Equatorial Energia S A : Dados Econômico-Financeiros

Management report

In compliance with legal provisions and in accordance with current corporate law, the Management of EQUATORIAL ENERGIA S.A. hereby presents its Management Report, its Individual and Consolidated Financial Statements together with the related footnotes, and the independent auditor's report for the years ended December 31, 2020 and 2019. The non-financial information of the Company and its subsidiaries, those related to the "Programa Luz Para Todos" (PLPT, Light for All Program), the Social Balance Sheet, Loss Mitigation, Social Actions Report, as well as Management's expectations regarding the future performance of the Company and its subsidiaries, have not been reviewed by the independent auditors.

01. Company's profile

Overview

Equatorial Energia S.A. is a holding company operating in the electric power industry.

In the distribution segment, Equatorial Energia controls the power distributors in the states of Maranhão, Pará, Piauí and Alagoas.

In the Transmission segment, in October 2016 and April 2017, Equatorial Energia participated in 2 auctions for new projects carried out by ANEEL, whereby it acquired the concessions for 8 batches of transmission lines, totaling R$958 million in RAP (Annual Allowed Revenue) at December 2020 values. Additionally, Equatorial Energia acquired 100% of INTESA, an operational transmission line in the States of Tocantins and Goiás. Of these lots, all SPES are already in operation, except for SPE 3 and SPE 6.

In the generation segment, Equatorial Energia holds a 25% interest in GERAMAR, a company that operates 2 thermoelectric power plants located in Maranhão, with a combined installed capacity of 330MW, in commercial operation since 2010.

In the service segment, Equatorial Energia holds 100% of 55 Soluções, which in turn holds 51% of Sol Energias, an electricity trading company.

02. 2020 Highlights

• In 2020, consolidated recurring EBITDA amounted to R$4,764 billion, a 17% growth from the 2019 figure. The factors considered for purposes of adjusted EBITDA are described in the Comments on the Company's Performance.
• Consolidated and billed total energy volume (in the captive and free markets) increased by 3.8% compared to 2019.
• According to the material news released on December 4, 2020, the Company approved a Share Buyback Program in order to maximize value generation for its shareholders, by purchasing shares to be held in treasury and subsequently sold or cancelled with no capital decrease. This transaction was approved and limited to 50,110,056 shares, which is equivalent to 5.0% of total outstanding shares, for no later than 18 months. By December 31, 2020, 1,370,000 shares had been acquired under the program.
• At Equatorial Alagoas, energy losses in the last 12 months ending in 2020 accounted for 23.6%, or down 6.6 percentage points (pp) from 2019. At Equatorial Piauí, total losses closed the year at 21.5%, down 2.8 pp from the previous year closing. Maranhão and Pará reported 18.5% and 30.8% in annual losses respectively, which represented an increase of 0.5 pp and 0.7 pp year on year.
• At Equatorial Pará, the DEC and FEC quality indicators closed 4Q20 at 20.2 hours and 10.8 times. At Equatorial Maranhão, DEC and FEC indexes ended the period at 13.4 hours and 5.9 times. At Equatorial Piauí, those rates ended 4Q20 at 27.6 hours and 12.8 times, while Equatorial Alagoas ended 4Q20 at 19.3 hours and 9.6 times. All distributors showed an improvement in the aforementioned indicators, both in relation to 3Q20 and 4Q19, with emphasis on FEC, which ended up below the regulatory rate.
• Throughout 2020, SPE02 entered into full operation on January 22, and SPE01 on May 1; on October 15, the remaining 87% of SPE 8 entered into operation; SPE4 entered into operation on May 11; SPE7 on December 15; and SPE5 on December 23

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• 03. Message from the CEO

The year 2020 marked another important step in the growth of the Equatorial Energia Group, especially in the transmission and distribution segments.

In the transmission segment, the company ended the year with 75% of operating RAP, including TLR (Revenue Release Notice), which represents around R$722 million in revenue.

The energy distribution segment had several challenges in 2020 due to the pandemic, but we managed to end the year with a 3.8% growth over energy sold. The new distributors obtained approval for the Extraordinary Tariff Review in Alagoas in May and in Piauí in December, which is an important step in the process of creating value for these assets.

Since Equatorial Transmissão started its projects in 2017, approximately R$5 billion have already been invested on a cumulative basis. The decrease in investments compared to the same period of the previous year shows that we are already in the final stage of implementation of the transmission projects and, in general, significantly ahead of the regulatory deadlines for project execution. As for the distribution segment, investments have sped up in practically all distributors, despite the Covid-19 pandemic, totaling R$1.8 billion, considering the use of own resources and the investment from the Luz Para Todos Program. All this volume of investments aims at expanding and maintaining the networks, improving the quality of supply, providing universal access to the electricity grid and interconnecting isolated systems in Pará.

This high level of investments allowed Equatorial Maranhão and Equatorial Pará to maintain their quality indicators (DEC and FEC) substantially better than their regulatory goals, totaling 13.4 hours and 5.9 times in Maranhão, and 20.2 hours and 10.8 times in Pará. It should be noted that in ANEEL's Service Continuity Ranking, which measures the quality of energy supply in relation to regulatory limits, Equatorial Pará was the 2nd best company in the country in 2020, while Maranhão was ranked 8th among concessionaires with more than 400 thousand customers.

From a financial standpoint, our results continued stable, and liquidity is ensured, ending the year at R$7.7 billion in consolidated cash.

we are very proud to inform that our distributors - Equatorial Maranhão and Equatorial Pará - have secured their position among the 100 best companies to work for in Brazil in the Great Place to Work ranking, showing the appreciation and dedication we have to our people.

We thank all our associates, shareholders, suppliers and partners for their support and trust throughout these years.

Augusto Miranda da Paz Junior

CEO

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04. Business management

4.1 Loss mitigation

Equatorial Maranhão

In 2020, Equatorial Maranhão system required electric power amounted to 8,166 GWh, up 4.1% from 2019, and revenue totaled 6,653 GWh, a 3.4% increase over 2019. Accordingly, energy losses recorded by the Company in 2020 totaled 1,512 GWh, or 18.5% of required energy, which led to a 0.5 pp increase in the loss rate as compared to the 2019 closing.

The year 2020 was marked by major challenges brought by COVID-19, which impacted the operations to mitigate losses between March and July 2020. The limitation on field activities in this period generated a significant decrease in the number of forecast activities, frustrating the results of the plan on loss mitigation, significantly contributing toward the increase in the related rate.

The significant decrease in consumption by classes posing a lesser risk of fraud, such as commercial and government customers, also in light of the COVID-19 pandemic, and the regulatory review of the estimated time of use of public lighting by ANEEL in August 2020, are other factors that also impacted the company's results.

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