Edgar Filing: ENERGY CO OF MINAS GERAIS

6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13A-16 OR 15D-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

For the month of January, 2018

Commission File Number: 1-15224

Energy Company of Minas Gerais

(Translation of Registrant’s Name Into English)

Avenida Barbacena, 1200

30190-131 Belo Horizonte, Minas Gerais, Brazil

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ☐ No ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

INDEX


Item		Description of Items
1.		SUMMARY OF THE MINUTES OF THE 698TH MEETING OF THE BOARD OF DIRECTORS HELD ON JUNE 27, 2017

2.		MATERIAL ANNOUNCEMENT DATED AS OF DECEMBER 28, 2017: CEMIG COMPLETES R$ 3.4BN DEBT RE-PROFILING

3.		NOTICE TO STOCKHOLDERS DATED AS OF JANUARY 8, 2018: FINAL FIGURES FOR R$ 1.2BN CAPITAL INCREASE

4.		MATERIAL ANNOUNCEMENT DATED AS OF JANUARY 12, 2018: BOARD PROPOSES THE MERGER OF CEMIGTELECOM

5.		SUMMARY OF THE MINUTES OF THE 720TH MEETING OF THE BOARD OF DIRECTORS HELD ON JANUARY 12, 2018

6.		CONVOCATION OF EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS DATED AS OF JANUARY 12, 2018 TO BE HELD ON FEBRUARY 28, 2018

7.		PROPOSAL BY THE BOARD OF DIRECTORS DATED AS OF JANUARY 12, 2018 TO THE EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 28, 2018

8.		NOTICE TO STOCKHOLDERS DATED AS OF JANUARY 17, 2018: CANCELATION OF THE CONVOCATION TO THE EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS SCHEDULED FOR JANUARY 24, 2018

9.		SUMMARY OF THE MINUTES OF THE 721TH MEETING OF THE BOARD OF DIRECTORS HELD ON JANUARY 17, 2018

10.		MARKET ANNOUNCEMENT DATED AS OF JANUARY 17, 2018: CANCELATION OF THE EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS SCHEDULED FOR JANUARY 24, 2018

11.		MARKET ANNOUNCEMENT DATED AS OF JANUARY 24, 2018: BEGIN OF THE 30-DAY EXTENSION TO THE EXCLUSIVITY PERIOD GRANTED TO BROOKFIELD ENERGIA RENOVÁVEL S.A. TO CONTRIBUTE TO THE CAPITAL STOCK OF RENOVA ENERGIA S.A.

12.		SUMMARY OF THE MINUTES OF THE 722TH MEETING OF THE BOARD OF DIRECTORS HELD ON FEBRUARY 8, 2018

13.		MARKET ANNOUNCEMENT DATED AS OF FEBRUARY 16, 2018: REPLY TO CVM INQUIRY LETTER 65/2018-CVM/SEP/GEA-1 OF FEBRUARY 15, 2018

14.		MARKET ANNOUNCEMENT DATED AS OF FEBRUARY 19, 2018: RESIGNATION OF THE CEO OF RENOVA

FORWARD-LOOKING STATEMENTS

This report contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Actual results could differ materially from those predicted in such forward-looking statements. Factors which may cause actual results to differ materially from those discussed herein include those risk factors set forth in our most recent Annual Report on Form 20-F filed with the Securities and Exchange Commission. CEMIG undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after the date hereof, and claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

By:		/S/ JOSÉ MARIA RABELO
		Name: José Maria Rabelo Title: Acting Chief Finance and Investor Relations Officer

Date: February 23, 2018

SUMMARY OF THE MINUTES OF THE 698TH MEETING OF THE BOARD OF DIRECTORS HELD ON JUNE 27, 2017

LOGO

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

BOARD OF DIRECTORS

SUMMARY OF MINUTES

OF THE

698^TH MEETING


Date, time and place:		June 27, 2017 at 4 p.m. at the head office.


Meeting Committee:	Chair:	José Afonso Bicalho Beltrão da Silva;
	Secretary:	Anamaria Pugedo Frade Barros

Summary of proceedings:

I	Conflict of interest: The board members listed below declared no conflict of interest in relation to the matters on the agenda of this meeting,

II	The Board approved:

a)	The following proposal by the Chair:

–

that as from June 28, 2017, Mr. Luís Fernando Paroli Santos should no longer be Chief Distribution and Sales Officer and interim Chief Institutional Relations and Communication Officer;

–

Election as Interim Chief Distribution and Sales Officer, from June 28, 2017, to serve the rest of the present period of office, that is to say until the first meeting of the Board of Directors after the Annual General Meeting of 2018, of


		Mr. Ronaldo Gomes de Abreu		– Brazilian, married, company manager, domiciled in Belo Horizonte, Minas Gerais, at Av. Assis Chateaubriand 46/1301, Floresta, CEP 30150-100, Bearer of Identity Card MG 2868468-PCMG and CPF 563307236-72;

–

and, as Chief Officer for Institutional Relations and Communication, on an interim basis while also serving as Chief Finance and Investor Relations Officer, of


		Mr. Adézio de Almeida Lima		– Brazilian, married, economist, domiciled in Belo Horizonte, MG, at Av. Barbacena 1200, 18º andar, Ala B2, Santo Agostinho, CEP 30190-131, bearer of Identity Card 2514340-SSPDF and CPF 342530507-78.

b)	The minutes of this meeting.

III

The Board nominated the Chief Officer Luís Fernando Paroli Santos as Chief Executive Officer of Light S.A., and also as Chief Officer for Business Development and Investor Relations Officer of that company, to complete the present period of office or until his duly elected successor is sworn in.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

LOGO

IV	The Chair informed the meeting that as from June 28, 2017 the Executive Board comprises:


Chief Executive Officer:		Bernardo Afonso Salomão de Alvarenga;
Interim Deputy CEO:		Bernardo Afonso Salomão de Alvarenga;
Chief Trading Officer:		Dimas Costa;
Chief Business Development Officer:		César Vaz de Melo Fernandes;
Interim Chief Distribution and Sales Officer:		Ronaldo Gomes de Abreu;
Chief Finance and Investor Relations Officer, and Interim Chief Institutional Relations and Communication Officer:		Adézio de Almeida Lima;
Chief Generation and Transmission Officer:		Franklin Moreira Gonçalves;
Chief Corporate Management Officer:		José de Araújo Lins Neto;
Chief Officer for Human Relations and Resources:		Maura Galuppo Botelho Martins;
Chief Counsel:		Raul Lycurgo Leite,*

– to be succeeded on July 1, 2017, as per Board decision of June 9, 2017, by:


		Mr. Luciano de Araújo Ferraz.

The Chief Officers elected declared – in advance – that they are not subject to any prohibition on exercise of commercial activity, that they do not occupy any position in a company which could be considered a competitor of the Company, and that they do not have, nor represent, any interest conflicting to Cemig’s interest; and made a formal commitment to become aware of, obey and comply with the principles, ethical values and rules established by the Code of Professional Conduct of Cemig and the Code of Ethical Conduct of Government Workers and Senior Administration of the State of Minas Gerais.

The following were present:

Board members:

José Afonso Bicalho Beltrão da Silva,

Bernardo Afonso Salomão de Alvarenga,

Antônio Dirceu Araújo Xavier,

Arcângelo Eustáquio Torres Queiroz,

Bruno Magalhães Menicucci,

Helvécio Miranda Magalhães Junior,

Marco Antônio de Rezende Teixeira,

Marco Antônio Soares da Cunha Castello Branco,

Patrícia Gracindo Marques de Assis Bentes,

Aloísio Macário Ferreira de Souza,

Carolina Alvim Guedes Alcoforado,

Nelson José Hubner Moreira,

José Pais Rangel,

Saulo Alves Pereira Junior,

Marina Rosenthal Rocha,

Agostinho Faria Cardoso,

Antônio Carlos de Andrada Tovar,

Geber Soares de Oliveira,

Luiz Guilherme Piva,

Otávio Silva Camargo,

Ricardo Wagner Righi de Toledo,

Tarcísio Augusto Carneiro,

Wieland Silberschneider;

Secretary:

Anamaria Pugedo Frade Barros.

(Signed by:) Anamaria Pugedo Frade Barros.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

MATERIAL ANNOUNCEMENT DATED AS OF DECEMBER 28, 2017: CEMIG COMPLETES R$ 3.4BN DEBT RE-PROFILING

LOGO

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Cemig completes R$ 3.4bn debt re-profiling

Supplementing the Material Announcement published on November 20, 2017, Cemig (Companhia Energética de Minas Gerais – listed and traded, in São Paulo, New York and Madrid), in compliance with CVM Instruction 358 of January 3, 2002 as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

Cemig’s wholly-owned subsidiaries Cemig D and Cemig GT have completed the re-profiling of their debt, through: (i) a debenture issuance by Cemig D, and (ii) amendments to loan debt transactions of Cemig D and Cemig GT –changing the maturity dates for debt representing a total of approximately R$ 3.4 billion.

Adding these transactions to the total of R$ 3.2 billion raised in the international market through a Eurobond issuance – as reported to the market on December 1 and 5, 2017 – Cemig D and Cemig GT have balanced their cash flows, lengthened the average tenor of their debt, and enhanced their credit quality.

After such re-profiling, the amortization timetable for Cemig’s consolidated debt is the following (the newly contracted components, replacing previous maturities, are shown in yellow):

LOGO

Belo Horizonte, December 28, 2017

Adézio de Almeida Lima

Chief Finance and Investor Relations Officer

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

NOTICE TO STOCKHOLDERS DATED AS OF JANUARY 8, 2018: FINAL FIGURES FOR R$ 1.2BN CAPITAL INCREASE

LOGO

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64

NOTICE TO STOCKHOLDERS

Final figures for R$ 1.2bn capital increase

Further to the Notice to Stockholders published on December 13, 2017, Cemig (Companhia Energética De Minas Gerais) hereby informs its stockholders and the market as follows:

The period for subscription in the second (and last) apportionment of shares not subscribed in the Preemptive Right Exercise Period of the capital increase approved by the Extraordinary General Meeting of October 26, 2017 ended on December 28, 2017.

The total amount of the funds raised by Cemig through such capital increase, now held by the company in cash, is R$ 1.2 billion.

The following numbers of shares were subscribed in the phases of the capital increase:

Numbers of shares

Subscribed in:

Balance of
shares not
subscribed

Preemptive
right
exercise
period

1^st subsequent
apportionment
period

2^nd subsequent
apportionment
period

Type

Proposed

66,849,505

50,106,730

2,954,905

658,191

13,129,679

133,061,442

118,949,754

11,004,208

1,291,730

1,815,750

Total

199,910,947

169,056,484

13,959,113

1,949,921

14,945,429

Cemig willdisclose, at the appropriate time, the next phase for the completion of this corporate event.

Belo Horizonte, January 8, 2018

Adézio de Almeida Lima

Chief Finance and Investor Relations Officer

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

MATERIAL ANNOUNCEMENT DATED AS OF JANUARY 12, 2018: BOARD PROPOSES THE MERGER OF CEMIGTELECOM

LOGO

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Board proposes the merger of CemigTelecom

Cemig (Companhia Energética de Minas Gerais) (listed and traded in São Paulo, New York and Madrid), in compliance with CVM Instruction 358 of January 3, 2002 as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

In the meeting held on the date hereof, Cemig’s Board of Directors resolved to present to the Extraordinary General Meeting of Stockholders a proposal concerning the merger of Cemig Telecomunicações S.A. (‘CemigTelecom’) into Cemig. Cemig Telecomunicações S.A. is a wholly-owned subsidiary of Cemig.

The merger will have a positive impact on the involved companies resulting from the optimization of assets and synergies, and will reduce financial, operational and administrative costs through concentration of existing administrative structures, while improving options for use of available funds.

The proposal will be submitted to decision by stockholders at an Extraordinary General Meeting to be called on an appropriate date and time (subject to the terms specified by the law and the by-laws).

To take effect, the merger will need also to be submitted, separately, to Cemig’s Audit Committee, pursuant Sub-item III of Article 163 of Law 6404/1976.

Considering that the proposed transaction involves the merger of a wholly-owned subsidiary, there will be no capital increase, nor issuance of new shares. The shares of CemigTelecom will be canceled and the necessary accounting records will be made.

Cemig reiterates its commitment to keep stockholders and the market timely informed in accordance with applicable law and regulations.

Belo Horizonte, January 12, 2018

Adézio de Almeida Lima

Chief Finance and Investor Relations Officer

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

SUMMARY OF THE MINUTES OF THE 720TH MEETING OF THE BOARD OF DIRECTORS HELD ON JANUARY 12, 2018

LOGO

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY

CNPJ 17.155.730/0001-64 – NIRE 31300040127

BOARD OF DIRECTORS

Meeting of January 12, 2018

SUMMARY OF MAIN RESOLUTIONS

At its 720^th meeting, held on January 12, 2018, the Board of Directors of Cemig (Companhia Energética de Minas Gerais) resolved the following:

1.	Budget for 2018.

2.	Instruction to vote in an Extraordinary General Meeting of Lepsa, on: reduction of the corporate capital, amendment of the by-laws, and execution of legal instruments.

3.	Instruction to vote in an Extraordinary General Meeting of RME, on: reduction of the corporate capital, amendment of the by-laws, and execution of legal instruments.

4.	Internal Regulations on Competitive Bids and Contracts.

5.	Execution of a corporate guaranty letter for agreements between Cemig GT and electricity generators or traders, guaranteed by Cemig.

6.	Appointment of a Manager for MESA.

7.	Structure of CemigTelecom.

8.	Convocation of an Extraordinary General Meeting of Stockholders to discuss CemigTelecom.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

CONVOCATION OF EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS DATED AS OF JANUARY 12, 2018 TO BE HELD ON FEBRUARY 28, 2018

LOGO

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

CNPJ 17.155.730/0001-64 – NIRE 31300040127

EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS

CONVOCATION

Stockholders are hereby called to an Extraordinary General Meeting of Stockholders to be held on February 28, 2018 at 3 p.m., at the company’s head office, Av. Barbacena 1200, 21^st floor, Belo Horizonte, Minas Gerais, Brazil, to decide on the following matters:

1	Approval and authorization for execution of a Protocol of Merger and Justification, with Cemig Telecomunicações S.A. – CemigTelecom, which will set out the terms and conditions to govern the merger of CemigTelecom into Cemig.

2	Ratification of the nomination of the three experts to provide a valuation, for the purposes of Article 8 of Law 6404/1976, of the net equity of CemigTelecom.

3	Approval of the Net Equity Valuation Report of CemigTelecom, at book value, as set forth in 2 above.

4	Authorization to the merger CemigTelecom into Cemig, and subsequent termination of CemigTelecom.

5	Authorization to Cemig to be the successor of CemigTelecom, in all its rights and obligations, for all purposes of law and otherwise.

Authorization to the transfer to Cemig, by merger, of all the facilities, tangible and intangible assets and goods, inventories, real estate property, credits, assets, rights, employees, stockholdings, contracts, obligations, liabilities, tax books and invoices, controls, records, accounting, documents, systems and information of CemigTelecom, including its shares in Ativas Data Center S.A. (Ativas), which corresponds to 19.6% of the share capital of Ativas, and the contracts related to this stockholding interest.

Proxy votes

Any stockholder who wishes to be represented by proxy at the above General Meeting of Stockholders shall comply with the provisions of Article 126 of Law 6406 of 1976 and with the sole paragraph of Section 9 of the Company’s by-laws, by presenting at the time or providing Cemig, preferably by February 26, 2018, with evidence of ownership of the shares, issued by a depositary financial institution, and a power of attorney with specific powers, at Cemig’s Corporate Executive Office (Superintendência da Secretaria Geral) at Av. Barbacena 1200 – 19th Floor, B1 Wing, Belo Horizonte, Minas Gerais, Brazil.

Belo Horizonte, January 12, 2018

José Afonso Bicalho Beltrão da Silva

Chair of the Board of Directors

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

PROPOSAL BY THE BOARD OF DIRECTORS DATED AS OF JANUARY 12, 2018 TO THE EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 28, 2018

LOGO

PROPOSAL

BY THE BOARD OF DIRECTORS TO THE

EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS

TO BE HELD ON FEBRUARY 28, 2018

Dear Stockholders:

The Board of Directors of the Company proposes to you the following:

1	Approval and authorization for execution of a Protocol of Merger and Justification, with Cemig Telecomunicações S.A. – CemigTelecom, which will set out the terms and conditions to govern the merger of CemigTelecom into Cemig.

2	Ratification, because the transaction involves the merger of a wholly-owned subsidiary into its parent company, of the appointment of the three experts,

Mr. Flávio de Almeida Araújo, CRC/MG 86.861,

Mr. Francisco do Couto, CRC/MG 58.343, and

Mr. Leonardo George de Magalhães, CRC/MG 53.140,

to prepare the valuation, under and for the purposes of Article 8 of Law 6404/1976, of the Net Equity Valuation of CemigTelecom.

3	Approval of the Net Equity Valuation Report of CemigTelecom, at book value, prepared by three experts, under and for the purposes of Article 8 of Law 6404/1976.

4	Authorization to the merger of CemigTelecom into Cemig and subsequent termination of CemigTelecom.

5	Authorization for Cemig to be the successor of CemigTelecom, in all its rights and obligations, for all purposes of law and otherwise.

As can be seen, the purpose of this proposal is to meet the genuine interests of the stockholders and of the Company, therefore the Board of Directors expects that it will be approved by the Stockholders.

Belo Horizonte, January 12, 2018


José Afonso Bicalho Beltrão da Silva		Helvécio Miranda Magalhães Junior
Marco Antônio de Rezende Teixeira		Hermes Jorge Chipp
Bernardo Afonso Salomão de Alvarenga		José Pais Rangel
Antônio Dirceu Araújo Xavier		Marcelo Gasparino da Silva
Arcângelo Eustáquio Torres Queiroz		Marco Antônio Soares da Cunha Castello Branco
Arlindo Magno de Oliveira		Nelson José Hubner Moreira
Carlos Eduardo Lessa Brandão		Patrícia Gracindo Marques de Assis Bentes
Daniel Alves Ferreira

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

APPENDICES

APPENDIX I – Appendix 20A of CVM Instruction 481/2009

APPENDIX II – Appendix 21 of CVM Instruction 481/2009

APPENDIX III – Protocol of Merger and Justification

APPENDIX IV – Opinion of the Auditing Board

APPENDIX V – Net Equity Valuation Report of CemigTelecom.

APPENDIX VI – Cemig: Financial Statements for 2016

APPENDIX VII – Cemig: Quarterly Information (‘ITR’) for 3Q 2017

APPENDIX VIII – CemigTelecom: Financial Statements for 2016

APPENDIX IX – CemigTelecom: Quarterly Information (‘ITR’) for 3Q 2017

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

CNPJ 17.155.730/0001-64—NIRE 31300040127

APPENDIX I TO THE PROPOSAL BY MANAGEMENT

INFORMATION ON THE MERGER

(AS PER APPENDIX 20-A OF CVM INSTRUCTION 481)

1. Protocol and justification of the transaction as per Articles 224 and 225 of Law 6404 of 1976.

The protocol and justification of the merger of Cemig Telecomunicações S.A. (‘CemigTelecom’) into Companhia Energética de Minas Gerais – Cemig (‘the Company’ or ‘Cemig’), (‘the Protocol and Justification’) is in Appendix III to the Management Proposal.

2. Any other agreements, contracts or pre-contracts regulating the exercise of the right to vote or transfer of shares in the companies subsisting or resulting from the transaction, filed at the head office of the company or to which the controlling stockholder of the company is a party.

None.

3. Description of the transaction, including:

a. Terms and conditions.

The transaction will consist of the merger of CemigTelecom, a wholly-owned subsidiary, into Cemig, its parent company, at the book value of CemigTelecom, and consequent termination of CemigTelecom; and Cemig will be successor of CemigTelecom in all the goods and assets, rights and obligations of CemigTelecom (‘the Merger’). All of the shares in CemigTelecom are owned by Cemig and will be extinguished, as specified in Article 226, §1, of Law 6404, of December 15, 1976 as amended (‘the Corporate Law’).

The Merger will not result in an increase or reduction of the stockholders’ equity or of the share capital of Cemig, since the stockholders’ equity of CemigTelecom is already reflected in full in the stockholders’ equity of Cemig, as a result of the application of the equity method accounting.

It is intended that the Merger shall not take effect before March 31, 2018, or before completion of the following events:

(i)	Holding of a General Meeting of Debenture Holders of the 2^nd (second) issuance of debentures of CemigTelecom (‘the GMDH’), to be called to take place up to March 16, 2018, including in its agenda the approval of the Merger and of its consequences for the debenture holders.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

(ii)	To be assured, under Article 231, §1 of the Corporate Law, to the debenture holders of CemigTelecom that are dissident or absent to the GMDH, that their debentures will be redeemed within 6 (six) months from the date of publication of the minutes of the General Meeting relating to the Merger.

(iii)

Approval by a General Meeting of Stockholders of CemigTelecom of:

(a)

the execution of the Protocol and Justification; and

(b)

the Merger, among other matters.

(iv)	Holding of a General Meeting of Stockholders of Cemig to:

(a)

approve the execution of the Protocol and Justification;

(b)

ratify the nomination of the Accounting Experts:

(b.i)

Flávio de Almeida Araújo, accountant, registered in the Minas Gerais Regional Accounting Council (‘CRC/MG’) under Nº 86.861;

(b.ii)

Francisco do Couto, accountant, registered in the CRC/MG under Nº 58.343; and

(b.iii)

Leonardo George de Magalhães, accountant, CRC/MG registration Nº 53.140.

– to be responsible for preparation of the net equity valuation report of CemigTelecom at book value, for the merger of CemigTelecom into the Company (‘the Valuation Report’);

(c)

approve the Valuation Report;

(d)

approve the Merger and the subsequent termination of CemigTelecom;

(e)

authorize Cemig to be the successor of CemigTelecom in all its rights and obligations, howsoever, and for all purposes of law; and

(f)

authorize transfer to Cemig, by merger, of all the facilities, tangible and intangible assets and goods, inventories, real estate property, credits, assets, rights, employees, stockholdings, contracts, obligations, liabilities, tax books and tax invoices, controls, records, accounting, documents, systems and information of CemigTelecom, including the shares held by CemigTelecom in Ativas Data Center S.A. (Ativas), which corresponds to 19.6% of the share capital of Ativas, and the contracts related to this stockholding interest.

b. Obligations to indemnify: (i) the managers of any of the companies involved; (ii) in the event that the transaction is not completed.

None.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

c. Comparative table of the rights, advantages and restriction applying to shares of the companies involved or the resulting companies, before and after the transaction.

After the Merger, only the common and preferred shares issued by Cemig existing prior to the transaction will remain to exist, which will preserve the same rights and advantages that current are:


Common shares in Cemig
Right to dividends:		The common shares have the same rights as the preferred shares in distribution of bonuses. In fiscal years in which the Company does not generate sufficient profits to pay dividends to its stockholders, the State of Minas Gerais guarantees, for the shares issued by the Company up to August 5, 2004 and held by individual persons, a minimum dividend of 6% (six percent) per year.
Right to vote:		Full.
Description of any restriction on voting:		Not applicable.
Convertibility:		None.
Condition of the convertibility, and effects on the share capital:		Not applicable.
Right to reimbursement of capital:		Yes.
Characteristics of the reimbursement of capital:		The preferred shares have right of preference in the event of reimbursement of shares.
Restrictions on trading:		None.
Nature of restriction:		Not applicable.
Redeemable:		None.
Conditions for alteration of the rights carried by the said securities.		Under Article 109 of the Corporate Law, neither the by-laws nor the General Meeting of Stockholders may deprive the stockholder of the right to: (i) participate in the profits of the company; (ii) participate in the net equity of the company, in the event of liquidation; (iii) inspect the management of the company’s business, in the manner specified in the Corporate Law; (iv) have first refusal to subscribe shares, founder’s shares convertible into shares, debentures convertible into shares and/or warrants; (v) withdraw from the company in the eventuality specified in the Corporate Law.
Other material characteristics:		All the information that is relevant and pertinent to this topic has been disclosed in the items above.

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Preferred shares in Cemig
Right to dividends:		Minimum annual dividend equivalent to the greater of: (a) 10% (ten per cent) of the nominal value of the shares; or (b) 3% (three per cent) of the value of the stockholders’ equity corresponding to the shares. The common shares shall be subject to the same conditions as the preferred shares in distribution of bonuses. In business years in which the Company does not obtain sufficient profit to pay dividends to its stockholders, the State of Minas Gerais guarantees to the shares issued by the Company up to August 5, 2004 and held by individual persons, a minimum dividend of 6% (six per cent) per year.
Right to vote:		Restricted.
Description of restriction on voting:		The right to vote is reserved exclusively for the common shares, and each common share has the right to one vote in decisions of the General Meeting of Stockholders.
Convertibility:		None.
Condition of the convertibility, and effects on the share capital:		Not applicable.
Right to reimbursement of capital:		Yes.
Description of the characteristics of the reimbursement of capital:		The preferred shares will have the right of preference in the event of reimbursement of shares.
Restrictions on trading:		None.
Nature of restriction:		Not applicable.
Redeemable:		None.
Conditions for alteration of the rights carried by the said securities.		Under Article 109 of the Corporate Law, neither the by-laws nor the General Meeting of Stockholders may deprive the stockholder of the right to: (i) participate in the profits of the company; (ii) participate in the assets and liabilities of the company, in the event of liquidation; (iii) inspect the management of the company’s business, in the manner specified in the Corporate Law; (iv) have first refusal to subscribe shares, founder’s shares convertible into shares, debentures convertible into shares and/or warrants; (v) withdraw from the company in the eventuality specified in the Corporate Law.
Other material characteristics:		All the information that is relevant and pertinent to this topic has been disclosed in the items above.

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This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

As a result of the Merger, all the shares issued by CemigTelecom (100% held by Cemig) will be canceled. Therefore, as there will be no delivery of shares issued by Cemig to stockholders of CemigTelecom, a comparison of the rights and advantages between the shares of the two companies is unnecessary.

d. Is there any need for approval by debenture holders or other creditors?

Not in relation to Cemig.

In relation to CemigTelecom, the Merger will be submitted to the approval of the General Meeting of Debenture Holders, which will state whether or not they are favorable to the Merger. Any of the holders of debentures of CemigTelecom that is dissident or be absent to the General Meeting of Debenture Holders shall have the right to redeem its debentures, under Article 231, §1, of the Corporate Law, for a period of six months from the date of publication of the minutes of the General Meetings relating to the Merger.

e. Any asset or liability elements that will form each portion of the equity, in the event of a split.

Not applicable.

f. Whether the resulting companies have any intention to be listed as issuers of securities.

Not applicable.

4. Plans to conduct of the companies’ businesses, particularly in relation to the specific corporate events that are planned.

After completion of the Merger, Cemig will continue to dedicate itself to the activities covered by its corporate purpose, keeping its registry as a listed company, and to succeeding the rights and obligations of CemigTelecom.

5. Analysis of the following aspects of the transaction:

a. Description of the principal benefits expected, including:

i. Synergies

With the merger, the Company will seek to achieve gains from optimization of assets and synergies, and reduce financial, operational and administrative costs through concentration of existing administrative structures, which will expand the means for Cemig to make use of available resources.

ii. Tax benefits

The Company’s management sees no tax benefits arising from the Merger.

iii. Strategic advantages

One of the important strategic advantages inherent in the Merger is simplification of the current corporate structure and expansion of the means for Cemig to make use of available resources.

b. Costs

The managements of both companies estimate that there will be no additional costs as a result of the Merger. CemigTelecom is today a wholly-owned subsidiary, and all its costs are 100% consolidated by Cemig.

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c. Risk factors

One of the goals of the Merger is to integrate the businesses of the companies and improve the use of the synergies obtained from the combination of the businesses of Cemig and CemigTelecom. This process of integration could result in difficulties of operational, regulatory, commercial, financial and contractual nature, which may prevent the expected synergies to be achieved or result in unforeseen losses or expenses.

d. If this is a transaction with a related party, indicate alternatives that could have been used to reach the same objectives, indicating the reasons why those alternatives were discarded.

No alternative structure to the Merger could result in the simplification and integration of the businesses of both companies, with the termination of one of the legal entities and its succession by the remaining company, as it is intended. Additionally, because this case involves the merger of a wholly-owned subsidiary by its parent company, the present question loses its relevance.

e. Exchange ratio

Not applicable, CemigTelecom is a wholly-owned subsidiary of Cemig and thus the Merger will not result in an increase in the net equity of Cemig.

f. For a transaction involving parent companies, subsidiaries or companies under joint control, please provide:

(i)

The share exchange ratio calculated in accordance with Article 264 of Law 6404 of 1976.

(ii)

Detailed description of the process of negotiation of the exchange ratio and other terms and conditions of the transaction.

(iii)

If the transaction was preceded, in the last 12 (twelve) months, by an acquisition of control or acquisition of participation in a controlling stockholding block:

(a)

Comparative analysis of the exchange ratio and the price paid in acquisition of control;

(b)

Reasons justifying any differences of valuation in the different transactions;

(iv)

Justification of why the exchange ratio is commutative, with description of the procedures and criteria adopted to guarantee the commutability of the transaction or, if the exchange ratio is not commutative, detailing of the payment or equivalent measures adopted to ensure adequate compensation.

Cemig is the holder of 100% of the share capital of CemigTelecom, so that the transaction does not result in an increase of capital in Cemig, nor any alteration in the participation of its stockholders. Therefore, there is no need to consider any exchange ratio.

6. Copy of the minutes of all the meetings of the Board of Directors, Auditing Board and special committees in which the transaction was discussed, including any dissident votes.

The Opinion of the Auditing Board of Cemig is attached hereto as Appendix IV.

7. Copy of studies, presentations, reports, opinions, professional opinions or valuation reposts of the companies involved in the transaction that have been placed at the disposal of the controlling stockholder at any stage of the transaction.

The Valuation Report is attached hereto as Appendix V.

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7.1. Identify any conflicts of interests between the financial institutions, companies and professionals that have prepared the documents referred to in item 7 and the companies involved in the transaction.

None.

8. Plans for by-laws, or changes to by-laws, of the company resulting from the transaction.

No changes to Cemig’s bylaws are being proposed; Cemig will be the successor of CemigTelecom.

9. Financial statements used for the purpose of the transaction, under the applicable rule.

In accordance with Article 6 of CVM Instruction 565 of June 15, 2015, as amended (‘CVM Instruction 565’), the following financial statements have been disclosed:

(i)	Financial Statements of Cemig of December 31, 2016 (attached hereto as Appendix VI);

(ii)	Interim Accounting Statements of Cemig of September 30, 2017 (attached hereto as Appendix VII);

(iii)

Financial Statements of CemigTelecom of December 31, 2016 (attached hereto as Appendix VIII); and

(iv)	Interim Accounting Statements of CemigTelecom of September 30, 2017 (attached hereto as Appendix IX).

The valuation of the net equity value of CemigTelecom, expressed in the Valuation Report, has been based on CemigTelecom’s balance sheet of November 30, 2017, which comprises the Appendix I to the Valuation Report.

Aiming to ensure the accuracy of the accounting amounts of the assets and liabilities elements comprising the balance sheet of CemigTelecom, on November 30, 2017, the following procedures were adopted in the Valuation Report:

•

Reading of the Financial Statements of CemigTelecom of December 31, 2016 (attached hereto as Appendix VIII).

•

Reading of the Independent Auditor’s Report on the Financial Statements issued by Deloitte Touche Tohmatsu Auditores Independentes on April 6, 2017, without qualification in relation to the Balance Sheet of December 31, 2016.

•

The Interim Accounting Information of CemigTelecom of September 30, 2017 (attached hetero as Appendix IX), combined with the Report of the External Auditors, Ernst & Young Auditores Independentes, on their review of the quarterly information, issued without any qualification on November 10, 2017; and

•

Analytical review of the movement in the balances of assets and liabilities in the period between September 2017 and November 30, 2017.

10. Pro-forma financial statements prepared for the purposes of the transaction, in the terms of the applicable rule.

Considering that CemigTelecom is a wholly-owned subsidiary of Cemig, and is consolidated in Cemig’s results, we present the Interim Accounting Information of Cemig on September 30, 2017, consolidated and audited (attached hereto as Appendix VII), in compliance with the requirement of Article 7 of CVM Instruction 565 of June 15, 2015 as amended.

11. Document containing information on the non-listed companies directly involved, including:

a.	Risk factors, in the terms of Items 4.1 and 4.2 of the Reference Form;

b.	Description of the principal changes in the risk factors that have taken place in the prior business period and expectations in relation to reduction or increase in the exposure to risks as a result of the transaction, in the terms of Item 5.4 of the Reference Form;

c.	Description of its activities, in the terms of Items 7.1, 7.2, 7.3 and 7.4 of the Reference Form;

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d.	Description of the economic group, in the terms of Item 15 of the Reference Form;

e.	Description of the share capital, in the terms of item 17.1 of the Reference Form.

Not applicable.

12. Description of the structure of capital and control after the transaction, in the terms of Item 15 of the Reference Form.

Items 15.1 and 15.2 of the Reference Form of Cemig:

Those items are not subject to any change as a result of the intended transaction.

Item 15.3 of the Reference Form of Cemig:

Those items are not subject to any change as a result of the intended transaction.

Item 15.4 of the Reference Form of Cemig:

•

Organization diagram before the transaction:

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•

Organization diagram after the transaction:

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Items 15.5, 15.6, 15.7 and 15.8 of the Reference Form of Cemig:

Those items are not subject to any change as a result of the intended transaction.

13. Number, class, form and type of the securities of each company involved in the transaction held by any other companies involved in the transaction, or by people related to these companies, as defined by the rules that govern public offerings for acquisition of shares

Cemig is, in the present date, holder of 448,340,822 (four hundred forty eight million three hundred and forty thousand eight hundred twenty two) nominal common shares without par value, comprising 100% (one hundred per cent) of the share capital of CemigTelecom.

14. Exposure of the companies involved in the transaction – or any of their related parties, as defined in the rules that govern public offerings for acquisition of shares – to derivatives referenced to securities issued by other companies involved in the transaction.

Not applicable.

15. Report covering all transactions carried out, in the last 6 (six) months, by the following persons with securities issued by the companies involved in the transaction:

a. Companies involved in the transaction:

i. Private purchase transactions

None.

ii. Private sale transactions

None.

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iii. Purchase transactions in regulated markets

None.

iv. Sale transactions in regulated markets

None.

b. Any persons or entities that are related parties to the companies that are involved in the transaction:

i. Private purchase transactions

None.

ii. Private sale transactions

None.

iii. Purchase transactions in regulated markets

None.

iv. Sale transactions in regulated markets

None.

16. Document by which the Special Independent Committee submitted its recommendations to the Board of Directors, in the event that the transaction has been negotiated in the terms of CVM Orientation Opinion 35 of 2008

Not applicable. Cemig is holder of 100% of the shares corresponding to the share capital of CemigTelecom and, thus, the transaction does not result in an increase of capital of Cemig or in any change to the participation of its stockholders. Therefore, there was no exchange ratio to be negotiated.

*—*—*—*

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

CNPJ 17.155.730/0001-64—NIRE 31300040127

APPENDIX II TO THE PROPOSAL OF MANAGEMENT

INFORMATION ON THE VALUER AND PROPOSAL FOR THE VALUATION WORK

(APPENDIX 21 TO CVM INSTRUCTION 481)

1.	List the valuers recommended by the management.

Expert Accountants:

(a)	Mr. Flávio de Almeida Araújo, accountant, enrolled with the Minas Gerais State Regional Accounting Council (‘CRC/MG’) under the No. 86,861;

(b)	Mr. Francisco do Couto, accountant, enrolled with the CRC/MG under the No. 58,343.

(c)	Mr. Leonardo George de Magalhães, accountant, enrolled with the CRC/MG under the No. 53,140.

2.	Describe the qualifications of the recommended valuers.

•

Mr. Flávio de Almeida Araújo has a degree in accountability from Minas Gerais Federal University (UFMG) and a post-graduation MBA with specialization in finance from the Dom Cabral Foundation (FDC). He works at Cemig since 2006, holding, currently, the position ofFinancial Manager for Equity Holdings.

•

Mr. Francisco do Couto has a degree in accountability from the Newton Paiva University Center, with specialization in external auditing from UFMG, and MBA in Management, Finance, Controllership and Auditing from the Getúlio Vargas Foundation (FGV). His professional life has been almost entirely dedicated to accounting. He has been an independent auditor for 10 years. He has been a professor to undergraduate and extension courses at UFMG. Since February 1999 he has been working as an accountant at Cemig and is currently responsible for the preparation of the Consolidated Financial Statements of the Group. He is also a graduate and undergraduate professor at Centro Universitário UNA, where he has been teaching since 2003.

•

Mr. Leonardo George de Magalhães has a degree in accountability from UNA Faculdade de Ciências Econômicas, Belo Horizonte, with specialization in accountability from FGV and specialization in business management from UFMG. At Cemig he has been Controller since June 2008. Since September 2017 he has also served as General Manager for Planning and Corporate Control.

3.	Provide a copy of the proposals for work and remuneration of the recommended valuers.

Appendix I to this document comprises a copy of the work proposal.


Scope:		Accounting Net Equity of Cemig Telecomunicações S.A. – CemigTelecom.
Fees:		No remuneration for the valuers further to their normal remuneration as employees of Cemig.

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4.	Describe any material relationship existing in the last three years between the recommended valuers and related parties to the company, as defined in the accounting rules that deal with this subject.

Flávio de Almeida Araújo:

•

Is currently Cemig’s Financial Manager for Holdings, with the following principal duties:

—

to promote the financial management of Cemig Group;

—

to follow the economic and financial results of the companies;

—

to participate in processes of merger, split, acquisition and disposal of corporate interests.

—

to act as a member of the Board of Directors in companies of the Cemig Group; and

—

to prepare accounting opinions for the purposes of spin-offs, mergers and allocations of capital to companies of the group.

Mr. Francisco do Couto:

•

Works as an accountant at Cemig.

•

Is currently responsible for the preparation of the Group’s Consolidated Financial Statements.

Mr. Leonardo George de Magalhães:

•

Is the executive responsible for accounting, management of costs and tax planning of Cemig and its wholly-owned subsidiaries, and also management of budgeting, economic-financial planning, and analysis and monitoring of projects. He is:

—

Chairman of the Board of Forluz – the pension fund of the employees of Cemig;

—

a member of the Rate-regulated Activities Consultative Group of IASB – the International Accounting Standards Board;

—

a member of the Board of Directors of Aliança Norte – stockholder of the Belo Monte power plant;

—

Coordinator of the Control and Management Committee of Cemig: this body monitors the budgets and results of the businesses and also advises management in control and management analyzes and initiatives.

—

Coordinator of the Budget Prioritization Committee: a committee supporting management in decisions and management of investment projects, including analyses and prioritization of use of funds; and

—

represents Cemig in investor relation events in Brazilian and international financial markets.

—

He participates, jointly with the CFO and the Investor Relations Director, in the quarterly presentations of the Company’s results to investors.

—

He has participated in various processes of mergers and acquisitions of Cemig.

*—*—*—*

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

CNPJ 17.155.730/0001-64—NIRE 31300040127

APPENDIX I TO APPENDIX II

COPY OF THE WORK PROPOSAL OF THE ACCOUNTING EXPERTS

The accounting examination was carried out in accordance with NBC T 13, and comprised:

(a)	planning of the work;

(b)	application of procedures judged to be necessary in the circumstances;

(c)	issuance of the expert opinion on valuation of the equity to be incorporated.

The scope of the work is specified as: valuation of the equity of CemigTelecom, at book value, for the purpose of absorption. The following procedures were adopted:

•

Reading of the Financial Statements of December 31, 2016.

•

Reading of the Report of the External Auditors on the Financial Statements, issued by Deloitte Touche Tohmatsu Auditores Independentes on April 6, 2017, with no qualifications, in relation to the Financial Statements of December 31, 2016.

•

Reading of the Interim Accounting Information of September 30, 2017, jointly with the Report of the External Auditors, Ernst & Young Auditores Independentes, issued on November 10, 2017 on review of that quarterly information, without qualification.

•

Analytical review of the movement of balances of assets and liabilities in the period from September 30, 2017 to November 30, 2017.

At September 30, 2017 the books of account of CemigTelecom were compliant with the relevant legal formalities, and were written in accordance with the accounting practices adopted in Brazil.

The Accounting Experts used historic information and data audited by third parties and data provided by the management of CemigTelecom, via email or through its website. This being so, we assume that the data and information obtained for this Opinion is true.

*—*—*—*

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Appendix III

PROTOCOL OF MERGER AND JUSTIFICATION

By this private instrument and for all purposes of law,

(a)

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG, with head office in Belo Horizonte, Minas Gerais State, at Avenida Barbacena 1200, Santo Agostinho, registered in the CNPJ/MF under Nº 17.155.730/0001-64, herein represented in accordance with its by-laws (‘Cemig’) and

(b)

CEMIG TELECOMUNICAÇÕES S.A., with head office in Belo Horizonte, Minas Gerais State, at Rua Inconfidentes 1051, registered in the CNPJ under Nº. 02.983.428/0001-27, herein represented in accordance with its Articles of Association (‘CemigTelecom’);

– jointly, ‘the Companies” –

have agreed on the terms and decided to execute the present Protocol of Merger and Justification, in the form set forth by Law 6404 of December 15, 1976 (‘the Corporate Law”), to set out the terms and conditions governing the merger of CemigTelecom into Cemig.

CORPORATE PURPOSE AND SHARE CAPITAL OF THE COMPANIES

1.	Cemig is a Brazilian publicly held company, its corporate purpose encompasses the following activities:

to build, operate and exploit systems of generation, transmission, distribution and sale of electricity and related services;

to develop activities in various energy related fields, regardless of the source, focusing on the economic and commercial exploitation;

to render consulting services, within its fields of operation, to Brazilian and foreign companies; and

to carry out activities direct or indirectly related to its corporate purpose, including the development and commercial operation of telecommunication and information systems.

2.	CemigTelecom is a Brazilian corporation, its corporate purpose encompasses the following activities:

to render and commercially operate limited specialized telecommunication services, through an integrated system of fiber optic cables, coaxial cables, and electronic and related equipment for transmission, emission or reception of symbols, characters, signals, written material, images, sound and information of any type;

to render telecommunications services, through various technologies;

to render consulting services in telecommunications to Brazilian and foreign companies;

to grant use of its telecommunications system upon compensation to:

(i)

holders of public electricity services concessions, for their use in the management their generation, transmission and distribution activities; and

(ii)

companies aiming to commercially operate the system as alternative provider of carriage of signal to companies holding concession, permission or authorization to provide telecommunications services.

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(e)

to commercial operate its telecommunications system as an alternative provider of carriage of signal to companies holding concession, permission or authorization to provide telecommunications services.

to render multimedia communication services (‘SCM’) in all the Brazilian territory.

to hold corporate interests in other companies.

JUSTIFICATION AND BASES FOR THE MERGER

The transaction that is the subject of this protocol is the merger of CemigTelecom into Cemig, with transfer of the totality of the net assets and liabilities of CemigTelecom to Cemig, which will be the sole successor of CemigTelecom in all its goods and assets, rights and obligations, in the terms of Articles 227 et seq. of the Corporate Law (‘the Merger’).

4.	After implementation of the Merger the credits and debits of CemigTelecom, which currently constitute its assets and liabilities, will become part of the accounts of Cemig, being transferred to the corresponding lines in Cemig’s accounting books, subject to any necessary adaptations.

5.	The Merger will provide gains from synergies and reduce financial, operational and administrative costs through concentration of existing administrative structures in Cemig, which will increase the possibilities for Cemig to take advantage of all its available resources.

6.	The Merger will take effect only as from March 31, 2018 (‘the Effective Date’), regardless of the date on which the required approvals are obtained.

7.	On the Effective Date, CemigTelecom will cease to exist.

ORGANIZATION AND COMPOSITION OF THE COMPANIES

8.	Cemig is a Brazilian publicly held company, with corporate capital of R$ 6,294,208,270.00 (six billion two hundred ninety four million two hundred and eight thousand two hundred seventy Reais), divided in

420,764,708 (four hundred twenty million seven hundred sixty four thousand seven hundred and eight) nominal common shares each with nominal value of R$ 5.00 (five Reais); and

838,076,946 (eight hundred thirty eight million seventy six thousand nine hundred forty six) nominal preferred shares each with nominal value of R$ 5.00 (five Reais).

CemigTelecom is a Brazilian corporation, with corporate capital of R$ 292,399,303.29 (two hundred ninety two million three hundred ninety nine thousand three hundred and three Reais and twenty nine centavos), fully paid up, divided in 448,340,822 (four hundred forty eight million three hundred and forty thousand eight hundred twenty two) nominal common shares without par value, all owned by Cemig:


Sole stockholder	Shares		%
Companhia Energética de Minas Gerais – CEMIG		448,340,822		100

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VALUATION

10.	Subject to ratification by the stockholders of the Companies, the managers of the Companies have appointed the following Expert Accountants to prepare the valuation of the net equity of CemigTelecom, as per Article 8 of the Corporate Law:


Mr. Flávio de Almeida Araújo		– Brazilian, married, resident and domiciled in Belo Horizonte, Minas Gerais, at Rua José de Alencar 984, Apt. 401, Nova Suíça, holder of Identity Card MG-7.348.434, CPF 045.915.356-06, and CRC/MG (Minas Gerais Regional Council of Accountants) 86.861/O-7;

Mr. Francisco do Couto		– Brazilian, single resident and domiciled in Belo Horizonte, MG, at Rua Uberlândia 555, Apt. 902, Carlos Prates, holder of Identity Card MG-3.124.729, CPF 525.441.416-20, and CRC/MG 58.343; and

Mr. Leonardo George de Magalhães		– Brazilian, married, resident and domiciled in Nova Lima, Minas Gerais, at Rua Vega 55, Quintas do Sol, holder of Identity Card 4.303.799 – SSP/MG, CPF 617.665.426-20, and CRC/MG 53.140/O-4.

11.	For the purposes of the Merger, the elements of the equity of CemigTelecom to be transferred to Cemig have been valued at book value, based on the financial statements of CemigTelecom on November 30, 2017.

12.	Having been previously informed of their appointment as valuers subject to ratification by the stockholders of the Companies, the Accounting Experts determined, based on the financial statements on November 30, 2017, that the net value of the total assets and liabilities of CemigTelecom is

R$ 245,761,413.36

(two hundred forty five million seven hundred sixty one thousand four hundred thirteen Reais and thirty six centavos),

after the adjustments described in Chapter 4 of the Valuation Report and the cancelation of the investment of Cemig in CemigTelecom.

13.	Any change in the value of the net equity after the date of those financial statements will be absorbed by Cemig on the Effective Date of the Merger.

CORPORATE INTERESTS IN COMMON AND SUBSTITUTION OF SHARES

14.	Considering that Cemig is the holder of 100% (one hundred per cent) of the share capital of CemigTelecom, there will be no substitution of shares issued by CemigTelecom by shares issued by Cemig.

With the cancelation of the shares issued by CemigTelecom, the value of the investment recorded in the assets of Cemig will be replaced by the equity value of CemigTelecom, as valued by the experts.

The Merger will not result in a change in the net equity of Cemig since the net equity value of CemigTelecom is already reflected in its entirety in the Stockholders’ equity of Cemig, due to application of the equity method accounting. Consequently there will be no increase in the share capital of Cemig, nor any issue of new shares.

15.

Since this is a merger of a wholly-owned subsidiary into its parent company, with no other stockholders of CemigTelecom, and since there will be no increase of the corporate capital of the Cemig, there is no need to establish parameters for an exchange ratio, and there is no additional information to be made available to the stockholders of Cemig.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

LOGO

FINAL PROVISIONS

16.

Approval of this Protocol by the stockholders of CemigTelecom and by the stockholders of Cemig will result in the termination of CemigTelecom on the Effective Date of the Merger, with the cancellation of all the shares issued by CemigTelecom. The management of Cemig will be responsible for filing all the corporate documents required for the registry of the Merger with the relevant entities.

17.

With the Merger coming into effect on the Effective Date, all the goods and assets, rights, receivables, obligations and liabilities of CemigTelecom will automatically become part of the assets and liabilities of Cemig, which will succeed CemigTelecom in all its rights and obligation, regardless of any formalities other than those specified by law.

18.	The provisions relating to the withdraw right and reimbursement of shares are not applicable due to the fact that:

(i)

in relation to CemigTelecom: Cemig owns the totality of the shares issued by CemigTelecom and, hence, there is no stockholder dissenting in relation to the Merger; and

(ii)

in relation to Cemig: there is no provision of law or in the by-laws of the company that grants a withdraw right to any dissenting stockholder.

19.	Under Article 231 of the Corporate Law, the Merger will be conditional upon:

(i)

the approval by the holders of debentures issued by CemigTelecom, in a General Meeting called specifically to approve the Merger; and

(ii)

the granting by CemigTelecom of a minimum period of 6 (six) months, from the date of publication of the minutes of the Meetings relating to the Merger, for redemption of its outstanding debentures.

Having agreed with the terms and conditions set forth above, the parties execute this instrument, in six counterparties of equal form and content, for it to produce its legal and regulatory effects.


Belo Horizonte,								, 2018

By COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

By CEMIG TELECOMUNICAÇÕES S.A.

Witnesses:


1.		2.
	Name:		Name:
	CPF/MF:		CPF/MF:
	ID/Issuer:		ID/Issuer:

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

LOGO

Appendix IV

OPINION OF THE AUDITING BOARD

The undersigned members of the Auditing Board of the Companhia Energética de Minas Gerais – Cemig, in performance of their role under the law and under the by-laws of the company, have analyzed the Proposal made by the Board of Directors to the Extraordinary General Meeting of Stockholders to be held on February 28, 2018, which is for the following:

Approval and authorization for execution of a Protocol of Merger and Justification, with Cemig Telecomunicações S.A. – CemigTelecom, which will set out the terms and conditions to govern the merger of CemigTelecom into Cemig.

Ratification of the nomination of the following 3 (three) experts – Mr. Flávio de Almeida Araújo, CRC/MG 86.861, Mr. Francisco do Couto, CRC/MG 58.343, and Mr. Leonardo George de Magalhães, CRC/MG 53.140, that will provide a valuation, for the purposes of Article 8 of Law 6404/1976, of the net equity of CemigTelecom.

Approval of the Net Equity Valuation Report of CemigTelecom, at book value, prepared by the three experts, in accordance with Article 8 of Law 6404/1976.

Authorization to the merger of CemigTelecom into Cemig and subsequent termination of CemigTelecom.

Authorization to Cemig to be the successor of CemigTelecom, in all its rights and obligations, for all purposes of law and otherwise.

Authorization to the transfer to Cemig, by merger, of all the establishments, tangible and intangible assets and goods, inventories, real estate property, credits, assets, rights, employees, stockholdings, contracts, obligations, liabilities, tax books and invoices, controls, records, accounting, documents, systems and information of CemigTelecom, including its shares in Ativas Data Center S.A. (Ativas), which corresponds to 19.6% of the share capital of Ativas, and the contracts related to this stockholding interest.

After carefully analyzing the above proposal and considering that the applicable rules governing the maters under discussion have been complied with, it is the opinion of the members of the Auditing Board that the proposal should be approved by the said General Meeting of Stockholders.

Belo Horizonte, January 25, 2018

Signed:

Edson Moura Soares

Camila Nunes da Cunha Pereira Paulino

Manuel Jeremias Leite Caldas

Rodrigo de Mesquita Pereira

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

Appendix V

VALUATION REPORT ON THE EQUITY OF CEMIG TELECOMUNICAÇÕES S.A. FOR THE PURPOSES OF MERGER

Belo Horizonte, December 22, 2017.

To the Management of

Companhia Energética de Minas Gerais – Cemig

Av. Barbacena, 1.200 – 18º Andar

Belo Horizonte, Minas Gerais

In accordance with the provisions of Paragraphs 1 and 6 of Article 8 of Law 6404/75, the Management of Cemig Companhia Energética de Minas Gerais – CEMIG (‘Cemig’) has appointed three expert accountants to prepare a valuation report, at book value, on the net equity of Cemig Telecomunicações S.A. – CemigTelecom (‘CemigTelecom’ or ‘the Company), details of which are in the appendix to this document. This appointment will be ratified in an Extraordinary General Meeting of Stockholders of Cemig.

1. INFORMATION ABOUT THE EXPERTS

The accountants listed below were appointed as experts to carry out the valuation of the Net Equity of CemigTelecom, and have prepared this Valuation Report in accordance with the accounting practices adopted in Brazil, as defined in Item 7 of Accounting Pronouncement NBC TG 26 – Presentation of Accounting Statements:

•

Flávio de Almeida Araújo, accountant, enrolled with the Minas Gerais State Regional Accounting Council (CRC/MG) under No. 86.861.

•

Mr. Francisco do Couto, accountant, enrolled with the CRC/MG under No. 58.343.

•

Mr. Leonardo George de Magalhães, accountant, enrolled with the CRC/MG under No. 53.140.

In compliance with CVM Instruction 319/99, as amended, the expert accountants represent that:

(a)

they have no direct or indirect interest in the Company or in the operations carried out by it.

(b)

they found no limitations imposed by the controlling stockholders or managers that might have hindered or jeopardized the access to, use or knowledge of information, goods and assets, documents or work methodologies necessary for construction of their conclusions.

The accounting inspection was carried out in accordance with NBC T 13, and comprised:

(a)

Planning of the work;

(b)

Application of the necessary procedures due to the circumstances;

(c)

Issuance of the expert valuation report on the stockholders’ equity to be transferred to the surviving company.

2. GENERAL INFORMATION ON THE COMPANY BEING VALUED, SUBJECT OF THE MERGER

Cemig Telecomunicações S.A. is a listed corporation and a wholly-owned subsidiary of Companhia Energética de Minas Gerais S.A. – Cemig. It offers optical network for services of carriage of telecommunications in the State of Minas Gerais, using the electricity transmission and distribution infrastructure of Cemig.

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

CemigTelecom was incorporated on January 13, 1999, with the following purposes: to provide telecommunication services, through an integrated system consisting of fiber optic cables, coaxial cables, and electronic and related equipment for transmission, emission and reception of symbols, characters, signals, written material, images, sound and information of any type, and to operate telecommunications systems as an alternative provider of carriage of signal and other services to companies holding concession, permission or authorization to provide telecommunications services.

3. PURPOSE OF THE VALUATION; BASE DATE

The objective of the valuation of the net equity of CemigTelecom, at book value, on the base date of November 30, 2017, is the merger of its total net assets and liabilities into its parent company Cemig, in accordance with Articles 226 and 227 of Law 6404/76.

4. SCOPE OF THE WORK

To ensure accuracy of the accounting values of the asset and liability elements that comprise the balance sheet of CemigTelecom on November 30, 2017, we adopted the following procedures:

Reading of the Financial Statements at December 31, 2016.

Reading of the Report by the Independent Auditor, Deloitte Touche Tohmatsu Auditores Independentes, issued on April 6, 2017 on the Financial Statements, without qualification in relation to the Balance Sheet of December 31, 2016.

Interim Accounting Statements of September 30, 2017, accompanied by the Report of the external auditor, Ernst & Young Auditores Independentes, issued on November 10, 2017 on the review of the quarterly information, without qualification.

Analytical review of the movement of balances of assets and liabilities in the period between September 30, 2017 and November 30, 2017.

On September 30, 2017 the accounting records of CemigTelecom were in compliance with the pertinent legal formalities and are written in accordance with accounting practices adopted in Brazil.

The experts used historic information and data audited by third parties and data supplied by the management of CemigTelecom, via email or through its website. We, thus, assume that the data and information obtained for this Opinion is true.

This Report was prepared for use solely and exclusively by Cemig, for the purpose mentioned in Item 3.

5. PRESENTATION OF THE BALANCE SHEET

The Balance Sheet of November 30, 2017 was prepared in accordance with accounting practices adopted in Brazil. The experts verified that the assets and liabilities of CemigTelecom are properly accounted in accordance with the Plan of Accounts of the Telecommunications Sector.

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

6. COMPOSITION OF NET ASSETS AND LIABILITIES

6.1. Accounting Valuation and base date:

The components of net equity of CemigTelecom on November 30, 2017 are represented, in summary, by the following account lines:


ASSETS	In Reais (R$)
Current and non-current assets		363,453,288.20
LIABILITIES
Current and non-current liabilities		117,691,874.84
TOTAL OF STOCKHOLDERS’ EQUITY		245,761,413.36

6.2. Net equity at market price

Since both the companies involved in the transaction, are listed companies, valuation at market price or any other economic-financial valuation technique is not justified, as specified by Article 264 of Law 6404/76, since this is a case of merger of a wholly-owned subsidiary into its parent company, and there is no determination of an exchange ratio that could be the subject to comparison and/or right to withdraw by dissenting shareholders. In other words, there will be no change in the net equity of Cemig, and consequently, no issuance of new shares, for which reason valuation at market price is not applicable.

6.3. Treatment of subsequent variations in the value of equity

Under Article 224, Sub-item III of Law 6404/76, the variations in equity that take place between the base date of this Opinion and the date of the merger of CemigTelecom into Cemig will be appropriated directly by Cemig, and at the time of the actual merger, the balances of existing account lines in the analytical interim balance sheet of CemigTelecom will be reflected, line by line, into Cemig’s balance sheet.

7. CONCLUSION

As a result of the procedures and analyses effected, we conclude that the value of the stockholders’ equity of CemigTelecom, on November 30, 2017 is R$ 245,761,413.36 (two hundred forty five million seven hundred sixty one thousand four hundred thirteen Reais and thirty six centavos).

Expert accountant: Flávio de Almeida Araújo

Expert accountant: Francisco do Couto

Expert accountant: Leonardo George de Magalhães

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

APPENDIX I – BALANCE SHEET AT NOVEMBER 30, 2017



CEMIG TELECOMUNICAÇÕES S.A. - CEMIGTELECOM BALANCE SHEET ON NOVEMBER 30, 2017 AND DECEMBER 31, 2016 (In *reais*)							CEMIG TELECOMUNICAÇÕES S.A. - CEMIGTELEC BALANCE SHEET ON NOVEMBER 30, 2017 AND DECEMBER 31, 2016 (In *reais*)

	Nov. 30, 2017		Dec. 31, 2016		% change			Nov. 30, 2017			Dec. 31, 2016			% change
	30/11/2017		31/12/2016		AH%			30/11/2017			31/12/2016			AH%
ASSETS							LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT							CURRENT:
Cash and cash equivalents		12.806.068		1.033.959		1138,5%	Loans and debentures		13.132.426			63.751.660			-79,4%
Securities		524.834		1.855.029		-71,7%	Suppliers		18.778.123			21.750.011			-13,7%
Accounts receivable from clients		20.832.186		19.552.443		6,5%	Tax obligations		10.597.094			9.572.512			10,7%
Taxes recoverable		4.148.829		3.683.818		12,6%	Salary-related charges		3.199.241			4.862.624			-34,2%
Advances		1.677.037		898.825		86,6%	Advances from clients		459.764			459.764			0,0%
Prepaid expenses		37.559		33.931		10,7%	Other		571.122			973.002			-41,3%

Total, current		40.026.512		27.058.004		47,9%	Total, current		46.737.770			101.369.573			-53,9%

NON-CURRENT:							NON-CURRENT:
Long term assets							Loans and debentures		55.109.273			37.620.519			46,5%
Securities held to maturity		203.143		83.248		144,0%	Provisions for contingencies		56.714			82.858			-31,6%
Accounts receivable from clients		11.602.136		11.875.973		-2,3%	Advances from clients		4.227.688			4.663.107			-9,3%
Taxes recoverable		3.184.911		2.997.422		6,3%	Tax obligations		1.907.021			2.465.572			-22,7%
Deferred income tax and Social Contribution		6.345.656		8.037.818		-21,1%	Salary-related charges		3.279.115			2.800.761			17,1%
Other		239.113		906.930		-73,6%	Ativas		6.374.295			3.409.654			86,9%

Financial assets		4.483.565		4.586.470		-2,2%	Total, Non-current		70.954.105			51.042.472			39,0%

Investments		17.598.105		19.744.312		-10,9%
Net PP&E		270.145.535		261.612.715		3,3%	STOCKHOLDERS’ EQUITY:
Intangible		9.624.612		9.489.877		1,4%	Share capital		292.399.303			241.741.866			21,0%
							Equity valuation adjustments		(755.826	)		(755.826	)		0,0%
							Retained losses		(45.882.064	)		(47.005.316	)		-2,4%

							Total stockholders’ equity		245.761.413			193.980.724			26,7%

TOTAL ASSETS		363.453.288		346.392.769		4,9%	TOTAL LIABILITIES		363.453.288			346.392.769			4,9%

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

Nov. 30, 2017 Dec. 31, 2016 % change


Cemig Telecomunicações S.A. – CemigTelecom		Cemig Telecomunicações S.A. – CemigTelecom
BALANCE SHEETS ON NOVEMBER 30, 2017 AND DECEMBER 31, 2016 (In Reais—R$)		BALANCE SHEETS ON NOVEMBER 30, 2017 AND DECEMBER 31, 2016 (In Reais—R$)
ASSETS		LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT		CURRENT:
Cash and cash equivalents		Loans and debentures
Securities		Suppliers
Accounts receivable from clients		Tax obligations
Taxes recoverable		Salary-related charges
Advances		Advances from clients
Prepaid expenses		Other
Total, current		Total, current
NON-CURRENT:		NON-CURRENT:
Long term assets		Loans and debentures
Securities held to maturity		Provisions for contingencies
Accounts receivable from clients		Advances from clients
Taxes recoverable		Tax obligations
Deferred income tax and Social Contribution		Salary-related charges
Other		Ativas
Financial assets		Total, Non-current
Investments
Net PP&E		STOCKHOLDERS’ EQUITY:
Intangible		Share capital
		Equity valuation adjustments
TOTAL ASSETS		Retained losses
		Total stockholders’ equity
		TOTAL LIABILITIES

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

Appendix VI

LOGO

Companhia Energética de

Minas Gerais –

CEMIG

Financial Statements as of December 31, 2016 and December

31,2015 and for the Years Ended December 31, 2016, 2015 and

2014 and Report of Independent Registered Public Accounting

Firm

LOGO

CONTENTS


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION		44
CONSOLIDATED STATEMENTS OF INCOME		46
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		47
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY		48
CONSOLIDATED STATEMENTS OF CASH FLOW		50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS		52
1.	OPERATING CONTEXT	52
2.	BASIS OF PREPARATION	61
3.	PRINCIPLES OF CONSOLIDATION	72
4.	CONCESSIONS AND AUTHORIZATIONS	74
5.	OPERATING SEGMENTS	85
6.	CASH AND CASH EQUIVALENTS	89
7.	SECURITIES	89
8.	CONSUMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERS	90
9.	RECOVERABLE TAXES	91
10.	INCOME AND SOCIAL CONTRIBUTION TAXES	91
11.	RESTRICTED CASH	94
12.	ESCROW DEPOSITS	94
13.	ENERGY DEVELOPMENT ACCOUNT (CDE)	95
14.	FINANCIAL ASSETS AND LIABILITIES OF THE CONCESSION	96
15.	INVESTMENTS	103
16.	PROPERTY, PLANT AND EQUIPMENT	125
17.	INTANGIBLE ASSETS	127
18.	SUPPLIERS	129
19.	TAXES, INCOME TAX AND SOCIAL CONTRIBUTION TAX	130
20.	LOANS, FINANCINGS AND DEBENTURES	131
21.	REGULATORY CHARGES	136
22.	POST-RETIREMENT LIABILITIES	137
23.	PROVISIONS	142
24.	EQUITY AND REMUNERATION TO SHAREHOLDERS	150
25.	REVENUE	155
26.	OPERATING COSTS AND EXPENSES	159
27.	FINANCIAL REVENUES AND EXPENSES	162
28.	RELATED PARTY TRANSACTIONS	163
29.	FINANCIAL INSTRUMENTS AND RISK MANAGEMENT	166
30.	MEASUREMENT AT FAIR VALUE	173
31.	INSURANCE	175
32.	COMMITMENTS	176
33.	NON-CASH TRANSACTIONS	176
34.	SUBSEQUENT EVENTS	176

LOGO

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2016 AND 2015

ASSETS

(MILLIONS OF BRAZILIAN REAIS—R$ mn)


	Note		2016		2015
Current
Cash and cash equivalents		6		995		925
Securities		7		1,014		2,427
Consumers and traders and Concession holders – Transport of electricity		8		3,425		3,765
Financial assets of the concession		14		730		874
Recoverable taxes		9		236		175
Income and social contribution tax credits		10a		590		306
Dividends receivable				11		62
Restricted cash		11		367		—
Inventories				49		37
Advance to suppliers		28		1		87
Energy Development Account (CDE)		13		64		72
Low-income subscriber subsidy				36		31
Receivable from Eletrobras – RGR		21		48		—
Receivable from Eletrobras – CDE				90		—
Other				630		616

TOTAL, CURRENT				8,286		9,377

NON-CURRENT
Securities		7		31		84
Advance to suppliers		28		229		60
Consumers and traders and Concession holders – Transport of electricity		8		146		133
Recoverable taxes		9		178		258
Income and social contribution taxes recoverable		10a		112		206
Deferred income and social contribution taxes		10b		1,797		1,498
Escrow deposits		12		1,887		1,813
Other credits				1,051		808
Financial assets of the concession		14		4,971		2,660
Investments – Equity method		15		8,753		9,745
Property, plant and equipment		16		3,775		3,940
Intangible assets		17		10,820		10,275

TOTAL, NON-CURRENT				33,750		31,480

TOTAL ASSETS				42,036		40,857

The Notes are an integral part of these Consolidated Financial Statements.

LOGO

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2016 AND 2015

LIABILITIES

(MILLIONS OF BRAZILIAN REAIS—R$ mn)


	Note		2016			2015
CURRENT
Suppliers		18		1,940			1,901
Regulatory charges		21		381			517
Profit sharing				18			114
Taxes payable		19a		794			740
Income and Social Contribution tax		19b		27			11
Interest on equity and dividends payable		24		467			1,307
Loans, financings and debentures		20		4,837			6,300
Payroll and related charges				225			221
Post-retirement liabilities		22		199			167
Concessions payable				3			3
Financial liabilities of the concession		14		482			—
Financial Instruments—put options		15		1,150			1,245
Advance sales of power supply		8		181			—
Other obligations				743			548

TOTAL, CURRENT				11,447			13,074

NON-CURRENT
Regulatory charges		21		455			226
Loans, financings and debentures		20		10,342			8,867
Taxes payable		19a		724			740
Deferred income and social contribution tax		10b		582			689
Provisions		23		815			755
Post-retirement liabilities		22		4,043			3,086
Concessions payable				19			19
Financial liabilities of the concession		14		323			—
Financial Instruments—put options		15		192			148
Other obligations				160			265

TOTAL, NON-CURRENT				17,655			14,795

TOTAL LIABILITIES				29,102			27,869


EQUITY		24
Share capital				6,294			6,294
Capital reserves				1,925			1,925
Profit reserves				5,200			4,663
Accumulated Other Comprehensive Income				(489	)		102

EQUITY ATTRIBUTABLE TO THE CONTROLLING SHAREHOLDERS				12,930			12,984

EQUITY ATTRIBUTABLE TO NON-CONTROLLING SHAREHOLDER				4			4

TOTAL EQUITY				12,934			12,988

TOTAL LIABILITIES AND EQUITY				42,036			40,857

The Notes are an integral part of these Consolidated Financial Statements.

LOGO

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(MILLIONS OF BRAZILIAN REAIS—R$ mn)

(except Net income per share)


	Note		2016			2015 Restated			2014 Restated
NET REVENUE		25		18,773			21,868			19,595

OPERATING COSTS
COST OF ELECTRICITY AND GAS		26
Electricity purchased for resale				(8,273	)		(9,542	)		(7,428	)
Charges for the use of the national grid				(947	)		(999	)		(744	)
Gas purchased for resale				(878	)		(1,051	)		(254	)

				(10,098	)		(11,592	)		(8,426	)
OTHER COSTS		26
Personnel and managers				(1,348	)		(1,143	)		(999	)
Materials				(41	)		(126	)		(340	)
Outsourced services				(720	)		(740	)		(736	)
Depreciation and amortization				(802	)		(811	)		(779	)
Operating provisions				(171	)		(23	)		(262	)
Infrastructure construction cost				(1,193	)		(1,252	)		(942	)
Other				(57	)		(96	)		(318	)

				(4,332	)		(4,191	)		(4,376	)

TOTAL COST				(14,430	)		(15,783	)		(12,802	)

GROSS PROFIT				4,343			6,085			6,793

OPERATING EXPENSES		26
Selling expenses				(382	)		(175	)		(128	)
General and administrative expenses				(667	)		(674	)		(654	)
Operating provisions				(5	)		(1,203	)		(190	)
Other operating expenses				(420	)		(452	)		(674	)

				(1,474	)		(2,504	)		(1,646	)

Equity in earnings of unconsolidated investees, net		15		(302	)		393			210
Impairment of Investments		15		(763	)		—			—
Fair value gain (loss) on stockholding transaction		15		—			729			—
Gain on acquisition of control of investee		15		—			—			281

Income before Financial income (expenses) and taxes				1,804			4,703			5,638

Financial revenues		27		1,041			863			535
Financial expenses		27		(2,478	)		(2,204	)		(1,694	)

Income before income tax and social contribution tax				367			3,362			4,479

Current income and social contribution taxes		10c		(174	)		(881	)		(1,259	)
Deferred income and social contribution taxes		10c		141			(12	)		(83	)

NET INCOME FOR THE YEAR				334			2,469			3,137


Total of net income for the year attributed to:
Controlling shareholders				334			2,469			3,137
Non-controlling shareholder				—			—			—

				334			2,469			3,137

Basic income per preferred share – R$		24		0.35			1.96			2.49
Basic income per common share – R$		24		0.10			1.96			2.49
Diluted income per preferred share – R$		24		0.32			1.96			2.49
Diluted income per common share – R$		24		0.07			1.96			2.49

The Notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(MILLIONS OF BRAZILIAN REAIS—R$ mn)


	2016			2015			2014
NET INCOME FOR THE YEAR		334			2,469			3,137
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Post retirement liabilities – remesurement of obligations of the defined benefit plans, net of taxes		(515	)		(360	)		(44	)
Equity gain (loss) on Other comprehensive income in jointly-controlled entities		4			(1	)		(7	)

		(511	)		(361	)		(51	)

Items that may be reclassified to profit or loss
Conversion adjustment of equity gain (loss) in other comprehensive income in subsidiary and jointly-controlled entity		(3	)		54			10
Recycling of conversion adjustments to the Income statement arising from sale of Transchile		(39	)		—			—

		(42	)		54			10


COMPREHENSIVE INCOME FOR THE YEAR		(219	)		2,162			3,096


Total of comprehensive income for the year attributed to:
Controlling shareholders		(219	)		2,162			3,096
Non-controlling shareholder		—			—			—

		(219	)		2,162			3,096

The Notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(MILLIONS OF BRAZILIAN REAIS—R$ mn, except where otherwise indicated)


	Share capital		Capital reserves		Profit reserves			Accumulated Other Comprehensive Income			Retained earnings			Total interest of the controlling shareholders			Total interest of the non-controlling shareholder		Total equity
AS OF DECEMBER 31, 2013		6,294		1,925		3,840			579			—			12,638			—		12,638

Net income for the year		—		—		—			—			3,137			3,137			—		3,137
Other comprehensive income
Post retirement liabilities, net of taxes		—		—		—			(44	)		—			(44	)		—		(44	)
Equity gain on Other comprehensive income in jointly-controlled entity		—		—		—			3			—			3			—		3

Total Comprehensive income for the year		—		—		—			(41	)		3,137			3,096			—		3,096
Other changes in equity:
Additional dividends proposed in 2013 (R$ 0.04 per share)		—		—		(55	)		—			—			(55	)		—		(55	)
Extraordinary dividends (R$ 2.23 per share)		—		—		(2,804	)		—			—			(2,804	)		—		(2,804	)
Statutory dividends (R$ 1.04 per share)		—		—		—			—			(1,364	)		(1,364	)		—		(1,364	)
Interest on Equity (R$ 0.18 per share)		—		—		—			—			(230	)		(230	)		—		(230	)
Constitution of reserves												—
Tax incentives reserve		—		—		29			—			(29	)		—			—		—
Profit reserve		—		—		1,584			—			(1,584	)		—			—		—
Realization of reserves
Equity valuation adjustments – deemed cost of PP&E		—		—		—			(70	)		70			—			—		—
ATTRIBUTED TO INTEREST OF THE CONTROLLING SHAREHOLDERS		6,294		1,925		2,594			468			—			11,281			—		11,281
Non controlling shareholder		—		—		—			—			—			—			4		4

AS OF DECEMBER 31, 2014		6,294		1,925		2,594			468			—			11,281			4		11,285

Net income for the year		—		—		—			—			2,469			2,469			—		2,469
Other comprehensive income
Post retirement liabilities, net of taxes		—		—		—			(361	)		—			(361	)		—		(361	)
Equity gain on Other comprehensive income in jointly-controlled entity		—		—		—			54			—			54			—		54

Total Comprehensive income for the year		—		—		—			(307	)		2,469			2,162			—		2,162
Other changes in equity:
Reserve for obligatory dividends not distributed		—		—		797			—			—			797			—		797
Statutory dividends (R$ 0.84 per share)		—		—		—			—			(1,056	)		(1,056	)		—		(1,056	)
Interest on Equity (R$ 0.16 per share)		—		—		—			—			(200	)		(200	)		—		(200	)
Constitution of reserves
Tax incentives reserve		—		—		21			—			(21	)		—			—		—
Profit reserve		—		—		1,251			—			(1,251	)		—			—		—
Realization of reserves
Equity valuation adjustments – deemed cost of PP&E		—		—		—			(59	)		59			—			—		—

ATTRIBUTED TO INTEREST OF THE CONTROLLING SHAREHOLDERS		6,294		1,925		4,663			102			—			12,984			—		12,984
Non-controlling shareholder		—		—		—			—			—			—			4		4

AS OF DECEMBER 31, 2015		6,294		1,925		4,663			102			—			12,984			4		12,988

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	Share capital		Capital reserves		Profit reserves			Equity Valuation adjustments			Retained earnings			Total interest of the controlling shareholders			Total interest of Non- controlling shareholder		Total equity
AS OF DECEMBER 31, 2015		6,294		1,925		4,663			102			—			12,984			4		12,988

Net income for the year		—		—		—			—			334			334			—		334
Other comprehensive income
Post retirement liabilities – remesurement of obligations of the defined benefit plans, net of taxes		—		—		—			(515	)		—			(515	)		—		(515	)
Equity gain on Other comprehensive income in subsidiary and jointly-controlled entity		—		—		—			(39	)		—			(39	)		—		(39	)
Total comprehensive income for the year		—		—		—			(554	)		334			(220	)		—		(220	)

Other changes in equity:
Reserve for mandatory dividends not distributed		—		—		623			—			—			623			—		623
Dividends under by-laws (R$ 0.16 per share )		—		—		127			—			(204	)		(77	)		—		(77	)
Interest on equity (R$ 0.30 per share )		—		—		(380	)		—			—			(380	)		—		(380	)
Constitution of reserves
Tax incentive reserves		—		—		7			—			(7	)		—			—		—
Retained earnings reserve		—		—		160			—			(160	)		—			—		—
Equity valuation adjustments – deemed cost of PP&E		—		—		—			(37	)		37			—			—		—

ATTRIBUTED TO INTEREST OF THE CONTROLLING SHAREHOLDERS		6,294		1,925		5,200			(489	)		—			12,930			—		12,930
Non-controlling shareholder		—		—		—			—			—			—			4		4

AS OF DECEMBER 31, 2016		6,294		1,925		5,200			(489	)		—			12,930			4		12,934

The Notes are an integral part of these Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(MILLIONS OF BRAZILIAN REAIS—R$ mn)


	2016			2015			2014
CASH FLOW FROM OPERATIONS
Net income for the year		334			2,469			3,137
Expenses (revenues) not affecting cash and cash equivalents
Income and social contribution taxes		33			893			1,342
Depreciation and amortization		834			835			801
Write-offs of PP&E, Intangible assets and Investments		109			124			105
Gain on disposal of investments		(315	)		—			—
Impairment of Investments		763			—			—
Equity in earnings (losses) of unconsolidated investees, net		302			(393	)		(210	)
Interest and monetary variation		808			818			1,384
Fair value gain (loss) on stockholding transaction		—			(729	)		—
Provisions for operating losses		704			1,401			581
Net gain on indemnity of assets		—			—			(420	)
Financial assets —CVA		1,455			(1,704	)		(1,107	)
Gain on acquisition of subsidiary		—			—			(281	)
Post-retirement liabilities		447			285			311

		5,475			3,999			5,643
(Increase) / decrease in assets
Consumers and traders		(64	)		(1,470	)		(285	)
Financial assets —CVA		341			1,529			—
Energy Development Account (CDE)		8			273			(170	)
Recoverable Taxes		19			167			320
Income and social contribution tax credit		(62	)		(77	)		(37	)
Transport of electricity		8			(5	)		(5	)
Escrow deposits		(28	)		(67	)		(305	)
Dividends received from investments		683			487			683
Financial assets		(1,941	)		10			6
Advance to suppliers		(120	)		(131	)		—
Gas		(193	)		(141	)		(265	)
Other		105			(248	)		74

		(1,244	)		327			16
Increase (decrease) in liabilities
Suppliers		38			297			472
Taxes payable		38			202			54
Income and social contribution taxes payable		24			(105	)		(22	)
Payroll and related charges		4			26			4
Regulatory charges		92			386			11
Post-retirement liabilities		(239	)		(208	)		(195	)
Financial instruments – Put options		(150	)		—			—
Other		(167	)		156			(160	)

		(360	)		754			164


Cash generated by operating activities		3,871			5,080			5,823
Interest paid on loans and financings		(2,369	)		(1,331	)		(781	)
Income and Social Contribution taxes paid		(289	)		(741	)		(1,308	)

NET CASH GENERATED BY OPERATING ACTIVITIES		1,213			3,008			3,734

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	2016			2015			2014
CASH FLOWS FROM INVESTMENT ACTIVITIES
Marketable securities		1,400			(1,499	)		116
Financial assets		—			(145	)		(80	)
Restricted cash		(367	)		1			1

Investments
Acquisition of equity investees		—			(310	)		(2,405	)
Disposal of Investments		949			—			—
Acquisition of subsidiary – Gasmig		—			—			(465	)
Capital increase in investees		(1,455	)		(181	)		(546	)
PP&E		(120	)		(126	)		(122	)
Intangible assets		(1,021	)		(957	)		(798	)

NET CASH USED IN INVESTMENT ACTIVITIES		(614	)		(3,217	)		(4,299	)


CASH FLOW IN FINANCING ACTIVITIES
Loans, financings and debentures		5,737			5,739			4,562
Payment of loans financings and debentures		(5,591	)		(4,696	)		(1,394	)
Interest on equity and dividends		(675	)		(796	)		(3,918	)

NET CASH FROM (USED IN) FINANCIAL ACTIVITIES		(529	)		247			(750	)


NET CHANGE IN CASH AND CASH EQUIVALENTS		70			38			(1,315	)


STATEMENT OF CHANGES IN CASH AND CASH EQUIVALENTS
Beginning of the year		925			887			2,202
End of the year		995			925			887

NET CHANGE IN CASH AND CASH EQUIVALENTS		70			38			(1,315	)

The Notes are an integral part of these Consolidated Financial Statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE YEARS ENDED ON DECEMBER 31, 2016, 2015 AND 2014

(In Millions of Brazilian Reais—R$ mn—except where otherwise indicated)

1.	OPERATING CONTEXT

Companhia Energética de Minas Gerais (‘Cemig’, also herein ‘the Company’, ‘Parent company’ or ‘Holding company’) is a listed corporation registered in the Brazilian Registry of Corporate Taxpayers (CNPJ) under number 17.155.730/0001-64, with shares traded on the BM&F Bovespa (‘Bovespa’) at Corporate Governance Level 1; on the New York Stock Exchange (‘NYSE’); and on the stock exchange of Madrid (‘Latibex’). It is domiciled in Brazil, with head office at Avenida Barbacena 1200, Belo Horizonte, capital of the state of Minas Gerais. It operates exclusively as a holding company, with interests in subsidiaries or jointly controlled entities, which are engaged in the activities of the construction and operation of systems for generation, transformation, transmission, distribution and sale of electricity, and also activities in the various fields of energy, for the purpose of commercial operation.

In order to finance the capital expenditures needed to meet long-term growth objectives, CEMIG have incurred a substantial amount of debt. As of December 31, 2016, the CEMIG’s Current Liabilities exceeded Current Assets by R$3,162. As of December 31, 2016, the CEMIG total short-term and long-term loans, financing and debentures are R$4,837 and R$10,342, maturing in the first, second, third and fourth quarters of 2017, in the amounts of R$783, R$1,017, R$579 and R$2,458, respectively. Those CEMIG had positive operating cash flows in the amounts of R$1,213, R$3,007 and R$3,733 in 2016, 2015 and 2014, respectively.

CEMIG H’s substantial debt could adversely affect the business, financial condition, and results of operations. Specifically, CEMIG is subject to certain restrictions on its ability to raise funds from third parties, which might prevent it from entering into new contracts for financing of its operations, or for the re-financing of its existing obligations, including the following:

◾

The by-laws of CEMIG express the obligation for the consolidated figures of the group to maintain certain financial indicators, related to factors including debt and Capital Expenditures, within certain limits, and this could affect its operational flexibility. In the years 2015 and 2016, certain limits and financial ratios specified in the bylaws of CEMIG were exceeded, under approval by the General Meeting of Stockholders. CEMIG has obtained its stockholders to exceed these limits and financial ratios applicable for 2017.

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◾

In relation to loans from outside parties: (i) as a state-controlled company, CEMIG is subject to rules and limits relating to the level of credit applicable to the public sector, including rules established by the National Monetary Council (Conselho Monetário Nacional, or CMN), and by the Brazilian Central Bank; (ii) CEMIG operates in the electricity sector, it is subject to the rules and limits established by Aneel which deal with indebtedness for companies of the electricity sector and (iii) state-controlled companies may use funds arising from transactions with commercial banks only for refinancing of financial obligations, or in transactions guaranteed by duplicate trade bills.

◾

The National Treasury Department (part of the Finance Ministry) and by the Central Bank would need to approve certain international financial transactions; this approval is usually given only if the purpose of the transaction is to finance importation of goods or to roll over external debt. These rules have the effect of placing limits on the CEMIG H’s capacity for indebtedness.

◾

CEMIG is subject to certain contractual conditions under existing debt instruments. In the event of non-compliance with an obligation under that financing contract, the CEMIG will be required to strengthen the guarantees for the financing, on penalty of early maturity of the contract. Any default event in our financial instruments might lead creditors to cause all the amounts relating to that debt to become payable immediately. Acceleration of debts might cause significant negative effects on the CEMIG H’s financial situation, and might also cause activation of cross-default clauses in other financial instruments. In the event of a default, CEMIG H’s cash flow might be insufficient to completely settle the debts, or to comply with the servicing of such debts.

◾

The credit risk rating agencies attribute a rating to Brazil, the Company and its debt securities on a Brazilian basis, and also a rating for the Company on the global basis. If ratings are downgraded due to any external factor, operational performance or high levels of debt, it may increase the cost of capital.

In order to amortize scheduled debt maturities, CEMIG will need to raise significant amounts of debt capital from a broad range of funding sources. To service CEMIG debt after meeting our capital expenditure targets, CEMIG have relied upon, and may continue to rely upon, a combination of cash flows provided by our operations, drawdowns under our available credit facilities, our cash and short-term financial investments balance and the incurrence of additional indebtedness.

CEMIG has several initiatives designed to increase liquidity through entering into new contracts for financing or for the re-financing of its existing obligations and potential divestitures of non-core assets. In 2016, CEMIG introduced a divestment program that contemplates the sale of assets for the period of 2017–2018, with the goal of improving our short-term liquidity position by increasing our cash balance and reducing indebtedness.

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Although the CEMIG is significantly leveraged, it expects that the current cash balances, liquidity from its revolving credit facility, cash generated from the initiatives described above, and from operations should be sufficient to meet working capital, capital expenditure, debt service, and other cash needs for the next year. Management believes that they will be successful in their plans.

If, for any reason, CEMIG are faced with continued difficulties in accessing debt financing, this could hamper our ability to make capital expenditures in the amounts needed to maintain our current level of investments or our long-term targets and could impair our ability to timely meet our principal and interest payment obligations with our creditors, as our cash flow from operations is currently insufficient to fund such both planned capital expenditures and all of our debt service obligations. A reduction in our capital expenditure program or the sale of assets could significantly affect our results of operations.

Cemig has interests in the following subsidiaries, jointly-controlled entities and affiliated company (information in MW has not been audited by the external auditors):

Cemig Geração e Transmissão S.A. (‘Cemig GT’) is Cemig’s wholly-owned subsidiary operating in generation and transmission. It is listed, in Brazil, but not traded. Cemig GT has interests in 60 power plants, of which 56 are hydroelectric, 3 are wind power plants and one is a thermal plant, and associated transmission lines, most of which are part of the Brazilian national generation and transmission grid system. Cemig GT has interests in the following jointly-controlled entities and affiliated company:

Jointly-controlled entities and affiliated company:

Hidrelétrica Cachoeirão S.A. (‘Cachoeirão’) (Jointly controlled): Production and sale of electricity as an independent power producer, through the Cachoeirão hydroelectric power plant, located at Pocrane, in the State of Minas Gerais.

Baguari Energia S.A. (‘Baguari Energia’) (Jointly controlled): Construction, operation, maintenance and commercial operation of the Baguari Hydroelectric Plant, through participation in the UHE Baguari Consortium (Baguari Energia 49.00%, Neoenergia 51.00%), located on the Doce River in Governador Valadares, Minas Gerais State.

Central Eólica Praias de Parajuru S.A. (‘Parajuru’) (Jointly controlled): Production and sale of electricity from the Parajuru wind farm at Beberibe, in the State of Ceará, Northern Brazil.

Central Eólica Praias do Morgado S.A. (‘Morgado’) (Jointly controlled): Production and sale of electricity from the Morgado wind farm at Acaraú in Ceará, Northern Brazil.

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Central Eólica Volta do Rio S.A. (‘Volta do Rio’) (Jointly controlled): Production and sale of electricity from at the Volta do Rio wind farm also at Acaraú, in the State of Ceará, Northern Brazil.

Hidroelétrica Pipoca S.A. (‘Pipoca’) (Jointly controlled): Independent production of electricity, through construction and commercial operation of the Pipoca Small Hydro Plant (Pequena Central Hidrelétrica, or PCH), on the Manhuaçu River, in the counties of Caratinga and Ipanema, in the State of Minas Gerais.

Madeira Energia S.A. (‘Madeira’) (Affiliated): Construction and commercial operation, through its subsidiary Santo Antônio Energia S.A., of the Santo Antônio hydroelectric plant, in the basin of the Madeira River, in the State of Rondônia.

Lightger S.A. (Jointly controlled): Independent power production through building and commercial operation of the Paracambi Small Hydro Plant (or PCH), on the Ribeirão das Lages river in the county of Paracambi, in the State of Rio de Janeiro.

Renova Energia S.A. (‘Renova’) (Jointly controlled): Listed company operating in development, construction and operation of plants generating power from renewable sources – wind power, small hydro plants (SHPs), and solar energy; sales and trading of electricity, and related activities.

Retiro Baixo Energética S.A. (‘RBE’) (Jointly controlled): RBE holds the concession to operate the Retiro Baixo hydroelectric plant, on the Paraopeba River, in the São Francisco river basin, in the municipalities of Curvelo and Pompeu, in Minas Gerais State. The plant has installed capacity of 83.7 MW and assured energy offtake level of 38.5MW average.

