The construction, expansion and operation of electric power transmission facilities and other equipment of the Company, its subsidiaries, joint ventures and affiliates involve many risks, including the following:

• Inability to obtain or renew government permits, licenses and authorizations;
• Unforeseen environmental and engineering problems;
• Unforeseen delays in the processes of expropriation and constitution of administrative easements;
• Unavailability of labor and equipment;
• Supply disruptions;
• Work disruptions (strikes and complaints);
• Contractual and labor disputes;
• Sociopolitical instability;
• Calamities or pandemics;
• Climatic interferences;
• Changes in environmental legislation leading to the creation of new obligations and costs for projects;
• Delays in construction and operation or unforeseen cost increases;
• Problems or defects in the manufacture of equipment from suppliers purchased for the construction of transmission lines;
• Unavailability of adequate funding;
• Explosions and fires;
• Insolvency of contractors or service providers;
• Delay in the supply of raw materials and equipment;
• Vandalism, sabotage and theft; and
• Legal and regulatory instability caused by political factors.

If any of these or other risks occur, the Company, its subsidiaries, joint ventures and affiliates may incur additional operating and/or financial costs, which may adversely affect its business, financial condition and operating results, in addition to negatively impacting the progress of the works. Moreover, ANEEL may impose penalties that include significant fines and restrictions on operations, as well as the early termination of concession contracts in case of non-compliance with any of the obligations established therein.

The Company has obligations (loans and financing, debentures and derivative financial instruments [liabilities] – current and non-current) that, in case of significant increases in interest rates will lead to an increase in future expenses on debt charges, which may, in turn, reduce the Company’s liquidity, and, consequently, its ability to honor its obligations.

In addition, the Company may incur in additional debt in the future to fund acquisitions, investments, or for other purposes, as well as for the performance of operations, subject to restrictions applicable to the existing debt. Should the Company incur additional debt, the associated risks with their leverage may increase and in case of non-compliance with certain obligations to maintain financial ratios, the previous debts may have their maturity date anticipated, and may materially impact the Company’s ability to honor its obligations. In the event of early maturity of debts, assets and cash flows may be insufficient to settle the outstanding balance of financing agreements. Furthermore, the impossibility of incurring additional debts may affect the Company’s ability to make the necessary investments in its activities, thus affecting its financial condition and the results of its operations.

The Company, its subsidiaries and joint ventures are subject to the fulfillment of contractual obligations provided for in contracts with third parties that restrict their autonomy (including, among others, restrictions on corporate control changes, either direct or indirect, of the Company and its subsidiaries). Should they fail to abide by any provisions in aforementioned agreements, the loan amounts in the respective agreements (principal, interest and fine) may be subject to accelerated amortization. The accelerated amortization of the obligations of the Company, its subsidiaries or joint ventures may negatively impact the Company’s financial situation, including even the occurrence of cross-maturity of other obligations assumed by the Company, its subsidiaries and joint ventures in accordance to clauses found in several loan, financing and debenture agreements with third parties. In the event of early maturity of debts, the Company’s assets and cash flow may be insufficient to settle the outstanding balance of loan agreements, financing and debentures.

The Company develops a significant part of its business through affiliates.

Any reduction in the affiliates’ ability to generate results and cash flow could lead to a reduction in dividends and interest on capital paid to the Company, which could adversely impact its business, results and financial condition. Moreover, some of the affiliates may require new investments that were originally not foreseen, as well as entering into loan agreements that prohibit or limit the transfer of capital to the Company. Thus, there is no way to guarantee that funds from affiliates will be transferred to the Company, which could have an adverse effect on its results.

The Company, its subsidiaries and joint ventures are subject to certain clauses in existing debt instruments that restrict their autonomy and ability to contract new loans. In addition, the existence of limitations to the indebtedness of the Company, its subsidiaries or joint ventures may affect the Company’s capacity to obtain new loans necessary for funding its activities and maturing obligations, as well as Company’s growth strategy, and that may negatively influence its capacity to honor its financial commitments.

The electric power transmission concessionaires are remunerated for the availability of their facilities, according to the value approved by the Brazilian Electricity Regulatory Agency (“ANEEL”), when granting the concession contract or through specific authorization acts, as is the case of reinforcements and improvements. Thus, concessionaires receive based on the availability of their assets, and not according to the amount and load of electric power transmitted. For making transmission facilities available for commercial operations, the Company, its subsidiaries and joint ventures are entitled to receive the Annual Permitted Income (“RAP”), which is readjusted annually by the change of the IGP-M or IPCA, pursuant to the specific provisions of each concession contract. Under the terms of the so-called “Category II” concession contracts (for more information, see item 1.1 of this Reference Form), the value of the RAP will be reduced by 50% as of the 16th year onwards, counting from the entry of the projects into commercial operation, maintaining this value until the end of the concession period.

Due to the above, the Company experienced a decrease in its cash flow, considering that in the years 2019, 2020, 2021 and 2022, 21 concessions were affected due to said provisions of the concession contracts. The Company cannot guarantee that it will be able to (i) win new bids; or (ii) carry out the acquisition of existing concessionaires (whether through the acquisition of equity interest or others) within the terms and amounts necessary to reestablish its cash flow. If it is not successful in recomposing its cash flow, the Company may have its growth, investment capacity and payment capacity adversely affected.

The Company is party to judicial and administrative proceedings involving several legal and regulatory matters including, without limitation, civil, environmental, labor and tax proceedings. One or more decisions unfavorable to the Company in any judicial or administrative proceeding could have a considerable negative effect on its results. Furthermore, in addition to the financial provisions and costs with attorney fees for advising on these proceedings, the Company may be required to offer guarantees in court related to such proceedings, which may adversely affect its financial capacity. There are no guarantees that the provisions will be sufficient to cover the total cost arising from adverse decisions in judicial and administrative claims. Finally, unfavorable decisions during the aforementioned judicial and administrative proceedings may damage the Company’s image and negatively affect the market’s perception of the Company – which may amplify the negative effects on the Company’s financial and operational condition. For further information on the main judicial, arbitration or administrative proceedings, see items 4.4 to 4.6 of this Reference Form.

The Company and its subsidiaries, joint ventures and affiliates performed, directly or indirectly, their electric power transmission activities based on concession contracts entered into with the Federal Government, effective for a period of 30 years, counted as of the date of signature of each contract, currently expiring between 2030 and 2052. The Federal Constitution requires that all public service concessions be granted through bidding. In 1995, Law 8.987/95, of February 13, 1995 (“Concession Law”) was enacted, which governs public bidding procedures. According to the Concessions Law amended by the Law 10.848, dated March 15, 2004 (“Law of the New Electric Sector Model”), and under the terms of the concession agreements, the concessions held by the Company may be extended by the Concession Grantor for at most an equal period, upon request by the concessionaire, without subjecting itself to the bidding process, as long as (i) the concessionaire has met minimum performance requirements (ii) accepts the possible reviews of conditions set forth in the agreements and (iii) the extension will be of public interest. The transmission capacity expansion plans of the Company, its subsidiaries, joint ventures and affiliates are also subject to the bidding regime established by the Concessions Law. Due to the discretion of the Concession Grantor for the extension and/or renewal of concessions, the Company, its subsidiaries, joint ventures and affiliates may not accept the terms and conditions proposed for the renewal of contracts, in which case the Company may face third party competition in the process of renewing these concessions. There is no way to guarantee that the current concessions will be renewed on terms equal to and/or more favorable than those currently in force. Therefore, if the Company, its subsidiaries, joint ventures or affiliates do not obtain new concessions or lose any of them, this fact could have a material adverse effect on the Company’s businesses, financial condition or results of operations.

The insurance taken out by the Company may be insufficient to fully cover all liabilities that may arise during the Company’s business and to reimburse any damages. The occurrence of a significant uninsured or indemnifiable claim, partially or fully, or the failure of its subcontractors to fulfill indemnity obligations assumed before the Company or to take out insurance could have an adverse effect on its business, image and finances.

