitivity analysis of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 4.86% to 8.86% p.a., and for volatility between 23% and 83% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 396 and R$ 449, respectively.

This option can potentially dilute basic profitearning per share in the future; however, they have not caused dilution of profitearning per share in the years presented.

Put options

Early liquidation of RMEFunds, and Lepsa’s sharesearly maturity of put option

Cemig had a contract under which Fundo de

On September 9, 2020, the administrator of the FIP funds, Banco Modal S.A., notified its unit holders of the beginning of the early liquidation process of the funds Melbourne, Parma Participações Redentor hadS.A. and FIP Malbec, due to expiration of the option to sell to Cemig allperiod of 180 days from its shares at RMEresignation, and Lepsa. The exercise pricethe resignation of the manager of the Fund, from their respective positions, without there having been any indication of new service providers, as specified in the Fund’s Regulations.

As established by contract, funds liquidation is one of the events that would result in expiration date of the option, was calculatedwhich the private pension plan entities stated interest in exercising in the period from September 9 to October 2, 2020, to be settled within 15 days from the sumstatement of interest.

However, the Company’s management believes that the premises and conditions that were the grounds for the investment in Santo Antônio Energia and the legal structure of the valuevarious contracts signed for this purpose underwent substantial changes which resulted in the options imbalance.

Thus, using the contractual prerogative contained in the option instruments, the Company invoked the contractual mechanism of Amicable Resolution for the contractual terms negotiation with the private pension plan entities. Since the amicable negotiation did not succeed, the Company invoked the arbitration clause for resolution of conflict between the parties, which awaits the decision of the amounts injected by the Fund into the investee, plus the operating expensesBrazil Canada Chamber of Commerce of the fund, less Interest on equity, and dividends, distributed by RME and Lepsa.State of São Paulo. The exercise price is subject to monetary adjustment byCompany recorded the CDI (Interbank CD) Rate plus financial remuneration at 0.9% per year.

The exerciseaccounting effects of this contract in accordance with the options was divided into two stages, as follows: The first was exercised on November 30, 2017, when Cemig acquired the totality of Lepsa’s shares, and the totality of RME’s preferred shares, held by BB-BI, BV Financeira and Santander, which fair value was R$ 185, comprising R$ 147 in Lepsa and R$ 38 in RME.

With that exercise of the first stage of the options, Cemig increased its shareholding position at RME from 66.27 to 75% of the total capital, while continuing to own a 50% interest in the voting stock of RME; and increased its shareholding position at Lepsa from 66.62% to 100% of the total and voting stock.

On November 22, 2017 Cemig signed the First Amendment to the Shareholders’ Agreement of RME – Rio Minas Energia Participações S.A. (‘RME’), with: Banco Santander (Brasil) S.A. (‘Santander’), BV Financeira S.A. – Crédito Financiamento e Investimento (‘BV Financeira’) andBB-Banco de Investimento S.A.(‘BB-BI’), (jointly, ‘the Shareholder banks’) to formalize the partial postponement of the exercise date of the Put option granted by Cemig to the Shareholder Banks, from November 30, 2017 to November 30, 2018.contracts original terms.

 

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On November 30, 2018 the second stage of the options was exercised, in which Cemig acquired the totality of the common shares in RME held byBB-Banco de Investimento S.A., BV Financeira S.A. – Crédito, Financiamento e Investimento and Banco Santander (Brasil) S.A., for R$ 659, and settled all commitments to the said shareholders in relation to the put option. With this acquisition Cemig became also holder of 100% of the share capital of RME.

The change in the value of the options – the difference between the estimated fair value for the assets and the corresponding exercise price, on December 31, 2018, 2017 and 2016, is as follows:

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Balance at December 31, 2015

1,245

Variation in fair value

55

Reversals

(150) 

Balance at December 31, 2016

1,150

Variation in fair value

187

Written down, due to exercise of Put

(830) 

Balance at December 31, 2017

507

Variation in fair value

48

Written down, due to exercise of Put

(555) 

Balance at December 31, 2018

—   

The effects of the options contract on the net income for 2018, 2017


Ativas and 2016 were recognized at fair value based on the Black-Scholes-Merton analysis, considering: exercise price of the option; closing price of the stock of Light on the record dates (as a reference for the value of the indirect equity interest held by the direct shareholders of RME and Lepsa in Light); risk-free interest rate; volatility of the price of the underlying asset; and time to maturity of the option.

Sonda options

As partThe Company, as successor of the shareholding restructuring, CemigTelecom, and Sonda Procwork Outsourcing Informática signed a Purchase Option Agreement (issued by CemigTelecom)Cemig Telecom) and a Sale Option Agreement (issued by Sonda). With the merger of Cemig Telecom into Cemig, on March 31, 2018, the option contract became an agreement between Cemig and Sonda.

This, which resulted in Cemigthe Company simultaneously having a right (put option) and an obligation (call option) related to the shares held by the investee Ativas Datacenter S.A. (“Ativas”). The exercise price of the put option will beand the call option is equivalent to fifteen times and seventeen times, respectively, the adjusted net income of Ativas in the year prior to the exercise date. The exercise price of the call option will be equivalent to seventeen times the adjusted net income of Ativas in the business year prior to the exercise date. Both options, if exercised, result in the sale of the shares in Ativas, currently owned by the Company, and the exercise of one of the options results in nullity of the other. The options may be exercised as from January 1, 2021.

The put and call options in Ativas (‘the Ativas Options’) were measured at fair value and posted at their net value, i.e. the difference between the fair values of the two options on the reporting date of the financial statements for 2018 and 2017. Depending on the value of the options, the net value of the Ativas Options may be an asset or a liability of the Company.

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2020.

 

The measurement has been made using the Black-Scholes-Merton (BSM) model. In the calculation of the fair value of the Ativas Options based on the BSM model, the following variables are taken into account: closing price of the underlying asset in 2018;2020; the risk-free interest rate; the volatility of the price of the underlying asset; the time to maturity of the option; and the exercise prices on the exercise date.

The closing price of the underlying asset was based on the valuation prepared by the same specialized consulting firm responsible for calculating the options.

The valuation base date is December 31, 2018,2020, the same date as the closing of the Company’s Financial Statements, and the methodology used to calculate the fair value of the company is discounted cash flow (DCF) based on the value of the shares transaction of Ativas by Sonda, occurred on October 19, 2016. The calculation of the risk-free interest rate was based on yields of National Treasury Bills. Maturity was calculated assuming exercise date between January 1, 2021 and March 31, 2021.This is the first opportunity for the exercise of December 31,the option, which will be available at the same period of the following years, since the option grants the Company the right of selling to Sonda its interests held in Ativas, as of 2021.

Considering that the exercise prices of the options are contingent upon the future financial results of Ativas, the estimated exercise prices on the maturity date was based on statistical analyses and information of comparable listed companies.

Swap transactions

Considering that part of the loans and financings of the Company’s subsidiaries is denominated in foreign currency, the companies use derivative financial instruments (swaps)(swaps and currency options) to protect the servicing associated with these debts (principal plus interest).

The derivative financial instruments contracted have the purpose of protecting the operations against the risks arising from foreign exchange variation and are not used for speculative purposes.

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The notional amount of derivative transactions are not presented in the statement of financial position, since they refer to transactions that do not require cash as only the gains or losses actually incurred are recorded. The net result of those transactions on December 31, 20182020 was a positive adjustment of R$ 893 (negative1,753 (positive adjustment of R$ 32998 on December 31, 2017)2019), which was posted in finance income (expenses).

The Company has a Financial Risks Management Committee, to monitor the financial risks in relation to volatility and trends of inflation index, exchange rates and interest rates that affect its financial transactions and which could negatively affect its liquidity and profitability. The Committee implements action plans and sets guidelines for proactive control of the financial risks environment.

The counterparties of the derivative transactions are the banks Bradesco, Itaú, Goldman Sachs and BTG Pactual and Cemig is guarantor of the derivative financial instruments contracted by Cemig GT.

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Company.

 

This table presents the derivative instruments contracted by Cemig GTCompany as of December 31, 20182020 and 2017.2019:

 

          Unrealized gain / loss   Unrealized gain / loss 

Assets (1)

  

Liability

  

Maturity period

  

Trade
market

  Notional
amount (2)		   Unrealized gain / loss   Unrealized gain / loss 
Carrying
amount
2018		   Fair value
2018		   Carrying
amount
2017		   Fair value
2017		  Liability (1) Maturity period Trade market Notional amount (2)  

Carrying amount

2020

   

Fair value

2020

   

Carrying amount

2019

   

Fair value

2019

 

US$ exchange variation +

Rate (9.25% p.y.)

  Local currency + R$ 150.49% of CDI  

Interest:

Half-yearly

Principal:

Dec. 2024

  Over the counter  US$1,000    679    627    51    (32)  Local currency + R$ 150.49% of CDI Interest:
Half-yearly
Principal:
Dec. 2024		 Over the counter US$1,000  1,772   2,110   814   1,235 

US$ exchange variation +

Rate (9.25% p.y.)