Aliança Norte Energia Participações S.A. (‘Aliança Norte’) (Jointly controlled): A special-purpose company (SPC) created by Cemig GT (49.9% ownership) and Vale S.A. (50.1% ownership), for acquisition of an interest of 9% in Norte Energia S.A. (‘Nesa’), the company holding the concession for the Belo Monte Hydroelectric Plant, on the Xingu River, in the State of Pará. The first turbine of Belo Monte Plant started operating on April 20, 2016 and the second turbine began operating on July 16, 2016. There are more details on this in Note 15.

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Aliança Geração de Energia S.A. (‘Aliança’) (Jointly controlled): Unlisted corporation created by Cemig GT and Vale S.A. to become a platform for consolidation of generation assets held by the two parties in generation consortia, and investments in future generation projects. The two parties subscribed their shares in the company by transfer of their interests in the following generation assets: Porto Estrela, Igarapava, Funil, Capim Branco I and II, Aimorés and Candonga. With these assets the company has installed hydroelectric generation capacity in operation of 1,158 MW (physical offtake guarantee 652 MW average), and other generation projects. Vale and Cemig GT respectively hold 55% and 45% of the total capital.

Cemig Geração Três Marias S.A.: A corporation wholly owned by Cemig GT. Its objects are production and sale of electricity as public service concession holder, by commercial operation of the Três Marias Hydroelectric Plant, and sale and trading of electricity in the Free Market. It has installed capacity of 396 MW, and guaranteed offtake level (‘Assured energy’) of 239 MW average.

Cemig Geração Salto Grande S.A.: A corporation wholly owned by Cemig GT. Its objects are production and sale of electricity as public concession holder, by commercial operation of the Salto Grande Hydroelectric Plant, and trading in electricity in the Free Market. This company has installed generation capacity of 102 MW, and average offtake guarantee of 75 MW.

Cemig Geração Camargos S.A.: Corporation wholly owned by Cemig GT. Its objects are production and sale of electricity as public concession holder, by commercial operation of the Camargos Hydroelectric Plant, and trading in electricity in the Free Market. Has installed generation capacity of 46 MW, and average offtake guarantee of 21 MW.

Cemig Geração Itutinga S.A.: Corporation wholly owned by Cemig GT. Its objects are production and sale of electricity as public concession holder, by commercial operation of the Itutinga Hydroelectric Plant, and trading in electricity in the Free Market. Has installed generation capacity of 52 MW, and average offtake guarantee of 28 MW.

Cemig Geração Leste S.A.: Corporation wholly owned by Cemig GT. Its objects are production and sale of electricity as public concession holder, by operation of the Dona Rita, Sinceridade, Neblina, Ervália, Tronqueiras and Peti Small Hydroelectric Plants (PCHs), and trading in electricity in the Free Market. Installed generation capacity is 35.16 MW; average offtake guarantee is 18.64 MW.

Cemig Geração Oeste S.A.: Corporation wholly owned by Cemig GT. Its objects are production and sale of electricity as public concession holder, by commercial operation of the Gafanhoto, Cajuru and Martins Small Hydroelectric Plants, and trading in electricity in the Free Market. Installed generation capacity is 28.90 MW, and average offtake guarantee 11.21 MW.

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Cemig Geração Sul S.A.: Corporation wholly owned by Cemig GT. Its objects are production and sale of electricity as public concession holder, by commercial operation of the Coronel Domiciano, Marmelos, Joasal, Paciência and Piau Small Hydroelectric Plants and trading in electricity in the Free Market. Installed generation capacity is 39.53 MW; average offtake guarantee is 27.42 MW.

Subsidiaries and jointly-controlled entities at development stage:

Guanhães Energia S.A. (‘Guanhães Energia’) (Jointly controlled): Production and sale of electricity through building and commercial operation of the following Small Hydro Plants (PCHs): Dores de Guanhães, Senhora do Porto and Jacaré, in the county of Dores de Guanhães; and Fortuna II, in the county of Virginópolis, in Minas Gerais. Construction works are 97% completed, and start of commercial generation is scheduled for April 2017.

Cemig Baguari Energia S.A. (‘Cemig Baguari’) (Subsidiary) – Production and sale of electricity as an independent power producer in future projects.

Amazônia Energia Participações S.A. (‘Amazônia Energia’) (Jointly controlled) – Unlisted company whose object is to hold and manage equity interest in Norte Energia S.A. (Nesa), which holds the concession to operate the Belo Monte Hydroelectric Plant, on the Xingu River, in the State of Pará. It is jointly controlled by Light S.A. (25.5%) and Cemig (74.5%). Amazônia Energia owns 9.77% of the share capital of Nesa. The first turbine of the Belo Monte Plant started operating on April 20, 2016 and the second turbine began operating on July 16, 2016. There are more details in Note 15.

Cemig Distribuição S.A. (‘Cemig D’ or ‘Cemig Distribution’) (Subsidiary): Wholly-owned subsidiary, listed but not traded; distributes electricity through networks and distribution lines to practically the whole of the Brazilian State of Minas Gerais.

Transmissora Aliança de Energia Elétrica S.A. (‘Taesa’) (Jointly controlled): Construction, operation and maintenance of electricity transmission facilities in 17 states of Brazil through direct and indirect equity interests in investees.

Light S.A. (‘Light’) (Jointly controlled): Holds direct or indirect interests in other companies and directly or indirectly operates electricity services, including generation, transmission, trading or distribution, and other related services. Light S.A. has the following subsidiaries and jointly-controlled entities:

Light Serviços de Eletricidade S.A. (‘Light Sesa’) (Subsidiary) – A listed company operating primarily in electricity distribution, in various municipalities of Rio de Janeiro State.

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Light Energia S.A. (Subsidiary) – Plans, builds and operate electricity generation, transmission and sales/trading systems and related services. Owns equity interests in two wind power companies – Central Eólica São Judas Tadeu Ltda. and Central Eólica Fontainha Ltda – and in Guanhães Energia S.A. and Renova Energia S.A.

Light Esco Prestação de Serviços Ltda. (‘Light Esco’) (Subsidiary) – Purchase, sale, importation and exportation of electricity and consultancy services in the electricity sector. Light Esco has an interest in EBL Companhia de Eficiência Energética S.A.

Itaocara Energia Ltda. (Subsidiary) – Company and pre-operational phase: principal activity will be construction and operation of generation plants. It is a member of the Itaocara Hydro Plant Consortium for commercial operation of the Itaocara Hydroelectric Plant (51%). Cemig GT owns 49%. There are more details in Note 14.

Lightger S.A. (Jointly controlled) – Described in the list of jointly controlled entities of Cemig GT, above.

Light Soluções em Eletricidade Ltda. (Subsidiary): Its main objects are provision of service to low-voltage clients including assembly, overhaul and maintenance of installations in general.

Instituto Light para o Desenvolvimento Urbano e Social (Light Institute) (Subsidiary): Participation in social and cultural projects, and interest in economic and social development of cities.

Lightcom Comercializadora de Energia S.A. (Subsidiary): Purchase, sale, importation and exportation of electricity, and general consultancy, in the free and regulated electricity markets.

Axxiom Soluções Tecnológicas S.A. (Jointly controlled): Unlisted company, providing technology and systems solutions for operational management of public service concession holders, including companies in electricity, gas, water, sewerage, and other utilities. Jointly owned by Light (51%) and Cemig (49%).

Amazônia Energia Participações S.A. (Jointly controlled) – Described in the list of equity interests of Cemig GT above.

Renova Energia S.A. (Jointly controlled) – Described in the list of equity interests of Cemig GT above.

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Sá Carvalho S.A. (Subsidiary): Production and sale of electricity, as a public electricity service concession holder, through the Sá Carvalho hydroelectric power plant.

Usina Térmica Ipatinga S.A. (‘Ipatinga’) (Subsidiary) – Currently without operational activity.

Companhia de Gás de Minas Gerais (‘Gasmig’) (Subsidiary): Acquisition, transport and distribution of combustible gas or sub-products and derivatives, through a concession for distribution of gas in the State of Minas Gerais.

Cemig Telecomunicações S.A. (‘CemigTelecom’ – previously named Empresa de Infovias S.A.)(Subsidiary): Provision and commercial operation of a specialized telecommunications service through an integrated multi-service network of fiber optic cables, coaxial cables, and electronic and associated equipment. CemigTelecom owns 19.6% of Ativas Data Center (‘Ativas’) (a jointly controlled entity), which operates primarily in supply of IT and communications infrastructure services, including physical hosting and related services for medium-sized and large corporations.

Efficientia S.A. (Subsidiary): Provides electricity efficiency and optimization services and energy solutions through studies and execution of projects; and services of operation and maintenance in energy supply facilities.

Horizontes Energia S.A. (Subsidiary): Production and sale of electricity, as an independent power producer, through the Machado Mineiro and Salto do Paraopeba hydroelectric power plants in the State of Minas Gerais, and the Salto do Voltão and Salto do Passo Velho hydro power plants in the State of Santa Catarina.

Cemig Comercializadora de Energia Incentivada S.A. (‘CCEI’ – previously named Central Termelétrica de Cogeração S.A.) (Subsidiary) – Production and sale of electricity as an independent power producer, in future projects.

Rosal Energia S.A. (Subsidiary): Production and sale of electricity, as a public electricity service concession holder, through the Rosal hydroelectric power plant located on the border between the States of Rio de Janeiro and Espírito Santo.

Empresa de Serviços e Comercialização de Energia Elétrica S.A. (‘ESCE’ – previously named Central Hidrelétrica Pai Joaquim S.A.) (Subsidiary): Production and sale of electricity as an independent power producer, in future projects.

Cemig PCH S.A. (Subsidiary): Production and sale of electricity as an independent power producer, through the Pai Joaquim hydroelectric power plant.

Cemig Capim Branco Energia S.A. (Capim Branco) (Subsidiary): Production and sale of electricity as an independent producer, through the Amador Aguiar I and Amador Aguiar II hydroelectric power plants, built through a consortium with private-sector partners. This company was merged with and into Cemig GT in 2015.

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UTE Barreiro S.A. (Subsidiary): Production and sale of thermally generated electricity, as an independent producer, through construction and operation of the UTE Barreiro thermal generation plant, located on the premises of V&M do Brasil S.A., in the State of Minas Gerais.

Cemig Trading S.A. (Subsidiary): Sale and intermediation of business transactions related to energy.

Companhia Transleste de Transmissão (Jointly controlled): Operation of the transmission line connecting the substation located in Montes Claros to the substation of the Irapé hydroelectric power plant.

Companhia Transudeste de Transmissão (Jointly controlled): Construction, operation and maintenance of national grid transmission facilities of the Itutinga–Juiz de Fora transmission line.

Companhia Transirapé de Transmissão (Jointly controlled): Construction, operation and maintenance of the Irapé–Araçuaí transmission line.

Axxiom Soluções Tecnológicas S.A. (Jointly controlled): Described in the investees of Light, above.

Transchile Charrúa Transmisión S.A. (Jointly controlled): Construction, operation and maintenance of the Charrúa-Nueva Temuco transmission line, and two sections of transmission line at the Charrúa and Nueva Temuco substations, in the central region of Chile. The head office of Transchile is in Santiago, Chile. In 2016 Cemig sold the whole of its interest in Transchile to Ferrovial Transco Chile SpA., a company controlled by Ferrovial S.A.

Companhia de Transmissão Centroeste de Minas (Jointly controlled): Construction, operation and maintenance of the Furnas-Pimenta transmission line – part of the national grid.

Participações em Ativos de Energia Elétrica (‘Parati’) (Jointly controlled): Holding company owning interests, through shares or share units, in other companies, Brazilian or foreign, in any business activity. Parati holds an equity interest of 26.03% in Light. Parati was closed down in 2016, following its reverse absorption by RME and Lepsa, with 50% Cemig ownership in each of these two companies.

Where Cemig exercises joint control it does so through shareholders’ agreements with the other shareholders of the investee company.

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2.	BASIS OF PREPARATION

2.1

Statement of compliance

The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (IASB).

Management certifies that all the material information in the financial statements, and only that information, is being presented, and that it corresponds to the information used by Management in its administration of the company.

On May 16, 2017, the Company’s Audit Board authorized filing of the Financial Statements for the year ended December 31, 2016.

2.2

Bases of measurement

The consolidated financial statements have been prepared based on historical cost, with the exception of the following material items recorded in the Statement of financial position:

◾

Non-derivative financial assets measured at fair value through profit or loss.

◾

Financial assets held for trading measured at fair value.

◾

Financial assets of the Concession measured by the New Replacement Value (VNR), equivalent to fair value.

2.3

Functional currency and currency of presentation

These consolidated financial statements are presented in Reais, which is the Company’s presentation and functional currency. All the financial information is presented in millions of Reais, except where otherwise indicated.

2.4

Use of estimates and judgments

The preparation of the consolidated financial statements, under IFRS, requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reported in assets, liabilities, revenues and expenses. Future reported results may differ from these estimates.

Estimates and assumptions are revised continually, using as a reference both historical experience and also any significant changes of scenario that could affect the equity situation of the company or its results in the applicable items. Revisions in relation to accounting estimates are recognized in the period in which the estimates are reviewed, and in any future periods affected.

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The principal estimates related to the financial statements refer to recording of effects arising from:

◾

Allowance for doubtful accounts – see Note 8;

◾

Deferred income and social contribution taxes – see Note 10;

◾

Financial assets of the concession – see Note 14;

◾

Investments – See Note 15.

◾

Property, plant and equipment – Note 16.

◾

Intangible assets – see Note 17;

◾

Depreciation – see Note 16;

◾

Amortization – see Note 17;

◾

Employee post-retirement liabilities – see Note 22;

◾

Provisions – see Note 23;

◾

Unbilled electricity supplied – see Note 25; and

◾

Fair value measurement and Derivatives instruments – see Note 30.

2.5

Rules, interpretations and changes that came into force on January 1, 2016

The following rules and changes of rules came into effect during 2016

The Changes to IFRS 7 provide additional orientations to clarify whether a service contract constitutes continuous involvement in an asset transferred, for the purposes of the necessary disclosures in relation to the transferred assets.

The changes to IAS 19 clarify that the rate used to discount obligations for post-retirement benefit should be determined based on AA corporate bond yields at the end of the reporting period.

The changes to IFRS 5 introduce specific orientations in relation to when an entity reclassifies an asset (or group of assets held for sale) from ‘held for sale’ to ‘held for distribution to holders’ (or vice-versa).

Changes to IAS 16 and IAS 38 – Clarification of the acceptable methods for depreciation and amortization.

Changes to IAS 1 – Disclosure Initiative – These offer orientations on application of the concept of materiality in practice.

Changes to IFRS 10, IFRS 12 and IAS 28 – Investment entities: Applying exception from consolidation – These clarify that exemption from preparing consolidated financial statements is applicable to a controlling entity that is the subsidiary of an investment entity, even if the investment entity values all its subsidiaries at fair value under IFRS 10.

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Changes to IFRS 11 – Joint Arrangements – provides instructions on accounting for the acquisition of a ‘business combination’ as defined by IFRS 3 – Business Combinations.

The application of these changes had no significant impact on the disclosures or the amounts recognized in the financial statements of Cemig.

2.6

New and revised rules and interpretations already issued and not yet adopted, with possible impacts for the Company

In effect for annual periods starting on or after January 1, 2017:

◾

Changes to IAS 12 – Recognition of deferred tax assets for non-realized losses.

◾

Disclosure Initiative (Changes to IAS 7) – Alters IAS 7 – Statement of Cash Flows, to clarify that entities should supply disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. Applicable to annual periods starting on or after January 1, 2017

In effect for annual periods starting on or after January 1, 2018:

◾

Changes to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Deals with situations that involve sale or contribution of assets between an investor and its associate or joint venture.

◾

IFRS 9 – Financial instruments – Establishes that all the financial assets recognized that are within the scope of IAS 39 must be subsequently measured at amortized cost or fair value. In relation to the impairment of financial assets, IFRS 9 requires use of a forward-looking ‘expected loss’ impairment model, in contrast to the model of actual impairment stated in IAS 39.

◾

IFRS 15 – Revenue from Contracts with Customers: Issued in May 2014, IFRS 15 established a simple and clear model for companies to use in accounting for revenue arising from contracts with clients. When it comes into effect, it will replace the present orientations on recognition of revenue contained in IAS 18 – Revenues, IAS 11 – Construction Contracts and the related interpretations.

In effect for annual periods starting on or after January 1, 2019:

◾

IFRS 16 – Leases – With this new rule, lessors will have to recognize the liability for future payments and the right to use of the leased asset for practically all leasing contracts, including those currently classified as operational leasing contracts.

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The Company is still evaluating the effects of application of these new rules, and changes to existing rules, on the amounts and disclosures presented in the financial statements.

2.7

Principal accounting policies

The accounting policies described in detail below have been applied consistently to all the periods presented in these consolidated financial statements, in accordance with the rules and regulations described in item 2.1 – Statement of compliance.

The accounting policies relating to the Company’s present operations that require judgment and the use of specific valuation criteria are the following:

Financial instruments

Financial liabilities relating to put options – The options to sell units in FIP Melbourne and FIP Malbec (‘the SAAG Put’) and the options to sell shares in RME and Lepsa (‘the Parati PUT’) were valued at fair value using the Black-Scholes-Merton (BSM) method. Both the options were calculated using the discounted cash flow method: for the SAAG Put option, up to the third quarter of 2016; and for the Parati Put option, up to the first quarter of 2016. The method used was changed, in the fourth and second quarters, respectively, to the BSM model. The Company calculated the fair value of these options having as a reference their respective prices obtained by the BSM model, valued on the closing date of the financial statements for the 2016 business year.

Share capital: The rights to minimum dividends as established for the preferred shares are described in Note 24 to the financial statements.

Financial instruments available for sale: As from December 31, 2012, assets in this category include the financial assets of the transmission and distribution concession that were covered by Law 12783 (of January 11, 2013). They are measured at New Replacement Value (Valor Novo de Reposição, or VNR), equivalent to fair value on the date of these financial statements. The Company recognizes a financial asset resulting from a concession contract when it has an unconditional contractual right to receive cash or another financial asset from, or under the direction of, the Concession-granting power for the services of construction or improvement provided.

Loans and receivables – The category includes: Cash equivalents; Consumers and traders; Power transport concession holders; Financial assets of the concession not covered by Law 12783; the CVA Account (for compensation of changes in Portion A costs) and Other financial components of tariff adjustments; Escrow deposits; and Traders – ‘Free Energy’ transactions.

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Cash and cash equivalents includes: Balances of cash; Bank deposits; and cash investments with original maturity of three months or less from the date of contracting, which are subject to an insignificant risk of change in value. Cash and cash equivalents are maintained for the purpose of meeting cash commitments in the short term and not for investment or other purposes.

Consumers and traders; Power transport concession holders; and Traders – transactions in ‘Free Energy’

Accounts receivable from Consumers and traders, and from power transport concession holders, are initially recorded at value, whether already invoiced or not, and measured by amortized cost. They include any direct taxes for which the company has the tax responsibility, less taxes withheld at source, which are considered to be tax credits.

The provision for doubtful receivables, for low and medium voltage consumers, is recorded based on estimates by Management, in an amount sufficient to cover probable losses. The principal criteria set by the company are: (i) For consumers with significant balances, the balance receivable is analyzed in the light of the history of the debt, negotiations in progress, and real guarantees. (ii) For other consumers, the following are provisioned: Debts from residential consumers more than 90 days past due; debts from commercial consumers more than 180 days past due; and debts more than 360 days past due from other consumers. These criteria are the same as those established by Aneel.

For large consumers an individual analysis is made of the debtors and of the actions in progress for receipt of the credits.

Investments

The Company’s investments include the intangible concession assets identified on acquisitions, net of any accumulated losses by impairment.

Assets linked to the concessions

Electricity distribution activity: The portion of the assets of the concession that will be totally amortized during the concession period is recorded as intangible and is completely amortized during the concession agreement period.

The amortization reflects the pattern of consumption of the rights acquired. It is calculated on the balance of the assets linked to the concession, by the straight-line method, based on the application of the rates set by Aneel for the electricity distribution activity.

The Company calculates the value of the assets which will not be fully amortized by the end of the concession agreement period, and reports this amount as a financial asset because it is an unconditional right to receive cash or other financial asset directly from the grantor.

Company has measured the parcel of the assets that will be completely amortized by the end of the concession, assuming extension of its concession agreement for a further 30 years, as described in more detail in Note 4.

New assets are recorded initially in Intangible assets, valued at acquisition cost, including capitalized borrowing costs. When the assets start operation they are split into financial assets and intangible assets, according to the criterion mentioned in the previous paragraphs: The portion of the assets that is recorded in financial assets is valued based on the new replacement cost, having as a reference the amounts homologated by Aneel for the Asset Base for Remuneration in the processes of tariff review.

When an asset is replaced, the net book value of the asset is written down as an expense in the Statement of income.

Transmission activity: For the new transmission concessions, granted after the year 2000, the costs related to construction of the infrastructure are recorded in the Statement of income as and when they are calculated, and a Construction Revenue is recorded based on the stage of conclusion of the assets, including the taxes applicable to the revenue and any profit margin.

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Since the transmission contracts determine that the concession holders have an unconditional right to receive cash or another financial asset directly from, or in the name of, the Concession-granting power, for the new transmission concessions the Company records a financial asset, during the period of construction of lines, the transmission revenue to be received during the whole period of the concession, at fair value.

Of the invoiced amounts of Permitted Annual Revenue (RAP), the portion relating to the fair value of the operation and maintenance of the assets is recorded as revenue in the Statement of income, and the portion relating to the construction revenue, originally recorded at the time of the formation of the assets, is used to recover the financial assets.

Additional expenditures incurred for purposes of capital expansion and improvements to the transmission assets generate additional cash flow, and hence this new cash flow is capitalized into the financial asset balance.

In counterpart to acceptance of the terms of renewal of the old transmission concessions, as described in more detail in Note 4, the greater part of the transmission assets of the old concessions will be the subject of indemnity by the Concession-granting power, having already been written off on December 31, 2012, and an item in Accounts receivable having been posted corresponding to the estimated indemnity to be received.

Gas distribution activity: The portion of the assets of the concession that will be amortized in full during the concession is recorded as an Intangible asset and fully amortized over the period of the concession contract.

The amortization is calculated on the balance of the assets linked to the concession by the straight line method, applying amortization rates that reflect the estimated useful life of the assets.

The Company calculates the value of the assets which will not be fully amortized by the end of the concession agreement period, and reports this amount as a financial asset, because it is an unconditional right to receive cash or other financial asset directly from the grantor.

New assets are recorded initially in Intangible assets, valued at acquisition cost, including capitalized borrowing costs. When they start operation they are divided into a financial asset and an intangible asset, in accordance with a criterion mentioned in the previous paragraphs. When an asset is replaced, the net book value of the asset is written down as an expense in the Statement of income.

Intangible assets

Intangible assets comprise assets relating to: service concession contracts, and software. These are measured at total acquisition cost, less expenses of amortization.

Interest and other financing charges incurred on financings linked to works in progress are appropriated to Intangible assets in progress, and Consortia, during the period of construction.

For borrowings raised for the construction of a specific PP&E asset, the Company allocates all of the financial costs related to the borrowings directly to the respective assets being financed. For other borrowings raised that are not linked directly to a specific PP&E asset, a weighted average rate is established for the capitalization of the costs of those loans.

For intangible assets linked to the concession, the accounting practices described in the item ‘Assets linked to the concession’ above are applied.

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Property, plant and equipment

Depreciation and amortization: These are calculated on the balance of property, plant and equipment in service and investments in consortia, on a straight-line basis, using the rates determined by Aneel for the assets related to electricity activities, which reflect the estimated useful life of the assets.

The depreciation rates applied to the Company’s property, plant and equipment assets are shown in Note 16 to the financial statements.

Assets not fully depreciated by the end of the concession will be reverted to the Concession-granting power and this non-depreciated portion will be indemnified.

Interest and other financing charges incurred on financings linked to works in progress are appropriated to PP&E assets in progress, and Consortia, during the period of construction.

For borrowings raised for the construction of a specific PP&E asset, the Company capitalizes all of the financial costs related to the borrowings directly to the respective assets being financed. For other borrowings raised that are not linked directly to a specific PP&E asset, a weighted average rate is established for the capitalization of the costs of those loans.

The residual value is the balance remaining of the asset at the end of the concession, thus, as established in a contract signed between the Company and the federal government, at the end of the concession the assets will be reverted to the federal government which, in turn, will indemnify the Company for those assets that have not yet been totally depreciated. In cases where there is no indemnity at the end of the concession, no residual value is recognized, and the depreciation rates are adjusted so that all the assets are depreciated within the concession period. See more details in Note 14.

Impairment

In assessing impairment, the Company uses historic trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

Benefits to employees

For the Company’s retirement benefit pension plan obligations, the liability recorded in the statement of financial position is the greater of: (a) the debt agreed upon with the foundation for amortization of the actuarial obligations, and (b) the present value of the actuarial obligation, as calculated by a qualified actuary, less the fair value of the plan’s assets, and adjusted for unrecognized actuarial gains and losses. In the business years presented, the expenses related to the debt agreed upon with the pension fund were registered in Financial revenue (expenses), because they represent interest and monetary updating. The other expenses on the pension fund were recorded as operational expenses.

Short-term benefits to employees: Employees’ profit shares specified in the Company’s by-laws are accrued for in accordance with the collective agreement established with the employee unions and recorded in Employees’ and managers’ profit shares in the Statement of income.

Income and Social Contribution taxes

Deferred income tax and Social Contribution tax assets are reviewed at each financial position date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Operational revenue

In general, for the Company’s business in the electricity, gas, telecommunications and other sectors, revenues are recognized when there is persuasive evidence of agreements, when delivery of merchandise takes place or when the services are provided, the prices are fixed or determinable, and receipt is reasonably assured, independently of whether the money has actually been received.

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Revenues from sale of electricity are recorded based on the electricity delivered and the tariffs specified in the terms of the contract or in effect in the market. Revenues from retail supply of electricity to final consumers are recorded when the delivery has taken place. The billing is carried out monthly. Unbilled retail supply of electricity, from the period between the last billing and the end of each month, is estimated based on the billing from the previous month and is accrued for at the end of the month. The differences between the estimated amounts accrued and the actual revenues realized are recorded in the following month.

Revenue from the supply of electricity to the Brazilian grid system is recorded when the delivery has taken place and is invoiced to consumers on a monthly basis, in accordance with the payment schedules specified in the concession agreement.

For the older transmission concessions, granted before 2000, the fair value of the operation and maintenance of the transmission lines and the remuneration of the financial asset are recorded as revenue in the Statement of income for each period.

The services provided include charges for connection and other related services; the revenues are accounted when the services are provided.

The ‘Portion A’ revenue and the Other financial items related to tariff adjustments are recognized in the statement of income when the costs effectively incurred are different from those incorporated into the electricity distribution tariff. For more details, see Note 14.

The gain on adjustment of expectation of cash flow from the indemnifiable financial asset of the distribution concession arising from the variation in the fair value of the Remuneration Asset Base is presented as operational revenue, together with the other revenues related to the Company’s end-activity.

Financial revenue and expenses

Financial revenue includes interest income on funds invested, fee income for consumer payments made late, interest income on financial assets of the concession, and interest income on other financial assets. Interest income is recognized in the Statement of income using the effective interest method.

Financial expenses include: interest expense on borrowings; and foreign exchange and monetary variation on borrowing cost of debt, financings and debentures. Interest expense on the Company’s borrowings that is not capitalized is recognized in the Statement of income using the effective interest method.

Segment reporting

The operating results of all operating segments for which discrete financial information is available are reviewed regularly by the Company’s CEO, to make decisions about resources to be allocated to the segment, and to assess its performance.

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters) and head office expenses.

Segment capital expenditure is the total cost incurred during the year to acquire: the Financial assets of the concession; Property, plant and equipment; and Intangible assets other than Goodwill.

Determination of the adjustment to present value

The Company has applied adjustment to present value to certain concession contracts held for consideration, and also to the balance of debentures issued by the Company. Discount rates were used that are compatible with the cost of funding in transactions with the same maturity on the date of the transactions. These rates are: 12.50% for the small hydro plants and 5.10% for the conventional hydroelectric plants.

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2.8

Restatement of the Income Statement for the years ended December 31, 2015 and 2014

The Company, in order to more adequately present its financial and operational performance, concluded that the adjustment related to the expectation of cash flow from the indemnifiable financial asset of the distribution concession should be presented as an operating revenue, instead of financial revenue, under net financial revenue (expenses), as originally presented, in order to be presented together with the other revenues related to its core business. This classification results in a more adequate presentation of the energy distribution business performance and provides a better presentation of the company’s performance.

This conclusion is based in the following facts:

i.	Investing in infrastructure is an inherent activity of the energy distribution business, which business model is supported by the construction, maintenance and operation of this infrastructure;

ii.	Part of the energy distribution industry, as well as the energy transmission industry, already adopts this classification, hence the Company will be increasing the comparability of its financial statements with others;

iii.	As a result of the inflation increase in the past years faced by the country, which directly impacted the increase in the financial asset of the concession, impacted the importance of this revenue in the income statement.

In accordance with the requirements of IAS 8—Accounting Policies, Changes in Accounting Estimates and Errors, the Company changed the accounting policy previously adopted to an accounting policy that better presents its business performance (as described in the above mentioned topics). Therefore, the corresponding figures in the financial statements relating to the consolidated income statement for the year ended December 31, 2015 and 2014, presented for purposes of comparison, were retrospectively reclassified and are being restated for purposes of comparison. The reclassification does not change the total consolidated assets, consolidated equity, net income, statements of comprehensive income and cash flow.

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The consolidated income statement for the year ended December 31, 2015, presented for purposes of comparison, is as follows:


	2015			Ajustment			2015 Restated
NET REVENUE		21,292			576			21,868
OPERATING COSTS
COST OF ELECTRICITY AND GAS
Electricity purchased for resale		(9,542	)		—			(9,542	)
Charges for use of the national grid		(999	)		—			(999	)
Gas bought for resale		(1,051	)		—			(1,051	)

		(11,592	)		—			(11,592	)
OTHER COSTS
Personnel and managers		(1,143	)		—			(1,143	)
Materials		(126	)		—			(126	)
Outsourced services		(740	)		—			(740	)
Depreciation and amortization		(811	)		—			(811	)
Operating provisions		(23	)		—			(23	)
Infrastructure construction cost		(1,252	)		—			(1,252	)
Other		(96	)		—			(96	)

		(4,191	)		—			(4,191	)
TOTAL COST		(15,783	)		—			(15,783	)
GROSS PROFIT		5,509			576			6,085
OPERATING EXPENSES
Selling expenses		(175	)		—			(175	)
General and administrative expenses		(674	)		—			(674	)
Operating provisions		(1,203	)		—			(1,203	)
Other operating expenses		(482	)		30			(452	)

		(2,534	)		30			(2,504	)
Equity method gains in non-consolidated investees		393			—			393
Fair value results in Corporate Operation		729			—			729
Income before Financial income (expenses) and taxes		4,097			606			4,703
Financial revenues		1,469			(606	)		863
Financial expenses		(2,204	)		—			(2,204	)

Income before income tax and social contribution tax		3,362			—			3,362
Current income tax and Social Contribution tax		(881	)		—			(881	)
Deferred income tax and Social Contribution tax		(12	)		—			(12	)

NET INCOME FOR THE YEAR		2,469			—			2,469

Total of net income for the year attributed to:
Interest of the controlling shareholders		2,469			—			2,469
Interest of non-controlling shareholder		—			—			—

		2,469			—			2,469

Basic and diluted income per preferred share		1.96			—			1.96
Basic and diluted income per common share		1.96			—			1.96

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The consolidated income statement for the year ended December 31, 2014, presented for purposes of comparison, is as follows:


	2014			Ajustment			2014 Restated
NET REVENUE		19,540			55			19,595
OPERATING COSTS
COST OF ELECTRICITY AND GAS
Electricity purchased for resale		(7,428	)		—			(7,428	)
Charges for the use of the national grid		(744	)		—			(744	)
Gas purchased for resale		(254	)		—			(254	)

		(8,426	)		—			(8,426	)
OTHER COSTS
Personnel and managers		(999	)		—			(999	)
Materials		(340	)		—			(340	)
Outsourced services		(736	)		—			(736	)
Depreciation and amortization		(779	)		—			(779	)
Operating provisions		(262	)		—			(262	)
Infrastructure construction cost		(942	)		—			(942	)
Other		(318	)		—			(318	)

		(4,376	)		—			(4,376	)
TOTAL COST		(12,802	)		—			(12,802	)
GROSS PROFIT		6,738			55			6,793
OPERATING EXPENSES
Selling expenses		(128	)		—			(128	)
General and administrative expenses		(654	)		—			(654	)
Operating provisions		(190	)		—			(190	)
Other operating expenses		(677	)		3			(674	)
		(1,649	)		3			(1,646	)
Equity in earnings of unconsolidated investees, net		210			—			210
Gain on acquisition of control of investee		281			—			281
Income before Financial income (expenses) and taxes		5,580			58			5,638
Financial revenues		593			(58	)		535
Financial expenses		(1,694	)		—			(1,694	)

Income before income tax and social contribution tax		4,479			—			4,479
Current income and social contribution taxes		(1,259	)		—			(1,259	)
Deferred income and social contribution taxes		(83	)		—			(83	)

NET INCOME FOR THE YEAR		3,137			—			3,137

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3.	PRINCIPLES OF CONSOLIDATION

The financial statements date of the subsidiaries and jointly-controlled entities, used for the purposes of calculation of consolidation and equity in earnings of unconsolidated investees coincide with those of the Company.

The Company uses the criteria of full consolidation for the following companies which are direct equity investments of Cemig:


	Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2014
	Direct interest %		Direct interest %		Direct interest %
Cemig Geração e Transmissão		100.00		100.00		100.00
Cemig Distribuição		100.00		100.00		100.00
Gasmig		99.57		99.57		99.57
CemigTelecom		100.00		100.00		100.00
Rosal Energia		100.00		100.00		100.00
Sá Carvalho		100.00		100.00		100.00
Horizontes Energia		100.00		100.00		100.00
Usina Térmica Ipatinga		100.00		100.00		100.00
Cemig PCH		100.00		100.00		100.00
Cemig Capim Branco Energia		—		—		100.00
Cemig Trading		100.00		100.00		100.00
Efficientia		100.00		100.00		100.00
Cemig Comercializadora de Energia Incentivada		100.00		100.00		100.00
UTE Barreiro (Barreiro Thermal Plant)		100.00		100.00		100.00
Empresa de Serviços e Comercialização de Energia Elétrica		100.00		100.00		100.00

a)	Subsidiaries and jointly-controlled entities

The financial statements of subsidiaries are included in the consolidated financial statements as from the date on which the control starts until the date on which the control ceases to exist. The assets, liabilities and profit (loss) of the subsidiaries were consolidated using full consolidation. The accounting policies of the subsidiaries and jointly-controlled entities are aligned with the policies adopted by the Company. The financial information of the jointly-controlled entities is recognized by the equity method of accounting.

b)	Consortia

The assets, liabilities, and profits (losses) of a consortium are recorded in accordance with the percentage interest held in the consortium, since these investments are considered to be ‘joint operations’ in accordance with the requirements of IFRS11.

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c)	Transactions eliminated in consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with investee companies recorded by the equity method are eliminated against the investment in proportion to the Company’s equity interests in the investee. Unrealized losses are eliminated in the same way as unrealized gains are eliminated, but only up to the point at which there is no evidence of impairment.

The financial statements of Transchile, for the purposes of calculations by the equity method, are converted from US dollars (the functional currency of Transchile) to Reais based on the exchange rate at last quoted day of the year, since Cemig’s functional currency is the Real. Foreign currency differences are recognized in Other comprehensive income and presented in equity up to the date of the sale of the interest in Transchile. After conclusion of the sale, the amount recognized in Other comprehensive income, in Equity, was transferred in full to the Income statement. In 2016, the whole of Cemig’s interest in Transchile was sold to Ferrovial Transco Chile SpA., a company controlled by Ferrovial S.A. For fuller details please see Note 15.

The consolidated financial statements include the balances and transactions of the investment funds in which the Company and its subsidiaries and jointly-held subsidies are the sole unit holders. These funds comprise public securities, private securities and debentures of companies which have low risk classification, ensuring high liquidity.

These investment funds, the financial statements of which are regularly reviewed/audited, are subject to limited obligations, namely payment for services provided by the administrators of the assets, attributed to the operation of the investments, such as charges for custody, auditing and other expenses, and there are no significant financial obligations, nor are there assets of the unit holders to guarantee those obligations.

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4.	CONCESSIONS AND AUTHORIZATIONS

Cemig and its subsidiaries hold the following concessions and authorizations, from the National Electricity Agency, Aneel:


	Location	Date of concession or authorization		Expiration date
GENERATION
Hydroelectric plants
São Simão (1)	Rio Paranaíba		01/1965		01/2015
Emborcação	Rio Paranaíba		07/1975		07/2025
Nova Ponte	Rio Araguari		07/1975		07/2025
Jaguara (1)	Rio Grande		08/1963		08/2013
Miranda (1)	Rio Araguari		12/1986		12/2016
Três Marias	Rio São Francisco		01/2015		01/2045
Volta Grande	Rio Grande		02/1967		02/2017
Irapé	Rio Jequitinhonha		01/1999		02/2035
Salto Grande	Rio Santo Antônio		01/2015		01/2045
Queimado	Rio Preto		11/1997		01/2033
Itutinga	Rio Grande		01/2015		01/2045
Camargos	Rio Grande		01/2015		01/2045
Piau	Rio Piau / Pinho		01/2015		01/2045
Gafanhoto	Rio Pará		01/2015		01/2045
Cachoeirão SHP	Rio Manhuaçu		07/2000		07/2030
Santo Antônio	Madeira		06/2008		06/2043
Baguari	Rio Doce		08/2006		08/2041
Pipoca SHP	Rio Manhuaçu		09/2001		09/2031
Other	Various		Various		Various

Wind farms (2)
Morro do Camelinho	Gouveia – Minas Gerais		03/2000		01/2017
Praias do Parajuru	Beberibe – Ceará		09/2002		08/2029
Volta do Rio	Acaraú – Ceará		12/2001		08/2034
Praia de Morgado	Acaraú – Ceará		12/2001		08/2034

Thermal plants
Igarapé	Juatuba – Minas Gerais		01/2001		08/2024
Barreiro	Belo Horizonte, Minas Gerais		02/2002		04/2023

TRANSMISSION
National grid	Minas Gerais		07/1997		07/2015
Itajubá Substation	Minas Gerais		10/2000		10/2030

DISTRIBUTION	Minas Gerais		01/2016		12/2045

(1)	The extension of the concession specified in the concession contract is not included in these figures. See details in this Note.

(2)	Permission to operate the activity of wind power generation is given by means of authorizations.

Generation concessions

In the generation business, the Company sells electricity: (1) through auctions to distributors to meet the demands of their captive markets; and (2) to Free Consumers in the Free Market (Ambiente de Contratação Livre, or ACL). In the Free Market, electricity is traded by generation concession holders, Small Hydro Plants (SHPs), self-producers, traders, and importers of electricity.

Free Consumers are those that have demand of more than 3MW at a voltage of 69kV or higher, or at any voltage if their supply began after July 1995.

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A consumer that has opted for the Free Market may return to the regulated system only if it gives its distributor five years’ prior notice. The purpose of this period of notice is to ensure that if necessary the distributor will be able to buy additional electricity to supply the re-entry of Free Consumers into the Regulated Market. The state-controlled generators can sell electricity to Free Consumers but, unlike the private generators they are obligated to do so through an auction process.

Auctions of electricity generation concessions

In November 2015, Cemig GT took part in Auction 12/2015 and won the concessions for Lot D. This was for 18 plants – shown below – for five of which the concession had been previously held by Furnas S.A.:


Generating plant	Concession expiry date		Installed capacity (MW)		Average physical offtake guarantee level (‘Assured Energy’) – MW
Três Marias Hydroelectric Plant		Jan. 2045		396.00		239.00
Salto Grande Hydroelectric Plant		Jan. 2045		102.00		75.00
Itutinga Hydroelectric Plant		Jan. 2045		52.00		28.00
Camargos Hydroelectric Plant		Jan. 2045		46.00		21.00
Piau Small Hydroelectric Plant		Jan. 2045		18.01		13.53
Gafanhoto Small Hydroelectric Plant		Jan. 2045		14.00		6.68
Peti Small Hydroelectric Plant		Jan. 2045		9.40		6.18
Tronqueiras Small Hydroelectric Plant		Jan. 2045		8.50		3.39
Joasal Small Hydroelectric Plant		Jan. 2045		8.40		5.20
Martins Small Hydroelectric Plant		Jan. 2045		7.70		1.84
Cajuru Small Hydroelectric Plant		Jan. 2045		7.20		2.69
Paciência Small Hydroelectric Plant		Jan. 2045		4.08		2.36
Marmelos Small Hydroelectric Plant		Jan. 2045		4.00		2.74
Coronel Domiciano Small Hydroelectric Plant (1)		Jan. 2045		5.04		3.59
Dona Rita Small Hydroelectric Plant (1)		Jan. 2045		2.41		1.03
Ervália Small Hydroelectric Plant (1)		Jan. 2045		6.97		3.03
Neblina Small Hydroelectric Plant (1)		Jan. 2045		6.47		4.66
Sinceridade Small Hydroelectric Plant (1)		Jan. 2045		1.42		0.35

				699.60		420.27

(1)	Plants for which the concession was previously held by Furnas.

Please note that the information presented in this table on installed capacity, guaranteed average offtake, and other operational information is not part of the scope of an audit of financial statements, and has thus not been examined by the external auditors.

For more information please see Note 14.

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Renewal of the concessions of the Jaguara, São Simão and Miranda Hydroelectric Plants

The company believes that it has the right to completion of periods of these concessions, based on the original terms of the Concession Contracts, and is currently arguing this in the courts.

The Jaguara hydroelectric plant

As specified in the Concession Contract for the Jaguara Plant, the Company applied for the extension of the concession. The Mining and Energy Ministry (‘MME’) refused the Company’s application, on the grounds that the application was made outside the time limits set by Law 12783/13.

On June 20, 2013, Cemig GT obtained an interim injunction in its application to the Higher Appeal Court (Superior Tribunal de Justiça, or STJ) for order of mandamus No. 20.432/2013, against the decision of the MME not to entertain the application for extension of the period of concession of the Jaguara plant (424MW capacity, with average 336 MW assured offtake), which had an expiration date on August 28, 2013. The interim remedy, given by Reporting Justice Sérgio Kukina, ensured that Cemig GT would continue to operate the concession for the Jaguara plant until final judgment in the action. On August 23, 2013, Reporting Justice Sérgio Kukina ruled that the application for mandamus had failed.

On August 30, 2013 the STJ granted an interim order, published on September 3, 2013, in a new application for mandamus in the STJ, against the decision by the Mining and Energy Ministry which, in a dispatch published on August 23, 2013, refused, on its merits, the application by Cemig GT for extension of the concession of the Jaguara Plant under its Concession Agreement. This interim order gave Cemig GT the right to remain in control of the Jaguara Plant, commercially operating the public service concession granted to it, until final judgment of the case.

On June 24, 2015 the judgment on the application for mandamus brought by Cemig GT was completed. With all the votes given by the Justices of the first Section of the STJ, the applications made by Cemig GT were defeated by six judgment votes to 2.

On September 22, 2015, Cemig GT filed a further action, for Provisional Remedy, with the Federal Supreme Court (Supremo Tribunal Federal, or STF), to maintain ownership of the concession for the Jaguara plant, on the initial bases of the concession agreement.

On November 3, 2015, the Reporting Justice of the Federal Supreme Court published a Dispatch requesting a position from the parties on their interest in holding a reconciliation hearing, due to the complexity and importance of the debate on the subject in the action for Provisional Remedy. On November 4, 2015, Cemig filed a statement with the Court stating its interest in such a hearing.

On December 21, 2015, Supreme Court Justice Dias Toffoli, rapporteur of the case, granted the application for interim injunction made by the Company, to suspend the effects of the judgment of the First Section of the STJ, and keep Cemig GT in possession of the concession to operate the Jaguara plant, on the initial bases of the concession agreement, until such time as the Supreme Court might make a decision to the contrary. On February 1, 2016, the decision granting the application for interim injunction applied for was published.

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On February 15, 2016 the Panel Judgment of the STJ was published, containing the decision of the First Section of that Court, which refused to grant mandamus and refused the Special Appeal.

On February 22, 2016, in the STF, the Reporting Justice issued a Dispatch extending continuity of the Reconciliation Hearing between Cemig GT and the federal government; the parties are currently awaiting a further dispatch to set a new date for continuation of that hearing, begun on December 15, 2015.

On March 1, 2016 the Company filed an Ordinary Appeal with the STJ against the panel judgment of February 15, 2016, and on April 11, 2016 the Justice Deputy Chair of the STJ issued a decision accepting that this Ordinary Appeal should be heard, and ordered it to be submitted to the STF.

On March 21, 2017 the Federal Supreme Court revoked the interim order given in the case in which Cemig GT is requesting suspension, until final judgment on the Ordinary Appeal by the Supreme Court, of the effects of the judgment of the First Section of the Supreme Court which refused to grant an order to maintain Cemig GT’s ownership of the concession for the Jaguara Plant on the initial bases of Concession Contract 007/97. The judgment remitted the case records to the office of the Procurator-General of the Republic (PGR), for that body to state its opinion.

On December 31, 2016 the asset, at book value of R$ 41, is posted in PP&E, and in 2016 the Company recognized the plant’s revenues from sales of power supply, and operational costs, since it remained in control of the asset during this period.

On March 29, 2017 Cemig GT filed an Internal Appeal against the decision that repealed the remedy, requesting a revision of judgment, to allow cognizance to be taken of a Special Appeal.

The São Simão hydroelectric plant

On June 3, 2014, the Company filed a request for extension of the concession of the São Simão Hydroelectric Plant, since it believes that the concession contract for this plant is not subject to the new rules created by Provisional Measure 579 (which became Law 12783/2013).

On August 5, 2014, the Council of Aneel decided to recommend to the Mining and Energy Ministry (MME) that renewal of the concession for the São Simão plant should be refused.

On August 29, 2014, the Mining and Energy Minister decided to refuse the request for extension of the period of concession of the São Simão plant, based on Opinion 559/2014/CONJURMME/CGU/AGU.

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On September 10, 2014, Cemig GT filed a Hierarchy Appeal with the MME, with request for reconsideration, for the Mining and Energy Minister to reconsider his decision and to grant the Company’s request based only on the Concession Contract; and, successively, that the appeal should be sent to the President of the Republic, so that the President should issue a decision in favor of the Company’s request in the same terms. This appeal is still pending, awaiting consideration by the MME.

Notwithstanding this, on December 15, 2014 Cemig GT filed an application for mandamus (No. 21465/DF), with the Higher Appeal Court (STJ), requesting interim relief, against an illegal act by the Mining and Energy Minister, violating net and certain right of the plaintiff, for the purpose of obtaining extension of the period of concession of the São Simão plant, based on the Concession Contract.

On December 17, 2014, Justice Mauro Campbell granted an interim order (published on December 19, 2014) that Cemig GT should remain in control of the plant, commercially operating the public service concession conceded to it, until the final judgment on application for mandamus governing the Jaguara plant, or until a re-examination of the remedy just refused.

When the judgment in the application for mandamus governing the Jaguara plant was concluded, with rejection of the application, the Reporting Justice revoked the interim remedy given in the Application for mandamus relating to the São Simão plant, the decision on which was published on June 30, 2015.

On July 3, 2015, Cemig GT filed a Special Appeal for retraction of the decision by the Reporting Justice, or, if the court should not be of that opinion, that the appeal referred to should be submitted to consideration by the First Section of the STJ, for an interim remedy ordering that the Company should continue to hold the concession for the São Simão Plant, on the initial bases of the Concession Contract.

On July 10, 2015, the Energy Planning and Development Department (Secretaria de Planejamento e Desenvolvimento Energético) sent an official letter to Cemig GT requiring it to state whether the Company would be interested in remaining in possession of the São Simão Plant, on the new bases of Law 12783/13, until its assumption by the winner of a new tender to be held, in view of the repeal of the interim remedy.

In response to this new event, on July 22, 2015 Cemig GT filed a petition with the Chair of the STJ requesting the application for retraction made within the Special Appeal, in such a way that, through reconsideration of the decision appealed against, an interim remedy should be granted, to keep the Company as holder of the concession of the São Simão Plant, on the initial basis of the Concession Agreement, until final judgment be given on this application for mandamus, or, subsidiarily, that, at least, suspension effect should be attributed to the Special Appeal.

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On August 20, 2015 it was stated that the MME would take the necessary measures to designate Cemig GT as provider of electricity generation service through the São Simão plant, under the quota regime, on the basis that the revocation of the interim order given in the application for mandamus had immediate enforceability.

In response, Cemig GT stated interest in remaining responsible for the provision of the electricity generation service of the São Simão plant, but pointed out that there are doubts as to the type, and legal security, of this provision of services, since the matter was still pending court and administrative decisions.

The MME, by Ministerial Order 432/2015, published on September 15, 2015, designated Cemig GT as the party responsible for provision of electricity generation service through the São Simão plant, under the quota regime (being responsible for the operation and maintenance of the plant without, however, having the right to its output of electricity, which will be allocated to the Guaranteed Power Offtake Auctions) until the taking over of the concession by the winner of the auction.

Further, in the judiciary, Cemig GT filed a further application for mandamus, to Justice Mauro Campbell Marques, requesting an annulment of the act of coercion, and assertion of the interim remedy that authorized the applicant to remain in possession and operation of the concession of the São Simão plant, on the initial bases of the contract, until final judgment was given on the application for mandamus governing the São Simão plant or, subsidiarily, until the merit of the Special Appeal would be considered.

On September 8, 2015, the decision of the Reporting Justice (Justice Herman Benjamin) was published, refusing the application for interim remedy applied for by the Company.

Also on September 8, 2015, a Special Appeal was filed against the decision of Justice Herman Benjamin that refused the application for interim remedy that had been made. During the Session of the Special Court of the STJ, on November 4, 2015, the Special Appeal was unanimously refused, in the terms of the judgment of the Reporting Justice.

On November 25, 2015, the Special Appeal filed by Cemig GT against the decision that overturned the interim remedy, in application for mandamus N° 21.465/DF, was, unanimously, refused by the first Section of the STJ, the said Appeal Court Judgment being published on December 1, 2015, the judgment on the merits of this application for mandamus remaining to be heard.

On March 6, 2017 the STJ granted an interim remedy maintaining Cemig GT in possession of the concession to operate the São Simão plant on the initial terms of its Concession Contract 007/1997, until conclusion of the judgment of the Company’s application for mandamus.

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On March 28, 2017 the interim remedy was revoked in the case in which Cemig GT seeks, in the STJ, annulment of the decision of the Mining and Energy Ministry (MME) which refused, on its merits, the application by Cemig GT for extension of the period of concession of the São Simão hydro Plant, in the terms of its Concession Contract.

Considering the present status of the legal dispute, the Company:

◾

recognized, up to the date of September 15, 2015, the operational revenues from sales of power supply and costs of this plant, in accordance with current accounting practices, in view of the fact that it remained in control of the asset up to that date;

◾

considering the requirements of Ministerial Order 432/2015, as from September 16, 2015, ceased to recognize the expenses of depreciation on the São Simão plant, and began to recognize revenues relating to the provision of services of operation and maintenance of the plant, in accordance with the regime of quotas;

◾

transferred, on September 16, 2015, the amount of R$ 220 from its PP&E to the account line ‘Other long term assets’, considering that it is still under decision in the Courts. Based on the terms of the concession agreement, this asset is considered as having a recovery value higher than the value at which it is recorded.

Concession of the Miranda Hydroelectric Plant

On June 10, 2016, Cemig Geração e Transmissão filed application to the regulator, Aneel, to extend the period of the concession for the Miranda Hydroelectric Plant for 20 years. On July 12, 2016, Aneel, complying with the judgment vote of the Reporting Council Member in the case, José Jurhosa Junior, decided to submit the case “to the Mining and Energy Ministry with the recommendation not to give cognizance to the request by Cemig Geração e Transmissão S.A. – Cemig GT for extension of the period of concession of the Miranda Hydroelectric Plant, since that request was made outside the period stipulated by Law 12783/2013”.

Cemig GT filed a request with the Concession-granting power requesting extension of the concession for the Miranda Hydroelectric Plant under Concession Contract 007/1997 – this plant had a period of the concession expiring on December 23, 2016.

Considering that this request was not accepted by the Mining and Energy Ministry, Cemig GT applied to the Higher Appeal Court (STJ) for an interim remedy. This was granted on December 22, 2016, ordering that control of the Miranda hydroelectric plant should remain with the Company, on the initial bases of Concession Contract 007/1997, until completion of the judgment in the application for Mandamus made by the Company.

On December 31, 2016 the asset, with book value of R$ 756, is posted in PP&E, and in 2016 the Company recognized the revenue from sales of power supply, and operational costs, of this plant, since it remained in control of the asset during that period.

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On March 29, 2017, the interim remedy (injunction) given in application for mandamus number 23.042/DF, before the Higher Appeal Court (STJ), brought by the Company to annul the decision by the Mining and Energy Ministry (MME) which refused, on merits Cemig GT’s request for ratification of the extension of its concession for the Miranda Hydroelectric Plant, under its Concession Contract, number 007/97, was revoked.

Administrative proceedings – Material Announcement of February 21, 2017

Subsidiarily to its request for extension for 20 years of the concessions of the Jaguara, São Simão and Miranda Hydroelectric Plants, the Company requested opening of an Administrative Proceeding under Paragraph 1-C of Article 8 of Law 12783/2013, in benefit of Cemig GT.

Paragraph 1-C was added to Article 8 of Law 12783, of 2013, by Law 13360, of November 17, 2016, and enables the federal government to grant a concession contract for electricity generation for a period of 30 (thirty) years when there is transfer of control of a legal entity that is already providing this service (in this case, one of the subsidiaries of Cemig GT), and is under direct or indirect control of an individual State, or the Federal District, or the municipality, provided that:

I – the tender, which may be by auction or by competitive bidding, is held by the controlling shareholder on or before February 28, 2018; and

II – the transfer of control takes place by June 30, 2018.

The subsidiary request was made on the grounds of the spirit of conciliation and cooperation that should govern the relationship between a concession holder and the concession-granting power, and the constant quest, at all times, for alternatives that present the best solution for consumers, for the country and for the shareholders of the Company – who in this case include the people of the state of Minas Gerais.

Thus, in the event that the Ministry decides to maintain its position, and if all the court judgments that have determined that Law 12783/2013 should prevail to the detriment of the provisions of the Second Subclause of Clause 4 of Contract CEMIG 007 of 1997 are maintained, Cemig GT has requested, for the benefit of one of its subsidiaries, application of the rule that is now contained in §1-C of Article 8 of Law 12783 of 2013.

We would point out that the presentation of the Subsidiary Request does not result in any waiver by Cemig GT of its right – which is the subject of the legal actions that it currently has in progress against the federal government – that is to say its right to guaranteed extension of the concessions as specified in Clause 4 of Concession Contract 007/1997.

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On the same date the Company filed with the MME a response to the formal question as to its interest in remaining as provider of electricity generation service after the ending of the concession period of the Volta Grande Hydroelectric Plant, which took place on February 23, 2017. In this response, and adding a request of its own, the Company stated its interest in remaining responsible for the provision of electricity generation service by this hydroelectric plant, and also requested opening of an administrative proceeding for the purposes of §1-C of Article 8 of Law 12783/2013, also to the benefit of one of the service providing subsidiaries of Cemig GT.

Management continues to be confident of its right in relation to the Jaguara, São Simão and Miranda plants, supported by a contractual clause, by the legislation in force, and by opinions issued by renowned jurists. The Company’s internal and external legal advisers have categorized the chance of success in the court dispute as ‘possible’.

Transmission concessions

Under its transmission concession contracts, the Company is authorized to charge the Tariff for Use of the Transmission System (Tarifa de Uso do Sistema de Transmissão, or TUST). Tariffs are adjusted annually on the same date as the adjustments of the Permitted Annual Revenue (Receitas Anuais Permitidas, or RAP) of the holders of transmission concessions. This tariff period starts on July 1 of the year of publication of the tariffs and runs until June 30 of the subsequent year.

The service of transport of large quantities of electricity for long distances, in Brazil, is provided by a network of transmission lines and substations operating at a voltage of 230kV or higher, referred to technically as the Basic Grid (Rede Básica), or National Grid.

Any agent of the electricity sector that produces or consumes electricity has the right to use the National Grid, as does the consumer, provided certain technical and legal requirements are met. This is referred to as Open Access, and in Brazil is guaranteed by law and by the regulator, Aneel.

The payment for use of transmission service also applies to generation provided by Itaipu Binacional. However, due to the legal characteristics of that plant, the corresponding charges are assumed by a number of holders of distribution concessions that hold quotas of its output.

For the newer transmission concessions – granted after the year 2000 – the portion of the assets that will not be used up during the concession is recorded as a financial asset, because there is an unconditional right to receive cash or other financial assets directly from the grantor at the end of the concession agreement period.

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For the older transmission concessions, granted before the year 2000, renewals have been applied for as from January 1, 2013 in accordance with Law 12783, under which the assets are the property of the Concession-granting Power, and the Company is remunerated, as from 2013, for the operation and maintenance of these assets.

Distribution of electricity concessions

Cemig D has the concession from Aneel for commercial exploration of the activity of distribution of electricity in the greater part of the State of Minas Gerais, expiring in December 2045.

As determined by the concession contract, all assets and facilities that are linked to the provision of the distribution service and which have been created by the concession holder are considered reversible and part of the assets of the related concession. These assets are automatically reverted to the Grantor at the end of the contract, and are then valued to determine the amount of the indemnity payable to the concession holder, subject to the amounts and the dates on which they were incorporated into the electricity system.

The Company does not have obligations to make payment in compensation for commercial operation of the distribution concessions, but is required to comply with requirements related to quality, and investments made, in accordance with the concession contract.

The concession contracts, and the Brazilian legislation, establish a mechanism of maximum prices that allows for three types of adjustment to tariffs: (i) an annual tariff adjustment; (ii) periodic review of tariffs; and (iii) extraordinary reviews.

Each year the Company has the right to request the annual adjustment, the purpose of which is to compensate for the effects of inflation on the tariffs, and to allow for certain changes in costs that are outside the Company’s control to be passed through to clients – for example the cost of electricity purchased for resale, and sector charges, including charges for the use of the transmission and distribution facilities.

Also, Aneel makes a Periodic Review of tariffs every five years, which aims to identify changes in the Company’s costs, and to establish a factor based on scale gains, which will be applied in the annual tariff adjustments, for the purpose of sharing such gains with the Company’s consumers.

The Company also has the right to request an extraordinary review of tariffs, in the event that any unforeseen development significantly alters the economic-financial equilibrium of the concession. The Periodic Review and the Extraordinary Review are subject, to a certain degree, to the discretion of Aneel, although there are pre-established rules for each cycle of revision. When the Company requests an annual tariff adjustment, it becomes necessary to prove the resulting financial impact of these events on operations.

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Under the distribution concession contracts, the Company is authorized to charge consumers a tariff consisting of two components: (i) One part relating to electricity purchased for resale, charges for use of the transmission grid and charges for use of the distribution system that are not under its control (‘Portion A costs’); and (ii) a portion relating to operating costs (‘Portion B costs’).

Renewal of concessions

On December 21, 2015 the Company signed, with the Mining and Energy Ministry, the Fifth Amendment to its concession contracts, extending its electricity distribution concessions for a further 30 years, as from January 1, 2016.

The principal characteristics and terms of the Amendment are as follows:

◾

The annual tariff adjustment will take place on May 28 of each year, the first to be in 2016. For this first adjustment the rules specified in the previous concession contract will be applied. For the subsequent tariff adjustments the rules in Clause 6 of the Amendment will be applied.

◾

Limitation of distribution of dividends and/or payment of Interest on Equity to the minimum established by law, if there is non-compliance with the annual indicators for outages for two consecutive years, or for three in any five years, until the regulatory parameters are restored.

◾

Requirement for injections of capital from the controlling shareholder in an amount sufficient to meet the minimum conditions for economic and financial sustainability.

◾

Subject to the right to full defense and right of reply, for the concession to be maintained, compliance is required with efficiency criteria for continuity of supply and for economic and financial management, as follows: (i) for five years from January 1, 2016, any non-compliance for two consecutive years, or non-compliance with any of the conditions at the end of five years, will result in extinction of the concession; (ii) as from January 1, 2021, any non-compliance for three consecutive years with the criteria of efficiency in continuity of supply, or for two consecutive years with the criteria of efficiency in economic and financial management, will result in proceedings to establish expiration of the concession.

Distribution of gas concessions

The concessions for distribution of natural gas are given by Brazilian states, and in the state of Minas Gerais the tariffs for natural gas are set by the regulatory body, the State’s Economic Development Secretariat, by market segment. The tariffs comprise a portion for the cost of gas and a portion for the distribution of gas. Every quarter the tariffs are adjusted to pass through the cost of gas, and once a year they are adjusted to update the portion allocated to cover the costs relating to the provision of the distribution service – remuneration of invested capital and to cover all the operating, commercial and administrative expenses of the concession holder.

In addition to these adjustments, in April 2015 the Economic Development Secretariat sent Gasmig Official Letter SEDE/GAB/Nº303/2014 stating the timetable set for the first Tariff Review cycle. The decision process is still in progress; the latest estimated date for its completion is the beginning of the second half of 2017. These reviews occur every five years, to evaluate the changes in the costs of the Company, and to adapt the tariffs. The Concession Contract also specifies the possibility of an extraordinary review of tariffs if any event occurs that puts the economic-financial balance of the Concession at risk.

On December 26, 2014 the Second Amendment to the Concession Contract was signed by Gasmig and the Minas Gerais State Government, extending by 30 years the period of concession in which Gasmig may commercially operate the services of industrial, commercial, institutional and residential piped gas in the state of Minas Gerais. The expiration date of the contract is thus now extended from January 10, 2023 to January 10, 2053.

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Concessions payable

In obtaining the concessions for construction of certain generation projects, the Company undertook to make payments to Aneel, over the period of the contract, as compensation for the commercial operation. The information on the concessions and the amounts to be paid is as follows:


Enterprise	Percentage interest		Nominal value in 2016		Present value in 2016		Amortization period		Updating indexor
Irapé		100.00		35		14		03/2006 to 02/2035		IGP-M
Queimado (Consortium)		82.50		9		4		01/2004 to 12/2032		IGP-M
Salto Morais Small Hydro Plant		100.00		—		—		06/2013 – 07/2020		IPCA
Rio de Pedras Small Hydro Plant		100.00		1		1		06/2013 – 09/2024		IPCA
Various Small Hydro Plants (*)		100.00		4		3		06/2013 – 08/2025		IPCA

(*)	Luiz Dias, Poço Fundo, São Bernardo and Xicão.

The concessions to be paid to the concession-granting power provide for monthly portions with different values over time. For the purposes of accounting and recognition of costs, due to the understanding that they represent an Intangible Asset related to the right of commercial operation, they are recorded as from the date of signature of the contracts at the present value of the payment obligation.

The portions paid to the Concession-granting power in 2016, the present value and the nominal value of the portions to be paid in the forthcoming period of 12 months, are as follows:


Enterprise	Percentage interest		Amounts paid in 2016		Present value of amounts to be paid in 12 months		Nominal value of amounts to be paid in 12 months
Irapé		100.00		2		2		2
Queimado (Consortium)		82.50		1		—		1

(*)	Luiz Dias, Poço Fundo, São Bernardo and Xicão.

The rates used for discounting of liabilities to present value, of 12.50% for the small hydro plants and 5.10% for the conventional hydroelectric plants, are the average rates for raising of funds in normal conditions on the date of registration of each concession.

5.	OPERATING SEGMENTS

The operating segments of Cemig reflect the structure of the regulatory framework for the Brazilian electricity sector, with different legislation for the sectors of generation, transmission and distribution of electricity. The Company also operates in gas, telecommunications, and other businesses, which have a smaller impact on the results from its operations.

These segments are reflected in the Company’s management, organizational structure, and monitoring of results. In accordance with the regulatory framework of the Brazilian electricity sector, there is no segmentation by geographical area.

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These tables show the operating revenues, costs and expenses for 2016, 2015 and 2014 in consolidated form:


OPERATING SEGMENTS, 2016
	ELECTRICITY									TELECOMS			GAS			*OTHER ()**			ELIMINATIONS			TOTAL
	GENERATION			TRANSMISSION			DISTRIBUTION			TELECOMS			GAS			*OTHER ()**			ELIMINATIONS			TOTAL
ASSETS OF THE SEGMENT		14.414			4.267			18.166			338			2.737			2.389			(276	)		42.035
ADDITIONS TO THE SEGMENT		916			—			1.602			163			56			—			—			2.737
ADDITIONS TO FINANCIAL ASSETS		2.217			54			—			—			—			—			—			2.271
INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES		5.292			1.670			1.754			18			—			19			—			8.753
NET REVENUE		5.875			1.113			10.597			125			1.181			116			(234	)		18.773
COST OF ELECTRICITY AND GAS		—			—			—			—			—			—			—			—
Electricity bought for resale		(3.071	)		—			(5.260	)		—			—			—			59			(8.272	)
Charges for use of the national grid		(321	)		—			(760	)		—			—			—			134			(947	)
Gas bought for resale		—			—			—			—			(877	)		—			—			(877	)

Operational costs, total		(3.392	)		—			(6.020	)		—			(877	)		—			193			(10.096	)

OPERATIONAL COSTS AND EXPENSES		—			—			—			—			—			—			—			—
Personnel		(271	)		(111	)		(1.147	)		(23	)		(47	)		(45	)		—			(1.644	)
Employees’ and managers’ profit shares		(1	)		—			(10	)		(1	)		—			4			—			(8	)
Post-retirement obligations		(54	)		(23	)		(231	)		—			—			(37	)		—			(345	)
Materials		(11	)		(3	)		(42	)		—			(2	)		—			—			(58	)
Outsourced services		(129	)		(30	)		(674	)		(23	)		(16	)		(32	)		37			(867	)
Depreciation and amortization		(202	)		—			(525	)		(38	)		(54	)		(16	)		—			(835	)
Operational provisions (reversals)		(88	)		(10	)		(544	)		(4	)		—			(67	)		—			(713	)
Construction costs		—			(54	)		(1.102	)		—			(37	)		—			—			(1.193	)
Other operational expenses, net		(57	)		(13	)		(395	)		11			(8	)		313			4			(145	)

Total cost of operation		(813	)		(244	)		(4.670	)		(78	)		(164	)		120			41			(5.808	)

OPERATIONAL COSTS AND EXPENSES		(4.205	)		(244	)		(10.690	)		(78	)		(1.041	)		120			234			(15.904	)
OPERATIONAL PROFIT BEFORE EQUITY GAINS (LOSSES) AND FINANCIAL REVENUE (EXPENSES)		1.670			869			(93	)		47			140			236			—			2.869
Equity in earnings of unconsolidated investees, net		(448	)		362			(180	)		(31	)		—			(5	)		—			(302	)
Adjustment for loss of value in Investments		(763	)		—			—			—			—			—			—			(763	)
Financial revenues		190			7			743			4			15			82			—			1.041
Financial expenses		(1.320	)		(4	)		(1.078	)		(9	)		(49	)		(18	)		—			(2.478	)

PRE-TAX PROFIT		(671	)		1.234			(608	)		11			106			295			—			367

Income tax and the Social Contribution tax		(24	)		5			103			(6	)		(8	)		(103	)		—			(33	)

NET PROFIT ( LOSS)		(695	)		1.239			(505	)		5			98			192			—			334

OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes		(92	)		—			(380	)		—			—			(43	)		—			(515	)
Equity gain (loss) on Other comprehensive income in jointly-controlled entities		—			—			—			—			—			4			—			4
Items that may be reclassified to profit or loss
Conversion adjustment of equity gain (loss) in other comprehensive income in subsidiary and jointly-controlled entity		—			—			—			—			—			(3	)		—			(3	)
Recycling of conversion adjustments to the Income statement arising from sale of Transchile		—			(39	)		—			—			—			—			—			(39	)

COMPREHENSIVE INCOME FOR THE YEAR		(92	)		(39	)		(380	)		—			—			(42	)		—			(553	)

Total of comprehensive income for the year attributed to:
Controlling shareholders		(787	)		(1,200	)		(885	)		5			98			150			—			(219	)

Non-controlling shareholder		—			—			—			—			—			—			—			—

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OPERATING SEGMENTS, 2015 (RESTATED)
ITEM	GENERATION			TRANSMISSION			DISTRIBUTION			TELECOM			GAS			*OTHER ()**			ELIMINATIONS			TOTAL
SEGMENT ASSETS		13,382			4,880			17,738			317			2,530			2,986			(976	)		40,857
ADDITIONS TO THE SEGMENT		577			—			1,044			42			62			1			—			1,726
ADDITIONS TO FINANCIAL ASSETS					146																		146
INVESTMENTS IN ASSOCIATES AND JOINTLY-CONTROLLED ENTITIES		5,751			2,423			1,547			—			—			24			—			9,745
NET REVENUE		7,047			519			12,962			123			1,395			90			(268	)		21,868
OPERATING COSTS
Electricity purchased for resale		(2,669	)		—			(6,993	)		—			—			—			120			(9,542	)
Charges for the use of the national grid		(297	)		—			(814	)		—			—						112			(999	)
Gas purchased for resale		—			—			—			—			(1,051	)		—			—			(1,051	)

		(2,966	)		—			(7,807	)		—			(1,051	)					232			(11,592	)
OTHER COSTS
Personnel		(224	)		(113	)		(1,000	)		(15	)		(43	)		(40	)		—			(1,435	)
Employees’ and managers’ profit shares		(24	)		(12	)		(95	)		(2	)		—			(4	)		—			(137	)
Post-retirement liabilities		(21	)		(10	)		(121	)		—			—			(4	)		—			(156	)
Materials		(95	)		(5	)		(52	)		—			(2	)		—			—			(154	)
Outsourced services		(143	)		(37	)		(697	)		(25	)		(15	)		(13	)		31			(899	)
Depreciation and amortization		(273	)		—			(444	)		(49	)		(54	)		(15	)		—			(835	)
Operating provisions (reversals)		(109	)		2			(209	)		(1	)		—			(1,084	)		—			(1,401	)
Construction costs		—			(146	)		(1,044	)		—			(62	)		—			—			(1,252	)
Other operating expenses. net		(62	)		(16	)		(283	)		(20	)		(9	)		(42	)		5			(426	)

Total cost of operation		(951	)		(337	)		(3,945	)		(112	)		(185	)		(1,202	)		36			(6,695	)
TOTAL COSTS AND EXPENSES		(3,917	)		(337	)		(11,752	)		(112	)		(1,236	)		(1,202	)		268			(18,287	)
Operating profit before Equity gains (losses) and Financial revenue (expenses)		3,130			182			1,210			11			159			(1,112	)					3,581
Equity in earnings of unconsolidated investees, net		17			410			(6	)		(28	)		—			—			—			393
Fair value results in Corporate Operation		729			—			—			—			—			—			—			729
Financial revenues		199			22			543			4			23			73						863
Financial expenses		(984	)		(7	)		(1,130	)		(6	)		(42	)		(35	)		—			(2,204	)

Income before income tax and social contribution taxes		3,091			607			617			(19	)		140			(1,074	)		—			3,362
Income and social contribution taxes		(836	)		(71	)		(256	)		(16	)		(23	)		309			—			(893	)

NET INCOME FOR THE YEAR		2,255			536			361			(35	)		117			(765	)		—			2,469

OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes		(84	)		—			(170	)		—			—			(106	)		—			(360	)
Equity gain (loss) on Other comprehensive income in jointly-controlled entities		—			—			—			—			—			(1	)		—			(1	)
Items that may be reclassified to profit or loss
Equity gain (loss) on Other comprehensive income in jointly-controlled entitie		14			—			—			—			—			40			—			54

COMPREHENSIVE INCOME FOR THE YEAR		2,171			536			194			(35	)		117			(821	)		—			2,162

Total of comprehensive income for the year attributed to:
Controlling shareholders		2,171			536			194			(35	)		117			(821	)		—			2,162
Non-controlling shareholder		—			—			—			—			—			—			—			—

(*)	The expense of R$ 1,084 recorded as operating provisions in the Others column refers substantially to expenses on the option to purchase investments held by the parent company and described in Note 15.

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OPERATING SEGMENTS. 2014 (RESTATED)
ITEM	GENERATION			TRANSMISSION			DISTRIBUTION			TELECOM			GAS			OTHER			ELIMINATIONS			TOTAL
SEGMENT ASSETS		11,528			3,882			15,064			327			2,549			2,007			(357	)		35,000
ADDITIONS TO THE SEGMENT		2,995						792			29			501			19			—			4,336
ADDITIONS TO FINANCIAL ASSETS					80																		80
INVESTMENTS IN ASSOCIATES AND JOINTLY-CONTROLLED ENTITIES		4,036			2,315			1,199			—			—			490			—			8,040
		—			—			—			—			—			—			—			—
NET REVENUE		7,339			708			11,296			119			340			90			(297	)		19,595
OPERATING COSTS		—			—			—			—			—			—			—			—
Electricity purchased for resale		(1,833	)		—			(5,747	)		—			—			—			152			(7,428	)
Charges for the use of the national grid		(282	)		—			(573	)		—			—			—			111			(744	)
Gas purchased for resale		—			—			—			—			(254	)		—			—			(254	)

		(2,115	)		—			(6,320	)		—			(254	)		—			263			(8,426	)

OTHER COSTS
Personnel		(201	)		(105	)		(886	)		(13	)		(11	)		(36	)		—			(1,252	)
Employees’ and managers’ profit shares		(39	)		(16	)		(184	)		(1	)		—			(9	)		—			(249	)
Post-retirement liabilities		(34	)		(14	)		(153	)		—			—			(11	)		—			(212	)
Materials		(295	)		(5	)		(80	)		—			(1	)		—			—			(381	)
Outsourced services		(159	)		(39	)		(737	)		(23	)		(2	)		(23	)		30			(953	)
Depreciation and amortization		(324	)		—			(428	)		(34	)		(4	)		(11	)		—			(801	)
Royalties for use of water resources		(127	)		—			—			—			—			—			—			(127	)
Operating provisions (reversals)		(62	)		(26	)		(300	)		—			—			(193	)		—			(581	)
Construction costs		—			(81	)		(861	)		—			—			—			—			(942	)
Other operating expenses, net		(130	)		(34	)		(297	)		(27	)		(11	)		(29	)		4			(524	)

Total cost of operation		(1,371	)		(320	)		(3,926	)		(98	)		(29	)		(312	)		34			(6,022	)

TOTAL COSTS AND EXPENSES		(3,486	)		(320	)		(10,246	)		(98	)		(283	)		(312	)		297			(14,448	)
Operating profit before Equity gains (losses) and Financial revenue (expenses)		3,853			388			1,050			21			57			(222	)		—			5,147

Equity in earnings of unconsolidated investees, net		(386	)		386			150			(28	)		47			41			—			210
Gain on acquisition of control of investee		—			—			—			—			—			281			—			281
Financial revenues		119			46			300			5			21			44			—			535
Financial expenses		(396	)		(291	)		(751	)		(3	)		(6	)		(247	)		—			(1,694	)

Income before income tax and social contribution taxes		3,190			529			749			(5	)		119			(103	)		—			4,479
Income and social contribution taxes		(1,116	)		(44	)		(169	)		(7	)		(12	)		6			—			(1,342	)

NET INCOME FOR THE YEAR		2,074			485			580			(12	)		107			(97	)		—			3,137

OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or loss
Post retirement liabilities – restatement of obligations of the defined benefit plans, net of taxes		—			—			(36	)		—			—			(8	)		—			(44	)
Equity gain (loss) on other comprehensive income in jointly-controlled entities		—			—			—			—			—			(7	)		—			(7	)
Items that may be reclassified to profit or loss
Equity gain (loss) on other comprehensive income in jointly-controlled entities		—			—			—			—			—			10			—			10

COMPREHENSIVE INCOME FOR THE YEAR		2,074			485			544			(12	)		107			(102	)		—			3,096

Total of comprehensive income for the year attributed to:
Controlling shareholders		2,074			485			544			(12	)		107			(102	)		—			3,096
Non-controlling shareholder		—			—			—			—			—			—			—			—

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6.	CASH AND CASH EQUIVALENTS


	2016		2015
Bank accounts		101		52
Cash investments
Bank certificates of deposit		524		723
Repos (‘Overnight’ market)		370		128
Other		—		22

	894		873

	995		925

Bank certificates of deposit (Certificados de Depósito Bancário, or CDBs), with fixed or floating rates, are remunerated at a percentage varying from 75% to 106% in 2016 (75% to 111% in 2015) of the CDI rate (Interbank Rate for Certificates of Deposit – Certificados de Depósito Interbancário, or CDIs), published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip).

Overnight repo transactions are short-term cash investments, with availability for redemption on the day following the date of investment. They are usually backed by treasury bills, notes or bonds and referenced to a fixed rate of approximately 13.64% p.a. in 2016 (14.3% p.a. in 2015).

The Company’s exposure to interest rate risk and a sensitivity analysis of financial assets and liabilities are given in Note 29 to the consolidated financial statements.

7.	SECURITIES


	2016		2015
Cash investments
Current
Bank certificates of deposit		46		1,717
Financial Notes – Banks		728		461
Treasury Financial Notes (LFTs)		193		88
Debentures		45		160
Other		2		1

	1,014		2,427
Non-current
Bank certificates of deposit		—		43
Financial Notes – Banks		14		41
Other		17		—

	31		84
	1,045		2,511

Fixed-rate or floating-rate Bank certificates of deposit (Certificados de Depósito Bancário, or CDBs) are remunerated at a percentage of the rate for interbank deposits (Certificado de Depósito Interbancário, or CDI rate), which is published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip). This percentage ranges from 100.5% to 105.25% in 2016 (75% to 105% in 2015) depending on the transaction.

Bank Financial Bills (Letras Financeiras, or LFs) are fixed-rate fixed-income securities, issued by banks and remunerated at a percentage of the CDI rate published by Cetip. The remuneration rate on the LFs in Cemig’s portfolio varies between 104.25% to 112.7% of the CDI rate in 2016 (105% to 116.7% of the CDI rate in 2015).

Treasury Financial Notes (LFTs) are fixed rate securities, the yield on which follows the daily variation of the Selic rate between the date of purchase and the date of purchase of the security.

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Debentures are medium and long term debt securities, which give their holders a right of credit against the issuing company. The debentures have remuneration rates varying between 104.25% to 113% of the CDI rate in 2016 (105.4% to 113% of the CDI rate in 2015).

Note 29 gives a classification of these securities. Cash investments in securities of related parties are shown in Note 28.

8.	CONSUMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERS


	Balances not yet due		Up to 90 days past due		More than 90 days past due			2016			2015
Invoiced supply		1,067		710		791			2,568			2,413
Supply not yet invoiced		920		—		—			920			1,125
Wholesale supply to other concession holders		390		20		13			423			99
CCEE (Electricity Trading Chamber)		—		—		1			1			516
Concession holders – Transport of electricity		233		11		75			319			370
(–) Allowance for doubtful accounts		—		—		(660	)		(660	)		(625	)

		2,610		741		220			3,571			3,898

Current assets									3,425			3,765
Non-current assets									146			133

The Company’s exposure to credit risk related to Consumers and traders is given in Note 29.

The provision for the allowance for doubtful receivables is considered to be sufficient to cover any losses in the realization of these assets, and breaks down by type of consumer as follows:


	2016		2015
Residential		245		211
Industrial		133		136
Commercial, services and others		152		117
Rural		24		19
Public authorities		10		12
Public illumination		5		5
Public service		15		10
Charges for use of the network—TUSD		68		112
Other		8		3

		660		625

Changes in the provision for doubtful receivables in 2016, 2015 and 2014 were as follows:


Balance on December 31, 2013	585

New provisions	127
Reversals	(62	)

Balance on December 31, 2014	650

New provisions	175
Reversals	(200	)

Balance on December 31, 2015	625

New provisions (reversals)	382
Written off	(347	)

Balance at December 31, 2016	660

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Advance sales of power supply

Cemig GT made a transaction with a large client for an advance on sales of power supply, receiving the amount of R$ 181 in advance, in relation to the quantity of supply contracted for the period January 1, 2017 to December 31, 2017.

9.	RECOVERABLE TAXES


	2016		2015
Current
ICMS tax recoverable		155		113
PIS and Pasep taxes		12		9
Cofins tax		58		44
Other		11		9

	236		175

Non-current
ICMS tax recoverable		171		183
PIS and Pasep taxes		1		13
Cofins tax		5		60
Other		1		2

	178		258

	414		433

The credits of the PIS, Pasep, Cofins and ICMS taxes, recorded in Non-current assets, arise from acquisitions of property, plant and equipment and can be offset over 48 months. The transfer to Non-current was made in accordance with estimates by management of the amounts which will likely be realized up to December 2017.

10.

INCOME AND SOCIAL CONTRIBUTION TAXES

a)	Income and social contribution taxes recoverable

The balances of income and social contribution taxes refer to tax credits in corporate income tax returns of previous years and to advance payments in 2016, which will be offset against federal taxes payable for the year 2017. These are posted in Taxes and contributions.


	2016		2015
Current
Income tax		436		226
Social Contribution tax		154		80

	590		306

Non-current
Income tax		98		192
Social Contribution tax		14		14

	112		206

	702		512

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b)	Deferred income and social contribution taxes

Cemig and its subsidiaries have tax credits for income tax, constituted at the rate of 25%, and the social contribution tax, constituted at the rate of 9%, as follows:


	2016			2015
Deferred tax assets
Tax loss carryforwards		290			236
Provisions		1,027			713
Post-retirement liabilities		1,175			831
Allowance for doubtful receivables		229			210
Taxes payable – suspended liability (1)		202			200
Paid concession		8			9
Other		22			54

Total		2,953			2,253

Deferred tax liabilities
Funding cost		(45	)		(20	)
Deemed cost		(268	)		(280	)
Adjustment to present value		—			—
IRT		—			—
Cost of acquisition of equity interests		(481	)		(499	)
Borrowing costs, capitalized		(149	)		(108	)
Taxes on revenues from unredeemed cash investments – Presumed Profit accounting method		(2	)		(2	)
Updating of indemnity value assets		(517	)		(262	)
Adjustment of expectation of cash flow from the indemnifiable Financial asset of distribution concession		(271	)		(273	)
Other		(5	)		—

Total		(1,738	)		(1,444	)

Total, net		1,215			809

Total assets		1,797			1,498
Total liabilities		(582	)		(689	)

(1)	Refers to court escrow deposit of PIS, Pasep and Cofins taxes charged on amounts of ICMS tax.

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The changes in Deferred income and social contribution taxes were as follows:


Balance on December 31, 2013	965

Effects allocated to Statement of income	(83	)
Deferred taxes recognized in business combination	(269	)
Effects allocated to Statement of comprehensive income	22

Balance on December 31, 2014	635

Effects allocated to Statement of income	(12	)
Effects allocated to Statement of comprehensive income	191
Realized	(5	)

Balance on December 31, 2015	a	)

Effects allocated to Statement of income	141
Effects allocated to Statement of comprehensive income	265

Balance at December 31, 2016	1,215

The Board of Directors, in a meeting held on April 11, 2017 approved a technical study prepared by the Financial Department, on the forecast for the Company’s future profitability. This study was also submitted to examination by the Audit Board on April 11, 2017.

Under the current Brazilian tax legislation deductible temporary differences and accumulated tax losses do not expire by limitation of time. Deferred tax assets have been recognized in relation to these items, because it is probable that the future taxable profits will be available for the Company to be able to use for the benefits of these items.

According to the individual estimates of the Company and its subsidiaries, the future taxable profits enable the Deferred tax asset existing on December 31, 2016 to be realized, as follows:


2017			394
2018			387
2019			437
2020			404
2021			598
2022-2024			490
2025-2026			243

			2,953

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c)	Reconciliation of the expense on income and social contribution taxes

This table reconciles the nominal expense on income tax (rate 25%) and the Social Contribution tax (rate 9%) with the actual expense, presented in the Statement of income:


	2016			2015			2014
Profit before income tax and Social Contribution tax		367			3,362			4,479
Income tax and Social Contribution tax – nominal expense		(125	)		(1,143	)		(1,523	)
Tax effects applicable to:
Gain (loss) in subsidiaries by equity method (net of Interest on Equity)		(132	)		105			25
Interest on Equity		129			68			78
Gain on formation of Aliança Geração		—			87			—
Deduction of amortized intangible concession assets – capital gain, Taesa		20			—			—
Non-deductible contributions and donations		(4	)		(7	)		(13	)
Tax incentives		3			43			66
Tax credits not recognized		5			(1	)		(1	)
Difference between Presumed Profit and Real Profit		126			25			8
Non-deductible penalties		(16	)		(10	)		(5	)
Excess on reactive power and demand levels		(12	)		(11	)		(12	)
Write-down for part of allowance for doubtful debtors		(22	)		(32	)		—
Other		(5	)		(17	)		35

Income tax and Social Contribution – effective gain (expense)		(33	)		(893	)		(1,342	)

Effective rate		8.99%			26.56%			29.96%
Current tax		(174	)		(881	)		(1,259	)
Deferred tax		141			(12	)		(83	)

Tax incentives – Sudene

The federal tax authority (Receita Federal) recognized the right to a reduction of 75% in income tax, including the part paid at the additional rate, calculated based on the operating profit made in the region under the aegis of Sudene (the Development Authority for the Northeast), for 10 years from 2014. The incentive amounts recorded in the Income statement were: R$ 7 in 2016, R$ 21 in 2015 and R$ 25 in 2014. These items were all subsequently transferred to the Tax Incentive Reserve.

11.

RESTRICTED CASH

The total recorded as Restricted cash, R$ 367, refers mainly to the amount deposited with Banco Santander, in accordance with the shareholders’ agreement of RME and Luce, as guarantee for settlement of the put options. The contract for the account with the depositary bank is in effect until December 15, 2017.

12.

ESCROW DEPOSITS

These payments are mainly for legal actions relating to employment-law contingencies and tax obligations.

The most important escrow deposits for tax obligations refer to the Pasep and Cofins taxes – in actions seeking to exclude the ICMS tax itself from the calculation base of the Pasep and Cofins taxes.

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	2016		2015
Employment law cases		381		367
Tax issues
Income tax on Interest on Equity		15		15
Pasep and Cofins tax (1)		746		751
ICMS credits on PP&E		37		36
Donations and legacy tax (ITCD)		46		34
Urban property tax (IPTU)		80		68
Finsocial tax		37		23
Other		202		185

		1,163		1,112

Other
Monetary updating on AFAC from Minas Gerais State Government (2)		239		239
Regulatory		60		57
Third party		13		10
Consumer relations		6		4
Court embargo		8		12
Other		17		12

		343		334

		1,887		1,813

(1)

The escrow deposits relating to Pasep and Cofins taxes refer to the case challenging the constitutionality of inclusion of the ICMS tax, which has been charged, within the amount on which the Pasep and Cofins taxes are calculated. They have a corresponding provision in Taxes. See more details in Note 19.

(2)

Administrative deposit in case seeking suspension of enforceability of the credit charged by the Minas Gerais State Government for a difference in the monetary updating on the Advance against Future Capital Increase (Adiantamento contra Futuro Aumento de Capital, or AFAC). See more details in Note 23.

13.

