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Message from the CEO

We are AES Tietê, a company that incorporates innovation and sustainability into business management. We are attentive to the ongoing changes in the energy sector, in order to address the needs and expectations of our stakeholders, which has led us to successfully overcome the main challenges of the year, demonstrating our commitment to value creation and return to shareholders.

The year 2018 was marked by the consolidation of our new strategic positioning, with the diversification of our generation portfolio: we completed the acquisition of the Guaimbê Solar Complex, the largest in the State of São Paulo, with 150 MW installed capacity and initial operations in September 2018, and we started the construction of the Ouroeste Solar Complex, with commercial operations of the first solar park planned for 1Q2019.

We also celebrated the agreement to expand generation entered into with the São Paulo State Government, which reaffirms our effort and commitment to this topic.

The agreement, which is to be completed in six years, has already been addressed in nearly 80% through the diversification of our portfolio in the state.

In order to mitigate the effects of the water shortage risk, we invested in the area of Market Intelligence and adopted new models for forecasting water availability and for commercial transactions, in addition to a differentiated and assertive seasonality strategy.

Given the country's political and economic scenario throughout the year, we reinforced our financial discipline and reaffirmed that our growth is oriented to acquisition or development of projects with a return in line with the risk.

In the area of safety related to dams, we continue to monitor and inspect them regularly to ensure their strength. Our dams are consolidated structures, designed, built and maintained according to strict technical engineering standards adopted by the energy sector. Our dams are regularly monitored through instruments and undergo inspection and assessment by specialized technical teams.

The differentiated nature of our teams, that are agile and motivated, contributed to our performance. After the disposal of Eletropaulo by AES Corp., we moved our headquarters to São Paulo, to an area that allowed our employees to work closer together and leaders to be even more accessible and involved. We worked to eliminate unnecessary hierarchies since we believe in the results obtained by collaborative work. All this once again placed us among the 150 Best Companies to Work, prepared by Guia Você SA.

Our work to strengthen market recognition as a company that supplies solutions in energy services and products led us to intensify our focus on clients. We are partners of this audience and our goal is to increase our business competitiveness and to simplify their life. To this end, we invest in technologies, such as microgrid and storage batteries - in which we are pioneers in Brazil - and in our cultural and digital transformation.

Creation of social and environmental value is another driver of our activities. We prepared a

new sustainability strategy, aligned with the Sustainable Development Goals (SDGs), and maintained our investments in environmental preservation and social-economic development programs in the communities where we operate. As a result, we were considered one of the most sustainable companies in the country by Guia Exame de Sustentabilidade (Exame Sustainability Guide). Our accountable and transparent operation focused on aspects of compliance was also recognized, for remaining in B3`s Corporate Sustainability Index (ISE) for the twelfth consecutive year.

We share these achievements with our stakeholders, especially investors and shareholders - who have supported our growth in recent years -; with our employees, who have been with us during this restructuring phase and whose collaborative work allows us to remain confident in the success of our sustainable growth strategy; with suppliers, for their partnership and the quality of their deliverables; and with clients, for their trust in our work.

Ítalo Freitas

CEO of AES Tietê and AES Brasil

We are

AES Tietê

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Profile

We are an integrated energy platform, which allows us to meet a wide variety of client demands in different segments with efficiency, sustainability, availability, reliability, and innovation. From trading the energy generated to developing renewable energy solutions, we offer autonomy in deciding on the most appropriate way to meet the different energy needs of clients.

We are a part of Grupo AES Brasil and are controlled by AES Holdings Brasil Ltda., the investment arm of The AES Corporation (AES Corp.), a global leader in energy storage, with operations in 15 countries.

We have been operating for almost two decades in Brazil, where we are among the largest energy generation companies. Our hydropower generating plant is composed of nine hydroelectric power plants (UHEs) and three small hydroelectric power plants (PCHs), one wind farm complex and two solar complexes, one in operation and one under construction.

Corporate
Governance

Since 2007, we have participated in B3's Corporate Sustainability Index (ISE), which joins companies committed to sustainability in their business models. We have adopted best practices in governance, which comply with B3’s Level 2 Corporate Governance, in which our units and shares are traded.