Furthermore, there is no way to guarantee that, when its current insurance policies expire, the Company will be able to renew them on sufficient and favorable terms for it. Finally, claims that are not covered by policies contracted by the Company or the impossibility of renewing insurance policies under similar terms in the future may adversely affect its business or its financial condition.

The Company uses capital market transactions to finance a substantial portion of capital expenditures for its projects and to refinance existing debts. Therefore, the Company may face difficulties in raising these funds, such as (i) fluctuations in interest rates on loans, financing or debentures; (ii) liquidity restrictions, including early maturity clauses and obligations to maintain financial ratios; (iii) expansion or contraction of the global or Brazilian economy, and (iv) economic crises caused by calamities, natural disasters and pandemics, influencing the credit assessment of counterparties, among other market risks, as described in item 4.3 herein. Thus, if the Company is unable to raise funds through capital market operations, it may have its financial condition affected, as well as its ability to comply with all its contractual obligations.

As described in item 1.1 of this Reference Form, the Company completed, in July 2012, the acquisition, from Abengoa, of all shares related to the ATE, ATE II, ATE III, NTE and STE concessions. As a result of said acquisitions, any loss incurred by the Company arising from judicial and administrative proceedings whose triggering event preceded said acquisitions of the companies will be borne by Abengoa. However, considering the request for judicial recovery of companies of the Abengoa group carried out in 2016, there is no way to guarantee the receipt, by the Company, of the amounts related to the losses incurred by it, which may have a material adverse impact on the Company’s business. For further information on the Company’s relevant proceedings, see item 4.4 of this Reference Form.

The Company may need to raise funds in the future through public or private issuance of units, shares and/or securities convertible into shares issued by the Company or exchangeable for them. Any fundraising through the distribution of units, shares and/or securities convertible into shares issued by the Company or exchangeable for them may result in changes in the market price of shares and units representing common shares and preferred shares issued by of the Company, and in the dilution of the investor in the Company’s capital.

Investing in securities of companies in emerging markets, such as Brazil, involves greater risk than investing in securities of companies in more developed countries, and such investments are generally considered speculative in nature. Investments in Brazil, such as investments in securities issued by the Company, are subject to economic, political and corporate risks, which include, among others: (i) changes in regulatory, tax, economic and political environments that may affect investors’ ability to receive payments, in whole or in part, regarding their investments; (ii) restrictions on foreign investments and the repatriation of invested capital; and (iii) changes in the Company’s shareholding control.

The Brazilian market is smaller, less liquid and potentially more volatile than the stock markets in the United States and other developed countries. These market characteristics may significantly limit the ability of holders of securities issued by the Company to sell them at the desired price and date, which may significantly affect the market price of securities issued by the Company. If an active and liquid trading market is not developed or maintained, the trading price of securities issued by the Company may be negatively affected.

Furthermore, the price of securities sold in a public offering is often subject to volatility immediately after its completion. The market price of securities issued by the Company may vary significantly as a result of several factors, some of which are beyond the Company’s control. Such factors may negatively influence the trading value of securities issued by the Company.

The Company’s growth strategy involves obtaining new transmission concessions that may be the object of auctions held by ANEEL, receiving authorizations for the implementation of reinforcements and improvements with associated revenue and the acquisition of existing concessionaires or relevant interests in them, including through participation in possible privatization processes of state-owned companies that operate in the electric power transmission sector. The acquisition of companies, relevant interests or assets involves other operational and financial risks, which include difficulties in integrating administrative and operational management between existing assets and those that may be acquired, accountability for eventual contingencies and hidden liabilities and the allocation of administrative and financial efforts to the integration process. Furthermore, any acquisition of electric power transmission concessionaires, or relevant equity interest in a company operating in this sector, carried out by the Company is subject to approval by ANEEL and the Administrative Council for Economic Defense (CADE), and may also be subject to the approval of third parties, such as creditors and partners. The Company relies on other factors to implement its business strategies, such as establishing advantageous buying and selling positions, growing with financial discipline and maintaining operational efficiency.

It is possible that the Company will not obtain the expected benefits from the acquisition of interests in transmission concessionaires. Furthermore, the Company may be unable to efficiently integrate a certain acquired business into its organization and successfully manage such business or the company that results from these acquisitions. The integration process of any acquired business may subject the Company to certain risks, such as unforeseen expenses and potential delays related to the integration of the companies’ operations, diversion of management’s attention from the ongoing businesses and exposure to unexpected contingencies and legal claims made to the acquired business prior to its acquisition. The Company may not be successful in addressing these or other risks or issues related to past or future acquisitions. The Company’s eventual inability to successfully integrate its operations, or any significant delay in achieving this integration, could adversely affect it.

Thus, it cannot be assured that the Company will reach opportunities for growth, that will win the auctions carried out by ANEEL or that those acquisitions will be approved by ANEEL, CADE or creditors, partners other third parties or even will have a positive result in the future for the Company. The possible inability of the Company to implement its growth strategy or complete intended acquisitions, accomplishment of significant contingencies from such acquisition or realization of acquisitions that in the future fail to bring a positive result, those are factors which may cause a material adverse effect in its operating results and in its financial capacity.

The Company conducts its electric power transmission activities, directly or indirectly, based on concession contracts entered into with the Federal Government. Thus, its plans to expand transmission capacity are subject, in part, to the Company’s success in the bidding processes. There is no way to guarantee that the Company will win all the bidding processes in which it participates, which could significantly impact its expansion strategy and expected financial performance. Furthermore, for the continuity and expansion of its activities, the Company depends on the opening of new bidding processes by the Federal Government and the absence of these auctions could adversely impact the Company’s business.

The winners of electric power transmission concession auctions are responsible for building the transmission line and substation facilities, which are the object of these processes. Additionally, ANEEL authorizes concessionaires to implement reinforcements and improvements; that is, to install, replace or renovate equipment in existing transmission facilities, or adapt these facilities, aiming at increasing transmission capacities, increasing the reliability of the National Interconnected System (“SIN”) or the connection of users, after a planning process with the participation of the National Electric System Operator (“ONS”), Energy Research Company (“EPE”) and Ministry of Mines and Energy (“MME”).

A failure to complete or a delay in the construction of new transmission lines or projects for expanding the electric power transmission capacity of the Company, its subsidiaries and joint ventures, caused by risks inherent to the construction of electric power transmission systems, such as increases in labor, goods and services, project errors, delay in expropriation processes and constitution of administrative easement and obtaining or renewing necessary permits, environmental restrictions and delay in the completion of works, in addition to other factors such as calamities and pandemics, may entail additional operating and/or financial costs, adversely affecting the Company’s planning, operating and financial result.

Any delays in the implementation and construction of new energy projects and non-compliance with any of the obligations established in the concession contracts may also result in the imposition of regulatory penalties by ANEEL, which, in accordance with Normative Resolution 846/2019, of June 11, 2019 (“REN 846/2019”) and with the terms of the concession contracts, may consist of anything from notifications and fines to, ultimately, the early expiration of such concessions through administrative processes for the expiry of contracts, which could have a material adverse impact on the Company’s business.

Furthermore, any delays in the implementation and start-up of transmission networks may result in the application of the Variable Portion for Delay in Starting Commercial Operations – PVA in the RAP, which corresponds to the deduction of a portion of the base payment of an installation due to the delay in its commercial entry.

Certain Company’s subsidiaries, joint ventures and affiliates enter into service agreements of operation and maintenance, related to its transmission lines and substations, with service providers.

The inability or unwillingness of those third parties to provide the contracted services in timely manner, according to contractual specifications may lead these subsidiaries, joint ventures and affiliates to default situation under the terms of the respective concession agreements and cause material adverse effects on operating results and financial capacity of these subsidiaries, joint ventures and affiliates and, consequently, the Company. Any failures, delays or defects in the provision of services by contracted suppliers may have a negative effect on the Company’s image and on the relationship with its clients, and may negatively impact its business and operations.