ENERGY DEVELOPMENT ACCOUNT (CDE)

Reimbursment of tariff subsidy payments

The subsidies applicable to tariffs charged to users of public electricity distribution service, which are reimbursed through payments of funds from the Energy Development Account (CDE).

In 2016, the amount appropriated as incoming subsidies was R$ 792 (R$ 801 in 2015 and R$ 579 in 2014). Of the amount provisioned, the Company has R$ 64 receivable (R$ 72 in 2015). This is recognized in current assets.

Payments from the Tariff Flag Funds Centralizing Account

The ‘Flag Account’ (Conta Centralizadora de Recursos de Bandeiras Tarifárias – CCRBT or ‘Conta Bandeira’) manages the funds collected from captive customers of utilities of the national grid holding electricity distribution concessions and permissions – these were paid, on behalf of the CDE, directly to the Flag Account. The resulting funds are passed through by the Wholesale Trading Chamber (CCEE) to distribution agents, based on the differences between (i) realized costs of thermal generation and exposure to short-term market prices, and (ii) the amounts covered by the tariff.

In 2016 the amounts Paid by the Flag Account totaled R$ 341 (R$ 1,124 in 2015). This was recognized as a partial realization of the CVA receivable previously constituted.

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14.

FINANCIAL ASSETS AND LIABILITIES OF THE CONCESSION


Financial assets of the concession	2016		2015
Assets related to infrastructure (a)
Distribution concessions		215		137
Transmission concessions		482		401
Transmission Indemnity receivable		1,805		1,054
Generation Indemnity receivable		547		546
Generation —Assets remunerated by tariff		—		46
Concession Grant Fee – Plants contracted at Auction 12/2015		2,254		—

		5,303		2,184
CVA (Portion A Variation Compensation Account) and Other financial components in tariff adjustments (b)		398		1,350

Total		5,701		3,534

Current assets		730		874
Non-current assets		4,971		2,660


Financial liabilities of the concession	2016		2015
CVA (Portion A Variation Compensation Account) and Other financial components in tariff adjustments (b)		805		—
Current liabilities		482		—
Non-current liabilities		323		—

a)	Assets related to infrastructure

The distribution of energy, transmission of energy and gas contracts of the Company and its subsidiaries are within the criteria for application of Technical Interpretation IFRIC 12, which governs accounting of concessions. These contracts refer to the investment made in infrastructure, which will be the subject of indemnity by the Concession-granting power, during the period and at the end of the concessions, as specified in the regulations of the electricity sector and in the concession contract signed between Cemig and its subsidiaries and the related concession-granting powers.

Transmission Indemnity receivable

The Company’s transmission concession contracts are within the criteria for application of Technical Interpretation IFRIC 12, which deals with accounting of concessions, and refer to invested infrastructure that will be the subject of indemnity by the Concession-granting power during and at the end of their concession periods, as laid down in the regulations for the electricity sector, and in the concession contract.

Aneel Normative Resolution 589, of December 10, 2013, laid down the criteria for calculation of the New Replacement Value (Valor Novo de Reposição, or VNR) of the transmission facilities, for the purposes of indemnity.

On August 16, 2016 Aneel, through its Dispatch 2181, homologated the amount of R$ 892, in currency of November 2012, for the portion of the reversible assets not yet amortized, for the purposes of indemnity to Cemig GT.

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On April 22, 2016 the Mining and Energy Ministry (MME) published its Ministerial Order 120, setting the deadline and method of payment of the remaining amount of the indemnity.

The Ministerial Order determined that the amounts homologated by Aneel should become part of the Regulatory Remuneration Asset Base (Base de Remuneração Regulatória, or BRR) and that the cost of capital should be added to the related Permitted Annual Revenues (‘RAP’).

The portions of remuneration and depreciation not paid in the period from the extensions of the concessions up to the tariff-setting process of 2017 are to be updated by the IPCA index and remunerated at the real cost of own capital of the transmission segment of the industry as decided by Aneel in the methodologies for Periodic Tariff Reviews of Revenues for Existing Concession Holders, currently 10.44% per year, to be paid over eight years by reimbursement through the RAP.

The Ministerial Order still awaits certain decisions, and as a result Public Hearing 068/2016 was opened on October 14, 2016 to obtain input for improvement of the regulations for calculation of the cost of capital to be added to the RAP (Permitted Annual Revenue) of the transmission concession holders.

Considering that MME Ministerial Order 120 specifies that cost of capital is to comprise two portions – Remuneration; and Depreciation (QRR) – the Company, based on the best information available, made the necessary adjustments, arriving at the following values as indemnity:


Regulatory Remuneration Base (BRR) – Dispatch 2181/2016	1,177
Amount of the indemnity received so far	(285	)

Net value of the assets for purposes of indemnity	892

Updating in accordance with MME Order 120/16 – IPCA index / Cost of own capital – Period Jan. 2013 to Dec. 2016	913

Total indemnity	1,805

Transmission – Assets remunerated by tariff

For the new assets consisting of improvements and strengthening of facilities implemented by the transmission concession holders, Aneel calculates an additional portion of Permitted Annual Revenue (RAP) in accordance with a methodology specified in the Tariff Regulation Procedures (Procedimentos de Regulação Tarifária, or Proret).

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Under the Proret procedure, the revenue established in the Resolutions is payable to the transmission companies as from the date of start of commercial operation of the facilities. In the periods between reviews, the revenues associated with the improvements and strengthening of facilities are provisional. They are then definitively decided in the review immediately subsequent to the start of commercial operation of the facilities; this review then has effect backdated to the date of start of commercial operation.

Distribution assets

The Fifth Amendment to the Public Electricity Distribution Service Concession Agreements was signed on December 21, 2015, extending the concessions for a further 30 years, from January 1, 2016 to December 31, 2045. As a result, for determining Financial Assets, the new Amendment signed has been used as a reference, and the portion of Financial assets that will be used during the period of the new concession has been transferred to Intangible assets.

Generation Indemnity receivable

In July 2015 termination dates for several of the plants operated by the Company was reached under Concession Contract 007/97. As from the termination of the concession, the Company held the indemnity rights of the assets not yet depreciated/amortized, as specified in the concession contract referred to. The accounting balances corresponding to these assets, including the Deemed Cost, were transferred from Fixed assets to Financial assets on the date of termination of the concession, and total R$ 547.


Generating plant	Concession expiration date		Installed capacity (MW)		Net balance of assets on Dec. 31, 2016 based on historic cost		Net balance of assets on Dec. 31, 2016 based on deemed cost
Três Marias Hydroelectric Plant		July 2015		396		71		414
Salto Grande Hydroelectric Plant		July 2015		102		10		39
Itutinga Hydroelectric Plant		July 2015		52		4		7
Camargos Hydroelectric Plant		July 2015		46		8		23
Piau Small Hydroelectric Plant		July 2015		18,01		2		9
Gafanhoto Small Hydroelectric Plant		July 2015		14		1		10
Peti Small Hydroelectric Plant		July 2015		9,4		1		8
Dona Rita Small Hydroelectric Plant		Sep. 2013		2,41		1		1
Tronqueiras Small Hydroelectric Plant		July 2015		8,5		2		12
Joasal Small Hydroelectric Plant		July 2015		8,4		1		8
Martins Small Hydroelectric Plant		July 2015		7,7		2		4
Cajuru Small Hydroelectric Plant		July 2015		7,2		4		4
Paciência Small Hydroelectric Plant		July 2015		4,08		1		4
Marmelos Small Hydroelectric Plant		July 2015		4		1		4

				679,70		109		547

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As specified in Aneel Normative Resolution 615/2014, the Valuation Opinions proposing the amounts of the indemnity of the assets were delivered to Aneel by December 31, 2015. Based on the discussions and valuations currently in progress, management believes that the amount recorded is the best estimate of indemnity taking into account the information available up to the reporting date of the accounting statements at December 31, 2016.

From the termination of the concession contract until January 4, 2016, the plants were operated by the Company under the Quota regime, with remuneration by a tariff only to cover costs of operation and maintenance of the assets. On January 5, 2016 the plants began to be operated in accordance with the terms of the Auction won by Cemig GT on November 25, 2015 (‘Auction 12/2015’) as described in more detail below:

Concession Grant Fee – Auction 12/2015

Under Provisional Measure 579/2012, enacted as Law 12783/2013, the concessions of 14 plants of Cemig GT (Cajuru, Camargos, Gafanhoto, Itutinga, Joasal, Marmelos, Martins, Paciência, Peti, Piau, Salto Grande, Três Marias, Tronqueiras and Volta Grande), and those of the Jaguara, São Simão and Miranda plants were made subject to acceptance of predefined tariffs, and indemnity of the yet unamortized investments made for each plant. At the time, Cemig GT did not accept the terms for renewal.

In November 2015, Cemig GT took part in Auction 12/2015 and won the concessions of Lot D. This lot comprises 18 plants – for five of which the concession had been previously held by Furnas S.A..

The contract for these plants gives Cemig the concession for their commercial operation for the next 30 years, and requires that: in 2016 the whole of the output will be sold in the Regulated Market, under the Physical Guarantee Quota System (Sistema de Cotas de Garantia Física, or CGF); and in 2017, 70% of the output will be sold in the Regulated Market and 30% in the Free Market.

Cemig’s offer for acquisition of grant of the 30-year concession for the 18 hydroelectric plants was R$ 2,216. Of this fee, 65% was paid on January 4, 2016, and the remaining 35% (initially R$ 776) was paid on July 1, 2016 (updated by the Selic rate to a total payment of R$ 828). The contract was signed by Cemig GT on January 5, 2016.

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In June 2016, title to Concession Contracts 08 to 16/2016, relating to the Auction won by Cemig GT on November 25, 2015, was transferred to the related specific-purpose companies (SPCs), wholly-owned subsidiaries of Cemig GT, as follows:


	Balances transferred on May 31, 2016		Monetary updating		Amounts received			Balance at Dec. 31, 2016
Cemig Geração Três Marias S.A.		1,260		192		(169	)		1,283
Cemig Geração Salto Grande S.A.		396		60		(53	)		403
Cemig Geração Itutinga S.A.		148		25		(23	)		150
Cemig Geração Camargos S.A.		110		18		(16	)		112
Cemig Geração Sul S.A.		145		26		(24	)		147
Cemig Geração Leste S.A.		98		19		(18	)		99
Cemig Geração Oeste S.A.		59		12		(11	)		60

Total		2,216		352		(314	)		2,254

The amount of the concession grant fee was recognized as a financial asset, due to the Company having the unconditional right to receive the amount paid, plus updating by the IPCA Index and remuneratory interest, during the period of the concession.

The changes in Financial assets of the concession related to infrastructure are as follows:


	Transmission			Generation			Distribution			Gas			Total
Balance on December 31. 2013		779			—			5,064			—			5,843

Additions		80			—			—			—			80
Written off		—			—			(19	)		—			(19	)
Updating of indemnifiable value of assets		420			—			—			—			420
Asset acquired in business combination		—			—			—			656			656
Transfers		(1	)		—			844			(656	)		187
Amounts received		(6	)		—			—			—			(6	)
Adjustment to expectation of cash flow from the indemnifiable Financial asset of the distribution concession		—			—			55			—			55

Balance on December 31. 2014		1,272			—			5,944			—			7,216

Additions		146			—			—			—			146
Written off		(6	)		—			(31	)		—			(37	)
Transfer from Financial assets to Intangible assets on renewal of concessions		—			—			(7,162	)		—			(7,162	)
Transfers		(2	)		—			808			—			806
Generation Indemnity receivable		—			546			—			—			546
Amounts received		(10	)		—			—			—			(10	)
Adjustment to expectation of cash flow from the indemnifiable Financial asset of the distribution concession		—			—			578			—			578
Updating of indemnifiable value of assets		101			—			—			—			101

Balance on December 31. 2015		1,501			546			137			—			2,184

Additions		54			1			—			—			55
Addition – Grant Fee – Plants		—			2,216			—			—			2,216
Written off		(3	)		0			—			—			(3	)
Amounts received		(16	)		(315	)		—			—			(331	)
Transfer from Financial to Intangible assets		—			—			71			—			71
Updating of the Concession Grant Fee		—			352			—			—			352
Adjustment to expectation of cash flow from the indemnifiable Financial asset of the distribution concession		—			—			8			—			8
Monetary updating		751			—			—			—			751

Balance at December 31, 2016		2,287			2,800			216			—			5,303

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b)	CVA Account (Compensation of Portion A items) and Other Financial Components in tariff adjustments

The Amendment that extended the period of the concession of Cemig D guarantees that, in the event of extinction of the concession, for any reason, the remaining balances (assets and liabilities) of any shortfall in payment or reimbursement through the tariff must also be included by the Concession-granting power in the total of the indemnity.

The balances on (i) the CVA Account, (ii) the account for Neutrality of Sector Charges, and (iii) Other financial items in the tariff calculation, refers to the positive and negative differences between the estimate of the Company’s non-manageable costs and the payments actually made. The variations found are the subject of monetary updating based on the Selic rate and compensated in the subsequent tariff adjustments.

The balances of these financial assets and liabilities are shown below. Please note that in the Interim Accounting Information the balances of each line are presented at net value in assets or liabilities in accordance with the tariff adjustments homologated or to be homologated:


Balances at December 31, 2016	Current					Non-current					Total assets		Total liabilities
Balances at December 31, 2016	Assets		Liabilities			Assets		Liabilities			Total assets		Total liabilities
Items of ‘Portion A’
Quota for the Energy Development Account (CDE)		203		(145	)		—		(100	)		203		(245	)
Tariff for use of transmission facilities of grid participants		7		—			3		—			10		—
Tariff for transport of electricity provided by Itaipu		8		—			2		—			10		—
Program to encourage alternative sources of electricity – Proinfa		15		—			2		—			17		—
System Service Charges (ESS) and Reserve Energy Charge (EER)		—		(167	)		—		(77	)		—		(244	)
Electricity purchased for resale		1,676		(1,300	)		370		(402	)		2,046		(1,702	)

Other financial components
Overcontracting of supply		—		(137	)		—		(23	)		—		(160	)
Neutrality of Portion A		79		(46	)		1		(33	)		80		(79	)
Other financial items		3		(266	)		—		(66	)		3		(332	)
Tariff Flag balances (1)		—		(14	)		—		—			—		(14	)

TOTAL		1,991		(2,075	)		378		(701	)		2,369		(2,776	)

(1)	Billing arising from the Tariff Flag System not yet homologated by Aneel.

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Balances at December 31, 2015	Current					Non-current					Total assets		Total liabilities
Balances at December 31, 2015	Assets		Liabilities			Assets		Liabilities			Total assets		Total liabilities
Items of ‘Portion A’
Quota for the Energy Development Account (CDE)		249		—			88		—			337		—
Tariff for use of transmission facilities of grid participants		42		—			3		—			45		—
Tariff for transport of electricity from Itaipu		8		—			3		—			11		—
Program to encourage alternative sources of electricity – Proinfa		5		(1	)		2		—			7		(1	)
System Service Charges (ESS) and Reserve Energy Charge (EER)		—		(255	)		—		(53	)		—		(308	)
Electricity purchased for resale		2,021		(739	)		572		(204	)		2,593		(943	)

Other financial components
Overcontracting of supply		—		(408	)		—		(122	)		—		(530	)
Neutrality of Portion A		88		(2	)		31		—			119		(2	)
Other financial items		11		(1	)		170		—			181		(1	)
‘Tariff Flag’ amounts (1)		—		(158	)		—		—			—		(158	)

TOTAL		2,424		(1,564	)		869		(379	)		3,293		(1,943	)

(1)	Billing arising from the Tariff Flag System not yet homologated by Aneel.


Balance	Amounts homologated by Aneel in the last tariff adjustment			Amounts to be homologated by Aneel in the next tariff adjustment			2016			2015
Assets		1,444			925			2,369			3,293
Liabilities		(1,046	)		(1,730	)		(2,776	)		(1,943	)

		398			(805	)		(407	)		1,350

This table shows changes in balances of financial assets and liabilities in 2016, 2015 and 2014:


Balance on December 31, 2013	—
New financial assets constituted	1,107

Balance on December 31, 2014	1,107

(+) New financial assets constituted	2,285
(–) Amortization	(581	)
(–) Receipt of funds from the ACR Account and from the Centralizing Account for Funds from the Tariff Flag System—CCRBT (1)	(1,529	)
(+) Updating – Selic rate	68

Balance on December 31, 2015	1,350

(–) Net constitution of financial assets	(858	)
(–) Amortization	(597	)
(–) Payments from the Tariff Flag Funds Centralizing Account (1)	(341	)
(–) Transfer (2)	(165	)
(+) Updating – Selic rate (3)	204

Balance at December 31, 2016	(407	)

(1)	See more details in Note 13.

(2)

The financial component constituted to be passed through to the tariff at the next tariff adjustment, arising from judgments (injunctions/provisional remedy) in legal actions challenging part of the amount of the CDE (Energy Development Account) charge, was reclassified to Credits owed by Eletrobras, and will be amortized with counterpart in deductions from the monthly CDE charges to be paid to Eletrobras, in accordance with a Dispatch issued by Aneel in 2016.

(3)	Includes adjustment for homologation of the CVA by Aneel which took place in May 2016.

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15.

INVESTMENTS

This table gives a summary of the financial information on the affiliated companies and jointly-controlled enterprises. The information below reflects the percentage of the Company’s equity interest in each item.


	2016			2015
Hidrelétrica Cachoeirão		50			42
Guanhães Energia		—			19
Hidrelétrica Pipoca		32			27
Retiro Baixo		162			148
Aliança Norte (Belo Monte plant through Norte Energia)		527			354
Madeira Energia (Santo Antônio plant through Madeira Energia)		644			676
FIP Melbourne (Santo Antônio plant through Madeira Energia)		677			703
Lightger		42			37
Baguari Energia		162			187
Renova		689			1,527
Aliança Geração		1,319			1,327
Central Eólica Praias de Parajuru		63			63
Central Eólica Volta do Rio		81			85
Central Eólica Praias de Morgado		60			62
Amazônia Energia (Belo Monte plant through Norte Energia)		781			495
Usina Hidrelétrica Itaocara S.A.		3			—
Light		1,070			1,188
TAESA		1,583			2,242
Ativas Data Center		18			—
Epícares Empreendimentos e Participações Ltda		—			—
Luce		344			—
RME		339			—
Companhia Transleste de Transmissão		22			18
Companhia Transudeste de Transmissão		21			18
Companhia Transirapé de Transmissão		24			19
Transchile		—			108
Companhia de Transmissão Centroeste de Minas		21			18
Axxiom Soluções Tecnológicas		19			24
Parati		—			358

Total of investments		8,753			9,745

Ativas Data Center – excess of liabilities over assets of jointly-controlled entity		—			(28	)
Guanhães – excess of liabilities over assets of jointly-controlled entity		(59	)		—

Total		8,694			9,717

The Company’s investees that are not consolidated are jointly-controlled entities, with the exception of the interest in the Santo Antônio power plant, and Ativas Data Center, which are affiliated companies in which the Company has significant influence. It was as from the fourth quarter of 2016 that Ativas Data Center became an investee in which Cemig has significant influence.

a) Right to commercial operation of the regulated activity

In the process of allocation of the acquisition price of the jointly-controlled subsidiaries, a valuation was made of the intangible assets relating to the right to operate the regulated activity. This asset is presented jointly with the historic value of the investments in the table above. These assets will be amortized over the remaining period of the concessions on the straight-line basis.

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	Dec. 31, 2013		Additions		Amortization			Dec. 31, 2014		Amortization			Dec. 31, 2015		Additions		Amortization			Written off			Dec. 31, 2016
Rosal		6		—		(6	)		—		—			—		—		—			—			—
TAESA		452		—		(19	)		433		(18	)		415		—		(18	)		(109	)		288
Light		275		—		(22	)		253		(22	)		231		—		(22	)		—			209
Gasmig		24		203		(7	)		220		(5	)		215		—		(8	)		—			207
LUCE		—		—		—			—		—			—		50		(1	)		—			49
RME		—		—		—			—		—			—		49		(1	)		—			48

		757		203		(54	)		906		(45	)		861		99		(50	)		(109	)		801

b) The movement of Investments in the jointly-controlled entities in 2016, 2015 and 2014, is as follows:


	Dec. 31, 2015			Equity method gain (Statement of income)			Gain (loss) by equity method (Other comprehensive income)			Dividends			Injections / acquisitions		Sales			Incorporation			Other			Dec. 31, 2016
Companhia Transleste de Transmissão		18			6			—			(2	)		—		—			—			—			22
Companhia Transudeste de Transmissão		18			4			—			(1	)		—		—			—			—			21
Companhia Transirapé de Transmissão		19			5			—			—			—		—			—			—			24
Transchile		108			2			(23	)		—			—		(87	)		—			—			—
Companhia de Transmissão Centroeste de Minas		18			5			—			(2	)		—		—			—			—			21
Light		1,188			(121	)		3			—			—		—			—			—			1,070
Axxiom Soluções Tecnológicas		24			(5	)		—			—			—		—			—			—			19
Luce		—			(18	)		1			(57	)		252		—			166			—			344
RME		—			(20	)		—			(58	)		247		—			169			1			339
Hidrelétrica Cachoeirão		42			10			—			(2	)		—		—			—			—			50
Guanhães Energia (1)		19			(103	)		—			—			25		—			—			59			0
Hidrelétrica Pipoca		27			5			—			—			—		—			—			—			32
Madeira Energia (Santo Antônio Plant through Madeira Energia)		676			(71	)		—			—			39		—			—			—			644
FIP Melbourne (Santo Antônio Plant through Madeira Energia)		703			(63	)		—			—			40		—			—			(3	)		677
LightGer		37			5			—			—			—		—			—			—			42
Baguari Energia		187			41			—			(14	)		—		—			—			(52	)		162
Central Eólica Praias de Parajuru		63			—			—			—			—		—			—			—			63
Central Eólica Volta do Rio		85			(4	)		—			—			—		—			—			—			81
Central Eólica Praias de Morgado		62			(2	)		—			—			—		—			—			—			60
Amazônia Energia (Belo Monte Plant through Norte Energia)		495			(6	)		—			—			292		—			—			—			781
Ativas Data Center (2)		—			(31	)		—			—			99		—			—			(50	)		18
Parati		358			(24	)		1			—			—		—			(335	)		—
Taesa		2,242			342			—			(382	)		—		(619	)		—			—			1,583
Renova (3)		1,527			(372	)		19			—			278		—			—			(763	)		689
Usina Hidrelétrica Itaocara S.A.		—			—			—			—			3		—			—			—			3
Aliança Geração		1,327			104			—			(112	)		—		—			—			—			1,319
Aliança Norte (Belo Monte Plant through Norte Energia)		354			(7	)		—			—			180		—			—			—			527
Retiro Baixo		148			16			—			(2	)		—		—			—			—			162

Total of investments		9,745			(302	)		1			(632	)		1,455		(706	)		—			(808	)		8,753

Ativas Data Center – Uncovered liabilities of jointly-controlled entity		(28	)		—			—			—			—		—			—			—			(28	)
Guanhães – Uncovered liabilities of jointly-controlled entity		—			—			—			—			—		—			—			(59	)		(59	)

Total		9,717			(302	)		1			(632	)		1,455		(706	)		—			(867	)		8,666

(1)	Transfer to uncovered liabilities.

(2)	The amount of R$ 50 refers to the dilution of shareholding interest arising from subscription of share capital by a new shareholder.

(3)	The amount of R$ 763 refers to the impairment of intangible concession assets resulting from the financial difficulties of Renova.

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	2014		Equity method gain (Statement of income)			Equity method gain (Other comprehensive income)		Dividends			Injections / acquisitions		Other			2015
Companhia Transleste de Transmissão		14		8			—		(4	)		—		—			18
Companhia Transudeste de Transmissão		13		5			—		—			—		—			18
Companhia Transirapé de Transmissão		13		6			—		—			—		—			19
Transchile		67		5			36		—			—		—			108
Companhia de Transmissão Centroeste de Minas		22		2			—		(6	)		—		—			18
Light		1,198		(11	)		2		(1	)		—		—			1,188
Axxiom Soluções Tecnológicas		23		1			—		—			—		—			24
Hidrelétrica Cachoeirão		34		8			—		—			—		—			42
Guanhães Energia		69		(49	)		—		(1	)		—		—			19
Hidrelétrica Pipoca		28		2			—		(3	)		—		—			27
Madeira Energia (Santo Antônio plant through Madeira Energia)		674		2			—		—			—		—			676
FIP Melbourne (Santo Antônio plant through Madeira Energia)		708		(5	)		—		—			—		—			703
Lightger		38		(1	)		—		—			—		—			37
Baguari Energia		193		12			—		(18	)		—		—			187
Central Eólica Praias de Parajuru		62		2			—		(1	)		—		—			63
Central Eólica Volta do Rio		84		2			—		(1	)		—		—			85
Central Eólica Praias de Morgado		62		—			—		—			—		—			62
Amazônia Energia (Belo Monte Plant through Norte Energia)		395		(19	)		—		(1	)		120		—			495
Ativas Data Center		—		(28	)		—		—			—		28			—
Epícares Empreendimentos (1)		92		1			—		1			—		(94	)		—
Parati		372		3			—		(17	)		—		—			358
Taesa		2,188		383			—		(329	)		—		—			2,242
Renova		1,538		(25	)		15		(1	)		—		—			1,527
Aliança Geração		3		107			—		(93	)		581		729			1,327
Aliança Norte (Belo Monte Plant through Norte Energia)		—		(13	)		—		—			367		—			354
Retiro Baixo		150		(5	)		—		—			3		—			148

Total do Investimento		8,040		393			53		(475	)		1,071		663			9,745

Ativas Data Center – Uncovered liabilities of jointly-controlled entity		—		—			—		—			—		(28	)		(28	)

Total		8,040		393			53		(475	)		1,071		635			9,717

(1)	The amount of R$ 94 refers to the assets subscribed to constitute Aliança Geração;

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	2013		Equity method gain (Statement of income)			Equity method gain (Other comprehensive income)			Dividends			Injections / acquisitions		Other			2014
Gasmig (1)		577		47			—			(55	)		—		(569	)		—
Companhia Transleste de Transmissão		29		2			—			(17	)		—		—			14
Companhia Transudeste de Transmissão		14		1			—			(2	)		—		—			13
Companhia Transirapé de Transmissão		14		—			—			(1	)		—		—			13
Transchile		55		2			10			—			—		—			67
Companhia de Transmissão Centroeste de Minas		18		5			—			(1	)		—		—			22
Light		1,190		150			(6	)		(136	)		—		—			1,198
Axxiom Soluções Tecnológicas		8		(1	)		—			—			16		—			23
Hidrelétrica Cachoeirão		34		8			—			(8	)		—		—			34
Guanhães Energia		69		—			—			—			—		—			69
Hidrelétrica Pipoca		24		5			—			(1	)		—		—			28
Madeira Energia (Santo Antônio plant through Madeira Energia) (2)		643		(398	)		—			—			429		—			674
FIP Melbourne (Santo Antônio plant through Madeira Energia) (2)		—		10			—			—			698		—			708
Lightger		39		—			—			(1	)		—		—			38
Baguari Energia		199		8			—			(14	)		—		—			193
Central Eólica Praias de Parajuru		61		2			—			(1	)		—		—			62
Central Eólica Volta do Rio		78		6			—			—			—		—			84
Central Eólica Praias de Morgado		61		2			—			(1	)		—		—			62
Amazônia Energia (Belo Monte Plant through Norte Energia)		311		(17	)		—			—			101		—			395
Ativas Data Center		4		(26	)		—			—			—		22			—
Epícares Empreendimentos		103		3			—			(14	)		—		—			92
Parati		380		41			(1	)		(48	)		—		—			372
Taesa		2,250		376			—			(438	)		—		—			2,188
Renova		—		(12	)		—			—			1,550		—			1,538
Aliança		—		—			—			—			3		—			3
Retiro Baixo		—		(4	)		—			—			154		—			150

		6,161		210			3			(738	)		2,951		(547	)		8,040

(1)	Consolidation of Gasmig began as from October 2014, and as a result the value of the investment, of R$ 569 was eliminated.

(2)	Acquisition of 7.87% interest on Madeira Energia trough FIP Melbourne for R$697,796. Cemig also has a directly-held stockholding interest of 10.00% on Madeira Energia. Cemig made a capital increase of R$429,367 in 2016.

Cemig GT enters into controlling block of Renova

In 2013 Cemig GT’s entered into an Investment Agreement with Renova Energia S.A. (‘Renova’), RR Participações S.A. (‘RR’), Light Energia S.A. (‘Light Energia’) and Chipley SP Participações S.A. (‘Chipley’), governing the entry of Cemig GT, directly or indirectly, into the control block of Renova through subscription of new common shares in Renova. As a result of this transaction, Cemig GT acquired 27.37% interest in Renova Energia S.A. for R$1,550,071 in 2014, which result in recognition of the concession intangible asset of R$855,354.

Acquisition of equity interest

In the process of allocation of the acquisition prices of investments, intangible assets were identified relating to the rights of commercial operation of the regulated activities, and these were supported by economic and financial valuation opinions.

These amounts, adjusted for tax effects, will be amortized, on the straight-line basis, over the remaining periods of the authorizations for operation of each facility.

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This table gives the principal information on the subsidiaries and jointly-controlled entities, not adjusted for the percentage represented by the Company’s ownership interest:


Company	Number of shares		2016						2015						2014
Company	Number of shares		Cemig Interest %		Share capital		Equity		Cemig Interest %		Share capital		Equity		Cemig Interest %		Share capital		Equity
Cemig Geração e Transmissão		2,896,785,358		100.00		1,838		4,583		100.00		1,838		4,684		100.00		1,700		3,487
Hidrelétrica Cachoeirão		35,000,000		49.00		35		103		49.00		35		83		49.00		35		69,991
Guanhães Energia		137,608,000		49.00		186		—		49.00		138		38		49.00		138		137,608
Hidrelétrica Pipoca		41,360,000		49.00		41		65		49.00		41		54		49.00		41		58,789
Retiro Baixo		222,850,000		49.90		223		264		49.90		223		296		49.90		217		300
Aliança Norte (Usina de Belo Monte)		34,715,961,339		49.00		1,014		1,077		49.00		647		723		—		—		—
Madeira Energia (Usina de Santo Antônio)		9,730,201,137		18.13		10,152		6,419		18.05		9,762		7,642		17.76		9,456		7,782
Lightger		79,078,937		49.00		79		85		49.00		79		76		49.00		79		79
Baguari Energia (1)		26,157,300,278		69.39		187		248		69.39		262		270		69.39		262		279
Renova (2)		360,815,313		34.15		2,856		1,956		27.37		2,526		5,581		27.37		2,568		5,620
Aliança Geração		1,291,582,500		45.00		1,291		1,973		45.00		1,291		2,949		—		—		—
Central Eólica Praias de Parajuru		70,560,000		49.00		71		89		49.00		71		129		49.00		71		127
Central Eólica Volta do Rio		117,230,000		49.00		117		137		49.00		117		174		49.00		117		171
Central Eólica Praias de Morgado		52,960,000		49.00		53		65		49.00		53		127		49.00		53		127
Amazônia Energia (1) (Usina de Belo Monte)		1,039,491,023		74.50		1,116		1,048		74.50		723		665		74.50		563		529
Usina Hidrelétrica Itaocara S.A.		5,677,000		49.00		6		6		—		—		—		—		—		—
Cemig Distribuição		2,359,113,452		100.00		2,362		2,500		100.00		2,362		2,696		100.00		2,262		2,482
Light		203,934,060		26.06		2,226		3,354		26.06		2,226		4,558		26.06		2,226		4,602
Cemig Telecom		397,683,385		100.00		242		192		100.00		225		169		100.00		225		225
Rosal Energia		46,944,467		100.00		47		141		100.00		47		122		100.00		47		121
Sá Carvalho		361,200,000		100.00		37		106		100.00		37		103		100.00		37		107
Gasmig		409,255,483		99.57		665		1,426		99.57		665		1,408		99.57		665		1,437
Horizontes Energia		39,257,563		100.00		39		52		100.00		64		71		100.00		64		70
Usina Térmica Ipatinga		174,281		100.00		0		4		100.00		—		4		100.00		14		24
Cemig PCH		35,952,000		100.00		36		92		100.00		36		85		100.00		31		67
Cemig Capim Branco Energia		87,579,000		—		—		—		100.00		—		—		100.00		88		130
LUCE		1,379,839,905		66.62		438		443		—		—		—		—		—		—
RME		1,365,421,406		66.27		434		440		—		—		—		—		—		—
Companhia Transleste de Transmissão		49,569,000		25.00		50		81		25.00		50		73		25.00		50		54
UTE Barreiro		30,902,000		100.00		31		39		100.00		31		30		100.00		31		29
Companhia Transudeste de Transmissão		30,000,000		24.00		30		85		24.00		30		73		24.00		30		53
Empresa de Comercialização de Energia Elétrica		486,000		100.00		—		20		100.00		—		9		100.00		—		9
Companhia Transirapé de Transmissão		22,340,490		24.50		22		98		24.50		22		79		24.50		22		56
Transchile		—		—		—		—		49.00		237		221		49.00		161		135
Efficientia		6,051,994		100.00		6		5		100.00		6		6		100.00		6		5
Cemig Comercializadora de Energia Incentivada		1,000,000		100.00		1		2		100.00		5		6		100.00		5		5
Companhia de Transmissão Centroeste de Minas		28,000,000		51.00		28		42		51.00		28		34		51.00		28		41
Cemig Trading		1,000,000		100.00		1		29		100.00		—		30		100.00		—		31
Axxiom Soluções Tecnológicas		17,200,000		49.00		47		39		49.00		47		49		49.00		17		48
Parati		1,432,910,602		—		—		—		25.00		1,433		1,431		25.00		1,433		1,481
TAESA		1,033,496,721		31.54		3,042		4,308		43.36		3,042		5,171		43.36		3,042		5,045

(1)	Control shared under a Shareholders’ Agreement.

(2)	Due to the increase in the equity interest in Renova, there was a loss item of R$2 million reflecting the fact that Renova reported a loss for the year 2016.

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On December 31, 2016, the current liabilities of some indirectly jointly-controlled entities were higher than their current assets, as follows:

Guanhães Energia: This was mainly due to issuance of the second series of the sixth commercial Note issue with short-term maturity. The management of Guanhães Energia has obtained funding from the financial market and from the shareholders, allocating it principally to management of its cash for working capital, investments and financial commitments.

Light: On December 31, 2016, Light had a negative working capital balance of R$ 1,259 (R$ 423 on December 31, 2015). The operational cash flow of Light has been improving during the year due to the tariff adjustments obtained during the year ended December 31, 2015, its operational performance in 2016, reduction of investments in 2016, and the improvement of the hydrological situation. Additionally, Light has been negotiating renewal of short-term loans and financings and lengthening of its debt profile, and also expects higher operational cash flow following the tariff review. Management believes that success in these steps will reverse the current scenario of negative net working capital. It can also be noted that Light has reported positive consolidated operational cash flow from operations of R$ 1,118 in 2016 (and R$ 979 in 2015 and R$585 em 2014), which has enabled it to amortize loans, financings and debentures in the amount of R$ 319 in the year ended December 31, 2016. (In 2015 it raised funding of R$ 160.) Further, on March 14, 2017, Aneel approved the result of the fourth Periodic Tariff Review (‘RTP’) of the subsidiary Light SESA, which resulted in an average increase of 10.45% in electricity bills from March 15, 2017, ensuring renewed economic and financial balance for the distribution company.

Madeira Energia (‘Mesa’): The excess of current liabilities over current assets, equal to R$ 1,611 in 2016 (R$543 in 2015), arises mainly from the account lines Suppliers, Other liabilities, Loans and financings, and Contingency provisions. To deal with the situation of negative working capital, Mesa has the benefit of a favorable decision by Aneel to revert, in liabilities, the FID (Availability Factor) account, and release of funds from the debt servicing reserve account which will be replaced by a bank guarantee, with generation of operational cash flow and, if necessary, injections of funds to be made by the shareholders.

Renova Energia: In the year ended December 31, 2016, Renova Energia reported a loss of R$ 1,101 in 2016 (R$ 93 in 2015), and on that date its current liabilities exceeded its current assets by R$ 3,211 in 2016 (R$ 946 in 2015) (consolidated). Further, Renova Energia has reported negative operational cash flow. The main reasons for this scenario are: (i) transactions to purchase supply of electricity, to honor commitments related to the delays in wind farms coming into operation; (ii) significant investments that are being allocated in the construction of the Alto Sertão III wind farm complex; (iii) delay in release of the long-term financing agreement with the BNDES; (iv) certain long-term financings being reclassified as current due to some ratios in covenants not being achieved, and waivers from creditors not being obtained, in 2016; and (iv) losses arising from the transaction with Terraform.

The management of Renova Energia is taking a range of measures to rebalance its liquidity and cash flow structure. These actions include: sale of certain assets; reduction of the administrative and operational structure, reducing administrative costs; financial support from shareholders, contracting of a long-term financing with the Brazilian Development Bank (BNDES); postponement of certain projects, to balance cash flow; requests to creditors for waivers, which will make possible reclassification of the debt to non-current, ensuring liquidity. The Management of Renova Energia believes that with the success of these measures it will be possible to recover economic and financial equilibrium and the Company’s liquidity.

Aliança Geração: This was mainly due to lending transactions with short maturities. Management of Aliança Geração has been taking steps to improve its financial structure and working capital.

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The following table provides summarized financial information of the Company’s equity investees in 2016, 2015 and 2014:


2016	Parati			Transleste			Transirapé			Centroeste			Transudeste			Luce			RME			Light			Taesa			Axxiom			Aliança Norte
Assets
Current		12			50			41			61			32			6			3			3,612			1,955			66			2
Cash and cash equivalents		8			3			2			20			4			—			—			668			102			9			2
Non-current		1,327			123			122			1			78			437			437			10,718			6,456			13			1,075

Total assets		1,339			173			163			62			110			443			440			14,330			8,411			79			1,077
		—			—			—			—			—			—			—			—			—			—			—
Liabilities		—			—			—			—			—			—			—			—			—			—			—
Current		—			28			33			5			22			—			—			4,871			1,074			32			—
Suppliers		—			—			—			—			—			—			—			1,342			37			1			—
Loans and financings – Current		—			18			19			3			19			—			—			15,568			9			10			—
Non-current		—			63			32			15			3			—			—			6,105			3,029			8			—
Equity		1,339			82			98			42			85			443			440			3,354			4,308			39			1,077

Total liabilities		1,339			173			163			62			110			443			440			14,330			8,411			79			1,077
		—			—			—			—			—			—			—			—			—			—			—
Statement of income		—			—			—			—			—			—			—			—			—			—			—
Net sales revenue		—			34			45			13			22			—			—			9,645			1,391			57			—
Cost of sales		—			(2	)		(19	)		(2	)		(1	)		—			—			(8,042	)		(149	)		(64	)		—
Depreciation and amortization		—			—			—			(1	)		—			—			—			(452	)		(1	)		(2	)		—

Gross profit		—			32			26			11			21			—			—			1,603			1,242			(7	)		—
General and administrative expenses (SG&A):		(6	)		—			(1	)		—			(1	)		(1	)		(1	)		(753	)		(107	)		(8	)		(2	)
Financial revenues		4			2			1			4			1			—			1			148			58			1			—
Financial expenses		(60	)		(11	)		(5	)		(3	)		(4	)		(41	)		(41	)		(1,281	)		(223	)		—			(7	)

Operational profit		(62	)		23			21			12			17			(42	)		(41	)		(283	)		970			(14	)		(9	)
Income tax and the Social Contribution tax		—			(2	)		(2	)		(1	)		(1	)		—			—			(30	)		(108	)		5			—

Net profit for the year		(62	)		21			19			11			16			(42	)		(41	)		(313	)		862			(9	)		(9	)

Other comprehensive income for the year
Net profit for the year		(62	)		21			19			11			16			(42	)		(41	)		(313	)		862			(9	)		(9	)
Gain (loss) on conversion of financial statements		—			—			—			—			—			—			—			(86	)		—			—			—
Actuarial gains (losses)		—			—			—			—			—			—			—			—			—			—			—

Comprehensive income for the year		(62	)		21			19			11			16			(42	)		(41	)		(399	)		862			(9	)		(9	)

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2016	Cachoeirão			Baguari Energia			Guanhães Energia			Madeira Energia			Pipoca			Retiro Baixo			Renova			Parajuru			Morgado			Volta do Rio			LightGer			Amazônia Energia			Aliança Geração
Assets
Current		43			45			16			1,520			20			30			136			38			24			37			35			—			388
Cash and cash equivalents		40			11			1			58			17			19			36			18			17			27			32			—			147
Non-current		86			220			65			23,557			98			377			5,765			128			142			245			152			1,048			2,512

Total assets		129			265			81			25,077			118			407			5,901			166			166			282			187			1,048			2,900
		—			—			—			—			—			—			—			—			—			—			—			—			—
Liabilities		—			—			—			—			—			—			—			—			—			—			—			—			—
Current		9			12			191			3,131			8			25			3,347			19			27			37			16			—			592
Suppliers		2			6			—			662			—			1			547			1			1			1			6			—			101
Non-current		17			5			11			15,527			45			118			598			58			74			108			86			—			335
Equity		103			248			(121	)		6,419			65			264			1,956			89			65			137			85			1,048			1,973

Total liabilities		129			265			81			25,077			118			407			5,901			166			166			282			187			1,048			2,900
		—			—			—			—			—			—			—			—			—			—			—			—			—
Statement of income		—			—			—			—			—			—			—			—			—			—			—			—			—
Net sales revenue		34			65			—			2,803			25			62			484			27			22			29			36			—			804
Cost of sales		(10	)		(12	)		—			(1,845	)		(6	)		(29	)		(454	)		(17	)		(17	)		(27	)		(17	)		—			(314	)
Depreciation and amortization		(3	)		(9	)		—			(673	)		(3	)		(9	)		(93	)		(10	)		(10	)		(17	)		(11	)		—			(125	)

Gross profit		24			53			—			958			19			33			30			10			5			2			19			—			490
General and administrative expenses (SG&A)		—			(1	)		—			(146	)		(2	)		—			(41	)		(1	)		(1	)		(2	)		(1	)		(1	)		(58	)
Impairment of PP&E		—			—			—			—			—			—			(281	)		—			—			—			—			—			—
Adjustment for losses on investment		—			—			—			—			—			—			(455	)		—			—			—			—			—			—
Financial revenues		4			15			—			146			2			2			16			3			3			5			3			—			46
Financial expenses		(3	)		(1	)		(208	)		(1,552	)		(6	)		(15	)		(424	)		(7	)		(10	)		(15	)		(10	)		(8	)		(58	)

Operational profit		25			66			(208	)		(594	)		13			20			(1,155	)		5			(3	)		(10	)		11			(9	)		420
Income tax and the Social Contribution tax		(2	)		(7	)		—			(23	)		(2	)		(3	)		54			(2	)		1			3			(3	)		—			(127	)

Net profit for the year		23			59			(208	)		(617	)		11			17			(1,101	)		3			(2	)		(7	)		8			(9	)		293
Comprehensive income for the year
Net profit for the year		23			59			(208	)		(617	)		11			17			(1,101	)		3			(2	)		(7	)		8			(9	)		293
Gain (loss) on conversion offinancial statements		—			—			—			—			—			—			(182	)		—			—			—			—			—			—

Other comprehensive income for the year		23			59			(208	)		(617	)		11			17			(1,283	)		3			(2	)		(7	)		8			(9	)		293

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2015	Parati			Transleste			Transirapé			Centroeste			Transudeste			Transchile			Light			Taesa			Axxiom			Aliança Norte			Cachoeirão
Assets
Current		59			47			34			58			32			39			3,976			2,082			74			1			28
Cash and cash equivalents		46			8			6			16			6			36			447			132			7			1			23
Non-current		1,408			128			114			1			81			299			11,818			7,574			14			726			89

Total assets		1,467			175			148			59			113			338			15,794			9,656			88			727			117


Liabilities
Current		36			18			20			4			17			21			4,399			1,008			34			—			10
Suppliers		—			—			—			—			—			—			1,450			34			2			—			2
Loans and financings – current		—			6			3			2			—			10			1,629			628			5			—
Non-current		—			84			49			21			23			96			6,838			3,477			5			4			24
Equity		1,431			73			79			34			73			221			4,557			5,171			49			723			83

Total liabilities		1,467			175			148			59			113			338			15,794			9,656			88			727			117


Statement of Income
Net sales revenue		—			33			34			14			22			28			1,222			1,973			66			—			30
Cost of sales		—			(4	)		(13	)		(4	)		(2	)		(10	)		(460	)		(287	)		(59	)		—			(14	)
Depreciation and amortization		—			—			—			(1	)		—			(9	)		(412	)		(15	)		(1	)		—			(3	)

Gross profit		—			29			21			10			20			18			762			1,686			7			—			16
General and administrative expenses		—			—			—			—			—			—			(91	)		—			(6	)		—			—
Net financial revenue (expenses)		11			(9	)		(5	)		(3	)		(5	)		(6	)		(672	)		(562	)		—			(27	)		(1	)
Financial revenues		48			2			1			2			1			—			1,371			769			1			—			2
Financial expenses		(37	)		(11	)		(6	)		(5	)		(6	)		(6	)		(2,043	)		(1,331	)		(1	)		(27	)		(3	)

Operating profit		11			20			16			7			15			12			(1	)		1,124			1			(27	)		15
Income tax and Social Contribution tax		—			(2	)		(1	)		(1	)		(1	)		—			(40	)		(241	)		—			—			(2	)

Net profit for the year		11			18			15			6			14			12			(41	)		883			1			(27	)		13


Comprehensive income for the year
Net profit for the year		11			18			15			6			14			12			(41	)		883			1			(27	)		13
Actuarial gain (loss)		1			—			—			—			—			—			8			—			—			—			—

Other comprehensive income for the year		12			18			15			6			14			12			(33	)		883			1			(27	)		13

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2015	Baguari Energia			Guanhães Energia			Madeira Energia			Pipoca			Retiro Baixo			Renova			Parajuru			Morgado			Volta do Rio			Lightger			Amazônia Energia			Aliança Geração
Assets
Current		72			2			1,608			13			10			551			21			31			46			23			—			243
Cash and cash equivalents		9			1			300			—			1			66			12			12			20			14			—			70
Non-current		220			248			23,754			101			443			8,425			192			209			290			161			666			3,093

Total assets		292			250			25,362			114			453			8,976			213			240			336			184			666			3,336


Liabilities
Current		16			212			2,151			10			25			1,497			18			28			36			14			—			113
Suppliers		6			—			384			—			6			570			—			—			1			4			—			36
Non-current		6			—			15,569			50			132			1,898			66			85			126			94			—			274
Equity		270			38			7,642			54			296			5,581			129			127			174			76			666			2,949

Total liabilities		292			250			25,362			114			453			8,976			213			240			336			184			666			3,336


Statement of Income
Net sales revenue		59			—			2,605			22			53			458			31			34			47			32			—			797
Cost of sales		(46	)		—			(1,103	)		(11	)		(40	)		(5	)		(16	)		(18	)		(28	)		(25	)		—			(442	)
Depreciation and amortization		(9	)		—			(471	)		(3	)		(9	)		(4	)		(10	)		(10	)		(17	)		(10	)		—			(69	)

Gross profit		13			—			1,502			11			13			453			15			16			19			7			—			355
General and administrative expenses		—			(86	)		(816	)		(2	)		(11	)		—			(5	)		(6	)		(2	)		(1	)		(2	)		(69	)
Net financial revenue (expenses)		9			(14	)		(967	)		(3	)		(13	)		(355	)		(5	)		(8	)		(11	)		(7	)		(23	)		(18	)
Financial revenues		10			—			950			2			1			41			2			2			3			2			—			9
Financial expenses		(1	)		(14	)		(1,917	)		(5	)		(14	)		(396	)		(7	)		(10	)		(14	)		(9	)		(23	)		(27	)

Operating profit		22			(100	)		(281	)		6			(11	)		98			5			2			6			(1	)		(25	)		268
Income tax and Social Contribution tax		(5	)		—			266			(1	)		1			(191	)		(1	)		(1	)		(2	)		(2	)		—			(30	)

Net profit for the year		17			(100	)		(15	)		5			(10	)		(93	)		4			1			4			(3	)		(25	)		238


Comprehensive income for the year
Net profit for the year		17			(100	)		(15	)		5			(10	)		(93	)		4			1			4			(3	)		(25	)		238
Gain (loss) on conversion of financial statements		—			—			—			—			—			54			—			—			—			—			—			—

Other comprehensive income for the year		17			(100	)		(15	)		5			(10	)		(39	)		4			1			4			(3	)		(25	)		238

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2014	Parati			Transleste			Transirapé			Centroeste			Transudeste			Transchile			Light			Taesa			Axxiom			Ativas			Epícares
Assets
Current		125			47			35			67			30			24			2,466			2,292			70			40			31
Cash and cash equivalents		42			7			7			19			4			22			506			329			9			16			14
Non-current		1,390			121			101			—			80			208			12,141			7,197			13			71			157

Total assets		1,515			168			136			67			110			232			14,607			9,489			83			111			188


Liabilities
Current		34			6			16			8			12			15			2,963			940			26			59			1
Suppliers		—			—			3			—			—			—			1,945			53			2			5			—
Loans and financings – current		—			—			—			—			—			—			580			723			—			—			—
Non-current		—			108			64			18			45			82			7,042			3,504			9			79			2
Equity		1,481			54			56			41			53			135			4,602			5,045			48			(27	)		185

Total liabilities		1,515			168			136			67			110			232			14,607			9,489			83			111			188


Statement of Income
Net sales revenue		—			30			52			14			20			20			9,223			1,924			57			26			41
Cost of sales		—			(4	)		(34	)		(4	)		(2	)		(13	)		(7,798	)		(295	)		(54	)		(29	)		(15	)
Depreciation and amortization		—			—			—			—			—			(5	)		(415	)		(3	)		1			7			8
Gross profit		—			26			18			10			18			7			1,425			1,629			3			(3	)		26
General and administrative expenses		(6	)		—			—			—			—			—			(163	)		(29	)		—			(10	)		(12	)
Net financial revenue (expenses)		143			(5	)		(4	)		—			(5	)		(3	)		(325	)		(469	)		(1	)		(14	)		1
Financial revenues		143			1			1			2			1			—			577			276			1			2			1
Financial expenses		—			(6	)		(5	)		(2	)		(6	)		(3	)		(902	)		(745	)		(2	)		(16	)		—
Operating profit		137			21			14			10			13			4			937			1,131			2			(27	)		15
Income tax and Social Contribution tax		(2	)		(13	)		(12	)		(1	)		(9	)		(1	)		(273	)		(239	)		—			—			(2	)

Net profit for the year		135			8			2			9			4			3			664			892			2			(27	)		13


Comprehensive income for the year
Net profit for the year		135			8			2			9			4			3			664			892			2			(27	)		13
Gain (loss) on translation		—			—			—			—			—			19			—			—			—			—			—
Actuarial gains (losses)		—			—			—			—			—			—			(17	)		—			—			—			—

Other comprehensive income for the year		135			8			2			9			4			22			647			892			2			(27	)		13

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2014	Cachoeirão			Baguari Energia			Guanhães Energia		Madeira Energia			Pipoca			Retiro Baixo			Renova			Parajuru			Morgado			Volta do Rio			Lightger			Amazônia Energia
Assets
Current		23			96			34		1,477			19			12			847			15			27			41			21			—
Cash and cash equivalents		19			15			27		241			13			3			596			4			4			4			16			—
Non-current		91			228			511		22,151			104			453			8,402			204			223			304			170			529

Total assets		114			324			545		23,628			123			465			9,249			219			250			345			191			529


Liabilities
Current		14			39			407		1,961			7			20			656			17			22			26			10			—
Suppliers		2			9			1		1,282			—			—			130			2			2			2			1			—
Loans and financings – current		—			—			—		406			—			—			—			—			—			—			—			—
Non-current		30			6			—		13,885			57			145			2,973			75			101			148			102			—
Equity		70			279			138		7,782			59			300			5,620			127			127			171			79			529

Total liabilities		114			324			545		23,628			123			465			9,249			219			250			345			191			529


Statement of Income
Net sales revenue		30			56			—		1.858			25			55			163			27			35			55			32			—
Cost of sales		(10	)		(46	)		—		(3.194	)		(9	)		(29	)		(141	)		(13	)		(16	)		(25	)		(24	)		—
Depreciation and amortization		(3	)		(9	)		—		(296	)		(3	)		(3	)		(31	)		(9	)		(10	)		(17	)		(11	)		—
Gross profit		20			10					(1.336	)		16			26			22			14			19			30			8
General and administrative expenses		(1	)		—			—		(202	)		(1	)		(4	)		(14	)		(4	)		(5	)		(5	)		—			(23	)
Net financial revenue (expenses)		(1	)		8			—		(602	)		(3	)		(26	)		(45	)		(5	)		(8	)		(11	)		(6	)		—
Financial revenues		2			9			—		57			1			1			24			1			1			1			2			—
Financial expenses		(3	)		(1	)		—		(659	)		(4	)		(27	)		(69	)		(6	)		(9	)		(12	)		(8	)		—
Operating profit		18			18					(2.140	)		12			(4	)		(37	)		5			6			14			2			(23	)
Income tax and Social Contribution tax		(2	)		(6	)		—		5			(1	)		(2	)		(6	)		(1	)		(1	)		(1	)		(2	)		—

Net profit for the year		16			12					(2.135	)		11			(6	)		(43	)		4			5			13						(23	)


Comprehensive income for the year
Net profit for the year		16			12			—		(2.135	)		11			(6	)		(43	)		4			5			13			—			(23	)

Other comprehensive income for the year		16			12			—		(2.135	)		11			(6	)		(43	)		4			5			13			—			(23	)

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Investments in jointly controlled entities and affiliated companies

Investment in the Santo Antônio Hydroelectric Plant, through Madeira Energia S.A. (Mesa) and FIP Melbourne

The Company has direct and indirect investments in Madeira Energia S.A. (which holds an investment in Santo Antônio Energia S.A.), of R$ 1,321 on December 31, 2016 (R$1,379 in 2015).

Madeira Energia S.A. (‘Mesa’) and its subsidiary Santo Antônio Energia S.A. (‘Saesa’) are incurring establishment costs related to the construction of the Santo Antônio Hydroelectric Plant. The property, plant and equipment asset constituted by these expenditures totaled R$ 22,440 (consolidated) on December 31, 2016, and this amount, according to financial projections prepared by its management, is to be absorbed by future revenues generated as from January, 2017, when all the generator rotors of that entity came into operation.

Investigations and other legal measures are in progress, conducted by the Federal Public Attorneys’ Office, which involve other indirect shareholders of Madeira Energia S.A. and certain executives of those other indirect shareholders.

Arbitration proceedings

In 2014, SAAG Investimentos S.A. (SAAG) and Cemig GT opened arbitration proceedings, in camera, in the Market Arbitration Chamber, challenging the following: (a) the increase approved in the capital of Mesa of approximately R$ 750 partially destined to payment of the claims by the Santo Antonio Construction Consortium (‘CCSA’), based on absence of investigative quantification of the amounts supposedly owed, and absence of prior approval by the Board of Directors, as required by the bylaws and Shareholders’ Agreement of Mesa; and also on the existence of credits owed to Mesa by CCSA, able to be offset, in an amount greater than the claims; and (b) the adjustment for impairment carried out by the Executive Board of Mesa, in the amount of R$ 750, relating to certain credits owed to Mesa by CCSA, on the grounds that these credits, under an express contractual provision, are owed in their entirety. Posting of this impairment contributed to Mesa’s situation of negative Net working capital on December 31, 2016, as described above.

The shareholders SAAG and Cemig GT successfully filed an action for provisional remedy for exercise of the right of first refusal to subscribe the additional portion of the capital of Mesa, in the amount of R$ 175, that was approved in the Extraordinary General Meeting of Stockholders of Mesa held on October 21, 2014. The judgment also suspended all the effects of the decisions as they relate to SAAG and Cemig GT and to their interests in Mesa, including in relation to the dilution and the penalties specified in the shareholders’ Agreement of Mesa.

In 2016 the arbitration judgment given by the Market Arbitration Chamber recognized in full the right of Cemig and SAAG, and ordered annulment of the acts being impugned. SAAG and CEMIG are in the process of adopting measures to implement the decision referred to.

Investment in the Belo Monte Plant through Amazônia Energia S.A. and Aliança Norte

Amazônia Energia and Aliança Norte are shareholders in Norte Energia S.A. (‘Nesa’), which holds the concession to operate the Belo Monte Hydroelectric Plant, on the Xingu River, in the State of Pará.

Through the jointly-controlled entities referred to above, Cemig GT owns an indirect equity interest in Nesa of 11.74%.

Nesa will still require significant funds for costs of organization, development and pre-operational costs for completion of the plant. According to estimates and forecasts these costs will be repaid by the revenues from future operations.

On April 7, 2015, Nesa was awarded interim judgment ordering Aneel to “abstain, until hearing of the application for an injunction made in the origin case, from applying to Appellant any penalties or sanctions in relation to the Belo Monte Hydroelectric Plant not coming into operation on the date established in the original timetable for the project, including those specified in an Aneel Normative Resolution and in the Concession Contract for the Belo Monte Hydroelectric Plant”. The amount of the estimated loss in Belo Monte up to December 31, 2016 is R$ 74.

Based on this injunction, all records and the accounting provisions inherent to compliance with the requirements of the concession contract were suspended, but Aliança Norte Energia continues to purchase electricity on the spot market to avoid any future penalties.

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Investigations and other legal measures are in progress, conducted by the Federal Public Attorneys’ Office, which involve other shareholders of Norte Energia S.A. and certain executives of those other shareholders.

Any changes in the existing scenario will have their impacts reflected in the financial statements.

Summary of the conclusions of the independent investigation

Centrais Elétricas Brasileiras S.A. (‘Eletrobras’) owns an equity interest of 49.98% in Nesa, and has contracted a specialized law office to carry out an independent internal investigation for the purpose of finding any irregularities that may have taken place in projects in which it has an equity interest, including NESA. The motive for this procedure was investigations that were being carried out by the Public Attorneys’ Office on irregularities involving some of the contractors and suppliers in investments where Eletrobras was a shareholder, including the company Nesa.

The final reports of the independent internal investigation include certain findings with estimated impacts on the financial statements of Nesa. It was found that certain contracts with some contractors and suppliers of the Belo Monte Hydroelectric Plant contain impacts estimated at 1% of the price of a contract, and other estimates of certain fixed amounts, to include bribes and activities of manipulation of bids considered to be of an unlawful nature.

Based on the conclusions and results identified in the independent internal investigation, the management of NESA referred to IAS 16 – Assets and Equipment, and concluded that the amount of R$ 183, attributable to possible overinvoicing, bribes and/or fraudulent bids or activities considered to be of an unlawful nature should not have been included in the historic cost of its assets, because such amounts would not have been necessary to establish the assets at the location and in the condition necessary for their functioning.

The management of Nesa also concluded that it was impracticable to attempt precisely to identify the periods of the prior financial statements in which the excess of capitalized costs might have occurred, due to the fact that the information made available by the independent internal investigation does not individually specify the contracts, payments ad reporting periods in which these excesses could have occurred. It is also emphasized that the alleged undue payments were not made by Nesa, but by contractors and suppliers of the Belo Monte hydroelectric plant, which also impeded identification of the precise amounts and period of the payments.

Thus, Nesa applied the procedure specified in IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, making adjustments for the estimated amounts of the excesses of capitalized costs, in a total of R$ 183, referring to illegal payments in the financial statements at December 31, 2015, due to the impracticability of identifying the adjustments for each previous period affected.

As a result of the adjustment made by NESA, on December 31, 2015 Cemig recognized an adjustment in the amount of R$ 23, in Investments with counterpart in the account Gain (loss) in subsidiaries by the equity method. Of this total, R$ 21 arises from the adjustment made by Cemig GT, and R$ 2 arises from the adjustment made by Light S.A., in accordance with the specifications of IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors.

Investment in Guanhães Energia S.A. – Adjustment for impairment

Based on analysis of the cash flow expected for the investment, Guanhães Energia made an adjustment for impairment of value in the amount of R$ 139. The effect of this in the accounts of Cemig GT was an expense of R$ 68, corresponding to its 49% interest in Guanhães, and this was recognized in the statement of income by the equity method, on December 31, 2016.

Investment in Renova

Option contract

On September 18, 2015 a contract was signed giving Renova the option to sell to SunEdison, on or after March 31, 2016, up to 7,000,000 shares in TerraForm Global, which Renova had received under the agreement governing the first phase of the transaction for sale and exchange of assets.

The exercise price of this option was set at R$ 50.48 or US$15.00 at the exchange rate of the day, at SunEdison’s choice. The contract also gave SunEdison an option to buy the same 7 million shares in TerraForm Global on the same terms.

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Renova also reported that it had notified SunEdison and TerraForm Global of its intention to exercise its option to sell 7 million shares in TerraForm Global owned by Renova, as specified by contract and publicly stated in a Material Announcement published by Renova on September 18, 2015.

In April 2016 there was a restructuring of the Company’s capital, which altered Cemig GT’s equity interest in the company.

On April 21, 2016, SunEdison applied for Chapter 11 protection in the United States.

On June 1, 2016, the period for payment of the option by SunEdison expired.

Renova priced the option using the Black-Scholes-Merton mathematical model, the future expectation for the exchange rate, and credit risk.

In the first half of 2016 Renova recognized a loss of R$ 111, for the variation in the price of the option, taking credit risk into account. In addition it recognized a loss of R$ 63 relating to the extinction of the option, and opened arbitration proceedings seeking, among other items, indemnity for losses.

The figures above refer to the full impact on the financial statements of Renova. The effect for Cemig was proportional to its 34.15% interest in the investee, valued by the equity method at R$ 60.

Investment in TerraForm – pricing of the shares

Renova Energia has investments in Class A shares (GLBL) in TerraForm (‘the TERG Shares’), recorded as financial assets available for sale. Renova Energia adopts this designation because the nature of the investment is not included in any of the other categories of financial instrument (loans, accounts receivable, investments held to maturity, or financial assets at fair value through profit or loss). The asset is classified, in Renova Energia, as a non-current asset under the line Investments and is recorded at fair value, based on the market price on a stock exchange (Nasdaq). Under the policy of Renova Energia, gains and losses arising from variation in stock prices are posted directly in Equity under Other comprehensive income. Considering the volatility of the prices of the TERG Shares, Renova Energia evaluates, quarterly, whether there is objective evidence of impairment of these financial assets, that is to say, the management of Renova Energia evaluates whether the fall in the market value of the TERG Shares should be considered ‘significant’ or ‘prolonged’. This evaluation calls for a judgment based on a Renova Energia policy, prepared according to practices used in the Brazilian and international markets, and consists of analysis, instrument by instrument, based on quantitative and qualitative information available in the market as from the moment that an instrument shows a fall in its market value of 20% or more (a ‘Significant Fall’) or a fall smaller than a Significant Fall, but greater than 5% of its market value in comparison with its acquisition cost for more than 12 months (a ‘Prolonged Fall’). If a Significant Fall or a Prolonged Fall in the market value of the instrument is found, the corresponding accumulated portion previously classified in Other comprehensive income will be posted in the Profit and loss account as an impairment.

Impairments, previously recognized in the Profit and loss account, are not reversed through the profit and loss account. Any increase in fair value after an impairment is recognized in Other comprehensive income.

In 2016 the negative adjustments in the fair values that took place in the first and fourth quarter in the amount of R$ 281 (impact in Cemig: R$ 96) were recognized in the income statement; and the positive adjustment of R$ 99 (impact for Cemig: R$ 34), referring to the second and third quarters, was recognized in Other comprehensive income in Renova Energia.

Rescission of share purchase agreement

On April 1, 2016 Renova Energia S.A. (‘Renova’) informed its shareholders and the market in general that the share purchase agreement for sale to TerraForm Global, Inc. of the assets of the Espra Project (‘the Espra Contract’) owned by Renova had been canceled. Thus the assets of the Espra project, comprising three small hydroelectric plants (SHPs), which placed generation contracts under the Proinfa regime, with aggregate installed capacity of 41.8 MW, remain in the Company as part of Renova’s portfolio of operational assets. As a result of the cancellation, TerraForm Global paid Renova a penalty payment of R$ 36 on April 1, 2016 (effect in Cemig: R$ 12).

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The Espra Contract was included in the first phase of the transaction with TerraForm Global and SunEdison, Inc. (‘SunEdison’), announced on July 15, 2015.

Adjustment for impairment

Renova carried out studies to value the balance of PP&E assets in relation to the generation of economic benefits expected from those assets at December 31, 2016, and made an adjustment for impairment of assets in the amount of R$ 264 (impact on Cemig R$ 90), This was recognized in a specific account line in the statement of income for 2016. This result arose from projection of cash flow of these assets, discounted, at December 31, 2016.

Cemig had reported in its financial statements the net amount of R$ 763 for goodwill on the concessions, calculated at the time of the injections of capital into Renova. As a result of the studies on impairment related to discounted cash flow of the investee, management of Cemig GT judged it to be necessary to make a full adjustment of the amount referred to, in the statement of income for 2016.

Investment in Light through Parati, RME and Lepsa

Corporate reorganization of Parati

In 2016 the shareholders decided to put in place a series of measures to simplify the stockholding structure of the Parati group, as follows:

•

Extinction of Redentor Energia S.A., through reverse absorption by Rio Minas Energia Participações S.A. (‘RME’);

•

Total split of Parati, with absorption by RME and Luce Empreendimentos e Participações S.A. (‘LEPSA’) of the separated assets and liabilities;

•

Extinction of Parati, through reverse absorption by RME and LEPSA;

In November 2016, RME and LEPSA declared an aggregate total of R$ 463 in dividends, using retained earnings reserves from prior years. In the same month both companies called for an aggregate capital subscription of R$ 446, which was paid up exclusively by Cemig.

As a result of these alterations, Cemig had the following stockholdings:

•

In RME: 50.00% of the common shares and 50.00% of the preferred shares, representing 66.27 of the total share capital.

•

In Lepsa: 50.00% of the common shares and 50.00% of the preferred shares, representing 66.62 of the total share capital.

Exercise of put option

On September 6, 2016 Cemig received from Banco BTG Pactual (‘BTG Pactual’) Notice of Intention to Exercise a Put Option, informing irrevocable exercise of BTG Pactual’s right to sell to Cemig 153,634,195 preferred shares held by Pactual in Parati (‘Shares subject of the Put Option’).

In October 2016, due to the extinction of Parati, the Put Option was divided between RME and Lepsa in the proportion of 50% each, with all the conditions of the original Put Option being maintained, except the items modified in the amendments, including alteration to their bylaws.

On November 30, 2016, Cemig paid R$ 222 for the portion of BTG Pactual in RME and LEPSA, under exercise of the first ‘window’ of the put.

Further details of the put option are given below in this Note.

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Disposal of shares in Taesa owned by Cemig

On September 29, 2016, Taesa published announcement of commencement of a secondary public offering with restricted placement efforts, for placement of certificates of deposit of nominal, book-entry shares without par value, each representing one common and two preferred nominal, book-entry shares without par value, free and unencumbered by any lien or charge (‘Units’), issued by Taesa and owned by Fundo de Investimentos em Participações Coliseu (FIP Coliseu), and Cemig.

The offering comprised secondary public distribution, with restricted placement efforts, of 65,702,230 Units owned by the Vendor shareholders, at the price of R$ 19.65 per Unit, resulting in a total amount of R$ 1,291. The offering transaction was settled on October 24, 2016.

Since this was a public offering with restricted efforts exclusively for secondary distribution, there was no inflow of funds to Taesa. The Vendor shareholders received all of the proceeds from the sale of the Units net of the costs of the offering, i.e. a total of R$ 1,276, and of this total R$ 791 was received by Cemig, representing a gross gain of R$ 181. Cemig recognized this in its Income Statement in October 2016.

Investment Agreement for subscription of capital in Ativas

On August 25, 2016, Cemig Telecom S.A., a wholly-owned subsidiary of Cemig, signed an investment agreement with Sonda Procwork Outsourcing Informática Ltda., a member of the Chilean group Sonda S.A., for subscription of capital in Ativas Data Center, in partnership with Ativas Participações S.A., a company controlled by the Asamar Group.

Sonda is the leading company providing IT services in Latin America, with a presence in 10 countries, and 17,000 employees.

On October 19, 2016, after the conditions precedent specified in the Investment Agreement had been complied with, the transaction was completed.

Sonda, through providing cash of R$ 114, became the holder of a 60% equity interest in Ativas, with Cemig Telecom holding 19.6%, and Ativas Participações holding 20.4% of the company’s total capital. This represented a gain of R$ 25 in the financial statements of Cemig Telecom.

Disposal of interest related to Transchile

On September 12, 2016, Cemig signed an agreement for sale of the whole of its stockholding interest relating to Transchile Charrúa Transmisión S.A. – corresponding to 49% of the share capital – to Ferrovial Transco Chile SpA., a company controlled by Ferrovial S.A., for US$57. On October 6, 2016, all of the shares in Transchile Charrúa Transmisión S.A. held by Cemig, corresponding to 49% (forty nine percent) of the total capital, were transferred to Ferrovial Transco Chile SpA., a company controlled by Ferrovial S.A., and the sale completed in the amount of R$180, representing a gross gain of R$ 94.

Put options

In the calculation of the fair value of the option based on the BSM model, the following variables are taken into account: exercise price of the option; closing price of the underlying asset on December 31, 2016; the risk-free interest rate; the volatility of the price of the underlying asset; and the time to maturity of the option.

Analytically, calculation of the exercise price of the options, the risk-free interest rate and the time to maturity is primarily deterministic, so that the main divergence in the put options is in the measurement of the closing price and the volatility of the underlying asset.

Put options for shares in Parati

Cemig granted to Fundo de Participações Redentor, which is a shareholder of Parati, an option to sell the totality of the shares which that fund holds in Parati, exercisable in May 2016. The exercise price of the option is calculated from the sum of the value of the amounts injected by the Fund into Parati, plus the running expenses of the fund, less Interest on Equity, and dividends, distributed by Parati.

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The exercise price is subject to monetary updating by the CDI (Interbank CD) Rate plus financial remuneration at 0.9% per year.

The Equity Fund owns common and preferred shares in Light, and at present exercises joint control, with the Company, over the activities of that company. This being so, this option has been considered to be a derivative instrument which should be accounted at fair value through profit or loss.

For the purposes of determination of the method to be used in measuring the fair value of this option, the Company, up to the first quarter of 2016, observed the daily trading volume of the shares of Light, and also the fact that such option, if exercised by the Fund, will require the sale to the Company, in a single transaction, of shares in Light in a quantity higher than the daily exchange trading averages. Thus, the Company had adopted the discounted cash flow method for measurement of the fair values of the shares. Up to March 31, 2016, the fair value of this option was calculated on the basis of the estimated exercise price on the day of exercise of the option, less the fair value of the shares that are the subject of the put option, also estimated for the date of exercise, brought to present value at the effective rate of 7.5% p.a. (discounting inflation effects). As a result of the changes in the shareholders’ Agreement of Parati in the second quarter of 2016, described below, with consequences for the conditions and periods for exercise of the put option, the Company then began to use the Black-Scholes-Merton method for measurement of the fair value of the options.

In the second quarter of 2016 Amendments were signed to the shareholders’’ Agreement of Parati. The principal changes arising from these amendments are as follows:

The maturity of the Put Option granted in 2011 by Cemig in favor of the unit holders of FIP Redentor, initially specified to be May 31, 2016, was postponed, to two separate exercise dates:

First option exercise window: The intention to exercise may be stated by any direct shareholder/s who decide to do so, independently of the exercise of the Put Option by the other direct shareholders, up to September 23, 2016, inclusive, and shall cover only preferred shares in Parati, up to a limit of 153,634,195 shares, representing 14.30% of the total shares in Parati held by the other direct shareholders. Cemig had to make payment by November 30, 2016.

Second payment window: The intention to exercise may be stated by any direct shareholder/s who decide to do so, independently of the exercise of the Put Option by the other direct shareholders, up to September 23, 2017, inclusive, and may cover the totality of the shares in Parati, being independent of any exercise, or not, of the Put Option in the first payment window. Cemig must make payment by November 30, 2017.

The Put Option may now be exercised not only by FIP Redentor, but also by the direct shareholders of Parati, including but not limited to the unit holders of FIP Redentor, and/or their affiliates, who shall become holders of a Put Option and/or of the rights arising therefrom, under which each one of the direct shareholders shall individually have the right to sell any shares in Parati that they own.

Conditions were included for bringing forward the date of exercise of the put option: in the event of any occurrence resulting in bringing forward of the option referred to, any direct shareholder may present to Cemig a notice of bringing forward of the option, at which moment the option shall be considered exercised by all the direct shareholders, over the totality of their shares.

As guarantee for the full payment of the Put Option, on May 31, 2016 Cemig offered to the holders of the put option 55,234,637 common shares and 110,469,274 preferred shares that Cemig directly holds in Transmissora Aliança de Energia S.A. (Taesa), and as further guarantee, 53,152,298 shares that Cemig directly holds in Light.

Amount of the Company’s exposure

The change in the value of the options – the difference between the estimated fair value for the assets and the corresponding exercise price, has been as follows:


	Dec. 31, 2016			Dec. 31, 2015		Dec. 31, 2014
Initial balance		1,245			166		—
Additions		55			1,079		166
Reductions		(150	)		—		—

Final balance		1,150			1,245		166

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In the calculation of the fair value of the option based on the Black-Scholes-Merton analysis, the following variables are taken into account: exercise price of the option; closing price of the stock of Light on December 31, 2016 (as a reference for the value of the indirect equity interest held by the direct stockholders of RME and Lepsa in Light); the risk-free interest rate; the volatility of the price of the underlying asset; and the time to maturity of the option.

RME and Lepsa are non-operational holding companies, whose primary purpose is management of their direct equity interest in Light. Consequently, the revenues of these holding companies arise from their interests in the earnings of Light and, residually, from the financial revenue obtained from investment of the amounts available in the cash position. Further, considering that: (i) distribution of the whole of the profit for the period is in the interest of the shareholders of both companies; and (ii) the operational profit, the total of financial revenue (expenses) and changes in the reserve accounts of RME and Lepsa are immaterial for the purposes of calculation of the put option; it becomes clear that the only uncertainty in the flow of these companies is associated with the uncertainty of Light itself, and as a result of this consideration the shares of both companies are valued as if they were direct equity interests in Light itself. Thus, the ‘underlying’ asset of the options is Light S.A., and the closing price of the underlying asset is the price found for one share of Light on the last business day of the 2016 business year, multiplied by the number of equivalent shares of indirect ownership of the holders of the Parati Put option in Light. The volatility is calculated using a conditional volatility model based on the continuously capitalized series of returns of Light S.A.

The Company has made an analysis of the sensitivity of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 6.6% p.a. and 16.4% p.a., and for volatility between 15% and 63.2% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 1,126 and R$ 1,260, respectively.

Put options for Units in FIP Melbourne and FIP Malbec

Cemig GT and the private pension plan entities participating in the investment structure of SAAG (comprising FIP Melbourne, Parma Participações S.A. and FIP Malbec – jointly, ‘the Investment Structure’) signed put option contracts for units in the entities that comprise the Investment Structure (‘the Put Options’), which the private pension plan entities may exercise in the eighty fourth month after June 2014. The exercise price of the put options correspond to the amount invested by each private pension plan in the Investment Structure, updated pro rata temporis, by the Expanded National Consumer Price (IPCA) index published by the IBGE, plus interest at 7% per year, less such dividends and Interest on Equity as shall have been paid by SAAG to the pension plan entities. This option has been considered to be a derivative instrument which should be accounted at fair value through profit or loss.

In the fourth quarter of 2016 the Company altered the methodology used in measuring the fair value of the put option of SAAG, and adopted the BSM model, replacing the model of discounted cash flow less the exercise price of the option. This change is in line with best market practices, since the Black-Scholes-Merton method not only calculates the difference between the exercise price of the option and the share price, brought to present value, but also incorporates an important random component that weights these amounts.

We work on the assumption that the future expenditures of FIP Malbec and FIP Melbourne are insignificant, so that the options are valued as if they were direct equity interests in Mesa. However, neither SAAG nor Mesa are traded on a securities exchange, so that some adaptions are necessary for calculation of the price of the asset and its volatility for application of the BSM model. The closing price of the share of Mesa on December 31, 2016 is ascertained on the basis of Free cash flow to equity holders (FCFE), expressed by equivalence of the indirect equity interests held by the FIPs. Volatility, in turn, is measured as an average of historic volatility (based on the hypothesis that the series of the difference of continuously capitalized returns follows a normal distribution) of comparable companies in the electricity generation sector that are traded on the Bovespa.

Based on the studies made, a liability of R$ 196 is recorded in the Company’s consolidated financial statements, for the difference between the exercise price and the estimated fair value of the assets.

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The changes in the value of the options are as follows:


	Dec. 31, 2016		Dec. 31, 2015		Dec. 31, 2014
Initial balance		148		29		—
Adjustment to fair value		48		119		29

Final balance		196		148		29

The Company has made an analysis of the sensitivity of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 6.6% p.a. to 16.4% p.a., and for volatility between 15% and 63.2% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 126 and R$ 321, respectively.

Sonda options

As part of the process of shareholding restructuring, CemigTelecom and Sonda signed a Purchase Option Agreement (issued by CemigTelecom) and a Sale Option Agreement (issued by Sonda).

These resulted in CemigTelecom simultaneously having a right (put option) and an obligation (call option). The exercise price of the put option will be equivalent to fifteen times the adjusted net profit of Ativas in the business year prior to the exercise date. The exercise price of the call option will be equivalent to sixteen times the adjusted net profit of Ativas in the business year prior to the exercise date. Both options, if exercised, result in the sale of the shares in Ativas currently owned by the Company, and the exercise of one of the options results in nullity of the other. The options may be exercised as from January 1, 2021.

The put and call options in Ativas (‘the Ativas Options’) were measured at fair value and posted at their net value, i.e. the difference between the fair values of the two options on the reporting date of the financial statements for the business year 2016. Depending on the value of the options, the net value of the Ativas Options may be an asset or a liability of the Company.

The measurement has been made using the Black-Scholes-Merton (BSM) model. In the calculation of the fair value of the Ativas Options based on the BSM model, the following variables are taken into account: closing price of the underlying asset on December 31, 2016; the risk-free interest rate; the volatility of the price of the underlying asset; the time to maturity of the option; and the exercise prices on the exercise date.

The net effect of the calculation of the call and put options in shares of Ativas amounted to a credit amount of R$ 5 in the income statement for 2016.

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Formation of Aliança Geração de Energia

For the formation of Aliança Geração de Energia, the Company transferred, in 2015, to Aliança, its interests in the electricity generation consortia, and the interests of the subsidiary Capim Branco Energia S.A., as shown below:


	Dec. 31, 2015
Assets
Aimorés Hydroelectric Plant Consortium		404
Funil Hydroelectric Plant Consortium		124
Igarapava Hydroelectric Plant Consortium		37
Porto Estrela Hydroelectric Plant Consortium		34

		599
Liabilities
Porto Estrela – Paid Concession – current		(16	)
Porto Estrela Paid Concession – non-current		(134	)

		(150	)
Net value of assets and liabilities of Cemig GT		450
Net value of assets and liabilities of Capim Branco		131

		581

Cemig GT recognized in its financial statements the gain relating to the valuation at fair value of the investment in Aliança, excluding the effects of valuation of fair value of the company’s own assets that were subscribed as capital in Aliança.

This table shows the effects of the transaction in the Company’s financial statements at December 31, 2015:


	Cemig			Vale		Total
Fair value of the assets transferred to Aliança		1,867			2,331		4,198
Book value of the assets transferred to Aliança		581			1,277		1,858
Equity interest of the companies in Aliança		—			1		1
Stake held by Cemig, valued at fair value		1,889			—		—
Book value of the assets subscribed (Note 14)		(581	)		—		—

Goodwill premium – businesses subscribed as capital of Aliança (100%)		1,308			—		—
Portion of goodwill premium not recognized, relating to the equity interest held by the Company (45%)		(579	)		—		—

Gain on the transaction to be reported in the Statement of income for 2015 (55% of the premium)		729			—		—

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Additional equity interest in Gasmig

In October 2014, Cemig concluded the acquisition under its share purchase agreement with Petróleo Brasileiro S.A. (Petrobras) for acquisition of the 40% interest held by its subsidiary Gaspetro in Companhia de Gás de Minas Gerais (Gasmig), which had been approved by the Boards of Directors of both Cemig and Petrobras. The amount paid was R$ 570,976, being the result of R$ 600,000 specified in the share purchase agreement, updated by the IGP-M index, less the dividends paid between the base date and the closing of the agreement.

Business combination carried out in stages – additional effects

Up to the date of the acquisition of the controlling interest in Gasmig, Cemig had an equity interest of 59.57% in the share capital of Gasmig. However, Cemig did not consolidate Gasmig since there was a shareholders’ agreement which gave Petrobras significant participating rights.

With the acquisition of the 40% interest in Cemig, referred to above, Cemig obtained control over Gasmig, and began to consolidate Gasmig as from the date of this acquisition.

As specified in IFRS 3 (Business combinations), it was necessary for the Company to value its previous interest in Gasmig at fair value, recognizing the difference in the profit and loss account for the period.

Considering that the valuation opinion for the acquisition of the additional interest of 40% in Gasmig represents the fair value of the assets on the date of acquisition, Cemig made the measurement of its original interest in the investment, as follows:


	Fair value of the original interest (59.60%)
Fair value of Gasmig on the date of acquisition of control		1,427
Cemig’s original interest, of 59.57%, valued at fair value on the acquisition date		850
Book value		569
Gain recorded in 2014		281

Generation companies constituted – Lot D of Auction 12/2015 won by the company in 2015

As described in more detail in Note 14, as a result of Cemig GT having won Lot D of Auction 12/2015 – an award of concessions for 18 plants – in June 2016 the Company transferred ownership of the concessions of these plants to 7 new specific-purpose generation companies, wholly-owned subsidiaries of Cemig GT, which began to be consolidated in the second quarter of 2016.

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16.

PROPERTY, PLANT AND EQUIPMENT


	2016							2015
	Historic cost		Accumulated depreciation			Net value		Historic cost		Accumulated depreciation			Net value
In service
Land		287		(8	)		279		287		(8	)		279
Reservoirs, dams and water courses		5,347		(3,586	)		1,761		4,867		(3,037	)		1,830
Buildings, works and improvements		1,789		(1,371	)		418		1,577		(1,140	)		437
Machinery and equipment		4,518		(3,347	)		1,171		3,862		(2,670	)		1,192
Vehicles		29		(25	)		4		29		(21	)		8
Furniture and utensils		16		(12	)		4		15		(11	)		4

		11,986		(8,349	)		3,637		10,637		(6,887	)		3,750

Under construction		138		—			138		190		—			190

Net PP&E		12,124		(8,349	)		3,775		10,827		(6,887	)		3,940

This table shows the movement in property, plant and equipment:


	2015		Addition		Written off			Depreciation			Transfers Capitalizations			2016
In service
Land		279		—		—			—			—			279
Reservoirs, dams and watercourses		1,830		—		—			(99	)		30			1,761
Buildings, works and improvements		437		—		(1	)		(23	)		5			418
Machinery and equipment		1,192		—		(42	)		(110	)		132			1,172
Vehicles		8		—		—			(2	)		(2	)		4
Furniture and utensils		4		—		—			—			(1	)		3

		3,750		—		(43	)		(234	)		164			3,637

Under construction		190		120		(13	)		—			(159	)		138

Net property, plant and equipment		3,940		120		(56	)		(234	)		5			3,775


	2014		Additions		Write-offs			Transfer of assets to Aliança Geração de Energia			Indemnity receivable			Depreciation			Transfers to Other long term assets			Transfers / capitalizations			2015
In service
Land		372		—		(12	)		(41	)		(16	)		(3	)		(17	)		(4	)		279
Reservoirs, dams and water courses		2,261		—		—			(163	)		(46	)		(127	)		(102	)		7			1,830
Buildings, works and improvements		609		—		(1	)		(116	)		(17	)		(32	)		(13	)		7			437
Machinery and equipment		2,053		—		(3	)		(308	)		(466	)		(149	)		(69	)		134			1,192
Vehicles		9		—		—			—			—			(3	)		—			2			8
Furniture and utensils		5		—		—			—			—			—			—			(1	)		4

		5,309		—		(16	)		(628	)		(545	)		(314	)		(201	)		145			3,750

Under construction		235		126		(4	)		(3	)		(1	)		(1	)		(22	)		(140	)		190

Net PP&E		5,544		126		(20	)		(631	)		(546	)		(315	)		(223	)		5			3,940

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	2013		Additions		Write-offs			Depreciation			Transfers / capitalizations			2014
In service
Land		377		—		—			(5	)		—			372
Reservoirs, dams and water courses		2,395		—		—			(134	)		—			2,261
Buildings, works and improvements		712		—		(1	)		(25	)		(77	)		609
Machinery and equipment		2,079		—		(6	)		(177	)		157			2,053
Vehicles		12		—		—			(3	)		—			9
Furniture and utensils		2		—		—			—			3			5

		5,577		—		(7	)		(344	)		83			5,309

Under construction		240		122		(49	)		—			(78	)		235

Net PP&E		5,817		122		(56	)		(344	)		5			5,544

The average annual depreciation rate is 3.51%. The average annual depreciation rates, by activity, are:


Hydroelectric generation	Thermal generation	Management and other	Telecoms
3.30%	3.85%	10.04%	4.61%

The Company has not identified evidence of impairment of its Property, plant and equipment assets. The generation concession contracts provide that at the end of each concession the Concession-granting power shall determine the amount to be indemnified to the Company. Management believes that the indemnity of these assets will be greater than the amount of: their historic cost after depreciation over their useful lives.

Under the Brazilian regulatory framework Aneel, the regulator, is responsible for establishing the useful economic life of the generation and transmission assets in the electricity sector, and for periodically reviewing the estimates. The rates established by Aneel are used in the processes of reviewing tariff rates and calculating of the indemnity due at the end of the concession period, and are recognized as a reasonable estimate of the useful life of the assets of the concession. Thus, these rates were used as the basis for depreciation of the Company’s property, plant, and equipment assets.

The depreciation of the items of property, plant and equipment assets is calculated on the total of property, plant and equipment in service, by the straight-line method, using the rates determined by Aneel for the assets related to electricity activities, and reflects the estimated useful life of the assets. The residual value of the assets is the remaining balance of the assets at the end of the concession. As established in the contract signed between the Company and the Nation, at the end of the concession the assets will revert to the Nation, which in turn will indemnify the Company for those assets that have not yet been totally depreciated. In cases where there is no indemnity, or there is uncertainty related to the indemnity, at the end of the concession, such as thermal generation, and hydroelectric generation as an independent power producer, no residual value is recognized, and the depreciation rates are adjusted so that all the assets are depreciated within the concession.

The company transferred to Financial assets the remaining accounting balances of the plants at July 2015 which will be the subject of indemnity by the concession-granting power. For more information please see Note 14.

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Consortia

The Company is a partner in an electricity generation consortium for the Queimado plant, for which no separate company with independent legal existence was formed to manage the object of the concession, the controls being kept in Fixed assets and Intangible assets. The Company’s portion in the consortium is recorded and controlled individually in the respective categories of PP&E and Intangible assets. This table shows the accumulated investments in the consortium, in which Companhia Energética de Brasília has an interest of 17.50%:


	Stake in energy generated, %			Average annual depreciation rate, %		2016			2015
In service
Porto Estrela plant		33.33	%		3.68		—			—
Igarapava plant		14.50	%		2.5		—			—
Funil plant		49.00	%		4.21		—			—
Queimado plant		82.50	%		4		217			212
Aimorés plant		49.00	%		3.75		—			—
Capim Branco Energia Consortium		21.05	%		3.75		—			—
Accumulated depreciation							(90	)		(74	)

							127			138
Under construction
Queimado plant		82.50	%				—			4
Porto Estrela plant		33.33	%				—			—
Capim Branco Energia Consortium		21.05	%				—			—

							—			4

Total, consortia							127			142

17.