Ethical Conduct

Commitment to ethics and integrity is part of our daily work and reflects how we do business worldwide. We follow a set of values that define ethical conduct in all our business activities and relationships. Our Values Guide - From Words to Actions, defines our responsibilities towards each other, our business partners and suppliers, our clients, our shareholders, and our communities.

Business

Development

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SUSTAINABLE
STRATEGIC
PLANNING

Maintaining efficiency and competitiveness, while creating value for our stakeholders, is based on our strategy, which guides sustainable and responsible growth.
In 2018, the strategy was led by four strategic drivers:

Strategic Drivers
  • Promote Innovation: Development and adoption of new technologies.
  • Reduce Risk: Diversify revenue and mitigate exposure to water risk through non-hydroelectric projects.
  • Expand Options: Leverage the marketing strategy to support the growth of new energy services and structure lean governance to streamline transactions.
  • Operational Excellence: Ensure perfect operation of the assets under our management, as well as the integration of new assets into our platform, leveraging operational synergies and gain in scale.

ACHIEVEMENTS 2018

Committed to transparency, we annually disclose our performance in the goals that were set for the period, which were revised throughout the year to reflect our updated strategy.

Goal Performance
Achieve 85% satisfaction in the work environment index Goal achieved, with 85% satisfaction in work climate survey
Achieve 90% client satisfaction index We reached 93% index, 3 p.p. above goal
Reduce GHG emissions by 2% of tCO2e We increased tCO2e emissions by 47%
Reduce our electricity consumption by 500 MWh We increased our electricity consumption by 3,752 MWh
Be recognized as one of the most innovative companies in Brazil Goal not achieved. Refers to the Valor Innovation Award
Reforest 243 hectares We reforested 246.5 hectares of margins in 2018
Record zero LTI rate for lost time accidents (employees and contractors) We recorded 0.19 for employees and 0.0 for contractors
Have a recordable accident rate below 0.64 (employees and contractors) We recorded 0.19 for employees and 0.31 for contractors
Zero fatal accidents among contractors and population There were no fatalities in our operations in 2018
Have 85% of our critical suppliers with a performance index equal to or greater than 75 We did not evaluate all critical suppliers in 2018 because of the internal restructuring and revision of the IDF tool
Zero environmental accidents with significant impact No environmental accidents with significant impact were recorded.

SUSTAINABILITY STRATEGY

Considering our business model, new market positioning and in line with the external scenario and the Sustainable Development Goals (SDG), we reviewed in 2018 our sustainability strategy. The work began in the second half of the year and will be completed in the first quarter of 2019, with the definition of strategic topics and commitments, broken down into goals and initiatives. We also participate in associations in our sector and have adopted external initiatives with which we share the ideals of promoting a more just and equitable society. In this sense, we have:

Integrated Energy

Platform

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PORTFOLIO
DIVERSIFICATION

The diversification of generation sources allows us to better manage the water risk and is complementary to our portfolio. With this strategy, we also contribute to combating climate change.

Alto Sertão II Wind Farm Complex

The Alto Sertão II Wind Farm Complex, located in Caetité, in the Southwestern region of Bahia, was the first renewable energy generation asset added to our portfolio, in August 2017. With an investment of R$ 600 million, it consists of 15 wind farms, with 230 wind turbines, an installed capacity of 386 MW, and a physical guarantee of 193 MWm.

Guaimbê Solar Complex

An investment of R$ 607 million and the result of an agreement with Cobra Brasil, the Guaimbê Solar Complex is the first large solar power plant in the State of São Paulo, with capacity to supply a population of 300,000. Its acquisition was completed in September 2018.

Ouroeste Solar Complex

The complex includes the Boa Hora and AGV Solar plants. Located in the State of São Paulo, it enters into operation in phases and, when fully operational, it will have an installed capacity of 144 MW.

ASSET
MANAGEMENT

The sustainable growth of our business is provided by the excellent management of our generation assets. We obtained recertification in ISO 55001 during the year, in which we were pioneers in the country, in 2015.

ON-DEMAND
SOLUTIONS

We aim to enable integration of sustainability to our clients' businesses via innovative, customized solutions. Our goal is to make our clients more competitive - less concerned about energy management (which is under our management), more responsible in terms of energy consumption and less environmental impact. We also offer, after analysis by our Treasury Department, financing options suitable for projects in different modalities.