Furthermore, termination of these agreements for provision of operation and maintenance services or failure to renew them or negotiate new agreements with other equally qualified service providers, timely and with similar prices, may cause a material adverse effect on the subsidiaries, joint ventures and affiliates and consequently, on the Company.

Under the terms of the shareholders’ agreements of certain companies controlled by the Company or its affiliates, if CEMIG ceases to participate, directly or indirectly, in the controlling block of the Company or its legal successors, the other signatories of such shareholders’ agreements will have the right to acquire shares issued by said companies, currently held by the Company.

The disposal of the equity interest held by the Company in such subsidiaries or affiliates may lead to a decrease in the Company’s revenues, and adversely affect it.

Due to the large fragmentation and outsourcing of the production chain of the suppliers of the Company’s subsidiaries, joint ventures and affiliates, there is no way to control any irregularities that its suppliers may present. It is possible that some of the suppliers of its subsidiaries, joint ventures and affiliates will present problems regarding labor issues or issues related to sustainability, outsourcing of the production chain and improper safety conditions or even that they will use these irregularities to have a lower cost of its products and, if a significant number of such suppliers do so, the Company may suffer damage to its image, net revenue and operating income, as well as a drop in the value of the securities issued by it.

The shares issued by some of the subsidiaries, joint ventures and affiliates of the Company were encumbered to guarantee obligations assumed by them and by the Company within the scope of issues of securities and/or financial contracts. If these subsidiaries, joint ventures and affiliates or the Company fails to comply with its obligations assumed under these documents, its creditors may enforce the respective real collaterals. As a result, there may be a decrease in the Company’s equity interests in such subsidiaries, joint ventures and affiliates or even change of control over them.

The decrease in the Company’s equity interest in its subsidiaries, joint ventures and affiliates will result in an immediate decrease in its revenues. Furthermore, any change in control, either direct or indirect, of its subsidiaries, joint ventures and affiliates may result in the discontinuity of its current management and such fact may affect the conduct of business, adversely impacting the Company.

As informed by the Company through Material Facts disclosed on March 26 and May 6, 2021, CEMIG is organizing a bidding process for the divestment of its full shareholding interest in the Company. Also, as informed by the shareholder, through Material Facts disclosed on July 8, 2021 and July 30, 2021, CEMIG received notice from the Court of Auditors of the State of Minas Gerais (“TCE-MG”) to present the full documentation relating to the procedure for the disposal of its interest held in TAESA. The TCE-MG rejected the injunction requesting the suspension of CEMIG’s divestment process in TAESA, as well as revoked the previous recommendation that the shareholder refrain from performing any act concerning the sale of TAESA’s shares. The body requested the availability of additional documents to continue the technical analysis. If such divestment is carried out, pursuant to the Company’s shareholders’ agreement, ISA Brasil will have: • preemptive right to acquire the equity interest currently held by CEMIG, being able to consolidate its control power and become the sole controlling shareholder of TAESA; and  • right to dispose of its equity interest jointly with CEMIG, under the same conditions, in which case the third party acquirer(s) will undertake to launch a public offer for the acquisition of shares aimed at all the Company’s minority shareholders – which may, in turn, reduce the liquidity of the shares issued by the Company. In addition, if a new control block is formed, the Company may undergo sudden and unexpected changes in its corporate policies and strategies, including through the replacement of its board members or officers. On March 29, 2023, the shareholder CEMIG clarified to the market the questions presented by the CVM through CVM/SEP/GEA-1 Official Letter 93/20231 dated March 28, 2023, in relation to the news published in the press about the statements of mobilization by the government of the State of Minas Gerais about its privatization. In this line, CEMIG clarified that the topic of the news involves the interest publicly expressed on several occasions by the Governor of the State of Minas Gerais and that, however, there is no new information which, in light of CVM Resolution 44/2021, justifies the disclosure of a Relevant Act or Fact regarding the matter.

Thus, the divestment of the full shareholding position held by CEMIG and/or ISA Brasil in the Company may eventually lead to the discontinuity of the current Company’s management. In this case, the Company cannot guarantee that it will be successful in maintaining the current management or attracting qualified members to join its management. The departure of any key member of the Company’s management, or the inability to attract and retain qualified personnel to integrate it, could cause a material adverse effect on the business, financial situation, operating results and on the Company’s image.

Any sudden or unexpected change in the management team, corporate policy or strategic direction, or any dispute between shareholders concerning their respective rights, could also adversely affect the Company’s business and results of its operations.

The Company is controlled by ISA Investimentos e Participações do Brasil S.A. (“ISA Brasil”) and by Companhia Energética de Minas Gerais – Cemig (“CEMIG”), signatories of the Company’s shareholders’ agreement, with powers to, among other things, elect the majority of the members of the Company’s Board of Directors, determine the result of any resolution that requires shareholder approval, including transactions with related parties, corporate reorganizations, disposals, partnerships and timing of payment of any future dividends. The Company’s controlling shareholders may be interested in carrying out acquisitions, disposals, partnerships, seeking financing or similar operations that may conflict with the interests of other shareholders, and, even in such cases, the interest of the controlling shareholders may prevail, which may result in decision making less favorable to the Company than to the controlling shareholders, harming the Company’s business. CEMIG (a company controlled by the State of Minas Gerais) and ISA Brasil, shareholders that form part of the Company’s controlling block, which, as TAESA’s controlling shareholders, exercise influence over the strategic orientation of the Company’s business and may have interests that conflict with the interests of the Company, which may adversely affect the conduct of business. For additional information about the Company’s shareholding structure and shareholders’ agreement, see Sections 1 and 6 of this Reference Form.

Part of the Company’s success depends on the knowledge, skills and efforts of its current management team and key employees. If managers or key employees choose to no longer participate in the management of the Company’s business, the Company may not identify equally qualified professionals in the market to replace them. The loss of management staff and the difficulty in hiring professionals with the same competence and experience could have an effect on the Company’s business, negatively impacting its operating and financial results and credibility.

Due to the technical specifications of equipment used in their facilities, the Company, its subsidiaries and joint ventures have some suppliers for certain equipment at their disposal and in certain cases, one single supplier. If a supplier discontinues the production or stop the sale of any equipment purchased by the Company, its subsidiaries and joint ventures, or significantly increases the amount of equipment, they may not be able to acquire such equipment with other suppliers. In this case, the provision of electricity transmission service provided may be materially affected, and the Company, its subsidiaries, joint ventures may be obliged to make not expected investments in order to develop or fund the development of new technology to replace the unavailable equipment or acquire costs greater than those currently practiced, which may negatively impact the financial condition and operating results of the Company, its subsidiaries, joint ventures.

Certain Company’s subsidiaries, joint ventures and affiliates enter into service agreements of operation and maintenance, related to its transmission lines and substations, with service providers.

The inability or unwillingness of those third parties to provide the contracted services in timely manner, according to contractual specifications may lead these subsidiaries, joint ventures and affiliates to default situation under the terms of the respective concession agreements and cause material adverse effects on operating results and financial capacity of these subsidiaries, joint ventures and affiliates and, consequently, the Company. Any failures, delays or defects in the provision of services by contracted suppliers may have a negative effect on the Company’s image and on the relationship with its clients and may negatively impact its business and operations.

Furthermore, termination of these agreements for provision of operation and maintenance services or failure to renew them or negotiate new agreements with other equally qualified service providers, timely and with similar prices, may cause a material adverse effect on the subsidiaries, joint ventures and affiliates and consequently, on the Company.

The Company, its subsidiaries and joint ventures maintain several agreements with service provision companies to conduct certain activities. If one or more service providers do not comply with any of their labor, social security and/or tax obligations, the Company and/or its subsidiaries and joint ventures may be held liable, either directly or indirectly, for complying with such obligations.

The Company, its subsidiaries and joint ventures depend on third parties to provide the equipment used in their facilities and, for that, they are subject to price increases and failures on the part of such suppliers, including delays in delivery of equipment or delivery of damaged equipment. Such failures could adversely affect the activities and have an relevant adverse effect on the Company’s results.