  Local currency + R$125.52% of CDI  

Interest:

Half-yearly

Principal:

Dec. 2024

  Over the counter  US$500    33    186    —      —    Local currency + R$125.52% of CDI Interest:
Half-yearly
Principal:
Dec. 2024		 Over the counter US$500  588   839   108   456 
          

 

   

 

   

 

   

 

           2,360   2,949   922   1,691 
   712    813    51    (32) 
          

 

   

 

   

 

   

 

 
Current asset              523       235 
Non-current asset              2,426       1,456 

 

1)

For the US$1 billion Eurobond issued on December 2017: (i) for the principal, a call spread was contracted, with floor at R$ 3.25/US$ and ceiling at R$ 5.00/US$; and (ii) a swap was contracted for the total interest, for a coupon of 9.25% p.a. at an average rate equivalent to 150.49% of the CDI.

For the additional US$500 issuance of the same Eurobond issued on July 2018: (1) a call spread was contracted for the principal, with floor at R$ 3.85/US$ and ceiling at R$ 5.00/US$; and (2) a swap was contracted for the interest, resulting in a coupon of 9.25% p.a., with an average rate equivalent to 125.52% of the CDI rate The upper limit for the exchange rate in the hedge instrument contracted by the Company for the principal of the Eurobonds is R$ 5.00/US$. The instrument matures in December 2024. If the USD/BRL exchange rate is still over R$ 5.00 in December 2024, the company will disburse, on that date, the difference between the upper limit of the protection range and the spot dollar on that date. The Company is monitoring the possible risks and impacts associated with the dollar being valued above R$ 5.00, and assessing various strategies for mitigating the foreign exchange risk up to the maturity date of the transaction. The hedge instrument fully protects the payment of six-monthly interest, independently of the USD/BRL exchange rate.

For the additional US$500 million issuance of the same Eurobond issued on July 2018: (1) a call spread was contracted for the principal, with floor at R$ 3.85/US$ and ceiling at R$ 5.00/US$; and (2) a swap was contracted for the interest, resulting in a coupon of 9.25% p.a., with an average rate equivalent to 125.52% of the CDI rate.

2)

In millions of US$.

In accordance with market practice, Cemig GTthe Company uses a mark-to-market method to measure its derivatives financial instruments for its Eurobonds. The principal indicators for measuring the fair value of the swap are the B3 future market curves for the DI rate and the dollar. The Black & Scholes model is used to price the call spread.spread, and one of parameters of which is the volatility of the dollar, measured on the basis of its historic record over 2 years.

The fair value at December 31, 20182020 was R$ 813,2,949 (R$1,691 in December 31, 2019), which would be the reference if Cemig GT would liquidate the financial instrument on that date, but the swap contracts protect the Company’s cash flow up to the maturity of the bonds in 2024 and they have carrying value of R$ 7122,360 at December 31, 2018.2020 (R$922 in December 31, 2019).

Cemig GT

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Company is exposed to market risk due to having contracted this hedge, the principal potential impact being a change in future interest rates and/or the future exchange rates. Based on the futures curves for interest rates and dollar, Cemig GTCompany prepare a sensitivity analyses and estimates that in a probable scenario its results at December 31, 2020, would be affected by the swap and call spread at the end of the period in the amount of R$ 1.2 billion1,708 for the option (call spread), partially compensated byand R$ 431,098 for the swap – comprising a total of R$ 1.15 billion.2,805.

The sensitivity analyses was prepared in accordance with CVM instruction 475/2008, with the objective of analyzing the impact of changes in market variables on each Company’s financial instruments.

Cemig GTCompany has measured the effects on its net income of reduction of the estimated fair value for the ‘probable’ scenario, analyzing sensitivity for the risks of interest rates, exchange rates and volatility changes, by 25% and 50%, respectively, as follows:

 

 

 

Base scenario Dec. 31, 2020

 

 

‘Probable’

scenario:

 

‘Possible’ scenario


exchange rate depreciation and interest rate increase 25%

 

‘Remote’ scenario:

exchange rate depreciation and interest rate increase 50%

  Base scenario Dec. 31,
2018		   ‘Probable’
scenario:		   ‘Possible’ scenario
exchange
rate depreciation and
interest rate increase
25%		   ‘Remote’ scenario:
exchange
rate depreciation and
interest rate increase
50%		         

Swap (asset)

   5,981    5,934    4,875    3,921   6,996   6,616   5,866   5,147 

Swap (liability)

   (6,095)    (5,977)    (6,130)    (6,269)   (5,607)  (5,519)  (5,595)  (5,668)

Option / Call spread

   927    1,196    588    193   1,560   1,708   1,019   338 
  

 

   

 

   

 

   

 

 

Derivative hedge instrument

   813    1,153    (667)    (2,155)   2,949   2,805   1,290   (183)
  

 

   

 

   

 

   

 

 

The same methods of measuring marked to market of the derivative financial instruments described above were applied to the estimation of fair value.

 

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c) Financial risk management

c)Financial risk management

Corporate risk management is a management tool that is part of the Company’s corporate governance practices, and is aligned with the process of planning, which sets the Company’s strategic business objectives.

The Company has a Financial Risks Management Committee, whose purpose is to implement guidelines and monitor the financial risk of transactions that could negatively affect the Company’s liquidity or profitability, recommending hedge protection strategies to minimize the Company’s exposure to foreign exchange rate risk, interest rate risk, and inflation risks, which are effective, in alignment with the Company’s business strategy.

The main risks to which the Company is exposed are as follows:

Exchange rate risk

Cemig and its subsidiaries areThe Company is exposed to the risk of appreciation in exchange rates, with effect on loans and financing, suppliers (energy purchased from Itaipu) and cash flow. For the debt denominated in foreign currency, the Company contracted a derivative financial instrument that protects the risks associated with the interest and principal, in the form of a swap and a call spread, respectively, in accordance with the hedge policy of the Company. The Company exposure to market risk associated to this instrument is described in the topic “Swap transaction” of this note. The risk exposure of Cemig D is mitigated by the account for compensation of variation of parcel A items (CVA).

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The net exposure to exchange rates is as follows:

 

  2018   2017 
Exposure to exchange rates 2020 2019
  Foreign
currency		   R$   Foreign
currency		   R$ Foreign currency R$ Foreign currency R$

US dollar

                        

Loans and financing (Note 22)

   1,518    5,882    1,015    3,357 

Suppliers (Itaipu Binacional)

   70    268    74    240 
  

 

   

 

   

 

   

 

 
  1,588   6,150   1,089   3,597 

Loans and financing (Note 22)

   —      —      1    4 
Loans and financing (note 22)  (1,514)  (7,866)  (1,516)  (6,110)
Suppliers (Itaipu Binacional) (note 20)  (63)  (325)  (60)  (243)
    

 

     

 

   (1,577)  (8,191)  (1,576)  (6,353)

Net liabilities exposed

     6,150      3,601       (8,191)      (6,353)
    

 

     

 

 

 

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Sensitivity analysis

Based on information from its financial consultants, the Company estimates that in a probable scenario the variation of the exchange rates of foreign currencies in relation to the Real at the end of 20192021 will be an depreciationappreciation of the dollar by 1.92%,7.63% to R$3.80, and a depreciation of the euro by 1.55%, to R$4,37.4.80. The Company has prepared a sensitivity analysis of the effects on the Company’s net income arising from depreciation ofvariation in the Real exchange rate byconsidering the increase of 25%, and by 50%, in relation to this ‘probable’ scenario.

 

Risk: foreign exchange rate exposure

  Base
Scenario		   ‘Probable’ scenario
US$1=R$ 3.80
EUR1= R$ 4.37		   ‘Possible’ scenario
Appreciation 25.00%
US$1= R$ 4.75
EUR1= R$ 5.46		   ‘Remote’ scenario
Appreciation 50.00%
US$1=R$ 5.70
EUR1= R$ 6.55		  Base Scenario 

‘Probable’ scenario

US$1=R$5.20

 

‘Possible’ scenario

Appreciation 25.00%

US$1= R$6.50

 

‘Remote’ scenario

Appreciation 50.00%

US$1=R$7.80

US dollar

                        

Loans and financings (Note 22)

   5,882    5,769    7,212    8,654 

Suppliers (Itaipu Binacional)

   268    263    328    394 
  

 

   

 

   

 

   

 

 
Loans and financings (note 22)  (7,866)  (7,871)  (9,838)  (11,806)
Suppliers (Itaipu Binacional) (note 20)  (325)  (325)  (407)  (488)
   6,150    6,032    7,540    9,048   (8,191)  (8,196)  (10,245)  (12,294)
  

 

   

 

   

 

   

 

                 

Net liabilities exposed

   6,150    6,032    7,540    9,048   (8,191)  (8,196)  (10,245)  (12,294)
  

 

   

 

   

 

   

 

 

Net effect of exchange rate fluctuation

     (118)    1,390    2,898       (5)  (2,054)  (4,103)
    

 

   

 

   

 

 

Company has entered into swap operations to replace the exposure to the US dollar fluctuation with exposure to fluctuation in the CDI Rate, as described in more detail in the item ‘Swap Transactions’ in this Note.

