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AXIA Energia S.A 20-F/A, filed Jul 6, 2020

AXIA Energia S.A. (AXIAY)

20-F/A 2020-07-06 For: 2019-12-31
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Added on August 22, 2026

About this 20-F/A

AXIA Energia S.A filed this 20-F/A on July 6, 2020, covering the fiscal year ended December 31, 2019.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment

FORM 20-F/A

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934<br><br> <br>For the fiscal year ended December 31, 2019
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

Commission File Number: 001-34129

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. —<br><br> <br>ELETROBRAS
(exact name of registrant as specified in its charter)
BRAZILIAN ELECTRIC POWER COMPANY
---
(translation of registrant’s name into English)
Federative Republic of Brazil
(jurisdiction of incorporation or organization)
Rua da Quitanda 196, 9th floor, Centro, CEP 20091-005, Rio de Janeiro, RJ, Brazil
(address of principal executive offices)
Elvira Baracuhy Cavalcanti Presta<br><br> <br>Chief Financial Officer and Chief Investor Relations Officer<br><br> <br>(55 21) 2514-6435 — df@eletrobras.com.br<br><br> <br>Rua da Quitanda 196, 24th floor,<br><br> <br>20091-005 - Rio de Janeiro — RJ — Brazil
(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<br> Symbol Name of each exchange on which registered
American Depositary Shares**, evidenced by American Depositary Receipts, each representing one Common Share** EBR New York Stock Exchange
Common Shares, no par value* New York Stock Exchange
American Depositary Shares**, evidenced by American Depositary Receipts, each representing one Class B Preferred Share** EBR-B ****<br><br> <br>New York Stock Exchange
Preferred Shares, no par value* New York Stock Exchange

* Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the SEC.

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

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

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2019 was:

1,087,050,297 Common Shares
146,920 Class A Preferred Shares
265,436,883 Class B Preferred Shares

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

x 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 x No

Indicate by checkmark 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

x 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 Regulation S-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).

x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x 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* 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. x

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 x 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 in Rule 12b 2 of the Exchange Act.).

¨ Yes x No

Explanatory Note — Amendment

This Amendment amends our Annual Report on Form 20-F for the year ended December 31, 2019 (“Annual Report”) dated May 19, 2020, as filed with the U.S. Securities and Exchange Commission on May 19, 2020 and is being filed solely for the purpose of including the 2019 financial statements of Companhia de Transmissão de Energia Elétrica Paulista — CTEEP as Companhia de Transmissão de Energia Elétrica Paulista — CTEEP met the criteria set forth in Rule 3-09 of Regulation S-X in 2017.

This Amendment speaks as of the initial filing date of the Annual Report. Other than as expressly set forth above, no part of the Annual Report is being amended. Accordingly, other than as discussed above, this Amendment does not purport to amend, update or restate any other information or disclosure included in the Annual Report or reflect any events that have occurred after the initial filing date of the Annual Report. As a result, our Annual Report on Form 20-F for the fiscal year ended December 31, 2019 continues to speak as of May 19, 2020 or, to the extent applicable, such other date as may be indicated in the Annual Report.

CONTENTS

Page
ITEM 17. Financial Statements 1
ITEM 18. Financial Statements 1
ITEM 19. Exhibits 1

PART III

ITEM 17. FINANCIAL STATEMENTS

See “Item 18, Financial Statements.”

ITEM 18. FINANCIAL STATEMENTS

In 2018 and 2019, none of our affiliated entities was a significant entity under Rule 3-09 of Regulation S. In 2017 our affiliate CTEEP — Companhia de Transmissão de Energia Elétrica Paulista met the 3-09 requirements of Regulation S-X. Please see attached the financial statements of that entity as of December 31, 2019 and 2018 and for the three years in the period ended December 31, 2019.

ITEM 19. EXHIBITS

2.1 Second Amended and Restated Deposit Agreement between Centrais Elétricas Brasileiras S.A.—Eletrobras and Citibank, N.A., incorporated herein by reference from our Form F-6, filed on August 1, 2017, File No. 333-219600.
2.2 Second Amended and Restated Deposit Agreement between Centrais Elétricas Brasileiras S.A.—Eletrobras and Citibank, N.A., incorporated herein by reference from our Form F-6, filed on August 1, 2017, File No. 333-219599.
2.3 Description of Securities, incorporated by reference to Exhibit 2.3 to our Annual Report on Form 20-F (File No. 001-34129), filed on May 19, 2020.
2.4 The total amount of long-term debt securities of our company and our subsidiaries under any one instrument does not exceed 10% of the total assets of our company and our subsidiaries on a consolidated basis. We agree to furnish copies of any or all such instruments to the SEC upon request.
3.2 By-Laws of Centrais Elétricas Brasileiras S.A. — Eletrobras (English translation), dated November 30, 2017, incorporated by reference to Exhibit 3.2 to our Annual Report on Form 20-F (File No. 001-34129), filed on May 19, 2020.
4.1 Itaipu treaty signed by Brazil and Paraguay—Law No. 5,899 of July 5, 1973, incorporated herein by reference from our Registration Statement on Form 20-F, filed July 21, 2008, File No. 001-34129.
8.1 List of subsidiaries, incorporated by reference to Exhibit 8.1 to our Annual Report on Form 20-F (File No. 001-34129), filed on May 19, 2020.
12.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Centrais Elétricas Brasileiras S.A.—Eletrobras.
12.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Centrais Elétricas Brasileiras S.A.—Eletrobras.
13.1 Section 906 Certification of Chief Executive Officer of Centrais Elétricas Brasileiras S.A.—Eletrobras.
13.2 Section 906 Certification of Chief Financial Officer of Centrais Elétricas Brasileiras S.A.—Eletrobras.
15.2 Auditor’s Letter Regarding Change in External Auditor, incorporated by reference to Exhibit 15.2 to our Annual Report on Form 20-F (File No. 001-34129), filed on May 19, 2020. 
1

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment to its Annual Report on its behalf.

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. — ELETROBRAS
July 6, 2020 By: /s/ Wilson Pinto Ferreira Junior
Name: Wilson Pinto Ferreira Junior
Title:   Chief Executive Officer
By: /s/ Elvira Baracuhy Cavalcanti Presta
--- ---
Name: Elvira Baracuhy Cavalcanti Presta
Title:   Chief Financial and Investor Relations Officer 
2

CENTRAIS ELÉTRICAS BRASILEIRASS.A. — ELETROBRAS

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Contents

Report of Independent Registered Public Accounting Firm of CTEEP - Companhia de Transmissão de Energia Elétrica Paulista dated April 27, 2018 F-2
Consolidated balance sheets as of December 31, 2019 and 2018 F-4
Consolidated statements of profit and loss for the years ending December 2019, 2018 and 2017 F-6
Consolidated statements of comprehensive income and loss for the years ending December 31, 2019, 2018 and 2017 F-7
Consolidated statements of changes in equity as of December 31, 2019, 2018 and 2017 F-8
Consolidated statements of cash flows for the years ending December 31, 2019, 2018 and 2017 F-10
Notes to the consolidated financial statements F-12 
F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

CTEEP — Companhia de Transmissão de EnergiaElétrica Paulista S.A.

We have audited the accompanying consolidated balance sheet of CTEEP — Companhia de Transmissão de Energia Elétrica Paulista S.A. as of December 31, 2017, and the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2017 and 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CTEEP — Companhia de Transmissão de Energia Elétrica Paulista S.A. at December 31, 2017 and the consolidated results of its operations and its cash flows for the years ended December 31, 2017 and 2016, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

We have not audited, reviewed or compiled the comparative information herein as of and for the year ended December 31, 2018, and, accordingly, we express no opinion on it.

/s/ ERNST & YOUNG

Auditores Independentes S.S.

We have served as the Company’s auditor since 2016.

São Paulo, Brazil

April 27, 2018

F-2

CTEEP – Companhia de Transmissão de Energia Elétrica Paulista

ConsolidatedFinancial Statements prepared in accordance with the International Financial Reporting Standards (IFRS).

December31, 2019 (unaudited), 2018 (unaudited) and 2017

F-3
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br> CVM: 01837-6 and NIRE: 35300170571
Balance sheets
As of December 31, 2019 (unaudited) and 2018 (unaudited)
(In thousands of reais, unless otherwise stated)
Assets Note 2019 (unaudited) 2018<br> <br>(unaudited)
--- --- --- --- --- ---
Current assets
Cash and cash equivalents 5 595,971 16,740
Short-term investments 6 2,068,611 680,909
Concession assets 7 2,061,882 2,086,298
Inventories 103,818 39,173
Taxes and recoverable taxes 9 32,335 29,521
Derivative financial instruments 31 19,202 -
Restricted cash 1,876 1,787
Receivables from related parties 30 703 323
Prepaid expenses 4,677 8,384
Other 44,373 36,509
4,933,448 2,899,644
Noncurrent assets
Long-term assets:
Restricted cash 46,515 42,268
Concession assets 7 12,599,151 12,047,558
Receivables – State Finance Department 8 1,576,332 1,426,083
Guarantees and restricted deposits 10 52,886 66,987
Inventories 13,006 13,551
Deferred income and social contribution taxes 29(b) 1,144 9,037
Post-employment benefit - actuarial surplus 22(a) 43,024 105,444
Derivative financial instruments 31 - 2,643
Other 24,011 25,236
14,356,069 13,738,807
Investments 11 2,198,004 1,848,092
Property, plant and equipment 12 86,377 25,539
Intangible assets 13 25,196 30,142
2,309,577 1,903,773
16,665,646 15,642,580
Total assets 21,599,094 18,542,224 
F-4
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br> CVM: 01837-6 and NIRE: 35300170571
Balance sheets
As of December 31, 2019 (unaudited) and 2018 (unaudited)
(In thousands of reais, unless otherwise stated)
Liabilities Note 2019 (unaudited) 2018 (unaudited)
--- --- --- --- --- ---
Current liabilities
Borrowings and financing 14 709,928 333,787
Debentures 16 367,508 23,707
Leases 15 9,948 280
Trade accounts payables 167,774 88,358
Taxes and payroll charges payable 17 92,106 54,382
Regulatory charges payable 19 48,336 40,262
Interest on capital and dividends payable 24(b) 102,079 7,835
Payroll and related taxes 20 33,341 37,047
Payables - Funcesp 22 2,173 4,250
Other 82,632 36,790
1,615,825 626,698
Noncurrent liabilities
Borrowings and financing 14 637,448 1,215,457
Debentures 16 1,528,971 1,441,504
Leases 15 39,948 232
Deferred PIS and Cofins (taxes on revenue) 18 1,185,323 1,176,566
Deferred income tax and social contribution 29(b) 2,673,970 2,603,438
Regulatory charges payable 19 41,236 35,925
Provisions 21 62,367 90,708
Global Reversal Reserve (RGR) 23 16,612 19,093
Derivative financial instruments 31 135 -
Other 35,652 33,078
6,221,662 6,616,001
Equity
Capital 24(a) 3,590,020 3,590,020
Capital reserves 24(c) 666 666
Earnings reserves 24(d) 8,172,442 7,404,769
Other comprehensive income 24(e) 31,191 73,192
11,794,319 11,068,647
Non-controlling interests in investment funds 1,967,288 230,878
13,761,607 11,299,525
Total liabilities and equity 21,599,094 18,542,224 
F-5
COMPANHIADE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br><br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Income statements
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
Note 2019 (unaudited) 2018 (unaudited) 2017
--- --- --- --- --- --- --- --- --- --- ---
Net operating revenue 25.1 3,305,155 3,184,654 2,701,193
Costs on infrastructure implementation, operation & maintenance and services provided 26 (952,177 ) (725,246 ) (593,278 )
Gross profit 2,352,978 2,459,408 2,107,915
Operating income (expenses)
General and administrative expenses 26 (178,900 ) (154,746 ) (122,112 )
Management fees 26 and 30 (16,219 ) (11,890 ) (8,282 )
Other operating income (expenses), net 28 3,525 (34,736 ) (55,006 )
Share of profit of investees 11 179,788 200,822 124,806
(11,806 ) (550 ) (60,594 )
Profit before finance income (costs) and income taxes 2,341,172 2,458,858 2,047,321
Finance income 27 439,041 352,778 123,673
Finance expenses 27 (624,300 ) (494,992 ) (189,889 )
(185,259 ) (142,214 ) (66,216 )
Profit before income tax and social contribution 2,155,913 2,316,644 1,981,105
Income tax and social contribution
Current 29 (276,796 ) (407,423 ) (354,491 )
Deferred 29 (99,666 ) (13,976 ) (241,154 )
(376,462 ) (421,399 ) (595,645 )
Profit for the year 1,779,451 1,895,245 1,385,460
Attributable to:
Controlling shareholders 1,762,631 1,881,668 1,365,512
Non-controlling interests 16,820 13,577 19,948
Basic earnings per share 24(f) 3.31559 3.53950 2.56859
Diluted earnings per share 24(f) 3.31534 3.53938 2.56850 
F-6
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly<br> held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br> CVM: 01837-6 and NIRE: 35300170571
Statements of comprehensive income
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
Note 2019 <br><br>(unaudited) 2018 <br><br>(unaudited) 2017
--- --- --- --- --- --- --- --- --- ---
Profit for the year 1,779,451 1,895,245 1,385,460
Other comprehensive income
Items that will not be subsequently reclassified to profit or loss:
Post-employment benefit - Actuarial Surplus 22(a) 44,975 107,360 -
Deferred income tax and social contribution 29(b) (15,292 ) (36,502 ) -
Adjustment – subsidiaries financial instruments under the equity method 31(a) 1,556 2,408 -
Deferred income tax and social contribution 29(b) (48 ) (74 ) -
Total other comprehensive income, net 31,191 73,192 -
Total comprehensive income for the year 1,810,642 1,968,437 1,385,460
Attributable to:
Controlling shareholders 1,793,822 1,954,860 1,365,512
Non-controlling interests 16,820 13,577 19,948 
F-7
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Statements of changes in equity
Years ended December 31, 2019 (unaudited), and 2018 (unaudited)
(In thousands of reais, unless otherwise stated)
Earnings reserves
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Note Capital Capital<br> reserves Funds<br> intended<br> for capital<br> increase Legal<br> reserve Statutory<br> reserve Earnings<br> retention<br> reserve Unrealized<br> special<br> earnings<br> reserve Retained<br> earnings Additional<br> dividends<br> proposed Other<br> comprehensive<br> income Total Noncontrolling<br> interests Total
At December 31, 2017 3,590,020 666 - 542,763 496,691 1,491,748 4,778,136 - 84,693 - 10,984,717 214,939 11,199,656
Adoption IFRS 15, effective January 01, 2018 24(d) - - - - - - - 198,051 - - 198,051 - 198,051
Recognition of special unrealized earnings reserve - adoption IFRS 15 - - - - - - - 198,051 (198,051 ) - - - - -
Additional dividends proposed 24(b) - - - - - - - - (84,693 ) - (84,693 ) - (84,693 )
Forfeited dividends - - - - - - - - 1,017 - - 1,017 - 1,017
Acquisition of additional interest from noncontrolling shareholders - - - - - - - - - - - - 2,362 2,362
Other comprehensive income
Post-employment benefit - actuarial surplus 22(a) - - - - - - - - - 107,360 107,360 - 107,360
Deferred income tax and social contribution 29(b) - - - - - - - - - (36,502 ) (36,502 ) - (36,502 )
Adjustment - subsidiaries’ financial instruments under the equity method 24(e) - - - - - - - - - 2,408 2,408 - 2,408
Deferred income tax and social contribution 24(e) - - - - - - - - - (74 ) (74 ) - (74 )
Profit for the year - - - - - - - 1,881,668 - - 1,881,668 13,577 1,895,245
Profit allocation:
Recognition of legal reserve 24(b) - - - 94,083 - - - (94,083 ) - - - - -
Recognition of statutory reserve 24(b) - - - - 357,517 - - (357,517 ) - - - - -
Recognition of special unrealized earnings reserve, net 24(b) - - - - - - 62,415 (62,415 ) - - - - -
Recognition of earnings retention reserve 24(b) - - - - - 143,670 - (143,670 ) - - - - -
Interest on capital (R$3.593960 per share) 24(b) - - - - - - - (592,000 ) - - (592,000 ) - (592,000 )
Interim dividends (R$4.615728 per share) 24(b) - - - - - (760,305 ) - - - - (760,305 ) - (760,305 )
Interim dividends (R$3.842866 per share) 24(b) - - - - - - - (633,000 ) - - (633,000 ) - (633,000 )
At December 31, 2018 (unaudited) 3,590,020 666 - 636,846 854,208 875,113 5,038,602 - - 73,192 11,068,647 230,878 11,299,525 
F-8
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Statements of changes in equity
Years ended December 31, 2019 (unaudited), and 2018 (unaudited)
(In thousands of reais, unless otherwise stated)
Earnings<br> reserves
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Note Capital Capital<br><br><br> reserves Funds<br><br><br> intended<br><br> for capital<br><br> increase Legal<br><br><br> reserve Statutory<br><br><br> reserve Earnings<br><br><br> retention<br><br> reserve Unrealized<br><br><br> special<br><br> earnings<br><br> reserve Retained<br><br><br> earnings Additional<br><br><br> dividends<br><br> proposed Other<br><br><br> comprehensive<br><br> income Total Noncontrolling<br><br><br> interests Total
At<br> December 31, 2018 (unaudited) 3,590,020 666 - 636,846 854,208 875,113 5,038,602 - - 73,192 11,068,647 230,878 11,299,525
Forfeited<br> dividends - - - - - - - 302 - - 302 - 302
Acquisition<br> of additional interest from noncontrolling shareholders - - - - - - - - - - - 1,719,590 1,719,590
Other<br> comprehensive income
Post-employment benefit - actuarial surplus 22(a) - - - - - - - - - (62,385 ) (62,385 ) - (62,385 )
Deferred income tax and social contribution 29(b) - - - - - - - - - 21,210 21,210 - 21,210
Adjustment - subsidiaries’ financial instruments<br>under the equity method 24(e) - - - - - - - - - (852 ) (852 ) - (852 )
Deferred income tax and social contribution 24(e) - - - - - - - - - 26 26 - 26
Profit<br> for the year - - - - - - - 1,762,631 - - 1,762,631 16,820 1,779,451
Profit<br> allocation:
Recognition<br> of legal reserve 24(b) - - - 81,158 - - - (81,158 ) - - - - -
Recognition<br> of statutory reserve 24(b) - - - - 336,295 - - (336,295 ) - - - - -
Recognition<br> of special unrealized earnings reserve - - - - - - 428,021 (428,021 ) - - - - -
Interest<br> on capital (R$0.562186 per share) 24(b) (370,415 ) - - (370,415 ) - (370,415 )
Interest<br> on capital (R$0.339126 per share) 24(b) - - - - - - - (223,444 ) - - (223,444 ) - (223,444 )
Interim<br> dividends (R$0.445535 per share) 24(b) - - - - - (77,801 ) - (215,755 ) - - (293,556 ) - (293,556 )
Interest on capital (R$0.163679<br>per share) 24(b) - - - - - - - (107,845 ) - - (107,845 ) - (107,845 )
At<br> December 31, 2019 (unaudited) 3,590,020 666 - 718,004 1,190,503 797,312 5,466,623 - - 31,191 11,794,319 1,967,288 13,761,607 
F-9
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Statements of cash flows
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
2019 <br> (unaudited) 2018 <br> (unaudited) 2017
--- --- --- --- --- --- --- --- --- ---
Operating activities
Profit for the year 1,779,451 1,895,245 1,385,460
Adjustments to reconcile profit to cash provided by operating activities
Deferred PIS and Cofins (note 18) 8,757 (29,041 ) 87,778
Depreciation and amortization (note 26) 19,963 9,214 9,627
Deferred income tax and social contribution (note 29 (b)) 99,666 13,976 241,154
Lawsuits (note 21 (a)) (13,940 ) (27,070 ) (49,821 )
Residual cost of property and equipment/intangible assets disposed of (notes 12 and 13) 2,402 599 510
Tax benefits - merged goodwill 36 37 37
Realization of concession assets in acquisition of subsidiary (note 11 (a)) 2,490 2,490 2,490
Realization of loss in jointly controlled subsidiary (note 11 (a)) (1,966 ) (2,093 ) (2,195 )
Gain on acquisition of control - 24,756 (5,042 )
Share of profit (loss) of investee (note 11 (a)) (179,788 ) (200,822 ) (124,806 )
Interest, inflation adjustments and exchange rate changes of assets and liabilities 223,685 186,416 145,426
1,940,756 1,873,707 1,690,618
(Increase) decrease in assets
Restricted cash (4,336 ) (5,494 ) (7,631 )
Concession assets (525,212 ) (341,920 ) (1,152,922 )
Inventories (64,099 ) 21,949 (4,438 )
Recoverable taxes (2,814 ) (14,546 ) (3,316 )
Prepaid expenses 3,707 (3,765 ) 5,696
Sureties and judicial deposits 16,328 4,478 6,761
Receivables - Finance Department (150,249 ) (113,292 ) (162,433 )
Receivables from subsidiaries (124 ) 580 1,945
Other (6,641 ) (16,090 ) 1,832
(733,440 ) (468,100 ) (1,314,506 )
Increase (decrease) in liabilities
Trade payables 79,161 15,212 24,598
Taxes and payroll charges payable 37,762 (36,585 ) 59,683
Payroll and related taxes (3,706 ) 656 2,668
Taxes in installments - (58,146 ) (86,777 )
Regulatory charges payable 10,675 2,355 20,423
Provisions (22,033 ) (13,142 ) -
Payables - Funcesp (2,077 ) 2,194 (3,439 )
Global Reversal Reserve (RGR) (2,481 ) (2,480 ) -
Other 46,080 (1,294 ) 11,157
143,381 (91,230 ) 28,313
Net cash provided by operating activities 1,350,697 1,314,377 404,425 
F-10
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Statements of cash flows
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
2019<br><br> <br>(unaudited) 2018<br><br> <br>(unaudited) 2017
--- --- --- --- --- --- --- --- --- ---
Investing activities
Short-term investments 348,708 (54,966 ) (237,724 )
Property and equipment (note 12) (18,534 ) (6,988 ) (1,553 )
Intangible assets (note 13) (2,871 ) (797 ) (4,039 )
Investments (note 11) (185,000 ) (51,381 ) (119,113 )
Cash acquired in business combinations - 3,667 479
Dividends received (note 11 (a)) 14,876 7,752 -
Net cash (used in) provided by investing activities 157,179 (102,713 ) (361,950 )
Financing activities
Additions to borrowings and debentures (notes 14 and 16) 509,325 1,430,910 962,500
Additions to leases (note 15) - 696 -
Repayment of borrowings and debentures (principal) (notes 14 and 16) (336,849 ) (453,093 ) (250,123 )
Repayment of borrowings and debentures (interest) (notes 14 and 16) (169,721 ) (119,888 ) (96,725 )
Lease payments (note 15) (12,165 ) (358 ) -
Transactions with noncontrolling shareholders (16,820 ) (13,577 ) (19,948 )
Derivative financial instruments (1,701 ) 18,059 -
Dividends and interest on capital paid (note 24 (b)) (900,714 ) (2,064,258 ) (636,118 )
Net cash used in financing activities (928,645 ) (1,201,509 ) (40,414 )
Increase in cash and cash equivalents, net 579,231 10,155 2,061
Cash and cash equivalents as of January 1 16,740 6,585 4,524
Cash and cash equivalents as of December 31 595,971 16,740 6,585
Changes in cash and cash equivalents 579,231 10,155 2,061

The total income tax and social contribution paid by the Company in 2019 (unaudited) was R$511,800 (R$427,058 in 2018 (unaudited) and R$293,095 in 2017), of which R$252,806 in 2019 (unaudited) (R$298,841 in 2018 (unaudited) and R$204,034 in 2017) due to accounts receivable collected - Law No. 12.783 – SE.