Outsourcing the work performed can impact the timely identification of any delays and failures, and, consequently, their correction. Failures, delays or defects in the provision of services by construction companies engaged by the Company, as well as in the supply of purchased machinery or equipment, may have a negative effect on its image and on the relationship with its clients, which may negatively impact the Company’s business and operations. It becomes more critical from the moment that a large part of the expansion, emergency, maintenance and field operation actions are performed by third parties.

Additionally, termination of these agreements of equipment supply and/or assembly, installation and construction, or failure to renew them or negotiate new agreements with other suppliers or service providers equally qualified service providers, timely and with similar prices, may also cause a material adverse effect on the subsidiaries, joint ventures and affiliates and, consequently, the Company.

In accordance with Brazilian law, the Company, as a provider of public services, is strictly liable for any direct and indirect damages resulting from the inadequate provision of electric power transmission services, such as abrupt interruptions in supply, failures or interruptions in the transmission, disturbances that cannot be attributed to any identified agent in the electric power sector or voltage interference, regardless of intent or fault, once the causal link has been identified.

The Company’s business and operating results may be adversely affected if the Company becomes liable for losses and damages caused to third parties.

The outbreak of communicable diseases, such as the COVID-19 outbreak on a global scale, may affect investment decisions and may result in sporadic volatility in the international and/or Brazilian markets. Such outbreaks can result and have resulted, at different levels, in the adoption of governmental and private measures that include restrictions, in whole or in part, on the circulation and transport of people, goods and services (either public and private, including jurisdictional ones, with limitation of forensic activity and suspension of procedural deadlines, and services related to notary offices and property registration), and, consequently, the closing of private establishments and public offices, disruption in the supply chain, reduction of consumption in general by the population, in addition to volatility in the price of raw materials and other inputs.

As a result of the global economic crisis resulting from pandemics, it is possible that Brazil, like most countries in the world, will record an increase in unemployment and society’s difficulty in keeping up with its financial obligations. This situation may have a direct impact on electric power distributors, who may feel the impact of losses with a significant decrease in demand for energy and an increase in defaults and, as they have the important role of transferring sector charges to the remaining chain of the Interconnected National System – SIN, there may have difficulties in meeting their contractual commitments regarding transmission charges, negatively affecting the Company’s revenues and cash flow.

Likewise, the country has suffered from the impacts brought about by the water shortage that started in 2021. The low rainfall volume and the decrease in reservoir levels caused an increase in energy costs, directly affecting generators, distributors and final consumers. The Federal Government is aware of the impacts of said events on the electric power sector, seeking economic and financial mechanisms to support any systemic losses, aiming to mitigate the effects of defaults and keep the sectoral chain sustainable.

Monthly payments made by agents accessing the transmission system are generally guaranteed by Collateral Contracts (CCG) and bank guarantees. The guarantee mechanism provided for in the CCGs determines that the users of the system grant to the ONS or the transmission companies access to the bank accounts maintained with the banks indicated in the respective CCG.

In such accounts, a balance of deposits (derived from invoices bills paid by users’ final consumers) equivalent to at least 110% of the average value of the last three monthly bills due to the transmission concessionaires must be maintained. If the system users fail to make the payment within two days of the maturity date, the ONS or the corresponding company will instruct the bank managing the collateral to block the bank accounts of the defaulting user, transferring the amounts deposited there, up to the limit of the amounts due (including interest and penalties), to a special account maintained with the managing bank, which will then be in charge of remitting such amounts to the affected transmission companies. If a user of the transmission system fails to make payments due for more than three consecutive times (or more than five times in all), the CCG provides for that said user must submit a letter of credit to the ONS, with a term of six months and an amount equivalent to two monthly transmission service bills. Failure to comply with the guarantee obligation under the terms of the CCGs may give rise to the termination of the Transmission System Use Agreement (CUST) and Transmission Connection Agreement (CCT) related to such guarantee, with the corresponding default to be solved with the involvement of ANEEL, which could result in losses for the Company.

It is worth highlighting that through the Transmission Service Agreement – CPST, entered into between the transmission companies and the ONS, the Operator receives powers to represent the transmission companies before the other users of the system to determine, manage and settle the sectoral charges and Charges for Use of the Transmission System – EUST, resulting from the application of the Tariff for Use of the Transmission System – TUST, set up by the TUSTRB and TUSTFR, relating to: (i) Basic Network facilities, including Border Transformers; and (ii) Other Shared DIT Transmission Facilities.

The Federal Government frequently exerts influence on the Brazilian economy and occasionally makes significant changes to its policies and regulations. The measures taken by the Federal Government to control inflation, in addition to other policies and rules, resulted in changes in interest rates, changes in fiscal policies, price controls, exchange rate devaluation, capital controls and restrictions on imports, among other measures.

The Company’s activities, its financial condition, operating results, future business and the market value of securities issued by it may be significantly affected by changes in policies or rules that involve or affect certain factors, such as:

• foreign exchange controls and restrictions on remittances abroad;
• relevant currency fluctuations;
• changes in the fiscal and tax regime;
• liquidity of domestic financial and capital markets;
• interest rates;
• inflation;
• monetary policy;
• development in the energy industry; and
• other political, legal, diplomatic, social, health and economic events that may occur in Brazil or that affect it.

Uncertainty regarding the implementation of changes by the Brazilian government in policies or regulations that may affect these or other factors in the future may contribute to economic instability in Brazil and to increased volatility in the Brazilian securities market and securities issued abroad by Brazilian companies.

In the past, Brazil has experienced extremely high inflation rates. Inflation and some measures taken by the Brazilian government to control it, coupled with speculation about possible government measures to be adopted, had a significant negative effect on the Brazilian economy, thus contributing to the economic uncertainty in Brazil and to the increase in volatility of the Brazilian securities market. Successive inflation increases may increase the Company’s costs and expenses and consequently adversely affect its financial performance as a whole.

Possible future measures by the Federal Government, including the decrease/increase in interest rates, intervention in the foreign exchange market and measures to adjust or determine the value of the Brazilian real may trigger increases in inflation, adversely affecting the general performance of the Brazilian economy. If Brazil experiences high inflation in the future, the mechanism for annual readjustment of revenues of the Company, its subsidiaries, joint ventures and affiliates based on inflation, provided for in their respective concession contracts, may not be sufficient to fully protect them against the effects of rising inflation, which could adversely affect our operating margins.

Moreover, in the event of an increase in inflation, the Federal Government may choose to significantly raise official interest rates. The increase in interest rates may impact not only the cost of raising new loans by the Company, but also the cost of its current debt, thus causing an increase in its financial expenses. In turn, such increase may adversely affect the ability to pay obligations assumed by the Company, as it will reduce its cash availability. Furthermore, fluctuations in national interest rates and inflation, which may adversely affect the Company due to the existence of assets and liabilities indexed to the change of the SELIC, CDI and IPCA and IGP-M indices. On the other hand, a significant reduction in the CDI rate or inflation could negatively affect the revenue generated from the Company’s financial investments and the restatement of the balance related to the concession’s financial assets.

The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, countries in Europe, as well as in other countries in Latin America and countries in emerging markets. Investors’ reactions to developments in these other countries may have an adverse impact on the market value of securities of Brazilian issuers. For example, the prices of shares traded on the Brazilian capital market have historically been susceptible to fluctuations in interest rates in the United States, as well as changes on the main stock exchanges in the United States. In addition, crises in other emerging countries may reduce investor interest in securities of Brazilian issuers, including the Company’s shares and/or units. Such events may adversely affect the market value of shares and/or units and/or other securities issued by the Company, restrict the Company’s access to the capital market and compromise its ability to finance its operations on favorable terms.