Interest rate risk

The Company is exposed to the risk of increasedecrease in Brazilian domestic interest rates on December 31, 2020. This risk arises from the effect of variations in Brazilian interest rates on financial revenues from cash investments made by the Company, and also to the financial assets related to the CVA and other financial components, net of the effects on financial expenses associated to loans, financings and debentures in Brazilian currency, and also sectorial financial liabilities.

Part of the loans and financings in Brazilian currency comprises financings obtained from various financial agents that specify interest rates taking into account basic interest rates, the risk premium compatible with the companies financed, their guarantees, and the sector in which they operate. These loans and financings are measured at the amortized cost, based on their contractual rates.

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The Company does not contract derivative financial instruments for protection from this risk. Variations in interest rates are continually monitored with the aim of assessing the need for contracting of financial instruments that mitigate this risk.

This exposure occurs as a result of net liabilitiesassets (liabilities) indexed to variation in interest rates, as follows:

 

Risk: Exposure to domestic interest rate changes

  2018   2017 

Assets

    

Cash equivalents – Cash investments (Note 6) – CDI

   783    917 

Marketable securities (Note 7) – CDI / SELIC

   813    1,088 

Accounts receivable – Renova (Note 31) – CDI

   532    350 

Advance for future delivery of energy – CDI

   94    123 

Restricted cash – CDI

   91    106 

CVA and in tariffs (Note 15) – SELIC

   1,081    369 

Receivable for residual value – Generation (Note 15) – SELIC

   —      1,084 

Reimbursement due to termination of contract (Note 31) – SELIC / CDI

   97    —   

Reimbursement related to cancelled contracts – CDI

   10    —   

Credits owed by Eletrobras

   —      4 
  

 

 

   

 

 

 
   3,501    4,041 

Liabilities

    

Loans, financing and debentures (Note 22) – CDI

   (4,920)    (7,202) 

Loans, financing and debentures (Note 22) – TJLP

   (249)    (119) 

Advance sales of energy supply – CDI

   (79)    (188) 

CVA andOther financial components (Note 15) – SELIC

   —      (415) 

Adherence to the Tax Anmesty Program (PRCT)(Note 20) – SELIC

   —      (283) 
  

 

 

   

 

 

 
   (5,248)    (8,207) 
  

 

 

   

 

 

 

Net liabilities exposed

   (1,747)    (4,166) 
  

 

 

   

 

 

 
Risk: Exposure to domestic interest rate changes 2020 2019
Assets        
Cash equivalents – Cash investments (Note 6) – CDI  1,587   326 
Marketable securities (Note 7) – CDI / SELIC  4,125   753 
Restricted cash – CDI  64   12 
CVA and in tariffs (Note 14) – SELIC  133   882 
   5,909   1,973��
Liabilities        
Loans, financing and debentures (Note 22) – CDI  (2,310)  (3,773)
Loans, financing and debentures (Note 22) – TJLP  (73)  (244)
Sector financial liabilities (note 14)  (231)  —   
   (2,614)  (4,017)
Net assets (liabilities) exposed  3,295   (2,044)

 

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Sensitivity analysis

In relation to the most significant interest rate risk, Company estimates that, in a probable scenario, at December 31, 20192021 Selic and TJLP rates will be 6.5%5.50% and 6.4757%4.87%, respectively. The Company has made a sensitivity analysis of the effects on its net income arising from increases in rates of 25% and 50% in relation to the ‘probable’ scenario. Fluctuation in the CDI rate accompanies the fluctuation of Selic rate.

 

   2018   2019 
  

 

 

   

 

 

 

Risk: Increase in Brazilian interest rates

  Book
value		   ‘Probable’
scenario
Selic 6.50%
TJLP 6.48%		   ‘Possible’
scenario
Selic 8.12%
TJLP 8.09%		   ‘Remote’
scenario
Selic 9.75%
TJLP 9.71%		 

Assets

        

Cash equivalents (Note 6) – CDI

   783    834    847    860 

Marketable securities (Note 7) – CDI / SELIC

   813    865    878    891 

Accounts receivable – Renova (Note 31) – CDI

   532    567    576    584 

Advance for future delivery of energy – CDI

   94    100    102    103 

Restricted cash – CDI

   91    97    98    100 

CVA andOther financial components – SELIC

   1,081    1,151    1,168    1,186 

Reimbursement due to termination of contracts (Note 31) – SELIC / CDI

   97    104    105    107 

Reimbursement – cancelled contracts – CDI

   10    11    11    11 
  

 

 

   

 

 

   

 

 

   

 

 

 
   3,501    3,729    3,785    3,842 

Liabilities

        

Loans and financing (Note 22) – CDI

   (4,920)    (5,239)    (5,319)    (5,399) 

Loans and financing (Note 22) – TJLP

   (249)    (266)    (270)    (274) 

Advanced sales of energy (Note 8) – CDI

   (79)    (85)    (86)    (87) 
  

 

 

   

 

 

   

 

 

   

 

 

 
   (5,248)    (5,590)    (5,675)    (5,760) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net assets (liabilities) exposed

   (1,747)    (1,861)    (1,890)    (1,918) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net effect of fluctuation in interest rates

     (114)    (143)    (171) 

Risk: Increase in Brazilian interest rates

 

 2020 2021
 Book value 

‘Probable’ scenario

Selic 5.50%

TJLP 4.87%

 

‘Possible’ scenario

Selic 4.13%

TJLP 3.65%

 

‘Remote’ scenario

Selic 2.75%

TJLP 2.44%

Assets        
Cash equivalents (Note 6)  1,587   1,674   1,653   1,631 
Marketable securities (Note 7)  4,125   4,352   4,295   4,238 
Restricted cash  64   68   67   66 
CVA and Other financial components – SELIC (note 14)  133   140   138   137 
   5,909   6,234   6,153   6,072 
Liabilities                
Loans and financing (Note 22) – CDI  (2,310)  (2,437)  (2,405)  (2,374)
Loans and financing (Note 22) – TJLP  (73)  (77)  (76)  (75)
Sector financial liabilities (note 14)  (231)  (244)  (241)  (237)
   (2,614)  (2,758)  (2,722)  (2,686)
                 
Net assets (liabilities) exposed  3,295   3,476   3,431   3,386 
Net effect of fluctuation in interest rates      181   136   91 

 

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Increase in inflation risk

The Company is exposed to the risk of increase in inflation index on December 31, 2020. A portion of the loans, financings and debentures as well as the pension fund liabilities are adjusted using the IPCA (Expanded National Customer Price). The revenue is also adjusted using the IPCA and IGP-M index, mitigating part of the Company risk exposure.

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This table presents the Company’s net exposure to inflation index:

 Exposure to increase in inflation 2020 2019
Assets        
Concession financial assets  related to Distribution infrastructure - IPCA (1)  559   484 
Receivable from Minas Gerais state government (AFAC) – IGPM (Note 11 and 30)  12   115 
Concession Grant Fee – IPCA (Note 14)  2,549   2,468 
   3,120   3,067 
         
Liabilities        
Loans, financing and debentures – IPCA and IGP-DI (Note 22)  (4,863)  (4,730)
Debt with pension fund (Forluz) – IPCA  (473)  (566)
Deficit of pension plan (Forluz) – IPCA  (540)  (550)
   (5,876)  (5,846)
Net assets (liabilities) exposed  (2,756)  (2,779)

 

Exposure to increase in inflation

  2018   2017 

Assets

    

Concession financial assets related to Distribution infrastructure – IPCA (1)

   396    111 

Receivable from Minas Gerais state government (Debt recognition agreement) – IGPM index (Note 12 and 31)

   247    108 

Receivable from Minas Gerais state government (AFAC) – IGPM (Note 12 and 31)

   246    235 

Receivable for residual value – Transmission – IPCA (Note 15)

   1,296    1,928 

Transmission – Assets remunerated by tariff – IPCA index (Note 15)

   —      496 

Concession Grant Fee – IPCA (Note 15)

   2,409    2,337 
  

 

 

   

 

 

 
   4,594    5,215 

Liabilities

    

Loans, financing and debentures – IPCA (Note 22)

   (3,791)    (3,801) 

Debt with pension fund (Forluz) – IPCA

   (652)    (721) 

Deficit of pension plan (Forluz) – IPCA

   (378)    (283) 
  

 

 

   

 

 

 
   (4,821)    (4,805) 
  

 

 

   

 

 

 

Net assets (liabilities) exposed

   (227)    410 
  

 

 

   

 

 

 

(1) Portion of the concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by the grantor (Aneel) after the 4rd tariff review cycle.

 

(1)

Portion of the concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by the regulator (Aneel) after the 3rd tariff review cycle.