F-11
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

Highlights:

Significant accounting, regulatory and economic matters for the current reporting period:

· Accounting - New Standards

IFRS16 – Leases became effective on January 01, 2019 (Notes 3.23 and 15).

· Regulatory - Periodic Tariff Revision (RTP)

The Periodic Tariff Revision (RTP) for CTEEP’s Contract No. 059/2001 was postponed to July 2020, with effect retrospective to July 2018, according to Technical Note No. 115/2019-SGT/ANEEL.

In June 2019, there were periodic tariff revisions for subsidiaries IE Sul and IE Pinheiros and the jointly controlled subsidiary IE Madeira, according to Authorizing Resolution REH No. 2.556 (Note 25.2).

· Economic

(i)   In the appraisal of the actuarial pension plan assets, an interest rate of 3.32% p.a. was used in 2019 and 5.01% p.a. in 2018, which was determined based on market inputs of December 12, 2019 for returns on NTN-B (Note 22 (a)). The Company’s Management has continuously monitored the actuarial pension plan valuation due to the instability in the interest rate, which is determined based on market data as to the returns from the National Treasury Bonds (NTN-B).

(ii)  The year-to-date IPCA was 3.17% in 2019 and 4.05% in 2018. IPCA is the index used to adjust the annual revenue (RAP) and is also used to adjust amounts receivable from financial assets and contract assets (Note 25.2).

1 General information
1.1 Corporate purpose
--- ---

CTEEP - Companhia de Transmissão de Energia Elétrica Paulista (“ISA CTEEP”, “CTEEP” or “Company”) is a Brazilian publicly-held company authorized to operate as an electric power public service concessionaire, and is principally engaged in the planning, infrastructure implementation, and operation and maintenance of subordinated power transmission systems. The Company’s headquarters are located at Avenida das Nações Unidas, 14.171, Torre C Cristal, andar 5,6 e 7, Vila Gertrudes, in the city of São Paulo, State of São Paulo. In performing its operating activities, the Company is required to make investments and manage research & development programs related to power transmission and other activities related to the technology available. These activities are regulated and supervised by the National Electric Power Agency (“ANEEL”).

The Company derived from a partial spin-off of Companhia Energética de São Paulo (“CESP”) and started to operate on April 1, 1999. On November 10, 2001, the Company merged EPTE - Empresa Paulista de Transmissão de Energia Elétrica S.A. (“EPTE”), which was originated from the partial spin-off of Eletropaulo - Eletricidade de São Paulo S.A. In a privatization auction held on June 28, 2006, the State Government of São Paulo sold the common shares held by it, corresponding to 50.10% of the common shares issued by CTEEP. The winning bidder was Interconexión Eléctrica S.A. E.S.P. (“ISA”).

Currently, the Company is consolidated in the electric power transmission sector, operating as a group, directly controls 12 companies and have shared control of other five companies, which, together, hold 25 concession agreements (note 1.2) and 18.6 kilometers of lines built and more than 2 thousand kilometers in the pre-operating stage. On December 19, 2019, the Company won 3 lots at Transmission Auction No. 02/2019, held by ANEEL,which will add 379 km of transmission lines and 4.3 thousand MVA to the Company’s assets. The works are scheduled to be built between 42 and 60 months. The concession assets of these projects will be signed throughout 2020.

F-12
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The Company’s shares are traded in the Level 1 segment of B3 S.A. - Brasil, Bolsa, Balcão, under the ticker symbols TRPL3 and TRPL4. Additionally, CTEEP has an American Depositary Receipts (ADRs) program - Rule 144 A in the United States. The depositary of the ADRs is JP Morgan Chase Bank and the custodian is Banco Santander.

The Company has adopted B3’s Differentiated Corporate Governance Practices - Level 1 since September 2002. The commitments undertaken as a result of this adhesion ensure greater transparency from the Company towards the market, investors and shareholders, thus facilitating the monitoring of Management’s actions.

The Company is a member of Brasil Amplo Index (IBRA), Brazil 100 Index, Dividends Index, Electric Power Index, Trade Corporate Governance Index, Index of Shares with Corporate Governance, MidLarge Cap Index and Public Utility Index.

1.2 Concessions

The Company and its subsidiaries are authorized to operate the following concession agreements relating to electric energy transmission services:

Periodic Tariff Revision (RTP) Annual Permitted Revenue - RAP
Concessionaire Contract Stake (%) Term/ (years) Maturity Term/ years Next Adjust. index R$ thousand Base Month
CTEEP (i) 059/2001 30 12.31.42 5 2024 IPCA 2,579,079 06/19
Subsidiaries
IE Serra do Japi 143/2001 100 30 12.20.31 n/a n/a IGPM 16,476 06/19
IEMG 004/2007 100 30 04.23.37 5 2022 IPCA 19,030 06/19
IENNE 001/2008 100 30 03.16.38 5 2023 IPCA 46,371 06/19
IE Pinheiros 012/2008 100 30 10.15.38 5 2024 IPCA 10,677 06/19
IESul 013/2008 100 30 10.15.38 5 2024 IPCA 5,777 06/19
IE Pinheiros 015/2008 100 30 10.15.38 5 2024 IPCA 35,337 06/19
IESul 016/2008 100 30 10.15.38 5 2024 IPCA 12,166 06/19
IE Pinheiros 018/2008 100 30 10.15.38 5 2024 IPCA 5,865 06/19
Evrecy 020/2008 100 30 07.17.25 4 2021 IGPM 10,401 06/19
IE Serra do Japi 026/2009 100 30 11.18.39 5 2020 IPCA 41,840 06/19
IE Pinheiros 021/2011 100 30 12.09.41 5 2022 IPCA 5,495 06/19
IE Itaúnas 018/2017 100 30 02.10.47 5 2022 IPCA 52,453 06/19
IE Tibagi 026/2017 100 30 08.11.47 5 2023 IPCA 20,205 06/19
IE Itaquerê 027/2017 100 30 08.11.47 5 2023 IPCA 50,794 06/19
IE Itapura 042/2017 100 30 08.11.47 5 2023 IPCA 11,800 06/19
IE Aguapeí 046/2017 100 30 08.11.47 5 2023 IPCA 59,037 06/19
IE Biguaçu 012/2018 100 30 09.20.48 5 2024 IPCA 40,426 06/19
IE Itapura 021/2018 100 30 09.20.48 5 2024 IPCA 10,695 06/19
Lot 1 (ii) - 100 30 - 5 2025 IPCA 37,748 RAP auctioned
Lot 6 (ii) - 100 30 - 5 2025 IPCA 5,316 RAP auctioned
Lot 7 (ii) - 100 30 - 5 2025 IPCA 32,887 RAP auctioned 
F-13
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
Jointly-controlled subsidiaries
--- --- --- --- --- --- --- --- --- ---
IEMadeira 013/2009 51 30 02.25.39 5 2024 IPCA 272,917 06 /19
IEMadeira (iii) 015/2009 51 30 02.25.39 5 2024 IPCA 237,604 06 /19
IEGaranhuns 022/2011 51 30 12.09.41 5 2022 IPCA 90,917 06 /19
Paraguaçu 003/2017 50 30 02.10.47 5 2022 IPCA 118,479 06 /19
Aimorés 004/2017 50 30 02.10.47 5 2022 IPCA 79,374 06 /19
Ivaí 022/2017 50 30 08.11.47 5 2023 IPCA 294,001 06 /19
(i) In CTEEP, the Annual Permitted Revenue (“RAP”) relating to the Existing Service (“SE”)<br>assets is R$1,531,817 as of June 2019. The Periodic Tariff Revision (RTP) by the transmission concessionaires was postponed to<br>July 2020, with effects retrospective to July 2018, according to Technical Note No. 115/2019-SGT/ANEEL.
--- ---
(ii) Lots won at ANEEL Auction No. 02/2019, of December 2019, and concession agreements are scheduled<br>to be signed by March 2020.
--- ---
(iii) On May 12, 2014, the facilities under Concession Agreement 015/2009 for the jointly controlled<br>entity IEMadeira were completed and delivered to the National Electric System Operator (“ONS”) for testing. Due to<br>system and third parties’ restrictions at that time, ONS issued the Partial Authorization Agreement (“TLP”) for<br>provisional commercial operation and released the payment of the Annual Permitted Revenue (RAP) for Bipole 2 Converters, with a<br>10% reduction, due to the existence of certain non-restrictive pending aspects. The commissioning tests for Bipole 2 Converters<br>were initiated on March 13, 2015, when all system and third parties’ restrictions ceased to exist and ONS issued the respective<br>Testing Authorization Instruments (TLTs).
--- ---

In June 2015, the first power transmission occurred. This date was considered by ANEEL as the date on which the commercial operations of Bipole 2 converters were started. There were still some non-restrictive pending aspects which were both its and third parties’ responsibility, the main one was the completion of the Joint Studies, in ONS’s Real-time Digital Simulator.

Once Joint Studies were completed, ONS attested the clearance of all non-restrictive pending aspects and issued the Final Authorization Instruments (“TLDs”), ensuring that IE Madeira may receive the RAP from Bipole 2 converters beginning September 2019.

All concession arrangements above provide for the right of compensation from concession-related assets at the end of their term. For agreements subject to periodic tariff revision, according to ANEEL regulations, yielding income on investments in expansion, enhancements and improvements is provided for.

Law No. 12.783/2013

The Extraordinary Shareholders Meeting of December 03, 2012 unanimously approved the extension of Concession Agreement No. 059/2001, under Law No. 12.783/2013, to December 2042, ensuring the Company the right to receive the amounts relating to NI (*) and SE assets (**).

For amounts relating to NI assets, equivalent to R$2,891,291, according to Interministerial Ruling No. 580, were received from 2013 and 2015 (note 7).

F-14
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

For the SE amounts, ANEEL Order No. 1484/17, of May 30, 2017, recognized as the total value of the assets the amount of R$4,094,440 as of December 31, 2012. The initial impact of RBSE amounts was accounted for in September 2016, and the additional amount recognized by ANEEL was recognized during the second quarter of 2017 in “Trade receivables (concession assets)” (note 7 (a) (ii)).

As disclosed in a material fact notice of April 11, 2017, a temporary injunction granted in connection with a lawsuit filed by three business associations determined the exclusion, on a provisional basis, of the “remuneration” portion provided for in article 15, paragraph 2, of Law No. 12783/13 and consequent recalculation of the Annual Permitted Revenues (RAPs) by ANEEL. In complying with such injunction, ANEEL issued Technical Notice No. 170/17 providing for the new calculation whereby the capital cost was excluded from the RAP amounts (note 7). Based on the opinion of its legal counsel, the Company understands that this is a provisional order and that the Company’s right to receive the RBSE asset amounts is assured by law. Therefore, no adjustment to the amount recorded through December 31, 2019 was deemed necessary.

(*) NI – facilities energized as of June 1, 2000.

(**) SE – facilities of nondepreciated assets existing on May 31, 2000.

2 Presentation of financial statements
2.1 Basis of preparation and presentation
--- ---

The consolidated financial statements identified as “CTEEP and its subsidiaries” have been prepared in compliance with the IFRS as issued by the International Accounting Standards Board – IASB.

The consolidated financial statements were prepared considering the historical cost, except when otherwise stated, as described in the accounting practices below. The historical cost is based on the fair value of the consideration paid in exchange for assets.

2.2 Functional and presentation currency

The financial statements of CTEEP are presented in Brazilian reais, the currency of the main economic environment where the companies operate (“functional currency”).

2.3 Critical accounting judgments and key estimates and assumptions

The preparation of individual and consolidated financial statements requires Management to make judgments using estimates and assumptions based on objective and subjective factors and on the legal counsel’s and actuarial advisors’ opinion, to determine the appropriate amounts for recording certain transactions that affect assets, liabilities, revenue and expenses. Actual results may differ from these estimates.

These judgments, estimates and assumptions are revised at least annually, and any adjustments are recognized in the period in which estimates are revised.

Critical judgments, estimates and assumptions are related to the following aspects:

· Recognition of deferred tax assets or liabilities (note 29 (b)).
· Analysis of the credit risk and other risks for the determination of the need to recognize provisions,<br>including provision for tax, civil and labor risks (note 21).
--- ---
· Accounting for concession agreements.
--- --- 
F-15
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

In accounting for concession agreements, the Company makes analyses that require Management’s judgment, substantially, on the applicability of the interpretation of concession agreements, determination and classification of revenues from infrastructure implementation, expansion, reinforcements and improvements as contract assets.

· Recognition<br> of the contract asset (note 7)

The Company’s management assesses the timing to recognize concession assets based on the economic features of each concession agreement. A contract asset arises when the concessionaires fulfills its obligation to build and implement the transmission infrastructure, with revenue being recognized over the term of the project. The contract asset is recorded with a balancing entry to infrastructure revenue, which is recognized as expenditures are incurred. The indemnifiable portion of the contract asset is identified when the infrastructure implementation is completed.

· Determination<br> of the discount rate of the contract asset (note 7)

The rate applied to the contract asset is the regulatory WACC or the WACC of the auction that represents the Company’s estimate for the compensation from the transmission infrastructure investments, since it considers the specifics of the business.The rate to price the financial component of the contract asset is established at the date of start of each concession agreement. When the Grantor revises or adjusts the revenue, the Company is entitled to receive, the bookkept contract asset amount is adjusted to reflect the revised flows, and the adjustment is recognized as income or expenses in profit or loss.

· Determination<br> of infrastructure revenue (note 25.1)

When the concessionaire provides infrastructure implementation services, the infrastructure revenue at fair value and the respective costs relating to the infrastructure implementation services are recognized, taking into consideration that sufficient margin to cover infrastructure implementation costs and charges is embedded in the projects.

· Determination<br> of operation and maintenance revenues (note 25.1)

When the concessionaire provides operation and maintenance services, revenue at fair value, based, among others, on the amounts estimated by the Grantor, and the respective costs are recognized, according to the consideration paid for the services.

F-16
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
2.4 Consolidation procedures
--- ---

The consolidated financial statements include the financial statements of the Company and its subsidiaries.

Control is obtained 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 in the investee.

Subsidiaries are fully consolidated from the date control is obtained until the date on which control ceases to exist.

As of December 31, 2019, 2018 and 2017, equity interests in subsidiaries were as follows:

Equity interest - %
Reporting date 12.31.2019 (unaudited) 12.31.2018 (unaudited) 12.31.2017
Subsidiaries
Interligação Elétrica Serra do Japi S.A. (Serra do Japi) 12.31.2019 100 100 100
Interligação Elétrica de Minas Gerais S.A. (IEMG) 12.31.2019 100 100 100
Interligação Elétrica Norte e Nordeste S.A. (IENNE) 12.31.2019 100 100 100
Interligação Elétrica Pinheiros S.A. (Pinheiros) 12.31.2019 100 100 100
Interligação Elétrica do Sul S.A. (IESul) 12.31.2019 100 100 50
Evrecy Participações Ltda. (Evrecy) 12.31.2019 100 100 100
Interligação Elétrica Itaúnas S.A. (Itaúnas) 12.31.2019 100 100 100
Interligação Elétrica Tibagi S.A. (Tibagi) 12.31.2019 100 100 100
Interligação Elétrica Itaquerê S.A. (Itaquerê) 12.31.2019 100 100 100
Interligação Elétrica Aguapeí S.A. (Aguapeí) 12.31.2019 100 100 100
Interligação Elétrica Biguaçu S.A. (Biguaçu) 12.31.2019 100 100 -
Interligação Elétrica Itapura S.A. (Itapura) 12.31.2019 100 100 100
Fundo de Investimento Referenciado DI Bandeirantes (i) 12.31.2019 13 (*) 68 30
Fundo de Investimento Xavantes Referenciado DI (ii) 12.31.2019 3 (*) 43 72
Fundo de Investimento Assis Referenciado DI 12.31.2019 100 (*) 100 100
Fundo de Investimento Barra Bonita 12.31.2019 100 (*) - -

(*) Includes direct and indirect equity interests.

(i) As of December 31, 2019 (unaudited),<br> jointly controlled subsidiary Interligação Elétrica do Madeira (Madeira)<br> has an 87% equity interest in Fundo de Investimento Referenciado DI Bandeirantes.
(ii) As of December 31, 2019 (unaudited),<br> jointly controlled subsidiaries Interligação Elétrica Ivaí<br> S.A. (Ivaí) and Interligação Elétrica do Madeira (IEMadeira)<br> have equity interests of 87% and 9%, respectively, in Fundo de Investimento Xavantes<br> Referenciado DI.
--- ---

Consequently, these equity interests have effect on ‘Noncontrolling interests in investment funds’ (R$1,967,288 as of December 31, 2019).

F-17
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The following procedures were adopted in preparing the consolidated financial statements:

· elimination<br> of subsidiaries’ equity;
· elimination<br> of profit (loss) of investees; and
--- ---
· elimination<br> of assets and liabilities, and income and expenses between consolidated entities.
--- ---

The accounting policies were consistently applied to all consolidated companies, and the fiscal year of these companies coincides with that of the Parent.

Noncontrolling interests are reported as part of equity and profit and are presented separately in the consolidated financial statements.

As of December 31, 2019, 2018 and 2017, equity interests in jointly-controlled subsidiaries were as follows:

Equity interest - %
Reporting date 12.31.2019 12.31.2018 12.31.2017
Jointly controlled subsidiaries
Interligação Elétrica do Sul S.A. (IESul) - - 50
Interligação Elétrica do Madeira S.A. (IEMadeira) 12.31.2019 51 51 51
Interligação Elétrica Garanhuns S.A. (IEGaranhuns) 12.31.2019 51 51 51
Interligação Elétrica Paraguaçu S.A. (Paraguaçu) 12.31.2019 50 50 50
Interligação Elétrica Aimorés S.A. (Aimorés) 12.31.2019 50 50 50
Interligação Elétrica Ivaí S.A. (Ivaí) 12.31.2019 50 50 50
3 Significant accounting policies
--- ---
3.1 Revenue and expense recognition
--- ---

Revenue and expenses are recorded on the accrual basis.

3.2 Revenue recognition

CTEEP applied IFRS 15 – Revenue from Contracts with Customers beginning January 1, 2018. Additional information on the Company’s accounting policies relating to contracts with customers and the effect of the initial application of IFRS 15 is provided in note 3.7.

Concessionaries are required to record and measure service revenue according to IFRS 15 – Revenue from Contracts with Customers and IFRS 9 – Financial Instruments, even though when services are provided under a single concession agreement. Revenues are recognized when or as the entity fulfills its performance obligations assumed under the contract with the customer and only when there is an approved contract; identifying the rights is possible; there is commercial substance and it is likely that the entity will receive the consideration it is entitled to. The Company’s revenues are classified into the following groups:

(a) Infrastructure revenue

Refers to services such as infrastructure implementation, expansion, reinforcement and improvements in electric power transmission facilities. Infrastructure revenue is recognized as expenditures are incurred and is calculated plus PIS and Cofins rates at the investment value, since projects included sufficient margin to cover infrastructure implementation costs and charges, considering that most of their facilities are implemented under the outsourced contracts with unrelated parties.

F-18
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

Any positive or negative changes in relation to the estimated margin are allocated at the end of each work (note 25.1 (a)).

Beginning January 01, 2013, as Concession Agreement 059/2001, regulated by Law No. 12.783/2013, was extended, the Company has recognized infrastructure implementation revenue for improving electric power facilities, as prescribed by ANEEL Order No. 4.413, of December 27, 2013, and Normative Resolution No. 443, of July 26, 2011 (note 25.1 (a)).

(b) Compensation from concession assets

Refers to interest recognized under the straight-line method based on the regulatory WACC or the WACC of the auction that represents the compensation from the transmission infrastructure investments, since it considers the specifics of the business. The rate seeks to price the financial component of the contract asset, determined at the date of start of each concession agreement and is not subsequently changed. The rate is applied on the total amount receivable from the future cash flow and ranges from 6.6% and 10.5% (note 25.1(b)).

(c) Operation and maintenance revenue

Refers to services related to operation and maintenance of the electric power transmission facilities, which start after the construction phase and aim to ensuring the availability of these facilities (note 25.1(a)).

(d) Efficiency gain or loss from infrastructure implementation

Refers to gains or losses allocated to profit or loss when each reinforcement and improvement project is placed into operations and new concession agreements are entered into (nota 25.1 (c)).

3.3 Current and deferred income tax and social contribution

Current and deferred income tax and social contribution are calculated according to the legislation applicable, based on profit, adjusted by the inclusion of nondeductible expenses, exclusion of nontaxable revenues and inclusion and/or exclusion of temporary differences.

The Company elected to adopt the taxable income regime. Current and deferred income tax for the year is calculated at the rate of 15%, plus a surtax of 10% on taxable income exceeding R$240 for income tax, and current and deferred social contribution is calculated at the rate of 9% on taxable income; this calculation takes into consideration tax loss carryforwards, if any, limited to 30% of taxable income. Subsidiaries Pinheiros, IEMG, Serra do Japi, Evrecy, IENNE, Itaúnas, Tibagi, Itaquerê, Itapura, Aguapeí and Biguaçu elected to adopt the deemed income regime. Subsidiary IESUL elected to adopt the quarterly taxable income regime (nota 29(a)).

Deferred tax assets arising from temporary differences were recognized according to CVM Instruction No. 371, of June 27, 2002 and IAS 32 – Taxes on Income, and considered the history of profitability and expectation that future taxable income will be generated, based on a technical feasibility study approved by management bodies.

The recovery of deferred tax assets is revised at the end of each year and, when it is no longer probable that future taxable income will be available to allow the recovery of all or part of the assets, these are adjusted for the expected recoverable amount.

Deferred tax assets and liabilities are measured using the tax rates applicable for the period in which the liability is expected to be settled or the asset is expected to be realized, based on the tax rates set forth in the tax law prevailing at the end of each year, or when a new legislation has been substantially approved (note 29 (b)).

Deferred tax assets and liabilities are offset only when there is the legal right to offset the current tax asset against the current tax liability and when they are related to the taxes managed by the same tax authority and the Company intends to settle its current tax assets and liabilities.

F-19
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
3.4 Taxes and regulatory charges fees on revenue
(a) Taxes on services

Revenues, expenses and assets are recognized net of taxes on services, except when taxes on sales incurred upon the purchase of goods or services cannot be recovered from tax authorities, in which case taxes on services are recognized as part of the acquisition cost of the asset or expense item, as applicable.

(b) Regulatory charges

The regulatory charges below are part of the government’s policies for the electric power sector and all of them are required by law. Their amounts are established by ANEEL Resolutions or Orders, based on which concessionaires charge their clients. by means of the electric power tariff, and are classified as regulatory charges payable in the balance sheet.

(i) Energy Development Account (CDE)

The Energy Development Account (CDE) was created by Law No. 10438, of April 26, 2002, to provide funds for: i) the energy development in the States; ii) the competitiveness of the energy produced from wind power plants, small hydroelectric power plants, biomass, natural gas and mineral coal, in the areas serve by the interconnected electric power systems; iii) promote the universalization of the electric power service throughout the country. The CDE amount is set by ANEEL annually based on the power used by the consuming units connected to the transmission facilities. This amount is paid to the Electric Power Trade Chamber (CCEE) and transferred to the consuming units by means of the Transmission System Use Tariff (TUST) (note 19).

(ii) Alternative Power Sources Incentive Program (PROINFA)

Launched by Law No. 10438, of April 26, 2002, Proinfa is aimed at increasing the share of alternative renewable power sources in Brazil, such as wind power plants, biomass and small hydroelectric power plants. The amount is set based on the expected electric power generation by plants taking part in Proinfa. This amount is paid to Eletrobras and transferred to the consuming units by means of the Transmission System Use Tariff (TUST) (note 19).