In recent years, there has been an increase in volatility in the Brazilian market due to, among other factors, uncertainties regarding monetary policy adjustments in the United States and how such adjustments would affect international financial markets, increased risk aversion in emerging countries, and uncertainties regarding macroeconomic and political conditions. Moreover, the Company is exposed to instability and volatility in the global financial markets due to their effects on the economic and financial environment, particularly in Brazil, such as economic slowdown, increase in the unemployment rate, reduction in the purchasing power of consumers and the lack of credit availability.

Such instabilities or volatilities in the global financial markets could further increase the negative effects on the economic and financial environment in Brazil, which could have a material adverse effect on the Company’s business, results of operations and financial condition.

The Federal Government may resume the electric power transmission service in cases of public interest, by means of a specific law that authorizes such resumption and payment of prior indemnity. Such reasons include natural disasters, war, significant public disturbance, threats against internal peace or for economic reasons and other reasons related to national security. The Company cannot guarantee that any indemnity to be received will be sufficient considering the investments made, or received in a timely manner, and any expropriation could have a material adverse impact on the Company.

Furthermore, the Federal Government, as the concession grantor, through ANEEL, may also intervene in the concession to ensure adequate provision of the public service, and to ensure faithful compliance with the relevant contractual, regulatory and legal rules through the administrative intervention procedure. Once the intervention has been declared, the concession grantor must initiate an administrative procedure to prove the determining causes of the measure and determine responsibilities. If the non-compliance with the legal assumptions of the intervention process is proven, the service will be immediately returned to the concessionaire. The intervention process or the declaration of termination of any concessions could have a material adverse effect on the Company’s financial situation and results of operations.

Credit ratings affect the risk perception of investments and, as a result, the required yields on future debt issuance in the capital market. Rating agencies regularly assess Brazil and its sovereign ratings based on several factors, including macroeconomic trends, physical and budgetary conditions, debt metrics and the prospect of changes in any of these factors.

Any downgrade of Brazilian sovereign credit ratings could increase the risk perception of investments and, as a result, increase the cost of future debt issues and adversely affect the trading price of the Company’s securities.

The market value of securities issued by Brazilian companies is influenced, to varying degrees, by economic and market conditions in Brazil and other countries, including the United States, member countries of the European Union and emerging economies. Investors’ reaction to events in such countries may have an adverse effect on the market value of securities of Brazilian companies, including securities issued by the Company. Crises in Brazil, the United States, the European Union or countries with an emerging economy may reduce investor interest in the securities of Brazilian companies, including TAESA..

The Brazilian economy is affected by market conditions and international economic conditions, especially economic conditions in the United States. Share prices on B3 S.A. – Brasil, Bolsa, Balcão, for example, are highly affected by fluctuations in US interest rates and the behavior of the main US exchanges. Any increase in interest rates in other countries, especially the United States, could reduce global liquidity and investor interest in making investments in the Brazilian capital market.

In the past, the development of adverse economic conditions in other emerging market countries resulted in the outflow of resources from Brazil and, consequently, in the reduction of external funds invested in Brazil. The financial crisis that originated in the United States in the third quarter of 2008 resulted in a global recession, with several effects that, directly or indirectly, harmed the financial markets and the Brazilian economy.

Moreover, factors related to international geopolitics may adversely affect the Brazilian economy and, consequently, the Brazilian capital market. In this sense, the conflict involving the Russian Federation and Ukraine, for example, poses the risk of a new rise in oil and natural gas prices, with the possible appreciation of the US dollar occurring concurrently, which would cause even more inflationary pressure and could make it difficult for the Brazilian economic recovery.

Additionally, the conflict impacts the global supply of agricultural commodities, so that, with an upward readjustment in the price of grains due to high demand, the demand for Brazilian production would increase, considering the high production capacity and the consequent possibility of negotiating for more competitive prices. Thus, export taxes are increased and internal prices rise, which generates even more inflationary pressure. Finally, it is worth mentioning that a major portion of Brazilian agribusiness is highly dependent on fertilizers, whose main inputs for its manufacture are mainly imported from the Russian Federation, as well as from two of its allies (Republic of Belarus and People’s Republic of China). Therefore, the change in the export policy for these products could negatively impact the Brazilian economy and, consequently, the Brazilian capital market. It is worth highlighting that, in the face of the invasion perpetrated on February 24, 2022, animosities are emerging not only between the countries directly involved in the uproar, but other nations indirectly interested in the issue, bringing a scenario of extremely high uncertainty for the global economy.

There can be no assurance that the Brazilian capital market will be open to Brazilian companies and that market financing costs will be favorable to Brazilian companies. Political or economic crises in Brazil and emerging markets may reduce investor interest in securities of Brazilian companies, including securities issued by the Company. This could affect the liquidity and market price of the securities issued by the Company, also impacting its future access to the Brazilian capital market and financing on acceptable terms, which could adversely affect the market price of the securities issued by the Company.

The operation of networks and transmission of electricity involves various risks, such as operational difficulties and unexpected interruptions. Such events include accidents, breakdown or failure of equipment or processes, performance below expected levels of availability and efficiency of transmission assets and catastrophes such as explosions, fires, natural phenomena, landslides, sabotage or other similar events. Moreover, actions by government authorities responsible for the electric power grid, environment, operations and other issues can also affect transmission lines.

Additionally, other calamities and pandemics may affect the Company’s operations due to decrees issued by municipalities and states related to restrictions on the circulation of people, which may hinder the provision of operation and maintenance services in scheduled activities and/or emergency occurrences. This may impair the operation of transmission lines and substations, thus causing the unavailability of the facilities and, therefore, the application of Variable Portion (“PVs” by the ONS and/or the application of a fine in the RAP of the concessionaires by ANEEL.

The net operating income in which the Company, its subsidiaries, joint ventures and affiliates earn from the implementation, operation and maintenance of its facilities are related to the availability and continuity of services. Pursuant to the respective concession contracts and current regulations, the Company, its subsidiaries, joint ventures and affiliates are subject to the reduction of their respective RAPs by the application of the Variable Portion by the ONS and the application of certain penalties by ANEEL depending on the level and duration of service downtime, as provided for by ONS and registered with the Transmission Verification System (SATRA). Thus, interruptions in its lines and substations may cause a material adverse effect on the Company’s business, financial conditions and operating income.

The concessions of the Company, its subsidiaries, joint ventures and affiliates are subject to early unilateral termination under certain circumstances provided for by law and by the respective concession contracts. In the event of termination of the concession, the assets subject to the concession will revert to the Concession Grantor. We cannot guarantee that, in the event of early termination, any indemnity for the value of assets that have not been fully amortized or depreciated will compensate for the loss of future profit. If the Concession Grantor terminates the concession contract in the event of default, the amount that would be received by the Company may be reduced to zero, by imposing fines or other penalties, which may have an adverse effect on the Company, its subsidiaries, joint ventures and affiliates, their business and financial condition.

A significant part of the assets of the Company, its subsidiaries, joint ventures and affiliates are linked to the provision of public services or public utility. These assets will not be available for liquidation in the event of bankruptcy or attachment to guarantee the execution of court decisions (said assets are called “reversible assets”), since they must be reverted to the Concession Grantor, in accordance with the terms of the concessions and with the applicable legislation to guarantee the non-interruption of the public service. These limitations may significantly reduce the amounts available to the Company’s shareholders and creditors in the event of liquidation, in addition to having a negative effect on the ability of the Company, its subsidiaries, joint ventures and affiliates to obtain financing, which may have an adverse effect for the Company, its subsidiaries, joint ventures and affiliates, their business and financial condition.

Power transmission concessions are subject to termination by ANEEL before the end of the respective terms upon carrying out administrative procedure. Some circumstances that may provoke extinction: (i) if a concessionaire fails to provide services, for more than thirty (30) consecutive days, without having presented an alternative acceptable by ANEEL, after consultation with ONS; (ii) the declaration of bankruptcy or the dissolution of the concessionaires; (iii) if ANEEL determines, through an expropriation process, that the termination of any of its concessions would be motivated by public interest, as defined in a specific authorizing law; or (iv) the declaration of forfeiture of the concession, if the non-performance of the contract by the concessionaire is determined in an administrative proceeding, in the cases provided for in Article 38 of the Concessions Law (such as interruption of services, loss of qualification necessary for the provision of services and tax evasion).