INTANGIBLE ASSETS

Assets of the concession

In accordance with Interpretation IFRIC 12 – Service Concession Arrangements, the portion of the distribution infrastructure that will be amortized during the concession, comprising the distribution assets, net of the interests held by consumers (‘Special Obligations’), is reported in Intangible assets.

Under the Brazilian regulatory framework Aneel is responsible for setting the economic useful life of the distribution assets of the electricity sector, periodically establishing a review in the valuation of these assets. The rates established by Aneel are used in the processes of reviewing tariff rates and calculating of the indemnity due at the end of the concession period, and are recognized as a reasonable estimate of the useful life of the assets of the concession. These rates, therefore, were used as a basis for valuation and amortization of intangible assets.

The intangible assets Temporary easements, Paid concessions, Right of commercial operation of concessions, and Others, are amortized on the straight-line basis and the rates used are those set by Aneel. The Company has not identified any indications of impairment of its intangible assets, which have defined useful lives.

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a)	Composition of the balance at December 31, 2016 and 2015


	2016							2015
	Historic cost		Accumulated amortization			Residual value		Historic cost		Accumulated amortization			Residual value
In service
Useful life defined
Temporary easements		12		(2	)		10		11		(1	)		10
Paid concession		19		(10	)		9		19		(10	)		9
Assets of concession		16,288		(7,040	)		9,248		15,607		(6,642	)		8,965
Other		77		(59	)		18		71		(55	)		16

		16,396		(7,111	)		9,285		15,708		(6,708	)		9,000

Under construction		1,535		—			1,535		1,275		—			1,275

Net intangible assets		17,931		(7,111	)		10,820		16,983		(6,708	)		10,275

b)	Changes in Intangible assets


	Balance at Dec. 31, 2015		Additions		Special obligations – write- down (1)		Write-offs			Amortization			Transfer			Balance at Dec. 31, 2016
In service
Useful life defined
Temporary easements		10		—		—		—			—			—			10
Paid concession		9		—		—		—						—			9
Assets of concession		8,967		6		98		(32	)		(595	)		804			9,248
Other		14		—		—		—			(4	)		8			18

		9,000		6		98		(32	)		(599	)		812			9,285

Under construction		1,275		1,157		—		(8	)		—			(889	)		1,535

Net intangible assets – Consolidated		10,275		1,163		98		(40	)		(599	)		(77	)		10,820

(1)

This write-down of a Special Obligation arises from signature of a Debt Recognition Contract by Eletrobras, in the amount of R$ 98,236, for restitution of amounts calculated in the final settlement of Financing and Subsidy Contracts for the Luz Para Todos (‘Light for Everyone’) program, with funds from the CDE account, and return of funds related to the Global Reversion Reserve (RGI).


	Balance at Dec. 31, 2014		Additions		Transfer of assets to Aliança Geração de Energia			Indemnity – plants not renewed		Write-offs			Amortization			Transfer from Financial to Intangible on renewal of concessions(*)		Transfers			Balance at Dec. 31, 2015
In service
Useful life defined
Temporary easements		12		—		(1	)		—		—			—			—		—			11
Paid concession		24		—		(13	)		—		—			(2	)		—		—			9
Assets of concession		2,223		8		—			—		(21	)		(512	)		7,162		107			8,967
Other		17		—		—			—		—			(5	)		—		1			13

		2,276		8		(14	)		—		(21	)		(519	)		7,162		108			9,000

Under construction		1,103		1,108		—			—		(17	)		—			—		(919	)		1,275

Net intangible assets – Consolidated		3,379		1,116		(14	)		—		(38	)		(519	)		7,162		(811	)		10,275

(*)	See comments in Note 13.

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	Balance at Dec. 31, 2013		Adjustment due to business combination		Additions		Write-offs			Amortization			Transfers			Balance at Dec. 31, 2014
In service
Useful life defined
Temporary easements		12		—		—		—			—			—			12
Paid concession		27		—		—		—			(3	)		—			24
Assets of concession		866		1,073		—		—			(448	)		732			2,223
Other		25		—		—		—			(6	)		(2	)		17

		930		1,073		—		—			(457	)		730			2,276

Under construction		1,074		109		868		(25	)		—			(923	)		1,103

Net intangible assets – Consolidated		2,004		1,182		868		(25	)		(457	)		(193	)		3,379

The annual average amortization rate is 3.51%. The average rates of annual amortization, by activity, set by the legislation for the sector, are:


Hydroelectric generation	Thermal generation	Distribution	Management and other	Telecoms
20.00%	19.35%	3.85%	23.29%	11.56%

The Company has not identified indications of impairment of its intangible assets, which have defined useful lives. The Company has no intangible assets with non-defined useful life. The amount of additions, R$ 1,163, includes R$ 142 (R$ 159 in 2015, and R$ 70 in 2014) under the heading Capitalized Financial Costs, as presented in Note 20.

18.

SUPPLIERS


	2016		2015
Electricity on spot market – CCEE		168		308
Charges for use of electricity network		78		81
Electricity purchased for resale		677		647
Itaipu Binacional		207		315
Gas purchased for resale		462		236
Materials and services		348		314

		1,940		1,901

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19.

TAXES, INCOME TAX AND SOCIAL CONTRIBUTION TAX

a)	Taxes payable

The non-current Pasep and Cofins obligations refer to the legal proceedings challenging the constitutionality of inclusion of the ICMS tax, which has been charged, within the amount on which the Pasep and Cofins taxes are calculated; and seeking authorization to offset the amounts paid over the last ten years. The Company and its subsidiaries Cemig D (Distribution) and Cemig GT (Generation and Transmission) obtained interim relief from the court allowing them not to make the payment, and authorizing payment through court deposits (starting in 2008), and maintained this procedure until July 2011. After that date, while continuing to challenge the basis of the calculation in court, they opted to pay the taxes monthly. Additionally, in July 2015 the Company began to make provision for Pasep and Cofins taxes on updating of Financial assets, in accordance with tax legislation coming into force on that date.


	2016		2015
Current
ICMS		502		462
Cofins		128		157
Pasep		28		33
INSS		25		22
Other		111		66

		794		740
Non-current
Cofins		595		609
Pasep		129		131

		724		740

		1,518		1,480

b)	Income tax and Social Contribution tax:


	2016		2015
Current
Income tax		19		8
Social Contribution tax		8		3

		27		11

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20.

LOANS, FINANCINGS AND DEBENTURES


Financing source	Principal maturity		Annual financing cost %		Currency		2016						2015
Financing source	Principal maturity		Annual financing cost %		Currency		Current		Non-current		Total		Total
FOREIGN CURRENCY
Banco do Brasil – Various bonds (1)		2024		Various		US$								33
KFW		2016		4.50		EURO		—		—		—		3
KFW		2024		1.78		EURO		4		3		7		11

Debt in foreign currency								5		25		30		47
Brazilian currency								—		—		—
Banco do Brasil		2017		108.33% of CDI		R$		72		—		72		144
Banco do Brasil		2017		108.00% of CDI		R$		151		—		151		433
Banco do Brasil		2016		104.10% of CDI		R$		285		270		555		925
Banco do Brasil (6)		2016		104.25% of CDI		R$		—		—		—		804
Banco do Brasil		2017		111.00% of CDI		R$		50		—		50		100
Banco do Brasil		2020		114.00% of CDI		R$		8		494		502		499
Banco do Brasil		2018		132.90% of CDI		R$		291		292		583
Brazilian Development Bank (BNDES)		2026		TJLP+2.34		R$		8		66		74		81
Brazilian Development Bank (BNDES)		2026		TJLP+2.48		R$		—		—		—		11
CEF		2018		119.00% of CDI		R$		100		9		109		201
CEF		2020		132.14% of CDI		R$		65		616		681		—
Eletrobras		2023		Ufir, RGR + 6.00 to 8.00		R$		19		49		68		185
Large consumers		2018		Various		R$		4		2		6		8
Finep		2018		TJLP + 5 and TJLP + 2.5		R$		3		3		6		9
Promissory Notes—8^th Issue (3)		2016		111.70 of CDI		R$		—		—		—		1,889
Promissory Notes—6^th Issue (2)		2016		120.00 of CDI		R$		—		—		—		1,441
Promissory Notes – 7th Issue (2)		2017		128.00% of CDI		R$		667		—		667		—
BASA		2018		CDI+1.9		R$		2		120		122		121
Sonda (4)		2021		110% of CDI		R$		46		37		83		—
Promissory Notes –1^st Issue (4)		2015		110.40% of CDI		R$		—		—		—		23

Debt in Brazilian currency								1,771		1,958		3,729		6,874

Total of loans and financings								1,776		1,983		3,759		6,921

Debentures, 2^nd Issue (3)		2017		IPCA + 7.96		R$		235		—		235		441
Debentures—3^rd Issue, 1st Series (2)		2017		CDI + 0.90		R$		543		—		543		540
Debentures—3^rd Issue, 3^rd Series (2)		2022		IPCA + 6.20		R$		50		933		983		923
Debentures—3^rd Issue, 2^nd Series (2)		2019		IPCA + 6.00		R$		15		278		293		275
Debentures—3^rd Issue, 2^nd Series (3)		2021		IPCA + 4.70		R$		59		1,436		1,495		1,403
Debentures—3^rd Issue, 3^rd Series (3)		2025		IPCA + 5.10		R$		38		857		895		839
Debentures—3^rd Issue, 1^st Series (3)		2018		CDI + 0.69		R$		53		411		464		462
Debentures		2018		CDI+1.60		R$		553		485		1,038		1,037
Debentures		2020		IPCA+8.07		R$		1		30		31		29
Debentures – 7th Issue, 1st Series (2)		2021		140.0% of CDI		R$		(7)		2,204		2,197		—
Debentures, 4th Issue (3)		2018		CDI + 4.05%		R$		805		793		1,598		—
Debentures—4^th Issue, 2^nd Series (2)		2016		CDI+0.85		R$		—		—		—		501
Debentures—5^th Issue, 1^st Series (2)		2018		CDI+1.70		R$		711		700		1,411		1,412
Debentures (5)		2016		TJLP+3.12		R$		—		—		—		41
Debentures (5)		2018		CDI + 1.60		R$		1		100		101		103
Debentures (5)		2018		CDI+0.74		R$		33		34		67		100
Debentures (5)		2022		TJLP+7.82 (75%) and Selic+1.82(25%)		R$		20		114		134		125
Cemig Telecom—1^st Issue, 1^st Series (4)		2018		TJLP+2.62		R$		—		—		—		8
Cemig Telecom—1^st Issue, 2^nd Series (4)		2018		TJLP+3.32		R$		—		—		—		3
Cemig Telecom—1^st Issue, 3^rd Series (4)		2018		TJLP+1.72		R$		—		—		—		2
Cemig Telecom—1^st Issue, 4^th Series (4)		2018		TJLP+2.62		R$		—		—		—		2

(–) FIC Pampulha: Securities of subsidiary companies (7)								(49)		(16)		(65)		—

Total. debentures								3,061		8,359		11,420		8,246

Overall total – Consolidated								4,837		10,342		15,179		15,167

(1)	Interest rates vary from 2.00 to 8.00% p.a. Six-month Libor plus spread of 0.81% to 0.88% p.a.

(2)	Cemig GT (Cemig Geração e Transmissão).

(3)	Cemig D (Cemig Distribuição).

(4)	Cemig Telecom.

(5)

Gasmig.

(6)

On April 22, 2016 Cemig D signed amendments to two Bank Credit Notes issued in favor of Banco do Brasil, for a total of R$ 600 million, to roll over existing debt. The interest rate is 128.00% of the CDI rate, p.a., and the funds will be paid in four six-monthly installments with the last maturity in April 2018.

(7)	FIC Pampulha has financial investments in securities issued by subsidiaries of the Company. For more information, and characteristics of the fund, see Note 28.

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Guarantees

The guarantees of the debtor balance on loans and financings, on December 31, 2016, were as follows:


	2016
Promissory Notes and Sureties		11,023
Receivables		3,840
Without guarantee		316

TOTAL		15,179

The consolidated composition of loans, financings and debentures, by currency and indexor, with the respective amortization, is as follows:


	2017		2018		2019		2020		2021		2022		2023		After 2024		Total
Currency
US dollar		1		—		—		—		—		—		—		22		23
Euro		4		3		—		—		—		—		—		—		7

Total by currency		5		3		—		—		—		—		—		22		30

Indexors
IPCA index (1)		399		139		628		797		796		531		214		429		3,933
UFIR / RGR (2)		19		17		13		11		3		4		2		—		69
CDI Rate (Bank CD rate) (3)		4,379		3,685		1,155		954		755		—		—		—		10,928
URTJ / TJLP (4)		31		34		31		32		32		26		8		19		213
IGP–DI (5)		2		1		1		—		—		—		—		—		4
TR Rate (6)		2		—		—		—		—		—		—		—		2

Total by indexor		4,832		3,876		1,828		1,794		1,586		561		224		448		15,149

Overall total		4,837		3,879		1,828		1,794		1,586		561		224		470		15,179

(1)	Expanded National Consumer Price (IPCA) Index.

(2)	Fiscal Reference Unit (UFIR / RGR).

(3)	Interbank Rate for Certificates of Deposit.

(4)	URTJ: Interest rate reference unit.

(5)	IGP-DI (‘General Domestic Availability Price Index’).

(6)	TR Reference Interest Rate

The principal currencies and indexors used for monetary updating of loans and financings had the following variations:


Currency	2016 (%)			2015 (%)		Indexor		2016 (%)		2015 (%)
US dollar		(16.54	)		47.01		IPCA		6.29		10.67
Euro		(19.10	)		31.71		CDI		14.06		13.23

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The changes in loans, financings and debentures were as follows:


Balance on December 31, 2013	9,457

Loans and financings obtained	4,562
Funding costs	—

Financings obtained net of funding costs	4,562
Liabilities assumed in business combinations(*)	392
Monetary and exchange rate variation	266
Financial charges provisioned	1,007
Financial charges paid	(781	)
Amortization of financings	(1,394	)

Balance on December 31, 2014	13,509

Loans and financings obtained	5,817
Funding costs	(78	)

Financings obtained net of funding costs	5,739
Monetary and exchange rate variation	400
Financial charges provisioned	1,545
Financial charges paid	(1,331	)
Amortization of financings	(4,695	)

Balance on December 31, 2015	15,167

Loans and financings obtained	5,878
Funding costs	(141	)
Financings obtained net of funding costs	5,737
Monetary and exchange rate variation	231
Borrowing costs provisioned	2,070
Borrowing costs paid	(2,369	)
Amortization of financings	(5,592	)
(–) FIC Pampulha: Securities of subsidiary companies	(65	)

Balance at December 31, 2016	15,179

(*)	Balance arising from consolidation of Gasmig starting in October 2014.

Borrowing costs, capitalized

The Company transferred to Intangible assets the costs of loans and financings linked to works, as follows:


	2016			2015			2014
Costs of loans and financings		2,070			1,545			1,007
Financial costs transferred to Intangible assets		(142	)		(159	)		(70	)

Net effect in Profit or loss		1,928			1,386			937

The value of the charges capitalized, R$ 142 (R$ 159 in 2015 and R$70 in 2014), has been excluded from the Statement of Cash Flow, and from the additions to the Cash flow in investment activities, because it does not represent an outflow of cash for acquisition of the related asset.

The average rate of capitalization of the loans and financings whose costs were transferred to works was 18.02% (15.25% in 2015 and 11.62% in 2014).

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Funding raised

This table gives the consolidated totals of funds raised in 2016:


2016	Principal maturity		Annual financial cost, %		Amount raised
Brazilian currency
Caixa Econômica Federal – Cemig D		2020		132.14% of CDI		674
Debentures (Cemig D)		2018		CDI + 4.05%		1,575
KfW (Cemig GT)		2018		1.78%		2
Promissory Notes – Cemig GT – 7th Issue		2017		128% of CDI		606
Debentures – 4th Issue, 7th Series (Gasmig)		2020		TJLP		24
Debentures: 7th Issue (CEMIG GT)		2021		140% of CDI		2,195
Banco do Brasil		2018		132.90% of CDI		580
Sonda (Cemig Telecom)		2021		110% of CDI		81

Financings obtained net of funding costs						5,737


2015	Principal maturity		Annual financial cost, %		Amount raised
Brazilian currency
Banco do Brasil (Cemig GT)		2015		106.90% of CDI		593
Debentures 6th Issue – 1st Series (Cemig GT)		2018		CDI + 1.60%		967
Debentures 6th Issue – 2nd Series (Cemig GT)		2020		IPCA + 8.07%		27
Promissory Notes – 6th Issue (Cemig GT)		2016		120% of CDI		1,407
Banco da Amazônia (Cemig GT)		2018		CDI + 1.90%		118
Caixa Econômica Federal (Cemig D)		2018		119% of CDI		200
Promissory Notes – 8th Issue (Cemig D)		2016		111.70% of CDI		1,685
Banco do Brasil (Cemig D)		2020		114% of CDI		487
Banco do Brasil (Cemig D)		2017		111% of CDI		98
Debentures – 4th Issue (Gasmig)		2022		TJLP + 7.82 (75%) and Selic + 1.82 (25%)		34
Debentures – 5th Issue (Gasmig)		2018		CDI + 1.60%		100
Itaú Unibanco/Banco BBM (Cemig Telecom)		2016		120% of CDI		23

Total funding						5,739


2014	Principal maturity		Annual financial cost, %		Amount raised
Foreign currency
KfW (GT)		2024		1.78%		10

Total in foreign currency						10

Brazilian currency
Debentures – 4th Issue (GT)		2016		CDI + 0.85%		505
Promissory Notes – 5th Issue (GT)		2015		106.85% of the CDI Rate		1,400
Debentures – 5th Issue (GT)		2018		CDI + 1.70%		1,400
Finep (GT)		2018		TJLP + 2.5%		3
Brazilian Development Bank (BNDES) (D)		2020		TJLP + 2.48%		14
Promissory Notes – 7th Issue (D)		2015		105.00% of the CDI Rate		1,210
Promissory notes – 1^st Issue – Cemig Telecom		2015		110.4% of the CDI Rate		20

Total in Brazilian currency						4,552

Total raised						4,562

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7th Issue of Commercial Promissory Notes

On July 1, 2016 Cemig GT concluded its seventh issue of Commercial Promissory Notes, totaling R$ 620.. The proceeds were allocated to payment of the second portion of the Concession Grant Fee for the hydroelectric plants in Lot D of Aneel Auction 12/2015, and to strengthen the Company’s working capital. The notes have maturity at 360 days, on June 26, 2017, and pay remuneratory interest of 128% of the accumulated variation resulting from the average one-day interbank over extra grupo DI rate, which will be paid on the maturity date. This issue has a surety guarantee from the holding company, Cemig.

Issue of Bank Credit Note

On October 24, 2016 Cemig GT issued a Bank Credit Note in favor of Banco do Brasil, in the total amount of R$ 600, for the purpose of payment and/or amortization of transactions entered into with Banco do Brasil itself. This loan has an annual interest rate of 132.90% of the CDI rate, and will be paid in four half-yearly installments, with the last maturity in October 2018.

7th debenture issue

On December 29, 2016, Cemig Geração e Transmissão S.A. made its seventh issue of non-convertible debentures, for a total of R$ 2,240, after funding costs, in a single series, with maturity at five years. This issue has guarantees of real assets and an additional surety guarantee. Interest will be paid monthly, with no grace period, at 140% of the CDI rate, up to the 23^rd month. Starting at the 24^th month, principal and interest will be paid, with final maturity on December 29, 2021. The proceeds were used for payment of Cemig GT’s sixth issue of promissory notes, and also for replenishment of the Company’s cash position.

Debentures

The debentures issued by the Company are not convertible into shares, and have the following characteristics:


Issuer	Guarantee		Annual cost (%)		Maturity		2016		2015
Cemig GT – 2^nd Issue – 2^nd Series		None		IPCA + 7.68		2015		—		—
Cemig GT – 3^rd Issue – 1^st Series		Unsecured		CDI + 0.90		2017		543		540
Cemig GT – 3^rd Issue – 3^rd Series		Unsecured		IPCA + 6.20		2022		983		923
Cemig GT – 3^rd Issue – 2^nd Series		Unsecured		IPCA + 6.00		2019		293		275
Cemig GT – 4^th Issue		Unsecured		CDI + 0.85		2016		—		501
Cemig GT – 5^th Issue		Unsecured		CDI*1.70		2018		1,411		1,412
Cemig D – 3^rd Issue – 1^st Series		Surety		CDI + 0.69		2018		464		462
Cemig D – 3^rd Issue – 2^nd Series		Surety		IPCA + 4.70		2021		1,495		1,403
Cemig D – 3^rd Issue – 3^rd Series		Surety		IPCA + 5.10		2025		895		839
Debentures		Surety		CDI+1.6		2018		1,038		1,037
Debentures		Surety		IPCA+8.07		2020		31		29
Cemig D – 2^nd Issue		None		IPCA + 7.96		2017		235		441
Cemig D – 4th Issue		Surety		CDI + 4.05%		2018		1,598
Debentures – 7th Issue, 1st Series (2)		Receivables (Revenue)		140.0% of CDI		2021		2,197
Gasmig		Unsecured		TJLP+3.12		2016		—		41
GASMIG		Unsecured		CDI + 1.60		2018		101		103
Gasmig		Unsecured		CDI+0.62		2015				—
Gasmig		Unsecured		CDI+0.74		2018		67		100
Gasmig		Unsecured		TJLP+7.82 (75%) and Selic+1.82(25%)		2022		134		125
Cemig Telecom—1^st Issue, 1^st Series (4)		Receivables (Revenue)		TJLP+2.62		2018		—		8
Cemig Telecom—1^st Issue, 2^nd Series (4)		Receivables (Revenue)		TJLP+3.32		2018		—		3
Cemig Telecom—1^st Issue, 3^rd Series (4)		Receivables (Revenue)		TJLP+1.72		2018		—		2
Cemig Telecom—1^st Issue, 4^th Series (4)		Receivables (Revenue)		TJLP+2.62		2018		—		2
Cemig Telecom—1^st Issue, 5^th Series (4)		Receivables (Revenue)		TJLP+3.32		2018		—		—
Cemig Telecom—1^st Issue, 6^th Series (4)		Receivables (Revenue)		TJLP+1.72		2018		—		—

Subtotal								11,485		8,246
(-)FIC Pampulha-Títulos de empresas controladas								(65)		—

TOTAL								11,420		8,246

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For the debentures issued by the Company, there are no agreements for renegotiation, nor debentures held in treasury. There is an early maturity cross-default clause in the event of non-payment of any pecuniary obligation with individual or aggregate value, by Cemig GT or its parent company, Cemig, greater than R$ 50.

Restrictive covenants

The Company has contracts with covenants linked to financial indices, as follows:


Transaction	Ratio	Ratio requirement – Issuer	Ratio requirement – Cemig (Guarantor)	Timing requirement
BNDES Financing – Cemig GT (1)	Equity of Guarantor / Total assets of Guarantor	—	30% or more	Annual
Banco do Brasil Credit Note – Cemig GT (2)	Net debt of Surety / Ebitda of Surety	—	Less than or = 6.00 in 2016 5.26 in 2017 5.00 in 2018	Quarterly, from December 2016
7^th Debenture Issue – Cemig GT (3)	Net debt / (Ebitda + Dividends received)	Less than or = 5.5 in 2017 5.0 in 2018 4.5 in 2019 3.0 in 2020 2.5 in 2021	Less than or = 4.5 in 2017 4.25 in 2018 3.5 in 2019 3.0 in 2020 2.5 in 2021	Half-yearly, from June 2017
Gasmig Debentures (4)	Total debt / Total assets Ebitda / Debt servicing	Less than 0.6 1.30 or more	—	Annual

(1)

If the Company does not succeed in achieving the required ratio, it will have six months from the end of the business year in which the ratio was found, to: (i) constitute real guarantees which in the assessment of the BNDES represent 130.00% of the value of the debtor balance of the contract; or (ii) present an interim balance sheet, audited by an auditor accredited by the CVM, that indicates the return to the index required.

(2)	Bank Credit Note issued in favor of Banco do Brasil in October 2016, for R$ 600. If additional or more restrictive financial covenants are agreed with other creditors, they will automatically be incorporated into the Bank Credit Note.

(3)	7th Issue of Debentures by Cemig GT, in December 2016, of R$ 2,240.

(4)

If it does not succeed in achieving the required ratio, Gasmig will have 120 days from the date of a communication in writing from BNDESPar or BNDES to constitute guarantees that are acceptable to the debenture holders for the total amount of the debt, obeying the rules of the National Monetary Council, unless in that period the required ratios have been re-established. Cross-default: Certain contractually specified situations can cause early maturity of other debts.

On December 31, 2016 all the restrictive covenants relating to financial ratios of the Company were complied with.

21. REGULATORY CHARGES


	2016		2015
Assets
Global Reversion Reserve (RGR) (1)		48		—
		48		—
Liabilities
Global Reversion Reserve – RGR		35		48
Energy Development Account – CDE		189		280
Eletrobrás – Compulsory loan		0		1
Aneel inspection charge		3		3
Energy Efficiency		288		207
Research and Development		234		160
Energy System Expansion Research		3		2
National Scientific and Technological Development Fund		5		3
Proinfa Alternative Energy Program		8		7
Royalties for use of water resources		23
Emergency capacity charge		31		31
Consumer charges – ‘Tariff Flag’ amounts		17		1

		836		743

Current assets		48		—
Current liabilities		381		517
Non-current liabilities		455		226

(1)

Cemig GT requested from Aneel a review of the amounts paid for the RGR Contribution in previous years, due to the basis of calculation used at the time for calculation of that charge. Cemig GT recognized the right to recover the amount of R$ 119, to be offset against RGR payable, only after the conclusion, in 2016, of a judgment by Aneel, as per Aneel Technical Note 162/2016, which accepted Cemig GT’s request.

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22. POST-RETIREMENT LIABILITIES

Forluz Pension plan (a Supplementary retirement pension plan)

Cemig is a sponsor of Forluz – Forluminas Social Security Foundation, a non-profit legal entity whose object is to provide its associates and participants and their dependents with a financial income to complement retirement and pension, in accordance with the Forluz pension plan that they are subscribed in.

Forluz makes the following supplementary pension benefit plans available to its participants:

The Mixed Benefits Plan (‘Plan B’): This plan operates as a defined-contribution plan during the fund accumulation phase for retirement benefits for normal time of service, and as a defined-benefit plan for disability or death of participants still in active employment, and for receipt of benefits for time of contribution. The Sponsors match the basic monthly contributions of the participants. This is the only plan open for joining by new participants.

Pension Benefits Balances Plan (‘Plan A’): This plan includes all currently employed and assisted participants who opted to migrate from the Company’s previously sponsored defined benefit plan, and are entitled to a benefit proportional to those balances. For participants who are still working, this benefit has been deferred to the retirement date.

Cemig, Cemig GT and Cemig D also maintain, independently of the plans made available by Forluz, payments of part of the life insurance premium for the retirees, and contribute to a health plan and a dental plan for the active employees, retired employees and dependents, administered by Cemig Saúde.

Amortization of the actuarial obligations and recognition in the financial statements

In this Note the Company states its obligations and expenses incurred for purposes of the Retirement Plan, Health Plan, Dental Plan and the Life Insurance Plan in accordance with the standards specified by the IAS 19 – Employee Benefits, and an independent actuarial opinion issued as of December 31, 2016.

The Company has recognized an obligation for past actuarial deficits relating to the pension fund in the amount of R$ 787 on December 31, 2016 (R$ 812 on December 31, 2015). This amount has been recognized as an obligation payable by Cemig, its subsidiaries and jointly-controlled entities, and is being amortized by June 2024, through monthly installments calculated by the system of constant installments (known as the ‘Price’ table), and adjusted by the IPCA (Expanded National Consumer Price) inflation index (published by the Brazilian Geography and Statistics Institute – IBGE) plus 6% per year. Because the Company is required to pay this debt even if Forluz has a surplus, the Company decided to record the debt in full, and record the effects of monetary updating and interest in Financial revenue (expenses) in the Statement of income.

Independent Actuarial Information

The consolidated actuarial information is as follows:


2016	Pension plans and retirement supplement plans			Health Plan		Dental Plan		Life insurance		Total
Present value of funded obligations		9,743			1,711		38		814		12,306
Fair value of plan assets		(8,128	)		—		—		—		(8,128	)

Initial net liabilities		1,615			1,711		38		814		4,178
Adjustment to asset ceiling		64			—		—		—		64

Net liabilities in the statement of financial position		1,679			1,711		38		814		4,242

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2015	Pension plans and retirement supplement plans			Health Plan		Dental Plan		Life insurance		Total
Present value of funded obligations		8,049			1,323		30		554		9,956
Fair value of plan assets		(6,703	)		—		—		—		(6,703	)

Net liabilities in statement of financial position		1,346			1,323		30		554		3,253

The changes in the present value of the defined benefit obligation are as follows:


	Pension plans and retirement supplement plans			Health Plan			Dental Plan			Life insurance			Total
Defined-benefit obligation on December 31,2013		7,352			1,012			28			600			8,992

Cost of current service		6			6			—			4			16
Interest on the actuarial obligation		869			125			4			73			1,071
Actuarial losses (gains) recognized
Due to changes in financial assumptions		241			38			1			33			313
Due to adjustments based on experience		329			12			1			(19	)		323
		570			50			2			14			636
Benefits paid		(673	)		(73	)		(2	)		(11	)		(759	)

Defined-benefit obligation on December 31,2014		8,124			1,120			32			680			9,956

Cost of current service		6			7			1			3			17
Interest on the actuarial obligation		934			135			3			81			1,153
Actuarial losses (gains) recognized
Due to changes in demographic assumptions		8			43			1			(71	)		(19	)
Due to changes in financial assumptions		(822	)		128			(1	)		(122	)		(817	)
Due to adjustments based on experience		533			(33	)		(4	)		69			565
		(281	)		138			(4	)		(124	)		(271	)
Plan amendment—Past service		—			—			—			(74	)		(74	)
Benefits paid		(734	)		(77	)		(2	)		(12	)		(825	)

Defined-benefit obligation on December 31,2015		8,049			1,323			30			554			9,956

Cost of current service		5			9			0			3			17
Interest on the actuarial obligation		1,013			174			4			72			1,263
Actuarial losses (gains) recognized		0			0			0			0			0
Due to changes in demographic assumptions		(1	)		0			0			0			(1	)
Due to changes in financial assumptions		1,253			391			9			175			1,828
Due to adjustments based on experience		231			(87	)		(3	)		21			162
		1,483			304			6			196			1,989
Benefits paid		(807	)		(99	)		(2	)		(11	)		(919	)

Defined-benefit obligation on December 31, 2016		9,743			1,711			38			814			12,306

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Changes in the fair values of the plan assets were as follows:


	Pension plans and retirement supplement plans
Fair value at December 31. 2013		7,728

Real return on the investments		889
Contributions from the Employer		107
Benefits paid		(673	)

Fair value at December 31. 2014		8,051

Real return on the investments		(730	)
Contributions from the Employer		116
Benefits paid		(734	)

Fair value at December 31. 2015		6,703

Real return on the investments		2,105
Contributions from the Employer		127
Benefits paid		(807	)

Fair value at December 31. 2016		8,128

The amounts recognized in the 2016, 2015 and 2014 Statement of income are as follows:


2016	Pension plans and retirement supplement plans			Health Plan		Dental Plan		Life insurance		Total
Cost of current service		5			9		—		3		17
Interest on the actuarial obligation		1,014			173		4		72		1,263
Expected return on the assets of the Plan		(833	)		—		—		—		(833	)

Total expense in 2016 according to actuarial calculation		186			182		4		75		447


2015	Pension plans and retirement supplement plans			Health Plan		Dental Plan		Life insurance			Total
Cost of current service		6			7		1		3			17
Interest on the actuarial obligation		934			135		3		81			1,153
Expected return on the assets of the Plan		(933	)		—		—		—			(933	)
Past service cost		—			—		—		(74	)		(74	)

Expense as per actuarial opinion		7			142		4		10			163

Adjustment relating to debt to Forluz		122			—		—		—			122

Expense in 2015		129			142		4		10			285


2014	Pension plans and retirement supplement plans			Health Plan		Dental Plan		Life insurance		Total
Cost of current service		6			6		—		4		16
Interest on the actuarial obligation		869			125		4		73		1,071
Expected return on the assets of the Plan		(922	)		—		—		—		(922	)

Expense as per actuarial opinion		(47	)		131		4		77		165

Adjustment to the asset ceiling		47			—		—		—		47
Adjustment relating to debt to Forluz		99			—		—		—		99

Expense in 2014		99			131		4		77		311

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The company made changes to its life insurance, coming into effect on 2015, which result in changes to the maximum limit of the capital insured. This change resulted in a reduction of R$ 74 in the post-retirement liabilities, with counterpart in the Statement of income for 2015.

Changes in net liabilities:


	Pension plans and retirement supplement plans			Health Plan			Dental Plan			Life insurance			Total
Net liabilities on December 31. 2013		808			1,012			29			600			2,449

Expense Recognized in Statement of income		99			131			4			77			311
Contributions paid		(109	)		(73	)		(2	)		(11	)		(195	)
Actuarial losses (gains)		—			50			2			14			66

Net liabilities on December 31. 2014		798			1,120			33			680			2,631

Expense Recognized in Statement of income		129			142			4			84			359
Contributions paid		(116	)		(77	)		(3	)		(12	)		(208	)
Plan amendment—Past service		—			—			—			(74	)		(74	)
Actuarial losses (gains)		535			138			(4	)		(124	)		545

Net liabilities on December 31. 2015		1,346			1,323			30			554			3,253

Expense recognized in Income statement		187			182			4			75			448
Contributions paid		(128	)		(99	)		(2	)		(11	)		(240	)
Actuarial losses (gains) ( * )		274			305			6			196			781

Net liabilities on December 31, 2016		1,679			1,711			38			814			4,242

							2016			2015			2014
Current liabilities								199			167			153
Non-current liabilities								4,043			3,086			2,478

(*)	Recognized directly in Equity

In 2016, 2015 and 2014, the expenses related to the debt agreed upon with Forluz were registered in Financial revenue (expenses), because they represent interest and monetary updating. The other expenses on the pension fund and on health, dental, and life insurance plans are recorded in the Other operating expenses line.

The independent actuary’s estimate for the expense amount to be recognized for the 2017 business year is as follows:


	Pension plans and retirement supplement plans			Health Plan		Dental Plan		Life insurance		Total
Cost of current service		4			11		—		4		19
Interest on the actuarial obligation		980			178		4		85		1,247
Expected return on the assets of the Plan		(810	)		—		—		—		(810	)

Expense in 2017 as per actuarial opinion		174			189		4		89		456

The expectation for payment of benefits for the 2017 business year is as follows:


	Pension plans and retirement supplement plans		Health Plan		Dental Plan		Life insurance		Total
Estimate of payments of benefits		843		104		2		11		960

The Company and its subsidiaries have the expectation of making contributions of R$ 133 to the pension fund in 2017 for amortization of the agreed debt, and R$ 107 to the Defined Contribution Plan (recorded directly in the Statement of income for the year).

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The average periods of maturity of the obligations under the benefit plans, in years, are as follows:


Pension and retirement supplement plans				Health Plan		Dental Plan		Life insurance
Plan A		Plan B
	9.58		11.83		13.38		13.38		11.83

The principal categories of assets of the plan, as a percentage of the total of the plan’s assets, are as follows:


	2016			2015
Shares of Brazilian companies		3.84	%		6.90	%
Fixed income securities		74.96	%		66.38	%
Real estate property		8.14	%		9.66	%
Other		13.06	%		17.06	%

Total		100.00	%		100.00	%

The assets of the Pension Plan include the following assets, valued at fair value, of Cemig, Cemig GT and Cemig D:


	2016		2015
Non-convertible debentures issued by the Sponsor and subsidiaries		397		418
Shares issued by the Sponsor		7		6
Real estate properties of the Foundation occupied by the Sponsors		710		230

		1,114		654

This table gives the main actuarial assumptions:


	2016	2015	2014
Annual discount rate for present value of the actuarial liability	10.50%	13.20%	12.00%
Annual expected return on plan assets	10.50%	13.20%	12.00%
Long-term annual inflation rate	4.50%	5.50%	5.50%
Annual salary increases	6.59%	7.61%	7.61%
Mortality rate	AT-2000	AT-2000	AT-2000
Disability rate	Álvaro vindas	Álvaro vindas	Álvaro Vindas
Disabled mortality rate	AT 49	AT 49	AT 49

Below is a sensitivity analysis of the effects of changes in the principal actuarial assumptions used to determine the defined-benefit obligation on December 31, 2016:


Effects on the defined-benefit obligation	Pension and retirement supplement plan		Health Plan		Dental Plan		Life insurance		TOTAL
Reduction of one year in the mortality table		278		26		1		—		305
Increase of one year in the mortality table		—		—		—		30		30
Reduction of 1% in the discount rate		981		222		5		153		1,361

In the presentation of the sensitivity analysis, the present value of the defined-benefit obligation was calculated using the Unit Projected Credit method, the same method used to calculate the defined-benefit obligation recognized in the Statement of financial position. The Company has not made changes in the methods used to calculate its post-retirement obligations for the business years ending December 31, 2016 and 2015.

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23. PROVISIONS

The Company and its subsidiaries are parties in certain legal and administrative proceedings before various courts and government bodies, arising in the normal course of business, regarding employment-law, civil, tax, environmental and regulatory matters, and other issues.

The Company and its subsidiaries have made Provisions for contingencies in relation to the legal actions in which, based on the assessment of the Company and its legal advisors, the chances of loss are assessed as ‘probable’ (i.e. that an outflow of funds to settle the obligation will be necessary), as follows:


	2015		Additions		Reversals			Closed			2016
Employment-law cases		290		125		(5	)		(60	)		350
Civil cases		—		—		—			—			—
Consumer relations		18		15		(3	)		(15	)		15
Other civil actions		28		18		—			(6	)		40

		46		33		(3	)		(21	)		55
Tax		67		3		(1	)		(1	)		68
Environmental		—		—		—			—			—
Regulatory		46		3		(3	)		(2	)		44
Corporate (1)		269		—		(30	)		—			239
Other		37		35		(4	)		(9	)		59

Total		755		199		(46	)		(93	)		815


	2014		Additions		Reversals			Closed			2015
Employment-law cases		323		39		(35	)		(37	)		290
Civil cases
Consumer relations		19		14		(2	)		(13	)		18
Other civil actions		24		10		—			(6	)		28

		43		24		(2	)		(19	)		46
Tax		72		5		(9	)		(1	)		67
Environmental		1		—		(1	)		—			—
Regulatory		36		13		(3	)		—			46
Corporate (1)		239		30		—			—			269
Other		41		6		(9	)		(1	)		37

TOTAL		755		117		(59	)		(58	)		755


	2013		Additions		Reversals			Closed			Liabilities assumed in business combination¹		2014
Employment-law cases		146		250		(7	)		(66	)		—		323
Civil cases
Consumer relations		29		10		(10	)		(10	)		—		19
Other civil actions		23		12		(6	)		(5	)		—		24

		52		22		(16	)		(15	)		—		43
Tax		26		30		(18	)		(16	)		50		72
Environmental		1		1		(1	)		—			—		1
Regulatory		50		8		(22	)		—			—		36
Corporate (1)		—		239		—			—			—		239
Other		31		14		(2	)		(2	)		—		41

TOTAL		306		564		(66	)		(99	)		50		755

(1)	The difference in monetary updating of the Advance against Future Capital Increase made by the government of Minas Gerais State, subject of dispute, has been provisioned with a counterpart in Financial revenue (expenses). There are more details in Note 27.

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The Company’s management, in view of the long periods and manner of working of the Brazilian judiciary and tax and regulatory systems, believes that it is not practical to supply information that would be useful to the users of these financial statements about the time when any cash outflows, or any possibility of reimbursements, might take place in fact. The Company’s management believes that any disbursements in excess of the amounts provisioned, when the respective processes are completed, will not significantly affect the Company’s result of operations or financial position.

The details on the principal provisions and contingent liabilities are given below, these being the best estimates of expected future disbursements for these contingencies:

Provisions, made for legal actions in which the chances of loss have been assessed as ‘probable’; and contingent liabilities, for actions in which the chances of loss are assessed as ‘possible’

Employment-law cases

The Company and its subsidiaries are parties in various legal actions brought by its employees and by employees of service providing companies. Most of these claims relate to overtime and additional pay, severance payments, various benefits, salary adjustments and the effects of such items on a supplementary retirement plan. In addition to these actions, there are others relating to outsourcing of labor, complementary additions to or re-calculation of retirement pension payments by Forluz, and salary adjustments.

The value of the contingency is approximately R$ 1,544 (R$ 972 on December 31, 2015), of which R$ 349 has been provisioned (R$ 290 on December 31, 2015) – this being the probable estimate for funds needed to settle these disputes.

The increase in the amount of the contingency is due, among other factors, to the larger volume of legal actions being taken by former employees, arising from severances over recent years, and also the higher volume of actions on remuneration for hazardous work, due to new legal arguments which have emerged following recent legislative changes.

Consumer relations

The Company and its subsidiaries are parties in various civil actions relating to indemnity for pain and suffering and for material damages, arising, principally, from allegations of irregularity in measurement of consumption, and claims of undue charging, in the normal course of business, totaling R$ 33 (R$ 18 on December 31, 2015), of which R$ 15 (R$ 17 on December 31, 2015) has been provisioned – this being the probable estimate for funds needed to settle these disputes.

Other civil cases

Cemig and its subsidiaries are parties in various civil actions claiming indemnity for pain and suffering and for material damages, among others, arising from incidents occurring in the normal course of business, in the amount of R$ 227 (R$ 185 on December 31, 2015), of which R$ 40 (R$ 29 on December 31, 2015) – the amount estimated as probably necessary for settlement of these disputes – has been provisioned.

Tax

The Company and its subsidiaries are parties in numerous administrative and court actions relating to taxes, including, among other matters, subjects relating to the ICMS (Value Added) tax on goods and services; the Urban Property Tax (Imposto sobre a Propriedade Territorial Urbana, or IPTU); the Rural Property Tax (ITR); the tax on donations and legacies (ITCD), the Social Integration Program (Programa de Integração Social, or PIS), the Contribution to Finance Social Security (Contribuição para o Financiamento da Seguridade Social, or Cofins), Corporate Income Tax (Imposto de Renda Pessoa Jurídica, or IRPJ), the Social Contribution Tax (Contribuição Social sobre o Lucro Líquido, or CSLL) and applications to stay tax execution on tax matters. The amount of the contingency is approximately R$ 295 (R$ 257 on December 31, 2015). Of this total, R$ 70 has been provisioned (R$ 69 on December 31, 2015) – this being the best probable estimate for funds needed to settle these disputes.

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Environmental

Regulatory

The Company and its subsidiaries are parties in numerous administrative and court proceedings in which the main issues disputed are: (i) the tariff charges in invoices relating to the use of the distribution system by a self-producer; (ii) violation of targets for indicators of continuity in retail supply of electricity; (iii) the tariff increase made during the federal government’s economic stabilization plan referred to as the ‘Cruzado Plan’, in 1986.

The value of the contingency is approximately R$ 236 (R$ 202 on December 31, 2015), of which R$ 43 has been provisioned (R$ 45 on December 31, 2015) – this being the best probable estimate for funds needed to settle these disputes.

Corporate

Difference of monetary updating on the Advance against Future Capital Increase (AFAC) made by the Minas Gerais State Government

On December 19, 2014 the Finance Secretary of Minas Gerais State sent an Official Letter to Cemig requesting recalculation of the amounts relating to the Advances against Future Capital Increase made in 1995, 1996, and 1998, which were returned to Minas Gerais State in December 2011, for review of the criterion used by the Company for monetary updating, arguing that application of the Selic rate would be more appropriate, replacing the IGP-M index.

On December 29, 2014 the Company made an administrative deposit applying for suspension of enforceability of the credit being requested by the state, and for its non-inclusion in the Register of Debts owed to the state and in the Registry of Defaulted Payments owed to the state (CADIN).

Based on the opinion of the Company’s legal advisors, the chances of loss have been assessed as ‘probable’ and the amount provisioned, with a counterpart in Financial revenue (expenses) of R$ 239 (R$ 269 on December 31, 2015), which is the estimated probable amount of funds that might be used to settle the matter.

Other legal actions in the normal course of business

Breach of contract – provision of services of cleaning power line paths and accesses

The Company is a party in disputes alleging losses suffered as a result of supposed breach of contract at the time of provision of services of cleaning of power line pathways and firebreaks. The amount provisioned is R$ 28 (R$ 24 on December 31, 2015), this being estimated as the likely amount of funds necessary to settle this dispute.

Other legal actions

In addition to the issues described above, the Company is involved, on plaintiff or defendant side, in other cases, of smaller scale, related to the normal course of its operations, with an estimated total amount of R$ 179 (R$ 126 on December 31, 2015), of which R$ 30 (R$ 12 on December 31, 2015) – the amount estimated as probably necessary for settlement of these disputes – has been provisioned. Management believes that it has appropriate defense for these actions, and does not expect these issues to give rise to significant losses that could have an adverse effect on the Company’s financial position or profit.

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Contingent liabilities – for cases in which the chances of loss are assessed as ‘possible’, and the Company believes it has arguments of merit for legal defense

Tax and similar charges

The Company is a party in numerous administrative and court proceedings in relation to taxes. Below are details of the principal cases:

Indemnity of the employees’ future benefit – the ‘Anuênio’

In 2006, the Company paid an indemnity to its employees, totaling R$ 178, in exchange for rights to future payments (referred to as the Anuênio) for time of service, which would otherwise be incorporated, in the future, into salaries. The company did not pay income tax nor Social Security contributions in relation to these amounts because it considered that those obligations are not applicable to amounts paid as an indemnity. However, to avoid the risk of a future fine, the Company decided to apply for an order of mandamus, and the court permitted payment into Court of R$ 122 which, updated, represents the amount of R$ 255 (R$ 237 on December 31, 2015). This was posted in Escrow deposits in litigation. The amount of the contingency, updated, is R$ 290 (R$ 264 on December 31, 2015) and, based on the arguments above, Management has classified the chance of loss as ‘possible’.

Social Security contributions

The Brazilian federal tax authority (Secretaria da Receita Federal) has brought administrative proceedings against the Company, under various headings: employee profit shares (Participação nos Lucros e Resultados, or PLR), the Workers’ Food Program (Programa de Alimentação do Trabalhador, or PAT), overtime payments, hazardous occupation payments, matters related to Sest/Senat (transport workers’ support programs), and fines for non-compliance with accessory obligations. The Company has presented defenses and awaits judgment. The amount of the contingency is approximately R$ 1,510 (R$ 1,361 on December 31, 2015). The Company has assessed the chances of loss as ‘possible’ – reflecting among other considerations the assessment that these legal actions against the company are likely to be unsuccessful, grounded on evaluation of the claims and the related case law.

Non-homologation of offsetting of tax credit

In several administrative cases, the federal tax authority did not accept (and ratify) the Company’s declared offsetting of federal taxes using credits arising from undue or excess payment of federal taxes. The amount of the contingency is R$ 317 (R$ 663 on December 31, 2015). The Company has assessed the chance of loss as ‘possible’, since it believes that it has met the requirements of the National Tax Code (Código Tributário Nacional, or CTN).

The federal tax authority adjusted the debit balance in Cemig GT and Cemig D of the lawsuits in which the PIS and COFINS calculation base is discussed, with a current value of R$ 121 (R$ 448 as of December 31, 2015). This is the main factor in reducing the value of contingency.

Corporate tax return – restitution and offsetting

The Company is a party in an administrative case involving requests for restitution and compensation of credits arising from tax carryforward balances indicated in the tax returns (DIPJs) for the calendar years from 1997 to 2000, and also for excess payments identified by the corresponding tax payment receipts (DARFs and DCTFs). Due to completion of all appeals in the administrative sphere, an ordinary legal action has been filed, for the approximate total amount of R$ 535 (R$ 482 on December 31, 2015). The chances of loss in this action are assessed as ‘possible’, due to nullities in the conduct of the administrative proceedings and mistaken assumptions made by the inspectors in the administrative judgment, and also based on analysis of the Company’s argument and documents of proof.

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Income tax withheld at sourced (IRRF) on capital gain in a stockholding transaction

The federal tax authority issued an infringement notice on Cemig as a jointly responsible party with its jointly-controlled entity Parati S.A. Participações em Ativos de Energia Elétrica (Parati), relating to income tax withheld (Imposto de Renda Retido na Fonte, or IRRF) allegedly applicable to returns paid by reason of a capital gain in a stockholding transaction relating to the purchase by Parati of 100.00% of the equity interest held by Enlighted in Luce LLC (a company with head office in Delaware, USA), holder of 75.00% of the shares in the Luce Brasil equity investment fund (FIP Luce), which was indirect holder, through Luce Empreendimentos e Participações S.A., of approximately 13.03% of the total and voting shares of Light S.A. (Light). The amount of the contingency is approximately R$ 198 (R$ 202 on December 31, 2015), and the chances of loss have been assessed as ‘possible’.

Social Contribution tax (‘CSLL’) on net income

The federal tax authority issued a claim for incorrect payment against the Company for the business years 2012 and 2013, alleging non-addition, or deduction, by the Company, of amounts relating to the following items in calculating the Social Contribution tax on net income: (i) Taxes with liability suspended; (ii) donations and sponsorship (Law 8313/91); and (iii) fines for various alleged infringements. The amount of this contingency is R$ 280 (R$ 227 on December 31, 2015). The Company has classified the chances of loss as ‘possible’, in accordance with the analysis of the case law.

ICMS (value added) Tax

The tax authority of Minas Gerais state has opened several administrative actions against Cemig D, raising a supposed divergence in the classification, for tax purposes, of certain consumers in the years 2011 through 2015. The amount of this contingency is R$ 82. The company has classified the chance of loss as ‘possible’, because it believes that it has arguments on the merit for defense in the court, and because of the absence of case law precedent.

Regulatory matters

Public Lighting Contribution (CIP)

Cemig is defendant in several public civil actions (class actions), claiming nullity of the clause in the Electricity Supply Contracts for public illumination, signed between the Company and the various municipalities of its concession area, and restitution by the Company of the difference representing the amounts charged in the last 20 years, in the event that the courts recognize that these amounts were unduly charged. The actions are grounded on a supposed mistake by Cemig in the estimate of time that was used for calculation of the consumption of electricity for public illumination, funded by the Public Illumination Contribution (Contribuição para Illuminação Pública, or CIP).

The Company believes it has arguments of merit for defense in these claims, since the charge at present made is grounded on Aneel Normative Resolution 456/2000. As a result it has not constituted a provision for this action, the amount of which is estimated at R$ 1,305 (R$ 1,232 on December 31, 2015). It has assessed the chances of loss in this action as ‘possible’, due to the Consumer Defense Code (Código de Defesa do Consumidor, or CDC) not being applicable, because the matter is governed by the specific regulation of the electricity sector, and because Cemig complied with Aneel Resolutions 414 and 456, which deal with the subject.

Accounting of electricity sale transactions in the Electricity Trading Chamber (CCEE)

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This was to be put into effect in the CCEE as from November 2008, resulting in an additional disbursement for Cemig, referring to the expense on purchase of energy in the spot market on the CCEE, in the approximate amount of R$ 264 (R$ 230 on December 31, 2015). On November 9, 2008 the Company obtained an interim remedy in the Regional Federal Appeal Court (Tribunal Regional Federal, or TRF) suspending the obligatory nature of the requirement to pay into court the amount that would have been owed under the Special Financial Settlement made by the CCEE.

The Company has classified the chance of loss as ‘possible’, since this is a unique action (no similar action has previously been judged), and because it deals with the General Agreement for the Electricity Sector, in which the Company has the full documentation to support its arguments.

System Service Charges (ESS) – Resolution of the National Energy Policy Council

Resolution 3 of March 6, 2013 issued by the National Energy Policy Council (Conselho Nacional de Política Energética, or CNPE) established new criteria for the prorating of the cost of the additional dispatch of thermal plants. Under the new criteria, the costs of the System Service Charges for Electricity Security (Encargos do Serviço do Sistema, or ESS), which were previously prorated in full between Free Consumers and Distributors, was now to be prorated between all the agents participating in the National Grid System, including generators and traders.

In May 2013, the Brazilian Independent Electricity Producers Association (Associação Brasileira dos Produtores Independentes de Energia Elétrica, or Apine), with which the Company is associated, obtained an interim court remedy suspending the effects of Articles 2 and 3 of CNPE Resolution 3, exempting generators from payment of the ESS under that Resolution.

As a result of the interim remedy, the CCEE (Wholesale Training Chamber) carried out the financial settlement for transactions in April through December 2013, using the criteria prior to the said Resolution. As a result, the Company recorded the costs of the ESS in accordance with the criteria for financial settlement published by the CCEE, without the effects of CNPE Resolution 3.

The applications by the plaintiff (Apine) were granted in the first instance, confirming the interim remedy granted in favor of its associates, including Cemig GT and its subsidiaries. This decision was the subject of an appeal, distributed to the 7th Panel of the TRF (Tribunal Federal Regional – Regional Federal Court) of the 1st Region, in which judgment is awaited.

The amount of the contingency is approximately R$ 182 (R$ 155 on December 31, 2015). In spite of the successful judgment at the first instance, the Association’s legal advisers still considered the chances of loss in this contingency as ‘possible’. The Company agrees with this, since there are not yet elements to enable foreseeing the outcome of the Appeal filed by the federal government.

PPE assets in service

In August 2014 Aneel filed a notice of infringement alleged the Company had not met all the requirements for appropriation of costs in works and other procedures adopted and its compliance with the current legislation. This is a type of inspection relating as it does to the Electricity Sector Property Control Manual. The amount of the contingency is R$ 3 (R$ 66 on December 31, 2015). The Company has classified the chances of loss as ‘possible’, because it believes it has arguments of merit for legal defense, due to the regularity and legality of the Normative Acts issued by Aneel, which orient the actions of the Company, and also due to compliance with the Normative Resolutions of Aneel in relation to the requirements of law; and also the public interest in the transfer of electricity assets; and has therefore not constituted a provision for this action.

Tariff increases

Exclusion of consumers inscribed as low-income

The Federal Public Attorneys’ Office filed a class action against the Company and Aneel, to avoid exclusion of consumers from classification in the Low-income Residential Tariff Sub-category, requesting an order for the Company to pay 200% of the amount allegedly paid in excess by consumers. Judgment was given in favor of the plaintiffs, but the Company and Aneel have filed an interlocutory appeal and await judgment. On December 31, 2016 the amount of the contingency was approximately R$ 254 (R$ 222 on December 31, 2015). The Company has classified the chances of loss as ‘possible’ due to other favorable judgments on this theme.

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Periodic Tariff Adjustment – Neutrality of ‘Portion A’

The Municipal Association for Protection of the Consumer and the Environment (Associação Municipal de Proteção ao Consumidor e ao Meio Ambiente, or Amprocom) filed a class action against the Company and against Aneel, for identification of all the consumers allegedly damaged in the processes of Periodic Review and Annual Adjustment of tariffs, in the period 2002 to 2009, and restitution, through credits on electricity bills, of any amounts unduly charged, arising from non-consideration of the impact of future variations in consumer electricity demand on non-manageable cost components, from the distributor’s non-manageable costs (‘Portion A’ costs), and the allegedly undue inclusion of these gains in manageable costs of the distributor (‘Portion B’’ costs), causing economic/financial imbalance of the contract. This is an action that could affect all distribution concession holders, which could thus lead to a new Electricity Sector Agreement. The estimated amount of the contingency is R$ 317 (R$ 276 on December 31, 2015). The Company has classified the chance of loss as ‘possible’, because it believes it has arguments of merit for legal defense and therefore has not made a provision for this action.

Environmental issues

Impact arising from construction of plants

An environmental association, in a class action, has claimed indemnity for supposed collective environmental damages as a result of the construction and operation of the Nova Ponte Hydroelectric Plant.

Due to the changes made in the environmental legislation and the trend toward a consensus in case law, the Company has re-evaluated the amounts and probabilities of loss on the claims in this action from: R$ 376 (R$ 314 on December 31, 2015). Based on the first instance decision, which ruled against the plaintiff’s applications, Management has re-evaluated the probability of loss, classifying it as ‘remote’.

The Public Attorney’s Office of the State of Minas Gerais has brought class actions requiring the Company to invest at least 0.5% of the gross annual operational revenue, since 1997, of the Emborcação, Pissarrão, Funil, Volta Grande, Poquim, Paraúna, Miranda, Nova Ponte, Rio de Pedras and Peti plants, in environmental protection and preservation of the water tables of the municipalities where Cemig’s power plants are located, and proportional indemnity for allegedly irreparable environmental damage caused, arising from omission to comply with Minas Gerais State Law 12503/97.

The Company has filed appeals to the Higher Appeal Court (STJ) and the Federal Supreme Court (STF). Based on the opinions of its legal advisers, the Company believes that this is a matter involving legislation at sub-constitutional level (there is a Federal Law with an analogous object) and thus a constitutional matter, on the issue of whether the state law is constitutional or not, so that the final decision is a matter for the national Higher Appeal Court (STJ) and the Federal Supreme Court (STF). No provision has been constituted. The estimated amount of the contingency is R$ 113 (R$ 99 on December 31, 2015).

The Public Attorneys’ Office of Minas Gerais State has filed class actions requiring the formation of a Permanent Preservation Area (APP) around the reservoir of the Capim Branco hydroelectric plant, suspension of the effects of the environmental licenses, and recovery of alleged environmental damage. Based on the opinion of its legal advisors in relation to the changes that have been made in the new Forest Code and in the case law on this subject, the Company has classified the probability of loss in this dispute as ‘possible’. The estimated value of the contingency is R$ 71 (R$ 64 on December 31, 2015).

Other contingent liabilities

Early settlement of the CRC (Earnings Compensation) Account

The Company is a party in an administrative proceeding before the Audit Court of the State of Minas Gerais which challenges (i) a difference of amounts relating to the discount offered by Cemig for early repayment of the credit owed to Cemig by the State under the Receivables Assignment Contract in relation to the CRC Account (Conta de Resultados a Compensar, or Earnings Compensation Account) – this payment was completed in the first quarter of 2013 – and also (ii) possible undue financial burden on the State after the signature of the Amendments that aimed to re-establish the economic and financial balance of the Contract. The amount of the contingency is approximately R$ 390 (R$ 363 on December 31, 2015), and the Company believes that it has met the legal requirements, having based its actions on the Opinion of the Public Attorneys’ Office of the Audit Board of the State of Minas Gerais. Thus, it has assessed the chances of loss as ‘possible’, since it believes that the adjustment was made in faithful obedience to the legislation applicable to the case.

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Contractual imbalance

The Company is a party in disputes alleging losses suffered as a result of supposed breach of contract at the time of implementation of part of the rural electrification program known as Luz Para Todos (‘Light for Everyone’). The estimated amount is R$ 237 (R$ 202 on December 31, 2015) and no provision has been made. The Company has classified the chances of loss as ‘possible’ as a result of the analysis that has been made of the argument and documentation used by the contracted parties in attempting to make the Company liable for any losses that allegedly occurred.

The Company is also a party in other disputes arising from alleged non-compliance with contracts in the normal course of business, for an estimated total of R$ 71 (R$ 33 on December 31, 2015). The Company has classified the chance of loss as ‘possible’, after analysis of the case law on this subject.

Irregularities in competitive tender proceedings

The Company is a party in a dispute alleging irregularities in competitive tender proceedings, governed by an online invitation to bid. The estimated amount is R$ 26 (R$ 24 on December 31, 2015), and no provision has been made. The Company has classified the chances of loss as ‘possible’, after analysis of the case law on this subject.

Alteration of the monetary updated index of employment-law cases

The Higher Employment Law Appeal Court (Tribunal Superior do Trabalho, or TST), considering a position adopted by the Federal Supreme Court (Supremo Tribunal Federal, STF) in two actions on constitutionality that dealt with the index for monetary updating of federal debts, decided on August 4, 2015 that employment-law debts in actions not yet decided that discuss debts subsequent to June 30, 2009 should be updated based on the variation of the IPCA-E (Expanded National Consumer Price Index), rather than of the TR reference interest rate. On October 16, 2015 an interim injunction was given by the STF that suspended the effects of the TST decision, on the grounds that decisions on matters of general constitutional importance should exclusively be decided by the STF.

The estimated value of the difference between the monetary updating indices of the employment-law cases is R$ 176 (R$ 140 on December 31, 2015). No additional provision has been made, since the Company, based on the assessment by its legal advisers, has assessed the chances of loss in the action as ‘possible’, as a result of the decision by the STF, and of there being no established case law, nor analysis by legal writers, on the subject, after the injunction given by the Federal Supreme court.

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24.

EQUITY AND REMUNERATION TO SHAREHOLDERS

The Company’s registered share capital on December 31, 2016 and 2015 is R$ 6,294, in 420,764,708 common shares and 838,076,946 preferred shares, all with nominal value of R$ 5.00 (reais), as follows:


Shareholders	Number of shares on December 31, 2016
Shareholders	Common		%		Preferred		%		Total		%
State of Minas Gerais		214,414,739		51		—		—		214,414,739		17
Other entities of Minas Gerais State		56,703		—		4,860,228		1		4,916,931		1
AGC Energia S.A.		84,357,856		20		—		—		84,357,856		7
Other		—		—		—		—		—		—
In Brazil		112,584,011		27		252,478,755		30		365,062,766		28
Rest of world		9,351,399		2		580,737,963		69		590,089,362		47

Total		420,764,708		100		838,076,946		100		1,258,841,654		100


Shareholders	Number of shares on December 31,2015
Shareholders	Common		%		Preferred		%		Total		%
Minas Gerais State		214,414,739		51		—		—		214,414,739		17
Other entities of M.G. State		56,703		—		10,418,812		1		10,475,515		1
AGC Energia S.A.		138,700,848		33		42,671,763		5		181,372,611		15
Others
In Brazil		58,127,167		14		179,358,041		21		237,485,208		18
Rest of world		9,465,251		2		605,628,330		73		615,093,581		49

Total		420,764,708		100		838,076,946		100		1,258,841,654		100

(a)

Earnings per share

The number of shares used in the calculation of basic profit and diluted profit per share, including the effect of the new shares, is as follows:


Number of shares	2016			2015			2014
Common shares		420,764,708			420,764,708			420,764,708
Held in treasury		(69	)		(69	)		(69	)

		420,764,639			420,764,639			420,764,639

Preferred shares		838,076,946			838,076,946			838,076,946
Held in treasury		(560,649	)		(560,649	)		(560,649	)

		837,516,297			837,516,297			837,516,297


Total		1,258,280,936			1,258,280,936			1,258,280,936

Basic profit per share

The Company’s preferred shares carry the right to a minimum mandatory dividend, as shown in more detail in item ‘c’.

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The following is the calculation of the basic profit per share:


	2016		2015		2014
Profit for the period		334		2,469		3,137

Minimum mandatory dividend for the preferred shares arising from the profit for the period (item c)		204		422		531
Profit not distributed arising from the profit for the period – preferred shares		87		1,221		1,557

Total of the profit for the preferred shares (A)		291		1,643		2,088

Minimum mandatory dividend for the common shares		—		212		266
Profit not distributed arising from the profit for the period – common shares		44		614		783

Total profit for the common shares (B)		44		826		1,049

Basic profit per preferred share ( A / number of preferred shares )		0.35		1.96		2.49
Basic profit per common share ( B / number of common shares )		0.10		1.96		2.49

Diluted profit per share

The call and put options in shares of investees, described in more detail in Note 15, have potential to dilute the Company’s shares. The following shows the calculation of diluted profit per share:


	2016			2015		2014
Profit for the period		334			2,469		3,137

Total basic profit for the preferred shares		291			1,643		2,088
Dilutive effect related to the RME/Lepsa Option		(22	)		—		—
Dilutive effect related to the Ativas Option		(5	)		—		—

Diluted profit for the preferred shares (C)		264			1,643		2,088

Total profit for the year for the common shares (B)		44			826		1,049
Dilutive effect related to the RME/Lepsa Option		(11	)		—		—
Dilutive effect related to the Ativas Option		(2	)		—		—

Diluted profit for the common shares (D)		30			826		1,049

Diluted profit per preferred share ( C / No. of preferred shares )		0.32			1.96		2.49
Diluted profit per common share ( D / No. of common shares )		0.07			1.96		2.49

Shareholders’ agreement

On August 1, 2011, the government of Minas Gerais State signed a Shareholders’ Agreement with AGC Energia S.A., with BNDES Participações S.A. as consenting party, valid for 15 years. The agreement maintains the State of Minas Gerais as dominant, sole and sovereign controlling shareholder of the Company, and attributes to AGC Energia certain prerogatives for the purpose of contributing to the sustainable growth of the Company, among other provisions.

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(b)

Reserves

The account lines Capital Reserves and Profit Reserves are made up as follows:


Capital reserves and shares in Treasury	2016			2015			2014
Investment-related subsidies		1,857			1,857			1,857
Goodwill on issuance of shares		69			69			69
Shares in Treasury		(1	)		(1	)		(1	)

		1,925			1,925			1,925

The Reserve for investment-related subsidies basically refers to the compensation by the federal government for the difference between the profitability obtained by Cemig up to March 1993 and the minimum return guaranteed by the legislation in effect at the time.

The reserve for treasury shares refers to the pass-through by Finor of shares arising from funds applied in Cemig projects in the area covered by Sudene (the development agency for the Northeast) under tax incentive programs.


Profit reserves	2016		2015		2014
Legal reserve		853		853		853
Reserve under the By-laws		57		57		57
Retained earnings reserve		2,813		2,906		1,655
Tax incentives reserve		57		50		29
Reserve for obligatory dividends not distributed		1,420		797		—

		5,200		4,663		2,594

Legal reserve

Constitution of the Legal Reserve is obligatory, up to the limits established by law. The purpose of the Reserve is to ensure the security of the share capital, its use being allowed only for offsetting of losses or increase in the share capital. The Company did not deposit in the Legal Reserve in 2016 due to its having reached its legal limit.

Reserve under the by-laws

The Reserve under the By-laws is for future payment of extraordinary dividends, in accordance with Article 28 of the by-laws.

Retained Earnings reserve

The Retained Earnings Reserves are for profits not distributed in previous years, to guarantee execution of the Company’s Investment Program, and amortizations of loans and financings planned for the 2016 business year. The retentions are supported by capital budgets approved by the Board of Directors in the periods in question.

Tax Incentives Reserve

The federal tax authority (Receita Federal) recognized the Company’s right to reduction of 75% in income tax, including the tax paid at the additional rate, calculated on the basis of the operating profit in the region of Sudene (the Development Agency for the Northeast), for 10 years starting in 2014. The amount of the tax incentive gain recorded was R$ 57 in 2016 (R$50 in 2015 and R$29 in 2014). This reserve cannot be used for payment of dividends.

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(c)

Dividends

Ordinary dividends

Under its by-laws, Cemig is required to pay to its shareholders, as obligatory dividends, 50% of the net profit of each business year.

The preferred shares have preference in the event of reimbursement of capital and participate in profits on the same conditions as the common shares. They have the right to a minimum annual dividend equal to the greater of:

(a)

10% of their par value and

(b)

3% of the portion of equity that they represent.

Under the by-laws, Cemig’s shares held by private individuals have the right to a minimum dividend of 6% per year on their par value in all years when Cemig does not obtain sufficient profits to pay dividends to its shareholders. This guarantee is given by the State of Minas Gerais by Article 9 of State Law 828 of December 14, 1951 and Article 1 of State Law 8796 of April 29, 1985.

Under the Company’s by-laws, if the Company is able to pay dividends higher than the obligatory minimum dividend required for the preferred shareholders, and the remainder of net profit is sufficient to offer equal dividends for both the common and preferred shares, then the dividend per share will be the same for the holders of common shares and the holders of preferred shares. Dividends declared are paid in two equal installments, the first by June 30 and the second by December 30, of the year following the generation of the profit to which they refer. The Executive Board decides the location and processes of payment, subject to these periods.

The calculation of the dividends proposed for distribution to shareholders based on the profit for the business year is as follows:


Calculation of the Minimum Dividends required by the Bylaws for the preferred shares	2016		2015		2014
Nominal value of the preferred shares		4,190		4,190		4,190
Percentage applied to the nominal value of the preferred shares		10.00%		10.00%		10.00%

Amount of the dividends by the First payment criterion		419		419		419

Equity		12,930		12,984		11,281
Preferred shares as a percentage of Equity (net of shares held in Treasury)		66.58%		66.58%		66.58%

Portion of Equity represented by the preferred shares		8,609		8,645		7,511

Percentage applied to the portion of Equity represented by the preferred shares		3.00%		3.00%		3.00%

Amount of the dividends by the Second payment criterion		258		259		225



Calculation of the Minimum Dividends required by the Bylaws for the preferred shares		419		419		419


Obligatory Dividend
Net profit for the year		334		2,469		3,137
Obligatory dividend – 50.00% of net income		167		1,235		1,568

In 2016, 2015 and 2014 the mandatory minimum dividend under the by-laws for the preferred shares is R$ 419.

In December 2016 the Company declared payment of R$ 380 in the form of Interest on Equity, to be paid in two equal installments, by June 30 and December 30, 2017, to holders of preferred and common shares whose names were on the Company’s Nominal Share Registry on December 26, 2016. The total amount of this Interest on Equity will have counterpart in the Retained Earnings Reserve.


Interest on Equity	2016
Interest on Equity – preferred shares and common shares
– Common shares		127
– Preferred shares		253

	380

Sub-item III of CVM Decision 683/2012 establishes that Interest on Equity paid or credited may only be imputed against the minimum obligatory dividend at its value net of withholding income tax.

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Based on this, the following is the proposal for allocation of profit, with the guarantee of minimum dividends for the preferred shares:


Calculation of dividends to be distributed	Holding company
Calculation of dividends to be distributed	2016
Interest on Equity paid to holders of the preferred shares		253

Additional dividends to guarantee the minimum payment for the preferred shares
– Dividends to meet the minimum amount specified in the by-laws		166
– Withholding income tax on Interest on Equity paid for the preferred shares (253.004 x 15%)		38

		204

Total of Interest on Equity paid to the preferred shares from profit reserves		253
Total of Additional Dividends to guarantee the Minimum Payment for the preferred shares paid from the profit for the year		204

		457

Unit value of dividends – R$
Minimum Dividends required by the by-laws for the preferred shares		0.5
Dividends proposed – preferred shares (net of withholding tax)		0.5

Allocation of Net profit for 2016 – Proposal by management

The Board of Directors decided to propose to the Annual General Meeting to be held on May 12, 2017 that the profit for 2016, in the amount of R$ 334, and the balance of Retained earnings, of R$ 37, should be allocated as follows:

◾

R$ 204 to be paid as minimum obligatory dividend, to the Company’s shareholders, in two equal installments, by June 30 and December 30, 2017 to holders of preferred shares whose names were on the Company’s Nominal Share Registry.

◾

R$ 161 to be held in Equity in the Retained earnings reserve, to guarantee for the Company’s consolidated investments planned for the 2017 business year, in accordance with a capital budget.

◾

R$ 7 to be held in Equity in the Tax incentives reserve, in reference to the tax incentive amounts obtained in 2016 in relation to the investments made in the region of Sudene.

(d)

Accumulated Other Comprehensive Income


Equity valuation adjustments	2016			2015			2014
Adjustments to actuarial liabilities – Employee Retirement Benefits		(170	)		(121	)		(14	)

Other comprehensive income in subsidiary and jointly-controlled entities
Deemed cost of PP&E		685			720			780
Change in fair value of financial asset available for sale in jointly controlled entity		38			18			—
Cumulative translation adjustments		—			63			26
Adjustments to actuarial liabilities – Employee Retirement Benefits		(1,041	)		(578	)		(324	)

		(318	)		223			482

Accumulated Other Comprehensive Income		(488	)		102			468

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The amounts reported as deemed cost of the generation assets are due to the valuation of the generation assets, with the assessment of their fair value at replacement cost in the initial adoption of international financial standards on January 1, 2009. The new valuation of the generation assets resulted in an increase in their value, posted in the specific line of Equity, net of the tax effects.

This table shows the adjustments arising from conversion of the financial statements:


Balance at December 31, 2014	27

Conversion adjustment of equity method gain in Other comprehensive income of Transchile	36

Balance on December 31, 2015	63

Conversion adjustment of equity method gain in Other comprehensive income of Transchile	(23	)
Recycling to Income statement due to the sale of Transchile	(40	)

Balance at December 31, 2016	—

25.

REVENUE


	2016			2015 Restated			2014 Restated
Revenue from supply of electricity (a)		23,430			22,526			17,232
Revenue from use of the electricity distribution systems (TUSD) (b)		1,705			1,465			855
CVA and Other financial components in tariff increases (c)		(1,455	)		1,704			1,107
Transmission revenue
Transmission concession revenue (d)		312			261			557
Transmission construction revenue (e)		54			146			80
Transmission indemnity revenue (g)		751			101			420
Distribution construction revenue (e)		1,139			1,106			861
Adjustment to expectation of cash flow from the indemnifiable Financial asset of the distribution concession (i)		8			576			55
Revenue from financial updating of the Concession Grant Fee (f)*		300			—			—
Transactions in electricity on the CCEE (h)		161			2,425			2,348
Supply of gas		1,444			1,667			422
Other operating revenues (i)		1,421			1,440			1,284
Deductions from revenue (k)		(10,497	)		(11,549	)		(5,626	)

Net operating revenue		18,773			21,868			19,595

*	Net of financial updating of the remaining balance payable of the concession grant fee

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a)	Revenue from supply of electricity

This table shows supply of electricity by type of consumer:


	GWh (1)						R$
	2016		2015		2014		2016			2015			2014
Residential		9,916		9,830		10,014		7,819			7,297			5,183
Industrial		19,494		22,969		26,026		5,396			5,781			4,793
Commercial, Services and Others		6,573		6,434		6,395		4,359			3,956			2,786
Rural		3,575		3,380		3,390		1,463			1,407			908
Public authorities		886		892		891		545			548			381
Public illumination		1,350		1,326		1,298		528			533			358
Public service		1,252		1,204		1,273		547			540			369

Subtotal		43,046		46,035		49,287		20,657			20,062			14,778

Own consumption		37		38		37		—			—			—
Supply not yet invoiced, net		—		—		—		(199	)		257			144

		43,083		46,073		49,324		20,458			20,319			14,922

Wholesale supply to other concession holders (2)		12,509		10,831		14,146		2,713			2,358			2,251
Wholesale supply not yet invoiced, net		—		—		—		259			(151	)		59

Total		55,592		56,904		63,470		23,430			22,526			17,232

(1)	Data not audited by external auditors.

(2)	Includes Regulated Market Electricity Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

b)	Revenue from Use of Distribution Systems (the TUSD charge)

A significant part of the large industrial consumers in the concession areas of Cemig D and Light are now ‘Free Consumers’ – energy is sold to theme by the Cemig group’s generation and transmission company, Cemig GT, as well as other generators. When these users became Free Consumers, they began to pay separate charges for use of the distribution network. This line (‘TUSD’) records those charges.

c)	The CVA (Portion A Costs Variation Compensation) Account, and Other financial components, in tariff adjustments

The gains arising from variations in the CVA Account (Portion ‘A’ Costs Variation Compensation Account) and Other financial components in calculation of tariffs, refer to the positive and negative differences between the estimate of the Company’s non-manageable costs and the payments actually made. The amounts recognized arise from balances constituted in the current period, homologated or to be homologated in tariff adjustment processes. For more information see Note 14.

d)	Transmission Concession Revenue

Transmission Revenue comprises the following:

◾

Concession Transmission Revenue, which includes the portion received from agents of the electricity sector relating to operation and maintenance of the transmission lines;

◾

Generation Connection System Revenue, arising from the transmission assets belonging to the generating units.

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e)	Construction revenue

Construction Revenue is substantially offset by Construction costs, and corresponds to the Company’s investments in assets of the transmission and distribution concessions in the period.

f)	Gain on financial updating of the Concession Grant Fee

Represents updating by the IPCA index, plus remuneratory interest, on the Concession Grant Fee for the concession awarded as Lot D of Auction 12/2015. For more details please see Note 14.

g)	Transmission indemnity revenue

In 2016 the Company recognized revenue of R$ 751, in relation to the following events:

◾	R$ 20 relating to the difference between the amount of the Preliminary Revision made by Aneel – R$ 1,157 – on February 23, 2015, of the Opinion sent by the Company, and the Final Revision.

◾	R$ 44 for monetary updating of the balance of indemnity receivable by the IGP-M index, up to May 2016.

◾	R$ 90 representing the difference between the variations resulting from application of the IGP-M index and the IPCA index – since the Company had updated the balance receivable, up to May 2016, by the IGP-M.

◾	R$ 438, representing the cost of own capital, calculated on the basis of 10.44% p.a.

◾	R$ 159 for updating of the balance of indemnity receivable, by the IPCA index, in accordance with Mining and Energy Ministry Order 120, in the period July through December 2016.

h)	Revenue from transactions in electricity on the CCEE (Wholesale Trading Chamber)

The revenue from transactions made through the Electricity Trading Chamber (Câmara de Comercialização de Energia Elétrica, or CCEE) is the monthly positive net balance of settlements of transactions for purchase and sale of electricity in the Spot Market, through the CCEE.

i)	Adjustment to expectation of cash flow from the indemnifiable Financial asset of the distribution concession

This arises from the gain on the Adjustment made to the expectation of cash flow from the indemnifiable Financial asset of the distribution concession, due to monetary updating of the Regulatory Remuneration Base of assets.

j)	Other operating revenues


	2016		2015		2014
Charged service		6		14		11
Telecoms services		137		134		135
Services rendered		167		131		118
Subsidies (*)		1,001		996		790
Rental and leasing		105		93		81
Other		5		72		149

		1,421		1,440		1,284

(*)	Revenue recognized for the tariff subsidies applicable to users of distribution services, reimbursed by Eletrobras.

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k)	Deductions from revenue


	2016			2015		2014
Taxes on revenue
ICMS tax (1)		5,211			4,487		3,198
Cofins tax		2,041			2,263		1,628
PIS and Pasep taxes		443			491		353
Other		7			6		6

		7,702			7,247		5,185
Charges to the consumer
Global Reversion Reserve – RGR		(18	)		36		39
Energy Efficiency Program (P.E.E.)		58			45		47
Energy Development Account – CDE		2,074			2,870		211
Research and Development – P&D		48			47		49
National Scientific and Technological Development Fund – FNDCT		48			47		48
Energy System Expansion Research – EPE		24			24		24
Consumer charges – Proinfa alternative sources program		43			27		29
Electricity Services Inspection Charge		35			37
Royalties for use of water resources		123			102
0.30% additional payment (Law 12111/09) (2)		—			—		(6	)
Consumer charges – ‘Tariff Flag’ amounts		360			1,067		—
		2,795			4,302		441

		10,497			11,549		5,626

(1)	As from January 1, 2016, the rate for consumers in the Commercial, services and other activities category was changed from 18% to 25% (Decree nº 46.924, of December 29, 2015).

(2)	Reimbursement recognized by the Company in first quarter 2014, as per Official Letter 782/2013 authorized by Aneel, due to excess payment.

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26. OPERATING COSTS AND EXPENSES


	2016		2015 Restated		2014 Restated
Personnel (a)		1,643		1,435		1,252
Employees’ and managers’ profit shares		7		137		249
Post-retirement liabilities – Note 22		345		156		212
Materials		58		154		381
Outsourced services (b)		867		899		953
Electricity purchased for resale (c)		8,273		9,542		7,428
Depreciation and amortization		834		835		801
Operating provisions (d)		704		1,401		581
Charges for the use of the national grid		947		999		744
Gas purchased for resale		877		1,051		254
Construction costs (e)		1,193		1,252		942
Other operating expenses. net (f)		156		426		651

		15,904		18,287		14,448

a)	Personnel expenses


	2016			2015			2014
Remuneration and salary-related charges and expenses		1,350			1,273			1,098
Supplementary pension contributions – Defined-contribution plan		100			85			80
Assistance benefits		175			142			144

		1,625			1,500			1,322

Provision for retirement premium (Reversal)		(12	)		2			4
Voluntary retirement program		93			—			—
( – ) Personnel costs transferred to Assets		(63	)		(67	)		(74	)

		18			(65	)		(70	)

		1,643			1,435			1,252

Programmed Voluntary Retirement Plan (PDVP)

In April 2016, the Company created the PDVP (Voluntary Employee Severance Program). Those eligible to take part were any employees who would have worked with Cemig for 25 years or more by December 31, 2016. For voluntary retirement, the PDVP offered the much more advantageous severance payments which are specified by law only for the case of dismissal without just cause – including payment for the period of notice, but especially deposit of an amount equal to the ‘penalty’ payment of 40% of the Base Value of the employee’s FGTS fund, as well as the other payments specified by the legislation.

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b)	Outsourced services


	2016		2015		2014
Meter reading and bill delivery		140		122		184
Communication		55		64		67
Maintenance and conservation of electrical facilities and equipment		246		238		230
Building conservation and cleaning		97		100		91
Contracted labor		13		6		7
Freight and airfares		7		10		11
Accommodation and meals		13		17		18
Security services		25		28		26
Consultancy		15		17		24
Maintenance and conservation of furniture and utensils		53		46		37
Maintenance and conservation of vehicles		8		11		12
Disconnection and reconnection		7		26		19
Environment		19		22		29
Legal services and procedural costs		30		24		33
Tree pruning		14		23		23
Cleaning of power line pathways		8		30		29
Copying and legal publications		16		14		9
Inspection of consumer units		1		4		4
Printing of tax invoices and electricity bills		3		4		5
Other		97		93		95

		867		899		953

c)	Electricity purchased for resale


	2016			2015			2014
From Itaipu Binacional		1,144			1,734			830
Physical guarantee quota contracts		537			252			221
Quotas from Angra I and II Nuclear Plants		217			200			179
Spot market		761			935			1,263
Proinfa Program		323			253			262
‘Bilateral contracts’		292			326			380
Electricity acquired in Regulated Market auctions		2,540			3,978			3,242
Electricity acquired in the Free Market		3,279			2,762			1,762
Credits of Pasep and Cofins taxes		(820	)		(898	)		(711	)

		8,273			9,542			7,428

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d)	Operating provisions (reversals)


	2016			2015			2014
Allowance for doubtful receivables		382			175			127

Contingency provision
Employment-law cases		120			4			242
Civil cases		30			22			6
Tax		2			(4	)		13
Environmental		—			(1	)		—
Regulatory		—			10			(14	)
Other		31			(3	)		12

		183			28			259
Provision for losses on
Other accounts receivable		40
Put option—Parati (Note 15)		55			1,079			166
Put option—SAAG (Note 15)		49			119			29
Put option—Sonda (Note 15)		(5	)

		704			1,401			581

e)	Construction cost


	2016		2015		2014
Personnel and managers		58		65		60
Materials		534		521		415
Outsourced services		448		504		385
Other		153		162		82

		1,193		1,252		942

f)	Other operating expenses (revenues), net


	2016			2015 Restated		2014 Restated
Leasings and rentals		112			102		112
Advertising		13			11		19
Own consumption of electricity		22			21		17
Subsidies and donations		17			31		50
Paid concession		3			7		23
Insurance		9			9		9
CCEE annual charge		8			8		7
Net loss on deactivation and disposal of assets		112			30		97
Forluz – Administrative running cost		25			22		22
Gain on disposal of shares in Taesa		(181	)		—		—
Gain on disposal of Transchile		(134	)		—		—
Other expenses		150			185		295

		156			426		651

Operating Leases

The Company has operating lease contracts relating, mainly, to vehicles and buildings used in its operational activities. Their amounts are not material in relation to the Company’s total costs.

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27. FINANCIAL REVENUES AND EXPENSES


	2016			2015 Restated			2014 Restated
FINANCIAL REVENUES
Income from cash investments		317			251			298
Late charges on overdue electricity bills		277			230			166
Foreign exchange variations		62			76			15
Monetary variations		106			36			53
Monetary variations – CVA		204			68			—
Monetary updating on Court escrow deposits		46			212			—
Pasep and Cofins taxes charged on financial revenues		(88	)		(84	)		(38	)
Contractual penalty payments		12			16			10
Adjustment to present value		—			2			—
Other		105			56			31

		1,041			863			535

FINANCIAL EXPENSES
Costs of loans and financings		(1,928	)		(1,386	)		(931	)
Foreign exchange variations		(35	)		(172	)		(26	)
Monetary updating – Loans and financings		(245	)		(387	)		(271	)
Monetary updating – concession agreements		(3	)		(11	)		(17	)
Charges and monetary updating on Post-retirement liabilities		(103	)		(129	)		(99	)
Monetary updating – CCEE obligations		(10	)		—			—
Adjustment to present value		—			—			—
Other		(154	)		(119	)		(350	)

		(2,478	)		(2,204	)		(1,694	)

NET FINANCIAL REVENUE (EXPENSES)		(1,437	)		(1,341	)		(1,159	)

The Pasep and Cofins expenses apply to Interest on Equity.

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28. RELATED PARTY TRANSACTIONS

Cemig’s principal balances and transactions with related parties are shown here:


COMPANY	ASSETS				LIABILITIES				REVENUE						EXPENSES
COMPANY	2016		2015		2016		2015		2016		2015		2014		2016			2015			2014
Controlling shareholder
MINAS GERAIS STATE GOVT.
Current
Consumers and Traders (1)		71		19		—		—		152		150		105		—			—			—
Financings – BDMG		—		—		4		9		—		—		—		(1	)		(2	)		(1	)
Debentures (2)		—		—		—		—		—		—		—		—			—			(30	)
Non-current
Financings – BDMG		—		—		23		50		—		—		—		—			—			—

Jointly-controlled entities
Aliança Geração
Current
Transactions in electricity (2)		—		—		7		11		—		—		—		(142	)		(106	)		—
Provision of services (3)		4		—		—		—		14		6		—		—			—			—

Baguari Energia
Current
Transactions in electricity (2)		—		—		1		1		—		—		—		(7	)		(6	)		(6	)
Interest on Equity, and dividends		—		6		—		—		—		—		—		—			—			—

Madeira Energia
Current
Transactions in electricity (2)		—		—		18		16		8		—		—		(574	)		(638	)		(124	)
Advance against future electricity supply (4)		—		87		—		—		—		12		—		—			—			—

Norte Energia
Current
Transactions in electricity (2)		—		—		4		—		2		—		—		(49	)		—			—

Pipoca
Current
Transactions in electricity (2)		—		—		1		1		—		—		—		(16	)		(11	)		—
Interest on Equity, and dividends		—		1		—		—		—		—		—		—			—			—

Retiro Baixo
Current
Dividends, and Interest on Equity		2		—		—		—		—		—		—		—			—			—

Guanhães Energia
Current
Adjustment for losses (5)		—		—		59		—		—		—		—		—			—			—

Renova
Current
Transactions in electricity (2)		—		—		—		2		—		—		—		(159	)		(12	)		(12	)
Non-current
Accounts receivable (6)		74		—		—		—		14		—		—		—			—			—
Advance for future delivery of power supply (7)		229		60		—		—		17		—		—		—			—			—

TAESA
Current
Transactions in electricity (2)		—		—		10		11		—		—		—		(110	)		(94	)		(33	)

Empresa Amazonense de Transmissão de Energia -EATE
Current
Transactions in electricity (2)		—		—		3		3		—		—		—		(25	)		(28	)		(6	)

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	ASSETS					LIABILITIES				REVENUE						EXPENSES
COMPANY	2016			2015		2016		2015		2016		2015		2014		2016			2015			2014
Light
Current
Transactions in electricity (2)		—			1		—		—		59		47		9		(1	)		(1	)		—
Interest on Equity, and dividends		7			44		—		—		—		—		—		—			—			—

Parati
Current
Interest on Equity, and dividends		—			9		—		—		—		—		—		—			—			—

Axxiom
Current
Provision of services (8)		—			—		7		6		—		—		—		—			—			—

Other related parties
FIC Pampulha
Current
Securities		1,455			1,031		—		—		197		115		181		—			—			—
(-) Securities issued by subsidiary companies of Cemig (9)		(49	)		—		—		—		—		—		—		—			—			—
Non-current
Securities		46			17		—		—		—		—		—		—			—			—
(-) Securities issued by subsidiary companies of Cemig (9)		(15	)		—		—		—		—		—		—		—			—			—

FORLUZ
Current
Post-retirement obligations (10)		—			—		86		76		—		—		—		(186	)		(129	)		(99	)
Personnel expenses (11)		—			—		—		—		—		—		—		(100	)		(85	)		(80	)
Administrative running costs (12)		—			—		—		—		—		—		—		(25	)		(22	)		(22	)
Operational leasing (13)		—			—		10		2		—		—		—		(39	)		(18	)		(17	)
Non-current
Post-retirement obligations (10)		—			—		1,593		1,270		—		—		—		—			—			—

CEMIG SAÚDE (HEALTH)
Current
Health Plan and Dental Plan (14)		—			—		102		79		—		—		—		(187	)		(146	)		(135	)
Non-current
Health Plan and Dental Plan (14)		—			—		1,647		1,275		—		—		—		—			—			—

The main conditions relating to the related party transactions are as follows:

(1)	Refers to sale of electricity to the government of the State of Minas Gerais. The price of the electricity is defined by Aneel through a Resolution which decides the Company’s annual tariff adjustment.