(iii) Global Reversal Reserve (RGR)

This charge was created by Decree No. 41019, of February 26, 1957. Refers to an annual amount set by ANEEL, paid monthly in twelfths by concessionaires to provide fund for reversal and/or takeover of electric power supply services as well as to finance the expansion and improvement of such services. Pursuant to article 21 of Law No. 12.783/2013, beginning January 1, 2013, power transmission companies under concession agreements extended as set forth in the aforementioned Law are exempted from paying the annual RGR amount (note 19).

F-20
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(iv) Research and Development (R&D)
--- ---

Concessionaires of public services of electric power distribution, transmission and generation, the licensees of public services of electric power distribution, and the authorized independent producers of electric power, excluding those that generate energy exclusively from wind, sun, biomass, qualified cogeneration and small hydroelectric power plants, are required to invest annually a percentage of its net operating revenue (NOR) in Technological Research and Development projects in the electric power sector, according to regulations established by ANEEL (note 19).

(v) Electric Power Service Inspection Fee (TFSEE)

Created by Law No. 9.427/1996, TFSEE is applied on electric power generation, transmission, distribution and sale. According to article 29 of Law No. 12.783/2013, TFSEE is equivalent to 0.4% of the annual economic benefit amount (note 19).

3.5 Financial instruments

The Company and its subsidiaries applied the requirements of IFRS 9 – Financial Instruments beginning January 1, 2018, relating to the classification and measurement of financial assets and financial liabilities and the measurement and recognition of impairment losses (note 31).

(a) Financial assets
(i) Classification and measurement
--- ---

According to IFRS 9, financial instruments are classified into three categories: measured at amortized cost, fair value through other comprehensive income (FVTOCI) and fair value through profit or loss (FVTPL).

The classification of financial assets at the initial recognition depends on the characteristics of the contract cash flows and the business model used to manage such financial assets. The Company discloses its financial instruments according to the categories mentioned above:

· Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated at fair value through profit or loss on initial recognition or financial assets that should mandatorily be measured at fair value.

Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss. Net changes in fair value are recognized in profit or loss.

As of December 31, 2019 and 2018, financial assets classified into this category comprise cash and cash equivalents (note 5), restricted cash, short-term investments (note 6), concession financial asset under Law No. 12.783-SE (note 7), and financial instruments (note 31).

· Amortized cost

A financial asset is classified and measured at amortized cost when there is an intent to receive contract cash flows and generate cash flows that are “solely payments of principal and interest” on the outstanding principal amount. This valuation is performed at the instrument level.

F-21
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

Assets measured at amortized cost use effective interest rate method, less any impairment losses. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

As of December 31, 2019, and 2018, the main financial assets classified into this category are receivables from the Finance Department (note 8) and O&M services (note 7).

(ii) Impairment of financial assets

Under IFRS 9, the expected loss model applies to financial assets measured at amortized cost or at fair value through other comprehensive income, except investments in equity instruments.

(iii) Derecognition of financial assets

A financial asset is derecognized when the contract rights to the cash flows of the asset expire or when the rights to receive contract cash flows on a financial asset in a transaction where substantially all the risks and rewards of ownership of the financial asset are transferred to third parties. Any interest created or retained by the Company in these financial assets is recognized as a separate asset or liability.

(b) Financial liabilities

Financial liabilities are classified at fair value through profit or loss when they are either held for trading or designated at fair value through profit or loss. Other financial liabilities (including borrowings) are measured at amortized cost using the effective interest method.

(c) Derivatives and hedging activities

IFRS 9 provides for an approach to account for hedge based on Management´s risk management, mainly based on principles. One of the main amendments to the standard is the measurement of the effectiveness. The standard requires Management to evaluate the conditions and percentages of effectiveness, bringing a qualitative vision to the process.

The Company and its subsidiary Biguaçu use derivative financial instruments for hedging purposes such as interest rate swaps and forward currency contracts. These financial instruments are recognized initially at the fair value at the derivative contract date and are subsequently remeasured at fair value.

The Company designates and documents the hedge relationship to which it intends to apply the hedge accounting and the objective and strategy of the risk management to contract the hedge. The documentation includes the identification of the hedge instrument, the hedged item, the nature of the hedged risk and how the entity evaluates if the hedging relationship meets the hedge effectiveness requirements.

Financial instruments are classified as fair value hedge and cash flow hedge:

Fair value hedge: intended for hedging the exposure to changes in the fair value of an asset or liability. The changes in the fair value of a hedge instrument and the hedged item are recognized in profit or loss.

Cash flow hedge: Intended to hedge against changes in the cash flow that is attributable to a specific risk associated to an asset or liability. A financial instrument classified as cash flow hedge, the effective portion of the gain or loss of the hedge instrument is recognized in other comprehensive income whereas any ineffective portion is immediately recognized in the income statement. The amounts accrued in other comprehensive income are accounted for according to the nature of the transactions originated by the hedged asset. If the hedged item transaction subsequently results in the recognition of a non-financial item, the amount accrued in equity is included in the initial cost of the hedged asset or liability.

F-22
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The Company’s swap financial instruments are classified as fair value hedge and Biguaçu’s forward currency contract is classified as cash flow hedge, as described in note 31.

3.6 Cash and cash equivalents

Cash and cash equivalents include cash on hand, banks and short-term investments.

In order to be qualified as a cash equivalent, an investment needs to be readily convertible into a known cash amount and be subject to an insignificant risk of change in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, for example, three months or less from the date of acquisition (note 5).

3.7 Concession assets

As provided for in the concession agreement, the concessionaire operates as a service provider. The concessionaire implements, expands, reinforces or improve the infrastructure (infrastructure implementation services) used to provide a public utility service in addition to operating and maintaining this infrastructure (operation and maintenance services) during a specified term. The energy transmission company is compensated for the availability of the infrastructure over the term of the concession (note 7).

The concession agreement does not transfer the right to control the use of the public service infrastructure to the concessionaire. Only the assignment of ownership of these assets is expected for purposes of providing public services, which are reversed to the concession grantor after the end of the respective agreement. The concessionaire is entitled to operate the infrastructure for the provision of public services on behalf of the concession grantor, based on the terms and conditions set forth in the concession agreement.

Concessionaries are required to record and measure service revenue according to IFRS 15 - Revenue from Contracts with Customers, IFRS 9 - Financial Instruments, and IFRIC 12 - Concession Agreements. If the concessionaire provides more than one service governed by one single contract, the compensation received or receivable should be allocated based on the performance obligation based on the amounts relating to the services provided if the amounts are separately identifiable.

The concession assets records amounts receivable relating to the infrastructure implementation, the compensation revenue from the concession assets, operation and maintenance services, and assets under Law No. 12.783 – SE, classified in:

(a) Concession assets - financial

Concession Agreement No. 059/2001 was extended to December 2042 under Law No. 12.783/2013, ensuring the Company the unconditional right to receive the amounts relating to the reversal of SE investments, not amortized, whose amounts are determinable according to conditions set forth in Ruling No. 120/16. This financial asset is formed by the cash flow regulated by ANEEL Technical Note No. 336/2016.

Financial assets recorded in “Assets under Law No. 12.783 - SE”, since January 1, 2018, have been classified as measured at fair value through profit or loss, pursuant to IFRS 9 (note 7 (a)).

The operation and maintenance of the transmission infrastructure begins after the end of the construction phase and placement into service. The recognition of receivables and the respective revenue only originates after the performance obligation is satisfied monthly. Accordingly, the amounts receivable, recorded in “O&M services” are considered financial asset at amortized cost (note 7 (b)).

F-23
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(b) Concession assets - contract
--- ---

All the Company’s concessions were classified under the contract asset model beginning January 01, 2018, as required by IFRS 15 – Revenue from Contracts with Customers. A contract asset originates when the concessionaire satisfies the obligation to build and implement the transmission infrastructure, with the revenue being recognized over the term of the project; however, receipt of cash flow is contingent on the satisfaction of the performance operation and maintenance obligation. Monthly, as the Company operates and maintains the infrastructure, the portion of the contract asset equivalent to the consideration for that month for the satisfaction of the construction performance obligation becomes a financial asset, since nothing other than the passage of time will be required for such amount to be received. The benefits from this asset are the future cash flows (note 7).

The value of the contract asset of energy transmission concessionaires is formed by the present value of its future cash flows. The future cash flow is estimated at the beginning of the concession, or its extension, and the assumptions of its measurement are revised in the Periodic Tariff Revision (RTP).

Cash flows are defined based on the Annual Permitted Revenue (RAP), which is the consideration that concessionaires are paid for providing energy transmission public services to users. These receivables amortize the investments in this transmission infrastructure, and any unamortized investments (reversible assets) generate the Grantor’s right to indemnity at the end of the concession agreement term. This flow of receipts is (i) compensated at a rate that represents the financial component of the business (regulatory WACC or the WACC of the auction), set at the start of each project, which ranges between 6.6% and 10.5%; and (ii) adjusted for inflation based on IPCA/IGPM.

The infrastructure implementation, which is an activity performed during the construction phase, is entitled to a consideration contingent on the completion of the work and performance obligations to operate and maintain, and not only the passage of time, and the revenue and costs on works relating to the formation of this asset are recognized through expenditures incurred.

Infrastructure implementation revenues and revenues from compensation on concession assets are subject to deferral of cumulative PIS and Cofins (taxes on revenue), recorded in “deferred taxes”, in noncurrent liabilities.

3.8 Inventories

Inventories are reported by items of the maintenance store room and recorded at the lower of cost and net realizable value. Inventory costs are determined at average cost method.

3.9 Investments

The Company recognizes and states investments in jointly controlled subsidiaries under the equity method.

3.10 Business combination

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred, based on the fair value on acquisition date, and the amount of any noncontrolling interest in the acquire. Costs directly attributable to the acquisition are accounted for as expense when incurred.

When acquiring a business, the Company measures the financial assets acquired and financial liabilities assumed for the purpose of classifying and allocating them according to the contractual terms, the economic circumstances and the conditions prevailing on the acquisition date.

The goodwill is initially measured as the excess of the consideration transferred in relation to the fair value of the net assets acquired (identifiable assets acquired less the liabilities assumed). If the consideration is lower than the fair value of the net assets acquired, the difference should be recognized as a gain in the income statement.

F-24
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The realization of intangible assets arising from the acquisition of the exploration right, concession or permission granted by Government occurs in the estimated or contracted term of utilization, effectiveness or loss of economic substance, or write-off due to sale or impairment of the investment (note 11 b(ii)).

3.11 Property and equipment

Basically, represented by administrative assets. Depreciation is calculated on a straight-line basis, based on the estimated economic useful life of the assets (note 12).

Other expenses are capitalized only when there is an increase in the economic benefits derived from such property and equipment item. Any other type of cost is recognized in profit or loss as expense, when incurred.

3.12 Intangible assets

Separately acquired intangible assets are carried at cost on initial recognition.

The useful life of intangible assets is either finite or indefinite: (i) intangible assets with finite useful life are amortized over their useful lives and tested for impairment whenever there is any indication that the asset might be impaired. (ii) intangible assets with indefinite useful lives are not amortized, but they are tested for impairment on an annual basis, either individually or at the level of the cash-generating unit (note 13).

Gains or losses arising from the write-off of an intangible asset are calculated as the difference between the net sale value and it carrying amount and are recognized in the statement of profit and loss when the asset is written off.

3.13 Leases
(a) The Company as lessee
--- ---

The Company evaluates, at the commencement of the contract, if the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration.

· Lessee

The Company applies a single recognition and measurement approach to all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets that represent the right of use of underlying assets.

· Right-of-use assets

The Company recognizes the right-of-use assets at the date of commencement of the lease. The right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any new remeasurement of the lease liabilities. The cost of the right-of-use assets is identical to the lease liability amount recognized. The cost of right-of-use assets includes the initial direct costs incurred and lease payments made through the commencement date, less any lease incentive received. The right-of-use assets are depreciated on a straight-line basis over the term of the lease.

F-25
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
· Lease liabilities
--- ---

At the commencement of the lease, the Company recognizes the lease liabilities measured at the net present value of the lease payments to be made over the term of the lease. Lease payments include fixed payments (including, substantially, fixed payments), less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be payable by the lessee under residual value guarantees.

In calculating the net present value of lease payments, the Company uses the implicit borrowing rate at the commencement of the lease. After the commencement date, the lease liability amount is increased to reflect the incremental interest less the lease payments made. In addition, the carrying amount of the lease liabilities is remeasured if there is a change: change in the lease term, change in lease liabilities, or change in the appraisal of the purchase option of the underlying asset.

· Short-term leases and low-value assets

Payments of short-term leases and low-value assets are recognized as expenses under the straight-line method over the term of the lease.

3.14 Other current and noncurrent assets

Stated at their net realizable value.

Expected losses for reduction of the carrying amount to the recoverable value are recognized at the amounts considered as unlikely for the realization of assets on the balance sheet date.

3.15 Current and noncurrent liabilities

Stated at known or estimated amounts, plus charges, inflation adjustment and/or exchange gains or losses incurred through the balance sheet date, when applicable.

3.16 Provisions

Provisions are recognized for present obligations resulting from past events, when it is possible to reliably estimate the amounts and whose financial settlement is probable.

The amount recognized as a provision is the best estimate of the consideration required to settle the obligation at the end of each reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured based on the cash flows estimated to settle an obligation, its carrying amount corresponds to the present value of such cash flows.

Provisions are quantified at the present value of the expected disbursement to settle the obligation using the appropriate discount rate, according to related risks. Provisions are adjusted through the balance sheet date for the probable loss amount, according to the nature of each contingency and based on the opinion of the Company’s and its subsidiaries’ legal counsel.

Provisions are recognized when the Company and its subsidiaries have a legal or constructive obligation as a result of past events, and it is probable that a cash disbursement will be required to settle the obligation, and its value can be reliably estimated.

The bases for and nature of the provisions for tax, civil, and labor risks are described in note 21 (a).

F-26
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
3.17 Employee benefits
--- ---

The Company sponsors supplementary retirement and death benefit plans for its employees, former employees and respective beneficiaries, administered by Fundação CESP (Funcesp), the objective of which is to supplement the benefits provided by the Brazilian Social Security Institute.

Payments to defined contribution plans are recognized as expense when the services they entitle to are provided.

In the actuarial appraisal of the liabilities under this plan, the projected unit credit method was adopted, according to IAS 19

This appraisal is conducted on an annual basis, and the effects of the remeasurement of the plan liabilities, which includes actuarial gains and losses, the effect of changes in the asset ceiling (if applicable) and the return on plan assets (less interest), are immediately reflected in the balance sheet as a charge or credit recognized in other comprehensive income in the period in which they occur.

As of December 31, 2019, the Company recorded actuarial assets and liabilities (equity) accounted for, as mentioned in note 22.

3.18 Dividends and interest on capital

The dividend recognition policy is in accordance with IAS 10, which determine that proposed dividends that are based on statutory obligations be recorded in current liabilities. The Company’s bylaws establish mandatory minimum dividend, as described in note 24 (b).

The Company may pay interest on capital, which is deductible for tax purposes and considered part of the mandatory dividends, and reported as profit allocation directly in equity.

3.19 Segment reporting

Operating segments are defined as business activities from which the Company obtains revenues and incurs expenses, whose financial information may be made available individually and whose operating profit or loss is revised by Management on an ongoing basis in the decision-making process.

Although the Company’s Management recognizes revenue from infrastructure implementation, operation and maintenance activities, they considered that these revenues are originated by concession agreements that have only one business segment: electric power transmission.

3.20 Statement of Cash Flows

The statement of cash flows was prepared using the indirect method and is presented in accordance with CVM Decision No. 641, of October 07, 2010, which approved technical pronouncement IAS 7 - Cash Flow Statements.

F-27
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
3.21 Earnings per share
--- ---

The Company calculates earnings per shares based on the weighted average number of common and preferred shares outstanding during the period corresponding to the profit or loss, as prescribed by IAS 33.

The basic earnings per share is calculated by dividing the profit for the period by the weighted average number of shares issued. The calculation of the diluted earnings is affected by instruments convertible into shares, as mentioned in note 24 (f).

3.22 New standards and interpretations

The Company, its subsidiaries and jointly controlled subsidiaries adopted the new pronouncements and the new interpretations issued or revised by IASB, with initial application beginning January 1, 2019, as follows:

· IFRS 16 - Leases

IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases and require lessees to account for all leases under a single model.

This standard includes two recognition exemptions for lessors – leases of low value assets and short-term leases. At the commencement of a lease, the lessee recognizes a liability for future payments and an asset representing the right to use the underlying asset over the lease term. Lessees are required to recognize separately interest expense on lease liabilities and amortization expense on the right-of-use asset.

Lessees are also required to remeasure the lease liability if certain events, such as, for example, a change in the lease term, in the future lease payments as a result of a change in an index or a rate used to determine those payments, occur. In general, lessees will recognize the remeasured lease liability value as an adjustment to the right-of-use asset.

The Company has a low volume of lease agreements and their amounts, with the adoption of IFRS 16, are recognized in “Leases” relating to future payments in the amounts of R$49,896 (note 15) and “Property, plant and equipment” relating to the right of use in the amount of R$49,127, net of depreciation (note 12).

· IFRIC 23 - Uncertainty over income tax treatments

This interpretation clarifies how to apply recognition and measurement requirements when there is uncertainty about the acceptance of the treatments adopted by tax authorities in applying the requirements of IAS 12 – Income Taxes.

The Company analyzed uncertainty over income tax treatments in determining taxes on income, together with its internal and external legal advisors, and did not identify significant impacts in its financial statements arising from treatments that could potentially expose the Company to material risks of likely loss. In completing these studies, the Company’s Management evaluated that none of the significant positions adopted changed as to the judgment of the likelihood of losses that may arise from questioning by tax authorities.

4 New and revised IFRS and interpretations issued and not yet adopted:
· IFRS 17 - Insurance Contracts
--- ---
· IFRS 3 - Business combinations
· IAS 1 and IAS 8 - Definition of material

Except for IFRS 17 - Insurance contracts (not yet issued in Brazil), the objective of which is to provide a model to account for insurance contracts that is more helpful and consistent for insurance companies, which does not apply to the Company and its subsidiaries. The Management of the Company and its subsidiaries is analyzing the impacts of the other standards mentioned above.

F-28
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
5 Cash and cash equivalents
--- ---
% of CDI 2019 <br> (unaudited) 2018<br> (unaudited)
--- --- --- --- --- ---
Cash and banks 4,437 7,712
Cash equivalents
CDB (a) 100.4% 589,838 6,254
Repurchase transactions (b) 96.5% 1,696 2,362
Short-term investment fund 40.0% to 70.0% - 412
595,971 16,740

Cash equivalents are measured at fair value through profit or loss and have daily liquidity.

The Company’s Management’s analysis of these assets’ exposure to interest rate risks, among others, is disclosed in note 31 (c).

(a) Securities issued by banks at rates pegged to the variation of the Interbank Certificate of Deposit<br>(CDI).
(b) Repurchase transactions refer to securities issued by banks for repurchase by the bank and resale<br>by the customer, at rates pegged to the variation of the Interbank Certificate of Deposit (CDI) at preset maturities, backed by<br>government bonds registered with B3.
--- ---
6 Short-term investments
--- ---
% of CDI 2019 <br> (unaudited) 2018 <br> (unaudited)
--- --- --- --- --- ---
Fundo de Investimento Referenciado DI Bandeirantes 120,968 250,321
Fundo de Investimento Xavantes Referenciado DI 98.9% 1,912,816 263,252
Fundo de Investimento Assis Referenciado DI 3,936 167,336
Fundo de Investimento Barra Bonita Referenciado DI 30,891 -
2,068,611 680,909

(*) Investments funds are consolidated as described in note 2.4.

The Company, its subsidiaries and jointly controlled subsidiaries concentrate their short-term investments in the following investment funds:

· Fundo de Investimento Referenciado DI Bandeirantes: an investment fund organized exclusively for<br>the Company, its subsidiaries and jointly controlled entities, managed by Banco Bradesco, having its portfolio comprised of units<br>in Fundo de Investimento Referenciado DI Coral.
· Fundo de Investimento Xavantes Renda Fixa Referenciado DI: an investment fund organized<br> exclusively for the Company, its subsidiaries and jointly controlled entities, managed by Banco Itaú-Unibanco, having<br> its portfolio comprised of units in Fundo de Investimento<br>Special Referenciado DI (Corp Referenciado DI merged by Special DI).
--- --- 
F-29
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
· Fundo de Investimento Assis Referenciado DI: an investment fund organized exclusively for the Company,<br>its subsidiaries and jointly controlled entities, managed by Banco Santander, having its portfolio comprised of units in Fundo<br>de Investimento Santander Renda Fixa Referenciado DI.
--- ---
· Fundo de Investimento Barra Bonita Renda Fixa Referenciado DI LP: an investment fund organized<br>exclusively for the Company, its subsidiaries and jointly controlled entities, managed by Banco do Brasil, having its portfolio<br>comprised of units in Fundo de Investimento Top DI FI Referenciado DI LP.
--- ---

Said investment funds are highly liquid, readily convertible into a cash amount, regardless of the assets, and any risk of change in the amount will be directly linked to the composition of the funds, which holds government bonds and private securities. Portfolios are comprised of fixed income securities, such as federal government bonds and private securities, in order to follow the variation of the Interbank Certificates of Deposits (CDI) and/or of the Selic rate.

The Company’s Management’s analysis of these assets’ exposure to interest rate risks, among others, is disclosed in note 31 (c).

7 Concession assets
2019 <br> (unaudited) 2018 <br> (unaudited)
--- --- --- --- ---
Financial assets
Assets under Law No. 12.783 - SE (a) 8,512,646 9,069,651
O&M services (b) 142,224 189,916
8,654,870 9,259,567
Contract asset
Infrastructure implementation (c) 6,006,163 4,874,289
14,661,033 14,133,856
Current 2,061,882 2,086,298
Noncurrent 12,599,151 12,047,558
(a) Receivables under Law No. 12.783 - amounts receivable relating to investments under Concession<br>Agreement No. 059/2001, which was extended under Law No. 12.783 and had the right to the receivable subdivided into NI and SE:
--- ---

NI facilities

The compensation relating to NI facilities corresponded to the original amount of R$2,891,291, inflation adjusted to R$2,949,121, as determined by Interministerial Ruling No. 580. The equivalent to 50% of this amount was received on January 18, 2013, and the remaining 50% was divided into 31 monthly installments, which had been transferred to the Company by Eletrobras. However, the terms under which these remaining installments should be adjusted are still under discussion. Following a Federal Court of Auditors’ request, ANEEL revised the amounts transferred as compensation for NI facilities to all concessionaires and understood that erroneous adjustment calculations were made, which resulted in overpayments to concessionaires. Although recognizing that calculations were erroneous, Eletrobras challenged ANEEL`S understanding of the matter. Based on an independent appraisal report and on the opinion of its legal counsel, the Company’s interpretation of the adjustment approach differs from that applied by ANEEL. Accordingly, its best estimate for the amount under discussion, totaling R$30,623, remains recorded in “Other”, in noncurrent liabilities, not including the fine and late payment interest that would be due in favor of the Company, considering the delays occurred in the transfers.