If the concession contracts of the Company or any of its subsidiaries, joint ventures and affiliates are terminated by ANEEL before the respective terms, there is no guarantee that the Company, its subsidiaries, joint ventures and affiliates will receive sufficient indemnity amounts to fully recover the value of their investments. An earlier termination of concession agreements held by the Company or any of its subsidiaries, joint ventures and affiliates or the insufficiency of indemnities for the investments made may negatively impact the Company’s operating results and payment capacity.

The Company, its subsidiaries, joint ventures and affiliates are part of the Electricity Sector in an environment highly regulated by the Federal Government and supervised by it, through ANEEL, also subject to compliance with the provisions of other bodies and other regulatory and environmental authorities. Thus, the Company, its subsidiaries, joint ventures and affiliates are subject to several regulations, including laws, regulations, standards, environmental licensing and occupational health and safety. In the event of significant changes in the understanding of said bodies, generating future changes in applicable laws, rules and agreements or changes in regulatory execution or interpretation, resulting in changes in legal requirements or in the terms of authorizations, permits, licenses and existing contracts applicable to the Company, its business, results of operations and financial condition would be materially adversely affected.

The failure to comply with any provisions in these environmental and occupational health and safety laws, regulations, standards and permits may result in payment of fines and indemnities in significant amounts, revocation of environmental permits or suspension of activities, which may result in a relevant adverse effect on the Company’s business. There are also requirements in the contracts that provide for the application of a certain percentage of the concessionaires’ revenue in research and development of the Brazilian electric power sector, under the terms of Law 9.991/00, dated July 24, 2000  and specific regulations, with the agents responsible for restoring (in whole or in part) the amounts invested in projects, in case of disallowances in the final assessments carried out by the Regulator.

The Company may have its financial condition and operating results adversely affected if (i) it has to make additional investments as a result of a measure not provided for in the applicable legislation, regulations or contracts; or (ii) unilateral measures are imposed by these authorities.

Practically all income of the Company, subsidiaries, joint ventures and affiliates derive from the RAP received in exchange for the deployment, operation and maintenance of its electricity transmission facilities. Certain extraordinary events, such as: investments in transmission lines and facilities, duly approved by ANEEL, such as reinforcements and improvements, if their revenues are not sufficient, may generate additional costs not initially foreseen by the Company. If the Company’s costs increase or its revenues decrease significantly or if it has to make additional investments as a result of a measure not provided for in the applicable laws, regulations or contracts, or even as a result of unilateral measures by said authorities, the Company’s financial position and results of operations could be adversely affected. The creation of new taxes and/or charges linked to the RAPs will lead to a positive or negative revenue adjustment, as provided in the concession contracts.

Furthermore, the Federal Government may, in the future, adopt more restrictive rules applicable to the Sector’s activities, which may include the installation of new equipment and/or adoption of new procedures, leading the Company to incur costs and/or additional investments to comply with such rules. Accordingly, such events will negatively affect the Company’s financial condition and operating income.

Transmission services by the concessionaires are made provided in accordance with their concession agreements and applicable regulation. In case of failure to comply with any provision of the concession agreements or provisions contained in regulation in force, ANEEL may impose penalties to the Company, its subsidiaries, joint ventures and affiliates. Depending on the severity of non-compliance, applicable penalties may include: (i) warning; (ii) fines for non-compliance which, depending on the infraction, range from 0.01% to 2% on the concessionaire’s Net Operating Revenue (“NOR”), corresponding to the last 12 months prior to the issuance of the notice of infraction; (iii) embargoes on the construction of new facilities or equipment; (iv) restrictions on the operation of existing facilities and equipment; (v) temporary suspension of participation in bidding processes for new concessions for up to two years; (vi) ANEEL’s intervention in concessions or authorizations granted; and (vii) extinction and expiry of the concession.

In addition, the Concession Grantor has the prerogative to extinguish the concessions of concessionaires in the electricity sector before the deadline, in case of bankruptcy or dissolution, or by means of takeover and forfeiture upon carrying out administrative procedure. ANEEL may apply penalties for non-compliance with concession contracts by concessionaires in the electric power sector or terminates concessions in advance, if the concessionaire has given cause or for the good of the Federal Government. Furthermore, delays in the implementation and construction of new facilities in relation to the schedule can also trigger the imposition of regulatory sanctions by ANEEL, which, according to REN 846/2019, can range from warnings to early termination of concessions.

Furthermore, the sectoral agent that fails to submit to ANEEL’s prior consent a request to pledge a guarantee for emerging rights, in any capacity, or assets linked to the concession, permission or authorization, in accordance with item “c”, item VII of Art. 12 of REN 846/2019, subject to the imposition of a fine of up to 1% on the NOR,  corresponding to the last 12 months prior to the issuance of the notice of infraction, in the case of concessionaires, permit holders and authorized persons of electric energy facilities and services.

Furthermore, the indemnity to which electric power sector concessionaires will be entitled upon the termination of their respective concessions for unamortized investments may not be sufficient to fully settle their liabilities, in addition to the fact that payment may be postponed for many years (for further information, see risk factor “ANEEL may terminate the concession contracts of the Company, its subsidiaries, joint ventures and affiliates before the expiration of their terms by carrying out an administrative procedure.”). If the concession agreements are terminated or extinguished for the fault of concessionaires in the electricity sector, the amount of payment due may be reduced significantly with the imposition of fines or other penalties.

Thus, the application of fines or penalties or early termination of concessions of the Company, its subsidiaries, joint ventures and affiliates may have significant adverse effects on its financial condition and operating income of the Company, its subsidiaries, joint ventures and affiliates.

The Federal, State and Municipal Governments regularly implement changes in the tax regime that affect the Company, its subsidiaries, joint ventures and affiliates. These changes include amendments in the current tax rates and/or the creation of taxes, temporary or definitive, whose collection is associated with certain specific governmental purposes. Some of these measures may result in an increase in the tax burden of the Company, its subsidiaries, joint ventures and affiliates, which may, in turn, influence the profitability and, consequently, the financial result of the Company, its subsidiaries, joint ventures and affiliates. The Company cannot guarantee that it will be able to maintain projected cash flow and profitability following any increases in Brazilian taxes applicable to the Company and its operations. There are no guarantees that the Company, its subsidiaries, joint ventures and affiliates will be able to obtain a timely and full RAP readjustment, which could have a material adverse effect on the Company, its subsidiaries, joint ventures and affiliates. Moreover, tax authorities may interpret certain tax laws differently from the interpretation adopted by the Company. If there is an interpretation by the tax authorities different from the one on which the Company was based to carry out its transactions, the Company and its results could be adversely affected.

The activities of the Company, its subsidiaries, joint ventures and affiliates are highly regulated and supervised by the Federal Government, through the Ministry of Mines and Energy – MME, by ANEEL, by the ONS and other regulatory authorities. These authorities have historically exercised a high degree of influence over the activities of the Company, its subsidiaries, joint ventures and affiliates. The MME, ANEEL and ONS have discretionary powers to implement and change policies, interpretations and rules applicable to several aspects of the activities of the Company, its subsidiaries, joint ventures and affiliates, especially operational, maintenance and security aspects, as well as aspects related to remuneration and supervision of the activities of the Company, its subsidiaries, joint ventures and affiliates. Any significant regulatory measure by the competent authorities may impose a material burden on the activities of the Company, its subsidiaries, joint ventures and affiliates and cause a material adverse effect. The main commercial activities, the implementation of the growth strategy and the conduct of the Company’s activities may be adversely affected by government actions, including: (a) change in legislation applicable to the business of the Company, its subsidiaries, joint ventures and affiliates, including, without limitation, tax, labor and environmental legislation; (b) discontinuity and/or changes in concession programs; (c) imposition of stricter criteria for qualification in future bids; (d) the concession grantor’s discretion in the process of restoring the economic-financial balance of the concession contract;

Additionally, the Company, its subsidiaries, joint ventures and affiliates cannot guarantee that the actions that will be taken in the future by the federal and/or state governments regarding the development of the Brazilian electric power system will not negatively impact the activities of the Company, its subsidiaries, joint ventures and affiliates and to what extent such actions may adversely affect it.

