2016 Sustainability
Report

Check out the main highlights of AES Tietê in the last year or access
the complete PDF to learn more about our strategy, initiatives and performance


Message from the CEO

Ítalo Freitas CEO of AES Tietê

The energy sector, traditionally unidirectional and linear, is undergoing profound transformation in Brazil. Increasingly empowered to choose how to meet energy needs, the customer is at the center of decision-making. In this model, the complexity associated with managing consumption and technological changes offers new and more adaptable possibilities to a diverse array of energy-dependent organizations.

This new dynamics of energy inputs management creates opportunities for new business models. At AES Tietê, we revised our strategy to focus more on the growth of our businesses and on creating value to our stakeholders, based on this new context. With a platform of integrated and innovative solutions for energy, we adjust to the needs of each customer.

To this end, our portfolio has been extended in order to offer energy with prompt delivery and customized solutions, with new technologies for distributed generation, self-production, and energy storage. We also focus on the diversification of our energy mix, seeking to expand installed capacity through renewable sources, such as wind and solar energy, as well as thermal sources from natural gas. Our goal is to achieve, by 2020, 50% of our EBITDA* with businesses not related to hydroelectric power aiming at mitigating hydrological risk through long-term contracts.

In 2016, we began operating mainly in the free market of energy, with the end of the bilateral supply contract for AES Eletropaulo. We ended the year with 95% of the energy contracted at market prices, even in challenging times in terms of water supply. This performance demonstrates that we are on the right track with our risk management and business diversification.

In our business model, hydroelectric generation assets are fundamental, and require that we continue to manage them with excellence. This includes both maintenance and operation of the plants and locks, as well as investments in environmental programs and monitoring of the margins of the reservoirs. In 2016, one highlight was the reforestation of 409 hectares around our reservoirs, as a result of our own initiatives and investments as well as strategic partnerships.

Safety continues to be our top priority. Accident prevention is one of our commitments, and must be continuously pursued by our employees and contractors. Therefore, we are reinforcing our Safety Program to ensure greater adherence of our operations to the procedures and protocols we establish for carrying out daily activities.

Finally, I would like to highlight the important external recognition we achieved in 2016: AES Tietê was included in the portfolio of the ISE – Corporate Sustainability Index – for the 10th consecutive year, and we ranked among the 150 Best Companies to Work For in Brazil. We also won the Transparency Trophy, in the Electricity Sector category, granted by ANEFAC (National Association of Executives in Finance, Administration and Accounting). This is the result of our best practices in management and stakeholder relations, based on our values, which we commit to practicing daily.

In 2017, we will continue to diversify and grow through new projects and innovative solutions for our customers. Therefore, we will consolidate the role of AES Tietê as a main player in the transformation of the energy sector in Brazil.

*Earnings Before Interest,Taxes, Depreciation and Amortization.

We are AES Tietê

We are an innovative and integrated energy platform adjustable to the demands of our customers. We offer off-the-shelf products and custom solutions that ensure autonomy in energy and allow customers to decide on the most sustainable means of energy supply in all senses: efficiency, availability, reliability, and innovation.

We are part of one of the leading energy industry groups in the country. In addition to AES Tietê, AES Brasil is composed of AES Uruguaiana (generation), AES Eletropaulo (distribution) and AES Ergos (services). In the last year, organizational changes were implemented aiming to promote growth through solutions in energy, innovation, and new technologies.

To ensure the dissemination of values and ethics in relationships with all stakeholders, we have in place AES Brasil’s Ethics and Compliance Program, composed of three pillars: Education and training; Contractual compliance; and AES Helpline.

Globally, we are part of the AES Corporation, a group of businesses operating in 17 countries in the Americas, Europe, and Asia, listed at the New York Stock Exchange and with a wide portfolio in energy distribution and generation from thermal or renewable sources, and energy storage.