We were the first company in Brazil authorized to issue I-RECs on the international platform I-REC Standard. The certification is proof of the generation of energy from renewable sources and enables traceability, which confirms its clean origin.

We also provide clients with environmental compensation for reforestation and revitalization actions in areas of the Atlantic Rainforest and the Cerrado through the Mão na Mata project, conducted in partnership with NGO SOS Mata Atlântica. In 2018, a total of 246.5 hectares were reforested, above our goal of 243 hectares.

INNOVATION AND NEW
TECHNOLOGIES

We believe that innovation is key to boosting business and, thus, we invested in the search for solutions and in the development of products that contribute to the improvement of the electricity sector; increase client competitiveness; promote value for society; and allow for reduction of environmental impacts. With this approach, we sought business models and technological alternatives that result in efficiency and reliability.

Acceleration of startups

After the success of the first edition, we launched in 2018 our second startup acceleration program, with the support from Liga Ventures and 144 registrations. From this universe, we chose two projects, which will start in 2019 and whose proposals include a mix of energy management and digital solution.

Value

Creation

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SAFETY
NUMBER ONE VALUE

The safety of operations, company employees and contractors, as well as of the surrounding communities of the areas in which we operate, is a non-negotiable priority and value. In 2018, with the diversification of our portfolio, we reviewed all procedures of our Integrated Management System, certified under ISO 14001:2015 (Environment) and OHSAS 18001:2007 (Occupational Health and Safety). The processes were 100% standardized for all plants.

Since 2009, we have not recorded accidents involving the population living in the vicinity of our operations.

Locks
Dams
and Reservoirs

The dams of the hydroelectric power plants under our concession are solid structures, which have been designed, constructed and maintained following rigorous technical engineering standards, a practice in the energy sector. The structures are built using tested materials from select deposits. The dams are designed and built in one single construction phase. These structures are not modified during the life cycle of the dam. The foundations of concrete, earth or rockfill dams have been rigorously assessed and treated with injections, ensuring the necessary consolidation and strength for the project.

The homogeneous earth dams have protection elements, such as vertical and horizontal filters, to protect the stability of the structure against piping and uplift pressures.

The processes to guarantee the safety of the dams of our hydroelectric power plants and PCHs have a real-time monitoring system using telemetry stations for early monitoring of tributary flows and floods in order to anticipate decision-making in situations of water risk. Inspections are carried out periodically through monitoring instruments installed in civil structures, as well as visual inspections supported by new technologies such as drones for the inspection of underwater and overhead structures, water monitoring network, with 54 stations located in the tributaries of reservoirs to anticipate the operation of the reservoirs under flood situations. This work is conducted by a specialized technical team, composed of civil and water engineers, surveyors and building technicians. Technical reports to attest consistency of monitoring are issued bimonthly, validating the safety of the structures.

In line with the provisions of Resolution 696/2015 of the National Electric Energy Agency (ANEEL), we update and submit the risk assessment form (FSB) to the supervising agent. Internal training is also conducted on the SOSEm procedure (Operating System in Emergencies), an emergency plan developed for the operations and to restore normal operating conditions in situations of risk. Furthermore, we develop and distribute the Emergency Action Plan (EAP), a technical and administrative procedure that simulates the collapse of dams and generation of flood lines, to help civil defense agencies prepare municipal contingency plans for evacuation and response at communities.

Monitoring of the reservoirs is carried out periodically and, in addition to controlling the environmental conditions of these sites, it allows recording any instances of illegal occupation, including illegal settlements in our 4,800 kilometers of margins.

This monitoring is supported by means of multispectral images to detect changes throughout our concession areas, by the RapidEye satellite, which has a resolution of 5 meters in five wave bands in specific months to facilitate viewing, with detection mechanisms for changes in quarterly images, and allowing for the analysis of the dynamics of settlements surrounding the reservoirs. After the process to identify changes in the region, a report is prepared and made available to support the allocation of inspection teams. All cases of irregular settlements identified generate a Property and Environmental Inspection Report (RIPA) that is made available in the Geocatalogo system - GIS System, which manages the entire map base (maps, vectors and images) and information. Once an irregular settlement is identified, the occupant is notified to present the environmental permits or remove the constructions if not interested in regularizing the property, for those cases where regularizing is possible.