F-30
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

SE facilities

(i) According to the conditions provided for in Ruling No. 120/16 and the amounts regulated by ANEEL<br>Technical Note No. 336/2016, in line with IFRS 9 – Financial Instruments, the amount relating to SE facilities has been treated<br>as a financial asset at fair value through profit or loss, with the portion of the revenue (economic component) payable in an estimated<br>term of 8 years while the remaining portion (financial component) is payable in 6.3 years, beginning July 2017.
(ii) As mentioned in note 1.2, ANEEL, by means of Order No. 1.484, recognized the Company’s net<br>compensation basis of R$4,094,440 as of December 31, 2012.
--- ---

In June 2017, ANEEL Order No. 1779 and Technical Note No. 170, which, in complying with a temporary injunction (note 1.2), excluded the portion relating to cost of equity capital (ke) from the amounts not paid from January 2013 to June 2017 in calculating of the 2017/2018 RAP until the grounds are judged. For the 2019/2020 cycle, the provisions of said Order remained effective, and the transfer of the cost of equity capital is still suspended. According to Approval Resolution No. 2.565/19, the RBSE RAP corresponds to R$1,531,817 and is included the economic components on a straight-line basis expected for the 2023 tariff revision (note 25.4). Therefore, receivables relating to the cost of equity capital considered in the cash flows from the financial assets for SE facilities relating to the 2017/2018 and 2018/2019 tariff cycles are recorded in noncurrent assets and are not adjusted for inflation as of the maturity date.

Beginning November 2019, the Court overruled certain injunctions and excluded the cost of equity capital (Ke) from the financial component. However, there are other injunctions discussing the same matter that are still effective in other lawsuits.

(b) O&M - Operation and Maintenance refers to the portion of revenues monthly and separately informed<br>by the ONS for compensation of O&M services, with an average collection period below 30 days.
(c) Infrastructure implementation – flow of expected cash receipt relating to the compensation<br>of the investments in the energy transmission infrastructure implementation, discounted to present value. Includes the portion<br>of the investments made and not amortized through the end of the concession term (reversible assets).
--- --- 
F-31
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The aging list of trade receivables is as follows:

2019 <br> (unaudited) 2018 <br> (unaudited)
Current 14,648,605 14,121,484
Past due
Up to 30 days 973 1,411
31 to 60 days 328 103
61 to 360 days 451 380
Over 361 days (i) 10,676 10,478
12,428 12,372
14,661,033 14,133,856
(i) Some market players challenged in the courts the balances amounts relating to the Basic Grid. By<br>virtue of this challenge, escrow deposits are made by such members, classified as noncurrent receivables. The Company billed the<br>amounts in accordance with authorizations granted by regulatory agencies and, therefore, no provision for risk relating to this<br>discussion was recognized.

The Company does not have any history of losses on collection of trade receivables, which are collateralized by letters of guarantee and/or guarantee agreements managed by the National System Operator (ONS) and, therefore, no allowance for expected credit losses was recognized.

Changes in trade receivables:

Balances in 2017 13,138,880
Infrastructure revenue (note 25.1) 387,115
Compensation from concession assets - RBSE (note 25.1) 1,269,108
Compensation from concession assets (note 25.1) 549,670
O&M revenues (note 25.1) 1,042,534
Efficiency gain on the infrastructure implementation (note 25.1) 361,495
Adoption of IFRS 15 442,571
Business combination (*) 193,663
Amounts received (3,251,180 )
Balances in 2018 (unaudited) 14,133,856
Infrastructure revenue (note 25.1) 577,355
Compensation from concession assets - RBSE (note 25.1) 1,011,977
Compensation from concession assets (Note 25.1) 544,526
O&M revenues (note 25.1) 1,108,520
Efficiency gain on the infrastructure implementation (note 25.1) 514,532
Amounts received (3,229,733 )
Balances in 2019 (unaudited) 14,661,033

(*) Amounts derived from the business combination in the acquisition of IESUL (note 11 (b) ii).

F-32
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

As required by CVM Official Letter No. 01/2020, disclosed below are the changes in the (financial and contract) concession assets considering the impacts of the initial adoption of IFRS 15 - Revenue from Contracts with Customers beginning January 1, 2018:

Balances in 2017 - Financial asset 13,138,880
Infrastructure revenue 387,115
Compensation from concession assets - RBSE 1,269,108
Compensation from concession assets - financial 523,219
Operation and maintenance revenue 1,042,534
Business combination 193,663
Amounts received (3,251,180 )
13,303,339
Impacts of the adoption of IFRS 15
Efficiency gain on the infrastructure implementation 361,495
Compensation from concession assets - change in the discount rate from financial asset to contract asset 26,451
Adoption of IFRS 15 - retained earnings 442,571
Balances in 2018 - Concession assets (financial and contract) 14,133,856
8 Receivables – State Finance Department
--- ---
2019 <br> (unaudited) 2018 <br> (unaudited)
--- --- --- --- --- --- ---
Payroll processing - Law No. 4819/58 (a) 1,808,600 1,666,841
Labor claims - Law No. 4819/58 (b) 283,987 275,497
Allowance for expected credit losses (c) (516,255 ) (516,255 )
1,576,332 1,426,083
(a) Refers to amounts receivable for settlement of the payroll relating to the retirement supplementation<br>plan governed by State Law No. 4.819/58, in the period from January 2005 to December 2019. The increase in relation to prior year<br>is due to compliance with the court decision issued by the 49^th^ Labor Court whereby CTEEP, as the defendant, monthly<br>transfers funds to Funcesp to process payments to retired employees.
--- ---
(b) Refer to certain labor claims settled by CTEEP, upon a court order, relating to employees retired<br>under the terms of State Law No. 4.819/58, which should be borne by the State Government of São Paulo.
--- ---
(c) The expected loss recognized was<br> based on decisive factors such as the extension of the expected term for realization of part of accounts receivable from the<br> State of São Paulo and on the status of pending litigation. The Company monitors the progress of this issue and regularly<br> revises the provision, evaluating the need for supplementing or reversing the provision based on legal events that may change<br> the opinion of its advisors. Through December 31, 2019, no events occurred that would indicate the need to change the expected<br> loss.
--- --- 
F-33
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
9 Recoverable taxes
--- ---
2019 <br> (unaudited) 2018 <br> (unaudited)
--- --- --- --- ---
Income tax 11,887 12,601
Social contribution 1,660 16
Withholding income tax 3,217 2,489
Withholding social security contribution 659 783
Cofins (tax on revenue) 8,588 7,249
PIS (tax on revenue) 1,867 1,879
Taxes in installments 3,601 3,649
Other 856 855
32,335 29,521
10 Guarantees and restricted deposits
--- ---

Pledges and restricted deposits are recorded in noncurrent assets, given the uncertainties around the outcome of the related litigation.

Deposits are recognized at nominal value and adjusted for inflation based on the Benchmark Rate (TR) for labor and social security deposits and on Selic for tax and regulatory deposits. Balance is broken down as follows:

2019 <br> (unaudited) 2018 <br> (unaudited)
Judicial deposits
Labor (Note 21 (a) (i)) 30,136 34,563
Social security - INSS - 2,819
PIS/Cofins (a) 9,514 11,688
Assessments - ANEEL (b) 12,271 16,985
Other 965 932
52,886 66,987
(a) In March 2015, through Decree No. 8426/15, the PIS/Cofins rate applicable on financial income was<br>reinstated at 4.65% effective July 1, 2015. The Company filed, for the period from July 2015 to February 2018, a lawsuit seeking<br>the non-levy of such tax based on the fact that the levy could only be required by Law as defined in article 150, item I, of the<br>Federal Constitution, and that Decree No. 8426/15 also violates the principle of non-cumulative taxation established in paragraph<br>12 of article 194.
--- ---
(b) Refers to deposits for the purpose of voiding ANEEL assessment notices which the Company has challenged.
--- --- 
F-34
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
11 Investments
--- ---
(a) Changes in investments
Balances<br> in 2017 Adoption<br> of IFRS <br> 15 prior years Capital<br><br> payment Share<br> of profit (loss) of <br> investees Acquisition<br> of equity<br> interests Dividends Balances<br> in 2018<br> (unaudited)
IESul 124,076 - - 4,471 (128,547 ) - -
IE<br> Madeira 1,368,168 (89,000 ) - 155,059 - - 1,434,227
IE<br> Garanhuns 370,845 (38,981 ) - 41,739 - (7,752 ) 365,851
Paraguaçu 5,040 (46 ) 9,700 (194 ) - - 14,500
Aimorés 3,660 (42 ) 7,650 (309 ) - - 10,959
Ivaí 9,056 (57 ) 13,500 56 - - 22,555
Investment 1,880,845 (128,126 ) 30,850 200,822 (128,547 ) (7,752 ) 1,848,092
Balances at 12.31.2018<br><br> (unaudited) Capital payment Share of profit (loss) of<br> investees Dividends Balances at 12.31.2019<br> (unaudited)
IE Madeira 1,434,227 - 138,510 - 1,572,737
IE Garanhuns 365,851 - 37,629 (14,876 ) 388,604
Paraguaçu 14,500 87,500 1,540 - 103,540
Aimorés 10,959 52,500 975 - 64,434
Ivaí 22,555 45,000 1,134 - 68,689
Total 1,848,092 185,000 179,788 (14,876 ) 2,198,004 
F-35
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(b) Information on investments in jointly controlled subsidiaries
--- ---
2019<br> (unaudited) 2018<br> (unaudited)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
IEMadeira IEGaranhuns Paraguaçu Aimorés Ivaí IEMadeira IEGaranhuns Paraguaçu Aimorés Ivaí
Current Assets
Cash and cash equivalents 40 3,770 23 28 1,658,552 1,129 4,187 145 91 2
Short-term investments 276,806 14,720 9,140 8,074 11,628 181,332 33,303 6,640 5,014 4,588
Concession assets 540,138 87,415 - - - 429,886 87,315 - - -
Other assets 41,904 18,882 1,016 2,302 312 44,271 5,766 1,128 1,324 86
Noncurrent assets
Concession assets 5,272,344 1,020,125 277,147 168,656 160,975 5,085,371 1,017,004 24,651 18,022 50,576
Other noncurrent assets 108,724 14,534 326 219 243 206,992 15,501 322 193 220
Current liabilities
Borrowings and financing 251,430 33,678 55 55 55 242,975 33,400 - - -
Other liabilities 221,127 22,533 51,843 32,711 112,769 46,046 26,959 1,078 671 4,664
Noncurrent liabilities
Borrowings and financing 1,623,559 186,262 6 5 1,562,961 1,805,371 218,523 - - -
Other liabilities 1,102,724 155,004 28,668 17,642 18,539 1,042,081 166,840 2,808 2,056 5,699
Equity 3,083,798 761,969 207,080 128,866 137,379 2,812,210 717,354 29,000 21,917 45,109 
F-36
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
2019<br> (unaudited) 2018<br> (unaudited)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
IEMadeira IEGaranhuns Paraguaçu Aimorés Ivaí IEMadeira IEGaranhuns Paraguaçu Aimorés Ivaí
Net operating revenue 613,672 91,022 229,145 136,705 100,190 637,390 139,060 10,077 7,945 27,325
Infrastructure and O&M costs (26,170 ) (14,063 ) (221,696 ) (131,755 ) (92,380 ) (117,732 ) (12,370 ) (9,221 ) (7,275 ) (25,480 )
Operating income (expenses) (56,013 ) 3,490 (2,450 ) (1,764 ) (2,085 ) (24,785 ) (3,675 ) (1,526 ) (1,444 ) (1,617 )
Finance income (costs) (149,490 ) (14,494 ) 588 422 (825 ) (172,268 ) (16,280 ) 428 283 317
Nonoperating profit (loss) 137
Income tax and social contribution (110,411 ) 7,827 (2,507 ) (1,659 ) (2,630 ) (18,705 ) (15,530 ) (145 ) (127 ) (434 )
Profit (loss) 271,588 73,782 3,080 1,949 2,270 304,037 91,205 (387 ) (618 ) 111
Equity interest CTEEP (%) 51 % 51 % 50 % 50 % 50 % 51 % 51 % 50 % 50 % 50 % 
F-37
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(i) Jointly controlled subsidiaries
--- ---
Operating
Subsidiary Organization Segment Start<br> of commercial operations Substations Installed<br> power Transmission<br> lines Extension<br> of lines Region
Operating
IE Madeira 12.18.2008 Transmission 2013 Porto Velho rectifying station and Araraquara<br> reversing station 7,464.0 MVA Porto Velho - Araraquara II 2,385.0 Rondônia, Mato Grosso, Goiás, Minas<br> Gerais and São Paulo
IE Garanhuns 10.07.2011 Transmission 2015 Garanhuns ll and Pau Ferro 2,100 MVA Luiz Gonzaga - Garanhuns, Garanhuns - Pau Ferro,<br> Garanhuns - Campina Grande III, Garanhuns - Angelim, Angelim I 633.0 Paraíba, Pernambuco and Alagoas 
F-38
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
Pre-operating
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Subsidiary Organization Segment Expected<br> start of operations (*) Substations Transmission<br> lines Extension<br> of lines Region Estimated<br> investment (**) Contract<br> execution date
Paraguaçu 11.18.2016 Transmission 60 months - Poções III - Padre Paraíso<br> 2 C2 338.0 Bahia and Minas Gerais 509,595 02.10.2017
Aimorés 11.18.2016 Transmission 60 months - Padre Paraíso 2 - Governador Valadares<br> 6 C2 208.0 Minas Gerais 341,118 02.10.2017
Ivaí *** 05.17.2017 Transmission 60 months Guaíra, Sarandi and Paranavaí Norte Guaíra - Sarandi, Foz do Iguaçu<br> - Guaíra, Londrina - Sarandi, Sarandi - Paranavaí Norte 599.0 Paraná 1,936,474 08.11.2017

(*) Term for placement into operation as from the contract execution date, according to ANEEL’s estimate.

(**) Investment, according to ANEEL’s estimate.

(***) Double circuit.

F-39
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(ii) Business combination
--- ---

InterligaçãoElétrica Sul S.A. (IE Sul)

On April 6, 2018, the Company entered into with Cymi Construções e Participações S.A. an agreement for the acquisition of 50% less 1 share in the capital of IESUL for the amount of R$20,075. The Brazilian Antitrust Authority (CADE) and ANEEL authorized the transaction in April and June 2018, respectively. The completion of the transactions and actual acquisition occurred in September 2018 for the amount of R$20,530. As a result of the transaction, IESUL became CTEEP’s wholly-owned subsidiary.

The fair value of assets acquired and liabilities assumed and the bargain purchase gain were supported by an appraisal report prepared by an independent consulting firm based on the balance sheet as of August 31, 2018 and shown below:

Book value at 08.31.2018 (unaudited) Book value after adoption of IFRS 15 at 08.31.2018 (unaudited) Adjustments to fair value (*) (unaudited) Assets and liabilities at fair value (unaudited)
Equity 251,639 179,617 (60,386 ) 119,231
Interest acquired 50 %
59,616
Amount paid (20,530 )
Capital contribution - 50% equity interest Cymi 2,362
Bargain purchase gain 41,448

(*) Reflects the difference between the value in use and the fair value, supported by an independent appraisal report. The Company’s investments are stated at their recoverable value, which, according to IAS 36, is represented by the higher of the fair value and value and use.

The Company remeasured its former 50% equity interest in IE Sul at fair value, as shown below:

R$ thousand
Book value of the investment before acquisition of control (50%) 125,820
Fair value of the investment (50%) 59,616
Loss on acquisition of control of IE Sul (66,204 )

The net value of R$24,756, resulting from the negative goodwill, deducted from the adjustment in the acquisition of the equity interest formerly held by the Company, is recorded in the Company’s income statement under line item “Other operating income (expenses)”, and, net of deferred income tax and social contribution, amounts to R$16,339.

As a result of this operation, the balance of the Company’s investment in IE Sul has reflected the fair value of the assets and liabilities on the acquisition date, which differs from the book value of IE Sul’s equity.

F-40
(iii) Jointly controlled subsidiaries

InterligaçãoElétrica do Madeira S.A.

On March 13, 2018, IE Madeira received a Circular Letter from SCT (ANEEL’s Superintendence of Transmission and Distribution Concessions, Permits and Authorization) informing the Company that an administrative proceeding was started regarding the likelihood of a loss event in the amount of R$99.9 million, due to its failure to fully complete the transmission facilities under Concession Agreement No. 015/2009, since parts and/or operating requirements under the Agreement were not delivered. IE Madeira replied to ANEEL, informing that the facilities commissioning step was already completed and that only certain pending aspects need to be addressed by the company and third parties so that the Final Authorization Instrument (“TLD”) may be obtained.

On July 24, 2018, Seguradora Aliança do Brasil Seguros S.A. issued a letter, in response to ANEEL, concluding that the expected loss does not meet the characteristics for it to be converted into loss incurred; therefore, no compensation would be due. On December 21, 2018, IE Madeira received Circular Letter No. 732/2018-SCT/ANEEL on the application of the penalty in the amount of R$99,900. On January 18, 2019, IE Madeira replied to ANEEL and communicated that, as far as IE Madeira and its legal advisors understand, the application of a penalty as intended by ANEEL lacks legal grounds, since it is not provided for in the Auction Notice and in IE Madeira Concession Agreement. Therefore, no provision was recognized in connection with this matter.

On September 24, 2019, IE Madeira sent ANEEL, Letter DAF/348/2019, informing on the issuance by the ONS of the Final Authorization Instruments (TLDs), which support that the transmission facilities related to Concession Agreement 015/2009 are completed and all non-restrictive pending aspects were cleared. Therefore, the company requested ANEEL to return the Insurance Policy, under Clause 8, 10^th^ Subclause, of the abovementioned Concession Agreement.

As of December 28, 2019, the SCT issued Official Letter No. 739/2019-SCT/ANEEL, informing IE Madeira that, considering that the insurance company agrees that the warranty covers any losses that may incur through the issuance of the TLD (on September 16, 2019) and, thus, ANEEL’s rights are valid until the final ruling of the lawsuit, renewing the warranty, which expired on December 31, 2019, is no longer necessary.

· Lawsuits assessed as possible loss

IE Madeira is a party to an arbitration process assessed by its legal counsel as possible loss and, thus, no provision was recognized in 2019. Such process has been discussed at the Reconciliation and Arbitration Chamber of Fundação Getúlio Vargas in Rio de Janeiro, against Transformadores e Serviços de Energia das Américas Ltda., formerly “Toshiba América do Sul Ltda.”, engaged in July 2010 to build the IE Madeira transmission line. The total amount of the agreement, including the addenda thereto, reached the amount of R$280,000, and the engaged services were completed in July 2013. In December 2013, Toshiba requested the establishment of an arbitration process claiming an indemnity of R$274,000 for alleged additional costs incurred during the execution of the works. IE Madeira filed a counterclaim to receive approximately R$100,000 alleging that there was breach of contract by the construction firm and claiming the application of a penalty for delay in completing the work. On June 26, 2017, the Arbitration Court partially granted the parties’ claims and determined that the amounts involved in the process would have to be determined by an accountant expert. On January 21, 2020, the parties filed their closing arguments. To date, IE Madeira, based on its legal counsel, considers that the current status of the process does not require the recognition of a provision to cover potential losses arising from such dispute, since a cash disbursement cannot be reliably measured, since that depends on the Arbitration Court’s final decision on the accountant expert report. The Arbitration Court’s final decision will be issued in the first half of 2020.

F-41
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
· Periodic Tariff Revision
--- ---

ANEEL Authorizing Resolution No. 2.556, published on June 11, 2019, approved IE Madeira’s Periodic Tariff Revision, as mentioned in note 25.2.

12 Property, plant and equipment

Refers mainly to chattels used by the Company and not related to the concession arrangement.

2019 (unaudited) 2018 (unaudited) Average annual depreciation rates
Cost Accumulated depreciation Net Net %
Land 2,060 - 2,060 2,060 -
Buildings 981 (944 ) 37 38 4.0 %
Lease of buildings (ii) 43,091 (2,253 ) 40,838 - 10 %(i)
Machinery and equipment 6,630 (2,480 ) 4,150 3,599 6.47 %
Furniture and fixtures 7,920 (6,077 ) 1,843 1,764 6.23 %
IT equipment 20,071 (13,481 ) 6,590 5,767 16.66 %
Vehicles 10,196 (6,069 ) 4,127 5,570 14.29 %
Lease of vehicles (ii) 15,050 (6,761 ) 8,289 759 16.67% to 70.59% (i)
Leasehold improvements 1,161 (482 ) 679 702 2 %
Construction in progress 17,764 - 17,764 5,280 -
124,924 (38,547 ) 86,377 25,539

(i) Depreciation rate according to the lease agreement term.

F-42
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

Changes in property and equipment are as follows:

Balances in 2017 Additions Depreciation Write-offs/ Transfers Balances in 2018 (unaudited)
Land 2,060 - - - 2,060
Machinery and equipment 3,433 510 (307 ) (37 ) 3,599
Furniture and fixtures 1,881 191 (258 ) (50 ) 1,764
IT equipment 4,837 2,581 (1,628 ) (23 ) 5,767
Vehicles 7,015 1,012 (1,586 ) (112 ) 6,329
Leasehold improvements 1,026 - (324 ) - 702
Construction in progress 2,510 2,694 - - 5,204
Other 117 - (2 ) (1 ) 114
22,879 6,988 (4,105 ) (223 ) 25,539
Balances in 2018 (unaudited) Additions Depreciation Write-offs/ Transfers Balances in 2019 (unaudited)
Land 2,060 - - - 2,060
Buildings 38 - (1 ) - 37
Lease of buildings (ii) - 53,163 (4,469 ) (7,856 ) 40,838
Machinery and equipment 3,599 - (354 ) 905 4,150
Furniture and fixtures 1,764 - (256 ) 335 1,843
IT equipment 5,767 - (2,217 ) 3,040 6,590
Vehicles 5,570 - (1,457 ) 14 4,127
Lease of vehicles (ii) 759 14,104 (6,541 ) (33 ) 8,289
Leasehold improvements 702 - (23 ) - 679
Construction in progress 5,280 18,534 - (6,049 ) 17,764
25,539 85,801 (15,318 ) (9,644 ) 86,377

(ii) With the adoption of IFRS 16, the Company has recorded leases of properties and vehicles as property and equipment (note 3.22).

F-43
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
13 Intangible assets

The balance of R$25,196, the amount of R$11,291 primarily refers to expenses incurred to upgrade ERP-SAP and software licenses, amortized on a straight-line basis over five years.

Out of the balance of R$25,196, the amount of R$13,905 refers to the concession assets, determined according to a report prepared by an independent firm (note 11), generated on the acquisition of subsidiary Evrecy, whose economic basis is the expected earnings during the effective concession agreement term. The concession assets is amortized over the subsidiary concession agreement, which matures on July 17, 2025, as determined by IAS 27 Consolidated and Separate Financial Statements.