If the Company, its subsidiaries, joint ventures and affiliates are forced to proceed in a manner substantially different from that established in its business plan, its financial and operating results could be adversely affected.

It is necessary that activities developed in areas close to quilombola communities consider the specificities of local communities, and the environmental agency may prevent the implementation of projects that represent a high socio-environmental risk for the local population. Additionally, potentially polluting undertakings located in said areas depend on specific authorization from the National Institute for Colonization and Agrarian Reform (INCRA) or the National Indian Foundation (FUNAI).

Licensing processes in regions close to areas with quilombola remnants tend to be slow and expensive, as they have more steps and procedures. In these cases, for example, it is necessary to hold public hearings and prepare a Communication Plan to keep local communities always informed about the activities developed by the Company.

Furthermore, although the Company’s activities are considered to be of public interest, there is a risk that a possible expansion or implementation projects may be modified or preventedin regions close to quilombola lands and indigenous communities.

The Company’s activities may result in accidents or incidents for workers and/or communities living close to the undertakings. Such events can be caused by natural occurrences, human errors, technical failures and other factors and can result in reputational damage, financial damages, penalties for the Company, Officers and members of the Board of Directors, and impact on obtaining or maintaining concession contracts and installation or operation licenses.

Any accidents at the Company’s facilities could cause damage to neighboring properties, environmental damage and even accidents involving the population. In these hypotheses, the Company may be sued in court with claims for indemnification and may be required to repair any damage caused to the environment, including through public civil actions, which consequently may adversely affect its financial, operational and reputational situation. At the administrative level, penalties may be applied to the Company by the proper environmental agency, in addition to technical requirements and penalties that may involve the embargo and stoppage of its activities. Furthermore, the Company, its managers and employees may be held criminally liable in case of certain environmental damages, which may negatively affect the Company’s image and reputation.

The Company’s activities may result in accidents or incidents for workers and/or communities living close to the undertakings. Such events can be caused by natural occurrences, human errors, technical failures and other factors and can result in reputational damage, financial damages, penalties for the Company, Officers and members of the Board of Directors, and impact on obtaining or maintaining concession contracts and installation or operation licenses.

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The Company, its subsidiaries, joint ventures and affiliates are subject to a wide range of legislations and regulations in the environmental sector related, among other aspects, to atmospheric emissions, waste management, use of water resources and the suppression of vegetation and interventions in specially protected areas. The Company needs licenses and authorizations from government agencies to carry out its activities. During the environmental licensing process, the licensing body may delay the analysis of requests for the issuance or renewal of licenses and authorizations necessary for the Company’s business, or even reject such requests, require compliance with complex and onerous conditions, which may delay the implementation of the Company’s projects, negatively impacting the project schedule and its implementation costs. The Company’s inability to meet the technical requirements (conditions) established by such environmental bodies during the environmental licensing process may harm, or even prevent, as the case may be, the installation and operation of the projects, as well as the development of the Company’s activities, which may adversely affect its operating results. In case of violation or non-compliance with such laws, regulations, licenses and authorizations, as well as obligations assumed in terms of adjustment of conduct or environmental commitment or in judicial agreements, the Company may suffer administrative sanctions, such as fines, interdiction of activities, cancellation of licenses and revocation of authorizations, as well as criminal sanctions (including its administrators), which may materially and adversely affect our reputation, image, revenue and operating results. The Public Prosecutor’s Office may initiate a civil inquiry and/or, from the outset, file a public civil action seeking compensation for any damage caused to the environment and third parties. Additionally, in the civil level, environmental damage caused, directly or indirectly, by the Company, its subsidiaries, joint ventures and affiliates may imply joint and several liability, which means that the obligation to repair the damage caused may affect everyone directly or indirectly involved regardless of proof of guilt or fraud by the agents. As a consequence, environmental damage, even if resulting from an activity carried out by contracted third parties, may generate the Company’s liability for repairs, at which time the company that has the best financial conditions to do so may be required to remediate or pay indemnity, with subsequent right of recourse against the other companies involved. There is no provision in Brazilian legislation for a ceiling or limitation on the amount to be set as indemnity for environmental damage, which will be proportional to the damage caused. Still, the doctrine and jurisprudence have a majority understanding that the repair and/or indemnity for environmental damage is not subject to expiration, as it involves diffuse and collective interests, which deserve to be widely protected.

Violations of environmental legislation may also result in administrative penalties, such as the fines provided for in Federal Decree 6.514/2008, in the amount of up to R$ 50 million in more serious cases, when environmental damage of large proportions is found and/or with risk to human health. Such fines are doubled our tripled in case of recurrence. Among others, administrative penalties may also involve warning, embargo of work or activity, demolition of work or partial or total suspension of its activities, especially when there is imminent danger to public health, serious risk of environmental damage or in cases of refusal, in which the previously imposed fines were not sufficient to correct the offender’s conduct. It is worth highlighting that administrative and criminal sanctions will be applied regardless of the obligation to repair the damage caused to the environment and affected third parties. The environmental legislation also provides for the possibility of disregarding the legal personality, whenever this represents an obstacle to the recovery of damages caused to the quality of the environment, which may lead to the accountability of the Company’s partners and administrators. Government agencies or other authorities may also issue new, more stringent rules or seek more restrictive interpretations of existing laws and regulations, thus forcing the Company to spend additional resources on environmental adequacy and/or licensing of areas that will be used for the implementation of new projects.

e Company’s facilities could cause damage to neighboring properties, environmental damage and even accidents involving the population. In these hypotheses, the Company may be sued in court with claims for indemnification and may be required to repair any damage caused to the environment, including through public civil actions, which consequently may adversely affect its financial, operational and reputational situation. At the administrative level, penalties may be applied to the Company by the proper environmental agency, in addition to technical requirements and penalties that may involve the embargo and stoppage of its activities. Furthermore, the Company, its managers and employees may be held criminally liable in case of certain environmental damages, which may negatively affect the Company’s image and reputation.

The Company’s subsidiaries need to obtain several licenses and authorizations from different national agencies and public bodies, including government agencies and authorities with jurisdiction over the environment. Moreover, several contracts entered into by the subsidiaries, with a view to future operations, also require obtaining such licenses and authorizations. Subsidiaries may not be able to obtain all the necessary licenses and authorizations for the implementation and operation provided for in their project portfolio. The lack of licenses, authorizations or concessions necessary for the operations of the subsidiaries, or that have been obtained and later contested, may substantially and adversely affect their respective businesses, financial situation and operating results and, consequently, the Company.

Companies in the energy sector are subject to environmental regulations in the federal, state and municipal levels, which, to be complied with, may involve the expenditure of material amounts, directly or indirectly. Any inability to comply with the provisions of currently applicable laws and regulations or with the requirements and conditions of licenses and/or environmental authorizations that may be applicable to the activities of the Company, its subsidiaries, joint ventures and affiliates may subject them to administrative penalties such as warnings, fines, cancellation or revocation of environmental licenses and/or total or partial suspension of its commercial activities or the payment of indemnities in significant amounts in case of damage to the environment or to third parties, which may cause an adverse material effect on the Company’s activities, businesses and financial result. Moreover, the Federal Government and the governments of states and municipalities where the Company and its subsidiaries, joint ventures and affiliates operate may issue stricter rules or even make the application of the rules in force more rigorous, leading them to incur significant costs to comply with legislation, which could have a material adverse effect on the Company.