CULTURE OF
COLLABORATION
OUR HUMAN CAPITAL

The year 2018 marked a new stage in our business, with the consolidation of a people management culture focused on satisfaction and search for the full accomplishment of our employees. We advanced to an even more individualized people management, by reducing barriers between leaders and teams. We also moved to a new headquarters - transferred from Barueri to São Paulo - with gains in proximity between clients and our teams.

To consolidate these and other initiatives, we launched an initiative called Movimento CLIC, based on three pillars:

Você S/A Guide – The 150 Best Companies to Work for in Brazil

We were ranked for the third consecutive year. With a 78.3 satisfaction at work index, we ranked second in the energy sector. The survey is conducted by Você S/A, in partnership with the Fundação Instituto de Administração (FIA).

CLIENT
SATISFACTION

We moved forward in our purpose to improve client experience in their journey with us. This goes from the quality of service, performed by qualified professionals capable of identifying demands, to innovations in our communication channels and dissemination of relevant content on the sector and our business in social networks.

To improve our relationship with clients, we continuously monitor satisfaction with our customer service, products and services.

Client satisfaction

In 2018, we achieved 93% Perceived Quality Satisfaction Index (ISQP), higher than in 2017, which was 89%. The annual survey is conducted by Inovare, an external and independent company.

BUSINESS PARTNERSHIPS

We value the transparency and ethics in relationships with suppliers, with whom we seek to establish long-term partnerships and share our culture of excellence in asset management and focus on safety.

With the incorporation of assets, in 2018, we worked on the restructuring of processes to select, hire and assess business partners.

We prioritize contracting local suppliers and, to this end, we made an agreement with the company responsible for building the Boa Hora Solar Complex - first phase of the Ouroeste Solar Complex - to hire 50% of the workforce from the project's surrounding community.

We also seek to help partners improve their procedures so they can incorporate our safety culture and commitment to the environment, which prepares them not only to the services they provide to our company but also to the market as a whole.

ENVIRONMENTAL
CONSERVATION
AND PROTECTION

In order to mitigate environmental impacts - a commitment in our sustainable growth strategy - we have in place an Integrated Management System that includes all assets and processes, for an environmentally friendly operation. We invest in the preservation of natural resources programs, as well as in environmental education, monitoring of macrophytes and water quality, among others.

Climate Change

Our portfolio consists of energy solutions coming from clean and renewable generation, attests to our commitment to mitigating climate change, assumed in the Climate Change Statement. Since 2011, we have estimated our greenhouse gas emissions through an inventory, prepared according to the specifications of the Brazilian GHG Protocol Program. In 2018, the inventory was assured by external auditors, granting a Gold Seal for the second consecutive year.

In 2018, our investments in environmental management totaled R$ 10.8 million.

Reforestation Program: Aims at conservation of flora in the vicinity of our assets, assisting in the recharge of the water table and minimizing erosion and silting of reservoirs. In 2018, a total of 246.5 hectares were reforested, above the target of 243 hectares/year.

Program for Monitoring and Conservation of Terrestrial Wildlife: Seeks the preservation of wildlife by defining conservation strategies, for a balanced relationship of our operations with the environment.

Fishery Management Program: We invest in the preservation of aquatic fauna, with the annual release of 2.5 million fingerlings, in order to maintain fish stocks and benefit the communities.

Water Quality Monitoring Program: We monitor the condition and changes that occur in the aquatic environment, arising from the operation of the project and from the dynamics of our reservoirs, with concrete data that help the relevant agencies carry out water management.

Macrophyte Monitoring Program: Through field surveys and remote sensing, we monitor the dynamics of macrophytes populations. In addition to anticipating operational risks, the indicators generated support the relevant agencies in developing the necessary measures.

COMMUNITY
RELATIONS

Our social action aims to positive transformations in the communities surrounding our operations. The actions include voluntary initiatives under the private social investment program, and programs conducted through tax incentives laws related to culture and sports, as well as to the funds of the rights of children, adolescents, and the elderly.

In 2018, we invested R$ 3.72 million in social projects, R$ 698,630 of own resources and R$ 3.03 million incentivized.