(2)

Transactions in electricity between generators and distributors were made in auctions organized by the federal government; transactions for transport of electricity, made by transmission companies, arise from the centralized operation of the National Grid carried out by the National System Operator (ONS).

(3)	Refers to contract to provide plant operation and maintenance services.

(4)

Effected in February 2015, in accordance with a condition of the power purchase agreement between Cemig GT and Saesa signed on March 19, 2009. For the purpose of settlement, this amount will be updated at a rate of 135% of the CDI rate, and will be offset against invoicing by Saesa for supply of electricity. The offsetting was completed on March 15, 2016.

(5)	A liability was recognized corresponding to the Company’s interest in the share capital of Guanhães, due to its negative equity (see Note 15).

(6)	Cemig GT has an item of R$ 60 receivable from Renova Energia, which will be paid in 12 monthly installments, the first on January 10, 2018 and the last becoming due in December 2018, with monetary updating at 150% of the CDI rate.

(7)

In June 2016, under an electricity supply contract with Renova, Cemig GT advanced R$ 94 to Renova’s trading company, Renova Comercializadora, after guarantees of certain assets of Renova had been provided. Subsequently further advances were made, of R$ 40 in September, and R$ 15, R$ 25 and R$ 38 on October 3, 17 and 27, 2016, respectively. For the purpose of settlement, this amount will be updated at a rate of 155% of the CDI rate, and offset by invoicing, by Renova, for supply of electricity provided.

(8)	Refers to obligations and expenses on development of management software.

(9)	FIC Pampulha has financial investments in securities issued by subsidiary companies of the Company. There is more information, and characteristics of the fund, in the descriptive text below.

(10)	The contracts of Forluz are updated by the Expanded Consumer Price Index (IPCA) calculated by the Brazilian Geography and Statistics Institute (Instituto Brasileiro de Geografia e Estatística, or IBGE) (See Note 22) and will be amortized up to the business year of 2024.

(11)	The Company’s contributions to the pension fund for the employees participating in the Mixed Plan, and calculated on the monthly remuneration (see Explanatory Note 26), in accordance with the regulations of the Fund.

(12)	Funds for annual current administrative costs of the Pension Fund in accordance with the specific legislation of the sector. The amounts are estimated as a percentage of the Company’s payroll.

(13)	Rental of the head office building.

(14)	Contribution by the sponsor to the employees’ Health Plan and Dental Plan (See Note 22).

For more information on the principal transactions, please see Notes 8, 18 and 25.

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Guarantees and sureties for loans, financings and debentures

Cemig is provider of surety or guarantee of loans, financings and debentures of the following related parties – not consolidated in the financial statements because they relate to jointly-controlled entities or affiliated companies:

Related party

Relationship

Type

Object of
guarantee

2016

Expiration

Norte Energia S.A. (‘Nesa’)

Affiliated

Surety

Financing

2,357

2042

Light (1)

Jointly-controlled entity

Counter-guarantee

Financing

684

2042

Santo Antônio Energia S.A.

Jointly-controlled entity

Surety

Financing

1,995

2034

Santo Antônio Energia S.A.

Jointly-controlled entity

Surety

Debentures

736

2037

Guanhães

Jointly-controlled entity

Surety

Promissory Note

2016

Centroeste

Jointly-controlled entity

Surety

Financing

2023

5,848

(1)	Related to execution of guarantees of the Norte Energia financing.

At December 31, 2016, Management believes that there is no need to recognize any provisions in the Company’s financial statements for the purpose of meeting any obligations arising under these sureties and/or guarantees.

Cash investments in FIC Pampulha – investment fund of Cemig and its subsidiaries and affiliates

Cemig and its subsidiaries and affiliates invest part of their financial resources in an investment fund which has the characteristics of fixed income and obeys the Company’s cash investment policy. The amounts invested by the fund Presented in the table below are accounted under Securities in Current and Non-current assets, or presented as deductions in the account line Debentures in Current or Non-current assets, on December 31, 2016.

The funds applied in this investment fund are allocated only in public and private fixed income securities, subject only to credit risk, with various maturity periods, obeying the unit holders’ cash flow needs.

The financial investments in securities of related parties, in the investment fund, on December 31, 2016 and 2015, are as follows:


Issuer of security	Type	Annual contractual conditions	Maturity		Cemig Holding Company 10.12%		Cemig GT 20.86%		Cemig D 24.94%		Other subsidiaries 22.39%*		Total 2016
Axxiom	Debentures	109.00% of CDI Rate		1/29/2017		1		1		1		1		4
ETAU	Debentures	108.00% of CDI		12/1/2019		1		2		3		2		8

						2		3		4		3		12

(*)	Refers to the other companies consolidated by Cemig, which also have participation in the investment funds.


Issuer of security	Type	Annual contractual conditions	Maturity		Cemig Holding Company 10.12%		Cemig GT 20.86%		Cemig D 24.94%		Other subsidiaries 22.39%*		Total 2015
Axxiom	Debentures	109.00% of CDI Rate		1/29/2017		1		3		3		4		11
Ativas	Debentures	CDI + 3.50%		7/1/2017		2		7		5		8		22
Ativas	Debentures	CDI + 3.50%		7/1/2017		3		8		6		10		27
ETAU	Debentures	108.00% of CDI Rate		12/1/2019		1		3		2		4		10
Brasnorte	Debentures	108.00% of CDI Rate		6/22/2016		—		1		1		1		3

						7		22		17		27		73

(*)	Refers to the other companies consolidated by Cemig, which also have participation in the investment funds.

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Remuneration of key management personnel

The total costs of key management personnel, in 2016, 2015 and 2014, are shown in this table:


	2016			2015		2014
Remuneration		25			19		11
Profit shares (reversals)		(1	)		2		3
Assistance benefits		2			1		1

		26			22		15

29. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The financial instruments of the Company and its subsidiaries are restricted to the following: cash and cash equivalents, securities, Consumers, traders, and power transport concession holders; Financial assets of the concession related to infrastructure; Linked funds; Escrow deposits in litigation; the CVA (Portion A Costs Variation Compensation) Account and Other Financial Components in tariff adjustments; Loans and financings; Concession obligations payable; Suppliers; and Post-employment obligations. The gains and losses on transactions are recorded in full in the profit or loss for the business year or in Equity, by the accrual method.

The Company’s financial instruments and those of its subsidiaries are recorded at fair value and measured in accordance with the following classifications:

◾

Loans and receivables: This category contains: Cash equivalents; Credits receivable from Consumers, Traders, and power transport concession holders; Linked funds; Financial assets related to the CVA account, and Other financial components, in calculation of tariffs; the Low-income subscriber subsidy; Reimbursement of tariff subsidies and Other credits owed by Eletrobras; Escrow deposits in litigation; Financial assets of the concession not covered by Law 12783/1; and Financial assets related to Auction 12/2015 for award of generation plants. They are recognized at their nominal realization value, which is similar to fair value.

◾

Financial instruments at fair value through profit or loss: Securities held for trading, and Put options, are in this category. They are valued at fair value and the gains or losses are recognized directly in the Profit and loss account.

◾

Financial instruments held to maturity: These include Securities, in the amount of R$ 50 on December 31, 2016 and R$ 225 on December 31, 2015, included in Note 7. There is positive intention to hold them to maturity. They are measured at amortized cost using the effective rates method. Fair value, of R$ 50 on December 31, 2016 and R$ 224 on December 31, 2015, was measured using information of Level 2.

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◾

Financial instruments available for sale: In this category are Financial assets of the concession related to distribution infrastructure covered by Law 12783/13. They are measured at New Replacement Value (Valor Novo de Reposição, or VNR), which is equivalent to fair value on the date of these financial statements.

◾

Other financial liabilities – Non-derivative financial liabilities: In this category are Loans and financings; Obligations under debentures; Debt agreed with the Pension Fund (Forluz); Concessions payable; and Suppliers. They are measured at amortized cost using the effective rates method. The Company has calculated the fair value of its Loans, financings and debentures using 140% of the CDI rate – based on its most recent funding. For the following, the Company considered fair value to be substantially equal to book value: Loans, financings and debentures with annual rates between IPCA + 6.00% to 8.07% and CDI + 2.00% to 4.05%. For the financings from the BNDES and Eletrobras, fair value is conceptually similar to book value, due to the specific characteristics of the transactions.

◾

Liabilities measured at fair value – Financial liabilities for the put options: The options to sell units in FIP Melbourne and FIP Malbec (‘the SAAG Put’); the options to sell shares in RME and Lepsa (‘the Parati PUT’); and the Sonda Options, were valued at fair value using the Black-Scholes-Merton (BSM) model. Both the options were calculated using the discounted cash flow method: for the SAAG Put option, up to the third quarter of 2016; and for the Parati Put option, up to the first quarter of 2016. The method used was changed, in the fourth and second quarters, respectively, to the BSM model. The Company calculated the fair value of these options having as a reference their respective prices obtained by the BSM model, valued on the closing date of the financial statements for the 2016 business year.

The accounting balances of the financial instruments are similar to the fair values, except for loans, of which the accounting balance is R$ 15,179 (R$ 15,167 on December 31, 2015) and fair value is R$ 14,711 (R$ 15,544 on December 31, 2015), being measured as Level 2, using similar liabilities as reference.

a)	Risk management

Corporate risk management is a management tool that is an integral part of the Company’s corporate governance practices, and is aligned with the process of planning, which sets the Company’s strategic business objectives.

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The Company has a Financial Risks Management Committee, the purpose of which is to implement guidelines and monitor the financial risk of transactions that could negatively affect the Company’s liquidity or profitability, recommending hedge protection strategies to control the Company’s exposure to foreign exchange rate risk, interest rate risk, and inflation risks.

The principal risks to which the Company is exposed are as follows:

Exchange rate risk

Cemig and its subsidiaries are exposed to the risk of increase in exchange rates, with impact on Loans and financings, Suppliers, and cash flow.

This table gives the net exposure to exchange rates:


Exposure to exchange rates	2016				2015
Exposure to exchange rates
	Foreign currency		R$		Foreign currency		R$
US dollars
Loans and financings (Note 20)		7		23		8		33
Suppliers (Itaipu Binacional)		62		207		83		315

		69		230		91		348

Euro
Loans, financings and debentures – Euros (Note 20)		2		7		3		14

Net liabilities exposed				237				362

(*) BNDES monetary unit – reflects the weighted average of the FX variations in the BNDES Basket of Currencies.

Sensitivity analysis

Based on its financial consultants, the Company estimates that in a probable scenario, at December 31, 2017 the US dollar will have appreciated by 2.82%, to an exchange rate of R$ 3.351/US$; and the Euro will have appreciated by 1.95%, to R$ 3.505/Euro. The Company has made a sensitivity analysis of the effects on the Company’s profit arising from depreciation of the Real exchange rate by 25%, and by 50%, in relation to this scenario 1:

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Risk: foreign exchange rate exposure	Base scenario Dec. 31. 2016		Scenario 1 USD: R$ 3.351 Euro: R$ 3.505		Scenario 2 FX depreciation 25% USD: R$ 4.189 Euro: R$ 4.381		Scenario 3 FX depreciation 50% USD: R$ 5.027 Euro: R$ 5.258
US dollar
Loans and financings (Note 20)		23		24		30		36
Suppliers (Itaipu Binacional)		207		212		266		319

		230		236		296		355

Euro
Loans and financings (Note 20)		7		8		9		11

Net liabilities exposed		237		244		305		366

Net effect of exchange rate variation				7		68		129

Interest rate risk

The Company is exposed to the risk of increase in domestic Brazilian interest rates through its net liabilities, indexed to the variations in the Selic and CDI rates, as follows:


Exposure to domestic interest rate changes	2016			2015
Assets
Cash equivalents – Short-term investments (Note 6)		894			873
Securities (Note 7)		1,045			2,511
Restricted cash		367			—
CVA and Other financial components in tariffs – Selic rate * (Note 14)		398			1,350
Credits owed by Eletrobras		138			—

		2,842			4,734

Liabilities
Loans. financings and debentures – CDI rate (Note 20)		(10,928	)		(10,734	)
Loans. financings and debentures – TJLP (Note 20)		(213	)		(283	)
CVA and Other financial components in tariffs – Selic rate * (Note 14)		(805	)		—

		(11,946	)		(11,017	)

Net liabilities exposed		(9,104	)		(6,283	)

(*)	Amounts of CVA and Other financial components, indexed to the Selic rate.

Sensitivity analysis

The Company estimates that, in a probable scenario, on December 31, 2017 the Selic rate will be 9.00% p.a. and the TJLP will be 6.75% p.a. The Company has made a sensitivity analysis of the effects on its profit arising from increases in rates of 25% and 50% in relation to this scenario 1. Variation in the CDI rate accompanies the variation in the Selic rate.

Estimation of the scenarios for the path of interest rates will consider the projection of the Company’s scenarios, based on its financial consultants.

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Risk: Increase in Brazilian interest rates	2016			December 31, 2017
Risk: Increase in Brazilian interest rates
	Book value			Scenario 1 Selic 9.00% TJLP 6.75%			Scenario 2 Selic 11.25% TJLP 8.44%			Scenario 3 Selic 13.50% TJLP 10.13%
Assets
Cash investments (Note 6)		894			974			994			1,014
Securities (Note 7)		1,045			1,139			1,163			1,186
Restricted cash		367			401			409			417
CVA and Other financial components of tariff – Selic rate		398			434			442			451
Credits owed by Eletrobras		138			151			154			157

		2,842			3,099			3,162			3,225

Liabilities
Loans, financings and debentures – CDI rate (Note 20)		(10,928	)		(11,912	)		(12,158	)		(12,404	)
Loans and financings – TJLP (Note 20)		(213	)		(227	)		(231	)		(235	)
CVA and Other financial components in tariff adjustments (Note 14)		(805	)		(877	)		(896	)		(914	)

		(11,946	)		(13,016	)		(13,285	)		(13,553	)

Net liabilities exposed		(9,104	)		(9,917	)		(10,123	)		(10,328	)

Net effect of variation in interest rates					(813	)		(1,019	)		(1,224	)

Risk of increase in inflation

This table shows the Company’s net exposure to inflation rates:


Exposure to increase in inflation	2016			2015
Assets
Financial assets of the concession related to infrastructure –Distribution – IPCA Index (Note 14)		128			121
Financial assets of the concession related to infrastructure Transmission– IPCA index (note 14)*		1,805			1,054
Concession Grant Fee – IPCA (Note 14)		2,254			—

		4,187			1,175

Liabilities
Loans, financings and debentures – IPCA index (Note 20)		(3,933	)		(3,910	)
Debt agreed with pension fund (Forluz) – IPCA		(787	)		(812	)

		(4,720	)		(4,722	)

Net assets (liabilities) exposed		(533	)		(3,547	)

(*)	Value of the Financial assets of the concession homologated by Aneel in Dispatch 729 of March 25, 2014.

Sensitivity analysis

In relation to the most significant risk of increase in inflation, the Company estimates that, in a probable scenario, on December 31, 2017 the IPCA inflation index will be 4.70%. The Company has made a sensitivity analysis of the effects on its profit arising from increases in inflation of 25% and 50% in relation to this scenario 1:

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Risk: increase in inflation	2016			December 31, 2017
Risk: increase in inflation	Book value			Scenario 1 IPCA 4.70%			Scenario 2 IPCA 5.88%			Scenario 3 IPCA 7.05%
Assets
Financial assets of the concession related to infrastructure – Distribution – IPCA Index (Note 14)		128			134			136			137
Financial assets of the concession related to infrastructure Transmission – IPCA index (note 14)*		1,805			1,890			1,911			1,932
Concession Grant Fee – IPCA (Note 14)		2,254			2,360			2,386			2,413

		4,187			4,384			4,433			4,482

Liabilities
Loans, financings and debentures – IPCA index (Note 20)		(3,933	)		(4,118	)		(4,164	)		(4,210	)
Debt agreed with pension fund (Forluz) – IPCA		(787	)		(824	)		(833	)		(842	)

		(4,720	)		(4,942	)		(4,997	)		(5,052	)

Net liabilities exposed		(533	)		(558	)		(564	)		(570	)

Net effect of variation in IPCA / IGP – M indices					(25	)		(31	)		(37	)

Liquidity risk

Cemig has sufficient cash flow to cover the cash needs related to its operating activities.

Cemig manages liquidity risk by permanently monitoring its cash flow in a conservative, budget-oriented manner. Balances are projected monthly, for each one of the companies, over a period of 12 months, and daily liquidity is projected over 180 days.

Short-term investments must comply with certain rigid investing principles established in the Company’s Cash Investment Policy, which was approved by the Financial Risks Management Committee. These include applying its resources in private credit investment funds, without market risk, and investment of the remainder directly in bank CDs or repo contracts which earn interest at the CDI rate.

In managing cash investments, the Company seeks to obtain profitability on its investment transactions through performing a rigid analysis of financial institutions’ credit, obeying operational limits with banks based on assessments that take into account the financial institutions’ ratings, risk exposures and equity position. It also seeks greater returns on investments by strategically investing in securities with longer investment maturities, while bearing in mind the Company’s minimum liquidity control requirements.

The greater part of the electricity produced by the Company is generated by hydroelectric plants. A prolonged period of scarce rainfall can result in lower water volumes in the plants’ reservoirs, possibly causing losses due to increased costs of purchasing electricity, due to replacement by thermoelectric generation, or reduction of revenues due to reduction in consumption caused by implementation of wide-ranging programs for saving of electricity. Prolongation of generation by thermoelectric plants can pressure costs of acquisition of electricity for the distributors, causing a greater need for cash, and can impact future tariff increases – as indeed has happened with the Extraordinary Tariff Review granted to the distributors in March 2015.

On December 31, 2016 the Company had excess of current liabilities over current assets.

Please refer to note 1 about the Company’s several initiatives designed to increase liquidity through entering into new contracts for financing or for the re-financing of its existing obligations and potential divestitures of non-core assets. Any further lowering of credit ratings may have adverse consequences on CEMIG ability to obtain financing or may impact the cost of financing, also making it more difficult and/or costly to refinance maturing obligations. Any financing or refinancing of the CEMIG indebtedness could be at higher interest rates and may require the Company to comply with more onerous covenants, which could further restrict business operations.

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The flow of payments of the Company’s obligations, for debt agreed with the pension fund, and under loans, financings and debentures, for floating and fixed rates, including the interest specified in contracts, is shown in the table below:


	Up to 1 month		1 to 3 months		3 months to 1 year		1 to 5 years		Over 5 years		Total
Financial instruments at (interest rates):
- Floating rates
Loans, financings and debentures		50		1,226		4,834		11,275		2,203		19,588
Concessions payable		—		1		2		10		14		27
Debt agreed with pension fund (Forluz)		11		33		89		596		431		1,160

		61		1,260		4,925		11,881		2,648		20,775

- Fixed rate
Suppliers		1,771		169		—		—		—		1,940

		1,832		1,429		4,925		11,881		2,648		22,715

Credit risk

The risk arising from the possibility of Cemig and its subsidiaries incurring losses as a result of difficulty in receiving amounts billed to its clients is considered to be low. The Company carries out monitoring for the purpose of reducing default, on an individual basis, with its consumers. Negotiations are also entered into for receipt of any receivables in arrears. The risk is also reduced by the extremely wide client base.

The allowance for doubtful debtors constituted on December 31, 2016, considered to be adequate in relation to the credits in arrears receivable by the Company and its subsidiaries and jointly-controlled entities, was R$ 660.

In relation to the risk of losses resulting from insolvency of the financial institutions at which the Company or its subsidiaries have deposits, a Cash Investment Policy was approved and has been in effect since 2004.

Cemig manages the counterparty risk of financial institutions based on an internal policy approved by its Financial Risks Management Committee. This Policy assesses and scales the credit risks of the institutions, the liquidity risk, the market risk of the investment portfolio and the Treasury operational risk.

All investments are made in financial securities that have fixed-income characteristics, always indexed to the CDI rate. The Company does not carry out any transactions that would bring volatility risk into its financial statements.

As a management instrument, Cemig divides the investment of its funds into direct purchases of securities (own portfolio) and investment funds. The investment funds invest the funds exclusively in fixed income products, and companies of the Group are the only unit holders. They obey the same policy adopted in the investments for the Company’s directly-held own portfolio.

The minimum requirements for concession of credit to financial institutions are centered on three items:

Rating by three risk rating agencies.

Equity greater than R$ 400.

Basel ratio above 12.

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Banks that exceed these thresholds are classified in three groups, by the value of their equity; and within this classification, limits of concentration by group and by institution are set, as follows:


Group	Equity	Concentration		Limit per bank (% of Equity)*
A1	Over R$ 3.5 billion		Minimum 80%		6% to 9%
A2	R$ 1.0 billion to R$ 3.5 billion		Maximum 20%		5% to 8%
B	R$ 400 million to R$ 1.0 billion		Maximum 20%		5% to 7%

*	The percentage assigned to each bank depends on an individual assessment of indicators such as liquidity, quality of the credit portfolio, and other aspects.

Further to these points, Cemig also establishes two concentration limits:

No bank may have more than 30% of the Group’s portfolio.

No bank may have more than 50% of the portfolio of any individual company.

Risk of early maturity of debt

The Company has financing contracts with restrictive covenants normally applicable to this type of transaction, complying with a financial index. Non-compliance with these covenants could cause early maturity of the debt. See Note 20.

On December 31, 2016, all restrictive covenants on the contracts for loans and financings of CemigTelecom were complied with. Those contracts that contained these clauses during the year 2016 have been settled in their entirety.

On December 31, 2016 all the restrictive covenants relating to financial ratios of the Company were complied with.

Capital management

This table shows the Company’s net liabilities in relation to its Equity at December 31, 2016 and 2015:


	2016			2015
Total liabilities		29,102			27,869
(–) Cash and cash equivalents		(995	)		(925	)
(–) Restricted cash		(367	)		—

Net liabilities		27,740			26,944

Total of equity		12,934			12,988

Net liabilities / Equity		2.14			2.07

30.

MEASUREMENT AT FAIR VALUE

The Company measures its financial assets and liabilities at fair value. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Fair Value Hierarchy aims to increase consistency and comparability: it divides the inputs used in measuring fair value into three broad levels, as follows:

Level 1 – Active market – Quoted prices: A financial instrument is considered to be quoted in an active market if the prices quoted are promptly and regularly made available by an exchange or organized over-the-counter market, by operators, by brokers or by a market association, by entities whose purpose is to publish prices, or by regulatory agencies, and if those prices represent regular arm’s length market transactions.

Level 2 – No active market – Valuation technique: For an instrument that does not have an active market, fair value should be found by using a method of valuation/pricing. Criteria such as data on the current fair value of another instrument that is substantially similar, or discounted cash flow analysis or option pricing models, may be used. The objective of the valuation technique is to establish what would be the transaction price on the measurement date in an arm’s-length transaction motivated by business considerations.

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Level 3 – No active market: Unobservable inputs: The fair value of investments in securities for which there are no prices quoted on an active market, and/or of derivatives linked to them which are to be settled by delivery of unquoted securities, is determined based on generally accepted valuation techniques, mainly related to discounted cash flow analysis.

This is a summary of the instruments that are measured at fair value:


	Balance At Dec. 31, 2016			Fair value at December 31, 2016
	Balance At Dec. 31, 2016			Active market – quoted price (Level 1)		No active market – Valuation technique (Level 2)			No active market – Unobservable inputs (Level 3)
Assets
Held for trading
Securities
Bank certificates of deposit					—					—
Treasury Financial Notes (LFTs)		193			193		—			—
Financial Notes – Banks		724			—		724			—
Debentures		45			—		45			—

		995			193		802			—

Loans and receivables
Concession Grant Fee		2,254			—		2,254			—
Restricted cash		367			—		367			—

		2,621			—		2,621			—

Available for sale
Financial assets of the concession related to infrastructure		216			—		—			216

		3,832			193		3,423			216

Liabilities
Fair value through profit or loss
Put options: (1)		(1,342	)		—		(1,150	)		(192	)

		2,490			193		2,273			24

(1)	After 2016 the Company is using the Black-Scholes-Merton method for measuring the fair value of the options. See more details in Note 15.


	Balance at December 31, 2015			Fair value at December 31, 2015
	Balance at December 31, 2015			Active market – Quoted price (Level 1)		No active market – Valuation technique (Level 2)		No active market – Unobservable inputs (Level 3)
Assets
Held for trading
Securities
Bank certificates of deposit		1,577			—		1,577		—
Treasury Financial Notes (LFTs)		88			88		—		—
Financial Notes – Banks		460			—		460		—
Debentures		161			—		161		—

		2,286			88		2,198		—
Available for sale
Financial assets of the concession		137			—		—		137

		2,423			88		2,198		137
Liabilities
Fair value through profit or loss
Put options		(1,393	)		—		—		(1,393	)

		1,030			88		2,198		(1,256	)

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Fair value calculation of financial positions

Financial assets of the concession related to infrastructure: Measured at New Replacement Value (valor novo de reposição, or VNR), according to criteria established in regulations by the Concession-granting power (‘Grantor’), based on fair value of the assets in service belonging to the concession and which will be revertible at the end of the concession, and on the Weighted average cost of capital (WACC) used by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the WACC are public information disclosed by the Grantor and by Cemig. The movement in Financial assets of the concession is shown in Note 14 to the financial statements.

Cash investments: The fair value of cash investments is calculated taking into consideration the market prices of the security, or market information that makes such calculation possible, and future rates in the fixed-income and FX markets applicable to similar securities. The market value of the security is deemed to be its maturity value discounted to present value by the discount factor obtained from the market yield curve in Reais.

Put options: The Company has adopted the Black-Scholes-Merton method for measurement of the fair value of the options of SAAG, Parati and Sonda. The fair value of these options was calculated on the basis of the estimated exercise price on the day of exercise of the option, less the fair value of the shares that are the subject of the put option, also estimated for the date of exercise, brought to present value at the reporting date. The movement in relation to the put options, and other information is given in Note 15 to the financial statements.

31. INSURANCE

Cemig and its subsidiaries maintain insurance policies to cover damages to certain items of their assets, in accordance with orientation by specialists, as listed below (item relating to the policy of Cemig – the holding company), taking into account the nature and the degree of risk, for amounts considered sufficient to cover any significant losses related to its assets and liabilities. The risk assumptions adopted, due to their nature, are not part of the scope of an audit of the financial statements, and consequently were not examined by the external auditors.

Cover

Dates of cover

Amount
insured (**)

Annual
premium (**)

Cemig Geração e Transmissão

Air transport / Aircraft

Fuselage Third party liability

Apr. 29, 2016 to Apr. 29, 2017

US$4,675

U$14,000

US$84

Warehouse stores

Fire

Oct. 2, 2016 to Oct 2, 2017

R$16,921

R$25

Facilities in buildings

Fire

Jan. 8, 2017 to Jan. 8, 2018

R$451,860

R$98

Telecoms equipment (1)

Fire

Jan. 8, 2017 to Jan. 8, 2018

R$11,514

R$5

Operational risk

—

Dec. 7, 2016 to Dec. 7, 2017

R$1,438,338

R$1,795

Cemig D (Distribution)

Air transport / Aircraft

Fuselage

Third party liability

Apr. 29, 2016 to Apr. 29, 2017

US$3,613

U$14,000

US$60

Warehouse stores

Fire

Oct. 2, 2016 to Oct 2, 2017

R$94,930

R$143

Facilities in buildings

Fire

Jan. 8, 2017 to Jan. 8, 2018

R$1,073,416

R$232

Telecoms equipment

Fire

Jan. 8, 2017 to Jan. 8, 2018

R$17,208

R$7

Operational risk – Transformers above 15MVA and other power distribution equipment with value above R$ 1,000 (2)

Total

Dec. 7, 2016 to Dec. 7, 2017

R$563,637

R$703

Gasmig

Gas distribution network / Third party

Third party liability

Dec. 15, 2016 to Dec. 15, 2017

R$60,000

R$429

Own vehicle fleet (Operation)

Third party only

Jul. 7, 2016 to Jul. 7, 2017

R$400

R$4

Own vehicle fleet (Directors)

Full cover

Oct. 25, 2016 to Oct. 25, 2017

R$100

R$1

Facilities – multirisk

Robbery, theft, fire

Jan. 1, 2017 to Jan. 1, 2018

R$41,375

R$50

(**)	Amounts expressed in R$ ’000 or US$’000.

(1)	The new period of validity is from January 8, 2017 to January 8, 2018.

(2)	The new period of validity is from December 7, 2016 to December 7, 2017.

Cemig does not have general third-party liability insurance covering accidents, except for its aircraft, and is not seeking proposals for this type of insurance. Additionally, Cemig has not sought proposals for, and does not have current policies for, insurance against events that could affect its facilities, such as earthquakes, floods, systemic failures or business interruption risk. The Company has not suffered significant losses as a result of the above-mentioned risks.

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32.

COMMITMENTS

Cemig and its subsidiaries have contractual obligations and commitments that include, principally, amortization of loans and financings, contracts with contractors for construction of new projects, and purchase of electricity from Itaipu and other sources, as follows:


	2017		2018		2019		2020		2021		After 2022		Total
Loans and financings		4,837		3,880		1,828		1,794		1,586		1,254		15,179
Purchase of electricity from Itaipu		1,266		1,426		1,578		1,754		1,829		98,574		106,427
Purchase of electricity – auctions		3,010		3,084		3,478		3,667		4,295		101,896		119,430
Purchase of electricity – ‘bilateral contracts’		298		314		328		346		361		1,347		2,994
Quotas for Angra 1 and Angra 2		239		251		259		277		284		11,377		12,687
Physical quota guarantees		580		612		640		671		700		28,052		31,255
Transport of electricity from Itaipu		162		232		238		243		226		8,129		9,230
Other electricity purchase contracts		3,736		3,411		2,776		2,887		3,201		30,267		46,278
Purchase of gas for resale		1,006		1,198		1,470		1,817		2,098		0		7,589
Paid concession		3		3		2		2		2		10		22
Debt to pension plan – Forluz		86		91		97		103		109		301		787
Operational leasing contracts		96		91		91		91		91		93		553

Total		15,319		14,593		12,785		13,652		14,782		281,300		352,431

33.

NON-CASH TRANSACTIONS

In the business years 2016, 2015 and 2014, the Company made the following transactions not involving cash, which are not reflected in the Cash flow statements:


	2016		2015		2014
Transfer from PP&E to Other long-term assets (São Simão plant)		—		223		—
Assets transferred to Aliança Geração de Energia S.A.		—		581		—
Financial charges capitalized		142		159		70

34.

SUBSEQUENT EVENTS

Homologation of Annual Generation Revenue (RAG) of Volta Grande Hydroelectric Plant

In February 2017 there was a concession expiry date for the Volta Grande plant, and on March 21, 2017, by its Resolution 2208, Aneel homologated the RAG of the Volta Grande Hydroelectric Plant under the ‘quotas’ regime, for temporary provision of the service of electricity generation by Cemig GT until it is taken over by the concession holder winning the tender for the plant.

Applications to Energy Ministry for opening of administrative proceedings: Concessions of the Volta Grande, Jaguara, São Simão and Miranda Plants:

In February 2017, Cemig GT reiterated to the Mining and Energy Ministry (‘MME’), its request for extension, for 20 (twenty) years, of concessions of the Jaguara, São Simão and Miranda hydroelectric plants, as specified by Clause 4 of its Concession Contract 007/1997. Subsidiarily, it requested opening of an Administrative Proceeding under Paragraph 1-C of Article 8 of Law 12783/2013, to the benefit of one of the service providing subsidiaries of Cemig GT. The terms of Cemig’s request is presente below:

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The subsidiary request is made on the grounds of the spirit of conciliation and cooperation that should govern the relationship between a concession holder and the concession-granting power, and the constant quest, at all times, for alternatives that present the best solution for consumers, for the country and for the stockholders of the Company – who in this case include the people of the state of Minas Gerais. Thus, in the event that the Ministry decides to maintain its position, and if all the court judgments that have determined that Law 12783/2013 should prevail to the detriment of the provisions of the Second Subclause of Clause 4 of Contract CEMIG 007 of 1997 are maintained, Cemig GT has requested, for the benefit of one of its subsidiaries, application of the rule that is now contained in §1-C of Article 8 of Law 12783 of 2013.

We would point out that the presentation of the Subsidiary Request does not result in any waiver by Cemig GT of its right – which is the subject of the legal actions that it currently has in progress against the federal government – to guaranteed extension of the concessions as specified in Clause 4 of Concession Contract 007/1997.

Interim Injunction granted on São Simão Plant

The Higher Appeal Court (‘STJ’) granted an interim injunction to maintain Cemig GT as holder of the concession for the São Simão Hydroelectric Plant, in Minas Gerais, on the initial bases of Concession Contract 007/97, until conclusion of judgment in the Company’s application for mandamus No. 21465, in the STJ.

According to the position report on the STJ website and STJ certificate 1783814, “... the interim injunction applied for by Cemig Geração e Transmissão S.A. is granted, until conclusion of judgment on the current application for mandamus, enabling the now applicant to remain in ownership of the concession for the São Simão Plant, on the initial bases of the concession contract, Nº 007/97.”

On March 28, 2017, the interim remedy (injunction) given in Application for Mandamus No. 21.465/DF, before the Higher Appeal Court (‘STJ’), brought by the Company for annulment of the decision by the Mining and Energy Ministry (MME) which refused, on merits, the request by Cemig GT for extension of the concession period of the São Simão Hydroelectric Plant, in the terms of its concession contract 007/97, was revoked.

Interim injunction in Supreme Court action for Provisional Remedy 3980 on Jaguara Plant revoked

The Federal Supreme Court (‘STF’) refused the order to maintain Cemig GT in possession of the concession for the Jaguara Hydroelectric Plant under the initial terms of Concession Contract 007/97.

The section of the website of the STF that records the current situation of cases stated on March 21, 2017: “the interim remedy previously given has been revoked, with an order that the demand should be sent to the Procurator-general of the Republic, for statement on the case, Mandamus Appeal 34203”.

Repeal of interim remedy – Miranda plant

On March 29, 2017, the interim remedy (injunction) given in application for mandamus number 23.042/DF, before the Higher Appeal Court (STJ), brought by the Company to annul the decision by the Mining and Energy Ministry (MME) which refused, on merits Cemig GT’s request for ratification of the extension of its concession for the Miranda Hydroelectric Plant, under its Concession Contract, number 007/97, was revoked.

Disposal of wind farms by Renova

On April 18, 2017 a share purchase agreement was signed for sale of the Alto Sertão II Wind Farm Complex. The parties to the agreement are Cemig’s affiliated company Renova Energia S.A. (‘Renova’), Renovapar S.A. and AES Tietê Energia S.A., with Nova Energia Holding S.A. as consenting party.

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Under the agreement AES undertakes to acquire 100% of the shares of Nova Energia for R$ 600 million. Nova Energia controls the sub-holding company Renova Eólica Participações S.A., which owns 100% of the 15 special-purpose companies which comprise the Alto Sertão II Wind Power Complex.

Completion of the Transaction is subject to certain conditions precedent stated in the Agreement, including approval by government bodies and creditors.

Renova’s management emphasizes that the Transaction is aligned to its new Directional Strategy, the goals of which are: (i) restoration of the balance of its capital structure; and (ii) sustainability of the business in the long term.

Changes in the bylaws of Light

On March 28, 2017 the Board of Directors of Light approved convocation of an Extraordinary General Meeting of Shareholders to:

(i)	Decide on changes to the bylaws; and

(ii)

Consider the possibility of carrying out a primary public offering of shares, with restricted distribution efforts: in Brazil, based on CVM Instruction 476, of January 16, 2009, as amended; and outside Brazil, to qualified institutional investors in the United States, and to investors considered not to be resident or domiciled in the United States, Under Rule 144A and Regulation S of the U.S. Securities Act of 1933, as amended (‘the Securities Act’; ‘the Offering’), with the possibility of a secondary offer, and possible participation by shareholders of Light.

Light added the following note to its Material Announcement:

“

This Material Announcement is not for publication or distribution, directly or indirectly, in the United States, and does not constitute an offer to sell securities in the United States; and the securities mentioned in it have not been and will not be registered under the Securities Act, or any other law referring to securities, and shall not be offered or sold in the United States of America without the due registry of an exemption from registry applicable under the Securities Act. On the date of publication, no public offering is being carried out in Brazil or in the United States.

No security shall be sold in any state or jurisdiction, including Brazil or the United States of America, in which offering, application for or sale of such security is considered illegal before registry or qualification under the securities laws of such state or jurisdiction.

This Material Announcement is for merely informative purposes, and should not under any circumstances be interpreted as, nor constitute, an investment recommendation or an offer for sale, or a bid or offer to purchase, any securities of the Company in Brazil, including shares issued by it. ”

Payment of debentures by Cemig GT

On February 15, 2017, Cemig GT amortized in full the First Series of its 3^rd Debenture Issue, in the amount of R$ 553 (principal, plus interest, calculated up to the date of the actual amortization). The interest on the Second and Third Series of the 3^rd Debenture Issue, totaling R$ 76, was paid on the same date. These payments were made from the Company’s own funds.

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PDVP Programmed Voluntary Retirement Plan (PDVP 2017)

In March 2017, the Company created the 2017 Employee Voluntary Severance Program (‘the 2017 PDVP’). Those eligible to take part were any employees who will have worked with Cemig for 25 years or more by December 31, 2017. Employees will be able to accept the 2017 PDVP from April 3 through September 29, 2017. It provides for payment of an additional premium of five monthly salaries to employees who join in April 2017, to leave the Company in May 2017; the premium diminishes progressively depending on the month of acceptance. An employee who accepts the plan in August 2017, for severance in September 2017, will have the right to a premium corresponding to one monthly remuneration. Employees using the plan to leave on or after September 1, 2017, will have no premium. There will also be payment for voluntary retirement: the PDVP offers the much more advantageous severance payments which are specified by law only for the case of dismissal without just cause – including: payment for the period of notice, and especially, an amount equal to the ‘penalty’ payment of 40% of the Base Value of the employee’s FGTS fund, as well as the other payments specified by the legislation.

Due to the variable period for acceptance by the employees, it is not possible to estimate the effect on Cemig’s financial statements in 2017.

Authorization for Cemig to exceed financial ratios specified in the bylaws

The Company’s bylaws establish certain target levels for debt and investments which the Company’s management must obey. However, the Extraordinary General Meeting of Shareholders of March 31, 2017 gave authorization to exceed these indicators, exceptionally for the year 2017, as follows:


	Target in the by-laws			Higher limit authorized by the Meeting
Consolidated debt / Ebitda		2.00			4.44
(Net debt) / (Net debt + Equity)		40.00	%		55.00	%
(Capex including acquisition of any assets) / Ebitda		40.00	%		192.00	%

These new limits approved for 2017 must be reviewed at the time of the approval of the budget for 2017 by the Board of Directors, and must again be submitted to the shareholders in a General Meeting.

Amendments to contracts of Gasmig

On February 10, 2017, Gasmig signed amendments 07 and 02 (general rules) to its additional gas supply contract (CSA) with Petróleo Brasileiro S.A. – Petrobras, which have changed the expectations of Gasmig’s future results. The principal elements of the new gas supply contract, and its consequences in Gasmig’s results, are as follows:

◾

In effect from January 1, 2017, through December 2021.

◾

Alteration of the Daily Contracted Quantity, and the commitments for daily offtake of gas, adapting to expectations for consumption in the Minas Gerais market until December 2021.

◾

The Annual Take or Pay commitment will now be on monthly basis, with automatic recovery of the volume of gas paid for and not yet taken.

◾

Payment by installments of the Take or Pay contract for the year 2015: in up to 36 installments, which may be brought forward.

◾

Adjustment of the price for acquisition of the gas supplied by Petrobras

◾

Clauses for programming of more restricted offtake of gas.

◾

The Take or Pay commitment for annual minimum offtake for the year 2016 will not be calculated/paid.

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Arising from the provisions of the previous contract, Gasmig reported R$ 225 in an account line Advance to supplier – rights to offtake gas, in Current assets, with counterpart in Suppliers of gas, in Current liabilities. This caused a negative impact in the net working capital of Gasmig, which posted a net negative value of R$ 354. With the signature of the new contractual amendment, the annual minimum offtake commitment for the year 2016 was extinguished.

Gasmig and Petrobras further negotiated rescission of the Distribution Contract to Supply the Nitrogen Fertilizers Unit (UFN-V), with no financial charge for either side.

Taesa signs concession contracts from Aneel Auction 13/2015 (2nd phase)

On February 10, 2017, Taesa signed the 30-year concession contracts 17/2017 (Janaúba), 04/2017 (Aimorés), 03/2017 (Paraguaçú) and 19/2017 (ESTE).

Indemnification of Transmission assets – Injunction relieve by industrial costumers

On April 10, 2017, the Associação Brasileira de Grandes Consumidores Livres, da Associação Técnica Brasileira das Indústrias Automáticas de Vidro e da Associação Brasileira dos Produtores de Ferroligas e de Silicio Metálico obtained a injunctive relief (tutela antecipada) in judicial claims against Aneel and the Federal Government aiming to suspend the effects on their tariffs of the indemnification payment due to energy companies that adered to law 12.783/13.

The injunctive relief (tutela antecipada) was partially granted, with its effects related to the suspension of the inclusion in the tariffs charged to the consumers that are members of those associations of the indemnification related to the remuneration of the cost of capital included since the extension of the concessions.

The Company does not expect to incur in losses in realization of transmission indemnification assets. Please refer to note 14 for more detail about the asset and the criteria for update.

Taesa Wins Principal Lot at Aneel Auction 005/2016

On Monday, April 24, 2017, the Columbia Consortium, formed by the companies Taesa and CTEEP, won the Lot 1 in Transmission Auction 5/2016, held by the Brazilian electricity regulator, Aneel. The consortium offered Permitted Annual Revenue (RAP) of R$ 267 million.

The undertaking will require investment of R$ 1.936 billion, and comprises the following 525 kV transmission lines: Guaíra—Sarandi, with 266,3 KM of extension; Foz do Iguaçu—Guaíra, with 173 KM of extension; Londrina—Sarandi, with 75,5 KM of extension. It comprises also 230 kV transmission line Sarandi—Paranavaí Norte, with 85 KM of extension and three substations: (Guaíra, Sarandi e Paranavaí Norte), in the state of Paraná.

The tender specified completion of the works in 60 months, for start of commercial operation in August 2022.

International securities issue by Cemig GT

As per the Material Announcement issued by the Company on April 28, 2017, Cemig GT is preparing a possible international issue of securities. The Board of Directors of Cemig GT has authorized such an issue in the amount of up to US$1 billion, with maturity of 7 years, the proceeds to be used to refinance existing financial obligations. Also, the Board of Directors of Cemig has made the decision to authorize a surety guarantee.

Carrying out of the Issue is subject, among other factors, to the conditions of the Brazilian and international capital markets, and to obtaining of the related approvals; and if the issue is made it will be carried out in accordance with the applicable law and regulations.

This Material Announcement is for information purposes only. It should not under any circumstances be (i) understood as an offer or solicitation of an offer to acquire any securities of the Company or of Cemig GT, including but not limited to such securities as may at any time be issued in the international market by Cemig GT as part of the Issue; nor (ii) interpreted as an investment recommendation. If the Issue takes place, any decision to purchase securities arising from the Issue should be made exclusively on the basis of the information contained in an offering memorandum which will be prepared in relation to the Issue.

The Company will keep the market and its stockholders informed on any developments relating to the Issue in accordance with the applicable regulations.

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* * * * * * * * * * * * *

(The original is signed by)


Bernardo Afonso Salomão de Alvarenga	Bernardo Afonso Salomão de Alvarenga	Adézio de Almeida Lima
Chief Executive Officer	Deputy CEO	Chief Finance and Investor Relations Officer

Luís Fernando Paroli Santos	Franklin Moreira Gonçalves	Maura Galuppo Botelho Martins
Chief Distribution and Sales Officer	Chief Generation and Transmission Officer	Chief Officer for Human Relations and Resources

José de Araújo Lins Neto	Luís Fernando Paroli Santos	Dimas Costa
Chief Corporate Management Officer	Chief Institutional Relations and Communication Officer	Chief Trading Officer

César Vaz de Melo Fernandes		Raul Lycurgo Leite
Chief Business Development Officer		Chief Counsel

Leonardo George de Magalhães		Leonardo Felipe Mesquita
Controller CRC-MG 53.140		Accounting Manager Accountant – CRC-MG-85.260

181

Appendix VII

CONTENTS


BALANCE SHEETS		184
CONSOLIDATED PROFIT AND LOSS ACCOUNTS		186
STATEMENTS OF COMPREHENSIVE INCOME		188
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY – CONSOLIDATED		190
STATEMENTS OF CASH FLOW		191
STATEMENTS OF ADDED VALUE		193
CONDENSED NOTES TO THE INTERIM FINANCIAL INFORMATION		194
1.	OPERATING CONTEXT	194
2.	BASIS OF PREPARATION	196
3.	PRINCIPLES OF CONSOLIDATION	198
4.	CONCESSIONS AND AUTHORIZATIONS	198
5.	CASH AND CASH EQUIVALENTS	200
6.	SECURITIES	200
7.	CONSUMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERS	201
8.	RECOVERABLE TAXES	202
9.	INCOME AND SOCIAL CONTRIBUTION TAXES	203
10.	RESTRICTED CASH	205
11.	ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAIS	205
12.	ESCROW DEPOSITS	205
13.	REIMBURSEMENT OF TARIFF SUBSIDIES	206
14.	FINANCIAL ASSETS AND LIABILITIES OF THE CONCESSION	206
15.	INVESTMENTS	214
16.	PROPERTY, PLANT AND EQUIPMENT	226
17.	INTANGIBLE ASSETS	228
18.	SUPPLIERS	229
19.	TAXES, INCOME TAX AND SOCIAL CONTRIBUTION TAX	230
20.	LOANS, FINANCINGS AND DEBENTURES	231
21.	REGULATORY CHARGES	236
22.	POST-RETIREMENT OBLIGATIONS	236
23.	PROVISIONS	238
24.	EQUITY AND REMUNERATION TO STOCKHOLDERS	246
25.	REVENUE	249
26.	OPERATING COSTS AND EXPENSES	254
27.	FINANCIAL REVENUE (EXPENSES)	260
28.	RELATED PARTY TRANSACTIONS	261
29.	FINANCIAL INSTRUMENTS AND RISK MANAGEMENT	264
30.	MEASUREMENT AT FAIR VALUE	271
31.	OPERATING SEGMENTS	274
32.	THE ANNUAL TARIFF ADJUSTMENT	277
33.	NON-CASH TRANSACTIONS	277
34.	SUBSEQUENT EVENTS	277
REPORT ON THE REVIEW OF INTERIM INFORMATION		279
CONSOLIDATED RESULTS		282
RESULTS FOR 9M17		282
RESULTS FOR THIRD QUARTER 2017		289
OTHER INFORMATION THAT THE COMPANY BELIEVES TO BE MATERIAL		294

183

BALANCE SHEETS

AT SEPTEMBER 30, 2017 AND DECEMBER 31, 2016

ASSETS

(In thousands of Brazilian Reais – R$ ’000)


	Note		Consolidated				Holding company
	Note		Sept.30, 2017		Dec. 31, 2016		Sept.30, 2017		Dec. 31, 2016
CURRENT
Cash and cash equivalents		5		582,382		995,132		131,541		69,352
Securities		6		690,991		1,014,188		21,641		133,359
Consumers, Traders, Electricity transport concession holders		7		3,602,934		3,425,018		—		—
Financial assets of the concession		14		665,674		730,488		—		—
Recoverable taxes		8		246,954		236,284		122		—
Income tax and Social Contribution taxes recoverable		9ª		557,307		589,519		37,872		78,174
Dividends receivable				3,742		11,386		711,423		673,239
Restricted cash		10		405,494		367,474		396,038		366,568
Inventories				48,605		49,473		9		12
Advances to suppliers				140,541		1,059		—		—
Accounts receivable from the State of Minas Gerais		11		254,579		—		254,579		—
Funding from Energy Development Account (CDE)		13		73,345		63,751		—		—
Low-income subsidy				40,759		36,261		—		—
Credits owed by Eletrobras – RGR				—		48,379		—		—
Credits owed by Eletrobras – CDE				901		90,065		—		—
Other				541,374		626,993		28,162		20,435

TOTAL, CURRENT				7,855,582		8,285,470		1,581,387		1,341,139
NON-CURRENT
Securities		6		12,123		31,040		693		5,959
Advances to suppliers				319,913		229,053		—		—
Consumers, Traders, Electricity transport concession holders		7		174,252		146,367		—		—
Recoverable taxes		8		189,675		178,288		1,810		1,816
Income and Social Contribution taxes recoverable		9a		63,639		112,060		63,639		112,060
Deferred income tax and Social Contribution tax		9b		2,003,908		1,797,453		745,028		789,318
Accounts receivable from the State of Minas Gerais		11		23,144				23,144
Escrow deposits		12		1,743,060		1,886,879		265,243		499,868
Generation concession assets		4		195,611		206,566		—		—
Other				612,847		843,589		10,939		37,743
Financial assets of the concession		14		6,163,319		4,971,244		—		—
Investments		15		8,620,126		8,753,088		12,605,561		12,627,857
Property, plant and equipment		16		2,797,191		3,775,076		1,900		2,201
Intangible assets		17		11,057,685		10,819,680		1,777		1,852

TOTAL, NON-CURRENT				33,976,493		33,750,383		13,719,734		14,078,674

TOTAL ASSETS				41,832,075		42,035,853		15,301,121		15,419,813

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

184

BALANCE SHEETS

AT SEPTEMBER 30, 2017 AND DECEMBER 31, 2016

LIABILITIES

(R$ ’000)


	Note		Consolidated						Holding company
	Note		Sept.30, 2017			Dec. 31, 2016			Sept.30, 2017			Dec. 31, 2016
CURRENT
Suppliers		18		2,186,448			1,939,593			23,571			20,936
Regulatory charges		21		351,246			380,586			—			—
Taxes		19a		983,993			793,587			4,941			83,634
Income and Social Contribution taxes		19b		99,684			26,866			—			—
Interest on Equity, and dividends, payable		24		198,264			466,987			196,004			466,689
Loans, financings and debentures		20		5,199,471			4,836,923			—			—
Payroll and related charges				247,655			224,741			11,358			9,970
Post-retirement obligations		22		224,137			198,867			12,584			11,143
Financial liabilities of the concession		14		704,418			481,835			—			—
Financial instruments – Put options		15		1,242,818			1,149,881			1,242,818			1,149,881
Advance sales of power supply		7		245,367			181,200			—			—
Other obligations				666,426			766,394			5,573			7,192

TOTAL, CURRENT				12,349,927			11,447,460			1,496,849			1,749,445
NON-CURRENT
Regulatory charges		21		544,443			454,625			—			—
Loans, financings and debentures		20		8,856,104			10,342,357			—			—
Taxes		19a		722,102			723,922			—			—
Deferred income tax and Social Contribution tax		9b		682,757			582,206			—			—
Provisions		23		713,973			815,017			75,259			309,995
Post-retirement obligations		22		4,156,202			4,042,544			405,611			386,321
Financial liabilities of the concession		14		—			323,140			—			—
Financial instruments – Put options		15		259,655			191,587			—			—
Advance sales of power supply		7		66,745			—			—			—
Other obligations				192,960			178,624			40,293			43,771

TOTAL, NON-CURRENT				16,194,941			17,654,022			521,163			740,087

TOTAL LIABILITIES				28,544,868			29,101,482			2,018,012			2,489,532
STOCKHOLDERS’ EQUITY		24
Share capital				6,294,208			6,294,208			6,294,208			6,294,208
Capital reserves				1,924,503			1,924,503			1,924,503			1,924,503
Profit reserves				5,199,855			5,199,855			5,199,855			5,199,855
Equity valuation adjustments				(575,873	)		(488,285	)		(575,873	)		(488,285	)
Retained earnings				440,416			—			440,416			—

ATTRIBUTABLE TO CONTROLLING STOCKHOLDERS				13,283,109			12,930,281			13,283,109			12,930,281

ATTRIBUTABLE TO NON-CONTROLLING STOCKHOLDER				4,098			4,090			—			—

STOCKHOLDERS’ EQUITY				13,287,207			12,934,371			13,283,109			12,930,281

TOTAL LIABILITIES AND EQUITY				41,832,075			42,035,853			15,301,121			15,419,813

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

185

CONSOLIDATED PROFIT AND LOSS ACCOUNTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

(In thousands of Brazilian Reais – R$ ’000 – except Net profit per share)


	Note No.		Consolidated						Holding company
	Note No.		30/09/2017			30/09/2016			30/09/2017			30/09/2016
NET REVENUE		25		15,153,781			14,106,738			250			582
OPERATING COSTS
COST OF ELECTRICITY AND GAS		26
Electricity purchased for resale				(7,685,392	)		(6,126,458	)		—			—
Charges for use of the national grid				(791,339	)		(741,416	)		—			—
Gas bought for resale				(789,861	)		(623,503	)		—			—

				(9,266,592	)		(7,491,377	)		—			—
OTHER COSTS		26
Personnel and managers				(992,908	)		(981,505	)		—			—
Materials				(30,589	)		(28,792	)		—			—
Outsourced services				(542,357	)		(521,118	)		—			—
Depreciation and amortization				(570,031	)		(578,255	)		—			—
Operating provisions (net of reversions)				(195,345	)		(121,302	)		—			—
Infrastructure construction cost				(736,754	)		(917,855	)		—			—
Other				(58,101	)		(57,683	)		—			—

				(3,126,085	)		(3,206,510	)		—			—
TOTAL COST				(12,392,677	)		(10,697,887	)		—			—
GROSS PROFIT				2,761,104			3,408,851			250			582
OPERATING EXPENSES		26
Selling expenses				(191,343	)		(282,915	)		—			—
General and administrative expenses				(548,075	)		(473,230	)		(43,214	)		(33,248	)
Operating provisions				(172,105	)		(310,020	)		(104,037	)		(280,532	)
Other operational expenses				(505,239	)		(471,889	)		(40,435	)		(35,809	)

				(1,416,762	)		(1,538,054	)		(187,686	)		(349,589	)
Equity method gains in non-consolidated investees		15		(20,680	)		47,260			320,979			842,337
Operational profit before Financial income (expenses) and taxes				1,323,662			1,918,057			133,543			493,330
Financial revenues		27		550,065			835,191			84,893			77,057
Financial expenses		27		(1,271,951	)		(1,888,015	)		236,553			(4,332	)

Pre-tax profit				601,776			865,233			454,989			566,055

Current income tax and Social Contribution tax		9c		(305,956	)		(148,460	)		(13,949	)		(11,480	)
Deferred income tax and Social Contribution tax		9c		101,362			(75,940	)		(44,290	)		85,988

PROFIT (LOSS) FOR THE PERIOD				397,182			640,833			396,750			640,563

Total of net profit for the period attributed to:
Attributable to controlling shareholders				396,750			640,563			396,750			640,563
Attributable to non-controlling stockholder				432			270			—			—

				397,182			640,833			396,750			640,563

Basic and diluted profit per preferred share – R$		24		0.32			0.51			0.32			0.51
Basic and diluted profit per common share – R$		24		0.32			0.51			0.32			0.51

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

186

CONSOLIDATED PROFIT AND LOSS ACCOUNTS

FOR THE QUARTERS ENDED SEPTEMBER 30, 2017 AND 2016

(In thousands of Brazilian Reais – R$ ’000 – except Net profit per share)


	Note No.		Consolidated						Holding company
	Note No.		3Q17			3Q16			3Q17			3Q16
NET REVENUE		25		5,135,822			4,895,606			72			129
OPERATING COSTS
COST OF ELECTRICITY AND GAS		26
Electricity purchased for resale				(2,942,974	)		(2,170,348	)		—			—
Charges for use of the national grid				(387,078	)		(215,504	)		—			—
Gas bought for resale				(304,698	)		(196,494	)		—			—

				(3,634,750	)		(2,582,346	)
OTHER COSTS		26
Personnel and managers				(304,061	)		(297,678	)		—			—
Materials				(13,035	)		(11,704	)		—			—
Outsourced services				(200,960	)		(167,146	)		—			—
Depreciation and amortization				(184,576	)		(195,286	)		—			—
Operating provisions (net of reversions)				(23,266	)		(34,468	)		—			—
Infrastructure construction cost				(295,720	)		(334,122	)		—			—
Other				(36,742	)		(18,720	)		—			—

				(1,058,360	)		(1,059,124	)		—			—
TOTAL COST				(4,693,110	)		(3,641,470	)		—			—
GROSS PROFIT				442,712			1,254,136			72			129
OPERATING EXPENSES		26
Selling expenses				(50,458	)		(108,349	)		—			—
General and administrative expenses				(110,181	)		(164,201	)		(14,921	)		(11,957	)
Operating provisions				(115,151	)		162,192			(88,726	)		165,669
Other operational expenses				(191,538	)		(185,548	)		(15,405	)		(12,272	)

				(467,328	)		(295,906	)		(119,052	)		141,440
Equity method gains in non-consolidated investees		15		(80,798	)		33,218			(190,646	)		339,631
Operational profit before Financial income (expenses) and taxes				(105,414	)		991,448			(309,626	)		481,200
Financial revenues		27		201,164			231,256			51,875			5,602
Financial expenses		27		(188,750	)		(654,168	)		238,514			(1,128	)

Pre-tax profit				(93,000	)		568,536			(19,237	)		485,674
Current income tax and Social Contribution tax		9c		(13,234	)		(69,593	)		(11,416	)		757
Deferred income tax and Social Contribution tax		9c		22,568			(65,441	)		(53,175	)		(53,034	)

PROFIT (LOSS) FOR THE PERIOD				(83,666	)		433,502			(83,828	)		433,397

Total of net profit for the period attributed to:
Interest of the controlling shareholders				(83,828	)		433,397			(83,828	)		433,397
Interest of non-controlling stockholder				162			105			—			—

				(83,666	)		433,502			(83,828	)		433,397

Basic and diluted profit per preferred share – R$		24		(0.06	)		0.34			(0.06	)		0.34
Basic and diluted profit per common share – R$		24		(0.06	)		0.34			(0.06	)		0.34

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

187

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

R$ ’000


	Consolidated						Holding company

	9M17			9M16			9M17			9M16
PROFIT (LOSS) FOR THE PERIOD		397,182			640,833			396,750			640,563
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to the Profit and loss account in subsequent periods
Adjustment of actuarial liabilities – restatement of obligations of defined benefit plans, net of taxes		(680	)		(115	)		—			—
Equity gain on Other comprehensive income in jointly-controlled entity		(4,851	)		7,415			(5,531	)		7,300

		(5,531	)		7,300			(5,531	)		7,300
Items that may be reclassified to the Profit and loss account in subsequent periods
Equity gain on Other comprehensive income, in jointly-controlled entity, relating to fair value of financial asset available for sale		(38,134	)		(2,441	)		(38,134	)		(2,451	)
Conversion adjustment on transactions outside Brazil		—			(10	)		—			—

		(38,134	)		(2,451	)		(38,134	)		(2,451	)

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		353,517			645,682			353,085			645,412

Total of comprehensive income attributed to:
Interest of the controlling shareholders		353,085			645,517			353,085			645,412
Interest of non-controlling stockholder		432			165			—			—

		353,517			645,682			353,085			645,412

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

188

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE QUARTERS ENDED SEPTEMBER 30, 2017 AND 2016

R$ ’000


	Consolidated					Holding company

	3Q17			3Q16		3Q17			3Q16
PROFIT (LOSS) FOR THE PERIOD		(83,666	)		433,502		(83,828	)		433,397
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to the Profit and loss account in subsequent periods
Equity gain on Other comprehensive income in jointly-controlled entity		—			612		—			612

		—			612		—			612
Items that may be reclassified to the Profit and loss account in subsequent periods
Equity gain on Other comprehensive income, in jointly-controlled entity, relating to fair value of financial asset available for sale		—			23,607		—			23,607
Conversion adjustment on transactions outside Brazil		—			—		—			—

		—			23,607		—			23,607

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		(83,666	)		457,721		(83,828	)		457,616

Total of comprehensive income attributed to:
Interest of the controlling shareholders		(83,828	)		457,721		(83,828	)		457,616
Interest of non-controlling stockholder		162			—		—			—

		(83,666	)		457,721		(83,828	)		457,616

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

189

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY – CONSOLIDATED

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

R$ ’000 – except where otherwise stated


	Share capital		Capital reserves		Profit reserves		Equity valuation adjustments			Retained earnings			Total interest of controlling stockholders			Interest of non-controlling stockholder			Total equity
BALANCES ON DECEMBER 31, 2015		6,294,208		1,924,503		4,662,723		102,264			—			12,983,698			3,978			12,987,676

Profit (loss) for the period		—		—		—		—			640,563			640,563			270			640,833
Other comprehensive income
Adjustment of actuarial liabilities – restatement of obligations of the defined benefit plans, net of taxes		—		—		—		(115	)		—			(115	)		—			(115	)
Equity gain (loss) on Other comp. income in subsidiary and jointly-controlled entity		—		—		—		4,974			—			4,974			—			4,974
Foreign exchange conversion differences on transactions outside Brazil		—		—		—		(10	)		—			(10	)		—			(10	)

Total comprehensive income for the period		—		—		—		4,849			640,563			645,412			270			645,682
Other changes in Stockholders’ equity:
Tax incentives reserve		—		—		445		—			(445	)		—			—			—
Portion of mandatory dividends that will not be distributed – Reversal of provision		—		—		622,530		—			—			622,530			—			622,530
Realization of reserves
Equity valuation adjustments – deemed cost of PP&E		—		—		—		(29,147	)		29,147			—			—			—

BALANCES AT SEPTEMBER 30, 2016		6,294,208		1,924,503		5,285,698		77,966			669,265			14,251,640			4,248			14,255,888

ATTRIBUTABLE TO MINORITY STOCKHOLDERS		—		—		—		—			—			—			4,248			4,248
ATTRIBUTABLE TO CONTROLLING STOCKHOLDERS		6,294,208		1,924,503		5,285,698		77,966			669,265			14,251,640			—			14,251,640

BALANCES ON DECEMBER 31, 2016		6,294,208		1,924,503		5,199,855		(488,285	)		—			12,930,281			4,090			12,934,371

Profit (loss) for the period		—		—		—		—			396,750			396,750			432			397,182
Other comprehensive income
Adjustment of actuarial liabilities – restatement of obligations of the defined benefit plans, net of taxes		—		—		—		(680	)		—			(680	)		—			(680	)
Equity gain (loss) on Other comp. income in jointly-controlled entity		—		—		—		(42,985	)		—			(42,985	)		—			(42,985	)

Total comprehensive income for the period		—		—		—		(43,665	)		396,750			353,085			432			353,517
Other changes in Stockholders’ equity:
Additional dividends to minority stockholders proposed		—		—		—		—			—			—			(424	)		(424	)
Realization of reserves
Equity valuation adjustments – deemed cost of PP&E		—		—		—		(43,923	)		43,666			(257	)		—			(257	)

BALANCES AT SEPTEMBER 30, 2017		6,294,208		1,924,503		5,199,855		(575,873	)		440,416			13,283,109			4,098			13,287,207

ATTRIBUTABLE TO MINORITY STOCKHOLDERS		—		—		—		—			—			—			4,098			4,098
ATTRIBUTABLE TO CONTROLLING STOCKHOLDERS		6,294,208		1,924,503		5,199,855		(575,873	)		440,416			13,283,109			—			13,283,109

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

190

STATEMENTS OF CASH FLOW

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

R$ ’000


	Consolidated						Holding company
	9M17			9M16			9M17			9M16
CASH FLOW FROM OPERATIONS
Net profit for the period		397,182			640,833			396,750			640,563
Expenses (revenues) not affecting cash and cash equivalents
Income tax and Social Contribution tax		204,594			224,400			58,239			(74,508	)
Depreciation and amortization		616,783			601,197			351			382
Losses on write-offs of PP&E and Intangible assets		23,060			61,932			25			41
Equity method gains in non-consolidated investees		20,680			(47,260	)		(320,979	)		(842,337	)
Interest and monetary variation		834,151			589,132			(44,696	)		(39,610	)
Monetary updating—AFAC		(239,445	)		—			(239,445	)		—
Provisions (reversals) for operational losses		558,793			714,237			104,037			280,532
CVA (Compensation of Portion A items) Account and Other Financial Components in tariff adjustments		(148,216	)		937,053			—			—
Adjustment of indemnity – plants with non-renewed concessions (Ministerial Order 291)		(259,516	)		—			—			—
Post-retirement obligations		342,018			335,365			31,863			31,458

		2,350,084			4,056,889			(13,855	)		(3,479	)
(Increase) / decrease in assets
Consumers and Traders		(397,144	)		16,995			—			—
CVA (Compensation of Portion A items) Account and Other Financial Components in tariff adjustments		304,841			341,259			—			—
Funding from Energy Development Account (CDE)		(9,594	)		7,944			—			—
Recoverable taxes		(22,057	)		(34,078	)		(116	)		3
Income tax and Social Contribution tax recoverable		(24,460	)		(129,246	)		88,723			29,316
Transport of electricity		—			(27,416	)		—			—
Escrow deposits in litigation		(47,440	)		(35,383	)		1,598			(3,210	)
Dividends received from equity holdings		247,824			445,178			361,293			713,900
Financial assets of the concession		314,473			(2,174,997	)		—			—
Advances to suppliers		(199,400	)		(41,929	)		—			—
Gas drawing rights		658,444			—			—			—
Other		(155,307	)		(64,848	)		19,077			(1,080	)

		670,180			(1,696,521	)		470,575			738,929
Increase (reduction) in liabilities
Suppliers		246,855			(280,945	)		2,635			(310	)
Taxes		188,586			(185,477	)		(78,693	)		(32,369	)
Income tax and Social Contribution tax payable		175,273			75,934			(9,191	)		2,314
Payroll and related charges		22,914			59,758			1,388			3,247
Regulatory charges		60,478			(10,789	)		—			—
Post-retirement obligations		(203,090	)		(173,731	)		(11,132	)		(9,476	)
Other		(29,786	)		(189,349	)		(11,488	)		(17,002	)

		461,230			(704,599	)		(106,481	)		(53,596	)

Cash generated by Operations		3,481,494			1,655,769			350,239			681,854
Interest paid on loans and financings		(1,030,773	)		(1,320,119	)		—			—
Income tax and Social Contribution tax paid		(307,860	)		(106,956	)		(4,758	)		(13,794	)

NET CASH FROM OPERATIONAL ACTIVITIES		2,142,861			228,694			345,481			668,060

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

191


	Consolidated						Holding company
	9M17			9M16			9M17			9M16
CASH FLOW IN INVESTMENT ACTIVITIES
Securities – Cash investments		331,069			1,465,227			116,984			11,385
Financial assets		(160,481	)		—			—			—
Restricted cash		(38,020	)		(874	)		(29,470	)		1
Investments
Cash injection in Investees		(228,205	)		(724,750	)		(100,121	)		(426,660	)
In PP&E		(53,883	)		(61,332	)		—			(484	)
In Intangible assets		(691,017	)		(779,462	)		—			—

NET CASH FLOW FROM (USED IN) INVESTMENT ACTIVITIES		(840,537	)		(101,191	)		(12,607	)		(415,758	)

CASH FLOW IN FINANCING ACTIVITIES
New loans and debentures		60,108			2,858,644			—			—
Loans and debentures paid		(1,506,459	)		(2,106,248	)		—			—
Interest on Equity, and dividends		(268,723	)		(111,453	)		(270,685	)		(111,453	)

NET CASH FROM (USED IN) FINANCING ACTIVITIES		(1,715,074	)		640,943			(270,685	)		(111,453	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(412,750	)		768,446			62,189			140,849

Cash and cash equivalentes at start of period		995,132			924,632			69,352			256,484

Cash and cash equivalentes at end of period		582,382			1,693,078			131,541			397,333

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

192

STATEMENTS OF ADDED VALUE

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

R$ ’000


	Consolidated										Holding company
	9M17					9M16					9M17						9M16
REVENUES
Sales of electricity, gas and services		21,927,158					20,211,783					276						641
Distribution construction revenue		725,528					881,450					—						—
Transmission construction revenue		11,226					36,405					—						—
Gain on financial updating of the Concession Grant Fee		240,420					212,185					—						—
Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession		2,277					6,638					—
Transmission indemnity revenue		295,749					692,211					—						—
Generation indemnity revenue		259,516					—					—						—
Investments in PP&E		24,549					40,287					—						—
Other revenues		1,479					3,905					—						—
Estimated Provision for Doubtful Receivables (PECLD)		(191,343	)				(282,915	)				—						—

		23,296,559					21,801,949					276						641
INPUTS ACQUIRED FROM THIRD PARTIES
Electricity purchased for resale		(8,424,585	)				(6,734,311	)				—						—
Charges for use of national grid		(882,536	)				(825,611	)				—						—
Outsourced services		(983,908	)				(904,721	)				(6,796	)					(6,226	)
Gas bought for resale		(789,861	)				(623,503	)				—						—
Materials		(392,871	)				(521,118	)				(89	)					(52	)
Other operational costs		(587,938	)				(740,543	)				(107,183	)					(291,438	)

		(12,061,699	)				(10,349,807	)				(114,068	)					(297,716	)
GROSS VALUE ADDED		11,234,860					11,452,142					(113,792	)					(297,075	)
RETENTIONS
Depreciation and amortization		(616,783	)				(601,197	)				(351	)					(382	)

NET ADDED VALUE PRODUCED BY THE COMPANY		10,618,077					10,850,945					(114,143	)					(297,457	)
ADDED VALUE RECEIVED BY TRANSFER
Equity method gains in non-consolidated investees		(20,680	)				47,260					320,979						842,337
Financial revenues		550,065					835.191					84.893						77.057

ADDED VALUE TO BE DISTRIBUTED		11,147,462					11.733.396					291.729						621.937

DISTRIBUTION OF ADDED VALUE
				%					%					%						%
Employees		1,507,087			13.52		1,386,236			11.81		65,849			22.57			48,232			7.76
Direct remuneration		850,936			7.63		856,959			7.3		26,795			9.18			13,137			2.12
Benefits		406,373			3.65		371,145			3.16		31,928			10.94			28,511			4.58
FGTS fund		52,452			0.47		65,213			0.56		1,891			0.65			1,261			0.2
Voluntary retirement program		197,326			1.77		92,919			0.79		5,235			1.79			5,323			0.86
Taxes		7,833,994			70.28		7,631,496			65.04		62,821			21.53			(71,696	)		(11.53	)
Federal		3,351,706			30.07		3,746,798			31.93		62,186			21.32			(71,965	)		(11.57	)
State		4,472,137			40.12		3,875,582			33.03		485			0.17			77			0.01
Municipal		10,151			0.09		9,116			0.08		150			0.05			192			0.03
Remuneration of external capital		1,409,199			12.64		2,074,831			17.69		(233,691	)		(80.11	)		4,838			0.78
Interest		1,326,887			11.90		2,004,756			17.09		(236,553	)		(81.09	)		4,332			0.7
Rentals		82,312			0.74		70,075			0.6		2,862			0.98			506			0.08
Remuneration of own capital		397,182			3.56		640,833			5.46		396,750			136.00			640,563			102.99
Retained earnings		396,750			3.56		640,563			5.46		396,750			136.00			640,563			102.99
Non-controlling stockholders’ interest in Retained earnings		432			—		270			—		—			—			—			—

		11,147,462			100.00		11,733,396			100.00		291,729			100.00			621,937			100.00

The Condensed Notes are an integral part of the Interim Financial Statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

193

CONDENSED NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE QUARTER ENDED SEPTEMBER 30, 2017

(In thousands of Brazilian Reais – R$ ’000 – except where otherwise indicated)

1.	OPERATING CONTEXT

a)	The Company

Companhia Energética de Minas Gerais (‘Cemig’, ‘Parent company’, ‘Holding company’ or ‘the Company’) is a listed corporation registered in the Brazilian Registry of Corporate Taxpayers (CNPJ) under number 17.155.730/0001-64, with shares traded on the BM&F Bovespa (‘Bovespa’) at Corporate Governance Level 1; on the New York Stock Exchange (‘NYSE’); and on the stock exchange of Madrid (‘Latibex’). It is domiciled in Brazil, with head office at Avenida Barbacena 1200, Belo Horizonte, Minas Gerais. It operates exclusively as a holding company, with interests in subsidiaries or jointly controlled entities, which are engaged in the activities of the construction and operation of systems for generation, transformation, transmission, distribution and sale of electricity, and also activities in the various fields of energy, for the purpose of commercial operation.

The Company has assumed a significant amount of debt to finance the capital expenses that are necessary for compliance with its long term growth objectives. On September 30, 2017 the consolidated current liabilities of Cemig GT exceeded its consolidated current assets by R$ 4,494,345. On September 30, 2017, its aggregate totals of loans, financings and debentures, were: R$ 5,199,471, short-term; and R$ 8,856,104 long-term. In its consolidated result, the Company reports positive consolidated operational cash flow for the first nine months of 2017 (9M17) of R$ 2,142,861. In 9M16 this result was positive consolidated operational cash flow of R$ 228,694.

Management monitors the Company’s cash flow, and for this purpose assesses measures to adjust the present situation of its financial assets and liabilities to the levels considered appropriate to meet its needs.

The substantial volume of Cemig’s debt could negatively affect its business, financial situation and operational results. More specifically, Cemig is subject to certain restrictions on its capacity to raise funds from third parties, which could be an impediment when entering into new contracts for financing of its operations, or for refinancing of existing obligations, and this might adversely affect its business, financial situation and operational results, as follows:

◾

The Company’s bylaws require certain consolidated financial ratios to be maintained, on factors including debt and capital expenditure, with consolidated limits for the Group. This could affect the Group’s operational flexibility. In 2016 and on September 30, 2019, certain financial limits and indices established in the bylaws were exceeded. These were previously approved by the General Meeting of Stockholders. Cemig obtained approval from its stockholders for the Company to exceed these financial limits and indices as applicable for 2017.

◾

The following points relate to contracting of loans: (i) as a state-controlled company, Cemig is subject to rules and limits on lending applicable to the public sector, including rules established by the National Monetary Council (CMN) and the Brazilian Central Bank; and (ii) since the Company operates in the electricity sector it is subject to rules and limits established by Aneel governing indebtedness of companies in the electricity sector. Additionally, (iii) state-controlled companies may use funds from transactions with commercial banks only for refinancing of financial obligations, or in transactions guaranteed by trade bills.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

194

◾

Another rule in force is the requirement for certain international financial transactions to be approved by the Brazilian Federal Treasury (part of the Finance Ministry) and the Central Bank, before their execution; this approval is usually given only if the objective is to finance importation of merchandize or roll over foreign debt. The objective of these rules is to impose limits on the Company’s capacity for indebtedness.

◾

Cemig is subject to the restrictive covenants contained in its contracts for loans, financings and debentures. In the event of non-compliance with an obligation under the terms of the financing contract, Cemig will be required to reinforce the guarantees of the financing, on penalty of early maturity of the contract. Any default event on our financial instruments could lead creditors to cause all amounts related to that debt to become immediately payable. Early maturity of debt could have a significant adverse effect on the Company’s financial situation, and could also result in activation of cross-default clauses in other financial instruments. In the event of default, the Company’s cash flows could be insufficient to completely satisfy the debt or to comply with the service of those debts.

◾

The credit risk rating agencies attribute a rating to Brazil, to the Company, and to its debt securities on the Brazilian basis, and also issue a rating for the Company on a global basis. If ratings are reduced due to any factor that is not related to the Company’s operational performance or the high level of the debt, the cost of capital could increase.

For the purposes of amortization of the programed debt maturities, Cemig will raise significant amounts of capital from third parties through a wide range of financing sources available in the market. For the purposes of complying with services of the debt after meeting its investment targets, Cemig depended, and may continue to depend, on a combination of cash flows from operational activities, drawdowns on our available credit lines, the balance of our cash position and financial investments, and contracting of additional debts.

Cemig has a range of initiatives for increasing liquidity by entering into new financing contracts, refinancing existing obligations, and possibly disposal of assets that are not part of its end-activity. In 2016, Cemig presented a program of disinvestment for sale of assets in the period 2017–2018, with the objective of improving its liquidity position in the short term through creation of liquidity and reduction of debt.

Although Cemig has significant leverage, it expects that the balances of current cash, liquidity of the rotating credit line, cash generated by the initiatives described above, and cash flow from operational activities will be sufficient to supply the needs of working capital, investments, debt servicing, and other cash needs of the coming business year. Management believes that its plans will be successful.

If, for any reason, Cemig has difficulty in obtaining financings, this could negatively affect its conditions for making investments in the amounts necessary to maintain the present level of investments or its long-term objectives, and could compromise its ability to pay financial obligations for principal and debt to creditors, considering that the cash flow from its operations might be insufficient to cover its investment program and all of its debt servicing. A reduction in the investment program or the sale of assets could significantly affect the result of its operations.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

195

2.	BASIS OF PREPARATION

2.1

Statement of compliance

The individual and consolidated Interim Accounting Information has been prepared in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB) and Technical Pronouncement 21 – Interim Reporting (Pronunciamento Técnico 21 – Demonstração Intermediária, or CPC21) ; and is also presented in a form compliant with the rules issued by the Brazilian Securities Commission (Comissão de Valores Mobiliários, or CVM), applicable to preparation of Quarterly Information (Informações Trimestrais, or ITR).

The Company has opted to present the individual and the consolidated Interim Financial Statements in a single group, since there is no difference in the values stated for (a) Stockholders’ equity and (b) Net profit (loss) between the individual and the consolidated Interim Financial Statements.

This Interim Quarterly Information has been prepared according to principles, practices and criteria consistent with those adopted in the preparation of the annual accounting statements at December 31, 2016. Thus, this Interim financial information should be read in conjunction with the said financial statements, approved by the Company’s management on April 11, 2017.

The added value statement is not required by IFRS, but is obligatory for listed companies in Brazil. Its purpose is to show the wealth created by the Company, and its distribution in the reporting period. It is provided as supplementary information to the individual and consolidated quarterly information.

The Company also takes into account the orientations provided by Technical Orientation OCPC07 in preparation of its financial statements. Thus, the material information in the Interim accounting information, and only that information, is being presented, and corresponds to the information used by Management in its administration of the company.

The Executive Board authorized conclusion and publication of this Interim financial information on November 13, 2017.

2.2

Correlation between the Explanatory Notes published in the annual financial statements and those in the Interim Financial Information

The table below shows the correlation between the Explanatory Notes published in the consolidated annual financial statements at December 31, 2016 and the consolidated interim financial accounting information at September 30, 2017.

The Company believes that this Interim accounting information presents the material updating of information relating to its equity situation, and its results for the three-month and nine-month period ended September 30, 2017, in compliance with the requirements for disclosure stated by the CVM.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

196


Number of the Note		Title of the Note
Dec. 31, 2016	Sep. 30, 2017	Title of the Note
1	1	Operational context
2	2	Basis of preparation
3	3	Consolidation principles
4	4	Concessions and authorizations
5	31	Operational segments
6	5	Cash and cash equivalents
7	6	Securities
8	7	Consumers and traders; Concession holders – Transport of electricity
9	8	Recoverable taxes
10	9	Income and Social Contribution taxes
11	10	Restricted cash
12	12	Escrow deposits in litigation
13	13	Passthrough funding from the Energy Development Account (Conta de Desenvolvimento Energético, or CDE) and the Flag Tariff Centralizing Account
14	14	Financial Assets and Liabilities of the Concession
15	15	Investments
16	16	Property, plant and equipment
17	17	Intangible assets
18	18	Suppliers
19	19	Taxes and social security
20	20	Loans, financings and debentures
21	21	Regulatory charges
22	22	Post-retirement obligations
23	23	Provisions
24	24	Stockholder’s equity and remuneration to stockholders
25	25	Revenue
26	26	Operational costs and expenses
27	27	Financial revenue and expenses
28	28	Related party transactions
29	29	Financial instruments and risk management
30	30	Measurement at fair value
33	33	Transactions not involving cash
34	34	Subsequent events

The Notes to the 2016 annual statements that have not been included in these consolidated interim financial statements because they had no material changes, and/or were not applicable to the interim information, are as follows:


Number		Title of the Note
31		Insurance
32		Commitments

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

197

3.	PRINCIPLES OF CONSOLIDATION

The reporting dates for the interim accounting information on the subsidiaries and jointly-controlled subsidiaries, used for the purposes of calculation of consolidation and equity method gains (losses) coincide with those of the Company.

The Company uses the criteria of full consolidation for the following companies which are direct equity investments of Cemig:


Subsidiary	Form of valuation		Sep. 30, 2017
Subsidiary	Form of valuation		Direct stake, %
Cemig Geração e Transmissão		Consolidation		100.00
Cemig Distribuição		Consolidation		100.00
Gasmig		Consolidation		99.57
CemigTelecom		Consolidation		100.00
Rosal Energia		Consolidation		100.00
Sá Carvalho		Consolidation		100.00
Horizontes Energia		Consolidation		100.00
Usina Térmica Ipatinga		Consolidation		100.00
Cemig PCH		Consolidation		100.00
Cemig Trading		Consolidation		100.00
Efficientia		Consolidation		100.00
Cemig Comercializadora de Energia Incentivada		Consolidation		100.00
UTE Barreiro		Consolidation		100.00
Empresa de Serviços e Comercialização de Energia Elétrica		Consolidation		100.00

4.	CONCESSIONS AND AUTHORIZATIONS

Renewal of the concessions of the Jaguara, São Simão, Miranda and Volta Grande Hydroelectric Plants

The concession contracts (under Concession 007/97) of the Jaguara, São Simão and Miranda hydroelectric plants, of the subsidiary Cemig GT, reached a maturity date in August 2013, January 2015 and December 2016, respectively. The subsidiary, since it believes that it has the right to renewal of these concessions under the original Concession Contracts, filed administrative and court actions requiring renewal/extension of the concessions. These applications, however, were rejected by the Mining and Energy Ministry, on the view that the request was made out of time in relation to the period/rules set by Law 12783/13.

As part of the legal dispute in the courts, in March 2017 the interim judgments that had maintained Cemig GT in possession of the concession of the plants on the initial basis of the Concession Contract 007/97, were revoked.

Up to the date of lifting of the interim injunctions for each one of the plants, the Subsidiary Cemig GT recognized revenue from sales of electricity and operational costs of this plant, since it remained in control of the asset up to that date. From that date onward, Cemig GT ceased to recognize the expenses of depreciation on the plants, and began to recognize revenues relating to the provision of services of operation and maintenance of the plant, in accordance with the regime of quotas.

Management of the subsidiary continues to argue for its right in relation to the Jaguara, São Simão and Miranda plants, supported by a contractual clause, by the legislation in force, and by opinions issued by renowned jurists. The subsidiary’s internal and external legal advisers have categorized the chance of success in the court disputes as ‘possible’.

Since there are legal disputes pending, involving the São Simão, Jaguara and Miranda plants, on September 27, 2017 the Brazilian federal government auctioned the concessions of those three plants, and also the concession of Volta Grande plant, which concession expired in February, 2017. Those concessions were previously held by Cemig GT. The plants have an aggregate generation capacity of 2,922 MW. The concessions were auctioned for a total of R$ 12,130,784. The parties that won these concessions are not related to Cemig.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

198

Until the signature of the new concession contracts with the concession holders that won Auction 01/2017, and the actual transfer of possession of the related facilities, as long as the period of assisted operation specified in the tender of Auction 01/2017 continues, the Mining and Energy Ministry maintains Cemig GT as the party responsible for provision of service of generation at the Jaguara, Miranda, São Simão and Volta Grande Plants, to guarantee continuity of service. The Annual Generation Revenue (RAG) of the plants totals R$ 433,243 per year and was recorded a revenue of R$330,369 in the nine-month period ended on September 30, 2017 (R$238.641 in the same period of 2016). The period of assisted operation may not exceed 180 days from the signature of the new concession contracts.

On August 3, 2017 Mining and Energy Ministry Order 291/17 established the values of indemnity, payable to Cemig GT, for the investments made in the São Simão and Miranda plants that have not been amortized up to the end of the contract. The total amount of the indemnity is R$ 1,027,751, of which R$ 243,599 relates to indemnity for the São Simão Plant, and R$ 784,152 is for indemnity for the Miranda Plant – these figures being expressed in September 2015 and December 2016 currency, respectively. The amounts are being updated, pro rata die, by the IPCA (Expanded Consumer Price) index, up to the date of signature of the Concession Contract by whichever party wins the tender for the concession of the Plants and also by the Selic Reference Rate for Federal securities, as from the date of signature of the Concession Contract up to the date of actual payment of the indemnity. The balances not yet amortized of the concessions of the São Simão and Miranda Plants, in relation to their Basic Plans, were adjusted to reflect the matters defined in Ministerial Order 291/17. Updating ains of R$ 259,516 were recognized in this quarter (see more details in Notes 13 and 24). The subsidiary transferred the balances referred to to Financial Assets of the concession.

On September 30, 2017, the balance not yet amortized of the Jaguara Plant concession, with accounting value of R$ 169,822, and also the amounts of the investments made after the São Simão and Miranda plants started operation, respectively with book value of R$ 3,243 and R$ 22,546, reported under the heading Generation Concession Assets.