Sensitivity analysis

In relation to the most significant risk of reduction in inflation index, reflecting the consideration that the Company has more assets than liabilities indexed to inflation indices, the Company estimates that, in a probable scenario, at December 31, 20192021 the IPCA inflation index will be 4.0881%4.53% and the IGPM inflation index will be 4.35%11.65%. The Company has prepared a sensitivity analysis of the effects on its net income arising from a reductionan increase in inflation of 25% and 50% in relation to the ‘probable’ scenario.

 

Risk: increase in inflation 2019 2020

Amount

Book value

 

‘Probable’ scenario

IPCA 4.53%

IGPM 11.65%

 

‘Possible’ scenario

(25%)

IPCA 5.66%

IGPM 14.56%

 

‘Remote’ scenario

(50%)

IPCA 6.80%

IGPM 17.48%

Assets        
Concession financial assets  related to Distribution infrastructure – IPCA (1)  559   584   591   597 
Accounts receivable from Minas Gerais state government (AFAC) – IGPM index (Note 30)  12   13   14   14 
Concession Grant Fee – IPCA (Note 14)  2,549   2,664   2,693   2,722 
   3,120   3,261   3,298   3,333 
                 
Liabilities                
Loans, financing and debentures – IPCA and IGP-DI  (4,863)  (5,083)  (5,138)  (5,194)
Debt agreed with pension fund (Forluz) – IPCA  (473)  (494)  (500)  (505)
Deficit of pension plan (Forluz)  (540)  (564)  (571)  (577)
   (5,876)  (6,141)  (6,209)  (6,276)
Net liability exposed  (2,756)  (2,880)  (2,911)  (2,943)
Net effect of fluctuation in IPCA and IGP–M indices      (124)  (155)  (187)

F-149

LOGO

(1) Portion of the Concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by the grantor (Aneel) after the 4rd tariff review cycle.

 

Risk: increase in inflation

  2018   2019 
  Amount
Book value		   ‘Probable’ scenario
IPCA 4.28%		   ‘Possible’ scenario
(25%)
IPCA 5.11%
IGPM 5.44%		   Amount
Book value		 

Assets

        

Concession financial assets related to Distribution infrastructure – IPCA (1)

   396    412    416    420 

Receivable from Minas Gerais state government (Debt recognition) – IGPM (Note 31)

   247    258    260    263 

Accounts receivable from Minas Gerais state government (AFAC) – IGPM index (Note 31)

   246    256    259    262 

Receivable for residual value – Transmission – IPCA (Note 15)

   1,296    1,349    1,363    1,376 

Concession Grant Fee – IPCA (Note 15)

   2,409    2,507    2,532    2,557 
  

 

 

   

 

 

   

 

 

   

 

 

 
   4,594    4,782    4,830    4,878 

Liabilities

        

Loans, financing and debentures – IPCA – IPCA

   (3,791)    (3,946)    (3,985)    (4,024) 

Debt agreed with pension fund (Forluz) – IPCA

   (652)    (679)    (685)    (692) 

Deficit of pension plan (Forluz) – IPCA

   (378)    (393)    (397)    (401) 
  

 

 

   

 

 

   

 

 

   

 

 

 
   (4,821)    (5,018)    (5,067)    (5,117) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net liability exposed

   (227)    (236)    (237)    (239) 
    

 

 

   

 

 

   

 

 

 

Net effect of fluctuation in IPCA and IGP–M indices

     (9)    (10)    (12) 
    

 

 

   

 

 

   

 

 

 

F-169 

 

(1)Table of Contents

Portion of the Concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by the regulator (Aneel) after the 3rd tariff review cycle.

 

Liquidity risk

Cemig has sufficient cash flow to cover the cash needs related to its operating activities.

The Company manages liquidity risk with a group of methods, procedures and instruments that are coherent with the complexity of the business, and applied in permanent control of the financial processes, to guarantee appropriate risk management.

Cemig manages liquidity risk by permanently monitoring its cash flow in a budget-oriented manner. Balances are projected monthly, for each one of the companies, over a period of 12 months, and daily liquidity is projected over 180 days.

Short-term investments must comply with investing principles established in the Company’s Cash Investment Policy, which was approved by the Financial Risks Management Committee.Policy. These include applying its resources in private credit investment funds, without market risk, and investment of the remainder directly in bank CDs or repo contracts which earn interest at the CDI rate.

In managing cash investments, the Company seeks to obtain profitability through a rigid analysis of financial institutions’ credit risk, applying operational limits for each bank, based on assessments that take into account their ratings, exposures and balance sheet. It also seeks greater returns on investments by strategically investing in securities with longer investment maturities, while bearing in mind the Company’s minimum liquidity control requirements.

F-150

LOGO

Any reduction in the Company’s ratings could result in a reduction of its ability to obtain new financing and could also make refinancing of debts not yet due more difficult or more costly. In this situation, any financing or refinancing of the Company’s debt could have higher interest rates or might require compliance with more onerous covenants, which could additionally cause restrictions to the operations of the business.

The flow of payments of the Company’s obligation to suppliers, debts with the pension fund, loans, financing and debentures, at floating and fixed rates, including future interest up to contractual maturity dates, is as follows:

 

  Up to 1
month		   1 to 3
months		   3 months to
1 year		   1 to 5 years   Over 5 years   Total  Up to 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Over 5 years Total

Financial instruments at (interest rates):

                                    

- Floating rates

                                    

Loans, financing and debentures

   111    975    2,101    10,081    7,803    21,071   79   1,291   1,638   12,845   1,842   17,695 

Onerous concessions

   —      —      2    8    14    24   —     1   2   11   14   28 

Debt with pension plan (Forluz) (Note 24)

   12    23    106    626    87    854   13   25   115   406   —     559 

Deficit of the pension plan (FORLUZ) (Note 24)

   4    7    33    192    477    713   6   11   51   295   522   885 
  

 

   

 

   

 

   

 

   

 

   

 

   98   1,328   1,806   13,557   2,378   19,167 
   127    1,005    2,242    10,907    8,381    22,662 

- Fixed rate

                                    

Suppliers

   1,659    141    1    —      —      1,801   2,138   218   2   —     —     2,358 
  

 

   

 

   

 

   

 

   

 

   

 

   2,236   1,546   1,808   13,557   2,378   21,525 
   1,786    1,146    2,243    10,907    8,381    24,463 
  

 

   

 

   

 

   

 

   

 

   

 

 

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Table of Contents 

Credit risk

The distribution concession contract requires levels of service on a very wide basis within the concession area, and disconnection of supply of defaulting customers is permitted. Additionally, the Company uses numerous tools of communication and collection to avoid increase in default. These include:include telephone contact, emails, text messages, collection letters, posting of customers with credit protection companies, and collection through the courts.

The risk arising from the possibility of Cemig and its subsidiaries incurring losses as a result of difficulty in receiving amounts billed to its customers is considered to be low. The credit risk is also reduced by the extremely wide customers’ base.

The allowance for doubtful accounts receivable recorded on December 31, 2018,2020, considered to be adequate in relation to the credits in arrears receivable by the Company, was R$751712 (R$546810 on December 31, 2017)2019).

In relation to the risk of losses resulting from insolvency of the financial institutions at which the Company or its subsidiaries have deposits, a Cash Investment Policy was approved and has been in effect since 2004.

 

F-151

LOGO

Cemig managesCompany manage the counterparty risk of financial institutions based on an internal policy, approved by its Financial Risks Management Committee.applied since 2004.

This policyPolicy assesses and scales the credit risks of the institutions, the liquidity risk, systemic risk related to macroeconomic and regulatory conditions, the market risk of the investment portfolio and the Treasury operational risk.

All investments are made in financial securities that have fixed-income characteristics, always indexed to the CDI rate. The Company does not carry out any transactions that would bring volatility risk into its financial statements.

As a management instrument, Cemig and its subsidiariesCompany divide the investment of its funds into direct purchases of securities (own portfolio) and investment funds. The investment funds invest the funds exclusively in fixed income products, having companies of the Group as the only unit holders. They obey the same policy adopted in the investments for the Company’s directly-held own portfolio.

The minimum requirements for concession of credit to financial institutions are centered on three items:

 

1.

Rating by three risk rating agencies.

2.

Equity greater than R$ 400 million.

400.

3.

Basel ratio one percentage point above the minimum set by the Brazilian Central Bank.

Banks that exceed these thresholds are classified in three groups, by thein accordance with their equity value, of their equity;plus a specific segment comprising those whose credit risk is associated only with federal government, and within this classification, limits of concentration by group and by institution are set:

F-171 

 

Table of Contents 

Group

Group

Equity		 

Equity

Concentration

Limit per bank

(% of equity)*

Federal Risk (FR)

-10%
A1

 Over R$ 3.5 billion Minimum of 80%Between 6% and 9%

A2

 R$ 1.0 billion to R$ 3.5 billion Maximum 20%Between 5% and 8%

B

A3		 R$ 400 million to R$ 1.0 billion Maximum 20%Between 5%0% and 7%

 

*

* The percentage assigned to each bank depends on individual assessment of indicators, e.g. liquidity, and quality of the credit portfolio.