Learn more about AES worldwide

New commercial platform

In 2016, we restructured our commercial platform and began offering our customers a broad range of innovative solutions in energy. Its new organization allows AES Tietê to adopt stronger market intelligence procedures, expand the range of products offered and work in partnership and much closer to customers to deliver custom and autonomous solutions.

Our strategy

In order to advance towards AES Brasil’s vision and be recognized by our customers and shareholders as the preferred partner for safe, innovative, reliable and affordable energy solutions, we operate in accordance with the Sustainable Strategic Planning, which describes long-term objectives and how they will be achieved.

These objectives were approved by our leadership in 2016, when we developed the planning cycle from 2017 to 2021, considering the changes and trends in the energy sector, as well as the risks and opportunities of creating value in the segments in which we operate. New goals and targets were established for AES Tietê (learn more in the PDF).

Vision

To be recognized by our customers and shareholders as the preferred partner for safe, innovative, reliable and affordable energy solutions.

Mission

To promote the well being and development by providing secure, sustainable and reliable energy solutions.

Strategic drivers

• Promote innovation
• Assure operational efficiency
• Amplify optionality
• Reduce risk

Value Creation Model

Our value creation model seeks to demonstrate to all stakeholders how we transform inputs and create value in different types of capital (financial, human, intellectual, social & relationship, manufactured, and natural).

Innovation and research

The AES Innovation platform, structured in 2016, permeates the companies in the Group, driving strategy, investments, and processes within five drivers.

Under this platform, the Aceleração de Projetos (Project Acceleration) initiative seeks to develop products, services or new business models in partnership with startups and other companies under the topics Internet of Things, Energy Storage, Energy Efficiency, Distributed Generation, and Electric Vehicles. The initiative received 233 registrations and selected eight finalists by the end of 2016.

In 2017, after holding meetings and workshops with the selected finalists, the two projects will be defined and will go through the process of acceleration and the implementation of the solutions presented.

One of the main advantages of this initiative is that it is financed by R&D (Research and Development) resources, according to regulations, promoting innovation for the sector as a whole, based on the regulatory process defined by ANEEL. AES Brasil will participate as project co-developer, and not in the companies’ equity.

Internet of Things

Energy Storage

Distributed Generation

Energy Efficiency

Electric Vehicles

Research and development in AES Tietê

Last year, we invested a total of BRL 6.7 million in R&D. We started the development of a microgrid* system – a software that uses algorithms to determine the maximum efficiency in use of energy combining the different energy sources available.

In Energy Storage, we have advanced with a project for the installation of batteries to strengthen the energy supply to the system. With the solution coupled to an auxiliary power generator, previously used by the

Hydroelectric Power Plant in Bariri, in the state of São Paulo, for its own generation, it will be possible to provide nearly 0.5 MW to the SIN (National Interconnected System) in peak periods.

We were also the first national company to carry out a project for the development of a new mathematical model called Smart-Sen, which will reduce the risks from the intermittence of renewable sources, such as solar and wind power.

*Small-scale electric network that operates independently or concurrently with the main energy supply system.

Growth strategy

AES Tietê is the main platform for the business growth of AES Brasil. The diversification of the installed capacity for generation of centralized or distributed energy is in line with the group’s Sustainable Strategic Planning.

We offer our customers an integrated platform of solutions and services with the development of projects in distributed generation. Our operating model concentrates all phases of development and operation of projects: economic feasibility, installation, maintenance, operations, and management of energy generated.

In the battery-based energy storage sector, AES Tietê is a pioneer in

offering this solution to customers. In 2016, we held an international Energy Storage seminar in São Paulo, aimed at promoting the continuous dialogue with organizations in the electric sector, presenting technology, their applications and benefits, as well as contributing for the improvement of the regulatory model.

AES Corp. is a leading company in energy storage worldwide. The solutions are installed in countries such as the United States, Chile and England and meet the needs related to decreased risk of intermittence of wind sources, increased supply in peak hours, and increase of renewable sources in the energy mix.