Cemig GT is discussing with the Mining and Energy Ministry the criteria used for deciding the amounts states in Ministerial Order 291/17 and also the fact that this Order did not take into consideration the as yet non-amortized balance of the Jaguara Plant and the balances of investments carried out to the São Simão and Miranda Plants after their coming into operation. The Company does not expect to see loss of value in realization of these assets.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

199

5.	CASH AND CASH EQUIVALENTS


R$ ’000	Consolidated				Holding company
R$ ’000
	Sep, 30, 2017		Dec. 31, 2016		Sep, 30, 2017		Dec. 31, 2016
Bank accounts		33,631		101,419		4,527		4,414
Cash investments
Bank certificates of deposit (‘CDBs’) (1)		421,000		523,673		123,382		17,098
Overnight (2)		125,726		370,040		3,632		47,840
Other		2,025		—		—		—

		548,751		893,713		127,014		64,938

		582,382		995,132		131,541		69,352

Bank Certificates of Deposit (Certificados de Depósito Bancário, or CBDs), are remunerated at a percentage varying from 60% to 106% at September 30, 2017 (75% to 106% at December 31, 2016) of the CDI Rate (Interbank Rate for Interbank Certificates of Deposit or ‘Certificados de Depósito Inter-bancário’ – CDIs) published by the Custody and Settlement Chamber (Câmara de Custódia e Liquidação, or Cetip). Repo transactions state, in their trading notes, the Bank’s commitment to repurchase the security, at sight, on the maturity date of the transaction, or earlier, at the client’s option.

Overnight transactions are repos available for redemption on the following day. They are usually backed by Treasury Bills, Notes or Bonds and referenced to a pre-fixed rate of 10.14% on September 30, 2017 (13.64% on December 31, 2016); their purpose is to settle obligations of the unit holders of the Fund or to be used in the purchase of other assets with better remuneration to replenish the portfolio.

The Company’s exposure to interest rate risk and an analysis of sensitivity of financial assets and liabilities are given in Note 29 to this Interim Consolidated Accounting Information.

6.	SECURITIES


R$ ’000	Consolidated				Holding company
R$ ’000
	Sep. 30, 2017		Dec. 31, 2016		Sep. 30, 2017		Dec. 31, 2016
Cash investments
Current
Bank certificates of deposit (‘CDBs’) (1)		40,139		46,011		257		4,238
Financial Notes (LFs) – Banks (2)		532,265		728,293		15,377		94,156
Treasury Financial Notes (LFTs) (3)		103,954		192,995		3,003		24,951
Debentures (4)		12,737		45,289		2,204		9,403
Other		1,896		1,600		800		611

		690,991		1,014,188		21,641		133,359
Non-current
Financial Notes – Banks		—		14,134		—		1,820
Debentures		12,123		16,906		693		4,139

		12,123		31,040		693		5,959

		703,114		1,045,228		22,334		139,318

1)	Bank Certificates of Deposit (Certificados de Depósito Bancário, or CBDs), are remunerated at a percentage, varying from 100.8% to 105.25% on September 30, 2017 (the range on December 31, 2016 was from 100.5% to 111%). of the CDI Rate.

Bank Financial Notes (Letras Financeiras, or LFs) are fixed-rate fixed-income securities, issued by banks and remunerated at a percentage of the CDI rate published by Cetip. The LFs in Cemig GT’s portfolio have a remuneration rate varying between 102% and 112% of the CDI in 2017 (104.25% to 112.7% at December 31, 2016).

3)	Treasury Financial Notes (LFTs) are fixed rate securities, the yield on which follows the daily variation of the Selic rate between the date of purchase and the date of maturity.

4)	Debentures are medium and long term debt securities, which give their holders a right of credit against the issuing company. The debentures have remuneration varying between 103% and 128% of the CDI rate in 2017 (104.25% to 113% at December 31, 2016).

Note 29 gives a classification of these securities. Cash investments in securities of related parties are shown in Note 28.

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200

7.	CONSUMERS, TRADERS AND POWER TRANSPORT CONCESSION HOLDERS


R$’000	Consolidated
R$’000	Balances not yet due		Up to 90 days past due		More than 90 days past due			Sep. 30, 2017			Dec. 31, 2016
Invoiced supply		1,447,494		675,175		800,736			2,923,405			2,568,823
Supply not yet invoiced		904,714							904,714			919,531
Other concession holders – wholesale supply		350,748		17,482		10,136			378,365			422,981
CCEE (Electricity Trading Chamber)		40,248		38,075		168			78,491			1,432
Power transport concession holders		238,710		8,519		96,430			343,659			318,723
(-) Estimated loss on doubtful receivables		—		—		(851,448	)		(851,448	)		(660,105	)

		2,981,914		739,251		56,022			3,777,186			3,571,385

Current assets									3,602,934			3,425,018
Non-current assets									174,252			146.367

The Company’s exposure to credit risk related to Consumers and traders is given in Note 29.

The allowance for estimated doubtful receivables is considered to cover any losses in the realization of these assets, and breaks down by type of consumer as follows:


R$ ’000	Sep. 30, 2017		Sep. 30, 2016
Residential		358,373		244,964
Industrial		156,151		132,586
Commercial, services and others		165,257		152,297
Rural		36,956		23,764
Public authorities		40,129		9,672
Public lighting		5,008		5,392
Public services		14,900		15,408
Charges for use of the network – TUSD		67,762		67,733
Other		6,912		8,289

		851,448		660,105

The changes in the adjustment for estimated losses on doubtful receivables in the nine-month period ended in September, 30 is as follows:


	R$ ’000
Balance on December 31, 2015		625,445

Constitution of provision		282,915
Reversals of provisions		(321,581	)

Balance at September 30, 2016		586,779

Balance at December 31, 2016		660,105

Constitution of provision		191,343

Balance at September 30, 2017		851,448

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Advance sales of power supply

Cemig made various transactions, with various clients, for advance payment for power supply. The amounts receivable for power not yet delivered are as follows:


R$ ’000	Consolidated
Balance at December 31, 2016		181,200

Addition		282,601
Supply completed		(189,355	)
Monetary updating		37,666

Balance at September 30, 2017		312,112

Current liabilities		245,367
Non-current liabilities		66,745

8.	RECOVERABLE TAXES


R$’000	Consolidated				Holding company
R$’000	Sep. 30, 2017		Dec. 31, 2016		Sep. 30, 2017		Dec. 31, 2016
Current
ICMS tax recoverable		162,624		155,306		—		—
PIS and Pasep taxes		12,484		12,480		20		—
Cofins tax		57,659		57,634		102		—
Other		14,187		10,864		—		—

		246,954		236,284		122		—
Non-current
ICMS tax recoverable		184,010		170,551		—		—
PIS and Pasep taxes		534		914		3		4
Cofins tax		2,905		4,597		11		16
Other		2,226		2,226		1,796		1,796

		189,675		178,288		1,810		1,816

		436,629		414,572		1,932		1,816

The credits of ICMS, reported in Current assets, arise from acquisitions of property, plant and equipment and intangible assets, and can be offset over 48 months.

The credits of the PIS, Pasep and Cofins taxes arise from acquisitions of property, plant and equipment and intangible assets, and can be offset immediately, according to the law 11,774/08. The transfer to Non-current was made in accordance with estimates by Management of the amounts that will be realized after September 30, 2018.

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202

9.	INCOME AND SOCIAL CONTRIBUTION TAXES

a)	Income and Social Contribution taxes recoverable

The balances of income tax and Social Contribution tax refer to tax credits in corporate income tax returns of previous years and to advance payments which will be offset against federal taxes payable yet to be calculated.


R$ ’000	Consolidated				Holding company
R$ ’000	Sep. 30, 2017		Dec. 31, 2016		Sep. 30, 2017		Dec. 31, 2016
Current
Income tax		417,368		436,167		36,846		78,174
Social Contribution tax		139,939		153,352		1,026		—

		557,307		589,519		37,872		78,174
Non-current
Income tax		49,709		98,132		49,709		98,132
Social contribution tax		13,930		13,928		13,930		13,928

		63,639		112,060		63,639		112,060

		620,946		701,579		101,511		190,234

b)	Deferred income tax and Social Contribution tax

Cemig and its subsidiaries have income tax credits, constituted at the rate of 25%, and Social Contribution tax credits, at the rate of 9%, on tax losses/carryforwards and temporary differences, as follows:


R$ ’000	Consolidated						Holding company
R$ ’000
	Sep. 30, 2017			Dec. 31, 2016			Sep. 30, 2017			Dec. 31, 2016
Deferred tax assets
Tax loss carryforwards		357,381			290,272			196,784			202,797
Provisions		1,048,698			1,027,279			499,064			547,277
Post-retirement obligations		1,239,740			1,175,074			129,862			121,973
Estimated provision for doubtful receivables		323,483			228,801			7,192			7,192
Taxes payable – suspended liability (1)		203,388			201,711			—			—
Paid concession		8,152			8,262			—			—
Other		15,637			22,096			363			190

Total		3,196,479			2,953,495			833,265			879,429

Deferred tax liabilities
Funding cost		(30,864	)		(44,835	)		—			—
Deemed cost		(277,890	)		(268,009	)		—			—
Purchase price allocation adjustments		(468,052	)		(481,488	)		(88,237	)		(90,111	)
Borrowing costs capitalized		(159,738	)		(148,559	)		—			—
Taxes on revenues not redeemed – Presumed Profit accounting method		(576	)		(1,549	)		—			—
Transmission assets: Indemnity gain		(666,143	)		(516,985	)		—			—
Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession		(264,588	)		(270,553	)		—			—
Other		(7,477	)		(6,270	)		—			—

Total		(1,875,328	)		(1,738,248	)		(88,237	)		(90,111	)

Total, net		1,321,151			1,215,247			745,028			789,318

Total assets		2,003,908			1,797,453			745,028			789,318
Total liabilities		(682,757	)		(582,206	)		—			—

(1)	Refers to court escrow deposit of PIS, Pasep and Cofins taxes charged on amounts of ICMS tax.

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The changes in deferred income and Social Contribution taxes were as follows:


R$ ’000	Consolidated			Holding company
Balance on December 31, 2015		809,232			778,120
Effects allocated to Profit and loss account		(75,940	)		85,987
Effects allocated to Statement of comprehensive income		38			—
Variations in deferred tax assets and liabilities		73			—

Balance at September 30, 2016		733,403			864,107

Balance at December 31, 2016		1,215,247			789,318
Effects allocated to Profit and loss account		101,362			(44,290	)
Variations in deferred tax assets and liabilities		4,543			—

Balance at September 30, 2017		1,321,152			745,028

c)	Reconciliation of the expense on income and Social Contribution taxes

This table reconciles the nominal expense on income tax (rate 25%) and the Social Contribution tax (rate 9%) with the actual expense, presented in the Statement of income:


R$ ’000	Consolidated						Holding company
R$ ’000
	9M17			9M16			9M17			9M16
Pre-tax profit		601,776			865,233			454,989			566,055
Income and Social Contribution taxes – nominal expense		(204,604	)		(294,179	)		(154,696	)		(192,459	)
Tax effects applicable to:
Gain (loss) in subsidiaries by equity method (net of effects of Interest on Equity)		(34,968	)		(19	)		95,207			265,726
Non-deductible contributions and donations		(2,171	)		(2,580	)		—			—
Tax incentives		4,053			3,184			66			69
Difference in taxable base amount – Presumed profit Vs. Real profit method		59,692			79,861			—			—
Non-deductible penalties		(10,077	)		(12,194	)		(11	)		(14	)
Excess reactive power and demand		(9,229	)		(9,268	)		—			—
Other		(7,290	)		10,795			1,195			1,186

Income tax and Social Contribution tax – effective credit (expense)		(204,594	)		(224,400	)		(58,239	)		74,508

Effective rate		34.00%			25.94%			12.80%			13.16%
Current tax		(305,956	)		(148,460	)		(13,949	)		(11,480	)
Deferred tax		101,362			(75,940	)		(44,290	)		85,988


R$ ’000	Consolidated						Holding company
R$ ’000
	3Q17			3Q16			3Q17			3Q16
Pre-tax profit		(93,000	)		568,536			(19,237	)		485,674
Income and Social Contribution taxes – nominal expense		31,620			(193,302	)		6,541			(165,129	)
Tax effects applicable to:
Gain (loss) in subsidiaries by equity method (net of effects of Interest on Equity)		(44,064	)		9,832			(71,617	)		112,486
Non-deductible contributions and donations		(659	)		(776	)		—			—
Tax incentives		(2,035	)		2,075			23			19
Tax credits not recognized		—			1,586			—			66
Difference in taxable base amount – Presumed profit Vs. Real profit method		20,873			45,575			—			—
Non-deductible penalties		(1,672	)		(4,612	)		—			—
Excess reactive power and demand		(3,117	)		(3,111	)		—			—
Other		8,388			7,699			462			281

Income tax and Social Contribution tax – effective credit (expense)		9,334			(135,034	)		(64,591	)		(52,277	)

Effective rate		10.04%			23.75%			335.77%			10.76%
Current tax		(13,234	)		(69,593	)		(11,416	)		757
Deferred tax		22,568			(65,441	)		(53,175	)		(53,034	)

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204

10.

RESTRICTED CASH

The total recorded as Restricted cash, R$ 405,494 in the Consolidated accounts and R$ 396,038 in the Holding company accounts, refers mainly to the amount deposited with Banco Santander, in accordance with the stockholders’ agreement of RME and Lepsa, as guarantee for settlement of the put options, described in Note 15. The contract for the account with the depositary bank is in effect until December 15, 2017.

11.

ACCOUNTS RECEIVABLE FROM THE STATE OF MINAS GERAIS

According to the disclosure on note 23, An agreement was reached between Cemig’s management and the government of the State of Minas Gerais in the third quarter, expressed in a Debt Recognition Undertaking signed on October 25, 2017 between Cemig and the Finance Department of Minas Gerais State, in which the State undertook to reimburse the total amount of a deposit made by Cemig, with monetary updating by the IGP–M index related to the administrative proceeding related to the criterium to update the amounts transferred to the State of Minas Gerais Government as advance for capital increase in previous years.

The Debt Recognition Undertaking specified that the State will make payment of R$ 277,723, of which R$ 238,445 refers to the original amount of the deposit, and R$ 38,278 relates to its monetary updating to September 30, 2017 – this amount will be returned to the Company by the State in 12 consecutive monthly installments, each updated by the IGP–M index up to the date of actual payment, the first such payment to become due on November 10, 2017. Also, Clause 3 of this Undertaking specifies that, In the event of arrears or default by the State in payment of the agreed consecutive monthly installments, Cemig is authorized to retain dividends or Interest on Equity distributable to the State in proportion to the State’s equity interest, for as long as the arrears and/or default continues.

12.

ESCROW DEPOSITS

These payments are mainly for legal actions relating to employment-law contingencies and tax obligations.

The most important escrow deposits refer to tax disputes, mainly on the Pasep and Cofins taxes – in actions seeking exclude the ICMS tax itself from the taxable amount on which the Pasep and Cofins taxes are charged.


R$ ’000	Consolidated				Holding company
R$ ’000	Sep. 30, 2017		Dec. 31, 2016		Sep. 30, 2017		Dec. 31, 2016
Employment-law cases		320,950		259,415		38,483		31,231
Tax issues
Income tax on Interest on Equity		26,601		24,130		238		510
Pasep and Cofins taxes (1)		750,839		746,340		—		—
ICMS credits on PP&E		37,249		36,657		—		—
Donations and legacy tax (ITCD)		48,365		45,620		47,926		45,181
Urban property tax (IPTU)		64,498		80,345		53,602		65,694
Finsocial tax		39,083		37,399		39,083		37,399
Income and Social Contr. Tax on the indemnity for employees’ ‘Anuênio’ benefit		265,178		255,127		12,745		12,262
Other		80,895		59,247		30,975		28,702

		1,312,708		1,284,865		184,569		189,748
Other
Monetary updating on AFAC from Minas Gerais State Government (2)		239,445		239,445		239,445		239,445
Regulatory		51,614		60,227		29,237		27,374
Third party		14,149		13,484		5,979		6,015
Consumer relations		5,975		5,598		1,561		1,548
Court embargo		12,348		7,877		4,071		3,118
Other		25,316		15,968		1,343		1,389

		109,402		342,599		42,191		278,889

		1,743,060		1,886,879		265,243		499,868

(1)

The payments into court relating to Pasep and Cofins taxes refer to the case challenging the constitutionality of inclusion of the ICMS tax, which has been charged, within the amount on which the Pasep and Cofins taxes are calculated. They have a corresponding provision in Taxes. See more details in Note 18.

(2)

(3)	See more details in Note 22 – Provisions on ‘Anuênio’ indemnity.

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205

13.

REIMBURSEMENT OF TARIFF SUBSIDIES

The subsidies applicable to tariffs charged to users of public electricity distribution service are reimbursed through payments of funds from the Energy Development Account (Conta de Desenvolvimento Energético, or CDE).

In 9M17 the total appropriated as incoming subsidies was R$ 621,731 (R$ 600,356 in 9M16). Of the amount provisioned, the Company has R$ 73,345 receivable (R$ 63,751 at December 31, 2016). This is recognized in Current assets.

14.

FINANCIAL ASSETS AND LIABILITIES OF THE CONCESSION


Consolidated	Sep. 30, 2017		Dec. 31, 2016
Assets related to infrastructure (1)
Distribution concessions		271,612		216,107
Transmission concessions (1.2)		473,374		482,281
Indemnity receivable – Transmission (1.1)		1,975,775		1,805,230
Indemnity receivable – Generation (1.3)		1,685,958		546,624
Concession Grant Fee – Generation concessions (1.4)		2,321,817		2,253,765

		6,728,536		5,304,007

CVA (Compensation of Portion A items) Account and Other Financial Components in tariff adjustments (2)		100,457		397,725

Total		6,828,993		5,701,732

Current assets		665,674		730,488
Non-current assets		6,163,319		4,971,244


Financial liabilities of the concession	Sep. 30, 2017		Dec. 31, 2016
CVA (Compensation of Portion A items) Account and Other Financial Components in tariff adjustments (2)		704,418		804,975
Current liabilities		704,418		481,835
Non-current liabilities		—		323,140

1) Assets related to infrastructure

The electricity distribution and transmission contracts and the gas distribution contracts of the subsidies are within the criteria for application of Technical Interpretation ICPC 01 (IFRIC 12), which governs accounting of concessions. They refer to the investment made in infrastructure that will be the subject of indemnity by the Concession-granting power, during the period and at the end of the concessions, as specified in the regulations of the electricity sector and in the concession contracts signed by Cemig and its subsidiaries with the related concession-granting powers.

1) Transmission – Indemnity receivable

Aneel Normative Resolution 589, of December 10, 2013, set the criteria for calculation of the New Replacement Value (Valor Novo de Reposição, or VNR) of the transmission facilities, for the purposes of indemnity.

On August 16, 2016 Aneel, by its Dispatch 2181, homologated the amount of R$ 892,050, in currency of November 2012, for the portion of the reversible assets not yet amortized, for the purposes of indemnity to Cemig GT.

On April 22, 2016 the Mining and Energy Ministry (Ministério de Minas e Energia, or MME) published its Ministerial Order 120, setting the deadline and method of payment for the remaining amount of the indemnity.

The Order determined that the amounts homologated by Aneel should become part of the Regulatory Asset Base for Remuneration (Base de Remuneração Regulatória, or BRR) and that the cost of capital should be added to the related Permitted Annual Revenues (‘RAP’).

The portions of remuneration and depreciation not paid in the period from the extensions of the concessions up to the tariff-setting process of 2017 are to be updated by the IPCA inflation index and remunerated at the real cost of capital of the transmission segment of the industry as decided by Aneel in the methodologies for Periodic Tariff Reviews of Revenues for Existing Concession Holders, currently 10.44% per year, to be paid over eight years by reimbursement through the RAP. (More details in Note 25 (g).)

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Indemnity for transmission assets – adjustment to Remuneration Base of the transmission assets – Aneel Technical Note 183/2017

In the tariff review processes of Cemig GT, ratified on June 23, 2009 (backdated to July 1, 2005) and June 8, 2010 (backdated to July 1, 2009), certain conducting cables, which have been the subject of an application by the subsidiary, were not included in the tariff calculation. Cemig GT applied for inclusion of these assets in the Remuneration Assets Base and, consequently, for backdated calculation of the amounts not considered in the prior tariff reviews.

Aneel ruled in favor of Cemig GT’s application, and calculated the differences between the amounts of revenue ratified in the above-mentioned tariff reviews and the new values calculated for inclusion of the said conducting cables for the period from July 2005 to December 2012. Updated, these amounts were calculated to total R$ 149,255, at June 2017 prices, to be received by Cemig GT over the next 12 months. On September 30, 2017 the balance receivable was R$ 111,941.

Indemnity for transmission assets – Injunction obtained by industrial consumers:

On April 10, 2017, an interim court remedy was granted to the Brazilian Large-scale Free Consumers Association (Associação Brasileira de Grandes Consumidores Livres), the Brazilian Auto Glass Industry Technical Association (Associação Técnica Brasileira das Indústrias Automáticas de Vidro) and the Brazilian Ferro-alloys and Silicon Metal Producers’ Association (Associação Brasileira dos Produtores de Ferroligas e de Silicio Metálico) in their legal action against Aneel and the federal government requesting suspension of the effects on their tariffs of payment of the indemnity for transmission assets payable to agents of the electricity sector who accepted the terms of Law 12783/2013.

The preventive remedy was partial, with effects related to suspension of the inclusion in the consumer tariffs paid by these associations of the portion of the indemnity corresponding to the remuneration on capital included since the date of extension of the concessions.

Cemig GT has the expectation of realization in full of the credits receivable in relation to the transmission indemnity, and has calculated the following amounts as indemnity:


	R$ ’000
Regulatory Remuneration Base (BRR) – Dispatch 2181/2016		1,177,488
Amount of the indemnity received so far		(285,438	)

Net value of the assets for purposes of indemnity		892,050

Updating in accordance with MME Order 120/16 – IPCA index / Cost of capital – Period Jan. 2013 to June 2017.		1,033,780
Adjustment of the BRR of Transmission Assets – Aneel Technical Note 183/2017		149,255
Monetary updating		25,894
Amounts received		(125,204	)

Total at September 30, 2017		1,975,775

Normative Resolution 762, of February 21, 2017, set the procedures and criteria to be used in the calculation of the cost of capital to be added to the Permitted Annual Revenue of each transmission concession holder covered by Law 12783/2013, in harmony with Mining and Energy Ministry Order 120/2016. Under this legislation, Cemig GT began to receive this indemnity as from July, 2017.

1.2) Transmission – Assets remunerated by tariff

For new assets that consist of improvements and strengthening of facilities implemented by transmission concession holders, Aneel calculates an additional portion of Permitted Annual Revenue (RAP) in accordance with a methodology specified in the Proret Tariff Regulation Procedures.

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1.3) Generation – Indemnity receivable

Plants operated under the ‘Quotas’ regime as from January 1, 2016

In July 2015 termination dates for concession periods, under Concession Contract 007/97, of several of the plants operated by the subsidiary Cemig GT were reached. As from the termination of the concession, the subsidiary held the indemnity rights of the assets not yet depreciated/amortized, as specified in that concession contract. The accounting balances corresponding to these assets, including the Deemed Cost, were transferred from Fixed assets to Financial assets on the date of termination of the concession, and total R$ 616,876 on September 30, 2017 (R$ 546,624 on September 30, 2017).


Generating plant	Concession expiration date		Installed capacity (MW)		Net balance of assets based on historic cost R$ ’000		Net balance of assets based on deemed cost R$ ’000
Lot D:
Três Marias Hydroelectric Plant		July 2015		396		71,694		413,450
Salto Grande Hydroelectric Plant		July 2015		102		10,835		39,379
Itutinga Hydroelectric Plant		July 2015		52		3,671		6,589
Camargos Hydroelectric Plant		July 2015		46		7,818		23,095
Piau Small Hydroelectric Plant		July 2015		18.01		1,531		9,005
Gafanhoto Small Hydroelectric Plant		July 2015		14		1,232		10,262
Peti Small Hydroelectric Plant		July 2015		9.4		1,346		7,871
Dona Rita Small Hydroelectric Plant		Sep. 2013		2.41		534		534
Tronqueiras Small Hydroelectric Plant		July 2015		8.5		1,908		12,323
Joasal Small Hydroelectric Plant		July 2015		8.4		1,379		7,622
Martins Small Hydroelectric Plant		July 2015		7.7		2,132		4,041
Cajuru Small Hydroelectric Plant		July 2015		7.2		3,576		4,252
Paciência Small Hydroelectric Plant		July 2015		4.08		728		3,936
Marmelos Small Hydroelectric Plant		July 2015		4		616		4,265
Other:
Volta Grande		February 2017		380		25,621		70,252

				1.060		134,621		616,876

As specified in Aneel Normative Resolution 615/2014, the Valuation Opinions for the assets to be indemnified were delivered to Aneel in December 2015, including the Opinion for the Volta Grande Plant, which had a concession period expiring on February 23, 2017. The Company and its subsidiary do not expect any losses on the realization of this asset.

From the termination of the concession contract until January 4, 2016, the plants were operated by the Company under the regime of quotas, with remuneration by a tariff only to cover costs of operation and maintenance of the assets.

In November 2015 Cemig GT took place in Auction 12/2015, and won Lot D. As from January 5, 2016, with the signature of the new concession contracts, the assets began to be operated in accordance with the terms of that Auction.

As mentioned in Note 4, on September 27, 2017 the Volta Grande Hydroelectric Plant was auctioned by the federal government. The transfer of the operational assets of the plant may not take place later than 180 days from the date of signature of the new concession contracts.

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208

1.4) Concession grant fee – Generation concessions

In June 2016, title to Concession Contracts 08 to 16/2016, relating to 18 hydroelectric plants of Lot D of Aneel Auction 12/2015, won by Cemig GT, was transferred to the related specific-purpose companies (SPCs), wholly-owned subsidiaries of Cemig GT, as follows:


R$ ’000	Plant	Balance at Dec. 31, 2016		Monetary updating		Amounts received			Balance at Sep. 30, 2017
Cemig Geração Três Marias S.A.	Três Marias		1,283,197		129,986		(92,612	)		1,320,571
Cemig Geração Salto Grande S.A.	Salto Grande		402,639		40,973		(29,207	)		414,405
Cemig Geração Itutinga S.A.	Itutinga		149,904		17,193		(12,418	)		154,679
Cemig Geração Camargos S.A.	Camargos		112,447		12,809		(9,244	)		116,012
Cemig Geração Sul S.A.	Coronel Domiciano, Joasal, Marmelos, Paciência, Piau		146,553		17,884		(13,007	)		151,430
Cemig Geração Leste S.A.	Dona Rita, Ervália, Neblina, Peti, Sinceridade, Tronqueiras		99,315		13,424		(9,876	)		102,863
Cemig Geração Oeste S.A.	Cajurú, Gafanhoto, Martins		59,710		8,151		(6,004	)		61,857

Total			2,253,765		240,420		(172,368	)		2,321,817

Cemig’s offer for acquisition of grant of the 30-year concession for the 18 hydroelectric plants was R$ 2,216,353. Of this fee, 65% was paid on January 4, 2016, and the remaining 35% (initially R$ 775,724) was paid on July 1, 2016 (updated by the Selic rate to a total payment of R$ 827,921). The amount of the concession grant fee was recognized as a financial asset, due to Cemig GT having the unconditional right to receive the amount paid, plus updating by the IPCA Index and remuneratory interest, during the period of the concession.

In 2016, all of the output of the plants was sold in the Regulated Market under the Physical Guarantee Quotas system. Starting in 2017, the second phase of the contract came into effect: 70% of this output was sold in the Regulated Market and 30% in the Free Market.

The Miranda and São Simão plants

On August 3, 2017, the Mining and Energy Ministry published Ministerial Order 291, setting the amounts of indemnity for the São Simão and Miranda Hydroelectric Plants, the concessions of which had expiry dates in January 2015 and December 2016 respectively.

The Order specifies that the payment shall be made by December 31, 2018, after receipt by the federal government, from the auction concession winners, of the payment of the Concession Grant Fee, resulting from the competitive tender for the concessions. The amount of the indemnity will be updated by the IPCA index (Expanded Consumer Price) index, up to the date of the signature of the Concession Contract by the party that won the tender for the concession of the Plants, and also by the Selic Reference Rate for Federal securities, as from the date of signature of the Concession Contract up to the date of actual payment of the indemnity.

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The amounts of the Basic Plan of the plants were transferred to the account Indemnity receivable, and subjected to monetary updating, as follows:


Plant	Concession termination date		Net balance of assets based on Historic Cost at September 30, 2017		Net value of assets based on Deemed Cost at September 30, 2017		Net value of the assets of the Basic Plan based on Deemed Cost at September 30, 2017 (A)		Adjustment (1) (B)		Amounts based on MME Order 291 (A)+(B)		Monetary updating (C)		Net balance of the assets of the Basic Plan at Sep. 30, 2017 (A)+(B)+(C)
Miranda		Dec. 2016		750,836		629,368		606,822		177,330		784,152		13,978		798,130
São Simão		Jan. 2015		61,959		205,987		202,744		40,855		243,599		27,353		270,952

				812,795		835,355		809,566		218,185		1,027,751		41,331		1,069,082

(1)	Adjustment of the non-amortized balance of the concessions of the São Simão and Miranda plants, under MME Order 291/17, that plus the monetary updating of R$41,331 correspond to the total amount of R$259.516 .

Cemig GT Is holding talks with the Mining and Energy Ministry, on the criteria used for the decision on the amounts stated in Ministerial Order 291/17, and also the fact that this Order did not take into consideration the as yet non-amortized balance of the Jaguara Plant in the amount of R$ 169,822, and the balances of investments carried out to the São Simão and Miranda Plants after their coming into operation, in the amounts (before monetary updating) of R$ 3,243 and R$ 22,546, respectively.

The changes in Financial assets of the concession related to infrastructure are as follows:


R$’000	Distribution			Transmission			Generation			Consolidated
Balance on December 31, 2015		135,983			1,501,441			546,424			2,183,848
Additions		—			36,405			534			36,939
Addition of Grant Fee – Plants		—			—			2,255,027			2,255,027
Written off		(291	)		—			—			(291	)
Amounts received		—			(11,327	)		(105,642	)		(116,969	)
Transfer between Financial Assets, PP&E and Intangible		57,650			(426	)		—			57,224
Updating of the Concession Grant Fee								96,911			6,638
Adjustment of expectation of cash flow from the indemnifiable Financial assets of the concession		6,638			—						96,911
Monetary updating					692,211			—			698,849

Balance at September 30, 2016		199,980			2,218,304			2,793,254			5,211,538


Balance at December 31, 2016		216,107			2,287,511			2,800,389			5,304,007
Additions		—			160,481			—			160,481
Write-offs		(25	)		(3,232	)		—			(3,257	)
Items received		—			(142,105	)		(172,368	)		(314,473	)
Transfer to Financial assets of concession – Indemnity on non-renewed plant – Volta Grande hydroelectric plant		—			—			879,818			879,818
Adjustment to indemnity – plants not renewed (M. Order 291) – including the monetary updating								259,516			259,516
Transfer between Financial, PPE and Intangible assets		53,252			—			—			53,252
Adjustment of expectation of cash flow from the indemnifiable Financial assets of the concession		2,278									2,278
Monetary updating		—			146,494			240,420			386,914
Balance at September 30, 2017		271,612			2,449,149			4,007,775			6,728,536

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210

2)	*CVA (Compensation of Portion A items) Account and* *Other Financial Components* in tariff adjustments

The balances on (i) the CVA Account (Compensation for Variation of Portion A items), (ii) the account for Neutrality of Sector Charges, and (iii) Other financial components in the tariff calculation, refer to the positive and negative differences between the estimate of the Cemig D’s non-manageable costs and the payments actually made. The variations found are the subject of monetary updating based on the Selic rate and compensated in the subsequent tariff adjustments.

The balances of these financial assets and liabilities are shown below. Please note that in the interim accounting information the balances of each line are presented at net value in assets or liabilities in accordance with the tariff adjustments homologated or to be homologated:


STATEMENT OF FINANCIAL POSITION R$ ’000	Sep. 30, 2017									Dec. 31, 2016
STATEMENT OF FINANCIAL POSITION R$ ’000	Amounts ratified by Aneel in the last tariff adjustment			Amounts to be ratified by Aneel in the next tariff adjustments			Total			Amounts ratified by Aneel in the last tariff adjustment			Amounts to be ratified by Aneel in the next tariff adjustments			Total
Assets		685,966			1,376,925			2,062,891			1,443,964			924,914			2,368,878
Current assets		685,966			466,625			1,152,591			1,443,964			547,241			1,991,205
Non-current assets					910,300			910,300			—			377,673			377,673

Liabilities		(1,339,692	)		(1,327,160	)		(2,666,852	)		(1,046,239	)		(1,729,889	)		(2,776,128	)
Current liabilities		(1,339,692	)		(517,317	)		(1,857,009	)		(1,046,239	)		(1,029,076	)		(2,075,315	)
Non-current liabilities					(809,843	)		(809,843	)					(700,813	)		(700,813	)


Total current, net		(653,726	)		(50,692	)		(704,418	)		397,725			(481,835	)		(84,110	)

Total non-current, net					100,457			100,457			—			(323,140	)		(323,140	)

Total, net		(653,726	)		49,765			(603,961	)		397,725			(804,975	)		(407,250	)

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211


Financial components R$ ’000	Sep. 30, 2017									Dec. 31, 2016
Financial components R$ ’000	Amounts ratified by Aneel in the last tariff adjustment			Amounts to be ratified by Aneel in the next tariff adjustments			Total			Amounts ratified by Aneel in the last tariff adjustment			Amounts to be ratified by Aneel in the next tariff adjustments			Total
Items of ‘Portion A’
Quota for the Energy Development Account (CDE)		(245,409	)		(87,471	)		(332,880	)		202,801			(244,840	)		(42,039	)
Tariff for use of transmission facilities of grid participants		13,963			(10,784	)		3,179			1,923			8,103			10,026
Tariff for transport of electricity provided by Itaipu		3,560			(3,070	)		490			5,254			3,926			9,180
Program to encourage alternative electricity sources – Proinfa		(8,178	)		—			(8,178	)		13,080			4,247			17,327
System Service Charges (ESS) and Reserve Energy Charge (EER)		(64,501	)		(438,468	)		(502,969	)		(54,989	)		(189,063	)		(244,052	)
Electricity bought for resale (1)		(138,684	)		671,226			532,542			422,852			(78,922	)		343,930
Other financial components
Overcontracting of supply		13,372			(49,569	)		(36,197	)		(104,671	)		(55,834	)		(160,505	)
Neutrality of Portion A		(48,929	)		70,089			21,160			78,254			(76,367	)		1,887
Other financial items		(178,920	)		—			(178,920	)		(166,779	)		(162,614	)		(329,393	)
‘Flag Tariff’ items (2)					(80,986	)		(80,986	)		—			(13,611	)		(13,611	)
Excess demand /reactive power (3)		—			(21,202	)		(21,202	)		—			—			—

TOTAL		(653,726	)		49,765			(603,961	)		397,725			(804,975	)		(407,250	)

(1)

Due to unfavorable hydrological conditions since July 2017, there has been less hydroelectric generation and more dispatching of thermal plants, increasing the spot price (PLD), and affecting the level of reduction of the physical power offtake guarantee of the hydroelectric plants. For the distributors, this results in higher costs of CCEAR contracts, with thermal plants, and higher hydrological risk costs for the Itaipu plant, for those that trade power supply under Physical Guarantee Quotas, and for those that sold CCEARs and renegotiated the Hydrological Risk. In view of these factors, the difference from the cost taken into account in setting the tariff if greater, resulting in an increase in the deferred asset related to purchase of power supply on September 30,2017.

(2)	Billing arising from the Flag Tariff System in Cemig D not yet homologated by Aneel.

(3)	In accordance with PRORET 2.1A, from this point onward amounts of excess of demand and excess of reactive power were appropriated to sector financial liabilities, and will be amortized only at the time of homologation of the 5th periodic tariff review cycle of Cemig D.

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212

Movement in balances of financial assets and liabilities:


	R$ ’000
Balance on December 31, 2015		1,349,656
(–) Net constitution of financial assets		(572,483	)
(–) Realized		(364,570	)
(–) Payments from the Tariff Flag Funds Centralizing Account		(341,259	)
(–) Transfer (1)		(164,957	)
(+) Updating – Selic rate (2)		206,967

Net liabilities on September 30, 2016		113,354

Balance at December 31, 2016		(407,250	)
(+) Net constitution of financial assets		222,233
(–) Realized		(74,017	)
(–) Payments from the Flag Tariff Centralizing Account		(304,841	)
(+) Updating – Selic rate		(40,086	)

Net liabilities on September 30, 2014		(603,961	)

(1)

The financial component constituted to be passed through to the tariff at the next tariff adjustment, arising from judgments (injunctions/provisional remedy) in court actions challenging part of the amount of the CDE (Energy Development Account) charge, was reclassified to Other credits, and will be amortized with counterpart in deductions from the monthly CDE charges to be paid to Eletrobras, in accordance with a Dispatch issued by Aneel in 2016.

(2)	Includes adjustment for homologation of the CVA by Aneel which took place in May 2016.

Payments from the Flag Tariff Funds Centralizing Account

The ‘Flag Account’ (Conta Centralizadora de Recursos de Bandeiras Tarifárias – CCRBT or ‘Conta Bandeira’) manages the funds that are collected from captive customers of distribution concession and permission holders operating in the national grid and have been paid, on behalf of the CDE, directly to the Flag Account. The resulting funds are passed through by the Wholesale Trading Chamber (CCEE) to distribution agents, based on the differences between (i) realized costs of thermal generation and exposure to short-term market prices, and (ii) the amounts covered by the tariff.

In 9M17 funds passed through by the Flag Account totaled R$ 304,841 (R$ 341,259 in 9M16), and were recognized as a partial realization of CVA receivables constituted.

The amount referred to above includes the receipt of the ‘Flag’ tariff amounts for December 2016, totalling R$ 2,406, which was posted in sector Financial liabilities only in January 2017 when approved by Aneel. The remaining balance of R$ 302,435 refers to the periods of January through August 2017.

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213

15.

INVESTMENTS

This table shows the investments in affiliates, subsidiaries and jointly-controlled subsidiaries.


Investments	Control	Consolidated					Holding company
Investments	Control	Sep. 30, 2017		Dec. 31, 2016			Sep. 30, 2017		Dec. 31, 2016
Cemig Geração e Transmissão	Subsidiarie		—		—			5,161,385		4,583,195
Hidrelétrica Cachoeirão	Jointly-controlled		56,720		50,411			—		—
Guanhães Energia	Jointly-controlled		25,172		—			—		—
Hidrelétrica Pipoca	Jointly-controlled		33,753		31,809			—		—
Retiro Baixo	Jointly-controlled		159,126		161,848			—		—
Aliança Norte (Belo Monte Plant)	Jointly-controlled		567,829		527,498			—		—
Madeira Energia (Santo Antônio Plant)	affiliate		559,337		643,890			—		—
FIP Melbourne (Santo Antônio Plant)	affiliate		603,973		677,182			—		—
Lightger	Jointly-controlled		41,254		41,543			—		—
Baguari Energia	Jointly-controlled		145,719		162,106			—		—
Renova	Jointly-controlled		622,725		688,625			—		—
Aliança Geração	Jointly-controlled		1,307,456		1,319,055			—		—
Central Eólica Praias de Parajuru	Jointly-controlled		61,608		63,307			—		—
Central Eólica Volta do Rio	Jointly-controlled		75,789		81,228			—		—
Central Eólica Praias de Morgado	Jointly-controlled		55,595		59,586			—		—
Amazônia Energia (Belo Monte Plant)	Jointly-controlled		850,743		781,022			—		—
Usina Hidrelétrica Itaocara S.A.	Jointly-controlled		2,733		2,782			—		—
Cemig Distribuição	Subsidiarie		—		—			1,961,175		2,499,867
Light	Jointly-controlled		1,068,712		1,070,477			1,068,712		1,070,477
Taesa	Jointly-controlled		1,576,156		1,582,633			1,576,156		1,582,633
CemigTelecom	Subsidiarie		—		—			190,823		191,515
Ativas Data Center	affiliate		17,794		17,741			—		—
Gasmig	Subsidiarie		—		—			1,410,047		1,419,492
Rosal Energia	Subsidiarie		—		—			102,163		141,038
Sá Carvalho	Subsidiarie		—		—			106,840		106,111
Horizontes Energia	Subsidiarie		—		—			55,714		52,396
Usina Térmica Ipatinga	Subsidiarie		—		—			3,928		4,009
Cemig PCH	Subsidiarie		—		—			95,708		91,969
Lepsa	Jointly-controlled		342,033		343,802			342,033		343,802
RME	Jointly-controlled		338,249		340,063			338,249		340,063
Companhia Transleste de Transmissão	Jointly-controlled		24,394		21,588			24,394		21,588
UTE Barreiro	Subsidiarie		—		—			37,790		39,266
Companhia Transudeste de Transmissão	Jointly-controlled		23,600		20,505			23,600		20,505
Empresa de Comercialização de Energia Elétrica	Jointly-controlled		—		—			9,386		20,154
Companhia Transirapé de Transmissão	Jointly-controlled		27,567		23,952			27,567		23,952
Efficientia	Subsidiarie		—		—			7,001		4,868
Cemig Comercializadora de Energia Incentivada	Subsidiarie		—		—			2,342		1,867
Companhia de Transmissão Centroeste de Minas	Jointly-controlled		19,355		21,171			19,355		21,171
Cemig Trading	Subsidiarie		—		—			14,953		28,635
Axxiom Soluções Tecnológicas	Jointly-controlled		12,734		19,264			12,734		19,264
Cemig Overseas (*)	Subsidiarie		—		—			141		20

Total of investments			8,620,126		8,753,088			12,605,561		12,627,857

Guanhães – Uncovered liabilities of jointly-controlled entity	Jointly-controlled		—		(59,071	)		—		—

Total			8,620,126		8,694,017			12,605,561		12,627,857

(*)	Cemig Overseas: company formed in Spain for assessment of investment opportunities outside Brazil. As of September 30, 2017, it has no operations.

The Company’s investees that are not consolidated are jointly-controlled entities, with the exception of the interest in the Santo Antônio power plant, and Ativas Data Center, which are affiliated companies in which the Company has significant influence: the subsidiaries Cemig GT and Cemig Telecom, respectively. It was as from the fourth quarter of 2016 that Ativas Data Center became an investee in which Cemig has significant influence.

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214

a)	Right to commercial operation of the regulated activity


Holding company R$ ’000	Dec. 31, 2015		Amortization			Sep. 30, 2016		Dec. 31, 2016		Amortization			Sep. 30, 2017
Renova (1)		805,458		(32,076	)		773,382		—		—			—
Retiro Baixo		30,706		(888	)		29,818		29,525		(888	)		28,637
Central Eólica Praias de Parajuru		20,868		(1,146	)		19,722		19,341		(1,146	)		18,195
Central Eólica Volta do Rio		14,818		(756	)		14,062		13,807		(756	)		13,051
Central Eólica Praias de Morgado		29,461		(1,542	)		27,919		27,406		(1,542	)		25,864
Madeira Energia (Santo Antônio Plant)		163,296		(4,467	)		158,829		157,340		(4,467	)		152,873
Aliança Norte (Belo Monte Plant)		58,489		(1,479	)		57,010		56,518		(1,479	)		55,039

Total, Cemig GT		1,123,096		(42,354	)		1,080,742		303,937		(10,278	)		293,659

Taesa		414,774		(13,982	)		400,792		288,146		(10,170	)		277,976
Light		231,163		(16,772	)		214,391		208,800		(16,772	)		192,028
Gasmig		215,410		(5,934	)		209,476		207,498		(5,934	)		201,564
Lepsa		—		—			—		48,429		(3,798	)		44,631
RME		—		—			—		48,429		(3,798	)		44,631

OVERALL TOTAL		1,984,443		(79,042	)		1,905,401		1,105,239		(50,750	)		1,054,489

(1)	At December 31, 2016 there was a downward adjustment of Intangible assets of the concession as a result of the financial difficulties of Renova.


Consolidated R$ ’000	Dec. 31, 2015		Amortization			Sep. 30, 2016		Dec. 31, 2016		Amortization			Sep. 30, 2017
Taesa		414,774		(13,982	)		400,792		288,146		(10,170	)		277,976
Light		231,163		(16,772	)		214,391		208,800		(16,772	)		192,028
Gasmig		215,410		(5,934	)		209,476		207,498		(5,934	)		201,564
Lepsa		—		—			—		48,429		(3,798	)		44,631
RME		—		—			—		48,429		(3,798	)		44,631

TOTAL		861,347		(36,688	)		824,659		801,302		(40,472	)		760,830

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b)	This table shows changes in investments in subsidiaries and jointly-controlled subsidiaries:


Holding company R$ ’000	Dec. 31, 2016		Equity method gain (Profit and loss account)			Equity method gain (Other comprehensive income)			Dividends			Injections / AFAC		Other			Sep. 30, 2017
Cemig Geração e Transmissão		4,583,195		525,407			(33,852	)		—			100,000		—			5,174,750
Cemig Distribuição		2,499,867		(538,692	)		—			—			—		—			1,961,175
CemigTelecom		191,515		(12	)		(680	)		—			—		—			190,823
Rosal Energia		141,038		(7,907	)		—			(30,968	)		—		—			102,163
Sá Carvalho		106,111		19,360			—			(18,631	)		—		—			106,840
Gasmig		1,419,492		88,634			—			(98,079	)		—		—			1,410,047
Horizontes Energia		52,396		11,136			—			(7,818	)		—		—			55,714
Usina Térmica Ipatinga		4,009		254			—			(335	)		—		—			3,928
Cemig PCH		91,969		13,804			—			(10,065	)		—		—			95,708
Lepsa		343,802		234			(1,876	)		—			—		(127	)		342,033
RME		340,063		128			(1,815	)		—			—		(127	)		338,249
Companhia Transleste de Transmissão		21,588		4,071			—			(1,265	)		—		—			24,394
UTE Barreiro		39,266		(2,400	)		—			924			—		—			37,790
Companhia Transudeste de Transmissão		20,505		3,095			—			—			—		—			23,600
Empresa de Comercialização de Energia Elétrica		20,154		26,679			—			(37,447	)		—		—			9,386
Companhia Transirapé de Transmissão		23,952		3,615			—			—			—		—			27,567
Efficientia		4,868		3,304			—			(1,171	)		—		—			7,001
Cemig Comercializadora de Energia Incentivada		1,867		559			—			(84	)		—		—			2,342
Companhia de Transmissão Centroeste de Minas		21,171		3,828			—			(5,644	)		—		—			19,355
Light		1,070,477		3,677			(5,442	)		—			—		—			1,068,712
Cemig Trading		28,635		41,873			—			(55,555	)		—		—			14,953
Axxiom Soluções Tecnológicas		19,264		(6,530	)		—			—			—		—			12,734
Taesa		1,582,633		126,862			—			(133,339	)		—		—			1,576,156
Cemig Overseas		20		—			—			—			121		—			141

		12,627,857		320,979			(43,665	)		(399,477	)		100,121		(254	)		12,605,561

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216


Consolidated R$ ’000	Dec. 31, 2016			Equity method gain (Profit and loss account)			Equity method gain (Other comprehensive income)			Dividends			Injections / acquisitions		Other			Sep. 30, 2017
Companhia Transleste de Transmissão		21,588			4,071			—			(1,265	)		—		—			24,394
Companhia Transudeste de Transmissão		20,505			3,095			—			—			—		—			23,600
Companhia Transirapé de Transmissão		23,952			3,615			—			—			—		—			27,567
Companhia de Transmissão Centroeste de Minas		21,171			3,828			—			(5,644	)		—		—			19,355
Light		1,070,477			3,677			(5,442	)		—			—		—			1,068,712
Axxiom Soluções Tecnológicas		19,264			(6,530	)		—			—			—		—			12,734
Lepsa		343,802			234			(1,876	)		—			—		(127	)		342,033
RME		340,063			128			(1,815	)		—			—		(127	)		338,249
Hidrelétrica Cachoeirão		50,411			8,950			—			(2,641	)		—		—			56,720
Guanhães Energia (1)		—			(2,037	)		—			—			86,280		(59,071	)		25,172
Hidrelétrica Pipoca		31,809			3,228			—			(1,284	)		—		—			33,753
Madeira Energia (Santo Antônio Plant)		643,890			(84,553	)		—			—			—		—			559,337
FIP Melbourne (Santo Antônio Plant)		677,182			(73,209	)		—			—			—		—			603,973
Lightger		41,543			2,280			—			(2,569	)		—		—			41,254
Baguari Energia		162,106			13,887			—			(30,274	)		—		—			145,719
Central Eólica Praias de Parajuru		63,307			(1,293	)		—			(406	)		—		—			61,608
Central Eólica Volta do Rio		81,228			(5,439	)		—			—			—		—			75,789
Central Eólica Praias de Morgado		59,586			(3,991	)		—			—			—		—			55,595
Amazônia Energia (Belo Monte Plant)		781,022			(6,965	)		—			—			76,686		—			850,743
Ativas Data Center		17,741			(1,950	)		—			—			—		2,003			17,794
Taesa		1,582,633			126,862			—			(133,339	)		—		—			1,576,156
Renova		688,625			(50,048	)		(33,852	)		—			18,000		—			622,725
Usina Hidrelétrica Itaocara S.A.		2,782			(581	)		—			—			532		—			2,733
Aliança Geração		1,319,055			39,977			—			(51,576	)		—		—			1,307,456
Aliança Norte (Belo Monte Plant)		527,498			(6,376	)		—			—			46,707		—			567,829
Retiro Baixo		161,848			8,460			—			(11,182	)		—		—			159,126

Total of investments		8,753,088			(20,680	)		(42,985	)		(240,180	)		228,205		(57,322	)		8,620,126

Guanhães – Uncovered liabilities of jointly-controlled entity (1)		(59,071	)		—			—			—			—		59,071			—

Total		8,694,017			(20,680	)		(42,985	)		(240,180	)		228,205		1,749			8,620,126

(1)	Transfer of uncovered liabilities;

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217

c)	This table gives the principal information on the subsidiaries and jointly-controlled subsidiaries, not adjusted for the percentage represented by the Company’s ownership interest:


Company R$ ’000	Number of shares		Sep. 30, 2017						Dec. 31, 2016
Company R$ ’000	Number of shares		Cemig interest %		Share capital		Stockholders’ equity		Cemig interest %		Share capital		Stockholders’ equity
Cemig Geração e Transmissão		2,896,785,358		100.00		1,837,710		5,161,385		100.00		1,837,710		4,583,195
Hidrelétrica Cachoeirão		35,000,000		49.00		35,000		115,755		49.00		35,000		102,880
Guanhães Energia		330,536,000		49.00		330,536		51,371		49.00		185,647		—
Hidrelétrica Pipoca		41,360,000		49.00		41,360		68,884		49.00		41,360		64,916
Retiro Baixo		222,850,000		49.90		222,850		261,501		49.90		222,850		263,680
Aliança Norte (Belo Monte Plant)		38,261,538,617		49.00		1,109,355		1,046,510		49.00		1,014,111		1,076,527
Madeira Energia (Santo Antônio Plant)		9,730,201,137		18.13		9,546,672		5,573,287		18.13		10,151,952		6,418,617
Lightger		79,078,937		49.00		79,232		84,192		49.00		79,232		84,781
Baguari Energia S.A. (1)		26,157,300,278		69.39		186,573		210,000		69.39		186,573		247,662
Renova		417,197,244		36.23		2,960,776		1,718,810		34.15		2,856,255		1,955,598
Aliança Geração		1,291,582,500		45.00		1,291,488		2,905,457		45.00		1,291,488		1,972,519
Central Eólica Praias de Parajuru		70,560,000		49.00		70,560		88,598		49.00		70,560		88,897
Central Eólica Volta do Rio		117,230,000		49.00		117,230		128,037		49.00		117,230		136,886
Central Eólica Praias de Morgado		52,960,000		49.00		52,960		60,676		49.00		52,960		65,128
Amazônia Energia (Belo Monte Plant) (1)		1,176,194,023		74.50		1,218,672		1,141,937		74.50		1,115,739		1,048,351
Usina Hidrelétrica Itaocara S.A.		5,677,000		49.00		6,762		5,578		49.00		5,677		5,677
Cemig Distribuição		2,359,113,452		100.00		2,771,998		1,961,175		100.00		2,361,998		2,499,867
Light		203,934,060		26.06		2,225,822		3,364,098		26.06		2,225,822		3,353,796
CemigTelecom		397,683,385		100.00		241,742		190,823		100.00		241,742		191,515
Rosal Energia		46,944,467		100.00		46,944		102,163		100.00		46,944		141,038
Sá Carvalho		361,200,000		100.00		36,833		106,840		100.00		36,833		106,111
Gasmig		409,255,483		99.57		665,429		1,213,702		99.57		665,429		1,425,622
Horizontes Energia		39,257,563		100.00		39,258		55,714		100.00		39,258		52,396
Usina Térmica Ipatinga		174,281		100.00		174		3,928		100.00		174		4,009
Cemig PCH		35,952,000		100.00		35,952		95,708		100.00		35,952		91,969
Lepsa		1,379,839,905		66.62		437,638		446,415		66.62		437,638		443,370
RME		1,365,421,406		66.27		433,770		443,063		66.27		433,770		440,069
Companhia Transleste de Transmissão		49,569,000		25.00		49,569		97,576		25.00		49,569		81,293
UTE Barreiro		30,902,000		100.00		30,902		37,790		100.00		30,902		39,266
Companhia Transudeste de Transmissão		30,000,000		24.00		30,000		98,333		24.00		30,000		85,438
Empresa de Comercialização de Energia Elétrica		486,000		100.00		486		9,386		100.00		486		20,154
Companhia Transirapé de Transmissão		22,340,490		24.50		22,340		112,518		24.50		22,340		97,763
Efficientia		6,051,994		100.00		6,052		7,001		100.00		6,052		4,868
Cemig Comercializadora de Energia Incentivada		1,000,000		100.00		1,000		2,342		100.00		1,000		1,867
Companhia de Transmissão Centroeste de Minas		28,000,000		51.00		28,000		37,951		51.00		28,000		41,512
Cemig Trading		1,000,000		100.00		1,000		14,953		100.00		1,000		28,635
Axxiom Soluções Tecnológicas		17,200,000		49.00		46,600		25,988		49.00		46,600		39,314
Taesa		1,033,496,721		31.54		3,042,034		4,115,980		31.54		3,042,034		4,307,588

(1)	Control shared under a Stockholders’ Agreement.

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218

On September 30, 2017, the current liabilities of some jointly-controlled entries were higher than their current assets, as follows:

Light: On September 30, 2017, Light had consolidated negative net working capital of R$ 1,960,665 (R$ 1,258,928 on December 31, 2016). Light has been negotiating renewal of its short-term loans and financings, and is engaged in lengthening its debt profile. It also expects greater operational cash flow as from the periodic tariff review, which took place on March 15, 2017 and resulted in an average increase in consumer electricity bills of 10.45%. The management of Light believes that success in these phases will reverse the present situation of negative net working capital; and that there is no material uncertainty such as might put operational continuity in doubt.

Madeira Energia (‘Mesa’): The excess of current liabilities over current assets, equal to R$ 2,164,237, arises mainly from the account lines Suppliers, Other liabilities, Loans and financings, and Contingency provisions. To deal with the situation of negative working capital, Mesa has the benefit of a favorable decision by Aneel to revert, in liabilities, the FID (Availability Factor) account, and release of funds from the debt servicing reserve account which will be replaced by a bank guarantee, with generation of operational cash flow and normalization of funds subscribed by certain stockholders under a decision by the EGM – and which are, thus, not demandable immediately.

Renova Energia: In the nine-month period ended September 30, 2017, Renova Energia reported accumulated losses of R$ 1,255,587, and current liabilities R$ 1,273,273in excess of current assets (consolidated), and has a need to obtain capital to comply with the construction commitments of wind and solar generating plants. The main reasons for this situation are: a) significant investments that are being allocated in construction of the wind farms of the Alto Sertão III complex; and b) delay in release of the long-term financing with the Brazilian Development Bank (BNDES).

In response to this scenario, the management of Renova is taking a range of measures to rebalance its liquidity structure and cash flow. Renova’s actions and plan are as follows:

(1)

On August 3, 2017, with completion of the sale of the Alto Sertão II wind farm complexes to AES Tietê Energia, Renova settled the balance of the debentures and transferred the balance of the debt of those complexes (R$ 1,115,750, at June 30, 2017), reducing its indebtedness by R$ 1,480,684.

(2)

Renova is in negotiations with the BNDES for signature of a long-term financing contract for approximately R$ 900,000, which will replace the existing bridge loan – reported in Current liabilities up to September 30, 2017 – of R$ 860,149 (principal plus interest). The remainder will be used for works related to the Alto Sertão III complex – Phase A. As soon as the long-term financing is contracted, part of current liabilities will be reclassified to non-current. So far a total of R$ 2.1 billion has been invested in Phase A of Alto Sertão III – corresponding to 87% (information not reviewed by external auditors) of physical completion, without there having been any release of a long-term financing from the BNDES.

(3)

The stockholders continue to be engaged in providing financial support, to enable Renova to achieve rebalancing of liquidity. In 2017 they provided cash injections of R$ 62,764.

(4)

Optimization of the portfolio of contracts – with permanent cancellation of projects totaling 210 MW average.

(5)

Possible routes for feasibility of new funding include: optimization of the portfolio; sale of projects and/or operational assets; and entry of new stockholders.

The Management of Renova Energia believes that with the success of these measures it will be possible to recover the Company’s equilibrium in economic and financial terms and in terms of liquidity.

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219

Investment in the Santo Antônio Hydroelectric Plant, through Madeira Energia S.A. (Mesa) and FIP Melbourne

The Company has direct and indirect investments in Madeira Energia S.A. (which holds an investment in Santo Antônio Energia S.A.), of R$ 1,163,310 at September 30, 2017 (R$ 1,321,072 at December 31, 2016).

Madeira Energia S.A. (‘Mesa’) and its subsidiary Santo Antônio Energia S.A. (‘Saesa’) are incurring establishment costs related to the construction of the Santo Antônio Hydroelectric Plant. The property, plant and equipment asset constituted by these expenditures totaled R$ 21,850,585 (Mesa, consolidated) on September 30, 2017, and this amount, in accordance with financial projections prepared by its management, is to be absorbed by future revenues generated as from January 2017, when the plant began operating with all its generator rotors.

Arbitration proceedings

In 2014, SAAG Investimentos S.A. (SAAG) and Cemig GT opened arbitration proceedings, in camera (in confidentiality), in the Market Arbitration Chamber, challenging the following: (a) the increase approved in the capital of Mesa of approximately R$ 750,000 partially destined to payment of the claims by the Santo Antonio Construction Consortium (‘CCSA’), based on absence of quantification of the amounts supposedly owed, and absence of prior approval by the Board of Directors, as required by the bylaws and Stockholders’ Agreement of Mesa; and also on the existence of credits owed to Mesa by CCSA, able to be offset, in an amount greater than the claims; and (b) the adjustment for impairment carried out by the Executive Board of Mesa, in the amount of R$ 750 million, relating to certain credits owed to Mesa by CCSA, on the grounds that those credits are owed in their totality by express provision of contract.

In 2016 the arbitration judgment by the Market Arbitration Chamber recognized the right of Cemig GT and SAAG in full, and ordered annulment of the acts being impugned. As a consequence of this decision, Mesa reversed the impairment, and posted a provision for receivables in the amount of R$ 678.551 in its Interim Accounting Information at September 30, 2017.

To resolve the question of the liability of the CCSA consortium to reimburse the costs of re-establishment of the collateral and use of the contractual limiting factor, the Subsidiary applied to open arbitration proceedings with the International Chamber of Commerce (ICC) against CCSA, which are in progress. Under the Arbitration Regulations of the ICC, this procedure is taking place in camera (in secret).

Investment in the Belo Monte Plant through Amazônia Energia S.A. and Aliança Norte

Through the jointly-controlled entities referred to above, Cemig GT owns an indirect equity interest in Nesa of 11.74%.

On April 7, 2015, Nesa was awarded interim judgment ordering Aneel to “abstain, until hearing of the application for an injunction made in the origin case, from applying to Appellant any penalties or sanctions in relation to the Belo Monte Hydroelectric Plant not coming into operation on the date established in the original timetable for the project, including those specified in Aneel Normative Resolution 595/2013 and in the Concession Contract 01/2010-MME, of the Belo Monte Hydroelectric Plant”. The legal advisers of Nesa have classified the probability of loss as ‘possible’, and the value of the estimated loss in Belo Monte up to September 30, 2017 is R$ 250,316.

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220

The effects of any alterations to the existing scenario will be reflected in the Company’s accounting statements.

Investment in Renova

Investment in TerraForm Global

The indirectly jointly-controlled entity Renova had investments in class A (GLBL) shares in TerraForm (‘the TERG Shares”‘, which were designated as financial assets available for sale, reported at fair value, based on the market trading price on the NASDAQ exchange. Gains and losses arising from variations in the share price were reported directly into Stockholders’ equity under Other comprehensive income.

In 9M17 there was a positive adjustment of R$ 73,224 (the effect on Cemig was R$ 26,470), recognized in Other comprehensive income in Renova Energia. In 9M16, the investee posted a loss of R$ 271,509 (the impact on Cemig GT was R$ 74,258), reflecting the negative volatility in the stock price of TerraForm in the period, based on the market price of the shares.

On May 15, 2017 Renova and Brookfield Asset Management (‘Brookfield’), through its vehicle Orion US Holding 1 L.P., signed a share purchase agreement for the shares that the investee held in TerraForm Global Inc. On May 26, 2017, Renova published a material announcement reporting sale of its shares in TerraForm to Brookfield. The total price of the acquisition was R$ 305,766 for completion on July 3, 2017, after compliance with certain conditions precedent.

In June, 2017, Renova entered into an agreement with TerraForm Global (SUNEDISON) in which the parties agree to terminate the arbitration proceedings by compensating Renova for R$ 48,559, which was paid together with the financial settlement of the sale of Terraform shares.

Adjustment for impairment

For the period of 9M17, Renova posted an impairment to its PP&E assets, which resulted in a loss of R$ 119,681 (impact on Cemig: R$ 52,276) for Phase A of the Alto Sertão III wind farms complex. This was posted in the Profit and loss account for the period.

Grant of exclusivity

At its meeting of its Board of Directors on July 17, 2017, Cemig GT oriented vote by its representatives in the meeting of the Board of Directors of the investee Renova Energia S.A. (‘Renova’), also held on July 17, 2017, in favor of approval of grant of exclusivity to Brookfield Energia Renovável S.A., including realization of due diligence and negotiation of final documents for a primary subscription in Renova and the sale of the interest held by Light Energia in Renova, as proposed in a non-binding offer. The period of exclusivity of 60 days from July 17, 2017, subsequently extended for 30 days, ended on October 17, 2017. This does not alter the stage of negotiation with Brookfield for the transaction referred to.

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221

Sale of assets – Umburanas wind complex

On August 23, 2017 Renova signed a Contract for Assignment of Rights and Obligations of the Umburanas Wind Power Complex, with total installed capacity of 605 MW, with Engie Brasil S.A. (‘Engie’). The base price of the transaction was R$ 15,000, subject to adjustments if certain conditions precedent of the transaction are satisfied.

On October 24, 2017, the 40th Public Meeting of the Council of Aneel (the electricity regulator) approved the transfer of the Umburanas Wind Complex to Engie.

However, since the negotiation involved an application for cancellation of four concession grants in this Complex, it was decided: (i) to apply a penalty fine of R$ 3.8 million to Renova; and (ii) to suspend Renova’s right to contract with or participate in tenders/competitive bids held by Aneel for a period of one year. The decision does not affect the controlling stockholders of Renova.

Put options

The Company has granted certain put options for which it calculates the fair value of the option based on the Black and Scholes Merton (BSM) model, in which the following variables are taken into account: exercise price of the option; closing price of the underlying asset on September 30, 2017; the risk-free interest rate; the volatility of the price of the underlying asset; and the time to maturity of the option.

Analytically, calculation of the exercise price of the options, the risk-free interest rate and the time to maturity is primarily deterministic, so that the main divergence in the put options takes place in the measurement of the closing price and the volatility of the underlying asset.

At September 30, 2017 the Company was party to the following options:


Consolidated	Balance on Sep. 30, 2017			Balance on Dec. 31, 2016
Put option—RME and LEPSA		1,242,818			1,149,881
SAAG put option		264,138			196,173
Put / Call option – Ativas and Sonda		(4,483	)		(4,586	)

		1,502,473			1,341,468

Put options in shares of RME and Lepsa

Cemig granted a put option, to Fundo de Participações Redentor (‘Redentor’), a stockholder of both Luce Empreeendimentos e Participações S.A. (Lepsa) and RME (Rio Minas Energia Participações S.A.), giving Redentor the right to sell to Cemig all of Redentor’s shares in Parati (which following a reorganization are now shares in RME and Lepsa), exercisable in May 2016. The exercise price of the option is calculated from the sum of the value of the amounts injected by the Fund into Parati, plus the running expenses of the fund, less Interest on Equity, and dividends, distributed by Parati.

The exercise price is subject to monetary updating by the CDI (Interbank CD) Rate plus financial remuneration at 0.9% per year.

RME and Lepsa own common and preferred shares in Light, and at present exercise joint control, with the Company, over the activities for that company. This being so, this option has been considered to be a derivative instrument, accounted at fair value through profit or loss.

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This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

222

In the second quarter of 2016 Amendments were signed to the shareholders’’ Agreement of Parati. The principal changes arising from these amendments are as follows:

The maturity of the Put Option granted in 2011 by Cemig in favor of the unit holders of FIP Redentor, initially specified to be May 31, 2016, was postponed, to two separate exercise dates:

On September 6, 2016 Cemig received from Banco BTG Pactual (‘BTG Pactual’) Notice of Intention to Exercise a Put Option, informing irrevocable exercise of BTG Pactual’s right to sell to Cemig 153,634,195 preferred shares representing its stockholding in Parati (‘Shares subject of the Put Option’).

On November 30, 2016, Cemig paid R$ 221.8 million for the portion of BTG Pactual in RME and Lepsa, under exercise of the first ‘window’ of the put.

On September 15, 2017 Cemig received Notices of Intention to Exercise Put Options, under the ‘Second Exercise Window’, from

–

BB–Banco de Investimento S.A. (‘BB-BI’),

–

BV Financeira S.A. – Crédito, Financiamento e Investimento (‘BV Financeira’), and

–

Banco Santander (Brasil) S.A. (‘Santander’)

(jointly, ‘the Stockholder Banks’), giving notice of irrevocable decision to exercise their right to sell to Cemig the totality of their holdings of common and preferred shares (‘the Shares Subject of the Put Option’), comprising the totality of their equity interests, in RME and Lepsa.

As guarantee for the full payment of the Put Option, on May 31, 2016 Cemig offered to the holders of the Put Option 55,234,637 common shares and 110,469,274 preferred shares in Transmissora Aliança de Energia S.A. (Taesa), and as further guarantee, 53,152,298 shares that Cemig directly holds in Light.

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223

Amount of the Company’s exposure

The change in the value of the options – the difference between the estimated fair value for the assets and the corresponding exercise price, in the nine-month periods ended September 30, 2017 and 2016, has been as follows:


	R$ ’000
Balance at December 31, 2016		1,149,881
Variation in fair value		100,957
Reversals		(8,020	)

Balance at September 30, 2017		1,242,818

Balance on December 31, 2015		1,245,103
Variation in fair value		267,585

Balance at September 30, 2016		1,512,688

In the calculation of the fair value of the option based on the Black-Scholes-Merton analysis, the following variables are taken into account: exercise price of the option; closing price of the stock of Light on September 30, 2017 (as a reference for the value of the indirect equity interest held by the direct stockholders of RME and Lepsa in Light); the risk-free interest rate; the volatility of the price of the underlying asset; and the time to maturity of the option.

The Company has made an analysis of the sensitivity of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 6.6% p.a. to 16.4% p.a., and for volatility between 15% and 63.2% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 1,116,760 and R$ 1,180,151, respectively.

SAAG Put options

Option Contracts (‘the Put Option’) were signed between Cemig GT and the private pension entities that participate in the investment structure of SAAG (comprising FIP Melbourne, Parma Participações S.A. and FIP Malbec, jointly, ‘the Investment Structure’), giving those entities the right to sell units in the entities that comprise the Investment Structure, which may be exercised at the option of the private pension plan entities, in the 84th (eighty-fourth) month from June 2014. The exercise price of the put options will correspond to the amount invested by each private pension plan in the Investment Structure, updated pro rata temporis by the Expanded National Consumer Price (IPCA) index published by the IBGE, plus interest at 7% per year, less such dividends and Interest on Equity as shall have been paid by SAAG to the pension plan entities. This option was considered to be a derivative instrument, accounted at fair value through profit or loss.

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224

In the fourth quarter of 2016 Cemig GT altered the methodology used in measuring the fair value of the put option of SAAG, and adopted the Black-Scholes-Merton (BSM) model, replacing the model of discounted cash flow less the exercise price of the option. This change is in line with best market practices, since the BSM method not only calculates the difference between the exercise price of the option and the share price, brought to present value, but also incorporates an important random component that weights these amounts.

The assumption was made that the future expenditures of FIP Malbec and FIP Melbourne are insignificant, so that the options are valued as if they were direct equity interests in Mesa. However, neither SAAG nor Mesa are traded on a securities exchange, so that some adaptions are necessary for calculation of the price of the asset and its volatility for application of the BSM model. The closing price of the share of Mesa on September 30, 2017 is ascertained on the basis of Free cash flow to equity holders (FCFE), with its equivalence in indirect equity interests held by the FIPs. Volatility, in turn, is measured as an average of historic volatility (based on the hypothesis that the series of the difference of continuously capitalized returns follows a normal distribution) of comparable companies in the electricity generation sector that are traded on the Bovespa.

Based on the studies made, a liability of R$ 264,138 is recorded in the Company’s Interim accounting information, for the difference between the exercise price and the estimated fair value of the assets (R$ 196,173 at December 31, 2016).

The movement in the value of the options in the nine-month periods ended September 30, 2015 and 2016 is as follows:


	R$ ’000
Balance at December 31, 2016		196,173
Variation in fair value		73,299
Reversals		(5,334	)

Balance at September 30, 2017		264,138

Balance on December 31, 2015		147,614
Variation in fair value		29,488

Balance at September 30, 2016		177,102

Cemig GT has made an analysis of the sensitivity of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables of the model unchanged. In this context, scenarios for the risk-free interest rate at 6.19% p.a. to 10.19% p.a., and for volatility between 16% and 76% p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$ 226,188 and R$ 341,307, respectively.

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225

16.

PROPERTY, PLANT AND EQUIPMENT


Consolidated R$ ’000	Sep. 30, 2017								Dec. 31, 2016
Consolidated R$ ’000	Historic cost		Accumulated depreciation			Net value			Historic cost		Accumulated depreciation			Net value
In service
Land		225,081		(13,126	)		211,955			286,368		(7,718	)		278,650
Reservoirs, dams and watercourses		3,324,692		(2,068,844	)		1,255,848			5,347,448		(3,586,435	)		1,761,013
Buildings, works and improvements		1,102,157		(766,382	)		335,775			1,789,111		(1,370,631	)		418,480
Machinery and equipment		2,939,964		(2,069,474	)		870,490			4,518,403		(3,347,214	)		1,171,189
Vehicles		28,816		(25,431	)		3,385			28,816		(24,586	)		4,230
Furniture and utensils		15,830		(12,669	)		3,161			15,781		(12,373	)		3,408

		7,636,540		(4,955,926	)		2,680,614	)		11,985,927		(8,348,957	)		3,636,970

Under construction		116,577		—			116,577			138,106		—			138,106

Net property, plant and equipment		7,753,117		(4,955,926	)		2,797,191			12,124,033		(8,348,957	)		3,775,076

This table shows the movement in property, plant and equipment:


Consolidated R$ ’000	Balance at Dec. 31, 2016		Addition		Jaguara, Miranda and Volta Grande Plants (1)			Written off			Depreciation			Transfers / capitalizations			Balance at Sep. 30, 2017
In service
Land		278,650		—		(61,287	)		—			(5,408	)		—			211,955
Reservoirs, dams and watercourses		1,761,013		—		(440,923	)		300			(64,913	)		371			1,255,848
Buildings, works and improvements		418,480		39		(68,971	)		—			(14,546	)		773			335,775
Machinery and equipment		1,171,189		253		(297,471	)		- 5,343			(69,864	)		71,726			870,490
Vehicles		4,230		—		—			—			(845	)		—			3,385
Furniture and utensils		3,408		58		—			—			(305	)		—			3,161

		3,636,970		350		(868,652	)		(5,043	)		(155,881	)		72,870			2,680,614

Under construction		138,106		53,533		(130	)		(2,062	)		—			(72,870	)		116,577

Net property, plant and equipment		3,775,076		53,883		(868,782	)		(7,105	)		(155,881	)		—			2,797,191

(1)	Amounts transferred to the account line Generation concession assets, for the Jaguara and Miranda Plants, (more details in Note 4) and to Financial assets of the concession, for the Volta Grande Plant (more details in Note 13).


Consolidated R$ ’000	Balance at Dec. 31, 2015		Addition		Written off			Depreciation			Transfers / capitalizations			Balance at Sep. 30, 2016
In service
Land		278,609		—		(351	)		(2,248	)		89			276,099
Reservoirs, dams and watercourses		1,830,045		—		(3	)		(74,450	)		26,852			1,782,444
Buildings, works and improvements		437,311		—		(697	)		(17,823	)		4,348			423,139
Machinery and equipment		1,192,099		—		(23,128	)		(76,748	)		83,647			1,175,870
Vehicles		8,082		—		(58	)		(1,943	)		(1,518	)		4,563
Furniture and utensils		4,473		—		(1	)		(240	)		(713	)		3,519

		3,750,619		—		(24,238	)		(173,452	)		112,705			3,665,634

Under construction		189,704		61,332		(6,237	)		—			(112,279	)		132,520

Net property, plant and equipment		3,940,323		61,332		(30,475	)		(173,452	)		426			3,798,154

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226

The average annual depreciation rate for the year 2017 is 3.51% (3.39% in 2016). By activity, the average annual depreciation rates are:


Hydroelectric generation	Thermal generation	Management and other	Telecoms
3.30%	3.85%	10.04%	4.61%

The Company has not identified any evidence of impairment of its Property, plant and equipment assets. The generation concession contracts provide that at the end of each concession the Concession-granting power shall determine the amount to be indemnified to the Company and its subsidiaries. Management believes that the indemnity of these assets will be greater than the amount of: their historic cost after depreciation over their useful lives.

The residual value of the assets is the remaining balance of the assets at the end of the concession. As established in the contract signed between the Company, and its subsidiaries, and the Nation, at the end of the concession the assets will revert to the Nation, which in turn will indemnify the Company for those assets that have not yet been totally depreciated. In cases where there is no indemnity, or there is uncertainty related to the indemnity, at the end of the concession, such as thermal generation, and hydroelectric generation as an independent power producer, no residual value is recognized, and the depreciation rates are adjusted so that all the assets are depreciated within the concession.

Consortium

Cemig GT is a partner in the electricity generation consortium for the Queimado plant, for which no separate company with independent legal existence was formed to manage the object of the concession, the controls being kept in Fixed assets and Intangible assets. Cemig GT’s portion in the consortium is recorded and controlled individually in the respective categories of PP&E and Intangible assets.


Consolidated R$ ’000	Stake in power output, %		Average annual depreciation rate %		Sep. 30, 2017			Dec. 31, 2016
In service
Queimado plant		82.50		3.73		217,061			217,061
Accumulated depreciation						(86,260	)		(81,911	)

Total in operation						130,801			135,150

Under construction
Queimado plant		82.50		—		233			233

Total under construction						233			233

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227

17.

INTANGIBLE ASSETS

a)	Composition of the balance at September 30, 2017 and December 31, 2016


Consolidated R$ ’000	Sep. 30, 2017							Dec. 31, 2016
Consolidated R$ ’000	Historic cost		Accumulated amortization			Residual value		Historic cost		Accumulated amortization			Residual value
In service
Useful life defined
Temporary easements		11,749		(1,820	)		9,929		11,749		(1,315	)		10,434
Paid concession		19,169		(11,082	)		8,087		19,169		(10,572	)		8,597
Assets of concession		17,388,860		(7,437,712	)		9,951,148		16,287,763		(7,039,840	)		9,247,923
Other		79,171		(63,832	)		15,339		76,864		(59,434	)		17,430

		17,498,949		(7,514,446	)		9,984,503		16,395,545		(7,111,161	)		9,284,384

Under construction		1,073,182		—			1,073,182		1,535,296		—			1,535,296

Net intangible assets		18,572,131		(7,514,446	)		11,057,685		17,930,841		(7,111,161	)		10,819,680


Holding company R$ ’000	Average amortization rate			Sep. 30, 2017							Dec. 31, 2016
Holding company R$ ’000	Average amortization rate			Historic cost		Accumulated amortization			Residual value		Historic cost		Accumulated amortization			Residual value
In service
Useful life defined
Software use rights		20	%		3,789		(3,724	)		65		3,789		(3,649	)		140
Brands and patents		10	%		9		(7	)		2		9		(7	)		2

					3,798		(3,731	)		67		3,798		(3,656	)		142

Under construction					1,710		—			1,710		1,710		—			1,710

Net intangible assets					5,508		(3,731	)		1,777		5,508		(3,656	)		1,852

b)	Changes in Intangible assets


Consolidated R$ ’000	Balance at Dec. 31, 2016		Addition		Write-off of ‘Special Obligations’		Jaguara, Volta Grande and Miranda Plants			Written off			Amortization			Transfer (1)			Balance at Sep. 30, 2017
In service
Useful life defined
Temporary easements		10,434		—		—		—			—			(505	)		—			9,929
Paid concession		8,597		—		—		—			—			(510	)		—			8,087
Assets of concession		9,247,923		—		17,069		—			(5,878	)		(455,379	)		1,147,413			9,951,148
Other		17,430		—		—		(80	)		—			(4,508	)		2,497			15,339

		9,284,384		—		17,069		(80	)		(5,878	)		(460,902	)		1,149,910			9,984,503

Under construction		1,535,296		747,868		—		—			(6,820	)		—			(1,203,162	)		1,073,182

Net intangible assets – Consolidated		10,819,680		747,868		17,069		(80	)		(12,698	)		(460,902	)		(53,252	)		11,057,685

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228


Consolidated R$ ’000	Balance at Dec. 31, 2015		Addition		Written off			Amortization			Transfer (1)			Balance at Sep. 30, 2016
In service
Useful life defined
Temporary easements		10,434		—		—			—			—			10,434
Paid concession		9,275		—		—			(509	)		—			8,766
Assets of concession		8,965,474		75		(19,501	)		(422,948	)		613,564			9,136,664
Other		15,290		—		(6,225	)		(4,288	)		12,810			17,587

		9,000,473		75		(25,726	)		(427,745	)		626,374			9,173,451

Under construction		1,274,631		899,785		(5,440	)		—			(684,024	)		1,484,952

Net intangible assets – Consolidated		10,275,104		899,860		(31,166	)		(427,745	)		(57,650	)		10,658,403

(1)	The residual balance of transfer refers to balances transferred to the Financial assets.

The average annual depreciation rate for the year 2017 is 3.81% (4.12% in 2016). The average rates of annual amortization, by activity, set by the legislation for the sector, are:


Hydroelectric generation	Thermal generation	Distribution	Management and other	Telecoms
20.00%	19.35%	3.85%	23.29%	11.56%

The Company has found no indications of impairment of its intangible assets that have defined useful lives. The Company has no intangible assets with non-defined useful life. Among the additions made in the nine-month period ended in September 30, 2017, in the amount of R$747.868, is included R$ 56,851 (R$ 120,398 in 9M16) under the heading Capitalized Financial Costs, as presented in Note 20.

18.

SUPPLIERS


R$ ’000	Consolidated
R$ ’000	9M17		9M16
Electricity on spot market – CCEE		237,732		167,860
Charges for use of electricity network		156,323		78,407
Electricity purchased for resale		1,037,427		676,563
Itaipu Binacional		246,453		206,827
Gas bought for resale		216,954		461,589
Materials and services		291,559		348,347

		2,186,448		1,939,593

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229

19.

TAXES, INCOME TAX AND SOCIAL CONTRIBUTION TAX

Taxes


R$’000	Consolidated				Holding company
R$’000	9M17		9M16		9M17		9M16
Current
ICMS tax (I)		828,897		501,535		—		—
Cofins tax		93,452		128,030		1,965		32,332
Pasep tax		20,012		27,701		319		6,987
Social security contributions		15,368		24,865		1,869		1,933
Other		26,264		111,456		788		42,382

		983,993		793,587		4,941		83,634
Non-current
Cofins tax (II)		593,296		594,866		—		—
Pasep tax (II)		128,806		129,056		—		—

		722,102		723,922		—		—

		1,706,095		1,517,509		4,941		83,634

(I)	The Tax Credits Regularization Plan (Plano de Regularização de Créditos Tributários – PRCT):

During 3Q17 the subsidiaries Cemig D and Cemig GT recognized in their Profit and loss accounts the effects of adhesion to the Minas Gerais State Tax Credits Regularization Plan (PRCT), for settlement of ICMS tax totaling R$ 557,673 and R$ 29,951, respectively.

The main tax issue that led to the decision of Cemig D to subscribe to the PRCT relates to ICMS tax on the CDE subvention over the period January 2013 to October 2016, and also the classification of residential condominiums in the commercial category, which has a different ICMS rate, generating disagreement with the tax authority on interpretation, over the period 2013 to 2015. The amount of ICMS claimed from Cemig D will be settled, under the PRCT, in six installments, with value updated at 50% of the Selic rate and a reduction of 90% on fine and interests. The first instalment, of R$ 93,539, was settled on October 31, 2017.

The issue that led to Cemig GT adopting the PRCT relates to ICMS tax on transfers of power supply received from a consortium, where there was a difference in understanding between the Company and the tax authority in relation to the moment of payment. The amount claimed from Cemig GT, under the PRCT, was R$ 29,951, and was settled in full on October 31, 2017 and represented a reduction of 95% on fine and interests.

(II)

The non-current obligations for Pasep and Cofins taxes refer to the legal proceedings challenging the constitutionality of inclusion of the ICMS tax as part of the taxable amount for calculation of the amounts of Pasep and Cofins taxes payable, and seeking authorization to offset the amounts paid over the last ten years. The Company and its subsidiaries Cemig D (Distribution) and Cemig GT (Generation and Transmission) obtained interim relief from the court allowing them not to make the payment, and authorizing payment through court deposits (starting in 2008), and maintained this procedure until July 2011. After that date, while continuing to challenge the basis of the calculation in court, they opted to pay the taxes monthly.

(III)

On March 15, 2017, the Federal Supreme Court (Supremo Tribunal Federal, or STF) issued a ruling, with the status of general precedent (‘repercussão geral’) governing all similar cases, in favor of the Company’s argument. The Company and its subsidiaries await the results of any changes arising from the decision by the Supreme Court before measuring these effects and reflecting them in its financial statements.

b)	Income tax and Social Contribution tax


R$’000	Consolidated
R$’000	9M17		9M16
Current
Income tax		73,762		18,381
Social contribution tax		25,922		8,485

		99,684		26,866

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230

20.

LOANS, FINANCINGS AND DEBENTURES


Financing source	Principal maturity		Annual financial cost %		Currency		Consolidated

							September 30, 2017									Dec. 31, 2016
							Current			Non-current			Total			Total
FOREIGN CURRENCY
Banco do Brasil: Various Bonds (1)		2024		Various		US$		3,021			20,169			23,190			23,049
KfW		2019		1,78		Euros		3,967			2,162			6,129			7,416

Debt in foreign currency								6,988			22,331			29,319			30,465
BRAZILIAN CURRENCY
Banco do Brasil		2017		108.33% of the CDI Rate		R$		—			—			—			72,242
Banco do Brasil		2017		108.00% of CDI		R$		153,650			—			153,650			150,683
Banco do Brasil		2018		112.00% of CDI Rate		R$		295,581			270,000			565,581			554,748
Banco do Brasil		2017		111.00% of CDI		R$		—			—			—			50,308
Banco do Brasil		2020		114.00% of the CDI Rate		R$		185,319			329,144			514,463			501,352
Banco do Brasil		2018		132.90% of CDI		R$		290,442			149,317			439,759			583,043
BNDES		2026		TJLP+2.34%		R$		8,065			61,361			69,426			74,095
Caixa Econômica Federal		2018		119.00% of CDI		R$		33,407			—			33,407			108,792
Caixa Econômica Federal		2020		132.14% of CDI		R$		272,631			411,457			684,088			681,417
Eletrobras		2023		UFIR; RGR + 6.00 to 8.00%		R$		16,886			37,449			54,335			68,043
Large consumers		2024		Various		R$		1,860			2,305			4,165			6,317
Finep		2018		TJLP + 5% and TJLP + 8%		R$		3,145			—			3,145			5,505
Pipoca Consortium		2018		IPCA		R$		185			—			185			185
Promissory Notes – 7th Issue		2017		128.00% of CDI		R$		588,319			—			588,319			667,143
Banco da Amazônia S.A.		2018		CDI + 1.90%		R$		13,786			119,961			133,747			121,601
Sonda (4)		2021		110% of CDI		R$		50,482			40,904			91,386			83,238
(–) FIC Pampulha: Securities of subsidiary companies (6)								(49,936	)		—			(49,936	)		—

Debt in Brazilian currency								1,863,822			1,421,898			3,285,720			3,728,712

Total of loans and financings								1,870,810			1,444,229			3,315,039			3,759,177

Debentures – 3rd Issue, 1st series (2)		2017		CDI Rate + 0.90%		R$		—			—			—			543,208
Debentures – 3rd Issue, 2nd series (2)		2019		IPCA + 6.00%		R$		152,272			141,923			294,195			293,122
Debentures – 3rd Issue, 3rd series (2)		2022		IPCA + 6.20%		R$		35,809			950,808			986,617			983,506
Debentures – 5th Issue, 1st series (2)		2018		CDI + 1.70%		R$		844,159			700,000			1,544,159			1,411,295
Debentures – 6th Issue, 1st series (2)		2018		CDI + 1.60%		R$		495,573			—			495,573			1,037,973
Debentures – 6th Issue, 2nd series (2)		2020		IPCA +8.07%		R$		475			30,658			31,133			31,117
Debentures – 7th Issue, 1st series (2)		2021		140.00% of CDI Rate		R$		(5,042	)		2,210,853			2,205,811			2,196,841
Debentures, 2nd Issue (3)		2017		IPCA + 7.96%		R$		253,769			—			253,769			235,136
Debentures – 3rd Issue, 2nd Series (3)		2021		IPCA + 4.70%		R$		41,685			1,464,025			1,505,710			1,495,108
Debentures – 3rd Issue, 3rd Series (3)		2025		IPCA + 5.10%		R$		27,041			873,250			900,291			894,918
Debentures – 3rd Issue, 1st series (3)		2018		CDI + 0.69%		R$		438,571			—			438,571			463,880
Debentures, 4th Issue (3)		2018		CDI + 4.05%		R$		988,160			804,371			1,792,531			1,597,690
Debentures (5)		2018		CDI + 1.60%		R$		412			100,000			100,412			100,629
Debentures (5)		2018		CDI + 0.74%		R$		33,351			—			33,351			66,706
Debentures (5)		2022		TJLP+1.82% (75%); Selic+1.82% (25%)		R$		27,593			129,963			157,556			133,502
Debentures (4)		2019		128.50% of CDI		R$		8,605			17,887			26,492			—
(–) FIC Pampulha: Securities of subsidiary companies (6)								(13,772	)		(11,863	)		(25,635	)		(64,528	)

Total, debentures								3,328,661			7,411,875			10,740,536			11,420,103

Overall total – Consolidated								5,199,471			8,856,104			14,055,575			15,179,280

(1)	Net balance of the Restructured Debt comprising the bonds at par and discounted, with balance of R$ 144,396, less the amounts given as Deposits in guarantee, with balance of R$ 121,206. Interest rates vary – from 2 to 8% p.a.; six-month Libor plus spread of 0.81% to 0.88% p.a.