Further to these points, Cemig also sets two concentration limits:

1.

No bank may have more than 30% of the Group’s portfolio.

2.

No bank“Federal Risk” and “A1” banks may have more than 50% of the portfolio of any individual company.

COVID-19 Pandemic – Risks and uncertainties related to Cemig’s business

The Company’s assessment concerning the risks and potential impacts of Covid-19 are disclosed in Note 1e.

Risk of over-contracting and under-contracting of energy supply

Sale or purchase of energy supply in the spot market to cover a positive or negative exposure of supply contracted, to serve the captive market of Cemig D, is an inherent risk to the energy distribution business. The regulatory agent limits for 100% pass-through to customers the exposure to the spot market, valued at the difference between the distributor’s average purchase price and the spot price (PLD), is only the margin between 95% and 105% of the distributor’s contracted supply. Any exposure that can be proved to have arisen from factors outside the distributor’s control (‘involuntary exposure’) may also be passed through in full to customers. Company’s management is continually monitories its contracts for purchase of energy supply to mitigate the risk of exposure to the spot market.

 

F-152On April 07, 2020, Aneel expanded the limit of total amount of energy that can be declared by energy distributors in the process of the mechanism for the sale of surplus (‘Mecanismo de Venda de Excedentes’ - MVE), during 2020, from 15% to 30%, for the purpose of facilitating contractual reductions, considering the scenario caused by Covid-19 pandemic.

LOGOOn May 18, 2020, the Decree 10,350/2020 authorized the creation and management of the Covid Account by the CCEE (Power Trading Exchange), whose purposes includes the coverage of the financial effects of over contracting caused by the pandemic. The amount estimated for this coverage was R$212. The Decree also added a sub-item to Article 3 of the Decree 5,163/2004, reducing the charge arising from the effects of the Covid-19 pandemic, calculated in accordance with an Aneel regulation, as one of the possible items to be treated as involuntary over contracting, and as a result passed through to customers.

F-172 

Table of Contents 

 

Risk of continuity of the concession

The risk to continuity of the distribution concession arises from the new terms included in the extension of Cemig D’s concession for 30 years from January 1, 2016, as specified by Law 12,783/13. The extension introduced changes to the present contract, conditional upon compliance by the distributor with new criteria for quality, and for economic and financial sustainability.

The extension is conditional on compliance with indicators contained in the contract itself, which aim to guarantee quality of the service provided and economic and financial sustainability of the company. These are determinant for actual continuation of the concession in the first five years of the contract, sincenon-compliance with them in two consecutive years, or in the fifth year, results in cancellation of the concession.

Additionally, as from 2021,non-compliance with the quality criteria for three consecutive years, or the minimum parameters for economic/financial sustainability for two consecutive years, results in opening of proceedings for termination of the concession.

Due to the inspection carried out by Aneel, the indicators of efficiency criteria regarding service continuity were recalculated for the period from January 2016 to May 2019, resulting in a non-compliance of the annual global limit for the indicator DEC (Customer Unit Average Outage Duration) for the periods of 2016 and 2017. Once the DEC calculated for the year of 2019 also exceeded the regulatory global limit, the prohibition on declaration of dividends and interest on equity, provided in Article 2º of Aneel Normative Resolution 747/2016, was applied, limiting the amount of Cemig D dividend and interest on equity, isolated or jointly, to 25% of net income, less the amounts allocated to the legal reserve and the Contingency Reserve. It is important to note that the internal indicators (DECi and FECi) for maintaining the distribution concession were complied with in all periods.

The efficiency criteria for continuity of supply and for economic and for financial management, required to maintain the distribution concession, were met in the year ended December 31, 2018.2020.

Hydrological risk

The greater part of the energy sold by the Company’s subsidiaries is generated by hydroelectric plants. A prolonged period of drought can result in lower water volumes in the reservoirs of these plants, which can lead to an increase in the cost of acquisition of energy, due to replacement by thermoelectric generation, or reduction of revenues due to reduction in consumption caused by implementation of wide-ranging programs for saving of energy. Prolongation of the generation of energy using the thermal plants could pressure costs of acquisition of supply for the distributors, causing a greater need for cash, and could result in future increases in tariffs.

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Table of Contents 

Risk of debt early maturity

The Company’s subsidiaries have loan contracts with restrictive covenants normally applicable to this type of transaction, related to compliance with a financial index.Non-compliance with these covenants could result in earlier maturity of debts.

On December 31, 2018,2020, the Company was compliant with all the covenants for financial index requiring half-yearly and annual compliance. Exception was noticed for the CEF contract non-financial covenant at the loan contracts of the subsidiaries Central Eólica Praias de Parajuru and Central Eólica Volta do Rio. More details in Note 22.

F-153

LOGO

 

Capital management

This table shows comparisons of the Company’s net liabilities and its Equity on December 31, 20182020 and 2017:2019:

  2020 

2019

(Restated)

Total liabilities  36,605   34,423 
(–) Cash and cash equivalents  (1,680)  (536)
(–) Restricted cash  (64)  (12)
Net liabilities  34,861   33,875 
         
Total equity  17,478   16,103 
Net liabilities / equity  1.99   2.10 

 

   2018   2017 

Total liabilities

   43,916    27,910 

(–) Cash and cash equivalents

   (891)    (1,030) 

(–) Restricted cash

   (91)    (106) 
  

 

 

   

 

 

 

Net liabilities

   42,934    26,774 
  

 

 

   

 

 

 

Total equity

   15,939    14,330 
  

 

 

   

 

 

 

Net liabilities / equity

   2.70    1.87 

33. ASSETS AS HELD FOR SALE AND DISCONTINUED OPERATIONS

32.ASSETS AS HELD FOR SALE AND DISCONTINUED OPERATIONS

On December 31, 2018 assetsAssets and liabilities classified as held for sale, and the results of discontinued and continuing operations, were as follows:

 

   Investments   Telecom assets   Total 
             

Assets

   19,446    —      19,446 

Liabilities

   (16,272)    —      (16,272) 
  

 

 

   

 

 

   

 

 

 

Net Asset

   3,174    —      3,174 
  

 

 

   

 

 

   

 

 

 

Attributed equity holders of the parent

   1,818    —      1,818 

Attributed tonon-controlling interests

   1,356    —      1,356 

Net income (loss) from discontinued operations

   73    290    363 
  

 

 

   

 

 

   

 

 

 

Attributed to equity holders of the parent

   32    290    322 

Attributed to non-controlling interests

   41    —      41 

Basic and diluted earnings per preferred share from discontinued operations – R$

       0,22 

Basic and diluted earnings per common share from discontinued operations – R$

       0,22 

The changes in assets and liabilities classified as held for sale in 2018 were as follows:

Consolidated and Parent company – Statements of financial position 2020 2019
Assets held for sale – investment in an affiliate  1,258   1,258 

 

Consolidated and Parent company – Statements of income2019

ReclassificationLoss for write-down of investments – Note 17(*)

non-current assets held for sale arising from continuing operations, before taxes		  1,78673 

The changes in assets and liabilities classified as held for sale in 2018 were as follows:

Net income after taxes – continuing operations		  3273 

Profit for write-down of non-current assets held for sale arising from continuing operations, before taxes  1,818309 

(*)

Net value of the adjustment to fair value, less costs of disposal (R$ 42).

Telecom assets:

On May 25, 2018 Cemig announced its intention to sell certain telecom assets that were acquired in the merger of Cemig Telecomunicações with Company on March 31, 2018.

The assets that were the subject of the tender were a group of the Company’s assets, and positions in infrastructure and services contracts. They were separated into two lots where the winning bid for Lot 1, presented by American Tower do Brasil – Comunicação Multimídia Ltda., was for R$ 576, i.e. 71.87% above the minimum sales price specified in the tender announcement. The winning bid for Lot 2, presented by Algar Soluções em TIC S.A., was for R$ 79, or 141.05% above the minimum sale value specified in the tender announcement.

F-154

LOGO

Considering the requirements of IFRS 5, Company classified the telecom assets subject to the tender offer as held for sale, and discontinued operations.

In November 2018, the sale of these assets was completed for and amount of R$ 655 paid in cash. The carrying value of these asset amounted to R$ 277, which resulted in the recognition of a gain on sale of R$ 378.

The detail of Telecom assets results presented as discontinuedDeferred taxes arising from non-current assets held for sale, recognized in continuing operations on Company’s net income was as follows:

2018

Results of discontinued operations

Net revenue

119

Outsourced services expenses

  (2385)

Depreciation and amortization

Net income after taxes - discontinued operations		  (15) 

Gain on disposal of assets

378

Other operating expenses, net

(21) 

Income before finance income (expenses) and taxes 

438

Finance income

1

Income before income and social contribution taxes

439

Current income and social contribution taxes

(145) 

Deferred income and social contribution taxes

(4) 

Net income

290

224		 

The effects on cash flow arising from the

Disposal of interest in and control of Light

Partial disposal of the telecom assets are as follows:

Consolidated

Operational activity – gain on sale of investment

(378) 

Investment activity – amount of sale

655

277

F-155

LOGO

in 2019

 

Light S.A.