Fires, damage caused by natural or man-made disasters, environmental damage and other unforeseen or unpredictable conditions may cause significant damage to the Company’s projects, damage or destroy its facilities and properties, cause delays in its projects and cause additional costs. Additionally, the properties on which the Company wishes or intends to develop the projects may also be affected by unforeseen planning, engineering, environmental or geological problems or conditions, including conditions or problems that arise in adjacent third-party properties or in the vicinity of properties that the Company develops the projects and which may result in unfavorable impacts on such properties by reducing the availability of land. The occurrence of said events could have a material adverse effect on the Company’s activities, financial condition, results of operations and reputation.

The main impacts of climate change on energy distribution are related to the occurrence of extreme weather events. As climate change intensifies, extreme weather events such as heavy rain, gusty winds and typhoons are becoming more common. Such events imply damage to the power distribution infrastructure and power outages for clients. For the Company, this translates into costs for restoring infrastructure and loss of revenue. Furthermore, quality indicators are negatively impacted, which may increase the likelihood of regulatory fines for non-compliance with indicators, as well as a negative impact on the Company’s image with clients.

Due to climate change, there is also a change in weather patterns, which can cause periods of more intense droughts. In the energy sector, this is felt as a lower generation of hydroelectric sources, which are currently the main source of energy generation within the country, and an increase in the activation of thermoelectric plants, which causes an increase in the energy price. At these times, ANEEL puts the tariff flags into effect. The higher cost of energy arriving at the end client may increase the Company’s trend to default on payments, impacting default.

Currently, greenhouse gas emissions are changing the composition of the atmosphere and affecting the global climate. Risks from climate change include an increase in global temperature and a rise in sea levels, as well as changes in regional climate conditions related to changes in the hydrological regime and winds. Additionally, seasonality aspects in the seasons of the year, as well as characteristics of the environment in which the projects of the Company or its subsidiaries, joint ventures and affiliates are developed (i.e., water crises, changes in wind speed, rainfall volumes, periods sun exposure, among others), can generate negative and unexpected impacts on the productivity and performance of its activities. Such changes may affect the Company’s sector of operation and, consequently, its performance, as well as the performance of its subsidiaries, joint ventures and affiliates. More restrictive environmental regulations may result in the imposition of costs associated with the control and reduction of greenhouse gas emissions (“GEE”), whether through requirements by environmental agencies, or through other regulatory and environmental measures. Due to concern about the risk of climate change, several countries, including Brazil, have adopted or are considering adopting regulatory frameworks that, among other rules, aim to reduce GHG emissions. Current GHG regulation, or even the regulation that may eventually be approved, may increase the Company’s costs to comply with environmental legislation. Thus, climate changes may adversely affect the Company’s results.

In 2018, the General Data Protection Law (Law 13.709/2018 – “LGPD”) was enacted, regulating practices related to the handling of personal data in general and no longer sparse and sectoral, as until then the right to privacy and data protection was regulated in Brazil. On September 18, 2020, the LGPD entered into force, except for Articles 52, 53 and 54 of the LGPD, which addresses administrative sanctions and have been in force since August 1, 2021, pursuant to Law 14.010/2020.

The LGPD establishes a new legal framework to be followed in the handling of personal data and provides for, among others, the rights of personal data subjects, the legal bases applicable to the protection of personal data, the requirements for obtaining consent, the obligations and requirements related to security incidents and leaks and data transfers, as well as the authorization for the creation of the National Data Protection Authority, responsible for preparing guidelines and applying administrative sanctions in case of non-compliance with the LGPD. On August 26, 2020, the federal executive branch issued Decree 10.474/2020 approving the regulatory framework and the demonstrative table of commissioned positions and trust functions of the National Data Protection Authority (“ANPD”).

The Company collects, uses, processes, stores and manages personal data in the normal course of its business. Such personal data may be handled in violation of the legislation and are subject to security incidents, particularly invasion, violation, blocking, kidnapping or leaks. The Company must also provide a secure environment for the handling of data of holders. The investment to maintain the technical and administrative conditions for information security and protection of personal data at the Company will also be necessary, including for the support of its corporate governance framework for the protection of personal data. Moreover, according to the LGPD, the Company has a legal duty to maintain a communication channel with the personal data subjects on which it carries out handling activities.

The LGPD also establishes that the following information must be provided to data subjects, including through privacy notices: (i) specific handling purpose(s); (ii) handling means and duration; (iii) identification of the data controller; (iv) data controller contact information; (v) information regarding the sharing of personal data with third parties and the purpose; and (vi) liability of the processing agents involved.

Since August 2021, with the entry into force of the LGPD sanctions, the Company and its subsidiaries may be subject to sanctions, gradually, individually or cumulatively, of (i) a warning, with an indication of the deadline for adopting corrective measures, (ii) obligation to disclose the incident, (iii) partial suspension of the operation of the database to which the infringement refers for a maximum period of 6 (six) months, extendable for an equal period, until the handling activity is regularized by the data controller, (iv) suspension of the exercise of the personal data handling activity referred to in the infraction for a maximum period of 6 (six) months, extendable for an equal period, (v) temporary blocking and/or deletion of personal data, and (vii) fine of up to 2% (two percent) of the revenue of the company, group or conglomerate in Brazil in its last year, excluding taxes, up to the global amount of R$ 50,000,000.00 per infraction.

Regardless of the applicability of administrative sanctions, non-compliance with any provisions set forth in the LGPD has the following risks: (i) the filing of individual or collective lawsuits, claiming indemnity for damages resulting from violations, based not only on the LGPD, but also on the sparse and sectoral legislation on data protection still in force; and (ii) the application of the penalties provided for in the Brazilian Civil Rights Framework, in case of violation of its provisions, notably the security rules for the online storage of information.

Furthermore, the Company may be liable for material, moral, individual or collective damages caused and be held jointly and severally liable for material, moral, individual or collective damages caused by the Company and its subsidiaries, due to non-compliance with the obligations established by the LGPD. Thus, failures in the protection of personal data handled by the Company, as well as the inadequacy of the applicable legislation, can lead to high fines, disclosure of the incident to the market, deletion of personal data from the base, and even the suspension of its handling activities, which could negatively affect reputation; image and results of the Company.

In the exercise of its activities, the Company is subject to the collection, storage, handling and transmission of sensitive or personal data of clients, suppliers and/or employees. The information technology systems used for these purposes can be breached, computer programmers and hackers can develop and deploy viruses, worms and other malicious software programs that attack its products or exploit any security vulnerabilities in its products. In addition, the hardware and operating system software and applications that the Company uses may present design or manufacturing defects, including bugs and other problems that may unexpectedly interfere with system operation.

The techniques used to gain unauthorized, undue or illegal access to the Company’s systems and data or to its clients’ data, to disable or disqualify services or to sabotage systems, are constantly evolving, can be difficult to detect quickly and often go unrecognized. before being launched at a target. Unauthorized parties may attempt to access its systems or facilities in several ways, including, without limitation, by breaking into its systems or the systems of its clients, partners or service providers, or fraudulently attempting to mislead its employees, clients, partners, service providers or other users of its systems to provide names, passwords or other sensitive information which may be used to access its IT systems. Some of these techniques may be supported by significant technological and financial resources, making them even more sophisticated and difficult to detect.

The Company’s information technology and infrastructure may be vulnerable to cyber-attacks or security breaches and third parties may be able to access personal or private information of its clients, suppliers and employees that is stored or can be accessed through its systems. Its security measures may be breached due to human error, unlawful acts, system failures or vulnerabilities, or other irregularities. Any actual breach or perceived breach of its security could disrupt its operations, make its systems or services unavailable, result in undue disclosure of data, materially harm its reputation and brand, result in material financial and legal exposure, and cause clients to lose confidence in its products and services, adversely affecting its business, financial condition or results of operations. Moreover, any breaches of its suppliers’ network or data security, including data center and cloud service providers, could have similar negative effects. Vulnerability or perceived vulnerability or data breach may result in the filing of claims against the Company. There is no way to guarantee that the current protection mechanisms of its operation technology and IT systems are sufficient to prevent cyber-attacks and security and privacy breaches.