Changes in intangible assets:

Balance in 2017 37.362
Additions 797
Write-offs (376 )
Amortization (7,641 )
Balance in 2018 (unaudited) 30,142
Additions 2,871
Write-offs (646 )
Amortization (7,171 )
Balance in 2019 (unaudited) 25,196 
F-44
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
14 Borrowings and financing
--- ---

Borrowings and financing are broken down as follows:

a) Local Currency
Agreement Company Borrowing amount Start date Finance charges IRR p.a. Final date Purpose Payment conditions Collateral Financial ratio 2019 (unaudited) 2018 (unaudited)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
BNDES
Agreement 13.2.1344.1 (*) CTEEP 284,136<br><br><br><br><br>105,231<br><br><br><br>1,940 12.23.2013 TJLP +<br><br> 1.80% p.a.<br><br><br><br> 3.50% p.a<br><br>..<br><br>TJLP 9.20%<br><br><br><br>3.60%<br><br><br><br>6.70% 03.15.2029<br><br><br><br>01.15.2024<br><br><br><br>03.15.2029 Pluriannual Investment Plan 2012<br> - 2015 Quarterly interest through March<br> 2015 and payment of principal and interest beginning April 2015 Bank guarantee Net debt/Adjusted EBITDA < 3.0<br> and Net debt/Net debt + Equity < 0.6. 178,166 <br><br><br><br>41,664<br><br><br><br>26 196,700 <br><br><br><br>51,830<br><br><br><br>24
Agreement 17.2.0291.2 (*) CTEEP 272,521 08.08.2017 TJLP +<br><br> 2.62% p.a. 7.43% 03.15.2032 Pluriannual Investment Plan 2016<br> - 2019 Principal and monthly interest beginning<br> April 15, 2018 Fiduciary assignment Net debt/Adjusted EBITDA < 3.0<br> and Net debt/Net debt + Equity < 0.6. 234,145 150,987
Agreement 13.2.0650.1 Pinheiros 23,498 08.13.2013 TJLP + 2.06% p.a. <br><br>3.50% p.a. 7.90%<br><br><br><br>3.56% 02.15.2028<br><br> <br><br>04.15.2023 Finance Projects of Lots E, H and<br> K - Auction 004/2008 Principal and interest - 168 monthly<br> installments beginning March 15, 2014 — DSCR of at least 1.3 determined annually 4,482 <br><br><br><br>6,037 5,015 <br><br><br><br>7,847 
F-45
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
Borrowing Finance IRR Payment Financial 2019 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Agreement Company amount Start date charges p.a. Final date Purpose conditions Collateral ratio (unaudited) (unaudited)
Agreement<br><br> 10.2.2034.1 Pinheiros 119,886 12.30.2010 TJLP<br> + <br><br>2.62% p.a.<br><br><br><br> 5.50% p.a. 8.30%<br><br><br><br> 5.80% 05.15.2026<br><br><br><br> 01.15.2021 Finance<br> Projects of Lot K - Auction 004/2011 Principal<br> and interest - 168 monthly installments beginning September 15, 2011 - DSCR<br> of at least 1.3<br><br> determined annually 23,326<br><br> 10,888 27,020<br><br> 20,935
Agreement<br><br> 11.2.0842.1 IE<br> Serra do Japi 93,373 10.28.2011 TJLP<br> + <br><br>1.95% p.a.<br><br><br><br> TJLP + <br><br>1.55% p.a. 8.20%<br><br><br><br> 7.90% 05.15.2026<br><br><br><br> 05.15.2026 Finance<br> Projects of Lot I - Auction 001/2009 Principal<br> and interest - 168 monthly installments beginning June 15, 2012 - DSCR<br> of at least 1.2<br><br> determined annually 24,741<br><br> 21,380 28,531<br><br> 24,655
Agreement<br><br> 08.2.0770.1 IEMG 70,578 01.14.2009 TJLP<br> +<br><br> 2.39% p.a. 8.40% 04.15.2023 Finance<br> Projects of Lot D - Auction 005/2006 Principal<br> and interest - 168 monthly installments beginning May 15, 2009 - DSCR<br> of at least 1.3<br><br> determined annually 17,610 22,821
Agreement<br><br> 10.2.1883.1 IESUL 18,166 12.21.2010 5.5%<br> p.a.<br><br><br><br>TJLP + 2.58% p.a. 5.50%<br><br> 5.50% 01.15.2021<br><br><br><br> 05.15.2025 Finance<br> Projects of Lot F - Auction 004/2008 Principal<br> and interest - 168 monthly installments beginning June 15, 2011 - DSCR<br> of at least 1.3<br><br> determined annually 1,213<br> <br><br> 4,136 2,334<br><br> 4,884
Agreement<br><br> 13.2.0422.1 IESUL 28,200 06.28.2013 3.0%<br> p.a.<br><br><br><br>TJLP<br> +<br><br> 2.58% p.a. 3.00%<br><br><br><br> 8.30% 04.15.2023<br><br><br><br>02.15.2028 Finance<br> Projects of Lot I - Auction 004/2008 Principal<br> and interest - 168 monthly installments beginning May 26, 2014 - DSCR<br> of at least 1.3<br><br> determined annually 3,972<br> <br><br> 6,772 5,170<br> <br><br> 7,572
Finame<br> PSI CTEEP 10,346 11.04.2014 6.0%<br> p.a. 6.00% 11.18.2019 Financing<br> of machinery and equipment Principal<br> and interest - 54 monthly installments beginning February 2015 - 2,113
Eletrobrás CTEEP - - 8.0%<br> p.a. 8.00% 11.15.2021 - - - - 35 69
BNB IENNE 220,000 05.19.2010 10.0%<br> p.a. 10.00% 05.19.2030 Finance<br> Projects of Lot A - Auction 004/2008 Quarterly<br> interest through May 2012 and monthly beginning June 2012 Reserve<br> account held in BNB - 160,307 171,679
Total<br> in local currency 738,900 730,186 
F-46
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
b) Foreign currency
Agreement Company Borrowing<br> amount Start<br> date Finance<br> charges IRR<br> p.a. Final<br> date Financial<br> ratio Payment<br> conditions 2019<br> (unaudited) 2018<br> (unaudited)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Law<br> 4131(**)
MUFG CTEEP 75,000 07.20.2018 Forex<br> + 3.3415% p.a. + IR (swap for 102.3% CDI) 5.73% 07.20.2020 Net<br> Debt / EBITDA < 3.5 <br>EBITDA/ Finance income (costs) > 2.0 Quarterly<br> interest and principal by the end 306,069 293,902
CITI CTEEP 75,000 08.24.2018 Forex<br> + Libor 3M + 0.47% p.a. + IR (swap for 102.3% CDI) 5.63% 08.24.2020 Net<br> Debt / EBITDA < 3.5 <br>EBITDA/ Finance income (costs) > 2.0 Quarterly<br> interest and principal by the end 302,407 292,027
CITI CTEEP 60,000 11.08.2018 Forex<br> + Libor 3M + 0.25% p.a. + IR (swap for 102.5% CDI) 6.36% 11.08.2019 Net<br> Debt / EBITDA < 3.5 <br>EBITDA/ Finance income (costs) > 2.0 Quarterly<br> interest and principal by the end - 233,129
Total<br> in foreign <br><br>currency 608,476 819,058
Total<br> in local and <br><br>foreign currencies 1,347,376 1,549,244
Current 709,928 333,787
Noncurrent 637,448 1,215,457

All values are in US Dollars.

(*) For purposes of calculating and showing that such ratios are reached, the Company consolidates all subsidiaries and jointly-controlled subsidiaries (proportionately to equity interests), provided that equity interest is equal or higher than 10%.

(**) The effects of contracting swap financial instruments for foreign currency contracts 4131 are described in note 31.

F-47
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The noncurrent portion of borrowings and financing is as follows:

2019 <br> (unaudited) 2018 <br> (unaudited)
2020 - 665,031
2021 82,097 74,360
2022 81,943 74,190
2023 77,236 69,500
2024 65,946 58,194
2025 65,137 57,385
2026 to 2029 241,275 202,598
2030 to 2032 23,814 14,199
637,448 1,215,457

Changes in borrowings and financing are as follows:

Balances in 2017 959.129
Additions 809,910
Repayments of principal (283,080 )
Interest payments (65,791 )
Business combination - IESUL (note 11) 21,229
Interest, inflation adjustments and exchange rate changes 107,847
Balances in 2018 (unaudited) 1,549,244
Additions (i) 100,000
Repayments of principal (336,849 )
Interest payments (91,512 )
Interest, inflation adjustments and exchange rate changes 126,493
Balances in 2019 (unaudited) 1,347,376

(i) Refers to the financing obtained on August 8, 2017 under BNDES Agreement No. 17.2.0291.2.

F-48
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The Company participates as intervening guarantor, to the limit of its interests in subsidiaries, jointly controlled subsidiaries, in their financing agreements, as shown below.

Subsidiaries<br> and<br> jointly-controlled<br> subsidiaries Equity<br><br> interest in<br> subsidiary Bank Debt<br> type Outstanding<br><br> balance in<br> 2019<br> (unaudited) Type<br> of<br> collaterals Balance<br><br> guaranteed<br> by <br> CTEEP End<br> of<br> guarantee <br> term
IE<br> Pinheiros 100% BNDES FINEM<br> and PSI 10,519 Pledge<br> of shares 10,519 02.15.2028
IE<br> Pinheiros 100% BNDES FINEM<br> and PSI 34,214 Pledge<br> of shares 34,214 05.15.2026
IE<br> Serra do Japi 100% BNDES FINEM 46,121 Pledge<br> of shares 46,121 05.15.2026
IEMG 100% BNDES FINEM 17,610 Pledge<br> of shares 17,610 04.15.2023
IESul 100% BNDES FINEM<br> and PSI 5,349 Pledge<br> of shares 5,349 05.15.2025
IESul 100% BNDES FINEM<br> and PSI 10,744 Pledge<br> of shares 10,744 02.15.2028
IENNE 100% Banco<br> do Nordeste FNE 160,307 Pledge of shares<br><br> <br>/corporate 160,307 05.19.2030
IE<br> Madeira 51% Banco<br> da Amazônia Bank<br> credit note 277,447 Pledge<br> of shares 141,498 07.10.2032
IE<br> Madeira 51% BNDES FINEM<br> and PSI 1,121,535 Pledge<br> of shares 571.983 02.15.2030
IE<br> Madeira 51% Itaú/BES Infrastructure<br> debentures 468,571 Pledge of shares<br><br> <br>/corporate 238,971 03.18.2025
IE<br> Garanhuns 51% BNDES FINEM<br> and PSI 219,941 Pledge<br> of shares 112,170 12.15.2028
IE<br> Ivaí 50% Itaú Infrastructure<br> debentures 1,562,961 Pledge of shares<br><br> <br>/corporate 781,481 12.15.2043

In addition to the collaterals mentioned above, the financing agreements between the subsidiaries and jointly-controlled subsidiaries with the development banks (BNDES/BASA/BNB) require the creation and maintenance of a reserve account for the debt service in an amount equivalent to three to six times the last installment paid under the financing, including the portion of principal and interest, classified under restricted cash in the balance sheet in the amount of R$39,987 (R$37,495 at December 31, 2018).

The BNDES financing agreements and debentures of subsidiaries and jointly controlled subsidiaries contain covenants that require the maintenance of financial indicators for the Debt Service Coverage Ratio (DSCR) as well as cross default clauses that provided for the acceleration of payment in case of failure to comply with the obligations under the agreements.

As of December 31, 2019, no payment had been accelerated due to the covenants under the agreements with the Parent, subsidiaries and jointly controlled subsidiaries.

F-49
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
15 Leases
--- ---

According to Note 3.22, the Company adopted IFRS 16 the simplified transition approach without restating the financial statements for the year ended December 31, 2018.

On the transition date, assets and liabilities under IFRS 16 were measured at the present value of the lease payments due during the lease term.

Contrato Contract<br> <br> Amount Start<br> Date Rate End<br> Date Payment<br> term 2019<br><br> (unaudited) 2018<br><br> (unaudited)
Lease of<br> vehicles 13,278 07.28.2016 0.58%<br> p.m. 11.30.2020 principal<br> + monthly interest 8,210 512
Property<br> leases 10,885 07.01.2019 0.58%<br> p.m. 06.30.2029 principal<br> + monthly interest 41,686 -
Total<br> leases 49,896 512
Current 9,948 280
Noncurrent 39,948 232 
F-50
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The noncurrent portion of leases matures as follows:

2019 <br> (unaudited) 2018 <br> (unaudited)
2020 - 232
2021 4,015 -
2022 4,317 -
2023 4,137 -
2024 4,330 -
2025 to 2029 23,149 -
39,948 232

Changes in leases are as follows:

Balances in 2017 134
Additions 696
Repayments of principal (358 )
Interest, inflation adjustments and exchange rate changes 40
Balances in 2018 (unaudited) 512
Additions 59,377
Payment of principal and interest (12,165 )
Interest, inflation adjustments and exchange rate changes 2,172
Balances in 2019 (unaudited) 49,896

On December 18, 2019 and February 5, 2020, the Brazilian Securities and Exchange Commission (CMV) issued Official Letters 02/2019 and 01/2020, respectively, containing information on the accounting assumptions applied in adopting IFRS 16, as well as the requirements to make additional disclosures in an explanatory note. The Company analyzed the matters covered by such official Letters and concluded that the accounting policies adopted are in conformity with the requirements introduced by IFRS 16.

The impacts of the inflationary effects on the balances reported in the financial statements, relating to IFRS 16 are the following: (i) right of use of R$7,985; (ii) lease liability of R$8,629; (iii) depreciation of R$969; and (iv) finance income of R$316.

F-51
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
16 Debentures
Maturity Number Finance charges IRR p.a. 2019 (unaudited) 2018 (unaudited)
--- --- --- --- --- --- --- ---
Single series (i) 07.15.2021 148,270 IPCA + 6.04% 8.5 % 168,545 162,328
Single series (ii) 02.15.2024 300,000 IPCA + 5.04% 7.4 % 336,910 325,049
Single series (iii) 12.13.2020 350,000 105.65% do CDI p.a. 6.6 % 350,368 350,330
Single series (iv) 04.15.2025 621,000 IPCA+ 4.70% 7.1 % 651,017 627,504
Single series (v) 12.15.2029 409,325 IPCA<br><br>+3.50% 6.0 % 389,639 -
1,896,479 1,465,211
Current 367,508 23,707
Noncurrent 1,528,971 1,441,504
(i) In August 2016, the Company issued 148,270 infrastructure debentures, in accordance with article<br>2 paragraph 1 of Law No. 12431/2001 in a single series, to a total amount of R$148,270 with the purpose of reimbursing contributions<br>and investments in jointly controlled subsidiaries IE Madeira and IE Garanhuns. These debentures will mature on July 15, 2021 and<br>yield will be paid annually in July of each year, with the first installment due on July 15, 2017.
--- ---
Financial ratios established in the indenture<br>are as follows: Net Debt/Adjusted EBITDA >3.5 and Adjusted EBITDA/Finance Income (Costs) > 1.5 through the measurement made<br>as of June 30, 2017 and, as from the measurement made as of September 30, 2017, > 2.0.
(ii) In March 2017, the Company issued 300,000 infrastructure debentures under article 2, paragraph<br>1, of Law No. 12431/2001, in a single series, in the total amount of R$300,000, to cover future payments and/or reimbursement of<br>expenditures, expenses or debts relating to investments in enhancements and improvements in transmission facilities, encompassing<br>the installation, replacement or renovation with a view to maintain proper quality services, the reliability of the National Interconnected<br>System (SIN), the useful life of equipment and/or connect new users. Debentures will mature on February 15, 2024 and yield will<br>be paid every February of each year, the first installment falling due on February 15, 2018. Issuance costs, net of transaction<br>costs, amounted to R$292,603 and will be amortized on a straight-line basis at the effective transaction rate.
--- ---
Financial ratios established in the indenture<br>are as follows: Net Debt/Adjusted EBITDA >3.5 and Adjusted EBITDA/Finance Income (Costs) > 1.5 through the measurement made<br>as of June 30, 2017 and, as from the measurement made as of September 30, 2017, > 2.00.
(iii) In December 2017, the Company issued 350,000 debentures, in a single series, in the total amount<br>of R$350,000, exclusively for working capital purposes and to extend the financial liabilities. Debentures will mature on December<br>13, 2020 and yield will be paid on a semi-annual basis in June and December of each year, the first installment falling due on<br>June 13, 2018 Issuance costs, net of transaction costs, amounts to R$348,041 and will be amortized on a straight-line basis over<br>the transaction term.
--- ---

The financial indicators established in the indenture are Net Debt/Adjusted EBITDA < 3.5 and Adjusted EBITDA/Finance income (costs) > 2.00.

All requirements and covenants set out in the indentures of the issuances have been properly met and monitored by the Company and its subsidiaries through the reporting date.

F-52
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(iv) In May 2018, the Company issued 621,000 infrastructure debentures, under article 2 of Law No. 12.431/2011,<br>in a single series, in the total amount of R$621,000, with a view to reimburse the costs incurred in up to 24 months as of the<br>disclosure of the Offering Closing Notice, or future payment in the scope of the investment in Paraguaçu, Aimorés,<br>Itaúnas, Ivaí, Tibagi, Itaquerê, Itapura and Aguapeí projects. Debentures were classified as “green<br>bonds”, since their proceeds will contribute to the sustainable development by supporting the generation of renewable energy,<br>according to an independent opinion of specialists experienced and having technical capacity in the sustainability field, disclosed<br>in May 2018 on the Company’s website. Debentures will mature on April 15, 2025 and yield will be paid on a semi-annual basis<br>in October and April of each year, the first installment falling due on October 15, 2018. Issuance costs, net of transaction costs,<br>amounts to R$603,877 and will be amortized on a straight-line basis over the transaction term.
--- ---
(v) In December 2019, the Company issued 409,325 infrastructure debentures, under article 2 of Law<br>No. 12.431/2011, in a single series, in the total amount of R$409,325, with a view to reimburse the costs incurred in up to 24<br>months as of the disclosure of the Offering Closing Notice, or future payment in the scope of the investment in Paraguaçu,<br>Aimorés, Itaúnas, Tibagi, Itaquerê, Itapura, Aguapeí, and Biguaçu projects. Debentures were classified<br>as “green bonds”, since their proceeds will contribute to the sustainable development by supporting the generation<br>of renewable energy, according to an independent opinion of specialists experienced and having technical capacity in the sustainability<br>field, disclosed in December 2019 on the Company’s website.
--- ---
Debentures will mature on December 15,<br>2027, December 15, 2028 and December 15, 2029, and yield will be paid on a semi-annual basis in June and December of each year,<br>the first installment falling due on June 15, 2020. Issuance costs, net of transaction costs, amount to R$387,852 and will be amortized<br>on a straight-line basis over the transaction term.
The related indentures do not contain covenants<br>for items (iv) and (v).
Issuance costs recognized in the respective<br>financial transactions through December 31, 2019 totaled R$53,597. The balance of the remaining costs to be recognized beginning<br>December 31, 2019 is R$39,644.
The noncurrent portion of installments<br>matures as follows:
2019<br><br> <br>(unaudited) 2018<br><br> <br>(unaudited)
2020 - 349,672
2021 165,019 158,330
2024 324,284 311,428
2025 648,296 622,074
2029 391,372 -
1,528,971 1,441,504 
F-53
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

Changes in debentures are as follows:

Balances in 2017 983,859
Additions 621,000
Repayments of principal (170,000 )
Interest payments (54,110 )
Interest, inflation adjustments and exchange rate changes 84,462
Balances in 2018 (unaudited) 1,465,211
Additions 409,325
Repayments of principal -
Interest payments (78,209 )
Interest, inflation adjustments and exchange rate changes 100,152
Balances in 2019 (unaudited) 1,896,479
17 Taxes and payroll charges payable
2019<br><br> <br>(unaudited) 2018<br><br> <br>(unaudited)
--- --- --- --- ---
Income tax 25,266 1,018
Social contribution 13,343 2,906
Cofins (tax on revenue) 27,883 27,217
PIS (tax on revenue) 5,603 5,446
INSS (Social Security Contribution) 5,976 5,767
ISS (Service tax) 2,495 3,139
Severance Pay Fund (FGTS) 1,921 2,125
Withholding income tax 4,164 3,970
Other 5,455 2,794
92,106 54,382
18 Deferred PIS and Cofins (taxes on revenue)
--- ---
2019 (unaudited) 2018 (unaudited)
--- --- --- --- ---
PIS 211,410 209,853
Cofins 973,913 966,713
1,185,323 1,176,566

Deferred PIS and Cofins relate to infrastructure implementation revenues and compensation from concession assets determined on the contractual financial asset recorded in the proper accounting period. Payment is made as monthly revenues are billed, as provided for in Law No. 12973/14.

F-54
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
19 Regulatory charges payable
--- ---
2019 (unaudited) 2018 (unaudited)
--- --- ---
Research & Development - R&D (i) 78,018 64,453
Global Reversal Reserve (RGR) 548 801
Energy Development Account - CDE (ii) 8,730 8,340
Alternative Power Sources Incentive Program (Proinfa) 1,889 2,202
ANEEL inspection fee 387 391
89,572 76,187
Current 48,336 40,262
Noncurrent 41,236 35,925
(i) The Company and its subsidiaries recognize obligations relating to tariff amounts already billed<br>(1% of net operating revenue), applied to the Research and Development (R&D) Program, monthly adjusted, as from the second<br>month subsequent to its recognition through its actual realization, based on Selic (The Central Bank interest rate) as established<br>in ANEEL Resolutions 300/2008 and 316/2008. According to Official Letter No. 0003/2015, of May 18, 2015, expenditures applied to<br>R&D are accounted for in assets and, by completion of the project, recognized as obligation settled and, subsequently, submitted<br>to audit and final evaluation by ANEEL. The amount invested in projects not completed by December 31, 2019 totals R$25,824 (R$12,859<br>at December 31, 2018) and is recorded in other assets.
(ii) The CDE is a fee transmission companies are in charge of transferring based on amounts collected<br>from free consumers.
--- ---
20 Payroll and related taxes
--- ---
2019 (unaudited) 2018 (unaudited)
--- --- --- --- ---
Vacation and related taxes 20,589 25,399
Profit sharing (PRL) 12,752 11,648
33,341 37,047 
F-55
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
21 Provisions
--- ---
(a) Provision for risks

Lawsuits are assessed periodically and classified based on their likelihood of loss for the Company. Provisions are recognized for all lawsuits for which it is probable that an outflow of funds will be required to settle the obligation and a reliable estimate can be made.

Lawsuits assessed as probable loss are as follows:

2019<br><br> <br>(unaudited) 2018<br><br> <br>(unaudited)
Labor (i) 54,740 86,765
Civil (ii) 6,935 2,941
Tax - IPTU (property tax) (iii) 388 996
Other 304 6
62,367 90,708
(i) Labor
--- ---

The Company is a defendant in certain lawsuits that are under discussion at different courts relating to claims of salary equalization, overtime, hazardous duty premium, among others. The Company made escrow deposits for labor claims in the amount of R$30,136 (R$34,563 as of December 31, 2018), as described in note 10.

(ii) Civil

The Company is a party to civil lawsuits relating to issues including real estate, indemnities, collections, annulment and class actions arising in the normal course of business, that is, operation and maintenance of transmission lines, substations and equipment under the electric power transmission concession agreements.

(iii) Tax – IPTU (property tax)

The Company is a party to proceedings relating to the collection of Property Tax (IPTU) and recognizes a provision to cover debts to the municipal government of various municipalities in the State of São Paulo.

F-56
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(iv) Changes in provisions for risks:
--- ---
Labor Civil Tax – IPTU (property tax) Other Total
Balances in 2017 98,679 4,235 18,581 58 121,553
Recognition 22,442 10,736 166 872 34,216
Reversal (29,798 ) (11,870 ) (18,694 ) (924 ) (61,286 )
Payment (12,557 ) (584 ) (1 ) - (13,142 )
Adjustment 7,999 424 944 - 9,367
Balances in 2018 (unaudited) 86,765 2,941 996 6 90,708
Recognition 13,437 4,761 5 275 18,478
Reversal (30,986 ) (794 ) (631 ) (7 ) (32,418 )
Payment (21,445 ) (555 ) (33 ) - (22,033 )
Adjustment 6,969 582 51 30 7,632
Balances in 2019 (unaudited) 54,740 6,935 388 304 62,367
(b) Lawsuits whose likelihood of loss is assessed as possible
--- ---

CTEEP parties to labor, civil, social security and tax lawsuits involving risks of loss which, based on the assessment of the legal counsel, Management classified as possible loss, \in the estimated amount of R$612,961 as of December 31, 2019 (R$675,657 as of December 31, 2018), for which no provision was recognized.