(2)	Cemig Geração e Transmissão

(3)	Cemig Distribuição

(4)	CemigTelecom

(5)

Gasmig;

(6)	FIC Pampulha has financial investments in securities issued by subsidiary companies of the Company. For more information and characteristics of the fund, see Note 27.

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231

Guarantees

The debtor balance of loans and financings is guaranteed as follows:


R$ ’000	Sep. 30, 2017
Promissory Notes and Sureties		10,310,897
Receivables		1,399,655
Shares		1,947,197
Without guarantee		397,826

TOTAL		14,055,575

The composition of loans, financings and debentures, by currency and indexor, with the respective amortization, is as follows:


Consolidated R$ ’000	2017		2018		2019		2020		2021		2022		2023		After 2023		Total
Currency
US dollar		3,021		—		—		—		—		—		—		20,169		23,190
Euros		1,997		3,939		193		—		—		—		—		—		6,129

Total, currency denominated		5,018		3,939		193		—		—		—		—		20,169		29,319

Indexors
IPCA index (1)		369,476		141,642		640,175		812,065		811,619		541,688		218,379		436,856		3,971,900
Ufir / RGR (2)		4,806		16,357		12,912		11,210		3,407		3,264		2,379		—		54,335
CDI Rate (3)		3,197,710		3,694,695		1,163,134		951,657		758,533		—		—		—		9,765,729
URTJ / TJLP (4)		7,609		40,809		38,455		38,647		38,202		38,336		7,833		20,236		230,127
IGP–DI (5)		1,486		375		377		603		54		508		508		254		4,165

Total governed by indexors		3,581,087		3,893,878		1,855,053		1,814,182		1,611,815		583,796		229,099		457,346		14,026,256

Overall total		3,586,105		3,897,817		1,855,246		1,814,182		1,611,815		583,796		229,099		477,515		14,055,575

(1)	Expanded National Consumer Price (IPCA) Index.

(2)	Fiscal Reference Unit (Ufir / RGR).

(3)	CDI: Interbank Rate for Certificates of Deposit.

(4)	URTJ: Interest rate reference unit.

(5)	IGP-DI (‘General – Domestic Availability’) Price Index.

The principal currencies and indexors used for monetary updating of loans and financings had the following variations:


Currency	Accumulated variation in 9M17, %	Accumulated variation in 9M16, %	Indexor	Accumulated variation in 9M17, %	Accumulated variation in 9M16, %
US dollar	(2.80)	(16.87)	IPCA	1.78	5.51
Euros	8.86	(14.16)	CDI	8.03	10.42

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Changes in loans, financings and debentures were as follows:


R$’000	Consolidated
Balance on December 31, 2015		15,166,537
Loans and financings obtained		2,933,271
Transaction costs		(74,627	)

Financings obtained net of transaction costs		2,858,644
Monetary and exchange rate variation		216,243
Borrowing costs provisioned		1,504,865
Amortization of transaction cost		47,471
Borrowing costs paid		(1,320,119	)
Amortization of financings		(2,106,248	)
Subtotal		16,368,031
(–) FIC Pampulha: Securities of subsidiary companies		(98,980	)

Balance at September 30, 2016		16,269,051

Balance at December 31, 2016		15,179,280
Loans and financings obtained		60,870
Transaction costs		(762	)

Financings obtained net of transaction costs		60,108
Monetary and exchange rate variation		73,833
Borrowing costs provisioned		1,217,735
Amortization of transaction cost		41,090
Borrowing costs paid		(998,967	)
Amortization of financings		(1,506,459	)
Subtotal		14,066,620

(–) FIC Pampulha: Securities of subsidiary companies		(11,045	)

Balance at September 30, 2017		14,055,575

Borrowing costs capitalized

The subsidiaries transferred to Intangible assets the costs of loans and financings linked to works, as follows:


R$’000	9M17			9M16
Costs of loans and financings		1,217,735			1,504,865
Financial costs transferred to Intangible assets		(56,851	)		(120,398	)

Net effect in Profit or loss		1,160,884			1,384,467

The value of the charges capitalized, R$ 56,851 (R$ 120,398 in 2016), has been excluded from the Statement of cash flows, in the additions to Cash flow from investment activities, because it does not represent an outflow of cash for acquisition of the related asset.

The average rate applied to capitalization of the loans and financings whose costs were transferred to works was 11.07% in 9M17 – and 13.13% in 9M16.

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233

Funding raised

This table shows the funding raised, on Consolidated basis, in 9M17:


Financing source	Signature date	Principal maturity	Annual financial cost, %	*Amount() R$ ’000**
Brazilian currency
Debentures (1)	November 4,2013	2022	CDI + 0.74%	33,870
Debentures (2)	April 22, 2017	2019	128.50% of CDI	26,238

Total raised				60,108

*	Net of funding cost.

(1)	Subscription by BNDESPar of Gasmig’s fourth Debenture Issue, in June 2017, to support the plan for investment in expansion of the gas distribution network.

(2)	Cemig Telecom completed its second issue of non-convertible debentures in May 2017 with real guarantees and additional surety, in a single series, to roll over debt and strengthen cash position.

Debentures

The debentures issued by the Company’s subsidiaries are not convertible into shares, and have the following characteristics:


Issuer	Type of guarantee	Annual cost, %	Maturity		Sep. 30, 2017			Dec. 31, 2016
Cemig GT – 3rd Issue – 1st Series	Unsecured	CDI Rate + 0.90%		2017		—			543.208
Cemig GT – 3rd Issue – 2nd Series	Unsecured	IPCA + 6.00%		2019		294.195			293.122
Cemig GT – 3rd Issue – 3rd Series	Unsecured	IPCA + 6.20%		2022		986.617			983.506
Cemig GT – 5th Issue, 1st Series	Unsecured	CDI + 1.70%		2018		1.544.159			1.411.295
Cemig D – 6th Issue – 1st Series	Surety	CDI + 1.60%		2018		495.573			1.037.973
Cemig D – 6th Issue – 2nd Series	Surety	IPCA +8.07%		2020		31.133			31.117
Cemig GT – 7th Issue – 1st Series	Receivables (Revenue)	140.00% of CDI Rate		2021		2.205.811			2.196.841
Cemig D – 2nd Issue	None	IPCA + 7.96%		2017		253.769			235.136
Cemig D – 3rd Issue – 2nd Series	Surety	IPCA + 4.70%		2021		1.505.710			1.495.108
Cemig D – 3rd Issue – 3rd Series	Surety	IPCA + 5.10%		2025		900.291			894.918
Cemig D – 3rd Issue – 1st Series	Surety	CDI + 0.69%		2018		438.571			463.880
Cemig D – 4th Issue	Surety	CDI + 4.05%		2018		1.792.531			1.597.690
Gasmig	Unsecured	CDI + 1.60%		2018		100.412			100.629
Gasmig	Unsecured	CDI + 0.74%		2018		33.351			66.706
Gasmig	Unsecured	TJLP+1.82% (75%); Selic+1.82% (25%)		2022		157.556			133.502
CemigTelecom	Receivables	128.50% of CDI		2019		26.492			—

Subtotal						10.766.171			11.484.631

(–) FIC Pampulha: Securities of subsidiary companies						(25.635	)		(64.528	)

TOTAL						10.740.536			11.420.103

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234

For the debentures issued by the Company, there are no renegotiation clauses, nor debentures held in treasury. There is an early maturity clause for cross-default in the event of non-payment of any pecuniary obligation with individual or aggregate value greater than R$ 50 million.

Restrictive covenants

The Company has contracts with covenants linked to financial indices, as follows:


Title	Parameter	Issuer ratio required	Ratio required Cemig (guarantor)	Required compliance frequency
BNDES financing – Cemig GT (1)	Stockholders’ equity of Guarantor / Total assets of Guarantor	—	30% or more	Annual
Banco do Brasil Credit Note and fixed credit line – Cemig GT (2)	Net debt / (Ebitda + Dividends received)	Maximum: 5.5 in 2017 5.0 in 2018 4.5 in 2019 3.0 in 2020 2.5 in 2021-	Maximum: 4.5. in 2017 4.25 in 2018 3.5 in 2019 3.0 in 2020 2.5 in 2021	Half-yearly, from December 2017
7th debenture issue – Cemig GT (3)	Net debt / (Ebitda + Dividends received)	Maximum: 5.5 in 2017 5.0 in 2018 4.5 in 2019 3.0 in 2020 2.5 in 2021	Maximum: 4.5 in 2017 4.25 in 2018 3.5 in 2019 3.0 in 2020 2.5 in 2021	Half-yearly, from June 2017
Debentures (Gasmig) (4)	Total liabilities / Total assets Ebitda / Debt servicing	Less than 0.6 1.3 or more	—	Annual

(1)	If the Company does not achieve the required ratio, it will have six months from the end of the business year in which the ratio was found, to:

(i)

constitute real guarantees which in the assessment of the BNDES represent 130.00% of the value of the debtor balance of the contract; or

(ii)

present an interim balance sheet, by a CVM-registered auditor, indicating return to the index required.

(2)	Through contractual amendments, a further early maturity clause was added to Cemig GT’s Bank Credit Notes and Fixed Credit Line with Banco do Brasil S.A., requiring compliance with a financial ratio similar to that demanded by the 7th Debenture Issue.

(3)	7^th Issue of Debentures by Cemig GT, in December 2016, of R$ 2,240,000.

(4)

If Gasmig does not achieve the required ratio, Cemig shall, within 120 days from the sate of notice in writing from BNDES or BNDESPar, constitute guarantees acceptable to the debenture holders for the total amount of the debt, subject to the rules of the National Monetary Council (CMN), unless the required ratios are restored within that period. Cross-default: Certain contractually specified situations can cause early maturity of other debts.

The covenant requiring half-yearly compliance relating to the financial ratio for GT (issuer) and Cemig (guarantor) was complied with on June 30, 2017.

The covenants requiring compliance annually were complied with on December 31, 2016.

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235

21.

REGULATORY CHARGES


R$ ’000	Consolidated
R$ ’000	9M17		9M16
Current assets
Credits owed by Eletrobras (1)		—		48,379

	—		48,379

Liabilities
Global Reversion Reserve (RGR)		46,217		34,659
Energy Development Account (CDE)		180,823		189,330
Aneel inspection charge		2,171		2,877
Energy Efficiency		337,251		287,571
Research and development		271,228		233,560
Energy System Expansion Research		1,419		2,724
National Scientific and Technological Development Fund		2,546		5,146
Proinfa – Alternative Energy Program		6,778		7,720
Royalties for use of water resources		16,244		23,404
Emergency capacity charge		30,996		30,996
Consumer charges – ‘Flag Tariff’ amounts		16		17,224

		895,689		835,211

Current liabilities		351,246		380,586
Non-current liabilities		544,443		454,625

(1)

Cemig GT requested from Aneel a review of the amounts paid for the RGR Contribution in previous business years, due to the basis of calculation used at the time for calculation of the charge. Cemig GT recognized the right to recover the amount paid in excess, to be offset against RGR payable, only after the conclusion, in 2016, of a judgment by Aneel, as per Aneel Technical Note 162/2016, which accepted Cemig GT’s claim. On September 30, 2017 the RGR payable is presented net of the remaining balance receivable, of R$ 15,073.

22.

POST-RETIREMENT OBLIGATIONS

Changes in net liabilities were as follows:


Holding company R$ ’000	Pension plans and retirement supplement plans			Health Plan			Dental Plan			Life insurance			Total
Net liabilities on December 31, 2015		199,183			74,034			1,958			28,016			303,191

Expense recognized in Profit and loss account		20,817			7,604			206			2,831			31,458
Contributions paid		(4,664	)		(4,172	)		(104	)		(536	)		(9,476	)

Net liabilities on September 30, 2016		215,336			77,466			2,060			30,311			325,173

Net liabilities on December 31, 2016		257,933			95,655			2,452			41,424			397,464

Expense recognized in Profit and loss account		20,338			7,828			207			3,490			31,863
Contributions paid		(5,838	)		(4,898	)		(118	)		(278	)		(11,132	)

Net liabilities on September 30, 2017		272,433			98,585			2,541			44,636			418,195

											30/09/2017			31/12/2016

Current liabilities											12,584			11,143
Non-current liabilities											405,611			386,321

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Consolidated R$ ’000	Pension plans and retirement supplement plans			Health Plan			Dental Plan			Life insurance			Total
Net liabilities on December 31, 2015		1,346,388			1,323,516			30,090			553,377			3,253,371

Expense recognized in Profit and loss account		139,289			136,805			3,111			56,160			335,365
Contributions paid		(94,770	)		(68,034	)		(1,681	)		(9,246	)		(173,731	)

Net liabilities on September 30, 2016		1,390,907			1,392,287			31,520			600,291			3,415,005

Net liabilities on December 31, 2016		1,679,154			1,710,787			37,549			813,921			4,241,411

Expense recognized in Profit and loss account		130,471			141,947			3,128			66,472			342,018
Contributions paid		(118,638	)		(76,868	)		(1,816	)		(5,768	)		(203,090	)

Net liabilities on September 30, 2017		1,690,987			1,775,866			38,861			874,625			4,380,339

											30/09/2017			31/12/2016

Current liabilities											224,137			198,867
Non-current liabilities											4,156,202			4,042,544

The amounts recorded as Current liabilities refer to the contributions to be made by Cemig and its subsidiaries in the next 12 months for amortization of the actuarial liabilities.

The amounts reported as expenses in the Consolidated profit and loss account refer to the tranches of post-employment obligations, totaling R$ 293,617 (R$ 248,583 for 9M16), plus the financial costs and monetary updating on the debt agreed with Forluz, in the amount of R$ 48,401 (R$ 86,782 in 9M16).

Contract for solution to the deficit on Forluz Pension Plan ‘A’

In May 2017 Forluz and the sponsors Cemig, Cemig GT and Cemig D signed an Instrument of Assumption of Debt for Coverage of Deficit in accordance with the deficit solution plan for Plan A (the Retirement Benefits Balances Plan) approved by the Governing Council of Forluz on December 15, 2016.

On September 30, 2017 the total amount payable by Cemig and its subsidiaries as a result of the deficit found in Plan A is R$ 284,166, with monthly amortizations up to June 2031, calculated by the system of constant installments (known as the ‘Price Table’).

Remuneratory interest applicable to the outstanding balance is 6% p.a., plus the effect of the IPCA (Expanded National Consumer Price) index published by the IBGE.

If the plan reaches actuarial balance before the full period of amortization of the contract, the Company is dispensed from payment of the remaining installments and the contract is extinguished.

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237

23.

PROVISIONS

The Company and its subsidiaries have made provisions as follows for contingencies relating to legal actions in which the Company and its legal advisors have assessed the chances of loss as ‘probable’ (i.e. an outflow of funds to settle the obligation will be necessary):


R$’000	Consolidated
R$’000	Dec. 31, 2016		Additions		Reversals			Settled			Sep. 30, 2017
Employment-law cases		349,273		191,670		(3,657	)		(47,727	)		489,559
Civil cases
Consumer relations		14,741		11,856		(1,320	)		(11,855	)		13,422
Other civil actions		40,443		7,844		(238	)		(4,274	)		43,775

		55,184		19,700		(1,558	)		(16,129	)		57,197

Tax		69,922		6,033		(3,632	)		(588	)		71,735
Environmental		39		4		—			—			43
Regulatory		43,100		2,833		(13,811	)		(766	)		31,356
Corporate		239,445		—		(239,445	)		—			—
Other		58,054		8,863		—			(2,834	)		64,083

Total		815,017		229,103		(262,103	)		(68,044	)		713,973

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238


R$’000	Consolidated
R$’000	Dec. 31, 2015		Additions		Reversals			Settled			Sep. 30, 2016
Employment-law cases		289,841		73,343		(3,380	)		(34,613	)		325,191
Civil cases
Consumer relations		17,378		12,900		(490	)		(10,860	)		18,928
Other civil actions		28,792		16,398		(76	)		(3,461	)		41,653

		46,170		29,298		(566	)		(14,321	)		60,581
Tax		69,014		3,832		(1,216	)		(763	)		70,867
Environmental		60		38		(59	)		(1	)		38
Regulatory		45,180		5,475		(1,611	)		(1,995	)		47,049
Corporate		268,953		—		(29,502	)		—			239,451
Other		35,355		33,133		(4,038	)		(7,359	)		57,091

Total		754,573		145,119		(40,372	)		(59,052	)		800,268


R$’000	Holding company
R$’000	Dec. 31, 2016		Additions		Reversals			Settled			Sep. 30, 2017
Employment-law cases		34,928		15,569		(3,016	)		(6,039	)		41,442
Civil cases												—
Consumer relations		1,435		8		(26	)		(8	)		1,409
Other civil actions		3,238		771		(31	)		(44	)		3,934

		4,673		779		(57	)		(52	)		5,343
Tax		8,869		4,170		(2,817	)		(255	)		9,967
Regulatory		21,614		—		(4,241	)		—			17,373
Corporate		239,445		—		(239,445	)		—			—
Other		466		714		(1	)		(45	)		1,134

Total		309,995		21,232		(249,577	)		(6,391	)		75,259


R$’000	Holding company
R$’000	Dec. 31, 2015		Additions		Reversals			Settled			Sep. 30, 2016
Employment-law cases		29,169		11,463		—			(5,578	)		35,054
Civil cases
Consumer relations		3,294		5		(491	)		—			2,808
Other civil actions		1,289		2,208		(75	)		(45	)		3,377

		4,583		2,213		(566	)		(45	)		6,185
Tax		10,306		1,283		(1,078	)		(681	)		9,830
Regulatory		21,696		1,157		(1,611	)		(89	)		21,153
Corporate		268,953		—		(29,502	)					239,451
Other		427		87		(1	)		(24	)		489

Total		335,134		16,203		(32,758	)		(6,417	)		312,162

In view of the long periods involved in, and the manner of working of, the Brazilian judiciary, tax and regulatory systems, the managements of the Company and its subsidiaries believe that it is not possible in practice to supply information that would be useful to the users of these interim financial statements about the time when any cash outflows, or any reimbursements, might take place in fact. The Company and its subsidiaries believe that any disbursements in excess of the amounts provisioned, when the respective processes are completed, will not significantly affect the Company’s result of operations or financial position.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

239

The details on the principal provisions and contingent liabilities are given below, these being the best estimates of expected future disbursements for these contingencies:

Provisions, made for legal actions in which the chances of loss have been assessed as ‘probable’; and Contingent liabilities, for actions in which the chances of loss are assessed as ‘possible’.

Employment-law cases

The aggregate amount of these contingencies is approximately R$ 1,556,075 (R$ 1,543,946 on December 31, 2016), of which R$ 489,559 (R$ 349,273 on December 31, 2016) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Consumer relations

The Company and its subsidiaries are parties in various civil actions relating to indemnity for pain and suffering and for material damages, arising, principally, from allegations of irregularity in measurement of consumption, and claims of undue charging, in the normal course of business, totaling R$ 38,765 (R$ 33,178 on December 31, 2016), of which R$ 13,422$(R$ 14,741 on December 31, 2016) has been provisioned – this being the probable estimate for funds needed to settle these disputes.

Other civil cases

Cemig and its subsidiaries are parties in various civil actions claiming indemnity for pain and suffering and for material damages, among others, arising from incidents occurring in the normal course of business, in the amount of R$ 241,156 (R$ 227,043 on December 31, 2016), of which R$ 43,775 (R$ 40,443 on December 31, 2016) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Tax

The Company and its subsidiaries are parties in numerous administrative and court actions relating to taxes, including, among other matters, subjects relating to the ICMS (Value Added) tax on goods and services; the Urban Property Tax (Imposto sobre a Propriedade Territorial Urbana, or IPTU); the Rural Property Tax (ITR); the Tax on Donations and Legacies (ITCD); the Social Integration Program (Programa de Integração Social, or PIS); the Contribution to Finance Social Security (Contribuição para o Financiamento da Seguridade Social, or Cofins); Corporate Income Tax (Imposto de Renda Pessoa Jurídica, or IRPJ); the Social Contribution Tax (Contribuição Social sobre o Lucro Líquido, or CSLL); and applications to stay execution on tax matters. The aggregate amount of the contingency is approximately R$ 338,287 (R$ 295,373 on December 31, 2016), of which R$ 71,735 (R$ 69,922 on December 31, 2016) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

240

Environmental

The Company and its subsidiaries are involved in environmental matters, in which the subjects include protected areas, environmental licenses, recovery of environmental damage, and other matters, in the approximate total amount of R$ 14,312 (R$ 34,031 on December 31, 2016), of which R$ 43 (R$ 39 on December 31, 2016) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Regulatory

The Company and its subsidiaries are parties in numerous administrative and court proceedings, challenging, principally:(i) tariff charges in invoices for use of the distribution system by a self-producer; (ii) alleged violation of targets for continuity indicators in retail supply of electricity; and (iii) the tariff increase made during the federal government’s economic stabilization plan referred to as the ‘Cruzado Plan’, in 1986. The aggregate amount of the contingency is approximately R$ 242,386 (R$ 235,886 on December 31, 2016), of which R$ 31,356 (R$ 43,100 on December 31, 2016) has been provisioned – the amount estimated as probably necessary for settlement of these disputes.

Corporate

Difference of monetary updating on the Advance against Future Capital Increase (AFAC) made by the Minas Gerais State Government

In the nine-month period ended on September 30, 2017, the management developed negociations with the State of Minas Gerais and on October 25, 2017, a Debt Recognition Undertaking was signed with the State of Minas Gerais, through its Financial Department, and by Cemig, under which the State undertook to return to the company the total amount deposited, with monetary updating by the IGP-M inflation index. In view of this new situation, the probability of loss was reassessed to ‘remote’ . Therefore, the Company made a reversion provision of R$239,445 considering there is no expectation related to future outflows to settle the obligation that was previously recorded in the future. More details on note 11.

Other legal actions in the normal course of business

Breach of contract – Power line pathways and accesses cleaning services contract

The Company and its subsidiaries are parties in disputes alleging losses suffered as a result of supposed breaches of contract at the time of provision of services of cleaning of power line pathways and firebreaks. The amount provisioned is R$ 30,808 (R$ 28,389 at December 31, 2016), this being estimated as the likely amount of funds necessary to settle this dispute.

Other legal actions

The Company and its subsidiaries are parties in a lawsuit disputing the removal of residents in areas of access to transmission lines or under transmission line towers. The amount provisioned is R$ 23,286 (R$ 21,407 at December 31, 2016), estimated as the likely amount of funds necessary to settle this dispute, based on the opinion of the Company’s legal advisors.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

241

In addition to the issues described above, the Company is involved, on plaintiff or defendant side, in other cases, of smaller scale, related to the normal course of its operations, with an estimated total amount of R$ 170,045 (R$ 129,563 on December 31, 2016), of which R$ 9,989 (R$ 8,297 on December 31, 2016) – the amount estimated as probably necessary for settlement of these disputes – has been provisioned. Management believes that it has appropriate defense for these actions, and does not expect these issues to give rise to significant losses that could have an adverse effect on the Company’s financial position or profit.

Contingent liabilities – for cases in which the chances of loss are assessed as ‘possible’, and the company believes it has arguments of merit for legal defense

Tax and similar charges

The Company and its subsidiaries are parties in numerous administrative and court proceedings in relation to taxes. Below are details of the principal cases:

Indemnity of employees’ future benefit (the ‘Anuênio’)

In 2006 the Company paid an indemnity to its employees, totaling R$ 177,686, in exchange for rights to future payments (referred to as the Anuênio) for time of service, which would otherwise be incorporated, in the future, into salaries. The Company and its subsidiaries did not pay income tax nor Social Security contributions in relation to these amounts because it considered that those obligations are not applicable to amounts paid as an indemnity. However, to avoid the risk of a future fine, the Company decided to apply for However, to avoid the risk of a future fine, the Company decided to apply for orders of mandamus, which permitted payment into Court of R$ 121,834, which updated now represents the amount of R$$265,178 (R$ 255,127 at December 31, 2016). This was posted in Escrow deposits in litigation. The updated amount of the contingency is R$ 307,446 (R$ 290,216 on December 31, 2016) and, based on the arguments above, management has classified the chance of loss as ‘possible’.

Social Security contributions

The Brazilian federal tax authority (Secretaria da Receita Federal) has brought administrative proceedings under various headings: employee profit shares; the Workers’ Food Program (Programa de Alimentação do Trabalhador, or PAT); education benefit; food benefit; Special Additional Retirement payment; overtime payments; hazardous occupation payments; matters related to Sest/Senat (transport workers’ support programs); and fines for non-compliance with accessory obligations. The Company and its subsidiaries have presented defenses and await judgment. The amount of the contingency is approximately R$ 1,689,042 (R$ 1,509,940 on December 31, 2016). Management has classified the chance of loss as ‘possible’, also taking into account assessment of the chance of loss in the judicial sphere (the cases mentioned are in the administrative sphere), based on the evaluation of the claims and the related case law.

Non-homologation of offsetting of tax credit

The federal tax authority did not ratify the Company’s declared offsetting, in Corporate income tax returns, of carryforwards and undue or excess payment of federal taxes – IRPJ, CSLL, PIS and Cofins – identified by official tax deposit receipts (‘DARFs’ and ‘DCTFs’). The Company and its subsidiaries are contesting the non-homologation of the amounts offset. The amount of the contingency is R$ 242,839 (R$ 317,032 on December 31, 2016). The Company has assessed the chance of loss as ‘possible’, since the relevant requirements of the National Tax Code (CTN) have been complied with.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

242

Corporate tax return (DIPJ) – restitution and offsetting

The Company was a party in an administrative case involving requests for restitution and compensation of credits arising from tax carryforward balances indicated in the corporate tax returns for the calendar years from 1997 to 2000, and also for excess payments identified by the corresponding tax payment receipts (DARFs and DCTFs). Due to completion of all appeals in the administrative sphere, an ordinary legal action has been filed, for the approximate total amount of R$ 568,910 (R$ 535,465 on December 31, 2016). The chances of loss in this action are assessed as ‘possible’, due to nullities in the conduct of the administrative proceedings and the understanding that mistaken assumptions were used by the inspectors in the administrative judgment, and also based on analysis of the Company’s argument and documents of proof.

Income tax withheld at source (IRRF) on a capital gain in a stockholding transaction

The federal tax authority issued an infringement notice on Cemig as a jointly responsible party with its jointly-controlled entity Parati S.A. Participações em Ativos de Energia Elétrica (Parati), relating to withholding income tax (Imposto de Renda Retido na Fonte, or IRRF) allegedly applicable to returns paid by reason of a capital gain in a stockholding transaction relating to the purchase by Parati, and sale, by Enlighted, on July 7, 2011, of 100.00% of the equity interests in Luce LLC (a company with head office in Delaware, USA), holder of 75.00% of the shares in the Luce Brasil equity investment fund (FIP Luce), which was indirect holder, through Luce Empreendimentos e Participações S.A., of approximately 13.03% of the total and voting shares of Light S.A. (Light). The amount of the contingency is approximately R$ 209,739 (R$ 197,911 on December 31, 2016). The chance of loss has been assessed as ‘possible’.

The Social Contribution tax on net profit (CSLL)

The federal tax authority issued a tax infringement claim against the Company for the business years 2012 and 2013, alleging undue non-addition, or deduction, by the Company, of amounts relating to the following items in calculating the Social Contribution tax on net profit: (i) taxes with liability suspended; (ii) donations and sponsorship (Law 8313/91); and (iii) fines for various alleged infringements. The amount of this contingency is R$ 276,810 (R$ 279,914 on December 31, 2016). The Company has classified the chances of loss as ‘possible’, in accordance with the analysis of the case law on the subject.

ICMS (value added) Tax

The tax authority of Minas Gerais state has opened several administrative actions against Cemig D, raising a supposed divergence in the classification, for tax purposes, of certain consumers in the years 2011 through 2015. The amount of this contingency is R$ 88,904 (R$ 82,130 on December 31, 2016). The subsidiary has classified the chance of loss as ‘possible’, because it believes that it has arguments on the merit for defense in the court, and because of the absence of case law precedent.

Regulatory matters

Public Lighting Contribution (CIP)

Cemig and Cemig D are defendants in several public civil actions (class actions) claiming nullity of the clause in the Electricity Supply Contracts for public illumination signed between the Company and the various municipalities of its concession area, and restitution by the Company of the difference representing the amounts charged in the last 20 years, in the event that the courts recognize that these amounts were unduly charged. The actions are grounded on a supposed error by Cemig in the estimate of the period of time that was used in calculation of the consumption of electricity for public illumination, funded by the Public Lighting Contribution (Contribuição para Iluminação Pública, or CIP).

The Company and its subsidiaries believe they have has arguments of merit for defense in these claims, since the charge at present made is grounded on Aneel Normative Resolution 456/2000. As a result it has not constituted a provision for this action, the amount of which is estimated at R$ 1,239,409 (R$ 1,304,705 on December 31, 2015). The Company has assessed the chances of loss in this action as ‘possible’, due to the Consumer Defense Code (Código de Defesa do Consumidor, or CDC) not being applicable, because the matter is governed by the specific regulation of the electricity sector, and because Cemig complied with Aneel Resolutions 414 and 456, which deal with the subject.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

243

Accounting of electricity sale transactions in the Electricity Trading Chamber (CCEE)

In an action dating from August 2002, AES Sul Distribuidora challenged in the courts the criteria for accounting of electricity sale transactions in the wholesale electricity market (Mercado Atacadista de Energia, or MAE) (predecessor of the present Electricity Trading Chamber – Câmara de Comercialização de Energia Elétrica, or CCEE), during the period of rationing, in 2001-2. It obtained an interim judgment in its favor in February 2006, which ordered Aneel, working with the CCEE, to comply with the claim by AES Sul and recalculate the settlement of the transactions during the rationing period, leaving out of account Aneel’s Dispatch 288 of 2002. This was to be put into effect in the CCEE as from November 2008, resulting in an additional disbursement for Cemig GT, referring to the expense on purchase of electricity in the spot market on the CCEE, in the approximate amount of R$ 279,904 (R$ 263,847 on December 31, 2016). On November 9, 2008 Cemig GT obtained an interim remedy in the Regional Federal Appeal Court (Tribunal Regional Federal, or TRF) suspending the obligatory nature of the requirement to pay into court the amount that would have been owed under the Special Financial Settlement made by the CCEE.

Cemig GT has classified the chance of loss as ‘possible’, since this action deals with the General Agreement for the Electricity Sector, in which it has the full documentation to support its arguments.

System Service Charges (ESS) – Resolution of the National Energy Policy Council

Resolution 3 of the National Energy Policy Council (Conselho Nacional de Política Energética, or CNPE) of March 6, 2013 established new criteria for the prorating of the cost of additional dispatch of thermal plants. Under the new criteria, the costs of the System Service Charges for Electricity Security (Encargos do Serviço do Sistema, or ESS), which were previously prorated in full between Free Consumers and Distributors, was now to be prorated between all the agents participating in the National Grid System, including generators and traders.

In May 2013, the Brazilian Independent Electricity Producers’ Association (Associação Brasileira dos Produtores Independentes de Energia Elétrica, or Apine), of which Cemig GT is a member, obtained an interim court remedy suspending the effects of Articles 2 and 3 of CNPE Resolution 3, exempting generators from payment of the ESS under that Resolution.

As a result of the interim remedy, the CCEE carried out the financial settlement for transactions in April through December 2013 using the criteria prior to the said Resolution. As a result, Cemig GT recorded the costs of the ESS in accordance with the criteria for financial settlement published by the CCEE, without the effects of CNPE Resolution 3.

The applications by the plaintiff (Apine) were granted in the first instance, confirming the interim remedy granted in favor of its members, which include Cemig GT and its subsidiaries. This decision was the subject of an appeal, distributed to the 7th Panel of the Regional Federal Court (Tribunal Federal Regional, or TRF) of the 1st Region, in which judgment is awaited.

The amount of the contingency is approximately R$ 195,280 (R$ 182,232 on December 31, 2016). In spite of the successful judgment at first instance, the Association’s legal advisers still considered the chances of loss in this contingency as ‘possible’. The Company agrees with this, since there are not yet elements to make it possible to foresee the outcome of the Appeal filed by the federal government.

Tariff increases

Exclusion of consumers inscribed as low-income

The Federal Public Attorneys’ Office filed a class action against the Company and Aneel, to avoid exclusion of consumers from classification in the Low-income Residential Tariff sub-category, requesting an order for Cemig D to pay 200% of the amount allegedly paid in excess by consumers. Judgment was given in favor of the plaintiffs, but the Company and Aneel have filed an interlocutory appeal and await judgment. The amount of the contingency is approximately R$ 268,489 (R$ 253,731 on December 31, 2016). Cemig D has classified the chances of loss as ‘possible’ due to other favorable judgments on this theme.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

244

Periodic Tariff Adjustment – Neutrality of ‘Portion A’

The Municipal Association for Protection of the Consumer and the Environment (Associação Municipal de Proteção ao Consumidor e ao Meio Ambiente, or Amprocom) filed a class action against Cemig D and Aneel, requiring identification of all consumers allegedly damaged in the processes of Periodic Review and Annual Adjustment of tariffs in the period 2002 to 2009, and restitution, through credits on electricity bills, of any amounts unduly charged arising from non-inclusion in the distributor’s non-manageable costs components (‘Portion A’ costs) of the impact of future variations in consumer electricity demand, and the allegedly undue inclusion of these gains in the distributor’s manageable costs (‘Portion B’ costs), causing economic/financial imbalance of the contract. This is an action that could affect all distribution concession holders, which could thus lead to a new Electricity Sector Agreement.

As a result of a judgment being given in favor of Cemig D, and no appeal being made against that decision, the case has been written off (on December 31, 2016 the amount of the action was R$ 316,675).

Environmental issues

Impact arising from construction of power plants

The Public Attorneys of Minas Gerais State, together with an association and individuals, have brought class actions requiring the Company to invest at least 0.5% of the annual gross operating revenue of the Emborcação, Pissarrão, Funil, Volta Grande, Poquim, Paraúna, Miranda, Nova Ponte, Rio de Pedras and Peti plants in environmental protection and preservation of the water tables of the counties where these power plants are located, and proportional indemnity for allegedly irrecoverable environmental damage caused, arising from omission to comply with Minas Gerais State Law 12503/1997. Cemig GT has filed appeals to the Higher Appeal Court (STJ) and the Federal Supreme Court (STF). Based on the opinions of its legal advisers, Cemig GT believes that this is a matter involving legislation at infra-constitutional level (there is a Federal Law with an analogous object) and thus a constitutional matter, on the issue of whether the state law is constitutional or not, so that the final decision is one for the national Higher Appeal Court (STJ) and the Federal Supreme Court (STF). No provision has been made, since based on the opinion of its legal advisors management has classified the chance of loss as ‘possible’. The amount of the contingency is R$ 127,358 (R$ 112,704 on December 31, 2016).

The Public Attorneys’ Office of Minas Gerais State has filed class actions requiring the formation of a Permanent Preservation Area (APP) around the reservoir of the Capim Branco hydroelectric plant, suspension of the effects of the environmental licenses, and recovery of alleged environmental damage. Based on the opinion of its legal advisors in relation to the changes that have been made in the new Forest Code and in the case law on this subject, Cemig GT has classified the chance of loss in this dispute as ‘possible’. The estimated value of the contingency is R$ 77,372 (R$ 73,169 on December 31, 2016).

Other contingent liabilities

Early settlement of the CRC (Earnings Compensation) Account

The Company is a party in an administrative proceeding before the Audit Court of the State of Minas Gerais which challenges: (i) a difference of amounts relating to the discount offered by Cemig for early repayment of the credit owed to Cemig by the State under the Receivables Assignment Contract in relation to the CRC Account (Conta de Resultados a Compensar, or Earnings Compensation Account) – this payment was completed in the first quarter of 2013; and also (ii) possible undue financial burden on the State after the signature of the Amendments that aimed to re-establish the economic and financial balance of the Contract. The amount of the contingency is approximately R$ 395,797 (R$ 390,307 on December 31, 2016), and, based on the Opinion of the Public Attorneys’ Office of the Audit Board of the State of Minas Gerais, the Company believes that it has met the legal requirements. Thus, it has assessed the chances of loss as ‘possible’, since it believes that the adjustment was made in faithful obedience to the legislation applicable to the case.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

245

Contractual imbalance

Cemig D is a party in disputes alleging losses suffered by third parties as a result of supposed breach of contract at the time of implementation of part of the rural electrification program known as Luz para Todos (‘Light for Everyone’). The estimated amount is R$ 253,279 (R$ 236,703 on December 31, 2016). No provision has been made. Cemig D has classified the chances of loss as ‘possible’ as a result of the analysis that has been made of the argument and documentation used by the contracted parties in attempting to make the Company liable for any losses that allegedly occurred.

The Parent company is also a party in other disputes arising from alleged non-compliance with contracts in the normal course of business, for an estimated total of R$ 77,176 (R$ 71,396 on December 31, 2016). Cemig D has classified the chance of loss as ‘possible’, after analysis of the case law on this subject.

Irregularities in competitive tender proceedings

Cemig D is a party in a dispute alleging irregularities in competitive tender proceedings, governed by an online invitation to bid. The estimated amount is R$ 26,011 (R$ 25,650 on December 31, 2016). No provision has been made. Cemig D has classified the chance of loss as ‘possible’, after analysis of the case law on this subject.

Alteration of the monetary updating index of employment-law cases

The Higher Employment-Law Appeal Court (Tribunal Superior do Trabalho, or TST), considering a position adopted by the Federal Supreme Court (Supremo Tribunal Federal, STF) in two actions on constitutionality that dealt with the index for monetary updating of federal debts, decided on August 4, 2015 that employment-law debts in actions not yet decided that discuss debts subsequent to June 30, 2009 should be updated based on the variation of the IPCA-E (Expanded National Consumer Price Index), rather than of the TR reference interest rate. On October 16, 2015 an interim injunction was given by the STF that suspended the effects of the TST decision, on the grounds that decisions on matters of general constitutional importance should be decided exclusively by the STF.

The estimated value of the difference between the monetary updating indices of the employment-law cases is R$ 174,351 (R$ 175,839 on December 31, 2016). No additional provision has been made, since the Company and its subsidiaries, based on the assessment by its legal advisers, has assessed the chances of loss in the action as ‘possible’, as a result of the decision by the STF, and of there being no established case law, nor analysis by legal writers on the subject after the injunction given by the Federal Supreme Court.

24.

EQUITY AND REMUNERATION TO STOCKHOLDERS

The Company’s registered share capital on September 30, 2017 is R$ 6,294,208, in 420,764,708 common shares and 838,076,946 preferred shares, all with nominal value of R$ 5.00.

Profit (loss) per share

The number of shares used in the calculation of basic and diluted profit (loss) per share is as follows:


Number of shares	9M17			9M16			3Q17			3Q16
Common shares		420,764,708			420,764,708			420,764,708			420,764,708
Preferred shares		838,076,946			838,076,946			838,076,946			838,076,946

		1,258,841,654			1,258,841,654			1,258,841,654			1,258,841,654
Shares in treasury		(560,718	)		(560,718	)		(560,718	)		(560,718	)

Total		1,258,280,936			1,258,280,936			1,258,280,936			1,258,280,936

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

246

The following is the calculation of the basic and diluted profit per share:


	9M17		9M16		3Q17			3Q16
Net profit (loss) (A)		397,182		640,833		(83,666	)		433,502
Total number of shares (B)		1,258,280,936		1,258,280,936		1,258,280,936			1,258,280,936

Basic and diluted profit (loss) per share (A/B) – R$		0.32		0.51		(0.06	)		0.34

The purchase and sale options of investments described in Note 14 could potentially dilute basic profit per share in the future; however, they have not caused dilution of profit per share in the periods presented here.

Equity valuation adjustments


Equity valuation adjustments R$ ’000	Consolidated
Equity valuation adjustments R$ ’000	Sep. 30, 2017			Dec. 31, 2016
Adjustments to actuarial liabilities – Employee benefits – Parent company		(169,719	)		(169,719	)
Other comprehensive income in subsidiary and jointly-controlled entity
Deemed cost of PP&E		641,414			685,339
Variation in the fair value of a financial asset available for sale in a jointly-controlled entity		140			38,273
Cumulative translation adjustments		397			398
Adjustments to actuarial liabilities – Employee benefits		(1,048,192	)		(1,042,663	)
Cash flow hedge instruments		87			87

		(406,154	)		(318,566	)

Equity valuation adjustments		(575,873	)		(488,285	)

Reserves

The account lines Capital reserves and Profit reserves are made up as follows:


Capital reserves and shares in Treasury R$ ’000	Sep. 30, 2017			Dec. 31, 2016
Investment-related subsidies		1,856,628			1,856,628
Goodwill on issuance of shares		69,230			69,230
Monetary updating of capital		7			7
Shares in treasury		(1,362	)		(1,362	)

		1,924,503			1,924,503

The Reserve for investment-related donations and subsidies basically refers to the compensation by the federal government for the difference between the profitability obtained by Cemig up to March 1993 and the minimum return guaranteed by the legislation in effect at the time.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

247


Profit reserves R$ ’000	Sep. 30, 2017		Dec. 31, 2016
Legal Reserve		853,018		853,018
Reserve under the by-laws		57,214		57,214
Retained Earnings reserve		2,812,943		2,812,943
Tax incentives reserve		56,834		56,834
Reserve for obligatory dividends not distributed		1,419,846		1,419,846

		5,199,855		5,199,855

Legal reserve

Reserve under the by-laws

The Reserve under the By-laws is for future payment of extraordinary dividends, in accordance with Clause 28 of the by-laws.

Retained Earnings reserve

The Retained Earnings reserve refers to profits not distributed in prior years, to guarantee execution of the Company’s Investment Program, and amortizations of loans and financings. The retentions are supported by capital budgets approved by the Board of Directors in the periods in question.

Reserve for obligatory dividends not distributed


	Sep. 30, 2017
Dividends withheld, arising from the profit for 2015		622,530
Dividends withheld, arising from the profit for 2014		797,316

		1,419,846

These dividends were retained in Stockholders’ equity, in the business years 2015 and 2014, in the account Reserve for obligatory dividends not distributed; and as per the proposal approved in the Annual General Meetings of 2016 and 2015, the dividends retained will be paid as soon as the Company’s financial situation permits.

Tax incentives reserve

The federal tax authority (Receita Federal) recognized the Company’s right to reduction of 75% in income tax, including the tax paid at the additional rate, calculated on the basis of the operating profit in the region of Sudene (the Development Agency for the Northeast), for 10 years starting in 2014. The amount of the Tax incentives reserve on September 30, 2017 was R$ 56,834. This reserve cannot be used for payment of dividends.

Interest on capital and dividends

On June 27, 2017, the Company paid dividends and interest on capital in the amount of R$270,261 that were aproved on Ordinary and extraordinary shareholders meetings held on May 12, 2017. On September 30, 2017 remained the balance of R$196,302 to be paid.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

248

25.

REVENUE


R$ ’000	Consolidated
R$ ’000	9M17			9M16
Revenue from supply of electricity (a)		17,387,754			17,315,733
Revenue from use of the electricity distribution systems (TUSD) (b)		1,230,623			1,348,132
CVA, and Other financial components in tariff increases (c)		148,216			(937,053	)
Transmission revenue
Transmission concession revenue (d)		221,422			228,030
Transmission construction revenue (e)		11,226			36,405
Transmission indemnity revenue (g)		295,749			692,211
Generation Indemnity revenue (h)		259,516			—
Distribution construction revenue (e)		725,528			881,450
Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession (j)		2,277			6,638
Gain on financial updating of the Concession Grant Fee (f)		240,420			212,185
Transactions in electricity on the CCEE (i)		536,507			138,870
Supply of gas		1,305,636			1,037,126
Other operating revenues (k)		1,097,001			1,080,945
(h) Taxes and charges applied to Revenue		(8,308,094	)		(7,933,934	)

Net operating revenue		15,153,781			14,106,738


R$’000	Consolidated
R$’000	3Q17			3Q16
Revenue from supply of electricity (a)		5,815,621			5,787,568
Revenue from use of the electricity distribution systems (TUSD) (b)		330,147			511,552
CVA, and Other financial components in tariff increases (c)		480,112			(273,498	)
Transmission revenue
Transmission concession revenue (d)		43,985			80,261
Transmission construction revenue (e)		4,201			4,771
Transmission indemnity revenue (g)		25,894			99,742
Generation Indemnity revenue (h)		259,516			—
Distribution construction revenue (e)		291,519			329,351
Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession (j)		766			1,313
Gain on financial updating of the Concession Grant Fee (f)		89,944			63,491
Transactions in electricity on the CCEE (i)		111,330			87,198
Supply of gas		484,491			339,634
Other operating revenues (k)		379,369			374,093
(h) Taxes and charges applied to Revenue		(3,181,073	)		(2,509,870	)

Net operating revenue		5,135,822			4,895,606

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a)	Revenue from supply of electricity

This table shows supply of electricity, and revenue from it, by type of consumer:


	MWh (1)				R$ ’000
	9M17		9M16		9M17			9M16
Residential		7,489,980		7,406,095		5,797,313			5,818,783
Industrial		13,162,944		14,541,717		3,633,866			4,042,707
Commercial, Services and Others		5,581,213		4,907,884		3,218,839			3,270,334
Rural		2,769,082		2,699,294		1,203,749			1,073,290
Public authorities		644,621		659,997		389,945			404,713
Public lighting		1,030,199		1,012,312		397,147			395,771
Public services		977,757		930,708		430,943			404,743

Subtotal		31,655,796		32,158,007		15,071,802			15,410,341

Own consumption		26,946		27,614		—			—
Supply not yet invoiced				—		(44,741	)		(105,308	)

		31,682,742		32,185,621		15,027,061			15,305,033

Wholesale supply to other concession holders (2)		9,167,876		8,813,064		1,289,188			1,884,424
Wholesale supply not yet invoiced, net				—		1,071,505			126,276

Total		40,850,618		40,998,685		17,387,754			17,315,733


	MWh (1)				R$ ’000
	3Q17		3Q16		3Q17		3Q16
Residential		2,456,908		2,389,353		1,878,293		1,859,109
Industrial		4,458,794		5,031,850		1,210,358		1,379,561
Commercial, Services and Others		1,776,377		1,522,936		982,345		985,574
Rural		1,016,897		1,015,555		424,366		394,504
Public authorities		207,967		208,314		120,600		128,652
Public lighting		354,299		338,892		132,691		129,015
Public services		338,415		318,605		144,190		136,068

Subtotal		10,609,657		10,825,505		4,892,843		5,012,483

Own consumption		8,896		8,528		0
Supply not yet invoiced		—		—		-10,305		13,261

		10,618,553		10,834,033		4,882,538		5,025,744

Wholesale supply to other concession holders (2)		3,427,498		3,006,675		401,091		677,340
Wholesale supply not yet invoiced, net		—		—		531,992		84,484

Total		14,046,051		13,840,708		5,815,621		5,787,568

(1)	Information not reviewed by the external auditors.

(2)	Includes a CCEAR (Regulated Market Sales Contract), ‘bilateral contracts’ with other agents, and the revenues from to management of generation assets (GAG) for the 18 hydroelectric plants of Lot D of Auction no 12/2015.

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b)	Revenue from Use of Distribution Systems (the TUSD charge)

A significant part of the large industrial consumers in the concession areas of Cemig D are now ‘Free Consumers’ – energy is sold to them by the Cemig group’s generation and transmission company, Cemig GT, as well as other generators. When these users became Free Consumers, they began to pay separate charges for use of the distribution network. This line (‘TUSD’) records those charges.

c)	The *CVA* *Account (Portion ‘A’ Costs Variation Compensation Account), and* **Other financial components, in tariff adjustments**

The gains arising from variations in (i) the CVA Account (‘Portion A Costs Variation Compensation Account’), and in (ii) Other financial components in calculation of tariffs, refer to the positive and negative differences between the estimate of non-manageable costs of the subsidiary Cemig D and the payments actually made. The amounts recognized arise from balances constituted in the current period, homologated or to be homologated in tariff adjustment processes. For more information see Note 14.

d)	Transmission Concession revenue

Transmission revenue comprises the amount received from agents of the electricity sector for operation and maintenance of transmission lines of the national grid, represented by the Permitted Annual Revenue (Receita Anual Permitida, or RAP).

e)	Construction Revenue

Construction Revenue is substantially offset by Construction costs, and corresponds to the investments of the Company’s subsidiaries in assets of the transmission and distribution concessions in the period.

f)	Gain on financial updating of the Concession Grant Fee

Represents updating by the IPCA index, plus remuneratory interest, on the Concession Grant Fee for the concession awarded as Lot D of Auction 12/2015. For more details see Note 14.

g)	Transmission Indemnity revenue

In 9M17 the Company recognized revenue of R$ 295,749, of which R$ 146,494 corresponded to updating, by the IPCA index, of the balance of indemnity existing at December 2016, and R$ 149,255 relating to the adjustment to the BRR (Remuneration Base of Assets) of the transmission assets, as per Aneel Technical Note 183/2017. For more details see Note 14.

h)	Generation Indemnity revenue

In 9M17 the Company recognized revenue of R$ 259,516, for the adjustment to the balance of non-amortized indemnities for the concessions of the São Simão and Miranda Hydroelectric Plants, as per Ministerial Order 291/17, also taking into account the updating of the amounts. For more details see Notes 4 and 14.

i)	Revenue from transactions in electricity in the CCEE (Wholesale Trading Chamber)

The revenue from transactions in the Electricity Trading Chamber (Câmara de Comercialização de Energia Elétrica, or CCEE) is the monthly positive net balance of settlements of transactions for purchase and sale of electricity in the Spot Market, through the CCEE.

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j)	Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession

Gain on Adjustment to expectation of cash flow from the indemnifiable Financial asset of the distribution concession, due to monetary updating of the Regulatory Remuneration Base of assets

k)	Other operating revenues


	Consolidated
R$ ’000	9M17		9M16
Charged service		7,723		4,533
Telecoms services		111,342		117,906
Services rendered		116,167		120,149
Subsidies (*)		769,505		757,213
Rental and leasing		88,869		73,423
Other		3,395		7,721

		1,097,001		1,080,945


	Consolidated
R$ ’000	3Q17		3Q16
Charged service		3,124		1,593
Telecoms services		38,520		59,608
Services rendered		40,635		39,127
Subsidies (*)		266,485		246,636
Rental and leasing		30,531		24,582
Other		74		2,547

		379,369		374,093

(*)	Revenue recognized for the tariff subsidies applied to users of distribution services, including low-income subsidies, which are reimbursed by Eletrobras.

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252

l)	Taxes and charges reported as deductions from revenue


	Consolidated
R$ ’000	9M17		9M16
Taxes on revenue
ICMS tax		4,470,557		3,873,741
Cofins tax		1,654,269		1,529,044
PIS and Pasep taxes		359,137		331,964
Other		5,942		5,238

		6,489,905		5,739,987
Charges to the consumer
Global Reversion Reserve (RGR) (Recovery of expense)		9,418		(26,420	)
Energy Efficiency Program		37,422		44,873
Energy Development Account (CDE)		1,326,946		1,596,577
Research and Development (R&D)		26,914		35,936
National Scientific and Technological Development Fund (FNDCT)		26,914		35,936
Energy System Expansion Research (EPE of MME)		13,457		17,968
Consumer charges – Proinfa alternative sources program		29,626		31,385
Electricity Services Inspection Charge		22,983		26,149
Royalties for use of water resources		66,449		88,754
Consumer charges – the ‘Flag Tariff’ system		258,060		342,789

		1,818,189		2,193,947

		8,308,094		7,933,934


	Consolidated
R$’000	3Q17		3Q16
Taxes on revenue
ICMS tax (1)		1,819,209		1,259,453
Cofins tax		584,676		516,259
PIS and Pasep taxes		126,932		112,078
Other		2,115		1,794

		2,532,932		1,889,584
Charges to the consumer
Global Reversion Reserve (RGR) (Recovery of expense)		9,468		(42,033	)
Energy Efficiency Program		11,732		10,978
Energy Development Account (CDE)		467,576		571,148
Research and Development (R&D)		7,927		11,240
National Scientific and Technological Development Fund (FNDCT)		7,927		11,240
Energy System Expansion Research (EPE of MME)		3,963		5,620
Consumer charges – Proinfa alternative sources program		10,049		11,363
Electricity Services Inspection Charge		6,347		8,467
Royalties for use of water resources		21,527		32,692
Consumer charges – the ‘Flag Tariff’ system		101,625		(429	)

		648,141		620,286

		3,181,073		2,509,870

(1)	In 3Q17 the subsidiaries Cemig GT and Cemig D adhered to the terms of the Minas Gerais State Tax Credits Regularization Plan (Plano de Regularização de Créditos Tributários, or PRCT). For more information see Note 19.

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26.

OPERATING COSTS AND EXPENSES


	Consolidated				Holding company
R$ ’000	9M17		9M16		9M17		9M16
Personnel (a)		1,275,667		1,217,201		38,796		26,587
Employees’ and managers’ profit shares		25,777		30,417		1,195		(3,024	)
Post-retirement obligations		293,617		248,583		29,482		27,188
Materials		43,248		40,935		89		52
Raw materials and inputs for production of electricity		58		35		—		—
Outsourced services (b)		680,569		601,806		6,796		6,226
Electricity bought for resale (c)		7,685,392		6,126,458		—		—
Depreciation and amortization		616,783		601,197		351		382
Operational provisions (reversals) (d)		558,793		714,237		104,037		280,532
Charges for use of the national grid		791,339		741,416		—		—
Gas bought for resale		789,861		623,503		—		—
Construction costs (e)		736,754		917,855		—		—
Other operational expenses, net (f)		311,581		372,298		6,940		11,646

		13,809,439		12,235,941		187,686		349,589


	Consolidated					Holding company
R$ ’000	3Q17		3Q16			3Q17			3Q16
Personnel (a)		358,505		373,986			17,730			9,430
Employees’ and managers’ profit shares		886		24,217			233			1,210
Post-retirement obligations		101,589		89,306			10,010			9,380
Materials		16,185		17,057			23			7
Raw materials and inputs for production of electricity		13		8			—			—
Outsourced services (b)		233,805		201,023			3,194			2,397
Electricity bought for resale (c)		2,942,974		2,170,348			—			—
Depreciation and amortization		205,983		202,480			115			122
Operational provisions (reversals) (d)		188,875		(19,375	)		88,726			(165,669	)
Charges for use of the national grid		387,078		215,504			—			—
Gas bought for resale		304,698		196,494			—			—
Construction costs (e)		295,720		334,122			—			—
Other operational expenses, net (f)		124,127		132,206			(979	)		1,683

		5,160,438		3,937,376			119,052			(141,440	)

a)	Personnel expenses

Programmed Voluntary Retirement Plan (PDVP)

In March 2017, the Company created the 2017 Employee Voluntary Severance Program (‘the 2017 PDVP’). Those eligible to take part were any employees who will have worked with Cemig for 25 years or more by December 31, 2017. The period for acceptance of the 2017 PDVP was April 3 through October 17, 2017. It provided for payment of an additional premium of five monthly salaries to employees who join in April 2017, to leave the Company in May 2017; the premium diminished progressively depending on the month of acceptance. Thus, for employees who adhered to the program only in August 2017, for voluntary retirement in September 2017, the corresponding premium payment was only one month’s salary. For those who joined as from September 1, 2017, there was no premium. The program also paid the standard legal severance payments – including: payment for the period of notice, and especially, an amount equal to the ‘penalty’ payment of 40% of the Base Value of the employee’s FGTS fund, as well as the other payments specified by the legislation. On September 30, 2017 the amount appropriated as expense on the premium for retirement under the 2017 PDVP, including the severence amounts, was R$ 197,326, corresponding to acceptance, up to that date, by 1,151 employees.

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b)	Outsourced services


	Consolidated				Holding company
R$’000	9M17		9M16		9M17		9M16
Meter reading and bill delivery		106,526		101,587		—		—
Communication		49,163		41,918		239		278
Maintenance and conservation of electrical facilities and equipment		186,971		175,003		84		49
Building conservation and cleaning		78,739		72,068		496		522
Contracted labor		9,252		8,819		—		—
Freight and airfares		5,434		5,156		1,357		1,724
Accommodation and meals		9,842		9,185		151		157
Security services		16,358		18,428		—		—
Consultancy		11,792		8,191		737		407
Maintenance and conservation of furniture and utensils		2,448		2,282		1		3
Information technology		34,289		28,999		771		439
Maintenance and conservation of vehicles		1,381		1,254		—		2
Disconnection and reconnection		23,528		3,540		—		—
Environment		10,058		12,532		—		—
Legal services		13,122		14,220		535		1,008
Legal procedural costs		2,010		2,664		43		48
Tree pruning		14,727		8,888		—		—
Cleaning of power line pathways		10,176		5,728		—		—
Copying and legal publications		16,949		11,746		200		148
Inspection of consumer units		118		613		—		—
Printing of tax invoices and electricity bills		121		2,588		—		—
Other expenses		77,565		66,397		2,182		1,441

		680,569		601,806		6,796		6,226

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R$’000	Consolidated				Holding company
R$’000	3Q17		3Q16		3Q17		3Q16
Meter reading and bill delivery		35,375		34,067		–		—
Communication		15,074		15,469		126		92
Maintenance and conservation of electrical facilities and equipment		60,119		51,512		63		1
Building conservation and cleaning		28,637		24,498		71		176
Contracted labor		4,146		2,610		–		—
Freight and airfares		2,066		2,367		418		893
Accommodation and meals		3,405		3,598		51		63
Security services		5,422		5,945		–		—
Consultancy		3,992		1,234		33		178
Maintenance and conservation of furniture and utensils		832		14,321		1		1
Information technology		10,137		1,152		143		101
Maintenance and conservation of vehicles		457		307		–		1
Disconnection and reconnection		11,196		1,775		–		—
Environment		1,848		4,189		–		—
Legal services		4,321		5,149		95		425
Legal procedural costs		780		779		8		22
Tree pruning		5,760		3,498		–		—
Cleaning of power line pathways		6,126		1,708		–		—
Copying and legal publications		7,098		4,186		141		42
Inspection of consumer units		61		145		–		—
Printing of tax invoices and electricity bills		55		773		–		—
Other expenses		26,898		21,741		2,044		402

		233,805		201,023		3,194		2,397

c)	Electricity purchased for resale


R$’000	Consolidated
R$’000	9M17			9M16
Supply from Itaipu Binacional		933,603			880,361
Physical guarantee quota contracts		343,458			403,913
Quotas for Angra I and II nuclear plants		182,832			162,680
Spot market		1,180,780			487,536
Proinfa Program		225,965			244,095
‘Bilateral’ contracts		269,943			216,963
Electricity acquired in Regulated Market auctions		2,201,909			1,862,534
Electricity acquired in the Free Market		3,086,096			2,476,229
Credits of Pasep and Cofins taxes		(739,194	)		(607,853	)

		7,685,392			6,126,458

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256


R$’000	Consolidated
R$’000	3Q17			3Q16
Supply from Itaipu Binacional		316,786			273,070
Physical guarantee quota contracts		119,006			152,753
Quotas for Angra I and II nuclear plants		60,944			54,227
Spot market		408,859			196,612
Proinfa Program		75,321			81,365
‘Bilateral’ contracts		121,552			74,872
Electricity acquired in Regulated Market auctions		824,699			650,259
Electricity acquired in the Free Market		1,299,536			902,338
Credits of Pasep and Cofins taxes		(283,729	)		(215,148	)

		2,942,974			2,170,348

d)	Operational provisions (reversals)


R$’000	Consolidated						Holding company
R$’000	9M17			9M16			9M17			9M16
Provision for estimate of doubtful receivables		191,343			282,915			—			—
Contingency provisions (reversals)
Employment-law cases		188,013			69,963			12,553			11,463
Civil cases		18,142			28,732			722			1,647
Tax		2,401			2,616			1,353			205
Environmental		4			(21	)		—			—
Regulatory		(10,978	)		3,864			(4,241	)		(454	)
Other		8,864			29,095			713			86

		206,446			134,249			11,100			12,947

		397,789			417,164			11,100			12,947

Change in fair value of derivatives
Put optio – Ativas e Sonda (Note 15)		102			—			—			—
Put option – RME and Lepsa (Note 15)		92,937			267,585			92,937			267,585
Put option – SAAG (Note 15)		67,965			29,488			—			—

		161,004			297,073			92,937			267,585

		558,793			714,237			104,037			280,532

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257


R$’000	Consolidated						Holding company
R$’000	3Q17			3Q16			3Q17			3Q16
Provision for estimate of doubtful receivables		50,458			108,349			—			—
Contingency provisions (reversals)
Employment-law cases		10,288			31,166			532			1,177
Civil cases		8,745			10,909			833			175
Tax		5,565			(567	)		3,961			(892	)
Environmental		1			36			—			—
Regulatory		(143	)		(9,088	)		(2,162	)		614
Other		2,230			3,110			256			24

		26,686			35,566			3,420			1,098

		77,144			143,915			3,420			1,098

Change in fair value of derivatives
Put option – Sonda (Note 15)		61			—						—
Put option – RME and Lepsa (Note 15)		85,306			(166,767	)		85,306			(166,767	)
Put option – SAAG (Note 15)		26,364			3,477			—			—

		111,731			(163,290	)		85,306			(166,767	)

		188,875			(19,375	)		88,726			(165,669	)

e)	Construction cost


R$’000	Consolidated
R$’000	9M17		9M16
Personnel and managers		38,297		46,155
Materials		334,851		424,240
Outsourced services		300,244		321,916
Other		63,362		125,544

		736,754		917,855


R$’000	Consolidated
R$’000	3Q17		3Q16
Personnel and managers		14,143		13,659
Materials		151,691		160,127
Outsourced services		109,061		120,164
Other		20,825		40,172

		295,720		334,122

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f)	Other operating expenses, net


R$’000	Consolidated				Holding company
R$’000	9M17		9M16		9M17		9M16
Leasing and rentals		77,095		67,449		2,616		486
Advertising		14,331		6,995		276		193
Own consumption of electricity		15,581		16,536		—		—
Subsidies and donations		9,457		12,364		—		—
Paid concession		2,264		2,154		—		—
Insurance		6,042		7,254		1,693		2,844
CCEE annual charge		6,017		5,802		1		2
Losses on de-activation and disposal of goods and rights		44,876		74,798		—		2
Forluz – Administrative running cost		19,607		18,951		970		937
Collection agents		52,664		53,200		—		1
Fine for violation of Service Continuity standard		24,755		31,060		—		—
Taxes and charges		6,645		7,590		636		288
Other expenses		32,247		68,145		748		6,893

		311,581		372,298		6,940		11,646


R$’000	Consolidated				Holding company
R$’000	3Q17		3Q16		3Q17			3Q16
Leasing and rentals		32,188		19,921		1,142			177
Advertising		6,017		3,905		100			75
Own consumption of electricity		4,768		5,019		—			—
Subsidies and donations		2,933		3,286		—			—
Paid concession		735		734		—			—
Insurance		1,613		2,335		386			894
CCEE annual charge		1,972		1,850		—			1
Losses on de-activation and disposal of goods and rights		39,538		32,484		—			—
Forluz – Administrative running cost		6,574		6,470		325			320
Collection agents		17,377		17,652		—			1
Fine for violation of Service Continuity standard		3,895		6,035		—			—
Taxes and charges		1,259		1,861		93			39
Other expenses		5,258		30,654		(3,025	)		176

		124,127		132,206		(979	)		1,683

Operational leasing

The Company and its subsidiaries have operational leasing contracts relating, mainly, to vehicles and buildings used in its operational activities. Their amounts are not material in relation to the total costs of the Company and its subsidiaries.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

259

27.

FINANCIAL REVENUE (EXPENSES)


R$’000	Consolidated						Holding company
R$’000
	9M17			9M16			9M17			9M16
FINANCIAL REVENUES
Income from cash investments		171,530			220,232			39,214			30,510
Late charges on overdue electricity bills		193,057			212,499			—			—
Foreign exchange variations		20,207			56,140			—			1
Monetary variations		27,125			60,974			1,968			10,278
Monetary variations – CVA		—			206,967			—			—
Monetary updating on Court escrow deposits		86,464			42,615			44,696			10,108
Pasep and Cofins taxes charged on financial revenues		(35,529	)		(54,349	)		(8,704	)		(9,020	)
Adjustment to present value		—			325			—			—
Other		87,211			89,788			7,719			35,180

		550,065			835,191			84,893			77,057
FINANCIAL EXPENSES
Costs of loans and financings		(1,201,974	)		(1,432,576	)		—			—
Foreign exchange variations		(12,633	)		(19,225	)		(9	)		(1	)
Monetary updating – loans and financings		(74,655	)		(232,366	)		—			—
Monetary updating – paid concessions		737			(3,056	)		—			—
Charges and monetary updating on Post-retirement liabilities		(48,401	)		(86,782	)		(2,381	)		(4,270	)
Monetary updating – CCEE obligations		—			(13,844	)		—			—
Monetary updating – Advance Against Capital Increase (AFAC)		(40,086	)		—			—			—
Monetary updating – AFAC		239,445			—			239,445			—
Monetary updating – Advance sales of power supply		(37,666	)		—			—			—
Adjustment to present value		(2,168	)		—			—			—
Other		(94,550	)		(100,166	)		(502	)		(61	)

		(1,271,951	)		(1,888,015	)		236,553			(4,332	)

NET FINANCIAL REVENUE (EXPENSES)		(721,886	)		(1,052,824	)		321,446			72,725


R$’000	Consolidated						Holding company
R$’000
	3Q17			3Q16			3Q17			3Q16
FINANCIAL REVENUES
Income from cash investments		46,037			84,755			10,505			15,097
Late charges on overdue electricity bills		55,134			70,166			—			—
Foreign exchange variations		2,618			12,173			—			—
Monetary variations		13,132			33,081			400			3,295
Monetary variations – CVA		—			19,403			—			—
Monetary updating on Court escrow deposits		63,317			3,348			43,744			(13,067	)
Pasep and Cofins taxes charged on financial revenues		(13,207	)		(15,192	)		(4,648	)		(1,573	)
Adjustment to present value		—			(396	)		—			—
Other		34,133			23,918			1,874			1,850

		201,164			231,256			51,875			5,602
FINANCIAL EXPENSES
Costs of loans and financings		(344,297	)		(524,775	)		—			—
Foreign exchange variations		5,963			(2,046	)		—			(1	)
Monetary updating – loans and financings		(5,682	)		(46,959	)		—			—
Monetary updating – paid concessions		(5	)		(301	)		—			—
Charges and monetary updating on Post-retirement liabilities		(12,417	)		(22,483	)		(611	)		(1,106	)
Monetary updating – CCEE obligations		—			—			—			—
Monetary variations – CVA		(12,006	)		—			—			—
Monetary updating – AFAC		239,445			—			239,445			—
Monetary updating – Advance sales of power supply		(12,986	)		—			—			—
Adjustment to present value		(562	)		—			—			—
Other		(46,203	)		(57,604	)		(320	)		(21	)

		(188,750	)		(654,168	)		238,514			(1,128	)

NET FINANCIAL REVENUE (EXPENSES)		12,414			(422,912	)		290,389			4,474

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

260

28.

RELATED PARTY TRANSACTIONS

Cemig’s principal balances and transactions with related parties and its subsidiaries and jointly-controlled entities are shown here (consolidated):


COMPANY R$ ’000	ASSETS				LIABILITIES				REVENUE				EXPENSES
COMPANY R$ ’000
	Sep. 30, 2017		Dec. 31, 2016		Sep. 30, 2017		Dec. 31, 2016		9M17		9M16		9M17			9M16
Controlling shareholder
Minas Gerais State Gov.t
Current
Consumers and Traders (1)		97,779		71,340		—		—		101,085		112,168		—			—
Administrative deposit – AFAC (2)		—		—		—		—		38,278
Non-current
Administrative deposit – AFAC (2)		277,723		239,445		—		—		—
Jointly-controlled entity
Aliança Geração
Current
Transactions in electricity (3)		—		—		7,049		7,037		413		314		(107,335	)		(110,703	)
Provision of services (4)		2,504		3,706		—		—		9,767		8,420		—			—
Baguari Energia
Current
Transactions in electricity (3)		—		—		900		710		111		—		(5,379	)		(5,307	)
Services (4)		274		398		—		—		646		665		—			—
Madeira Energia
Current
Transactions in electricity (3)		—		—		17,229		17,636		18,213		3,164		(508,741	)		(449,584	)
Advance for future power supply (5)		53,865		—		—		—		—		—		—			—
Non-current
Advance for future power supply (5)		17,117		86,941		—		—		—		—		—			—
Norte Energia
Current
Transactions in electricity (3)		130		130		3,774		3,755		5,680		741		(89,256	)		(22,486	)
Lightger
Current
Transactions in electricity (3)		—		—		—		—		—		—		(15,188	)		(14,575	)
Hidrelétrica Pipoca
Current
Transactions in electricity (3)		—		—		1,595		1,228		—		—		(12,064	)		(12,359	)
Interest on Equity, and dividends		1,284		—		—		—		—		—		—			—
Retiro Baixo
Current
Transactions in electricity (3)		—		—		554		440		—		—		(4,464	)		(2,210	)
Interest on Equity, and dividends		—		2,146		—		—		—		—		—			—
Guanhães Energia
Current
Adjustment for losses (6)		—		—		—		59,071		—		—		—			—
Services (4)		568		241		—		—		332		—		—			—
Renova
Current
Transactions in electricity (3)		—		—		1,773		—		—		—		(140,771	)		(118,506	)
Accounts receivable (7)		62,455		—		—		—		—		—		—			—
Non-current
Accounts receivable (7)		20,317		73,722		—		—		—		—		—			—
Advance for future power supply (8)		258,166		229,053		—		—		—		—		—			—
EATE
Current
Transactions in electricity (3)		—		—		2,962		2,751		—		—		(19,674	)		(18,475	)
Light
Current
Transactions in electricity (3)		1,042		464		481		472		38,203		49,714		(1,106	)		(623	)
Interest on Equity, and dividends		—		6,852		—		—		—		—		—			—
Taesa
Current
Transactions in electricity (3)		—		—		12,451		10,326		33		17		(92,905	)		(82,956	)
Services (4)		141		482		—		—		667		220		—			—
Companhia Transirapé de Transmissão
Current
Transactions in electricity (3)		—		—		950		878		—		—		(7,310	)		(6,425	)
Services (4)		90		301		—		—		953		755		—			—
Interest on Equity, and dividends		678		678		—		—		—		—		—			—

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

261


COMPANY R$ ’000	ASSETS						LIABILITIES				REVENUE				EXPENSES
COMPANY R$ ’000
	Sep. 30, 2017			Dec. 31, 2016			Sep. 30, 2017		Dec. 31, 2016		9M17		9M16		9M17			9M16
Axxiom
Current
Provision of services (9)		—			—			2,347		6,980		—		—		—			(38,065	)
Interest on Equity, and dividends		—			144			—		—		—		—		—			—
Transudeste
Current
Transactions in electricity (3)		—			—			—		—		113		—		(1,166	)		(1,023	)
Provision of services (4)		175			141			196		150		492		419		—			—
Interest on Equity, and dividends		213			213			—		—		—		—		—			—
Transleste
Current
Transactions in electricity (3)		—			—			316		243		135		—		(1,878	)		(1,605	)
Provision of services (4)		120			178			—		—		819		763		—			—
Interest on Equity, and dividends		1,559			294			—		—		—		—		—			—
Other related parties
FIC Pampulha
Current
Cash and cash equivalents		257,625			621,203			—		—		—		—		—			—
Securities		622,750			833,849			—		—		14,374		128,436		—			—
(-) Securities issued by subsidiary companies (10)		(63,708	)		(49,479	)		—		—		—		—		—			—
Non-current
Securities		24,192			46,092			—		—				—		—			—
(-) Securities issued by subsidiary companies (10)		(11,863	)		(15,049	)		—		—		—		—		—			—
Forluz
Current
Post-retirement obligations (11)		—			—			106,399		86,156		—		—		(130,470	)		(139,289	)
Administrative running costs (12)		—			—			—		—		—		—		(19,606	)		(18,951	)
Operational leasing (13)		—			—			2,872		9,630		—		—		(44,002	)		(15,292	)
Non-current
Post-retirement obligations (11)		—			—			1,584,588		1,592,998		—		—		—			—
Cemig Saúde (Health)
Current
Health Plan and Dental Plan (14)		—			—			110,387		101,756		—		—		(145,075	)		(139,916	)
Non-current
Health Plan and Dental Plan (14)		—			—			1,704,340		1,646,580		—		—		—			—

The	main conditions relating to the related party transactions are as follows:

(1)	Refers to sale of electricity to the government of the State of Minas Gerais – the price of the electricity is that defined by Aneel through a Resolution which decides the Company’s annual tariff adjustment.

(2)	Refers to recalculation of the monetary updating on the amounts in the Advance against Future Capital Increase (AFAC) returned to Minas Gerais State. The value was transferred to Accounts Receivable from State of Minas Gerais on September 30, 2017 (See Notes 11 and 12)

(3)

(4)	Refers to a contract to provide plant operation and maintenance services.

(5)

In 2017, advance payments of R$ 71,100 were made to Santo Antônio Energia, subsidiary of Madeira Energia: R$ 51,874 was advanced by Cemig GT; R$ 11,917 by Sá Carvalho; and R$ 6,309 by Rosal. For the purposes of settlement invoices for supply of electricity to be issued by Santo Antônio Energia starting in 2018, in 12 tranches, will be used

(6)	A liability was recognized in 2016 corresponding to the Company’s interest in the share capital of Guanhães, due to its negative equity (see Note 15);

(7)	Cemig GT has an item of R$ 60,000 receivable from Renova Energia, which will be paid in 12 monthly installments, the first on January 10, 2018 and the last becoming due in December 2018, with monetary updating at 150% of the CDI rate.

(8)

In 2016, as specified in the power supply contract, Cemig GT advanced R$ 212,000 to Renova’s trading company, Renova Comercializadora. For settlement, it was agreed that this amount would be updated at a rate of 155% of the CDI rate, and offset by settlement of power supply invoices issued by Renova, from January 2020. Since there are now negotiations by Renova with players interested in buying assets of the Company, renegotiation of the supply contract, and also the form of payment of the advance made by Cemig GT, are also in the process of renegotiation.

(9)	This refers to a contract for development of management software between Cemig D and Axxiom Soluções Tecnológicas S.A., instituted in Aneel Dispatch 2657/2017.

(10)	FIC Pampulha has financial investments in securities issued by subsidiary companies of the Company. There is more information, and characteristics of the fund, in the description below.

(11)	The contracts of Forluz are updated by the Expanded Consumer Price Index (IPCA) calculated by the Brazilian Geography and Statistics Institute (Instituto Brasileiro de Geografia e Estatística, or IBGE) (See Note 22) and will be amortized up to the business year of 2024.

(12)	Funds for annual current administrative costs of the Pension Fund in accordance with the specific legislation of the sector. The amounts are estimated as a percentage of the Company’s payroll.

(13)	Rental of the Company’s administrative headquarters, in effect from March 2019 to May 2034.

(14)	Post-employment obligations relating to the employees’ health and dental plan (see Note 22).

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

262

For more information on the principal transactions, please see Notes 7, 18 and 25.

Dividends receivable from subsidiaries


Related party	Consolidado				Controladora
Related party	*Sep. 30, 2017 () R$’000**		Dec. 31, 2016 R$’000		*Sep. 30, 2017 () R$’000**		Dec. 31, 2016 R$’000
Cemig GT		—		—		605.000		605.000
Gasmig		—		—		98.079		58.560
Outras		3.742		11.386		8.344		9.679

		3.742		11.386		711.423		673.239

(*)	Dividends receivable from subsidiaries, eliminated in the consolidation.

Guarantees: sureties for loans, financings and debentures

Related party

Relationship

Type

Object

9M17
R$ ’000

Maturity

Norte Energia (‘Nesa’)

Affiliated

Surety

Financing

2,476,515

2042

Light (1)

Jointly-controlled entity

Counter-guarantee

Financing

683,615

2042

Santo Antônio Energia S.A. (Saesa)

Jointly-controlled entity

Surety

Financing

1,974,035

2034

Santo Antônio Energia S.A. (Saesa)

Jointly-controlled entity

Surety

Debentures

774,614

2037

Centroeste

Jointly-controlled entity

Surety

Financing

8,166

2023

5,916,945

(1)	Related to execution of guarantees of the Norte Energia financing.

At September 30, 2017, Management believes that there is no need to recognize any provisions in the Company’s accounting statements for the purpose of meeting any obligations arising under these sureties and/or guarantees.

Cash investments in FIC Pampulha – the investment fund of Cemig and its subsidiaries and affiliates

Cemig and its subsidiaries and affiliates invest part of their financial resources in an investment fund which has the characteristics of fixed income and obeys the Company’s cash investment policy. The amounts invested by the fund at September 30, 2017 are reported in Securities in Current or Non-current assets, or presented after deduction of the account line Debentures in Current or Non-current liabilities.

The financial investments of the investment fund in securities of related parties are as follows:

Issuer of security

Type

Annual contractual
conditions

Maturity

Sep. 30, 2017 – R$ ’000

Cemig
1.59%

Cemig GT
0.21%

Cemig D
34.10%

Other
subsidiaries
19.55% (1)

Total
55.45%

ETAU

Debentures

108.00% of CDI

01/12/2019

164

3,529

2.023

5.738

164

3,529

2.023

5.738

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

263

Issuer of security

Type

Annual contractual
conditions

Maturity

Dec. 31, 2016 – R$ ’000

Cemig
10.12%

Cemig GT
20.86%

Cemig D
24.94%

Other
subsidiaries
22.39% (1)

Total
78.31%

Axxiom

Debentures

109.00% of CDI

29/01/2017

579

1,194

1,427

1,282

4,482

ETAU

Debentures

108.00% of CDI

01/12/2019

1,024

2,110

2,522

2,265

7,921

1,603

3,304

3,949

3,547

12,403

(1)	Refers to the other companies consolidated by Cemig GT, which also have participation in the investment funds.

Remuneration of key management personnel

The total costs of key management personnel, in 9M17 and 9M16, are shown in this table:


R$’000	9M017		9M16
Remuneration		23,171		17,796
Profit shares (Reversal)		372		(642	)
Assistance benefits		1,209		1,121

Total		24,752		18,275

29.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The financial instruments of the Company and its subsidiaries are restricted to the following: Cash and cash equivalents; Securities; Consumers and Traders; Concession holders (for transport of electricity); Financial assets of the concession related to infrastructure; Generation concession assets; Restricted funds; Escrow deposits in litigation; the CVA (Portion A Costs Variation Compensation) Account and Other Financial Components in tariff adjustments; Loans and financings; Concession obligations payable; Suppliers; Post-employment obligations; and Put options. Gains and losses on transactions are recorded in full in the profit and loss account for the business year or in Stockholders’ equity, by the accrual method.

The Company’s financial instruments and those of its subsidiaries are recorded at fair value and measured in accordance with the following classifications:

◾

Loans and receivables: This category contains: Cash equivalents; Credits receivable from Consumers, Traders, and power transport concession holders; Restricted funds; Financial assets related to the CVA account and to Other financial components, in calculation of tariffs; the Low-income user subsidy; Reimbursement of tariff subsidies and Other credits owed by Eletrobras; Escrow deposits in litigation; Financial assets of the concession not covered by Law 12783/13; Financial assets related to Auction 12/2015 for award of generation plants; and Generation concession assets. They are recognized at their nominal realization value, which is similar to fair value.

◾

Financial instruments at fair value through profit or loss: Securities held for trading, in the amount of R$ 677,051, and Put options, in the amount of R$ 1,502,473 (respectively R$ 995,340 and R$ 1,341,468 on December 31, 2016) are in this category. They are valued at fair value and the gains or losses are recognized directly in the Profit and loss account.

◾

Financial instruments held to maturity: In this category are Securities, in the amount of R$ 26,064 on September 30, 2017 (R$ 49,888 on December 31, 2016) – included in Note 6. There is positive intention to hold them to maturity. They are measured at amortized cost using the effective rates method. Their fair values, of R$ 26,138 on September 30, 2017, and R$ 49,738 on December 31, 2016, were measured using information of Level 2.

◾

Financial instruments available for sale: In this category are Financial assets of the concession related to distribution infrastructure covered by Law 12783/13. They are measured at New Replacement Value (Valor Novo de Reposição, or VNR), equivalent to fair value on the date of these interim accounting statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

264

◾

Other financial liabilities – Non-derivative financial liabilities: In this category are Loans and financings; Obligations under debentures; Debt agreed with the Pension Fund (Forluz); Concessions payable; and Suppliers. They are measured at amortized cost using the effective rates method. The Company has calculated the fair value of its Loans, financings and debentures using 140% of the CDI rate – based on its most recent funding. For the following, the Company considered fair value to be substantially equal to book value: Loans, financings and debentures with annual rates between IPCA + 4.70% to 8.07% and CDI + 0.69% to 5.625%. For the financings from the BNDES and Eletrobras, fair value is conceptually similar to book value, due to the specific characteristics of the transactions.

◾

Liabilities measured at fair value – Financial liabilities relating to put options: The options to sell units in FIP Melbourne and FIP Malbec (‘the SAAG Put’); the options to sell shares in RME and Lepsa (‘the Parati PUT’); and the Sonda Options, were valued at fair value using the Black-Scholes-Merton (BSM) model. Both the options were calculated using the discounted cash flow method: for the SAAG Put option, up to the third quarter of 2016; and for the Parati Put option, up to the first quarter of 2016. The method used was changed, in the fourth and second quarters, respectively, to the BSM model.

The accounting balances of the financial instruments are similar to the fair values, with the exception of loans, financings and debentures, of which the accounting balance is R$ 14,055,575 (R$ 15,179,280 on December 31, 2016) and fair value is R$ 14,053,986 (R$ 14,711,130 on December 31, 2016), being measured as Level 2, using similar liabilities as reference.

Risk management

The principal risks to which the Company is exposed are as follows:

Exchange rate risk

Cemig and its subsidiaries are exposed to the risk of increase in exchange rates, especially with impact on indebtedness, profit and cash flow.

The net exposure to exchange rates is as follows:


Exposure to exchange rates	Sep. 30, 2017				Dec. 31, 2016
Exposure to exchange rates	Foreign currency		R$ ’000		Foreign currency		R$ ’000
US dollar
Loans and financings (Note 20)		7,320		23,190		7,072		23,049
Suppliers (Itaipu Binacional)		77,717		246,453		62,320		206,827

		85,037		269,643		69,392		229,876

Euros
Loans and financings – Euros (Note 20)		1,638		6,129		2,157		7,416

Net liabilities exposed				275,772				237,292

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

265

Sensitivity analysis

Based on information from its financial consultants, the Company estimates that in a probable scenario the variation of the exchange rates of foreign currencies in relation to the Real on September 30, 2018 will be: appreciation of the dollar by 11.14% to R$ 3.521, and depreciation of the Euro by 0.27% (to R$ 3.732). The Company has made a sensitivity analysis of the effects on the Company’s profit arising from depreciation of the Real exchange rate by 25%, and by 50%.


Risk: foreign exchange rate exposure R$ ’000	Base scenario Sep. 30, 2017		Scenario US$1=R$3.521 EUR1=R$3.732		Scenario: FX depreciation of 25% US$1=R$4.401 EUR1=R$4.665		Scenario: FX depreciation of 50% US$1=R$5.282 EUR1=R$5.598
US dollar
Loans and financings (Note 20)		23,190		25,774		32,216		38,665
Suppliers (Itaipu Binacional)		246,453		273,914		342,373		410,910

		269,643		299,688		374,589		449,575

Euros
Loans and financings (Note 20)
		6,129		6,113		7,641		9,170

Net liabilities exposed		275,772		305,801		382,230		458,745

Net effect of exchange rate variation				30,029		106,458		182,973

Interest rate risk

Cemig and its subsidiaries are exposed to the risk of increase in international interest rates, affecting loans and financings in foreign currency with floating interest rates (principally Libor), in the amount of R$ 58,759 (R$ $60,066 on December 31, 2016). On September 30, 2017 Cemig was exposed to the risk of increase in Brazilian domestic interest rates, as a result of net liabilities indexed to variation in interest rates, as follows:


Risk: Exposure to domestic interest rate changes R$ ’000	Consolidated
	Sep. 30, 2017			Dec. 31, 2016
Assets
Cash equivalents – Cash investments (Note 5)		548,751			893,713
Securities (Note 6)		703,114			1,045,228
Accounts receivable – Renova (Note 28)		82,772			74,630
Advance for future delivery of power supply (Note 28)		359,227			229,053
Financial assets of the transmission concession (Note 14)		473,374			482,281
Restricted cash		405,494			367,474
CVA and Other financial components in tariffs – Selic rate * (Note 14)		100,457			397,725
Credits owed by Eletrobras		901			138,444

		2,674,090			3,628,548

Liabilities
Loans, financings and debentures – CDI rate (Note 20)		(9,765,729	)		(10,928,261	)
Loans, financings and debentures – TJLP (Note 19)		(230,127	)		(213,102	)
Advance sales of power supply (Note 7)		(312,112	)		(181,200	)
CVA and Other financial components in tariffs – Selic rate (Note 14)		(704,418	)		(804,975	)

		(11,012,386	)		(12,127,538	)

Net liabilities exposed		(8,338,296	)		(8,498,990	)

(*)	Amounts of CVA and Other financial components are indexed by the Selic rate.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

266

Sensitivity analysis:

The Company estimates that, in a probable scenario, on September 30, 2018 the Selic rate will be 7.00% p.a. and the TJLP will be 6.25% p.a. The Company has made a sensitivity analysis of the effects on its profit arising from increases in rates of 25% and 50%. Variation in the CDI rate accompanies the variation in the Selic rate. Estimation of scenarios for the path of interest rates will consider the projections made by the Company and its subsidiaries, based on its financial consultants.


Risk: Increase in Brazilian interest rates R$ ’000	Sep. 30, 2017						Sep. 30, 2018
	Book value			Scenario Selic 7.00% TJLP 6.25%			Scenario Selic 8.75% TJLP +7.81%			Scenario Selic 10.50% TJLP 9.38%
Assets
Cash equivalents (Note 5)		548,751			587,164			596,767			606,370
Securities (Note 6)		703,114			752,332			764,636			776,941
Accounts receivable – Renova (Note 28)		82,772			88,566			90,015			91,463
Advance for future delivery of power supply (Note 28)		359,227			384,373			390,659			396,946
Financial assets of the transmission concession (Note 14)		473,374			506,510			514,794			523,078
Restricted cash		405,494			433,879			440,975			448,071
CVA + Other financial components in tariff adjustments – Selic		100,457			107,489			109,247			111,005
Other credits owed by Eletrobras		901			964			980			996

		2,674,090			2,861,277			2,908,073			2,954,870

Liabilities
Loans and financings – CDI rate (Note 20)		(9,765,729	)		(10,449,330	)		(10,620,230	)		(10,791,131	)
Loans and financings – TJLP (Note 20)		(230,127	)		(244,510	)		(248,100	)		(251,713	)
Advance sales of power supply (Note 7)		(312,112	)		(331,619	)		(336,488	)		(341,388	)
CVA and Other Financial components in tariffs (Note 14)		(704,418	)		(753,727	)		(766,055	)		(778,382	)

		(11,012,386)			(11,779,186)			(11,970,873)			(12,162,614)

Net assets (liabilities) exposed		(8,338,296	)		(8,917,909	)		(9,062,800	)		(9,207,744	)

Net effect of variation in interest rates					(579,613	)		(724,504	)		(869,448	)

Risk of increase in inflation

On September 30, 2017 the Company is exposed to the risk of increase in inflation, as follows:


Exposure to increase in inflation R$ ’000	Sep. 30, 2017			Dec. 31, 2016
Assets
Financial assets of the concession – Distribution infrastructure – IPCA (Note 14)		130,340			128,071
Financial assets of the concession – Transmission infrastructure – IPCA (Note 14)		1,975,775			1,805,230
Concession Grant Fee – IPCA (Note 13)		2,321,817			2,253,765

		4,427,932			4,187,066
Liabilities
Loans, financings and debentures – IPCA (Note 20)		(3,971,900	)		(3,933,092	)
Debt agreed with pension fund (Forluz) – IPCA		(736,774	)		(787,003	)
Forluz solution plan		(284,165	)		—

		(4,992,839	)		(4,720,095	)

Net liabilities exposed		(564,907	)		(533,029	)

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

267

Sensitivity analysis

In relation to the most significant inflation risk, the Company estimates that, in a probable scenario, on September 30, 2018 the IPCA inflation index will be 4.55%. The Company has made a sensitivity analysis of the effects on its profit arising from increases in inflation of 25% and 50%.