Upon obtaining control of Light (See Note 17.1), onOn November 27, 2018, the Board of Directors committedof the Company decided, in the context of Cemig’s disinvestment program, to maintain as a priority for 2019 the firm commitment to disposesale of its controlling interestshares in Light S.A., on conditions that would beare compatible with the market and also in accordance with the interests of shareholders.

F-174 

Table of Contents 

The Company expects to completehas concluded that its investment in Light meets the sale until the end of 2019.

As a result, the Company has assessed if the provisionscriteria of IFRS 5 –Non-current assets held for sale and discontinued operations, were met and concluded that; being its sale in the salenear future is highly probable within the near future. Thus theprobable. The Company has also evaluated the effects on the investments held in the investeescompanies LightGer, Axxiom, Guanhães and UHE Itaocara, which wereare jointly controlled by the Company and by Light.

On July 17, 2019, together with the public offering of shares, the Company sold 33,333,333 shares that it held in Light, at the price per share of R$ 18.75, in the total amount of R$625.

With completion of the public offering of shares, the Company’s equity interest in the total capital of this investee was reduced from 49.99% to 22.58%, corresponding 68,621,263 shares of the total 303,934,060. This table provideslimited its right of voting in meetings of shareholders, and consequently its ability to direct material activities of the informationinvestee.

Thus, as from that date, with the changes of the equity interest in Light, the Company ceased its control over this investee. In these circumstances, the Company wrote down the values of assets and liabilities of its former subsidiary, and recognized, at fair value, its remaining equity interest as an investment in an affiliate or jointly-controlled entity, in accordance with IFRS 10– Consolidated financial statements.

Since the Company maintained its firm commitment to dispose of the remaining equity interest in Light in the near future, the investment in Light continued to be classified as Assets held for sale, in accordance with IFRS 5 – Non-current assets held for sale, and discontinued operations, at the lower of its carrying amount and its fair value less cost to sale. The remeasurement of the remaining equity interest in Light at fair value used the sale price of the shares on the date of the loss of control (Level 1 in the fair value hierarchy), of R$18.75 per share, less the estimated costs for the sale estimated at R$29. The difference between the book value of the remaining equity interest and its fair value was recognized in the net income for the year from continuing operations.

The Company also wrote down the assets and liabilities of the former subsidiaries Itaocara, Guanhães, LightGer and Axxiom, and recognized its remaining equity interest in these investees at fair value as investments in jointly-controlled entities, accounted for by the equity method. These investments, which are jointly controlled with Light, were not classified as held for sale and discontinued operations, on December, 31, 2018:since the Company does not have the intention of selling them.

 

   Light   LightGer   Guanhães   Axxion   Itaocara   Total 

ASSETS

            

Assets classified as held for sale

            

Cash and cash equivalents

   707    58    5    7    5    782 

Marketable securities

   977    —      —      —      —      977 

Customers and traders

   2,855    11    —      —      —      2,866 

Recoverable taxes

   75    —      —      1    —      76 

Accounts receivable

   344    —      —      20    —      364 

Inventories

   38    —      —      —      —      38 

Concession financial assets

   564    —      —      —      —      564 

Other current assets

   75    —      —      —      —      75 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, current assets

   5,635    69    5    28    5    5,742 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            

Customers and traders

   1,013    —      —      —      —      1,013 

Recoverable taxes

   52    —      2    —      —      54 

Deferred income and social contribution taxes

   405    —      —      18    —      423 

Financial assets of the concession

   4,420    —      —      —      —      4,420 

Concession contract assets

   330    —      —      —      —      330 

Property, plant and equipment

   1,560    131    345    1    6    2,043 

Intangible assets

   3,097    —      3    6    9    3,115 

Capex

   547    —      —      —      —      547 

Other non-current assets

   804    1    13    2    —      820 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, non-current assets

   12,228    132    363    27    15    12,765 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets of subsidiaries classified as held for sale

   17,863    201    368    55    20    18,507 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES

            

Liabilities directly associated to assets held for sale

            

Suppliers

   2,119    34    13    3    —      2,169 

Loans, financing and debentures(1)

   1,996    8    13    9    —      2,026 

Taxes and social contribution payable

   339    1    —      1    —      341 

Other current liabilities

   824    1    1    19    —      845 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, non-current liabilities

   5,278    44    27    32    —      5,381 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans, financing and debentures(1)

   8,032    71    139    1    —      8,243 

Taxes and social contribution payable

   305    —      1    1    —      307 

Other non-current liabilities(2)

   859    —      4    4    9    876 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, non-current liabilities

   9,196    71    144    6    9    9,426 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities of subsidiaries associated with assets classified as held for sale

   14,474    115    171    38    9    14,807 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Since this the interest held in light is an investment in associate, it was classified as a non-current asset held for sale, but not as a discontinued operation.

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(1)Table of Contents

Certain loans, financing and debentures agreements of Light S.A. and subsidiaries has clauses that may cause the early maturity of debt, including cross default. The early maturity only occurs when one 

Sale of retained investiment in Light

On January 7, 2021, the Company Board of Directors approved the sale of its 68,621,264 common shares in Light, comprising the Company’s entire holding, in a public offering for distribution of a total of 137,242,528 common shares in Light. This offering comprises: (a) primary distribution of 68,621,264 new common shares in Light (“the Primary Offering”); and (b) a secondary distribution, of the Company shares, with restricted placement efforts. The Board of Directors also approved the non-exercise of the Company’s right of first refusal in the Primary Offering, and, consequently waiver, by the Company, of that right of priority in subscription of shares in the Primary Offering.

On January 22, 2021, the public offering of common shares in Light was completed, and, thus, the Company sold its entire holding of shares in Light at R$20.00 per share for a total of R$1,372.

As a result, the Company recognized, in January 2021, the gain before taxes of R$109, considering the carrying amount of the non-current asset held for sale at the transaction date. The fiscal cost of the investment was adjusted for the tax calculation, pursuant to tax law, considering the equity value of the investment, plus the goodwill and the excess of net fair value of the investee’s identifiable assets and liabilities over the cost paid in the step-acquisitions.

Cemig’s shares68,621,263
Sale price of the ratios has not been complied withshares – January 21, 202120
Total value1,372
Estimated cost to sell (0.42%) (1)(5)
Fair value, less cost to sell on 01/22/20211,367
Non-current asset held for sale carrying amount in two consecutive quarters or four intercalate quarters,12/31/2019(1,258)
Gains109
IRPJ and when certain nonfinancial covenants have not been complied with. Loans,CSLL (2)(37)
Gain after taxes72

(1)The estimated cost to sell includes financing, accounting and debentures agreements require that Light S.A. and subsidiaries to maintains certain net debt/EBITDA ratios and covenants. On December 31, 2018, Light S.A. and subsidiaries were in conformity with the required debt covenants, except for the Bonds. The Bonds have restrictive debt covenants and, on December 31, 2018, the subsidiary exceeded the limit of 3.50 times net debt/EBITDA ratio, thus being obliged to respect the limits for contracting new debts until it resumes compliance with the established covenants. As of December 31, 2018, the lack of compliance by Light to the debt/EBITDA ratio had no impact in any other covenants of Light and/or the Company.

legal advices services.
(2)

Light S.A. and subsidiaries are parties in tax, labor, civil lawsuits and regulatory proceedings in several courts. Management periodically assesses the risks of contingencies related to these proceedings, and as of December 31, 2018, based on the legal counsel’s opinion, recorded a provision of R$ 476,244, regarding unfavorable decisions that are probable and whose amounts are quantifiable. As of December 31, 2018, Light S.A. and subsidiaries are parties to civil, labor and tax lawsuitsThe adjustment in the amountstax calculation resulted in a positive effect of R$909, R$320 and R$4,467, respectively, whose risk of loss Management believes is less than probable, based on the opinion of its legal counsels. Therefore, no provision was established.

113.

 

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33.INSURANCE

 

The results of these discontinued operations for the month of December 2018 are as follows:

   31/12/2018 
   Light  LightGer  Guanhães   Axxion  Itaocara   Total 

Results of discontinued operations

         

Net revenue

   1,052   4   1    6   —      1,063 

General costs and expenses

   (980)   (2)   29    (3)   —      (956) 

Share of (loss) profit of subsidiaries and joint ventures, and goodwill

   (9)   —     —      —     —      (9) 

Income before finance income (expenses) and taxes

   63   2   30    3   —      98 

Finance income

   92   —     —      —     —      92 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Finance expenses

   (44)   —     —      —     —      (44) 

Income before income and social contribution taxes

   111   2   30    3   —      146 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Current income and social contribution taxes

   (14)   —     —      5   —      (9) 

Deferred income and social contribution taxes

   (38)   —     —      —     —      (38) 

Net income of discontinued operations in the period

   59   2   30    8   —      99 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

34. INSURANCE

The Company and its subsidiaries maintainmaintains insurance policies to cover damages on certain assets, in accordance with orientation by specialists, as listed below, taking into account the nature and the degree of risk, for amounts considered sufficient to cover any significant losses related to its assets and responsibilities. The risk assumptions adopted, due to their nature, are not part of the scope of an audit of the financial statements, and consequently were not examined by the external auditors.