Classification Number of claims Total
Labor 131 15,578
Civil 79 63,986
Social security 36 3,496
Civil - Annulment of merger of EPTE by CTEEP (i) 1 225,652
Civil - Ace Seguradora (ii) 1 17,362
Tax - Goodwill amortization (iii) 2 164,471
Tax - IPTU (property tax) 140 89,413
Tax - Other 47 33,003
437 612,961 
F-57
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(i) Annulment of merger of EPTE by CTEEP
--- ---

Lawsuit whereby minority shareholders claim the annulment of EPTE’s merger by the Company or, in a jointly liable manner, the declaration of its right to withdrawal and determination of the payment of the share reimbursement value. Currently in the execution phase, pending final assessment of the pre-enforcement exception. The Company filed a cancellation claim and obtained an injunction conditioned to the possible raising of amounts by the filing party in order to submit a suitable surety. The injunction was overruled and the company will file an appeal.

AceSeguradora

Collection lawsuit filed by the insurers of CESP - Companhia Energética de São Paulo, alleging CTEEP’s responsibility in the claim incurred in Generation Unit No. 5 - “UG-05” of Hydro Power Plant Três Irmãos, resulting in serious damage to its generator and transformer on June 21, 2013. The amount charged refers to the amount received by CESP and its insurers, totaling R$8.8 million on July 27, 2015, for repair of the generator and transformer allegedly damaged in the event. The lawsuit awaits judgment by the lower court.

(ii) Tax - Goodwill amortization

Lawsuits arising from tax assessment notices issued by the Federal Revenue Service from 2013 to 2017 (period from 2008 to 2013), relating to the goodwill paid by ISA Capital on the acquisition of CTEEP shareholding control.

· The<br> 2008 case was judged at the higher court of the Administrative Board of Tax Appeals (CARF),<br> which granted an unfavorable decision. The Company started a lawsuit which was partially<br> granted (for the income tax but not for the social contribution). A claim was filed with<br> the appellate court and awaits ruling.
· The<br> 2009, 2010, 2011 and 2012 cases were awarded a favorable decision by the higher court<br> of the Administrative Board of Tax Appeals (CARF).
--- ---

For 2013, the decision was partially favorable to the Company at the lower court, and an appeal may be filed.

The existence of CARF’s unfavorable decisions does not bind the other lawsuits awaiting judgment since CARF does not have a unanimous position on the matter, as unfavorable judgments were preceded by a deadlock, subsequently decided by the deciding vote of the President of the Panel/Chamber.

(c) Lawsuits whose likelihood of loss is assessed as remote
(i) PIS and Cofins (taxes on revenue)
--- ---

The Company is a defendant to tax assessment notices relating to PIS and Cofins (taxes on revenue) for the period from 2003 to 2011, under the allegation that the Company would be required to pay PIS/Cofins on a cumulative basis. The Company paid PIS/COFINS on a cumulative basis until 2003. With the changes introduced in legislation in October 2003, the general rule became paying PIS/COFINS on a noncumulative basis, except for revenues meeting the following requirements: i) agreements executed before October 2003, ii) with an effective term longer than one year, iii) at predetermined prices, iv) for purchases of goods or services. Since SE revenue (Agreement 059/2001 prior to Law No. 12.783/2013) meets these requirements, and, also, following ANEEL’s instructions, the Company requested the offset of the amounts overpaid in the period the Company paid PIS and Cofins on a noncumulative basis and begun paying such taxes cumulatively on the portion of SE revenue.

Through September 2013, administrative proceedings in most advanced stages were granted a favorable decision by CARF, in line with the Court’s understanding on the issue. In December 2015, CARF changed its understanding on the matter; however, the Court maintained their original position. Currently, these cases were already closed at CARF (for the period from 2013 to 2010), totaling R$1.752 million and are the subject of a lawsuit that discuss the analysis of an expert report by CARF, and an unfavorable decision was granted to the Company at the lower court. The Company awaits ruling of the appeal.

F-58
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The proceeding relating to 2011 involves the amount of R$555.4 million, adjusted for inflation, and was granted an unfavorable decision to the company at CARF’s lower level. CARF´s Lower Panel determined that the National Treasury Attorney General should analyze the report prepared by the specialized consulting firm, which was analyzed and validated. The Company awaits a new ruling by CARF’s Lower Panel.

22 Post-employment Benefit/A mounts payable - Fundação CESP

The Company sponsors retirement and survivors’ pension complementation and supplementation and health care plans managed by Funcesp, which, together with the administrative costs of the fund, amounts to R$2,173 as of December 31, 2019 (R$4,250 as of December 31, 2018), relating to monthly installments payable as contribution to the fund.

(a) Retirementand pension plan - PSAP/CTEEP

PSAP/CTEEP includes the following subplans:

· Proportional<br> Supplemental Settled Benefit (BSPS) – (Plan “B”);
· Defined<br> benefit (BD) – (Plan “B1”);
--- ---
· Variable<br> contribution (VC) - (Plan “B1”).
--- ---

PSAP/CTEEP, governed by Supplementary Law No. 109/2001 and managed by Funcesp, is sponsored by the Company itself and offers retirement and survivors’ pension supplementation benefits, whose reserves are determined on a funded basis.

PSAP/CTEEP originated from the spin-off of PSAP/CESP B1 on September 1, 1999 and covers all participants transferred to the Company. On January 1, 2004, PSAP/EPTE was incorporated by PSAP/Transmissão, the name of which was changed from that date to PSAP/Transmissão Paulista and from December 1, 2014 changed to PSAP/CTEEP.

Subplan “BSPS” refers to the Proportional Supplemental Settled Benefit arising from the Supplementary Retirement and Pension Plan PSAP/CESP B, transferred to this plan on September 1, 1999 and from PSAP/Eletropaulo Alternativo, transferred to this plan after the merger of PSAP/EPTE on January 1, 2004, calculated on December 31, 1997 (CTEEP) and March 31, 1998 (EPTE), based on effective regulations, and the actuarial asset-liability balance was obtained at the time.

The Defined Benefit (“DB”) subplan defines contributions and related matching responsibilities between the Company and Participants on 70% of employees’ Actual Contribution Salary in order to obtain the plan’s actuarial asset-liability balance. This subplan ensures annuity post-retirement and death benefits to employees, former employees and beneficiaries in order to supplement the benefits provided by the official social security system.

The CV sub-plan defines voluntary contributions from Participants with limited compensation of the Company, levied on 30% of the Actual Contribution Salary of these employees in order to provide additional supplementation in the cases of retirement and death pension. On the date of receipt of the benefit, the Variable Contribution (CV) sub-plan may become a Defined Benefit ("BD") if the annuity is chosen by the Participant as a form of receipt of this supplementation.

F-59
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(i) Actuarialvaluation
--- ---

The actuarial valuation prepared by an independent actuary relating to the PSAP/CTEEP pension plans, sponsored by the Company, under the projected unit credit method.

As of December 31, 2019, PSAP/CTEEP recorded actuarial surplus of R$55,470 (R$502,525 as of December 31, 2018).

As provided for in paragraph 65 of IAS 19 - Employee Benefits, the Company recognizes the net value of assets from future economic benefits that are available in form of partial reduction of future contributions to the Plan, limited to the present value of these benefits, in the amount of R$44,975 and R$1,951 relating to the cost of the defined benefit obligation in noncurrent assets, in the amount of R$43,024.

The main financial and actuarial information is as follows:

2019 (unaudited) 2018 (unaudited)
Amount recognized in the Company’s balance sheet
Defined benefit obligation 4,198,694 3,317,667
Fair value of plan assets (4,254,164 ) (3,820,192 )
(Surplus)/ Deficit (55,470 ) (502,525 )
Nonrecoverable surplus (effect of the asset limit) 10,495 395,165
Net liability / (asset) (44,975 ) (107,360 )
Changes in nonrecoverable surplus
Nonrecoverable surplus at the end of prior year 395,165 500,576
Interest on nonrecoverable surplus 38,489 50,658
Changes in nonrecoverable surplus during the year (423,159 ) (156,069 )
Nonrecoverable surplus at the end of year 10,495 395,165
Reconciliation of defined contribution obligations
Benefit definition obligation at the end of prior year 3,317,667 2,943,030
Cost of current service 12,462 11,088
Interest cost 312,626 287,991
Benefits paid by the plan (223,679 ) (204,119 )
Participants’ contribution 1,023 686
Actuarial (gain)/loss 778,595 278,991
Benefit definition obligation at the end of year 4,198,694 3,317,667
Reconciliation of the fair value of plan assets
Fair value of the plan assets at the end of prior year (3,820,192 ) (3,533,832 )
Expected return on investments (361,626 ) (347,821 )
Employer’s contribution (916 ) (1,188 )
Participants’ contribution (1,023 ) (686 )
Benefits paid by the plan 223,679 204,119
(Gain)/Loss on return on investments (294,086 ) (140,784 )
Fair value of the plan assets at the end of year (4,254,164 ) (3,820,192 ) 
F-60
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
2019 (unaudited) 2018 (unaudited)
--- --- --- --- --- --- ---
Components of defined benefit cost/ (revenue)
Cost of current service 12,462 11,088
Interest on defined benefit obligation 312,626 287,991
Interest / (yield) on fair value of plan assets (361,626 ) (347,821 )
Interest on nonrecoverable surplus 38,489 50,658
Cost of defined benefit obligation on the Company’s profit or loss 1,951 1,916
Resizing in other comprehensive income (“OCI”)
Actuarial (gain)/loss 778,595 278,991
(Gain)/Loss on return on investments (294,086 ) (140,784 )
Changes in nonrecoverable surplus during the year (423,159 ) (156,069 )
Resizing of the obligation included in “OCI” 61,350 (17,862 )
Total cost of defined benefit obligation on the Company’s profit or loss and OCI 63,301 (15,946 )
Reconciliation of the defined benefit net value of liabilities/ (assets)
Net Liabilities / (Assets) at the end of the prior year (107,360 ) (90,226 )
Cost of defined benefit obligation on the Company’s profit or loss (*) 1,951 1,916
Resizing of the obligation included in “OCI” 61,350 (17,862 )
Employer’s contribution (916 ) (1,188 )
Net Liabilities / (Assets) at the end of the year (44,975 ) (107,360 )
Estimated costs for the subsequent year
Cost on defined benefit obligation 16,810 1,951
Estimated value for the subsequent year 16,810 1,951
Sensitivity analysis for assumptions adopted
Defined benefit obligation (interest rate - 100 base points) 4,773,013 3,717,705
Defined benefit obligation (interest rate + 100 base points) 3,730,530 2,985,967
Expected cash flows for the subsequent year and duration of the commitment
Expected employer’s contribution 418 358
Total estimated benefit payments under the plan:
Year 1 232,946 215,912
Year 2 244,510 229,028
Year 3 254,306 243,219
Year 4 265,170 255,233
Year 5 274,884 268,693
5 subsequent years 1,513,263 1,526,448
Duration of commitments under the plan 12.9 years 11.3 years

(*) This amount is recognized in line item “General and administrative expenses”.

F-61
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless<br>otherwise stated)
2019 (unaudited) 2018 (unaudited)
--- --- --- --- ---
Breakdown of investments portfolio (in<br> R$)
Fixed income 3,225,933 3,063,794
Floating income 740,225 542,467
Structured investments 111,034 87,864
Foreign investments 38,713 34,382
Properties 108,481 61,123
Operations with participants 29,778 30,562
4,254,164 3,820,192
Main financial and actuarial assumptions
Discount rate 7.04%<br> p.a. 9.74%<br> p.a.
Salary increase rate 1.87%<br> p.a. 1.87%<br> p.a.
Rate of adjustment to benefits granted on a continuing<br> basis 3.60%<br> p.a. 4.50%<br> p.a.
General mortality table AT-2000(M/F) AT-2000(M/F)
Disability table Light-Weak<br> ^(*)^ Light-Weak
Disability mortality table AT-1949 AT-1949
Turnover Exp.Funcesp<br> (*) Exp.Funcesp
(*) 30% smooth
Demographic data
Number of active participants 1,376 1,346
Number of affiliates 129 132
Number of assisted beneficiaries 2,636 2,558
23 Global Reversal Reserve (RGR)
--- ---

As of December 31, 2019, the amount of R$16,612 (R$19,093 at December 31, 2018) refers to the funds deriving from the reversal reserve, amortization and portion retained in the Company of the monthly shares of the Global Reversal Reserve (RGR) relating to investments of funds to expand power services and repay borrowings raised for the same purpose, occurred through December 31, 1971. Annually, according to the ANEEL Order, interest of 5% is charged on the value of the reserve, with monthly settlement. Under article 27 of Decree No. 9022, of March 31, 2017, electric power concessionaires shall amortize fully the RGR debits beginning January 2018 to December 2026.

24 Equity
(a) Capital
--- ---

As of December 31, 2019, the Company’s issued capital is R$5,000,000, of which R$1,957,386 in common shares and R$3,042,614 in preferred shares, all registered, book-entry, and without par value.

On April 4, 2019, the Extraordinary and General Shareholders Meeting approved the proposal to split 100% of the Company’s shares, in the proportion of 1 common share to 4 common shares and of 1 preferred share to 4 preferred shares. Such split did not result in any changes to the Company’s capital.

F-62
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless<br>otherwise stated)

The subscribed and paid-in capital as of December 31, 2019 and 2018 totals R$3,590,020 and is represented by common and preferred shares, as follows:

2019 (unaudited) R$ Thousand (unaudited) 2018 (unaudited) R$ Thousand (unaudited)
Common share 257,937,732 1,405,410 64,484,433 1,405,410
Preferred share 400,945,572 2,184,610 100,236,393 2,184,610
658,883,304 3,590,020 164,720,826 3,590,020

Common shares entitle their holders the right to one vote at the resolutions of general meetings.

Preferred shares are not entitled to vote; however, they have priority in the refund of capital and payment of dividends corresponding to this class of shares.

(b) Dividends and interest on capital

In 2019, the Board of Directors resolved to distribute interim dividends and interest on capital, as follows:

Interim dividends (unaudited) Interest on capital (unaudited)
BoD meeting date Total Per share Total Per share Payment
07.30.2019 - - 370,415 0.562186 08.19.2019
11.05.2019 293,556 0.445535 223,444 0.339126 12.03.2019
12.10.2019 - - 107,845 0.163679 01.20.2020
293,556 0.445535 701,704 1.064991

Total dividends and interest on capital paid through December 31, 2019 is R$900,714, with resolutions made in 2019. The amount of R$107,845 recorded in interest on capital and dividends payable refer to the balance to be settled subsequently.

The Company’s bylaws establish that the allocation of profit for the year in the following order: (i) recognition of the legal reserve; (ii) balance, payment of dividends attributed to preferred and common shares, at the higher value between R$218,461and R$140,541, respectively, and 25% of profit for the year; (iii) of balance, up to 20% of profit for recognition of the statutory reserve.

F-63
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless<br>otherwise stated)
2019 (unaudited) 2018 (unaudited) ****<br><br>2017
--- --- --- --- --- --- --- --- --- ---
Profit for the year 1,762,631 1,881,668 1,365,512
Recognition of legal reserve (81,158 ) (94,083 ) (68,275 )
Dividends and interest on capital forfeited 302 1,017 1,215
1,681,775 1,788,602 1,298,452
Recognition of statutory reserve (336,295 ) (357,517 ) (259,447 )
Recognition of unrealized earnings reserve, net (428,021 ) (62,415 ) (453,912 )
Interim dividends paid (215,755 ) (633,000 ) (500,400 )
Interest on capital paid (701,704 ) (592,000 ) -
Recognition of earnings retention reserve - (143,670 ) -
Additional dividends proposed - - (84,693 )
- - -
(c) Capital reserves
--- ---
2019 (unaudited) 2018 (unaudited)
--- --- --- --- ---
Investment grants - CRC (i) 78 78
Special goodwill reserve - merger 588 588
666 666
(i) Investment grants - CRC
--- ---

The Offsettable Profit or Loss Account (CRC) was established by Decree No. 41019/1957 and Law No. 5655/1971 to compensate electric power concessionaires for certain investments made by them. Law No. 8631/1993 extinguished the CRC and, thereafter, Law No. 8724/1993 established that the CRC credits should be recorded in equity as investment grants in line item “Capital reserve”. The Company elected to maintain the balance as of December 31, 2007 relating to the CRC.

(d) Earnings reserves
2019<br> <br>(unaudited) 2018 (unaudited)
--- --- --- --- ---
Legal reserve (i) 718,004 636,846
Statutory reserve (ii) 1,190,503 854,208
Earnings retention reserve (iii) 797,312 875,113
Unrealized special earnings reserve (iv) 5,466,623 5,038,602
8,172,442 7,404,769 
F-64
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless<br>otherwise stated)
(i) Legal reserve
--- ---

Recognized as 5% of profit for the year, before any allocation, up to 20% of capital. In the year ended December 31, 2019, the Company reached the maximum percentage for recognition of the legal reserve.

(ii) Statutory reserve

The Company’s bylaws provide for the recognition of reserve for investment in expansion of activities of up to 20% of profit for the year, limited to the balance after deducting the legal reserve and mandatory minimum dividends, whose amount may not exceed the capital amount.

(iii) Earnings retention reserve

Management proposes to maintain in equity prior years’ retained earnings, in a retained earnings reserve, which is intended to meet the capital budget approved at the General Shareholders’ Meeting in the respective periods.

(iv) Unrealized special earnings reserve

The unrealized special earnings reserve includes the impacts of (i) amounts receivables from SE (note 7); (ii) adjustments due to application of IFRIC 12 (iii) initial application of IFRS 15; and (iv) share of profit of investees, since they do not comprise the portion realized in profit for the year. Allocation in this reserve is made to reflect the fact that the financial realization of earnings from these operations will occur in future years. Once realized, in case the reserve is not absorbed by subsequent losses, the Company will allocate its balance under Article 19 of CVM Instruction No. 247/1996 for capital increase, distribution of dividends or recognition of other earnings reserves, considering Management’s proposals to be made on a timely basis.

Changes in 2019:

Balance in 2018 (unaudited) 5,038,602
Realization (*) (1,062,144 )
Recognition (*) 1,490,165
Balance in 2019 (unaudited) 5,466,623

(*) The realization mainly includes the amounts received from SE and dividends received from subsidiaries and jointly controlled subsidiaries.

(**) The recognition amount is comprised of the adjusted SE balance receivable and noncash items from the application of IFRS standards.

(e) Other Comprehensive Income (OCI)

In 2018, the Company recognized in Other Comprehensive Income an asset and the respective tax effects arising from an actuarial surplus supported by a report prepared by an independent actuarial specialist. As of December 31, 2019, the amount is R$29,683, net of taxes (R$ 70,858 at December 31, 2018) (note 22).

Also classified in other Comprehensive Income are derivative financial instruments, namely non-deliverable forwards (NDF) to manage subsidiary Biguaçu’s currency risk in the amount of R$1,508 net of taxes, whereby the effective portion of changes in the fair value of the hedge accounting is recorded in equity, not in profit or loss (note 11 (a)).

F-65
COMPANHIA DE TRANSMISSÃO ENERGIAELÉTRICA PAULISTA<br> Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04<br>CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless<br>otherwise stated)
(f) Earnings per share
--- ---

Basic earnings or loss per share are calculated through the Company’s profit or loss, based on the weighted average number of common and preferred shares outstanding in the respective period. Diluted earnings or loss per share is calculated by obtaining such average number of outstanding shares, adjusted by instruments potentially convertible into shares. In this case, the Company considered shares that may be issued through capitalization of the special goodwill reserve on merger in favor of the controlling shareholder.

As prescribed in CVM Instruction No. 319, to the extent that the tax benefit of the special goodwill reserve on merger is realized, included in the Company’s equity, this benefit can be capitalized on behalf of the Parent, and other shareholders shall have an interest in such capital increase, so as to maintain its ownership interest in the Company.

Those shares issued based on this realization will be considered as dilutive for purposes of calculation of the Company’s earnings or loss per share, based on the assumption that all issuance conditions have been met. As of December 31, 2019, and 2018, the share issuance conditions relating to goodwill amortization were satisfied.

The table below shows the profit or loss and share data used to calculate basic and diluted earnings per share:

2019 (unaudited) 2018 (*) (unaudited) ****<br><br>2017 (*)
Basic and diluted earnings per share
Profit - R$ thousand 1,762,631 1,881,668 1,365,512
Weighted average number of shares (i)
Common shares 208,116,882 208,116,882 208,116,882
Preferred shares 323,502,660 323,502,660 323,502,660
531,619,542 531,619,542 531,619,542
Weighted adjusted average number of shares
Common shares 208,135,584 208,126,647 208,126,062
Preferred shares 323,523,457 323,511,835 323,510,798
531,659,041 531,638,482 531,636,860
Basic earnings per share 3.31559 3.53950 2.56859
Diluted earnings per share 3.31534 3.53938 2.56850

(*) Under IAS 33, earnings per share was calculated retrospectively for all reporting periods due to the reverse split of shares occurred on April 4, 2019 (note 24 (a)).

(i) The calculation of the weighted average of shares in the year considers the weighted average of shares before the reverse split.

F-66
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
25 Net operating revenue
25.1 Breakdown of net operating revenue
--- ---
2019 (unaudited) 2018 (unaudited) ****<br><br>2017
--- --- --- --- --- --- --- --- --- ---
Gross revenue
Infrastructure revenue (a) (note 7) 577,355 387,115 247,126
O&M (a) (note 7) 1,108,520 1,042,534 880,901
Compensation from concession assets - RBSE (b) (note 7) 1,011,977 1,269,108 1,495,791
Compensation from concession assets (b) (note 7) 544,526 549,670 400,615
Efficiency gain on the infrastructure implementation (c) 514,532 361,495 -
Rentals 20,936 19,605 18,757
Services provided - O&M 9,212 7,300 7,312
Services provided - others 1,700 - -
Total gross revenue 3,788,758 3,636,827 3,050,502
Taxes on revenue
Cofins (tax on revenue) (246,741 ) (249,696 ) (220,583 )
PIS (tax on revenue) (53,559 ) (54,185 ) (47,930 )
ICMS (377 ) (115 ) (85 )
ISS (Service tax) (697 ) (569 ) (529 )
(301,374 ) (304,565 ) (269,127 )
Regulatory charges
Energy Development Account (CDE) (111,792 ) (82,438 ) (34,605 )
Global Reversal Reserve (RGR) (6,207 ) (4,809 ) (4,662 )
Research and Development (R&D) (27,629 ) (27,491 ) (17,246 )
Alternative Power Sources Incentive Program (Proinfa) (25,794 ) (22,497 ) (16,605 )
Electric Power Services Inspection Fee (10,807 ) (10,373 ) (7,064 )
(182,229 ) (147,608 ) (80,182 )
3,305,155 3,184,654 2,701,193

(a)          Infrastructure implementation and operation and maintenance services

Revenue from infrastructure implementation for provision of electric power transmission services under a service concession agreement is recognized as costs are incurred. O&M revenues are recognized in the period in which services are provided by the Company. When the Company provides more than one service under a service concession arrangement, the consideration received is allocated by reference to the fair values of the services delivered.

(b)          Compensation from concession assets

Revenue from compensation of assets is recognized at the interest rate that reflects the economic volatility on the future flow of cash receipts that compensates the transmission infrastructure investment. The discount rate represents the financial component based on a market rate established at the beginning of the contracts/projects.

(c)           Efficiency gain on the infrastructure implementation

Efficiency gain on the infrastructure implementation refers to positive or negative variations determined in the placement into operation of reinforcement and improvement projects and new concession agreements against the costs incurred on the infrastructure implementation versus the future cash flow discounted at the rate that represents the financial component of the business, established at the beginning of each contract/project, and which, on a consolidated basis, ranges between 6.6% and 10.5%. As of December 31, 2019, the efficiency gain refers to Company’s projects and Agreement 042/2017 of subsidiary Itapura which were placed into operation.

F-67
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
25.2 Periodic revision of the Annual Permitted Revenue (RAP)
--- ---

Under concession agreements, at every four and/or five years, after the agreement execution date, ANEEL will periodically revise the electric power transmission RAP to promote tariff efficiency and moderation.