Operational efficiency

Our generation complex is comprised of 9 plants and 3 small hydroelectric plants (SHEPs) connected to the SIN (National Interconnected System). Last year, our plants produced 13,108.9 GWh of energy, a volume 65.1% greater than in 2015, due to better water availability conditions in the period along with the higher power generation program.

We invested BRL 21.4 million, in 2016, to build the new COGE (Generation and Locks Operations Center), located in the city of Bauru, in the state of São Paulo, which is responsible for the centralized management of our plants. The new COGE headquarters, whose

operation starts in 2017, will be equipped with photovoltaic panels and a fuel cell that will contribute to the local energy supply.

We continuously monitor and control the use and occupation on the margins of our reservoirs, focused on preservation of natural resources, safety of the population and on preventing environmental impacts. In 2016, we reforested 409 hectares surrounding our reservoirs and launched the Mãos na Mata (Hands in the Forest) program, aimed at promoting the reforestation of 3,000 hectares around AES Tietê’s 12 reservoirs.

Our plants

Protection of biodiversity

The investments and programs that we conduct to promote the conservation of biodiversity in the areas surrounding our reservoirs contribute to the sustainable development of the region, in addition to complying with legal demands related to concession of assets and permitting processes.

Our Fishing Management Program promotes restocking of rivers with fingerlings of fish species such as piracanjuba, which is an endangered species. Researchers from the Maringá State University and the Londrina State University identified that adult fish

captured last year have the same genetic composition of the fingerlings released in 2013, proving that the fish bred in tanks were able to develop in river basins.

We started a new project that aims to preserve the gulper catfish, a fish species that is also endangered. Called “Barriga de Aluguel” (Surrogate Womb), the idea behind this initiative is to create biotechnology techniques to generate offspring with preserved genetic features from a fertilized egg from another non-endangered species – the mandi-guaçu.

Safety first

The safety of our employees, services providers, and the community is our priority when we develop our activities. In our Sustainable Strategic Planning, we set performance goals regarding this topic that are monitored periodically by the Board of Officers.

Last year, there were no fatal accidents in our operations and no incidents involving our employees. We achieved our goals for 2016, with the exception of those associated with accidents with contractors.

Focused on the awareness of the communities around our plants, we conduct educational campaigns about safety and the importance of respecting existing signs. In 2016, a total of 5,201 people participated in visits to the plants and events developed by AES Tietê. Since January 2009, there have been no accidents involving the population in our plants.

Our stakeholders

In AES Brasil's business growth and development strategy, managing stakeholder relations is fundamental to understanding their needs and developing strategies to enhance shared value through our activities and operations. In order to structure this process and define the best mechanisms of engagement, our stakeholders were grouped in a matrix.

In 2016, AES Brasil was one of the companies that participated in discussions with the GVCes (Center for Sustainability Studies of the Getulio Vargas Foundation) for the design of a tool to assess social and environmental risks and criticality in the supply chain. Our contribution is based on the matrix used in the Sustainable Partnerships program as a tool to evaluate and develop suppliers.

Achievements in 2016


Employees

In 2016, AES Tietê was included as one of the 150 Best Companies to Work For, developed by Você S/A magazine.

We invested BRL 694 thousand in training and qualifying programs.


Suppliers

The Sustainable Partnerships program guides the selection and development actions of our partners.

Partner contracts that are highly critical and complex, such as service providers for plants maintenance, are managed through the IDF (Supplier Performance Index).


Communities

The AES Institute, created in 2016, increases the reach of our operations and the positive impacts we have caused via our projects.

The AES Institute is responsible for managing AES Brasil’s volunteer social action in three pillars: Citizenship training, Innovation for social development, and Conscious entrepreneurship.

• 16 thousand training hours for employees
• 97 suppliers of AES Tietê assessed
• BRL 4 million invested in social projects