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   Coverage   

Coverage period

  Amount
insured (1)		   Annual
premium (1)		 

Companhia Energética de Minas Gerais

        

Facilities in buildings

   Fire   

Jan. 8, 2019 to

Jan. 8, 2020

  R$6,628   R$1 

Cemig Geração e Transmissão

        

Air transport / Aircraft

   

Fuselage

Third party

 

 

  

April 29, 2018 to

April 29, 2019

April 29, 2018 to

April 29, 2019

  US$

US$

4,385

14,000

 

 

  US$49 

Warehouse stores

   Fire   

Nov. 2, 2018 to

Nov. 2, 2020

  R$21,775   R$22 

Buildings

   Fire   

Jan. 8, 2019 to

Jan. 8, 2020

  R$271,446   R$59 

Telecoms equipment

   Fire   

Jan. 8, 2019 to

Jan. 8, 2020

  R$11,514   R$5 

Operational risk

   —     

Dec. 7, 2018 to

Dec. 7, 2019

  R$992,147   R$1,332 

Cemig Distribuição

        

Air transport / Aircraft / Guimbal equipment

   

Fuselage

Third party

 

 

  

April 29, 2018 to

April 29, 2019

  US$

USS

3,285

14,000

 

 

  US$35 

Warehouse stores

   Fire   

Nov. 2, 2018 to

Nov. 2, 2020

  R$164,514   R$169 

Facilities in buildings

   Fire   

Jan. 8, 2019 to

Jan. 8, 2020

  R$436,994   R$94 

Telecoms equipment

   Fire     R$17,208   R$7 

Operational risk – Transformers above 15MVA and other energy distribution equipment with value above R$ 1,000 (2)

   Total   

Dec. 7, 2018 to

Dec. 7, 2019

  R$542,976   R$729 

Gasmig

        

Gas distribution network / Third party

   Third party   

Dec. 15, 2018 to

Dec. 15, 2019

   60,000   R$398 

Own vehicle fleet (Operation)

   

Damage to
third parties
only		 
 
 		  

Jul. 7, 2018 to

Jul. 7, 2019

   500   R$3 

Own vehicle fleet (Directors)

   Full cover   

Oct. 25, 2018 to

Oct. 25, 2019

   100   R$2 

Facilities—multirisk (3)

   
Robbery,
theft and fire		 
 		  

Jan. 1, 2018 to

Jan. 1, 2019

   41,374   R$50 
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CoverageCoverage periodAmount insured (1)

Amounts expressed

Annual premium (1)
Companhia Energética de Minas Gerais
Facilities in R$ ‘000 or US$’000.buildingsFire

Jan. 8, 2021 to

Jan. 8, 2022

R$8,661R$2
Cemig Geração e Transmissão
Air transport / AircraftFuselage
Third party

April 29, 2020 to

April 29, 2021

April 29, 2020 to

April 29, 2021

US$1,140
US$4,000		US$24
Warehouse storesFire

Nov. 2, 2020 to

Nov. 2, 2021

R$18,981R$17
BuildingsFire

Jan. 8, 2021 to

Jan. 8, 2022

R$240,527R$70
Telecoms equipment (3)Fire

Jan. 8, 2020 to

Jan. 8, 2021

R$2,650R$2
Operational risk - Transformers above 15MVA and other power distribution equipment with value above R$1,000(2)

Maximum indemnity limit:Dec. 7, 2020 to

Dec. 7, 2021

 R$75,118 R$941
Cemig Distribuição
Air transport / Aircraft / Guimbal equipmentFuselage
Third party

April 29, 2020 to

April 29, 2021

US$3,370
USS14,000		US$51
Warehouse storesFire

Nov. 2, 2020 to

Nov. 2, 2021

R$74,575R$68
BuildingsFire

Jan. 8, 2021 to

Jan. 8, 2022

R$616,157R$179
Telecoms equipment (3)Fire

Jul. 8, 2020 to

Jul. 8, 2021

R$31,082R$28
Operational risk – Transformers above 15MVA and other energy distribution equipment with value above R$ 231 million for Cemig GT1,000 (2)Total

Dec. 7, 2020 to

Dec. 7, 2021

R$545,062R$717
Gasmig
Gas distribution network / Third partyThird party

Dec. 15, 2020 to

Dec. 15, 2021

R$60,000R$378
Own vehicle fleet (Operation)Damage to third parties only

Jul. 7, 2020 to

Jul. 7, 2021

R$500R$3
Own vehicle fleet (Directors)Full cover

Oct. 25, 2020 to

Oct. 25, 2021

R$100R$2
Facilities – multiriskRobbery, theft and fire

Dec. 31, 2020 to

Dec. 31, 2021

R$32,667R$39
(3)

(1) Amounts expressed in R$ ‘000 or US$’000.

(2) Maximum indemnity limit: R$231

(3) Contracting of a new policy is in progress.

The Company, except for its aircraft, does not have third party liability insurance covering accidents, and is not seeking proposals for this type of insurance. Additionally, Company has not sought proposals for, and does not have current policies for, insurance against events that could affect its facilities such as earthquakes, floods, systemic failures or business interruption. The Company has not suffered significant losses arising from the above-mentioned risks.

 

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35. COMMITMENTS

34.COMMITMENTS

Cemig and its subsidiaries have contractual obligations and commitments that include, mainly purchase of energy from Itaipu and other sources and operating leasing transactions, as follows:

  2021 2022 2023 2024 2025 After 2026 Total
Purchase of energy from Itaipu  1,515   1,548   1,595   1,595   1,595   33,499   41,347 
Purchase of energy – auctions  3,416   3,387   3,378   3,536   3,328   47,855   64,900 
Purchase of energy – ‘bilateral contracts’  332   332   332   222   67   80   1,365 
Quotas of Angra 1 and Angra 2  288   291   299   301   300   6,340   7,819 
Transport of energy from Itaipu  189   215   218   222   159   521   1,524 
Other energy purchase contracts  4,450   4,723   4,622   3,478   3,310   28,777   49,360 
Physical quota guarantees  812   812   812   812   812   17,043   21,103 
Total  11,002   11,308   11,256   10,166   9,571   134,115   187,418 

 

   2019   2020   2021   2022   2023   After 2024   Total 

Purchase of energy from Itaipu

   1,352    1,416    1,381    1,440    1,532    45,656    52,777 

Purchase of energy – auctions

   2,753    3,129    3,525    3,808    4,293    85,444    102,952 

Purchase of energy – ‘bilateral contracts’

   314    333    349    366    385    469    2,216 

Quotas of Angra 1 and Angra 2

   267    285    291    305    321    12,431    13,900 

Transport of energy from Itaipu

   233    237    220    207    217    6,962    8,076 

Other energy purchase contracts

   3,963    3,041    3,057    3,814    3,395    37,159    54,429 

Physical quota guarantees

   858    896    933    979    1,028    39,890    44,584 

Operating leasing transactions (1)

   75    69    30    —      —      —      174 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   9,815    9,406    9,786    10,919    11,171    228,011    279,108 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1)

This refers to the total ofnon-cancellable future minimum payments on vehicle rental for the company’send-activities, with annual adjustment by the IGP–M inflation index, without renewal clauses; and rental of real estate properties at the administrative headquarters forend-activities (more details in Note 31).

36. THE ANNUAL TARIFF ADJUSTMENT

On May, 28, 2018, the regulator (Aneel) approved the Annual Tariff Adjustment for Cemig D. This provided a tariff increase of 23.19%, whereas 4.30% correspond to Cemig D’s manageable costs and the remaining 18.89% has zero economic effect, not affecting profitability, because it represents direct pass-through, within the tariff, relating to the following items: (i) increase of 9.00% in non-manageable (‘Parcel A’) costs – mainly purchase of energy supply and transmission charges; and (ii) 9.89% increase in theOther financial componentselement of the tariff.

The increase is in effect from May 28, 2018 to May 27, 2019.

37.NON-CASH TRANSACTIONS

35.NON-CASH TRANSACTIONS

On 2018, 20172020, 2019 and 2016,2018, the Company had the following transactions not involving cash, which are not reflected in the Cash flow statement:

§Capitalized financial costs of R$33 on 2020 (R$23 on 2019, R$30 on 2018);
§Except for the cash arising from the business combination, in the amount of R$27, and the payment of R$45, the acquisition of the Centroeste’s remaining equity interest did not generate effects in the Company’s cash flow;
§Except for the cash arising from the merger of the subsidiaries RME and LUCE amounting R$22, this transaction did not generate effects in the Company’s cash flow on 2019;
§Lease addition in the amount of R$6 (R$31, on December 31, 2019);
§Capital increase from retained profit reserve, with the issuance of shares, in the amount of R$300, on July 30, 2020.