Each agreement has its specifics; however, in general terms, concessionaires have their RAP revised for three times (every five years), when the cost of debt capital is revised. Reinforcements and improvements related to the tendered agreements are revised every five years. A revenue reduction may also be applied for Operation and Maintenance (O&M) costs to capture Business Efficiency Gains.

The tendered revenue associated with the Concession Agreement No. 143/2001 of subsidiary IE Serra do Japi is not subject to periodic tariff revision of the portion related to the revenue tendered in the auction.

The periodic tariff revision for concession agreements, such as Concession Agreement No. 059/2011, of concessionaires considered as existing, is made every five years and includes the revenue repositioning upon determination of the following:

a) the regulatory compensation basis for RBNI and RBSE;

b) efficient operating costs;

c) the optimal capital structure and definition of the compensation of transmission companies;

d) identification of the amount to be considered as tariff reduction - Other revenues;

e) application of the “x” factor (ratio set by ANEEL in the periodic revision process to foster efficiency and capture productivity gains for the consumer).

The information on the latest periodic tariff revisions is described below:

Concessionaire Agreement Approval Resolution (REH) ApprovalResolution Date Effective date
Subsidiaries
IE Serra do Japi 026/2009 1.901 06.16.2015 07.01.2015
IEMG 004/2007 2.257 06.20.2017 07.01.2017
IENNE 001/2008 2.405 06.19.2018 07.01.2018
IE Pinheiros (*) 012/2008 2.556 06.11.2019 07.01.2019
IE Pinheiros (*) 015/2008 2.556 06.11.2019 07.01.2019
IE Pinheiros (*) 018/2008 2.556 06.11.2019 07.01.2019
IE Pinheiros 021/2011 2.257 06.20.2017 07.01.2017
Evrecy 020/2008 2.404 06.19.2018 07.01.2018
IESul (*) 013 and 016/2008 2.556 06.11.2019 07.01.2019
Jointly controlled subsidiaries
IE Madeira (*) 013 and 015/2009 2.556 06.11.2019 07.01.2019
IE Garanhuns 022/2011 2.257 06.20.2017 07.01.2017 
F-68
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

(*) As a “preliminary” result of the tariff revision, the companies’ Annual Permitted Revenues decreased by:

· IE<br> Pinheiros 012/2018: -5.394%
· IE<br> Pinheiros 015/2018: -4.716%
--- ---
· IE<br> Pinheiros 018/2018: -5.232%
--- ---
· IE<br> Sul 013/2008: -5.325%
--- ---
· IE<br> Sul 016/2008: -5.656%
--- ---
· IE<br> Madeira 013/2009: -5.272%
--- ---
· IE<br> Madeira 015/2009: -5.547%
--- ---

In August 2019, IE Madeira’s appeal filed in June 2019 was granted a supersedeas effect and made ANEEL Resolution No. 2.556/2019 ineffective until the appeal was ruled. Accordingly, beginning August 2019, the RAP prior to the tariff revision (ANEEL Resolution No. 2.408/2018).

In November 2019, the administrative appeals were ruled by ANEEL and the outcome was published on Authorizing Resolution No. 2.635/2019, which changed the outcome expressed in ANEEL Resolution No. 2.556/2019. Therefore, the supersedeas effect granted to IE Madeira’s appeal was dismissed and the RAP in ANEEL Resolution No. 2.556/2019 became applicable until the next tariff cycle, when the financial effects arising from changes to IE Madeira’s RAPs will be processed in the subsequent tariff cycle.

The differences between the amounts actually paid to concessionaires IE Madeira, IE Pinheiros and IE Sul and the amounts due will be determined and considered as an Adjustment Portion (“PA”) Installment in the 2020/2021 tariff cycle and were already reflected in the cash flow from the contract asset as of December 31, 2019.

Finally, as a result of the tariff revision, the companies’ Annual Permitted Revenues decreased by:

· IE<br> Pinheiros 012/2018: -2.367%
· IE<br> Pinheiros 015/2018: -1.637%
--- ---
· IE<br> Pinheiros 018/2018: -2.339%
--- ---
· IE<br> Sul 013/2008: -2.369%
--- ---
· IE<br> Sul 016/2008: -2.659%
--- ---
· IE<br> Madeira 013/2009: -2.941%
--- ---
· IE<br> Madeira 015/2009: -3.415%
--- ---

The Company recognized the impacts of this change in December 2019.

The next periodic tariff revisions for the RAP of the Company and its subsidiaries and jointly controlled subsidiaries are described in note 1.2.

25.3 Variable Portion – PV, RAP Additional and Adjustment Portion - PA

Regulatory Resolution 729, of July 28, 2016, regulates the Variable Portion (PV) and RAP Additional. The Variable Portion is the pecuniary penalty applied by the Grantor for any unavailability or operating restrictions of the facilities comprising the Basic Grid. The RAP Additional corresponds to the pecuniary premium granted to transmission companies as an incentive for improving the availability of transmission facilities. Both situations are recognized as revenue and/or O&M revenue reduction, in the period in which they occur.

F-69
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

Regulatory Resolution No. 782/2017 amended REN No. 729/16, which extinguished the additional RAP for all power transmission companies beginning March 2018. The power transmission companies covered by Law No. 12.783/2013 had not been receiving since October 2012 (REN No. 512/2012).

The Adjustment Portion ("PA") is the portion of revenue arising from the enforcement of a mechanism established in the agreement, which is used in the periodic annual adjustments by adding to or subtracting from the RAP in order to offset a surplus or deficit of collection in the period prior to the adjustment.

25.4 Annual revenue adjustment

On June 28, 2019, Approval Resolution No. 2565 was published to establish annual permitted revenues of the Company and its subsidiaries for the availability of the transmission facilities comprising the Basic Grid and other transmission facilities, for a 12-month cycle, from July 1, 2019 to June 30, 2020.

According to Approval Resolution No. 2565, RAP and amounts corresponding to the Company’s adjustment portion (Agreement No. 059/2001), net of PIS and Cofins (known as Regulatory Revenue), which was R$2,622,199(*) on July 01, 2018, increased to R$2,788,514(*) on July 01, 2019, an increase of R$166,315, equivalent to 6.34%. A reduction of 0,19% (R$4,861) relates to tariff revisions of IESul and IE Pinheiros, 4.78% (R$125,447) relates to the IPCA/IGPM adjustment, reduction of 0.51% (R$13,406) the variance in the adjustment portion, 2.42% (R$63,419) relates to the additional RAP for new investments and 0.13% (R$3,416) relates to RBSE assets (MME Ruling No. 120/2016 covered by Law No. 12.783/2013), reduction of 0.29% (R$7,700) relates to the contractual reduction of 50% of RAP (pro rata) under Agreement No. 143/01 of IE Serra do Japi’s RAP.

(*) Not including the revenue from authorized investments that will start operating in the next cycles.

F-70
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br><br> <br>(CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
Years ended December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The Company’s and its subsidiaries’ Regulatory Revenue, net of PIS and, is as follows:

Concession<br><br> agreement Basic Grid Other Transmission Facilities – DIT Total
Existing<br><br> assets New<br><br> investments Tendered Adjustment<br><br> portion Existing<br><br> assets New<br><br> investments Tendered Adjustment<br><br> portion
059/2001 1,707,327 183,196 - (34,951 ) 607,797 135,474 - (19,764 ) 2,579,079
143/2001 - - 17,341 (865 ) - - - - 16,476
004/2007 - - 19,705 (675 ) - - - - 19,030
012/2008 - 6 8,637 (291 ) - 1,023 1,302 - 10,677
015/2008 - 15,306 16,514 (1,338 ) - 4,496 404 (45 ) 35,337
018/2008 - 56 4,261 (161 ) - 1,717 51 (59 ) 5,865
021/2011 - - 4,396 (514 ) - - 1,613 - 5,495
026/2009 - 5,439 30,235 (711 ) - - 6,877 - 41,840
001/2008 - 5 47,957 (1,591 ) - - - - 46,371
020/2008 - 10,357 - (2,122 ) - 2,266 - (100 ) 10,401
013/2008 - - 6,035 (258 ) - - - - 5,777
016/2008 - 1,872 10,587 (537 ) - - 245 (1 ) 12,166
1,707,327 216,237 165,668 (44,014 ) 607,797 144,976 10,492 (19,969 ) 2,788,514
26 Costs of infrastructure implementation, operation and maintenance services, and general and administrative expenses
--- ---
****<br><br>2019 (unaudited) 2018 <br><br>(unaudited) ****<br><br>2017
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Implementation and O&M costs Cost of services Expenses Total Total Total
Management fees - - (16,219 ) (16,219 ) (11,890 ) (8,282 )
Personnel (261,381 ) (194 ) (69,559 ) (331,134 ) (323,637 ) (307,038 )
Services (242,985 ) (402 ) (72,959 ) (316,346 ) (241,953 ) (173,819 )
Depreciation - - (19,963 ) (19,963 ) (9,214 ) (9,627 )
Materials (387,230 ) (97 ) (969 ) (388,296 ) (250,528 ) (186,476 )
Leases and rentals (i) (1,828 ) - (4,166 ) (5,994 ) (13,919 ) (13,837 )
Lawsuits - - 8,847 8,847 14,659 26,109
Other (58,060 ) - (20,131 ) (78,191 ) (55,400 ) (50,702 )
(951,484 ) (693 ) (195,119 ) (1,147,296 ) (891,882 ) (723,672 )

Out of the costs shown above, the costs of implementing infrastructure totaled R$548,126 in 2019, R$353,591 in 2018 and R$225,450 in 2017. The respective infrastructure implementation revenue, shown in note 25.1, is calculated by adding the PIS and Cofins rates and other charges to the cost of the investment.

F-71
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
27 Finance income (costs)
2019 <br> (unaudited) 2018 <br> (unaudited) 2017
--- --- --- --- --- --- --- --- --- ---
Revenue
Income from short-term investments 65,745 74,512 43,907
Interest income 484 201 240
Inflation adjustments 4,337 4,651 3,387
Hedge transactions (i)
MtM (mark to market) adjustment 48,549 55,140 1,632
Exchange rate changes 137,958 87,952 4,369
Adjustment of swap - hedging instruments 174,417 119,246 10,170
Other 7,551 11,076 59,968
439,041 352,778 123,673
Expenses
Interest on borrowings (62,846 ) (61,530 ) (47,905 )
Interest expense (2,607 ) (2,514 ) (10,723 )
Charges on debentures (84,376 ) (84,899 ) (63,599 )
Inflation adjustments (50,695 ) (51,587 ) (35,376 )
Hedging instrument (i)
Charges on swap (45,615 ) (23,288 ) (1,351 )
MtM (mark to market) adjustment (48,549 ) (55,140 ) (2,242 )
Exchange rate changes - borrowings (174,417 ) (119,246 ) (9,275 )
Adjustment of swap - hedging instruments (137,958 ) (87,952 ) (9,764 )
Other (17,237 ) (8,836 ) (9,654 )
(624,300 ) (494,992 ) (189,889 )
(185,259 ) (142,214 ) (66,216 )
(i) Refers to results of financial transactions under Law No. 4131, of September 3, 1962, which addresses<br>the use of foreign capital and remittance of profits abroad.
--- ---
28 Other operating income/ (expenses)
--- ---

Other operating income (expenses), in 2018, substantially refers to the net gain on the bargain purchase less the adjustment in the acquisition of IESUL, in the amount of R$24,756 (nota 11 (c)).

F-72
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
29 Income tax and social contribution

The provision for income tax and social contribution is recognized monthly on an accrual basis and computed as provided for in Law No. 12973/14.

The Company adopts the taxable income regime on an estimate basis and makes monthly prepayments by applying the deemed income rates on gross revenue while subsidiaries adopt the deemed income regime, except for subsidiary IE Sul, which adopts the taxable income regime.

(a) Reconciliation of the effective tax rate

The reconciliation of the income tax and social contribution expense for the year to book income is as follows:

2019 <br> (unaudited) 2018 <br> (unaudited) 2017
Profit before income tax and social contribution 2,155,913 2,316,644 1,981,105
Statutory rates 34 % 34 % 34 %
Income tax and social contribution at statutory rate (733,010 ) (787,659 ) (673,576 )
Income tax and social contribution on permanent differences
Interest on capital 238,580 201,280 -
Realization of losses - (359 ) (96 )
Share of profit (loss) of investees 61,128 68,279 42,434
Effect of adoption of deemed income regime by subsidiaries 48,957 96,300 36,174
Other (*) 7,883 760 (581 )
Effective income tax and social contribution (376,462 ) (421,399 ) (595,645 )
Income tax and social contribution
Current (276,796 ) (407,423 ) (354,491 )
Deferred (99,666 ) (13,976 ) (241,154 )
(376,462 ) (421,399 ) (595,645 )
Effective rate 17 % 18 % 30 %

(*) In 2019, the Company made donations to tax-incentive social and cultural projects in the amount of R$7,994.

F-73
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(b) Breakdown of deferred income tax and social contribution
Assets / (Liabilities) 2019 <br> (unaudited) 2018 <br> (unaudited)
--- --- --- --- --- --- ---
Receivables - Law No. 12783 - SE (i) (1,880,013 ) (2,088,467 )
Adjustments IFRS (IFRIC 12 and IFRS 15) (ii) (1,031,474 ) (713,515 )
Provision for risks 20,003 30,953
Other temporary differences 218,658 176,628
Total, net (2,672,826 ) (2,594,401 )
(i) Deferred income tax and social contribution on the compensation from concession assets relating<br>to SE facilities, which will be incorporated into the tax base as amounts are actually received.
--- ---
(ii) Refers to income tax and social contribution on profit from infrastructure implementation operation<br>to provide the electric power transmission services and compensation from concession assets (IFRIC 12 and IFRS 15) recognized on<br>an accrual basis, which are taxed when amounts are actually received, as provided in article 168 of Normative Instruction No. 1700/17<br>and article 36 of Law No. 12973/14.
--- ---

The Company’s Management believes that deferred income tax and social contribution balances are assets arising from temporary differences and will be realized proportionately to the lawsuits, trade receivables and the materialization of the events that gave rise to the provisions for risks.

F-74
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
30 Related-party transactions
--- ---

The main balances and transactions with related parties in the year are as follows:

2019 (unaudited) 2018 (unaudited) 2019 (unaudited) 2018 (unaudited) 2017
Revenue/ Revenue/ Revenue/
Nature of transaction Related parties Assets Liabilities Assets Liabilities (Expense) (Expense) (Expense)
Short-term<br> benefits (a) Management - - - - (16,219) (10,749) (7,585)
Dividends ISA<br> Capital - (32,834) - - - - -
Sublease,<br><br> <br>Reimbursements<br> and<br><br> <br>sharing<br> of personnel expenses (b) ISA<br> Capital 52 - 27 - 283 337 292
IEMG 58 - 202 - 262 58 47
IE<br> Pinheiros 177 - 571 - 817 93 46
IE<br> Serra do Japi 91 - 394 - 414 116 120
Evrecy 44 - 172 - 205 55 44
IENNE 224 - 12 - 1.038 192 67
Itaúnas 48 - 15 - 111 43 -
Tibagi 115 - 15 - 105 82 -
Itaquerê 95 - 15 - 105 128 -
Itapura 29 - 15 - 105 115 -
Aguapeí 54 - 15 - 105 88 -
IESul 119 - 16 - 538 224 92
IE<br> Garanhuns - - 1 - 6 10 -
Biguaçu 41 - - - - - -
Aimorés 38 - 22 - 150 103 -
Paraguaçu 39 - 21 - 153 100 -
Ivaí 34 - 20 - 145 111 -
Internexa<br> Brasil - - - - (334) - 13
1,258 - 1,533 - 4,208 1,855 721
Service<br> provision (c) ISA<br> Capital 30 - 16 - 337 196 195
IEMG 14 - 13 - 155 938 152
IE<br> Pinheiros 120 - 116 - 1,365 1,532 1,343
IE<br> Serra do Japi 97 - 93 - 1,099 1,116 1,083
Evrecy 82 - 80 - 923 920 879
IE<br> Garanhuns 36 - 36 - 412 397 181
Internexa<br> Brasil 474 (74) 180 19 1,051 (213) 98
853 (74) 534 19 5,342 4,886 3,931
Related-party balances 2,111 (32,908) 2,067 19 (6,669) (4,008) (2,933) 
F-75
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
2019<br> (unaudited) 2018<br> (unaudited) 2019<br><br> (unaudited) 2018<br><br> (unaudited)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Revenue/ Revenue/ Revenue/
Nature<br> of transaction Related<br> parties Assets Liabilities Assets Liabilities (Expense) (Expense) (Expense)
Bandeirantes 120,968 - 250,321 - 20,982 39,940
Short-term investments<br> - investment funds (note 6) Xavantes 1,912,816 - 263,252 - 22,241 12,801
Assis 3,936 - 167,336 - 15,781 28,598
Barra Bonita 30,891 - - - 3,599 -
2,068,611 - 680,909 - 62,603 81,339
Other
Liabilities<br> (note 7) Eletrobras - (30,623 ) - (28,287 ) - -
- (30,623 ) - (28,287 ) - -
Total 2,070,722 (63,531 ) 682,976 (28,268 ) 55,934 77,331
(a) Refers to management fees, which, as disclosed in the Company’s income statement, amount<br>to R$16,219, (R$11,890 in 2018 and R$8,282 in 2017).
--- ---

The Company’s compensation policy does not include postemployment benefits, other long-term benefits, severance benefits or share-based compensation.

(b) The sublease agreement comprises the sub-leased area of the Company’s headquarters building,<br>as well as apportionment of condominium and maintenance expenses, reimbursement of shared services, among others.

The personnel expenses sharing agreement requires the proportional allocation of expenses relating to employees shared the Company and its subsidiaries.

(c) The Company maintains the following service agreements: (i) ISA Capital - tax and accounting bookkeeping<br>services, tax calculation and payroll processing; (ii) IEMG, Pinheiros, Serra do Japi, Evrecy and Garanhuns - operation and maintenance<br>of its facilities; (iii) Internexa, a subsidiary of ISA Group - two service agreements including assignment of right of use, on<br>a remunerated basis, of the infrastructure support necessary for the installation of fiber optical cables, auxiliary services and<br>related improvements and sharing of IT infrastructure. Additionally, the Company contracted the provision of 10 Mbps internet link<br>services with Internexa Brasil. In March 2018, Internexa Brasil was contracted to update the telephony functionalities and requirements.

These transactions are conducted under specific conditions agreed upon between the parties.

Additionally, the Company contributes as a founder member to “Associação de Intercâmbio Sociocultural e Empresarial Brasil-Colômbia”, whose purpose is to support Colombian companies and professionals in Brazil as well as promote the Colombian culture, tourism and tradition in Brazil.

F-76
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
31 Financial instruments
--- ---

(a)          Identification of the main financial instruments

Level 2019 (unaudited) 2018 (unaudited)
Financial assets
Fair value through profit or loss
Cash equivalents 2 591,534 9,028
Short-term investments 2 2,068,611 680,909
Concession assets - Law No. 12.783 3 8,512,646 9,069,651
Derivative financial instruments 2 19,067 2,643
Restricted cash 2 48,391 44,055
Amortized cost
Cash and banks 4,437 7,712
Concession assets - O&M services - 142,224 189,916
Accounts receivable - São Paulo State Finance Department - 1,576,332 1,426,083
Receivables from related parties - 703 323
Sureties and judicial deposits - 52,886 66,987
Contract asset - 6,006,163 4,874,289
Financial liabilities
Amortized cost
Borrowings and financing
Current - 709,928 334,067
Noncurrent assets - 637,448 1,215,689
Debentures
Current - 367,508 23,707
Noncurrent assets - 1,528,971 1,441,504
Leases
Current - 9,948 280
Noncurrent assets - 39,948 232
Trade payables - 167,774 88,358
Interest on capital and dividends payable - 102,079 7,835

The carrying amounts of financial assets and financial liabilities, when compared to the amounts that could be obtained if they are traded in an active market or, in the absence of such market, the net present value adjusted based on the prevailing market interest rate, approximate their fair values. The Company classifies financial instruments as required by IFRIC 13:

Level 1 – quoted prices (unadjusted) in active markets, net and observable for identical assets or liabilities, available of measurement date;

Level 2 – quoted prices (which can be adjusted or unadjusted) of similar assets or liabilities in active markets, other inputs not directly or indirectly observable in level 1, in the asset or liability terms; and

Level 3 – assets and liabilities whose prices are unavailable or prices or valuation techniques supported by a small or inexistent, unobservable or net market. In this level, the fair value estimate becomes highly subjective.

F-77
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

The Company contracted swap transactions to hedge against fluctuations in currency and interest rate on foreign-currency borrowings under Law No. 4.131/1962. For swap transactions, the rates are 102.3% and 102.5% of the CDI.

The Company classifies derivatives contracted as fair value hedge and, based on the requirements of IFRS 9, the Company adopted hedge accounting for its transactions.

On October 9, 2018, subsidiary Biguaçu entered into NDF hedge contracts with Citibank, whereby the company bought future dollar with a notional value of USD29,301. The purpose of these transactions was to hedge foreign currency commitments assumed (CAPEX) by Biguaçu.

The Company classifies derivatives contracted as cash flow hedge and, based on the requirements of IFRS 9, the Company adopted hedge accounting.

The Company classifies derivatives contracted as fair value hedge and, based on the requirements of IFRS 9, the Company adopted hedge accounting for its transactions.

Financial instrument management is in line with the Risk Management Policy and Financial Risk Guidelines of the Company and its subsidiaries. The results from these transactions and adoption of controls to manage this risk are part of the monitoring of the financial risks adopted by the Company and its subsidiaries as follows:

Swap transaction
Short and long term Maturity Notional value Reference value<br><br> (Accrual) Fair value*
2019 (unaudited) 2019 (unaudited)
Short position:
MUFG July 2020 75,000 304,647 306,069
CITI August 2020 303,149 302,407
Long position:
MUFG July 2020 75,000 (290,352 ) (290,522 )
CITI August 2020 (300,260 ) (300,448 )
Net value 17,184 17,508

All values are in US Dollars.

(*) The fair value refers to mark-to-market as of December 31, 2019.

NDF transaction
2019 (unaudited)
Instrument Hedging purpose Nature Notional<br><br> value - US$ Notional<br><br> value - BRL Fair value<br><br> adjustment
Biguaçu Non Deliverable Forward - NDF US dollar - US$ Purchase 29,292 118,202 1,559 
F-78
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(b) Financing
--- ---

Debt-to-equity ratio

The debt ratio at the end of the year is as follows:

2019<br><br> (unaudited) 2018 <br><br>(unaudited)
Borrowings and financing
Current 709,928 333,787
Noncurrent assets 637,448 1,215,457
Leases
Current 9,948 280
Noncurrent assets 39,948 232
Debentures
Current 367,508 23,707
Noncurrent assets 1,528,971 1,441,504
Total debt 3,293,751 3,014,967
Cash and cash equivalents and short-term investments 2,664,582 697,649
Net debt 629,169 2,317,318
Equity 13,761,607 11,299,525
Debt ratio, net 4,6 % 20,5 %

CTEEP and its subsidiaries are parties to borrowings and financing agreements that contain covenants determined based on debt ratios (notes 14 and 16). The Company and its subsidiaries are compliant with the requirements relating to covenants.

The carrying amount of borrowings and financing, considering the financial instruments applicable, and debentures is pegged to the TJLP, CDI and IPCA fluctuation and approximates the fair value.