36.SUBSEQUENT EVENTS

The ‘Covid Account’

On January 26, 2021, Aneel published its Dispatch 181, setting the periods for payment, and the amounts of the monthly quotas, of the Energy Development Account (Conta de Desenvolvimento Energético – CDE) payable by distribution agents under the ‘Covid Account’, for amortization of the lending transaction contracted by the CCEE to support the cash position of distribution agentes, as specified in Normative Resolution 885 of 2020, and explained in Note 1 to the financial statements.

 

Capitalized financial costs of R$ 31 on 2018 (R$ 71 on 2017, R$ 142 on 2016).

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Except for the cash arising from the acquisition of the subsidiaries Parajuru and Volta do Rio amounting R$ 4, and the payment of R$ 5, this business combination did not generate effects in the Company’s cash flow.

Except for the consideration paid for acquisition of an additional equity interest at RME and control of Light, in the amount of R$ 104, and the cash arising from RME, of R$ 67, this business combination did not generate effects in the Company’s cash flow.

 

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38. SUBSEQUENT EVENTS

AcquisitionThe monthly charge payable by Cemig D is approximately R$ 41 per month, to be paid to the CCE as from the ordinary tariff adjustment process of equity interest at Centroeste

On January 15, 20192021, with payment until the Company became aware10th day of the ratification by Centrais Elétricas Brasileiras S.A. (‘Eletrobras’)subsequent month. Under Aneel Technical Note 05/2021-SGT, this amount will be included in tariffs for 48 months (2021 to 2025), and Aneel will revisit, annually, the parameters for the definition of the result of Eletrobras Auction 01/2018, relatingcharge; any residual balance will be returned to customers at the exercise by Cemig of its first refusal right to acquire an equity interest in Companhia de Transmissão Centroeste de Minas Gerais S.A. (‘Centroeste’), as mentioned in Note 17.

Renova

Extension and renewed debt agreements with related parties

On February 20, 2019, Cemig GT and Renova signed the first amendment to Debt Recognition Agreement (‘TARD’) 01/2018, and the eighth amendment to TARD 047/2016, postponing the due dates of payments by Renova until July 9, 2019, with financial adjustment at 155%end of the CDI rate fromperiod. To guarantee an equilibrium between tariff coverage, payment and collection, the original maturity date until actual settlement.

On the same day new debt recognition agreements were signed, for recognition of debts contracted by Renova in the total amount of R$ 139, with settlement to be made by July 9, 2019, and financial updating at 155% of the CDI rate.

Sale of Alto Sertão III

On March 21, 2019 the Board of Directors accepted a new binding offer presented by AES Tietê Energia S.A., for acquisition of all the shares in the special-purpose companies comprising theAlto Sertão III wind farm complex belonging to Renova. The transaction was still subject to satisfactory negotiation of the definitive documents between the parties involved, which are to include compliance with conditions precedent, and the necessary approvals for completion.

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Signature of contract to acquire interest in Renova, and public offer for shares

On March 21, 2019 a share purchase agreement was signed for acquisition by Cemig GT and Light Energia S.A. (‘Light Energia’) of up to 7,282,036 shares in Renova owned by CGI funded investments in parts but signs (‘CG I’) and certain parties related to that Fund. The shares to be acquired from CGI include the shares currently bound by the Shareholders’ Agreement of Renova, signed on December 19, 2014.

The shares in CG I will be acquired in the proportion of 67.85% by Cemig GT and 32.15% by Light Energia and, in consideration CG I will receive securities issued by Light Energia and by Cemig GT in the same proportion, corresponding to nominal value of R$ 14.68 per share in Renova, common or preferred, whichCovid Account CDE Charge will be subject to adjustments arising, among other matters, from the following: (i) the costs incurredcalculation of CVA and Neutrality.

Process of evaluation of disinvestment strategies

A process of evaluation of structures for regularization of land ownership of Renova; and (ii) existence of certain contingencies up to the date of closingdisinvestment of the transaction.

The Agreement also provides that certain common shares owned by CG I shall be converted into preferred shares, enabling Cemig GT to form ‘Units’Company’s equity interest in Renova in the terms specified in Article 54 of theby-laws of Renova. As a result, after the closing, Cemig GT will be owner of 50% or less of the common shares in Renova.

The closing of the acquisition of shares is subject to compliance with the conditions that are usual in this type of transaction, and to completion of the acts of financial restructuring of Renova.

Also, the Board of Directors of Cemig GT have approved, subject to the closing of the share acquisition, a Public Offering to Acquire Shares in Renova, to be made by Cemig GT and Light Energia, on a date to be announced, in which the shareholders of Renova will be offered equal treatment to that being offered to CG I.

On April 24, 2019, Cemig GT received notice from BNDES Participações S.A. (‘BNDESPar’), of exercise of BNDESPar’s right of joint sale (‘tag-along’) over the totality of the shares held by BNDESPar at Renova, comprising 696,683 Units representing a total of 5.01% of the share capital of Renova –TAESA is in accordanceprogress, within the overall concept of optimization of the Company’s allocation of capital. The process is at the phase of identification and assessment by the Company’s Executive Board, with the termshelp of specialized advisors, of the Shareholders’ Agreement to which Cemig GT adhered on September 29, 2014. Under that Shareholders’ agreement, inalternatives available for making the event of anydisinvestment and does not does not constitute an offer for sale of the controlling shareholdersCompany’s equity interest in Taesa. As soon as the analyses on a model and structure for a potential disinvestment of Renova wishing to transfer any shares bound by that agreement, BNDESPar has a right of joint sale, giving it the option of transferring its entire holding of Units (each Unit comprising two preferred shares and one common share)Company’s interest in Taesa are finalized, the matter will be submitted to the acquiring party, in the same transaction and on the same terms. The transaction is still subject to several conditions precedent specified in the Share Purchase Agreement.

Debt restructuring

On March 21, 2019, theCompany’s Board of Directors approved there-profiling of the debts of Renova with related parties: R$ 768 owed to Cemig GT, and R$ 253 owed to Light Comercializadora de Energia S.A. (‘LightCom’) on base dates March 2019; and the debts to Citibank and BTG Pactual, of approximately R$ 176 and R$ 179, respectively.

There-profiled debts will have maturity of six years, grace period of one year and interest at 155% of the CDI rate, with asset and/or surety guarantees.

On May 3, 2019, the debt renegotiation instruments were signed by Renova, Citibank and BTG Pactual.

The transactions with Cemig GT and Light are still subject to satisfactory negotiation of the definitive documents between the parties involved.

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Light

Extension of loan with Citibank

On February 1, 2019 the transaction between the affiliated company Light Sesa and Citibank under Resolution 4131, for R$ 657, was refinanced. The new transaction has a grace period of one year for the principal, half-yearly amortization, quarterly interest payments, and maturity in August 2022. A swap transaction was contracted on 100% of the principal, interest and tax at a cost of CGI +2.20% p.a.

Funding raised for2017-18 capex

On February 26, 2019, the subsidiary Light Sesa received R$ 200, the first release of funds under the contract with the BNDES for financing of capex for 2017–18. The cost of the transaction is TLP +3.16% p.a., with maturity at seven years and monthly amortization.

Tariff adjustment, and Extraordinary Tariff Review

On March 12, 2019 the regulator (Aneel) approved the process of adjustment of the tariffs of the subsidiary Light Sesa. The result provides an average increase in the tariff to the customer of 11.12%, and covers all the customer categories. The new tariffs come into effect since March 15, 2019. In a public meeting held on March 26, 2019, the regulator (Aneel) also approved an extraordinary tariff review for the subsidiary Light Sesa, considering only the inclusion of a negative financial item to reflect the early settlement of the amortization of the lending contracted with the Wholesale Power Exchange (ECE) in management of the Regulated Market Account (the ACR Account’), under Normative Resolution 612 of 2014. The average effect for customers will be a reduction of 2.30%, coming into effect on April 1, 2019.

16th Issue of debentures of subsidiary Light SESA

On May 7, 2019, the 16th issue of debentures of the subsidiary Light SESA, in the amount of R$617,950, was placed through three series, bears interest rates from CDI + 0.90% to CDI + 1.35% and maturity from April 15, 2022 to April 15, 2025.

Merger of LEPSA e RME into Cemig

On April 24, 2019 the merger of the subsidiaries Lepsa and RME into the Company was completed.

Since this is a merger of wholly-owned subsidiaries, there will be no capital increase nor need for issue of new shares by Cemig. This merger does not change the aggregate percentage equity interest in Light held by Cemig.consideration.

 

 

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