F-79
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(c) Risk management
--- ---

The main risk factors inherent in the Company’s and its subsidiaries’ transactions are as follows:

(i) Credit risk - The Company and its subsidiaries enter into agreements with the National Electric<br> System Operator (ONS), concessionaires and other agents, governing the provision of services<br> relating to the basic grid, including a bank guarantee clause. The Company and its subsidiaries<br> also maintain agreements governing the provision of services directly to free consumers,<br> also containing a bank guarantee clause, to mitigate the risk of default.
(ii) Price risk - The Company’s and its subsidiaries’ revenues are, as set forth<br> in the concession agreement, annually adjusted by ANEEL, based on the IPCA and IGP-M<br> fluctuation, and a portion of the revenues is subject to periodic tariff revision (note<br> 25.2).
--- ---
(iii) Interestrate risk - The adjustment of financing agreements is pegged to the TJLP, IPCA and CDI fluctuation (notes 14 and 16).
--- ---
(iv) Currency risk - The Company manages the currency risk of its borrowing liabilities by contracting<br> swap derivatives designated as fair value hedge for the Foreign Currency Borrowings Agreement<br> (note 14). The Company and its subsidiaries do not have trade receivables and other foreign-currency<br> assets; however, there are transactions involving the acquisition of underground and<br> subsea cables and respective accessories as well as the provision of the services necessary<br> to their implementation, in subsidiary Biguaçu, with future cash disbursements<br> in dollars, for which a NDF derivative instrument has been contracted to manage the cash<br> flow’s currency risk.
--- ---
(v) Borrowing risk - The Company and its subsidiaries may face difficulties in the future to raise<br> funds at costs and reimbursement terms aligned with their cash generation profile and/or<br> debt obligations.
--- ---
(vi) Guarantee risk – The main guarantee risks are the following:
--- ---
· Management<br>of risks related to the retirement and health care benefits via Funcesp (pension entity), through its representation in management<br>bodies.
--- ---
· Participation<br>as intervening guarantor, to the limit of its interests in subsidiaries, jointly controlled subsidiaries, in their financing agreements<br>(note 14).
--- ---
(vii) Liquidityrisk - The Company’s and its subsidiaries’ main sources of cash are the following:
--- ---

Its operations, mainly from the use of the electric power transmission system by other utilities and agents of the sector. The cash amount, represented by the RAP linked to the basic grid’s facilities and other transmission facilities (DIT) is defined, as set forth in prevailing laws, by ANEEL.

The Company is compensated for the transmission system availability, and any electric power rationing will have no impact on revenue and respective cash receipts.

The Company manages the liquidity risk by maintaining adequate credit facilities and lines of credit to raise borrowings it considers appropriate, based on the continuous monitoring of budgeted and actual cash flows, and the combination of the maturity profiles of financial assets and financial liabilities.

Receipt of the facilities indemnity installment related to the SE represents an important source of cash generation for the Company in order to be able to comply with its financial planning for the coming years. The Company manages any changes to the timeframe and legal proceedings that may impact cash receipts.

F-80
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(d) Sensitivity analysis
--- ---

Under CVM Instruction No. 475, of December 17, 2008, the Company conducts the sensitivity analysis of interest rate and currency risks. The Company’s management does not consider as material its exposure to other risks described above.

For purposes of defining a base scenario for analyzing the sensitivity of interest rate, price risk and currency fluctuations, we used the same assumptions defined for the Company’s long-term financial and economic plan. These assumptions are based on the macroeconomic environment in Brazil and the opinions of market experts.

Therefore, to assess the effects of changes in the Company’s cash flow, the sensitivity analysis below, for items pegged to floating rates, considers:

Base scenario: Interest rate quotation (pre-DI curve) and exchange rate (future dollar) on March 31, 2020, determined on December 30, 2019, according to B3, which are shown in the interest risk and currency risk tables; and positive and negative 25% (scenario I) and 50% (scenario II) were applied.

F-81
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
Currencyrisk - Effects on finance income (costs)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Risk of increase in indices Risk of decrease in indices
Transaction Risk Balances in 2019<br><br> (unaudited) Base Scenario Scenario I Scenario II Scenario I Scenario II
Financial assets and financial liabilities
Law No. 4131 - Credit Agreement - MUFG Forex + 3.3415% p.a.+IR (2,929 ) (3,661 ) (4,394 ) (2,197 ) (1,465 )
Swap (short position) - Law No. 4131 - Credit Agreement - MUFG Forex + 3.3415% p.a.+IR 304,647 2,929 3,661 4,394 2,197 1,465
Law No. 4131 - Credit Agreement - CITI Forex + Libor3M + 0.47% p.a.+IR (2,145 ) (2,682 ) (3,218 ) (1,609 ) (1,073 )
Swap (short position) - Law No. 4131 - Credit Agreement - CITI Forex + Libor3M + 0,47% p.a.+IR 303,149 2,145 2,682 3,218 1,609 1,073
Net effect of changes - - - - - -
Reference for financial assets and financial liabilities
Us dollar rate USD/R$ (March 2020)<br>(*) 4.0327 5.0409 6.0491 3.0245 2.0164 
F-82
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
Interestrate risk - Effects on finance income (costs)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Risk of increase in indices Risk of decrease in indices
Transaction Risk Balances at<br><br> 12.31.2019<br><br> (unaudited) Base Scenario Scenario I Scenario II Scenario I Scenario II
Financial assets
Short-term investments 99.5% CDI 631,493 4,996 6,648 8,287 3,331 1,653
Financial liabilities
Debentures - single series (i) IPCA+6.04% 168,545 4,017 4,392 4,765 3,639 3,258
Debentures - single series (ii) IPCA + 5.04% 336,910 7,121 7,861 8,596 6,377 5,627
Debentures - single series (iii) 105.65% CDI p.a. 350,368 3,962 4,934 5,898 2,983 1,997
Debentures - single series (iv) IPCA + 4.70%. 651,017 13,399 15,380 16,818 12,477 11,010
Debentures - single series (v) IPCA + 3.50%. 389,639 7,571 8,602 9,625 6,532 5,485
FINEM BNDES (i), (ii) TJLP+1.80% to 2.62% 412,338 7,399 8,171 9,436 5,696 4,421
Derivatives
SWAP MUFG 102.30% CDI p.a. 306,069 3,049 3,796 4,538 2,296 1,537
SWAP CITI 102.30% CDI p.a. 302,407 3,168 3,944 4,714 2,385 1,597
Net effect of changes (44,690 ) (50,432 ) (56,103 ) (39,054 ) (33,279 )
Reference for financial assets and financial liabilities
100% CDI (March 2020) (*) 4.35% p.a. 5.44% p.a. 6.53% p.a. 3.26% p.a. 2.18% p.a.
IPCA (March 2020) 3.62% p.a. 4.53% p.a. 5.43% p.a. 2.72% p.a. 1.81% p.a.
TJLP (March 2020) 5.07% p.a. 6.34% p.a. 7.61% p.a. 3.80% p.a. 2.54% p.a. 
F-83
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
Interest rate risk - Effects on finance income (costs)
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Risk of increase in indices Risk of decrease in indices
Transaction Risk Balances in 2019<br><br> (unaudited) Base Scenario Scenario I Scenario II Scenario I Scenario II
Financial assets
Short-term investments 98.90% CDI 2,658,449 25,086 32,050 38,961 18.066 10.992
Passivos financeiros
Debentures - single series (i) IPCA+6.04% 168,545 4,017 4,392 4,765 3.639 3.258
Debentures - single series (ii) IPCA + 5.04% 336,910 7,121 7,861 8,596 6.377 5.627
Debentures - single series (iii) 105.65% CDI p.a. 350,368 3,962 4,934 5,898 2.983 1.997
Debentures - single series (iv) IPCA + 4.70%. 651,017 13,399 15,380 16,818 12.477 11.010
Debentures - single series (iv) IPCA + 3.50% 389,639 7,571 8,602 9,625 6.532 5.485
FINEM BNDES (i), (ii) TJLP+1.80% a 2.62% 412,338 7,399 8,171 9,436 5.696 4.421
BNDES (Subsidiaries) TJLP + 1.55% p.a. 2.62% p.a. 102,448 1,706 1,998 2,287 1.411 1.108
Derivatives
SWAP MUFG 102.30% CDI p.a. 306,069 3,049 3,796 4,538 2.296 1.537
SWAP CITI 102.30% CDI p.a. 302,407 3,168 3,944 4,714 2.385 1.597
Net effect of changes (26,306 ) (27,028 ) (27,716 ) (25.730 ) (25.048 )
Reference for financial assets and financial liabilities
100% CDI (March 2020) (*) 4.35% p.a. 5.44% p.a. 6.53% p.a. 3.26% p.a. 2.18% p.a.
IPCA (March 2020) 3.62% p.a. 4.53% p.a. 5.43% p.a. 2.72% p.a. 1.81% p.a.
TJLP (March 2020) 5.07% p.a. 6.34% p.a. 7.61% p.a. 3.80% p.a. 2.54% p.a.

(*)Source:http://www.bmfbovespa.com.br/pt_br/servicos/market-data/consultas/mercado-de-derivativos/precos-referenciais/taxas-referenciais-bm-fbovespa

F-84
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
32 Insurance
--- ---

The Company’s insurance coverage and effective terms by insurance line is as follows:

Type Effective date Insured amount - R$ <br><br>thousand Premium - R$ <br> thousand
Property (a) 12/01/19 to 06/01/21 2,974,444 6,214
General civil liability (b) 12/19/19 to 12/19/20 50,000 97
National transportation (c) 12/19/19 to 12/19/20 360,000 33
Group personal accident (d) 04/30/19 to 04/30/20 85,000 5
Vehicles (e) 04/02/18 to 12/19/20 Market value 229
Court guarantee (f) 28/01/16 to 26/11/24 605,220 3,672
10,250
(a) Property - coverage against fire and electrical damages for the main equipment installed<br>in transmission substations, buildings and related components, storeroom supplies and facilities, as set forth in concession arrangements,<br>where the transmission companies should keep insurance policies to ensure the proper coverage of the most import equipment of the<br>transmission system facilities, and the transmission company should define the assets and facilities to be insured.
--- ---
(b) General Civil Liability - coverage against repairs for involuntary, personal and/or property<br>damages caused to third parties, as a result of the Company’s activities.
--- ---
(c) National transportation - coverage against damages caused to the Company’s assets<br>and equipment transported in Brazilian territory.
--- ---
(d) Collective personal accident - Coverage against personal accidents of executives and apprentices.
--- ---
(e) Vehicles - coverage against crash, fire, theft and third parties.
--- ---
(f) Court guarantee - replacement of sureties and/or escrow deposits made by the Judicial Branch.
--- ---

There is no coverage for eventual damages to the transmission lines against fire, lightning, explosion, short circuit and power interruption.

The assumptions adopted to contract insurance, given their nature, are not included in the scope of an audit work. Consequently, they were not reviewed by our independent auditors.

33 Retirement supplementation plan governed by Law No. 4819/58

The supplementary pension plan under State Law No. 4819/58, which established the creation of the State Social Security Fund, is applicable to mixed-capital entities’ employees, corporations in which the State of São Paulo holds the majority of shares, with right to control and to industrial services owned and managed by the State, hired through May 13, 1974, and also provided for supplementary pension plans, bonus leave and family allowance. The funds necessary to cover the charges under such plan are borne by the relevant bodies of the State Government of São Paulo, whose implementation was made as set forth in the agreement entered into among the Finance Department of the State of São Paulo (SEFAZ-SP) and CTEEP, on December 10, 1999.

F-85
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

Such procedure was properly carried out through December 2003 by Funcesp, with the funds provided by SEFAZ-SP, transferred by CESP and subsequently by CTEEP. Since January 2004, SEFAZ-SP has processed payments of benefits directly, without the intermediation of the Company and Funcesp, at amounts lower than those historically paid through December 2003.

(a) Civil class action under discussion at the 2^nd^ Court of the Treasury Department

The change in SEFAZ’s method used to pay retirements and pensions led retirees to file lawsuits, especially a civil class action. The 2^nd^ Court of the Treasury Department issued a decision thereon in June 2005 overruling the pension supplementation claim and allowing the processing of payroll and payments of retirements and pensions by SEFAZ-SP under Law No. 4819/58. The Association of Funcesp Retirees (AAFC), which represents retirees and pensioners, filed an appeal against the decision and the fact that the lawsuit was upheld to the regular courts. On November 24, 2015, a final and unappealable was issued by the Superior Court of Justice, which maintained the discussion at the regular courts.

Accordingly, on June 27, 2016, AAFC’s appeal was stayed and the labor court injunction (item (b, below) should be maintained until the appeal was judged.

Since June 2016, a public-interest civil action is pending in conjunction with a class action whose status is reported in item (b.(i)) below. Although these actions are pending together, they are independent from each other.

(b) Civil class action under discussion at the 2^nd^ Court of the Treasury Department (former<br>Labor Claim which was discussed at the 49^th^ São Paulo Labor Court)

Class action started by AAFC, simultaneously to the civil class action referred to above. This time, however, the Labor Court, in an individual lawsuit for which the Entity had been granted advanced relief. On July 11, 2005, the advanced relief was ratified so that Funcesp resumed the processing of payments of those benefits under Law No. 4819/58 the same way as that effective until December 2003, in which the Company was acting as an intermediary between SEFAZ-SP and Funcesp.

Currently, the public-interest civil action and civil class action are being discussed at the regular courts, as established in the decision obtained by the Company in a conflict of jurisdiction raised at STF.

Following the decision on the Conflict of Jurisdictions mentioned above, the class action was received at the 2nd Court of the Treasury Department on May 20, 2016 and, on May 30, 2016, a decision was issued revoking the preliminary injunction that ordered the Company to make monthly payments, extinguishing the requests relating to payroll processing, and considering groundless the request for refunding any differences that may be owed to retirees and pensioners under Law No. 4819/58.

SEFAZ-SP resumed payroll processing in June 2016. However, after filing an appeal against the decision, AAFC requested São Paulo Court of Justice to stay the effect of the appeal, which was granted on June 27, 2016.

On July 22, 2016, a new decision was issued clarifying that the labor injunction should be maintained until AAFC’s appeal was judged.

Since June 2016, a class action is pending in conjunction with a public-interest civil action whose status is reported in item (b.i) below. Although these actions are pending together, they are independent from each other.

(i) Status of the Public-interest Civil Action and Class Action (items a and b)

On August 2, 2017, São Paulo Court of Justice unanimously considered the decision groundless, condemned AAFC’s position as bad-faith litigation, and revoked the injunction.

F-86
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

Following the decision above, on August 8, SEFAZ sent an Official Letter to the Company informing that they were assuming the payroll of the retirees and pensioners under Law No. 4819/58 beginning August 2017. AAFC filed an appeal against São Paulo Court of Justice’s unanimous decision: one special appeal with the Superior Court of Justice (STJ) and an extraordinary appeal with the Federal Supreme Court (STF), both of them claiming São Paulo Court of Justice’s unanimous decision to be stayed.

São Paulo Court of Justice, on October 18, 2017, and STJ, on October 31, 2017, denied the request filed by AAFC. However, STF granted an injunction staying the effects of the decision issued by São Paulo Court of Justice and ordering that defendants shall continue to adopt the same procedures as those were adopted before the matter was judged by São Paulo Court of Justice until STF analyzes the grounds of the request.

As a result of this court injunction, SEFAZ determined that the payroll should be processed by Funcesp beginning December 2017.

In December 2017, the Company filed an appeal against the court injunction issued by STF; the appeal awaits judgment. Special and extraordinary appeals filed by AAFC await judgment.

(c) Collection claim

SEFAZ-SP has transferred to the Company, since September 2005, amounts lower than those established by the decision issued by the 49^th^ Labor Court, referred to in letter (a) above.

By virtue of this decision, the Company transferred to Funcesp, from January 2005 to December 2019, the amount of R$4,878,886 for the payment of benefits under State Law No. 4819/58 and received from SEFAZ-SP the amount of R$3,070,286 for such purpose. The difference between the amounts transferred to Funcesp and reimbursed by SEFAZ-SP, in the amount of R$1,808,600 (Note 8 (a)), has been requested by the Company for reimbursement on the part of SEFAZ-SP. In addition, there are amounts relating to labor claims settled by the Company and under the responsibility of SEFAZ-SP, in the amount of R$283,987 (Note 8 (b)), totaling R$2,092,587.

In December 2010, CTEEP filed a collection claim against SEFAZ-SP to recover the amounts that were not received. After a decision that dismissed the case without analyzing its grounds in May 2013, the decision was upheld by São Paulo Court of Justice in December 2014.

The Company filed an appeal and, on August 31, 2015, São Paulo Court of Justice accepted the Company’s appeal and condemned SEFAZ-SP to make the transfers relating to supplementary retirement and pension as agreed with the Company and in accordance with the prevailing legislation, except for the disallowed amounts.

Seeking the inclusion of the disallowed amounts in the decision, the Company filed a new appeal for clarifications, which was accepted on February 1, 2016 by the São Paulo Court of Justice, which upheld the decision of August 31, 2015 and determined the measurement of the amounts pending transfers by SEFAZ-SP at the settlement phase.

SEFAZ-SP, on March 7, 2016, filed an appeal that was rejected by a judgment made on July 4, 2016, thus upholding the conviction of SEFAZ-SP, which filed a new appeal also denied by TJ/SP on June 5, 2017.

After the Special Appeal was rejected by TJ/SP, SEFAZ filed a new appeal which awaits judgment by STJ.

In August 2018, the Company was granted a decision by São Paulo Court Justice under which SEFAZ is required not to make any disallowance in the transfer to pay the benefits provided for by Law No. 4819/58 until the administrative proceedings started to determine irregularity in payments are closed. In March 2019, the Superior Court of Justice suspended the effects of the decision that prohibited SEFAZ from making discounts in the transfers to the Company, which again receives the transfer with the disallowances and complement the payment amount since April 2019. The Company continues to make efforts for the favorable decision granted by São Paulo Court Justice to be maintained.

F-87
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)

CTEEP’s opinion

The Company continues to seek a final and unappealable decision that maintains the procedure of making direct payments of the benefit payroll under State Law No. 4819/58 by SEFAZ-SP. The Company also reinforces the opinion of its legal department and legal advisors that the expenses in connection with State Law No. 4819/58 and respective regulation should be fully assumed by SEFAZ-SP and continues to adopt addition measures to protect the Company’s interests.

Due to the new developments occurred in 2013, especially those related to the claim in progress for collection of the amounts payable by SEFAZ-SP, as described above, and also considering the progress of the other proceedings mentioned above, the CTEEP’s management recognized in 2013 an allowance for losses on the collection of receivables relating to a portion of the amounts receivable, which is expected to be increased over the realization period and not established as an exclusive responsibility of SEFAZ-SP so far.

The Company’s Management has monitored the progress and new facts related to the legal aspects of the issue and has, also, continuously assessed the potential impacts that the matter may have on its financial statements.

34 Events after the reporting period
(a) Effects of the novel coronavirus (Covid-19)

CTEEP has monitored the impacts of Covid-19 on the macroeconomic scenario and on its businesses and is continuously evaluating the possible risks of default due to the disruption in the cash flow system. However, the Company considers that the actions the government has structured to support the electric power sector will be efficient to mitigate these risks. Additionally, the Company has diligently monitored the schedule of the works in progress and has maintained ongoing communication with the regulatory body on any delays that may occur through the normalization of the business activities of the market as a whole. To date, there were no significant impacts on the businesses that would require measurement in the financial statements.

To ensure its usual flow of activities, the Company adopted a judicious cash management approach by obtaining short-term borrowings while maintaining its usual liquidity and strength. Management has also implemented preventive measures to reduce its employees’ exposure to the risk and ensure the continuity and quality of its operations, including rotation of operators in fixed groups, contingency systems, restrictions to travels, expansion of the work-from-home model, and daily monitoring of employees’ health condition and well-being.

Aware of its social role, CTEEP launched Program “We Are One”, an initiative that has direct impact on the fight against Covid-19. Under such Program, the Company donated R$1.5 million to Fundação Oswaldo Cruz (Fiocruz) to produce rapid test kits to detect the novel coronavirus. These actions are part of a major collective effort by the electric power sector, together with Instituto Acende Brasil, to minimize the pandemic effects.

(b) Interest on capital

The Board of Directors’ Meeting of April 13, 2020 approved the payment of interest on capital in the gross total amount of R$150,333, corresponding to R$0.228164 per share of both types. The payment occurred as from April 29, 2020.

(c) Borrowings and financing

The Company has concluded fundraising of BRL 650 million by the issuance of the “CCB” (“Bank Credit Note”) in favor of Banco Bradesco S.A. (“Bradesco”). Issuance date record is April 30, 2020, 2-year term transaction (maximum expiring date of the last installment on 4/20/2022), interests of CDI+2.4499% p.a, bullet principal payment and quarterly intertest payment.

F-88
COMPANHIA DE TRANSMISSÃO ENERGIA ELÉTRICA PAULISTA<br><br> <br>Publicly held corporation – Corporate Taxpayers´ Registry<br> (CNPJ) No. 02.998.611/0001-04 CVM: 01837-6 and NIRE: 35300170571
Notes to the financial statements
as of December 31, 2019 (unaudited), 2018 (unaudited) and 2017
(In thousands of reais, unless otherwise stated)
(d) Execution of its first real estate deal
--- ---

In May 2020, the Company has negotiated 395,000 m² of right-of way, for R$73.5 million, with the Municipal Government of São José dos Campos for the development of an urban mobility project in the city.

The Company received R$7.1 million upon the signing of the deed and the difference (R$66.4 million) in credits for offsetting the Urban Real Estate Tax (IPTU) of other properties in the city, for fiscal years 2019 to 2023.

The consummation of the transaction is subject to approval by the Brazilian Electricity Regulatory Agency (ANEEL) and marks the first real estate deal of CTEEP, whose purpose is to maximize value creation through the more efficient use of its real estate assets, while maintaining its excellence in providing power transmission services to the public.

* * *

F-89

EXHIBIT 12.1

CERTIFICATION

I, Wilson Pinto Ferreira Junior, certify that:

  1. I have reviewed this annual report on Form 20-F/A of CENTRAIS ELÉTRICAS BRASILEIRAS S.A. — ELETROBRAS (the “company”);

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the company as of and for the periods presented in this report;

  4. The company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

  1. The company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and to the audit committee of the company’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: July 6, 2020

By: /s/ Wilson Pinto Ferreira Junior
Wilson Pinto Ferreira Junior
Chief Executive Officer 
1

EXHIBIT 12.2

CERTIFICATION

I, Elvira Baracuhy Cavalcanti Presta, certify that:

  1. I have reviewed this annual report on Form 20-F/A of CENTRAIS ELÉTRICAS BRASILEIRAS S.A. — ELETROBRAS (the “company”);

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the company as of and for the periods presented in this report;

  4. The company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

  1. The company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and to the audit committee of the company’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: July 6, 2020

By: /s/ Elvira Baracuhy Cavalcanti Presta
Elvira Baracuhy Cavalcanti Presta
Chief Financial and Investor Relations Officer 
1

EXHIBIT 13.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEYACT OF 2002

In connection with the Annual Report of CENTRAIS ELÉTRICAS BRASILEIRAS S.A. — ELETROBRAS (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019, as originally filed with the U.S. Securities and Exchange Commission on May 19, 2020 and as amended on the date hereof (the “Report”), I, Wilson Pinto Ferreira Junior, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 6, 2020

By: /s/ Wilson Pinto Ferreira Junior
Wilson Pinto Ferreira Junior
Chief Executive Officer 
1

EXHIBIT 13.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEYACT OF 2002

In connection with the Annual Report of CENTRAIS ELÉTRICAS BRASILEIRAS S.A. — ELETROBRAS (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019, as originally filed with the U.S. Securities and Exchange Commission on May 19, 2020 and as amended on the date hereof (the “Report”), I, Elvira Baracuhy Cavalcanti Presta, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 6, 2020

By: /s/ Elvira Baracuhy Cavalcanti Presta
Elvira Baracuhy Cavalcanti Presta
Chief Financial and Investor Relations Officer 
1
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