Risk: increase in inflation	Sep. 30, 2017			Sep. 30, 2018
Risk: increase in inflation	Book value			Scenario IPCA 4.55%			Scenario IPCA 5.69%			Scenario IPCA 6.82%
Assets
Financial assets of the concession – Distribution infrastructure – IPCA (Note 14)		130,340			136,265			137,743			139,229
Financial assets of the concession – Transmission infrastructure – IPCA (Note 14)		1,975,775			2,065,594			2,087,999			2,110,523
Concession Grant Fee – IPCA (Note 14)		2,321,817			2,427,367			2,453,696			2,480,165

		4,427,932			4,629,226			4,679,438			4,729,917
Liabilities
Loans, financings and debentures – IPCA (Note 20)		(3,971,900	)		(4,152,463	)		(4,197,504	)		(4,242,784	)
Debt agreed with pension fund (Forluz) – IPCA		(736,774	)		(770,268	)		(778,623	)		(787,022	)
Forluz solution plan		(284,165	)		(297,083	)		(300,306	)		(303,545	)

		(4,992,839	)		(5,219,814	)		(5,276,433	)		(5,333,351	)

Net liabilities exposed		(564,907	)		(590,588	)		(596,995	)		(603,434	)

(Net effect of variation in IPCA index)					(25,681	)		(32,088	)		(38,527	)

Liquidity risk

Cemig has sufficient cash flow to cover the cash needs related to its operating activities.

The Company manages liquidity risk with a group of methods, procedures and instruments that are coherent with the complexity of the business, and applied in permanent control of the financial processes, to guarantee appropriate risk managemen – including permanent monitoring of its cash flow in a conservative, budget-oriented manner. Balances are projected monthly, for each one of the companies, over a period of 12 months, and daily liquidity is projected over 180 days.

Short-term investments must, similarly, comply with certain rigid investing principles established in the Company’s Cash Investment Policy, which was approved by the Financial Risks Management Committee. These include applying its resources in private-securities investment funds, without market risk, and investment of the remainder directly in bank CDs or repo contracts which earn interest at the CDI rate.

In managing cash investments, the Company seeks to obtain profitability through a rigid analysis of financial institutions’ credit, applying operational limits for each bank, based on assessments that take into account their ratings, exposures and balance sheets. It also seeks greater returns on investments by strategically investing in securities with longer investment maturities, while bearing in mind the Company’s minimum liquidity control requirements.

On the reporting date of these interim accounting statements, the Company (holding company and consolidated) had an excess of current liabilities over current assets.

Note 1 refers to the various measures taken by the Company and its subsidiaries to increase its liquidity, through new financings, refinancing of existing obligations or, potentially, disinvestment of assets that are not part of the Company’s core business. Any reduction in the Company’s ratings could result in a reduction of its ability to obtain new financings and could also make refinancings of debts not yet due more difficult or more costly. In this situation, any financing or refinancing of the Company’s debt could have higher interest rates or might require compliance with more onerous covenants, which could additionally cause restrictions to the operations of the business.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

268

The flow of payments of the obligations of the Company and its subsidiaries, under debts agreed with the pension fund, loans, financings and debentures, for floating and fixed rates, including future interest up to contractual maturity dates, is shown in the table below:


Consolidated R$ ’000	Up to 1 month		1 to 3 months		3 months to 1 year		1 to 5 years		Over 5 years		Total
Financial instruments at (interest rates):
- Floating rates
Loans, financings and debentures		662,888		2,948,205		2,122,983		9,622,053		1,380,435		16,736,564
The Tax Credits Regularization Plan		123,510		187,694		284,143		—		—		595,347
Paid concessions		249		492		2,103		9,440		14,428		26,712
Debt agreed with pension fund (Forluz)		11,002		22,134		101,653		602,259		299,272		1,036,320
Forluz solution plan (Note 22)		2,515		7,540		20,551		136,579		394,613		561,798

		800,164		3,166,065		2,531,433		10,370,331		2,088,748		18,956,741
- Fixed rate
Suppliers		2,175,293		11,155		—		—		—		2,186,448

		2,975,457		3,177,220		2,531,433		10,370,331		2,088,748		21,143,189


Holding company R$ ’000	Up to 1 month		1 to 3 months		3 months to 1 year		1 to 5 years		Over 5 years		Total
Financial instruments at (interest rates):
- Floating rates
Debt agreed with pension fund (Forluz)		541		1,089		5,001		29,631		14,724		50,986
Forluz solution plan (Note 22)		124		371		1,011		6,720		19,415		27,641

		665		1,460		6,012		36,351		34,139		78,627
- Fixed rate
Suppliers		23,571		—		—		—		—		23,571

		24,236		1,460		6,012		36,351		34,139		102,198

Credit risk

The allowance for doubtful debtors constituted on September 30, 2017, considered to be adequate in relation to the credits in arrears receivable by the Company and its subsidiaries, was R$ 851,448.

In relation to the risk of losses resulting from declaration of insolvency of a financial institutions at which the Company has deposits, a Cash Investment Policy was approved and has been in effect since 2004, and is reviewed annually.

Cemig manages the counterparty risk of financial institutions based on an internal policy approved by its Financial Risks Management Committee.

This Policy assesses and scales the credit risks of the institutions, the liquidity risk, the market risk of the investment portfolio and the Treasury operational risk.

All investments are made in financial securities that have fixed-income characteristics, always indexed to the CDI rate. The Company and its subsidiaries make no securities investment transactions that could bring any volatility risk into its financial statements.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

269

The minimum requirements for concession of credit to financial institutions are centered on three items:

Rating by three risk rating agencies.

Equity greater than R$ 400 million.

Basel ratio above 12.

Banks that exceed these thresholds are classified in three groups, by the value of their equity; and within this classification, limits of concentration by group and by institution are set:


Group	Stockholders’ equity	Concentration	Limit per bank (% of Equity)**
A1	Over R$ 3.5 billion	Minimum of 80%	Between 6% and 9%
A2	R$ 1.0 billion to R$ 3.5 billion	Maximum 20%	Between 5% and 8%
B	R$ 400 million to R$ 1.0 billion	Maximum 20%	Between 5% and 7%

(1)	The percentage assigned to each bank depends on an individual assessment of indicators such as liquidity, quality of the credit portfolio, and other aspects.

Further to these points, Cemig also sets two concentration limits:

No bank may have more than 30% of the Group’s portfolio.

No bank may have more than 50% of the portfolio of any individual company.

Risk of over-contracting and under-contracting of power supply

Sale or purchase of power supply in the spot market to cover a positive or negative exposure of supply contracted, to serve the captive market of Cemig D, is a risk inherent to the electricity distribution business. The regulatory limit for 100% pass-through to consumers of exposure to the spot market, valued at the difference between the distributor’s average purchase price and the spot price (PLD), is only the margin between 100% and 105% of the distributor’s contracted supply. Any exposure that can be proved to have arisen from factors outside the distributor’s control (‘involuntary exposure’) may also be passed through in full to consumers. The Company’s Management is continually managing its contracts for purchase of power supply to mitigate the risk of exposure is to the spot market.

Risk of continuity of the concession

The risk to continuity of the distribution concession arises from the new terms included in the extension of Cemig D’s concession for 30 years from January 1, 2016, as specified by Law 12783/13. The extension is subject to new conditions not in the previous concession contract, making continuation of the concession conditional upon compliance by Cemig D with new criteria for quality and economic/financial sustainability, without which the extension may be subject to cancellation in the first five years of the contract – in that not meeting the criteria in any two consecutive years, or in the fifth year, results in cancellation of the concession.

Additionally, as from 2021, non-compliance with the quality criteria for three consecutive years, or with the minimum parameters for economic/financial sustainability for two consecutive years, results in opening of proceedings with a view to termination of the distribution concession.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

270

Hydrological risk

The greater part of the electricity sold by the Company’s subsidiaries is generated by hydroelectric plants. A prolonged period of scarce rainfall can result in lower water volumes in the plants’ reservoirs, possibly causing losses due to increased costs of purchasing electricity, due to replacement by thermoelectric generation, or reduction of revenues due to reduction in consumption caused by implementation of wide-ranging programs for saving of electricity. Prolongation of the generation of electricity using the thermal plants potentially could lead to cost increases for the electricity distributors, causing a greater need for cash, and could result in future increases in tariffs.

Risk of early maturity of debt

The Company and its subsidiaries have contracts for loans, financings and debentures with restrictive covenants normally applicable to this type of transaction, related to compliance with a financial index. Non-compliance with these covenants could result in earlier maturity of debts. For more details please see Note 20.

The covenant requiring half-yearly compliance , relating to the financial ratios of Cemig and of Cemig (guarantor), were complied with on June 30, 2016. The covenants requiring compliance annually were complied with on December 31, 2016. For fuller details please see Note 20.

Capital management

This table shows the Company’s consolidated net liabilities in relation to its Equity:


	Sep. 30, 2017			Dec. 31, 2016
Total liabilities		28,544,868			29,101,482
(–) Cash and cash equivalents		(582,382	)		(995,132	)
(–) Restricted cash		(405,494	)		(367,474	)

Net liabilities		27,556,992			27,738,876

Total equity		13,287,207			12,934,371

Net liabilities / equity		2.07			2.14

30.

MEASUREMENT AT FAIR VALUE

In the initial recognition, Cemig and its subsidiaries measure their financial assets and liabilities at fair value; after initial recognition, financial assets and liabilities are classified into the categories defined for financial instruments. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We adopt the ‘Fair Value Hierarchy’, to maximize coherence and comparability; this separation divides the inputs potentially used in measuring fair value into three broad levels, as follows:

◾

Level 1 – Active market – Quoted prices: A financial instrument is considered to be quoted in an active market if the prices quoted are promptly and regularly made available by an exchange or organized over-the-counter market, by operators, by brokers or by a market association, by entities whose purpose is to publish prices, or by regulatory agencies, and if those prices represent regular arm’s length market transactions made without any preference.

◾

Level 2 – No active market – Valuation technique: For an instrument that does not have an active market, fair value should be found by using a method of valuation/pricing. Criteria such as data on the current fair value of another instrument that is substantially similar, or discounted cash flow analysis or option pricing models, may be used. The objective of the valuation technique is to establish what would be the transaction price on the measurement date in an arm’s-length transaction motivated by business considerations.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

271

◾

Level 3 – No active market – No observable inputs: The fair value of investments in securities for which there are no prices quoted on an active market, or of derivatives linked to them which are to be settled by delivery of unquoted securities, is determined based on generally accepted valuation techniques, mainly related to discounted cash flow analysis.

The following is a summary of the instruments that are measured at fair value:


R$’000	Balance at Sep. 30, 2017			Fair value at Sep. 30, 2017
R$’000	Balance at Sep. 30, 2017			Active market – quoted price (Level 1)		No active market – Valuation technique (Level 2)			No active market –No observable inputs (Level 3)
Assets
Held for trading
Securities
Bank certificates of deposit		40,133			—		40,133			—
Financial Notes – Banks		521,896			—		521,896			—
Treasury Financial Notes (LFTs)		103,954			103,954		—			—
Debentures		11,068			—		11,068			—

		677,051			103,954		573,097			—
Loans and receivables
Concession Grant Fee		2,321,817			—		2,321,817			—
Restricted cash		405,494			—		405,494			—

		2,727,311			—		2,727,311
Available for sale
Financial assets of the concession related to infrastructure		271,612			—		—			271,612

		3,675,974			103,954		3,300,408			271,612
Liabilities
Fair value through profit or loss
Put options – Assets (Liabilities)
Sonda		4,484			—		—			4,484
RME and Lepsa		(1,242,818	)		—		(1,242,818	)		—
SAAG		(264,139	)		—		—			(264,139	)

		(1,502,473	)		—		(1,242,818	)		(259,655	)

		2,173,501			103,954		2,057,590			11,957

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

272


R$’000	Balance at Dec. 31, 2016			Fair value at December 31, 2016
R$’000	Balance at Dec. 31, 2016			Active market – quoted price (Level 1)		No active market – Valuation technique (Level 2)			No active market – No observable inputs (Level 3)
Assets
Held for trading
Securities
Bank certificates of deposit		32,782			—		32,782			—
Treasury Financial Notes (LFTs)		192,995			192,995		—			—
Financial Notes – Banks		724,274			—		724,274			—
Debentures		45,289			—		45,289			—

		995,340			192,995		802,345			—
Loans and receivables
Concession Grant Fee		2,253,765			—		2,253,765
Restricted cash		367,474			—		367,474			—

		2,621,239			—		2,621,239			—
Available for sale
Financial assets of the concession related to infrastructure		216,107			—		—			216,107

		3,832,686			192,995		3,423,584			216,107
Liabilities
Fair value through profit or loss
Put options – Assets (Liabilities)
Sonda		4,586			—		—			4,586
RME and Lepsa		(1,149,881	)		—		(1,149,881	)		—
SAAG		(196,173	)		—		—			(196,173	)

		(1,341,468	)		—		(1,149,881	)		(191,587	)

		2,491,218			192,995		2,273,703			24,520

(1)	As from 4Q16 the Company began to use the Black-Scholes-Merton method for measuring the fair value of the options. For more details please see Note 15.

Calculation of fair value of financial positions

Financial assets of the concession related to infrastructure: Measured at New Replacement Value (Valor novo de reposição, or VNR), according to criteria established in regulations by the Concession-granting power (‘Grantor’), based on fair value of the assets in service belonging to the concession and which will be revertible at the end of the concession, and on the Weighted average cost of capital (WACC) used by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the WACC are public information disclosed by the Grantor and by Cemig. The movement in financial assets of the concession is shown in Note 13.

Cash investments: The fair value of cash investments is calculated taking into consideration the market prices of the security, or market information that makes such calculation possible, and future rates in the fixed income and FX markets applicable to similar securities. The market value of the security is deemed to be its maturity value discounted to present value by the discount factor obtained from the market yield curve in Reais.

Put options: the Company adopted the Black-Scholes-Merton method for measuring fair value of the SAAG, Parati and Sonda options. The fair value of these options was calculated on the basis of the estimated exercise price on the day of exercise of the option, less the fair value of the underlying shares, also estimated for the date of exercise, brought to present value at the reporting date. The movement in relation to the put options, and other information, is given in Note 15.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

273

31.

OPERATING SEGMENTS

These segments are reflected in the Company’s management, organizational structure, and monitoring of results.

These tables show the costs and expenses for the nine-month periods ended on September 30, 2017 and 2016:

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

274


INFORMATION BY MARKET SEGMENT AT SEPTEMBER 30, 2017
	ELECTRICITY									TELECOMS			GAS			Other			ELIMINATIONS			TOTAL
	GENERATION			TRANSMISSION			DISTRIBUTION			TELECOMS			GAS			Other			ELIMINATIONS			TOTAL
ASSETS OF THE SEGMENT		16,270,364			4,147,643			18,430,584			334,918			2,049,736			3,369,322			(2,772,454	)		41,830,113
INVESTMENTS IN AFFILIATED AND JOINTLY-CONTROLLED ENTITIES		4,565,559			1,671,072			1,748,994			—			—			634,501			—			8,620,126
ADDITIONS TO THE SEGMENT		249,826			—			705,295			34,738			40,097			—			—			1,029,956
ADDITIONS TO FINANCIAL ASSETS		—			11,226			—			—			—			—			—			11,226
NET REVENUE		5,307,670			547,179			8,281,712			88,389			1,061,564			83,160			(215,893	)		15,153,781
COST OF ELECTRICITY AND GAS
Electricity purchased for resale		(3,021,466	)		—			(4,717,386	)		—			—			(9	)		53,469			(7,685,392	)
Charges for use of the national grid		(261,295	)		(262	)		(661,101	)		—			—			—			131,319			(791,339	)
Gas bought for resale		—			—			—			—			(789,861	)		—			—			(789,861	)
Operational costs, total		(3,282,761	)		(262	)		(5,378,487	)		—			(789,861	)		(9	)		184,788			(9,266,592	)
OPERATING COSTS AND EXPENSES
Personnel		(218,933	)		(84,022	)		(877,192	)		(14,559	)		(36,286	)		(44,675	)		—			(1,275,667	)
Employees’ and managers’ profit shares		(4,182	)		(1,871	)		(18,131	)		(380	)		—			(1,213	)		—			(25,777	)
Post-retirement obligations		(42,539	)		(19,850	)		(201,745	)		—			—			(29,483	)		—			(293,617	)
Materials		(7,468	)		(2,110	)		(32,089	)		(107	)		(1,434	)		(112	)		14			(43,306	)
Outsourced services		(97,890	)		(21,278	)		(550,614	)		(20,624	)		(12,231	)		(7,278	)		29,346			(680,569	)
Depreciation and amortization		(136,400	)		—			(400,754	)		(25,974	)		(41,836	)		(11,819	)		—			(616,783	)
Operational provisions (reversals)		(97,543	)		(9,148	)		(347,608	)		(456	)		—			(104,038	)		—			(558,793	)
Construction costs		—			(11,226	)		(705,296	)		—			(20,232	)		—			—			(736,754	)
Other operating expenses, net		(35,323	)		(6,550	)		(240,405	)		(18,501	)		(7,506	)		(7,178	)		3,882			(311,581	)

Total cost of operation		(640,278	)		(156,055	)		(3,373,834	)		(80,601	)		(119,525	)		(205,796	)		33,242			(4,542,847	)
OPERATING COSTS AND EXPENSES		(3,923,039	)		(156,317	)		(8,752,321	)		(80,601	)		(909,386	)		(205,805	)		218,030			(13,809,439	)
OPERATIONAL PROFIT BEFORE EQUITY GAINS (LOSSES) AND FINANCIAL REVENUE (EXPENSES)		1,384,631			390,862			(470,609	)		7,788			152,178			(122,645	)		2,137			1,344,342
Equity method gains in non-consolidated investees		151,126			—			—			(1,951	)		—			(169,855	)		—			(20,680	)
Financial revenues		126,202			5,013			302,727			2,149			24,240			89,734			—			550,065
Financial expenses		(847,998	)		(1,886	)		(616,487	)		(11,450	)		(30,594	)		236,464			—			(1,271,951	)
PRE-TAX PROFIT		813,961			393,989			(784,369	)		(3,464	)		145,824			33,698			2,137			601,776
Income and Social Contribution taxes		(215,688	)		(120,333	)		245,677			307			(45,316	)		(69,241	)		—			(204,594	)

NET PROFIT ( LOSS)		598,273			273,656			(538,692	)		(3,157	)		100,508			(35,543	)		2,137			397,182

Interest of the controlling shareholders		598,273			273,656			(538,692	)		(3,157	)		100,076			(35,543	)		2,137			396,750
Interest of non-controlling shareholder		—			—			—			—			432			—			—			432

		598,273			273,656			(538,692	)		(3,157	)		100,508			(35,543	)		2,137			397,182

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30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

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275


INFORMATION BY MARKET SEGMENT AT SEPTEMBER 30, 2016
	ELECTRICITY									TELECOMS			GAS			Other			ELIMINATIONS			TOTAL
	GENERATION			TRANSMISSION			DISTRIBUTION			TELECOMS			GAS			Other			ELIMINATIONS			TOTAL
ASSETS OF THE SEGMENT		14,414,449			4,267,418			18,165,610			337,745			2,737,182			2,388,972			(275,523	)		42,035,853
INVESTMENTS IN AFFILIATED AND JOINTLY-CONTROLLED ENTITIES		5,291,892			1,669,849			1,754,342			17,741			—			19,264			—			8,753,088
ADDITIONS TO THE SEGMENT		740,337			—			854,060			27,630			27,390			—			—			1,649,417
ADDITIONS TO FINANCIAL ASSETS		2,255,561			36,405																		2,291,966
NET REVENUE		4,268,400			953,846			8,000,957			99,711			847,565			89,562			(153,303	)		14,106,738
COST OF ELECTRICITY AND GAS
Electricity purchased for resale		(2,305,000	)		—			(3,857,716	)		—			—			(3	)		36,261			(6,126,458	)
Charges for use of the national grid		(232,477	)		(243	)		(605,478	)		—			—			—			96,782			(741,416	)
Gas bought for resale		—			—			—			—			(623,503	)		—			—			(623,503	)

Operational costs, total		(2,537,477	)		(243	)		(4,463,194	)		—			(623,503	)		(3	)		133,043			(7,491,377	)
OPERATING COSTS AND EXPENSES
Personnel		(202,412	)		(81,019	)		(852,103	)		(17,546	)		(30,424	)		(33,697	)		—			(1,217,201	)
Employees’ and managers’ profit shares		(4,095	)		(2,311	)		(26,939	)		—			—			2,928			—			(30,417	)
Post-retirement obligations		(39,975	)		(15,575	)		(165,845	)		—			—			(27,188	)		—			(248,583	)
Materials		(8,118	)		(2,115	)		(29,226	)		(74	)		(1,387	)		(78	)		28			(40,970	)
Outsourced services		(91,502	)		(21,295	)		(472,356	)		(16,523	)		(11,135	)		(6,752	)		17,757			(601,806	)
Depreciation and amortization		(156,261	)		—			(367,753	)		(24,949	)		(40,402	)		(11,832	)		—			(601,197	)
Operational provisions (reversals)		(56,512	)		(6,935	)		(370,553	)		294			—			(280,531	)		—			(714,237	)
Construction costs		—			(36,405	)		(854,060	)		—			(27,390	)		—			—			(917,855	)
Other operating expenses, net		(48,224	)		(7,898	)		(284,938	)		(13,406	)		(7,651	)		(12,656	)		2,475			(372,298	)

Total cost of operation		(607,099	)		(173,553	)		(3,423,773	)		(72,204	)		(118,389	)		(369,806	)		20,260			(4,744,564	)
OPERATING COSTS AND EXPENSES		(3,144,576	)		(173,796	)		(7,886,967	)		(72,204	)		(741,892	)		(369,809	)		153,303			(12,235,941	)
OPERATIONAL PROFIT BEFORE EQUITY GAINS (LOSSES) AND FINANCIAL REVENUE (EXPENSES)		1,123,824			780,050			113,990			27,507			105,673			(280,247	)		—			1,870,797
Equity method gains in non-consolidated investees		(155,226	)		301,402			(69,934	)		(25,648	)		—			(3,334	)		—			47,260
Financial revenues		134,676			4,100			597,394			3,275			11,548			84,198			—			835,191
Financial expenses		(998,640	)		(3,673	)		(847,214	)		(5,047	)		(29,073	)		(4,368	)		—			(1,888,015	)

PRE-TAX PROFIT		104,634			1,081,879			(205,764	)		87			88,148			(203,751	)		—			865,233
Income and Social Contribution taxes		(65,006	)		(217,859	)		23,223			(1,962	)		(25,250	)		62,454			—			(224,400	)

NET PROFIT ( LOSS)		39,628			864,020			(182,541	)		(1,875	)		62,898			(141,297	)		—			640,833

Interest of the controlling shareholders		39,628			864,020			(182,541	)		(1,875	)		62,628			(141,297	)		—			640,563
Interest of non-controlling shareholder		—			—			—			—			270			—			—			270

		39,628			864,020			(182,541	)		(1,875	)		62,898			(141,297	)		—			640,833

*	The expense of R$ 280,531 recorded as operating provisions in the Others column refers substantially to expenses on the option to purchase investments held by the parent company and described in Note 14.

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276

32.

THE ANNUAL TARIFF ADJUSTMENT

On May 23, 2017 Aneel approved the result of the Annual Tariff Adjustment for the subsidiary Cemig D. It represented an average decrease in tariffs of 10.66%, in effect on May 28, 2017, through May 27, 2018.

The average negative affect of 10.66% arises from the following factors:

◾

Adjustment of the cost items of Portions A and B, contributing 1.29% to the average effect.

◾

Inclusion of the financial components calculated in the current tariff adjustment for offsetting in the subsequent 12 months, resulting in a reduction of 4.68%.

◾

Removal of the financial components established in the 2016 tariff adjustment process, which remained in effect up to the date of the adjustment being processed, contributing 7.28% reduction.

◾

Offsetting of CDE: Offsetting between the amounts payable and receivable, in the amount of R$ 974,680 in 9M17 (R$ 761,145 in 9M16).

33.

NON-CASH TRANSACTIONS

In the half-year periods ended September 30, 2017 and 2016, the Company had the following transactions not involving cash, which are not reflected in the Cash flow statements:

◾	Capitalized Finance Costs in the amount of R$ 56,851 in 9M17 (R$ 120,398 in 9M16).

◾	Offsetting of CDE: Offseting between the amounts payable and receivable, in the amount of R$ 974,680 in 9M17 (R$ 761,145 in 9M16).

34.

SUBSEQUENT EVENTS

Amendments to contracts for loans with Banco do Brasil

On October 23, 2017, the subsidiary Cemig GT signed amendments to loan contracts signed with Banco do Brasil, in the total amount of R$ 549 million, for the purpose of postponing payment of the tranches maturing on October 24, 26 and 30, 2017, for 60 days. The interest to be calculated on the debtor balance was increased from 108% of the CDO rate and 112% of the CDI rate, to 128% of the CDI rate; one of the amendments maintained the original interest rate, of 132.9% of the CDI rate. The early maturity events were also altered, to be in line with the clauses in Cemig GT’s 7th Issue of Non-convertible Debentures.

binding proposal for capitalization in Renova

On November 12, 2017, Renova received a binding proposal for primary investment of R$ 1.4 billion in Renova, at a price of R$ 6 per unit. The offer further includes an earn-out of up to R$ 1.00 (one Real) per unit, for any amount that Renova receives in the future as adjustment to the sale price of the Alto Sertão II Wind Power Complex.

The proposal also specifies conditions precedent that are usual in this type of transaction. In the event of acceptance, Brookfield will be given a period of exclusivity of 60 days, able to be extended for 30 days, to finalize the documents of the transaction.

The transaction will then be subject to consideration and approval by the governance bodies of Renova and its controlling stockholders.

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Non-binding offers related to the process of disinvestment

On November 13, 2017, in continuity with the relevant facts disclosed on August 28, 2017 and October 02, 2017, Cemig has received non-binding proposals related to its process of disinvestment, as a result of the first phase of access to the documents and information contained in the Data Room made available to potential investors in relation to the Light group.

Cemig is analyzing these proposals for possible selection for inclusion in the next phase. If a selection is made, conclusion of the disinvestment process will also be subject to: a phase of due diligence, including technical visits; submission of binding proposals; negotiations; final approvals for signature of definitive agreements for the transaction referred to; and approvals of conditions precedent that are usual in this type of transaction.

Considering the stage of the discussions, no modification was made in the accounting treatment of the investment in the jointly controlled subsidiary Light.

Capital increase proposal in Cemig

On October 26, 2017, the Extraordinary General Meeting of Stockholders approved an increase of the Company’s share capital, by up to R$ 1,000,000, through issuance of up to 66,849,505 (sixty six million eight hundred forty nine thousand five hundred five) new common shares and up to 133,150,495 (one hundred thirty three million one hundred fifty thousand four hundred ninety five) new preferred shares, all nominal, book-entry shares, each with nominal value of R$ 5.00 (five Reais), for issue price per share, for both common and preferred shares, of R$ 6.57 (six Reais and fifty seven centavos) (‘the Capital Increase’). After such increase, the subscribed and paid-in capital stock of the Company will increase from R$ 6,294,208 to 7,294,208.

All the shares resulting from this subscription will have the same rights as the shares of the same class on which the capital increase is based. The Capital Increase will be by private subscription, with present shareholders having preference to participate in proportion to their current equity holdings, on the basis of 0.1588762172 of a new share for each share held at the close of market on the day of the EGM that authorizes the Capital Increase.

Such capital increase action will allow the Company to obtain funds in the amount of up to R$ 1,314,000, being sure that the difference, in the amount of up to R$ 314,000, will be allocated to the capital reserve account. The potential dilution resulting from the issue, if any shareholder does not join the subscription, is 13.704239283% for common shares and preferred shares. The current shareholders may exercise the preemptive right to subscribe, in the period from October 30, 2017 to November 29, 2017, at 15.887624200% on the shares of the same type that they own at the end of the day of the extraordinary general meeting that deliberates on this subject.

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278

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Report on the review of interim information

The Shareholders, Board of Directors and Officers

Companhia Energética de Minas Gerais

Belo Horizonte—MG

Introduction

We have reviewed the accompanying individual and consolidated interim financial information of Companhia Energética de Minas Gerais (“Company”), contained in the Quarterly Information Form (ITR) for the quarter ended September 30, 2017, which comprise the statement of financial position as at September 30, 2017 and the related statement of profit or loss, of comprehensive income for the three-month and nine-month periods then ended, and statement of changes in equity and cash flow statement for the nine-month period then ended, including other explanatory information.

Management is responsible for the preparation of the individual interim financial information in accordance with Accounting Pronouncement CPC 21 (R1) – Interim Financial Reporting, and of the consolidated interim financial information in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the fair presentation of this information in conformity with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with Brazilian and International Standards on Review Engagements (NBC TR 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and ISRE 2410—Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion on the individual and consolidated interim financial information

Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the quarterly information referred to above is not prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34, applicable to the preparation of Quarterly Financial Information (ITR), consistently with the rules issued by the Brazilian Securities and Exchange Commission.

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Emphasis of matters

Renewal of the concession for Jaguara, São Simão and Miranda

As disclosed in note 4 to the interim financial information, the Company is challenging the renewal of the concession contracts for the Jaguara, São Simão and Miranda hydroelectric plants. These concession contracts were terminated in August 2013, January 2015 and December 2016, respectively and were auctioned by the granting authority on September 27, 2017. Additionally, the Company is discussing administratively the amounts of the financial assets indemnifiable relative to the plants in question. The Company does not expect to incur losses arising from this matter. Our conclusion is not modified in respect of this matter.

Risks related to compliance with laws and regulations

As mentioned in Note 14 to the interim financial information, the Company holds indirect non-controlling interests in Madeira Energia S.A. (which has an investment in Santo Antônio Energia S.A.) and Norte Energia S.A. (the “Investees”), valued by the equity method. Investigations and certain legal actions conducted by the Federal Prosecution Office (MPF) involving other indirect shareholders of the Investees and certain executives of these shareholders are underway. At present, it is not possible to determine whether the results of referred to investigations and their respective developments may eventually have future consequences to the investees beyond the effects mentioned in Note 14. The Company’s interim financial information does not include any other effects that may arise from this matter. Our conclusion is not modified in respect of this matter.

Risk of continuity of the investee Renova Energia S.A. business operations

As disclosed in Note 14 to the interim financial information, the Company has indirect non-controlling interest in Renova Energia S.A. (“Renova”), which is accounted for under the equity method, and whose conditions indicate the existence of material uncertainty that may raise significant doubt as to the ability of Renova and its subsidiaries to continue as a going concern. Our conclusion is not modified in respect of this matter.

Other matters

Statements of value added

We have also reviewed the individual and consolidated Statements of Value Added (SVA) for the nine-month period ended September 30, 2017, prepared under the responsibility of Company management, the presentation of which in the interim financial information is required by the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR), and as supplementary information under the IFRS, whereby no SVA presentation is required. These statements have been subject to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that they are not consistently prepared, in all material respects, in relation to the overall accompanying interim financial information.

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Audit and review of prior year/period corresponding figures

The amounts corresponding to the statement of financial position as at December 31, 2016, and the statements of profit or loss and comprehensive income for the three-month and nine-month periods ended September 30, 2016, changes in equity, cash flows and value added for the nine-month period then ended, and presented for comparative purposes, were previously audited and reviewed, respectively, by other independent auditors, who issued an unmodified opinion on their independent auditor’s report on the individual and consolidated financial statements dated April 11, 2017, and an unmodified conclusion on their review report on the individual and consolidated interim financial information dated April 27, 2017, both containing emphasis of matters on the issues described above.

Belo Horizonte (MG), November 14, 2017

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/O-6

Shirley Nara S. Silva

Accountant CRC 1BA022650/O-0

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CONSOLIDATED RESULTS

(Figures in R$ ’000 unless otherwise indicated)

Results for 9M17

Net profit

For the first nine months of 2017 (9M17) Cemig reported net profit of R$ 397,182 – compared to net profit of R$ 640,833 in 9M16. The following pages describe the main variations between the two periods in revenues, costs, expenses and financial items.

We highlight that in 9M17 the subsidiaries Cemig GT and Cemig D adhered to the Minas Gerais State Tax Credits Regularization Plan (PRCT), for settlement of the ICMS tax, which totals an estimated R$ 582,956 (the amount is to be updated until the date of actual payment). This is to be paid in six equal installments, starting on October 31, 2017. The net effect posted in the third quarter results in 2017 is R$ 587,624. The amount of R$ 562,406 is recorded as deductions from revenue; and R$ 25,218 is posted as expenses (operational and financial).

As further non-recurring items in 3Q17, the Company recognized a gain on updating of the indemnity of generation assets, in the amount of R$ 259,516; and reversal of the provision relating to an Advance against future capital increase (AFAC), the effect of which in the Profit and loss account was R$ 277,723 – comprising a reversal of provision of R$ 239,445, and an item in Financial revenue of R$ 38,278 arising from monetary updating of the administrative deposit. For more details please see Notes 11 and 23.

Ebitda

(Earnings before interest, tax, depreciation and amortization)*

Cemig’s consolidated Ebitda in 9M17 was 22.98% below its Ebitda of 9M16:


Ebitda – R$ ’000	9M17		9M16		Change,%
Net profit for the period		397,182		640,833		(38.02	)
+ Income tax and Social Contribution tax		204,594		224,400		(8.83	)
+ Financial revenue (expenses)		721,886		1,052,824		(31.43	)
+ Depreciation and amortization		616,783		601,197		2.59

= EBITDA		1,940,445		2,519,254		(22.98	)

LOGO

Ebitda is a non-accounting measure prepared by the Company, reconciled with the Interim accounting information in accordance with CVM Circular SNC/SEP 1/2007 and CVM Instruction 527 of October 4, 2012. It comprises Net profit adjusted by the effects of net Financial revenue (expenses), Depreciation and amortization, and Income tax and the Social Contribution tax. Ebitda is not a measure recognized by Brazilian GAAP nor by IFRS; it does not have a standard meaning; and it may be non-comparable with measures with similar titles provided by other companies. Cemig publishes Ebitda because it uses it to measure its own performance. Ebitda should not be considered in isolation or as a substitution for net profit or operational profit, nor as an indicator of operational performance or cash flow, nor to measure liquidity nor the capacity for payment of debt.

Av. Barbacena 1200

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Brazil

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The most significant factors in the Ebitda 22.98% lower than in 9M16 are difference are set out below. In line with the variation in Ebitda, Ebitda margin in 9M17 was lower – at 12.80% – in 2017, than 9M16 (17.86%).

Revenue from supply of electricity

Revenue from sales of electricity in 9M17 totaled R$ 17,387,754, compared to R$ 17,315,733 in 9M16, a year-on-year increase of 0.42%.

Final consumers

Total revenue from electricity sold to final consumers, excluding Cemig’s own consumption, was R$ 15,027,061 in 9M17 – this was 1.82% lower than the figure for 9M16, of R$ 15,305,033.

The main factors in this revenue were:

◾

Lower revenues from the ‘Flag’ tariff, at R$ 258,060 in 9M17, compared to R$ 342,789 in 9M16. This mainly reflects lower amounts under the ‘red flag’ tariff in 9M17.

◾

Volume of electricity sold in 9M17 was 1.56% lower than in 1H16.

◾

The Annual Tariff Adjustment for Cemig D, with average effect on consumer tariffs of 3.78%, effective from May 28, 2016 (full effect in 2017).

◾

The Annual Tariff Adjustment for Cemig D, with average effect on consumer tariffs of 10.66%, effective from May 28, 2017.

Cemig’s electricity market

The total for sales in Cemig’s consolidated electricity market comprises sales to:

(I)	Captive consumers in Cemig’s concession area in the State of Minas Gerais;

(II)	Free Consumers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação Livre, or ACL);

(III)

other agents of the electricity sector – traders, generators and independent power producers, also in the Free Market;

(IV)	Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR); and

(V)	the Wholesale Trading Exchange (Câmara de Comercialização de Energia Elétrica, or CCEE)

( – eliminating transactions between companies of the Cemig Group).

The tables below show Cemig’s market in more detail, itemizing transactions in 9M17 compared with 9M16.

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Consumption itemized by type of consumer:


	MWh
	9M17		9M16		Change, %
Residential		7,489,980		7,406,095		1.13
Industrial		13,162,944		14,541,717		(9.48	)
Commercial, Services and Others		5,581,213		4,907,884		13.72
Rural		2,769,082		2,699,294		2.59
Public authorities		644,621		659,997		(2.33	)
Public lighting		1,030,199		1,012,312		1.77
Public services		977,757		930,708		5.06

Subtotal		31,655,796		32,158,007		(1.56	)

Own consumption		26,946		27,614		(2.42	)

		31,682,742		32,185,621		(1.56	)

Wholesale supply to other concession holders (1)		9,167,876		8,813,064		4.03

Total		40,850,618		40,998,685		(0.36	)

(1)	Includes Regulated Market Electricity Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

We highlight the volume of electric power sold to the industrial consumer category, which was 9.48% lower YoY, basically due to consumers leaving the status of captive consumer and moving to become consumers in the Free Market.

Revenue from Use of Distribution Systems (the TUSD charge)

This is revenue from charging Free Consumers the Tariff for Use of the Distribution System (Tarifa de Uso do Sistema de Distribuição, or TUSD). In 9M 2017 this revenue was R$ 1,230,623, compared to R$ 1,348,132 in 9M16 – a year-on-year reduction of 8.72%. This primarily reflects the reduction of approximately 40% in the TUSD, which took place in the 2017 Annual Tariff Adjustment, applied from May 28, 2017.

CVA and Other financial components in tariff adjustment

In its interim accounting information Cemig recognizes the difference between actual non-controllable costs (in which the CDE, and electricity bought for resale, are significant components) and the costs that were used as the basis of decision of the rates charged to consumers. This balance is the amount that will be passed through to the Company, or reimbursed to the consumer through Cemig D’s next subsequent tariff adjustments. In 9M17 the amount for reimbursement was R$ 148,216, compared to R$ 937,053 reimbursable in 9M16.

This variation was mainly due to increased costs of power supply in 9M17 due to the low level of the reservoirs, with a greater difference between the amounts spent and the costs recognized in the tariff. For more details please see Note 14.

Transmission indemnity revenue

Transmission indemnity revenue was R$ 295,749 in 9M17, compared to R$ 692,211 in 9M16. In 2Q17, as a result of the Mining and Energy Ministry setting the criteria for updating of the transmission indemnity, a posting was made, backdated to 2013, of the amount of the updating of the indemnity receivable based on the regulatory cost of own capital, which had a significant impact on the revenue reported.

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We highlight the amount recorded in 2017, of R$ 149,255, for the backdated difference of transmission concession assets the values of which were not included in the calculation basis for revenues in the previous tariff reviews. For more details see Note 14 – Financial assets of the concession.

Generation Indemnity revenue

Revenue from transactions in the Wholesale Trading Chamber (CCEE)

The revenue from electricity transactions in the CCEE in 9M17 was R$ 536,507, compared to R$ 138,870 in 9M16 – in other words, R$ 397,637 higher. This difference is mainly due to the increase of 322.61% in the average Spot Price (Preço de Liquidação de Diferenças – PLD), which averaged R$ 299.42/MWh in 9M17, and R$ 70.85/MWh in 9M16; and the volume of power supply available for settlement in the wholesale market in 2017.

Revenue from supply of gas

Cemig reports revenue from supply of gas totaling R$ 1,305,636 in 9M17, compared to R$ 1,037,126 in 9M16 – i.e. 25.89% higher YoY. This basically reflects volume of gas sold 32.10% higher YoY (982,235m³ in 9M17, vs. 743,534m³ in 9M16).

Construction Revenue

Distribution Infrastructure Construction Revenue in 9M17 was R$ 736,754, which was 19.73% less than in 9M16 (R$ 917,855). This revenue is fully offset by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the period.

Other operating revenues

The items in the Other Operating Revenues line comprise: Transmission Concession revenue; Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession; Gain on financial updating of the Concession Grant Fee; and Other operating revenues. Their total in 9M17 was R$ 1,561,119, or 2.18% more than in 9M16 (R$ 1,527,798). See Note 25 for the composition of operational revenues.

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Brazil

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Sector / Regulatory charges reported as Deductions from revenue

The charges that are recorded as deductions from operational revenue totaled R$ 8,308,094 in 9M17, or 4.72% more than in 9M16 (R$ 7,933,934).

The Company adhered to the Minas Gerais State Tax Credits Regularization Plan (Plano de Regularização de Créditos Tributários – PRCT), for settlement of ICMS (state value-added tax). The effect reported in 3Q17 was R$ 562,406 on ICMS from operational revenue.

The Energy Development Account – CDE

The amounts of payments to the Energy Development Account (CDE) are decided by an Aneel Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, the subsidy for balanced tariff reduction, the low-income consumer subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). Charges for the CDE in 9M17 were R$ 1,326,946, which compares to R$ 1,596,577 in 9M16.

This is a non-manageable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Consumer charges – the ‘Flag’ Tariff system

Charges to the Consumer related to the ‘Flag’ Tariffs were lower, at R$ 258.060 in 9M17, compared to R$ 342,789 in 9M16 – a reduction of 24.72% – mainly reflecting a decrease of the ‘red flag’ revenue in the comparative periods.

Operational costs and expenses (excluding Financial revenue/expenses)

Operational costs and expenses in 9M17 totaled R$ 13,809,439, or 12.86% more than in 9M16 (R$ 12,235.941). For more on the components of Operational costs and expenses see Note 26.

The following paragraphs comment on the main variations:

Electricity purchased for resale

This expense in 9M17 was R$ 7,685,392, 24.45% higher than in 9M16 (R$ 6,126,458).

This is mainly due to expense on purchase of supply in the spot market being 166.70% higher, at R$ 1,180,780 in 9M17, compared to R$ 487,536 in 9M16 – reflecting the higher cost of power supply in the wholesale market in 2017 as a result of the low level of reservoirs, with less volume of production by hydroelectric plants. The result was a higher volume of operation of the thermal plants, for which the increase in expenditure was financed principally by the electricity distributors, which is a feature of the present regulatory model in Brazil.

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Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

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Charges for Use of the Transmission Network

Charges for use of the transmission network in 9M17 totaled R$ 791,339, an increase of 6.73% year-on-year, compared to R$ 741,416 in 9M16.

This expense is payable by electricity distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid are set by an Aneel Resolution.

This is a non-manageable cost: the difference between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Operating provisions

Operational costs and expenses in 9M17 totaled R$ 558,793, or 21.76% less than in 9M16 (R$ 714,237). The main factors are:

◾

Variation in fair value of the investment options related to Parati and SAAG, in the amount of R$ 160,903 in 9M17, compared to a total provision of R$ 297,073 in 9M16. More details on the criteria for making of these provisions are in Note 15 (Put options).

◾

Lower provisions for consumer default – at R$ 191,343 in 9M17, compared to R$ 282,915 in 9M16 – mainly reflecting the Company’s increased efforts in collection of overdue receivables in 2017.

◾

Within contingencies, there was an increase in contingencies for employment-law cases – to R$ 188,013 in 9M17, compared to R$ 69,963 in 9M16. The increase in the amount provisioned reflects re-evaluations of potential losses in various legal actions as a result of the change in the procedural phase to provisional execution, in relation to actions disputing: the basis for calculation of hazardous work remuneration; argument for a principle of equal payment for alleged unlawful outsourcing; and subsidiary/joint liability. For more information see Note 23.

Personnel

Personnel expenses in 9M17 were R$ 1,275,667, or 4.80% more than in 9M16 (R$ 1,217,201). This arises mainly from the following items:

◾

Salary increase of 8.50%, as from November 2016, under the Collective Work Agreement.

◾

Recognition, in 2017, of an expense of R$ 197,326 on the voluntary retirement program, which compares with R$ 92,919 in 9M16.

◾

The average number of employees was down 13.49% in the comparison between the periods: 6,631 in 9M17, compared to 7,666 in 9M16.

Construction cost

Distribution Infrastructure Construction Costs in 9M17 totaled R$ 736,754, or 19.73% less than in 9M16 (R$ 917,855). This line records the Company’s investment in assets of the concession in the period, and is fully offset by the line Construction Revenue, in the same amount.

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Gas bought for resale

In 9M17 the Company recorded an expense of R$ 789,861 on acquisition of gas, 26.68% more than its comparable expense of R$ 623,503 in 9M16. This mainly reflects a volume of gas bought for resale 33.72% higher (987,442m³ in 9M17, compared to 738,42m³ in 9M16), partially offset by lower charges under the new agreement between Gasmig and Petrobras, which reduced the daily gas offtake obligation.

Equity method gains in non-consolidated investees

The result of equity method valuation of interests in investees in 9M17 was a negative item of R$ 20,680, compared to a gain of R$ 47,260 in 9M16. The difference mainly reflects negative equity income contributions from Madeira Energia (R$ 84,553), from Fip Melbourne (Santo Antônio Plant) (R$ 73,209) and from Renova (R$ 50,048); and a lower positive gain in Taesa, due to reduction of the equity interest held in that company, which was 43.36% in September 2016, and 31.54% in September 2017. For more details see Note 15.

Net financial revenue (expenses)

Cemig reports net financial expenses in 9M17 of R$ 721,886, compared to net financial expenses of R$ 1,052,824 in 9M16. The main factors are:

◾

The financial expense on monetary variation in loans and financings was R$ 157,711 lower, due to the IPCA inflation index (indexor for the debt) being lower in 9M17, at 1.78%, than in 9M16 (5.51%).

◾

Costs of loans and financings were R$ 230,602 lower, mainly due to lower CDI rate (main indexor of the debt), which was 8.03% over the period of 9M17, compared to 10.42% in the whole of 9M16.

◾

Reversion provision related to the monetary updating of AFAC in the amount of R$239.445. For more information please see Note 23;

◾

In 9M17 the result of monetary updating of the balances of CVA was a loss of R$ 40,086 in 9M17, compared to a gain of R$ 206,967 in 9M16. The positive and negative balances of CVA are updated by the Selic rate. This difference arises from a net payable amount of CVA on September 30, 2017. In 9M16 the corresponding amount was a credit. For more information please see Note 14.

◾

The expense of monetary variation on the debt agreed with Forluz was R$ 38,381 lower, also due to the lower value of the IPCA index (indexor of the debt), as mentioned above.

For a breakdown of financial revenues and expenses please see Note 27.

Income and Social Contribution taxes

In 9M17 the expense on income tax and the Social Contribution totaled R$ 204,594, on pre-tax profit of R$ 601,776, an effective rate of 34.00%.

In 9M16, the expense on income tax and the Social Contribution tax totaled R$ 224,400, on pre-tax profit of R$ 865,233, representing an effective rate of 25.94%. These effective rates are reconciled with the nominal tax rates in Note 9.

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Results for third quarter 2017

For the third quarter of 2017 (3Q17) Cemig reports a net loss of R$ 83,666, which compares to net profit of R$ 433,502 in 3Q16. The following pages describe the main variations between the two periods in revenues, costs, expenses and financial items.

We highlight that in 9M17 Cemig GT and Cemig D adhered to the Minas Gerais State Tax Credits Regularization Plan (PRCT), for settlement of the ICMS tax, which totals an estimated R$ 582,956 (the amount is to be updated until the date of actual payment). This is to be paid in six equal installments, starting on October 31, 2017. The net effect posted in the third quarter results in 2017 is R$ 587,629. The amount of R$ 561,411 is recorded as deductions from revenue; and R$ 25,218 is posted as expenses (operational and financial).

Ebitda (Earnings before interest, tax, depreciation and amortization*)

Cemig’s consolidated Ebitda in 9M17 was 91.58% below its Ebitda of 9M16:


Ebitda – R$ ’000	3Q17			3Q16		Change,%
Net profit for the period		(83,666	)		433,502		—
+ Income tax and Social Contribution tax		(9,334	)		135,034		—
+ Financial revenue (expenses)		(12,414	)		422,912		(37.69	)
+ Depreciation and amortization		205,983			202,480		1.73

= EBITDA		100,569			1,193,928		(91.58	)

LOGO

Ebitda is a non-accounting measure prepared by the Company, reconciled with its financial statements in accordance with the specifications in CVM Circular SNC/SEP 01/2007 and CVM Instruction 527 of October 4, 2012. It comprises: net profit adjusted for the effects of net financial revenue (expenses), depreciation, amortization and income tax and the Social Contribution tax. Ebitda is not a measure recognized by Brazilian GAAP nor by IFRS; it does not have a standard meaning; and it may be non-comparable with measures with similar titles provided by other companies. Cemig publishes Ebitda because it uses it to measure its own performance. Ebitda should not be considered in isolation or as a substitution for net profit or operational profit, nor as an indicator of operational performance or cash flow, nor to measure liquidity nor the capacity for payment of debt.

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Cemig’s Ebitda 91.58% lower year-on-year in 3Q17 mainly reflects the comparison of the 3Q17 loss of R$ 265,788 with the 3Q16 profit of R$ 433,502. The Company’s Ebitda margin in 3Q17 was 1.97%, which compares with 24.39% in 3Q16.

Revenue from supply of electricity

Revenue from supply of electricity was R$ 5,815,621 in 3Q17, or 0.48% higher than in 3Q16 (R$ 5,787,568).

Final consumers

Total revenue from electricity sold to final consumers, excluding Cemig’s own consumption, in 3Q16 was R$ 4,882,538 in 3Q17, compared to R$ 5,025,744 in 9M16 – a YoY reduction of 2.85%.

The main factors in this revenue were:

◾

The Annual Tariff Adjustment for Cemig D, with average effect on consumer tariffs of 3.78%, effective from May 28, 2016 (full effect in 2017).

◾

The Annual Tariff Adjustment for Cemig D, with average effect on consumer tariffs of 10.66%, effective from May 28, 2017.

◾

Volume of electricity sold to final consumers 1.99% higher year-on-year.

Cemig’s electricity market

The total for sales in Cemig’s consolidated electricity market comprises sales to:

(I)	Captive consumers in Cemig’s concession area in the State of Minas Gerais;

(II)	Free Consumers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação Livre, or ACL);

(III)

other agents of the electricity sector – traders, generators and independent power producers, also in the Free Market;

(IV)	Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR); and

(V)	the Wholesale Trading Exchange (Câmara de Comercialização de Energia Elétrica, or CCEE)

( – eliminating transactions between companies of the Cemig Group).

The table below shows the Cemig Group’s market in more detail, itemizing transactions in 3Q17 compared with 3Q16.

This table shows consumption itemized by type of consumer:


	MWh (1)
	3Q17		3Q16		Change,%
Residential		2,456,908		2,389,353		2.83
Industrial		4,458,794		5,031,850		(11.39	)
Commercial, Services and Others		1,776,377		1,522,936		16.64
Rural		1,016,897		1,015,555		0.13
Public authorities		207,967		208,314		(0.17	)
Public lighting		354,299		338,892		4.55
Public services		338,415		318,605		6.22

Subtotal		10,609,657		10,825,505		(1.99	)

Own consumption		8,896		8,528		4.32

		10,618,553		10,834,033		(1.99	)

Wholesale supply to other concession holders (2)		3,427,498		3,006,675		14.00

Total		14,046,051		13,840,708		1.48

(1)	Information in MWh has not been reviewed by external auditors.

(2)	Includes Regulated Market Electricity Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.

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We highlight the volume of electric power sold to the industrial consumer category, which was 11.39% lower YoY, basically due to consumers leaving the status of captive consumer and moving to become consumers in the Free Market.

Revenue from Use of Distribution Systems (the TUSD charge)

This is revenue from charging Free Consumers the Tariff for Use of the Distribution System (Tarifa de Uso do Sistema de Distribuição, or TUSD), for transport of electricity sold. In 3Q17 it totaled R$ 330,147, compared to R$ 511,552 in 3Q16 – a year-on-year reduction of 35.46%.

CVA and Other financial components in tariff adjustment

In its interim accounting information Cemig recognizes the difference between actual non-controllable costs (in which the CDE, and electricity bought for resale, are significant components) and the costs that were used as the basis of decision of the rates charged to consumers. This balance is the amount that will be passed through to the Company, or reimbursed to the consumer through Cemig D’s next subsequent tariff adjustments. In 3Q17 amounts to be passed through to the Company in the next tariff adjustment were recognized totaling R$ 480,112, compared to the amount of R$ 273,498 to be reimbursed, arising in 3Q16.

This variation is mainly due to the higher costs of electricity in 3Q17, with a larger difference between the amounts spent and the costs recognized in the tariff. For more details please see Note 14.

Transmission indemnity revenue

Transmission indemnity revenue in 3Q17 was R$ 25,894, compared to R$ 99,742 in 3Q16.

In 2Q16, as a result of the Mining and Energy Ministry setting the criteria for updating of the transmission indemnity, a posting was made, backdated to 2013, of the amount of the updating of the indemnity receivable based on the regulatory cost of own capital, and this had a significant impact on the revenue reported.

Generation Indemnity revenue

In 3Q17 the Company recognized revenue of R$ 259,516 for the adjustment to the balance not yet amortized of indemnity for the concessions for the São Simão and Miranda Hydroelectric Plants, as per Ministerial Order 291/17. For more details see Note 4.

Revenue from supply of gas

The Company reported revenue from supply of gas 42.65% higher year-on-year in 3Q17, at R$ 484,491, compared to R$ 339,634 in 3Q16 – mainly reflecting the higher volume of gas sold: 375,870m³ in 3Q17, compared to 238,440m³ in 3Q16.

Construction Revenue

Construction and infrastructure revenues (transmission, distribution and gas) totaled R$ 295,720 in 3Q17, 11.49% more than their total of R$ 334,122 in 3Q16. This revenue is fully offset by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the period.

Other items of operational revenues

The items in Other Operating Revenues – comprising Transmission Concession revenue; Adjustment to expectation of cash flow from the indemnifiable Financial assets of the distribution concession; Gain on financial updating of the Concession Grant Fee; and Other operating revenues – were 1.85% lower in 9M17, at R$ 514,064, than in 9M16 (R$ 519,158).

Sector / Regulatory charges reported as Deductions from revenue

The total of the taxes and charges reported as deductions from revenue in 3Q17 was R$ 3,181,073 – an increase of 26.74% in relation to their total of R$ 2,509,870 in 3Q16.

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The Company adhered to the Minas Gerais State Tax Credits Regularization Plan (PRCT), for settlement of ICMS (state value-added tax). The effect reported in 3Q17 was an expense on ICMS of R$ 587,629.

The Energy Development Account – CDE

Payments to the Energy Development Account (CDE) are decided by an Aneel Resolution. The purpose of the CDE is to cover costs of concession indemnities, tariff subsidies, the subsidy for balanced tariff reduction, the low-income consumer subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). The charges for the CDE in 3Q17 were R$ 467,576, compared to R$ 571,148 in 3Q16.

This is a non-manageable cost: the difference between the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff adjustment.

Consumer charges – the ‘Flag’ Tariff system

There was an increase in the Consumer Charges related to the ‘Flag’ tariff system: The figure for 3Q17 was an expense of R$101,625, compared to a reversal, in 3Q16, of R$ 429. This variation is due to the change in the tariff ‘Flag’ – it was ‘yellow’ in July, and ‘red’ in August, 2017, which compares to ‘green’ in 3Q16 which implies a larger incoming amount in 3Q17.

Operational costs and expenses (excluding Financial revenue/expenses)

Operational costs and expenses were 31.06% higher YoY: R$ 5,160,438 in 3Q17, and R$ 3,937,376 in 3Q16. For more on the components of Operational costs and expenses see Note 26.

The following paragraphs comment on the main variations in expenses:

Electricity purchased for resale

The expense on electricity brought for resale in 3Q17 was R$ 2,942,974, or 35.60% more than in 3Q16 (R$ 2,170,348). The main factors are:

◾

The expense on purchase of electricity at auctions was 26.83% higher – at R$ 824,699 in 3Q17, compared to R$ 650,259 in 3Q16. This reflected new power purchasing agreements made in the regulated market in 2017.

◾

The expense on purchase of supply in the spot market was 107.95% higher, at R$ 408,859, in 3Q17, compared to R$ 196,612 in 3Q16 – reflecting the higher cost of supply in the wholesale market in 2017 as a result of the low level of the reservoirs, and lower output of supply by the hydroelectric plants. The result was a higher volume of operation of the thermal plants, for which the increase in expenditure was financed principally by the electricity distributors, which is a feature of the present regulatory model in Brazil.

Charges for Use of the Transmission Network

Charges for use of the transmission network in 3Q17 totaled R$ 387,078, compared to R$ 215,504 in 3Q16, a year-on-year increase of 79.62%.

This expense is payable by electricity distribution and generation agents for use of the facilities that are components of the national grid. The amounts to be paid are set by an Aneel Resolution.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

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Operational provisions

Operational provisions were R$ 188,875 in 3Q17, compared to a reversal of provisions totalling R$ 19,375 in 3Q16. The main factors are:

◾

Reversal of provision on the investment options related to RME and LEPSA, in the total amount of R$ 166,767, in 3Q16, which compares with provisions of R$ 85,306 made in 3Q17. More details on the criteria for making of these provisions are in Note 15 (Put options).

◾

Lower provisions for default on receivables: R$ 50,458 in 3Q17, compared to R$ 108,349 in 3Q16 – mainly reflecting a lower level of default in the period.

Personnel

The expense on personnel in 3Q17 was R$ 358,505, or 4.14% lower than in 3Q16 (R$ 373,986). This arises mainly from the following factors:

◾

A decrease of 17.39% on average number of employees in 3Q17, 6,166 compared to 7,464 in 3Q16 (7,464), partially compensated by a salary increase of 8.50% under the Collective Work Agreement, as from November 2016.

◾

Recognition, in 3Q17, of an expense of R$ 31,904 on the voluntary retirement program, which compares with R$ 29,034 in the same period of 2016.

In counterpart to the items above, the average number of employees in 3Q17 was 17.39% lower, at 6,166, than in 3Q16 (7,464).

Employees’ and managers’ profit shares

This expense in 3Q17 was R$ 886, compared to R$ 24,217 in 3Q16. The difference reflects the Company’s lower profit – since profit shares are calculated as a percentage of profit.

Construction cost

Infrastructure construction cost in 3Q17 was R$ 295,720, compared to R$ 334,122 in 3Q16 (465,924). This line records the Company’s investment in assets of the concession in the period, and is fully offset by the line Construction Revenue, in the same amount.

Gas bought for resale

In 3Q17 the Company recorded an expense of R$ 304,698 on acquisition of gas, 55.07% higher than its comparable expense of R$ 196,494 in 3Q16. This is basically reflects a higher volume of gas purchased (385,467m³ in 3Q17, compard to 234,926m³ in 3Q16).

Equity method gains in non-consolidated investees

In 3Q17 Cemig posted a net equity method loss of R$ 80,798, which compares with a net gain of R$ 33,218 in 3Q16. This principally arises from the effect of the equity effect of the equity interest in Renova, which provided an equity loss of R$ 86,601 in 3Q17, compared with a loss of R$ 26,179 in 2016 and the interest in Taesa, which provided an equity gain of R$ 45,006 in 3Q17, compared with a gain of R$ 90,873 in 2016. For more details please see Note 15.

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Net financial revenue (expenses)

Cemig reported net financial revenue in 3Q17 of R$ 12,414, compared to net financial expenses of R$ 422,912 in 3Q16. The main factors are:

◾

Reversion provision related to the monetary updating of AFAC in the amount of R$239.445. For more information please see Note 23;

◾

In 3Q17 the result of monetary updating of the balances of CVA was a loss of R$ 12,006, compared to a gain of R$ 19,403 in 3Q16. The positive and negative balances of CVA are updated by the Selic rate. This difference arises from a net payable amount of CVA on September 30, 2017. In 3Q16 the corresponding amount was a credit. For more information please see Note 14.

◾

Income from cash investments was R$ 38,718 lower, due mainly to a lower volume of cash invested.

◾

Financial expense on monetary variation in loans and financings was R$ 41,277 lower, due to the lower variation of the IPCA inflation index (indexor for the debt) in the quarter – 0.59% in 3Q17, compared to 1.04% in 3Q16.

◾

Costs of loans and financing was 34.39% lower, at R$ 344,297 in 3Q17, compared to R$ 524,775 in 3Q16, due to the lower CDI rate over the period (principal indexor of the debt), of 2.29% in 3Q17, compared to 3.47% in 3Q16.

For a breakdown of financial revenues and expenses please see Note 27.

Income and Social Contribution taxes

In 3Q17 the expense on income tax and the Social Contribution tax totaled R$ 9,334, in relation to the pre-tax loss of R$ 93,000 – representing a percentage proportion of 10.04%.

In 3Q16, the expense on income tax and the Social Contribution tax was R$ 135,034, on pre-tax profit of R$ 568,536 an effective rate of 23.75%. These effective rates are reconciled with the nominal tax rates in Note 9.

OTHER INFORMATION THAT THE COMPANY BELIEVES TO BE MATERIAL

The Board of Directors

Meetings

Our Board of Directors met 25 times up to September 30, 2017, for matters of strategic planning, projects, acquisition of new assets, investments, and other subjects.

Membership, election and period of office

The present period of office began with the AGM on April 29, 2016, with election by the multiple voting system.

The periods of office of the present members of the Board of Directors expire at the Annual General Meeting of Stockholders to be held in 2018.

Principal responsibilities and duties:

The Board of Directors has the following responsibilities and duties, as well as those conferred on it by law:

◾

Decision, before signing, on any contract to be entered into between Cemig and any stockholder or a parent company of such stockholder.

◾

Decision on any sale of assets, loans or financings, charge on the company’s property, plant or equipment, guarantees to third parties, or other legal acts or transactions, with value of R$ 17,355 or more.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

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◾

Authorization for issuance of securities in the domestic or external market to raise funds.

◾

Approval of the Long-term Strategic Plan, and revisions of it, and of the Multi-year Strategic Implementation Plan and revisions of it, and the Annual Budget.

Committees

◾

These committees are made up of members of the Board of Directors, to carry out prior discussion and analysis on matters to be decided by the Board, as follows:

Board of Directors’ Support Committee;

Corporate Governance and Sustainability Committee;

Human Resources Committee;

Strategy Committee;

Committee for New Business Development and Corporate Control of Subsidiaries and Affiliates; and

Finance, Audit and Risks Committee.

Qualification and remuneration

The members of the Board of Directors have training and experience in a wide range of areas (business administration, engineering, law, economics, etc.), and very broad experience in business management. The global or individual amount of the remuneration of the Board of Directors is set by the General Meeting of Stockholders, in accordance with legislation in force at the time.

A list with the names of the members of the Board of Directors and their résumés is on our website at: http://ri.cemig.com.br.

The Audit Committee

Our Audit Board (see below) has attributions and duties specified in the Brazilian Corporate Law (Law 6404). In addition to these, in relation to the requirements of the Sarbanes-Oxley Law, to which we are subject due to our shares being registered with the US Securities and Exchange Commission (SEC – the capital markets regulator of the United States), we opted to exercise the exemption allowed by rule 10-3A of the Exchange Act regulated by SEC Release 82–1234, which accepts the activity of the Audit Board as an alternative to the Audit Committee specified by the Sarbanes-Oxley law.

The Executive Board

The Executive Board is made up of eleven members whose individual functions are set by the company’s by-laws. They are elected, and may be dismissed at any time, by the Board of Directors for periods of office of three years. They may also be re-elected.

Members are allowed simultaneously also to hold non-remunerated positions in the management of wholly-owned subsidiaries, subsidiaries or affiliates of Cemig, upon decision by the Board of Directors. They are also, obligatorily, members, with the same positions, of the Boards of Directors of Cemig GT (Generation and Transmission) and Cemig D (Distribution).

The period of office of the present Chief Officers expires at the first meeting of the Board of Directors held after the Annual General Meeting of 2018.

The members of the Executive Board and brief résumés are on our website: http://ri.cemig.com.br

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

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The members of the Executive Board (the Company’s Chief Officers) have individual responsibilities established by the Board of Directors and the by-laws. These include:

◾

Current management of the company’s business, complying with the by-laws, the Long-term Strategic Plan, the Multi-year Strategic Implementation Plan and the Annual Budget.

◾

Decision on any disposal of goods, loans or financings, pledge of the company’s property, plant or equipment, or guarantees to third parties or other legal acts or transactions, with value of less than R$ 17.355 million.

◾

The Executive Board normally meets weekly. It held 37 meetings in the nine months to September 30, 2017.

The Audit Board

Meetings

◾

Ten meetings have been held in 2017 up to September 30.

Membership, election and period of office

◾

We have a permanent Audit Board, made up of five sitting members and their respective substitute members. They are elected by the Annual General Meeting of Stockholders, for periods of office of one year, and may be reelected. They comprise:

-	one member elected by the holders of the preferred shares;

-	one member elected by holders of at least 10% of the common shares outside the controlling group; and

-	three members elected by the majority stockholder.

◾

The members of the Audit Board are listed on our website: http://ri.cemig.com.br

◾

Principal responsibilities and duties:

As well as the attributions specified by Law 6404 of December 15, 1976, as amended, in relation to the Sarbanes-Oxley law, to which we are subject due to our shares being registered with the Securities and Exchange Commission (SEC – the capital markets regulator of the United States), we opted to exercise the exemption allowed by Rule 10-3A of the Exchange Act, regulated by SEC Release 82-1234, which accepts the activity of the Audit Board as an alternative to the Audit Committee as defined by the Sarbanes-Oxley Law.

Qualification and remuneration

The Audit Board is a multi-disciplinary body, made up of members with various competencies (in accounting, economics, business administration, and other areas). The remuneration of the members of the Audit Board shall be set by the General Meeting of Stockholders which elects it, in accordance with the legislation from time to time in force.

Résumé information on its members is on our website: http://ri.cemig.com.br.

The Sarbanes-Oxley Law

Cemig obtained the first certification of its internal controls for mitigation of risks involved in the preparation and disclosure of the financial statements, issued in accordance with Section 404 of the Sarbanes-Oxley Law and the rules of the Public Company Accounting Oversight Board (PCAOB), which is included in the annual 20–F Report relating to the business year ended December 31, 2006, filed with the US Securities and Exchange Commission (SEC) on July 23, 2007.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

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Corporate risk management

Corporate risk management is a management tool that is an integral part of Cemig’s corporate governance practices. It identifies the events that can interfere in the process of the Company achieving its strategic objectives.

The intention is to provide senior management with information for taking of decisions, thus preserving the Company’s value. The practice of risk management is thus a competitive differentiation factor to be used not only defensively, but also as an opportunity for improvement. The structuring and analysis of operations from the point of view of risk management are factors that optimize investment in the control of the activity. They reduce costs, improve performance, and consequently help the Company achieve its targets.

Also, the need to put in place structural elements of the risk management system is one of the aspects that is evaluated for the Company’s inclusion in indices such as the DJSI World and the ISE Corporate Sustainability Index.

Cemig’s system of risk management was initially implemented in 2003, and has been constantly improved since then. A further element of the organizational structure, the Corporate Risk Management Committee (CMRC), created in 2012, has the following responsibilities: (i) to propose, for approval by the Executive Board, guidelines, policies and procedures to be adopted in the Corporate Risks Management Process, ensuring continuous improvements of the process, and arranging for it to be disseminated; (ii) to analyze and to propose to the Executive Board priority actions dealing with the risks characterized as ‘critical’, in the final exposure matrix; and (iii) to submit to the approval of the Executive Board mechanisms to make strategic monitoring operational for the corporate risks identified and effective actions to reduce financial exposure and impact on intangible assets to acceptable levels, taking into account the mitigating plans of action, which are to be in line with the Company’s Long-term Strategic Plan. The CMRC meets every two months.

In 2013 a new technological platform was installed exclusively for risk management – the SAP RM (Risk Management) module. This enabled the process of mapping of risks to take place continuously, since updating of information, verifications and assessments of the controls and plans of action become scheduled tasks to be executed by the people responsible within the system itself. This results in all the agents involved in risk management having clearly specified roles and responsibilities, also minimizing costs and use of employee time for these activities and controls. In addition, there is a flow analysis carried out by an independent group in the Company, for periodic evaluation of the controls for the purpose of auditing the effectiveness of the process.

In 2015 this platform came into full operation, generating reliable reports and providing perception of relationships between the risks that are mapped.

Several new steps were taken in 2015. The most significant of these include:

◾

Adjustments in the standard methodology for management of risks (new model for segmentation of risks, method of quantification of impacts, and approach used in raising information, also incorporating the ‘Top-down’ approach).

◾

Review and updating of the Risk Management Policy.

◾

Mapping of the principal corporate risks (‘Top Risks’), and some related to Cemig’s Socio-environmental Adaptation Program.

◾

Approval by the Board of Directors of the matrix of corporate risks and of the risk appetite assumptions.

In the process of the collection of the ‘Top Risks’ information, a survey was made with the Company’s General Managers to establish the principal subjects to be monitored, such as: Loss of concession; degree of indebtedness; liquidity; availability and reliability indicators; and omissions. This produced a matrix that expresses the joint assessment of the impact and probability of occurrence of the risk.

In particular, in relation to Cemig’s socio-environmental Adaptation Program, the risks relating to the following aspects, among others, were identified: use of water, handling of vegetation, fish deaths, environmental accidents with oils/material logistics, and compliance with environmental requirements. Cemig adopts measures to mitigate and manage exposure that are aligned with the risk appetite assumptions.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

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In 2016 Cemig created the Compliance and Corporate Risks (‘GC’) Management Department, under a General Manager – responsible to the CEO’s Office – enabling a greater degree of autonomy in this work.

In risk management processes, in planning of operations and in development of new business initiatives, Cemig always acts in consideration of the precautionary principle. During planning, all the factors that might present risks to health and/or safety of employees, suppliers, clients, the general population or the environment are taken into account.

Statement of Ethical Principles and Code of Professional Conduct

Cemig’s Board of Directors approved the Cemig Statement of Ethical Principles and Code of Professional Conduct in May 2004. It can be seen at http://ri.cemig.com.br . The Code aims to orient and discipline everyone acting in the name of, or interacting with, Cemig, to ensure ethical behavior at all times, and always in accordance with the law and regulations. It was updated in 2016.

Cemig’s Ethics Committee was created on August 12, 2004, to coordinate all actions relating to management of the Cemig Statement of Ethical Principles and Code of Professional Conduct. This includes assessment of and decision on any possible non-compliances with the document.

After the Ethics Channel (Canal de Denúncia Anônima, as we name it) was created in December 2006, to be used only by Cemig employees and workers, the Ethics Committee began to accept anonymous reports through this anonymous reporting channel, which is available on the company’s Intranet. These reports may involve irregular practices that are contrary to the Company’s interest, such as: financial fraud, including adulteration, falsification or suppression of financial, tax or accounting documents; misappropriation of goods or funds; receipt of undue advantages by managers or employees; irregular contracting; and other practices considered to be illegal.

The Ethics Committee

This was created on August 12, 2004, with three sitting members and three substitute members, and is responsible for management (interpretation, publicizing, application and updating) of the Code of Professional Conduct.

The Committee receives and analyzes all reports of violation of ethical principles and standards of conduct, that are presented in a written document and signed by the interested party, accompanied by indications of the corresponding means of proof (witnesses, documentation or other effective method). They can also be sent by email or telephone – the address and phone number are well known to all the company’s employees.

Our Ethics Channel – the anonymous reporting channel on the corporate intranet that we put in place in December 2006, to receive and process accusations of irregular practices, such as financial fraud, undue appropriation of assets, receipt of irregular advantages or illegal contracting – is one more step in improving transparency, and in correcting behavior, and a support in the concept of corporate governance in the Company. As a new instrument of corporate governance it improves the management of our employees and of our business, and reaffirms our ethical principles.

STOCKHOLDING POSITION OF

HOLDERS OF MORE THAN 5% OF THE VOTING STOCK

ON SEPTEMBER 30, 2017


	COMMON SHARES		%		PREFERRED SHARES		%		TOTAL SHARES		%
State of Minas Gerais		214,414,739		50.96		—		—		214,414,739		17.03
Other entities of Minas Gerais State		56,703		0.01		4,860,228		0.58		8,649,862		0.39
Total, controlling stockholder group		214,471,442		50.97		4,860,228		0.58		223,064,601		17.42
AGC Energia S.A. (1)		68,545,756		16.29		—		—		68,545,756		5.45
FIA Dinâmica Energia S.A.		41,635,754		9.90		62,469,590		7.45		104,105,344		8.27
BNDESPar		54,342,992		12.92		26,220,938		3.13		80,563,930		6.40

(1)	AGC Energia S.A. is a wholly-owned subsidiary of Andrade Gutierrez Concessões S.A., a company registered with the CVM.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

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CONSOLIDATED STOCKHOLDING POSITION OF

THE CONTROLLING STOCKHOLDERS AND MANAGERS,

AND FREE FLOAT,

ON SEPTEMBER 30, 2017


	September 30, 2017
	Common (ON) shares		Preferred (PN) shares
Controlling shareholder		214,471,442		4,860,228
Board of Directors		103,606		181,473
The Executive Board		3		83
Shares in Treasury		69		560,649
Free float		206,189,588		832,474,513

TOTAL		420,764,708		838,076,946

Investor Relations

In 2016, through strategic actions intended to enable investors and stockholders to make a correct valuation of our businesses and our prospects for growth and addition of value, we have increased Cemig’s exposure to the Brazilian and global capital markets.

We maintain a constant and proactive flow of communication with Cemig’s investor market, continually reinforcing our credibility, seeking to increase investors’ interest in the Company’s shares, and to ensure their satisfaction with our shares as an investment.

Our results are published through presentations transmitted via video webcast and telephone conference calls, with simultaneous translation in English, always with members of the Executive Board present, developing a relationship that is increasingly transparent and in keeping with best corporate government practices.

To serve our stockholders – who are spread over more than 40 countries – and to facilitate optimum coverage of investors, Cemig has been present in and outside Brazil at a very large number of events, including seminars, conferences, investor meetings, congresses, roadshows, and events such as Money Shows; as well as holding phone and video conference calls with analysts, investors and others interested in the capital markets.

At the beginning of June 2017 we held our 22^nd annual Meeting between Cemig and the Capital Markets in the city of Belo Horizonte, Minas Gerais – where these professionals had the opportunity to interact with the Company’s Directors and principal executives.

Corporate governance

Our corporate governance model is based on principles of transparency, equity and accountability, focusing on clear definition of the roles and responsibilities of the Board of Directors and the Executive Board in the formulation, approval and execution of policies and guidelines for managing the company’s business.

We seek sustainable development of the Company through balance between the economic, financial, environmental and social aspects of our enterprises, aiming always to improve the relationship with our stockholders, clients, and employees, the public at large and other stakeholders.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

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Cemig’s preferred and common shares (tickers: CMIG4 and CMIG3 respectively) have been listed at Corporate Governance Level 1 on the São Paulo Stock Exchange since 2001. This classification represents a guarantee to our stockholders of optimum reporting of information, and also that stockholdings are relatively widely dispersed. Because Cemig has ADRs (American Depositary Receipts) listed on the New York Stock Exchange, representing preferred (PN) shares (with ticker CIG) and common (ON) shares (ticker CIG.C), it is also subject to the regulations of the US Securities and Exchange Commission (SEC) and the New York Stock Exchange Listed Company Manual. Our preferred shares have also been listed on the Latibex of the Madrid stock exchange (with ticker XCMIG) since 2002.

Our by-laws include our dividend policy, and also the following targets from our Long-term Strategic Plan:

◾

Consolidated indebtedness: limited to 2 times Ebitda;

◾

Consolidated (Net debt) / (Net debt + Stockholders’ equity): limited to 40%.

◾

Consolidated funds in Current assets – limited to 5% of Ebitda.

◾

Consolidated funds allocated to capital expenditure in each business year – limited to 40% of Ebitda.

◾

Investment only in distribution, generation and transmission projects that offer real minimum internal rates of return equal to or greater than those specified in the Long-term Strategic Plan, subject to the legal obligations.

◾

Limitation of the expenses of the subsidiary Cemig D (Cemig Distribuição S.A.), and of any subsidiary which operates in distribution of electricity, to amounts not greater than the amounts recognized in the official tariff Adjustments and Reviews.

◾

In response to temporary situations the Board of Directors may authorize figures in excess of these standards, up to the following limits:

-	Consolidated debt: maximum of 2.5 times Ebitda.

-	Consolidated (Net debt) / (Net debt + Stockholders’ equity): maximum of 50%.

-	Consolidated funds in Current assets: maximum of 10% of Ebitda.

* * * * * * * * * * * *

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

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(The original is signed by the following signatories:)


Bernardo Afonso Salomão de Alvarenga	Bernardo Afonso Salomão de Alvarenga	Adézio de Almeida Lima
Chief Executive Officer	Deputy CEO (interim)	Chief Finance and Investor Relations Officer

Ronaldo Gomes de Abreu	Franklin Moreira Gonçalves	Maura Galuppo Botelho Martins
Interim Chief Distribution and Sales Officer	Chief Generation and Transmission Officer	Chief Officer for Human Relations and Resources

José de Araújo Lins Neto	Thiago de Azevedo Camargo	Dimas Costa
Chief Corporate Management Officer	Chief Institutional Relations and Communication Officer	Chief Trading Officer

José Maria Rabelo		Luciano de Araújo Ferraz
Chief Business Development Officer		Chief Counsel

Leonardo George de Magalhães		Leonardo Felipe Mesquita
Controller CRC-MG 53.140		Accounting Manager Accountant – CRC-MG-85.260

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

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Appendix VIII

Cemig Telecomunicações S.A.

(‘Cemig Telecom’)

Financial statements for the year ended December 31, 2016

and Report of External Auditors

Deloitte Touche Tohmatsu Auditores Independentes

REPORT OF THE EXTERNAL AUDITORS ON THE FINANCIAL STATEMENTS

To the Shareholders, Members of the Board of Directors, and Managers of

Cemig Telecomunicações S.A. (‘Cemig Telecom’),

Belo Horizonte, MG

Opinion

We have reviewed the financial statements of Cemig Telecomunicações S.A. – CemigTelecom (‘the Company’), which comprise the statement of financial position at December 31, 2016, and the related Profit and loss accounts, statement of comprehensive income, statement of changes in stockholders’ equity and statements of cash flow, for the business year ended on that date, and the summary of the principal accounting practices and other explanatory notes.

In our opinion, the financial statements referred to above adequately present, in all material aspects, the equity and financial position of Cemig Telecomunicações S.A. – CemigTelecom on December 31, 2016, the consolidated performance of its operations, and its consolidated cash flows, for the business year ended on that date, in accordance with accounting practices adopted in Brazil, and with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

Basis for opinion

Our audit was conducted in accordance the Brazilian and international rules of auditing. Our responsibilities, in accordance with those rules, are described in the section below entitled “Responsibilities of the auditor for the audit of the financial statements”. We are independent in relation to the Company, in accordance with relevant ethical principles specified in the Accountants’ Code of Professional Ethics and in the professional rules issued by the Federal Accounting Council (CFC), and we comply with the other ethical responsibilities in accordance with these rules. We believe that the auditing evidence obtained is sufficient and appropriate as grounds for our opinion.

Emphasis of matter

Re-presentation of corresponding amounts

As mentioned in Explanatory Note 5, as a result of certain adjustments made to the financial statements of the affiliated company Ativas Data Center S.A., which affected the result of accounting for holdings by the equity method and the Company’s uncovered liabilities, the amounts corresponding to the financial statements for the period ended December 31, 2015, presented for the purpose of comparison, have been adjusted and are being re-presented as specified in CPC 23 and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Correction of Errors. Our opinion regarding this matter is unqualified.

Principal subjects of the audit

Principal Subjects of an Audit are those which, in our professional judgment, were the most significant in our audit of the current business period. These subjects have been dealt with in the context of our audit of the financial statements as a whole and in the formation of our opinion on those financial statements and, thus, we do not express a separate opinion on those subjects.

Short-term financial commitments

As mentioned in Notes 1 and 27 to the financial statements at December 31, 2016, the Company had negative net working capital of R$ 74,312,000. This subject was considered to be significant for our audit, because the process of reaching a conclusion that there was not significant uncertainty in relation to the Company’s capacity for operational continuation involved a judgment on the part of Management arising from the need for evaluation of the Company’s capacity to honor its financial commitments in the short term, especially the alternatives available for access to the financial market for long-term debt, future cash flow generation and financial support from its controlling stockholder.

Our auditing procedures addressing this principle subject of audit included: (i) involvement of more experienced and specialized auditing professionals in assessment of the subject; (ii) evaluation of the capacity for generation of operational cash flow arising from the existing concessions; (iii) evaluation of the history of funds raised, fund raising planned, and the present stage of the fund raising processes that have been begun; (v) evaluation of the financial support of Companhia Energética de Minas Gerais – Cemig, the controlling stockholder; and (v) evaluation whether the disclosures made by Management are appropriate.

304

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Financial leasing

As mentioned in Note 9 to the financial statements, the Company entered into a leasing contract as lessee, which was assessed as being financial leasing. This subject was considered to be significant for our audit and to involve a judgment on the part of the Company’s management in the classification of the modality of leasing (operational financial).

Our procedures for addressing this principle subject of audit included: (i) involvement of more experienced and specialized auditing professionals in evaluation of the subject, including our specialists in technical and professional rules of accounting, to assist in the evaluation of the operation and the proper accounting treatment; and (ii) assessment of whether the disclosures made by the Management are appropriate.

Other matters

Added Value Statement

The Added Value Statement (DVA) for the business year ended December 31, 2016 was prepared under the responsibility of the Company’s Management, and presented as supplementary information for the purpose of IFRS. It was submitted to auditing procedures executed jointly with the audit of the Company’s financial statements. For formation of our opinion, we have evaluated whether the statements are reconciled with the financial statements and accounting records, as applicable, and whether their form and content are in accordance with the criteria defined in Accounting Pronouncement CPC 09 – Added Value Statements. In our opinion, the statements of added value have been prepared appropriately, in all their material aspects, according to the criteria defined in that Technical Pronouncement, and are consistent in relation to the financial statements taken as a whole.

Other information that accompanies the financial statements and the auditor’s report.

The Company’s management is responsible for this other information which consists of the Report of Management.

Our opinion on the financial statements does not cover the Report of Management and we do not express any form of auditing conclusion about that report.

In connection with the audit of the financial statements, our responsibility is to read the report of Management and, when doing so, to consider whether that report is in any significant way inconsistent with the financial statements or with our knowledge obtained in the audit, or in any other way appears to be significantly distorted. If, based on the work carried out, we were to conclude that there is a significant distortion in the Report of Management, we are required to communicate this fact. We have nothing to report in this respect.

Responsibilities of Management and of the governance for the financial statements

The management is responsible for the preparation and adequate presentation of these financial statements in accordance with accounting practices adopted in Brazil, and with international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB), and for the internal controls that it has decided are necessary to make possible the preparation of financial statements that are free of material distortion, whether caused by fraud or error.

In the preparation of the financial statements, Management is responsible for evaluation of the Company’s capacity to continue operating, disclosing, when applicable, subjects related to its operational continuity and the use of this accounting base in the preparation of the financial statements, unless Management intends to liquidate the company and its subsidiaries or to cease its operations, or has no realistic alternative to avoid termination of operations.

Those responsible for the governance of the Company and its subsidiaries are the parties that have the responsibility for supervision of the process of preparation of the financial statements.

305

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Responsibilities of the auditor for auditing the financial statement

Our objectives are to obtain reasonable certainty that the financial statements, taken as a whole, are free of material distortion, independently of whether caused by fraud or error, and to issue a report of audit containing our opinion. Reasonable certainty is a high level of certainty, but not a guarantee, that an audit carried out in accordance with Brazilian and international auditing rules always detects any existing significant distortions. Distortions may arise from fraud or error and are considered to be material when, individually or jointly, they are able to influence, within a reasonable perspective, a user’s economic decision when taken based on the said financial statements.

As a part of an audit realized in accordance with Brazilian and international auditing rules, we exercise professional judgment and maintain professional skepticism throughout the conduct of the audit. Also:

•

We identify and evaluate risks of material distortion in the financial statements, independently of whether caused by fraud or error; we plan and execute procedures of auditing in response to such risks, and we obtain appropriate and sufficient auditing evidence to ground our opinion. The risk of non-detection of material distortion resulting from fraud is greater than that resulting from error, since fraud may involve the act of deceiving or avoiding internal controls, conspiracy, falsification, omission or intentional false representations.

•

We obtain understanding of the material internal controls for the audit for us to be able to plan auditing procedures that are appropriate to the circumstances, but not with the objective of expressing an opinion on the efficacy of the internal controls of the Company and its subsidiaries.

•

We evaluate the appropriateness of the accounting policies used and the reasonableness of the accounting estimates and respective disclosures made by the Management.

•

We reach conclusions on the appropriateness of the use by Management of the accounting basis of operational continuity and, based on the evidences of auditing obtained, whether there is a material uncertainty in relation to events that might raise significant doubt in relation to the capacity of operational continuity of the Company and its subsidiaries. If we conclude that there is material uncertainty, we must call attention in our auditing report to the respective disclosures in the financial statements or include a qualification in our opinion, if the disclosures are inadequate. Our conclusions are grounded on the audit evidence obtained up to the date of our report. However, future events or conditions may lead the Company and its subsidiaries to cease to remain in operational continuity.

•

We evaluate the general presentation, the structure and the content of the financial statements, including the disclosures, and whether the Financial Statements are representative of corresponding transactions and the event in a manner that is compatible with the objective of appropriate presentation.

We communicate with the persons responsible for governance on the matter, among other aspects, of the planned scope, the period of the audit and the significant findings of the audit, including any significant deficiencies in internal controls that we identify during our work.

We also supply, to the persons responsible for governance, a declaration that we have complied with the relevant ethical requirements, including the applicable requirements for independence, and we report any relationships or matters that could considerably affect our independence including, when applicable, the respective safeguards.

Of the matters that were the subject of communication with the persons responsible for governance, we determined those that were considered to be most significant in the audit of the financial statements for the current business year and which, thus, constitute the Principal Subjects of Audit. We describe these matters in our audit report, unless any law or regulations have prohibited public disclosure of the subject, or when, in extremely rare circumstances, we may determine that this subject should not be disclosed in our report because the adverse consequences of such disclosure could, within a reasonable perspective, be greater than the benefits of communication for the public interest.

Belo Horizonte, April 6, 2017


DELOITTE TOUCHE TOHMATSU		Marcelo Salvador
Auditores Independentes		Accountant
CRC-2SP 011.609/O-8 F/MG		CRC-1MG 089.422/O-0

306

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) AT DECEMBER 31, 2016

R$‘000


ASSETS	Note		Dec. 31, 2016		Dec. 31, 2015		LIABILITIES AND STOCKHOLDERS’ EQUITY	Note		Dec. 31, 2016			Dec. 31, 2015
					(Re-presented)								(Re-presented)
Current liabilities							Current liabilities
Cash and cash equivalents		6		1,034		4,869	Loans and debentures		15		63,751			30,519
Securities – Cash investments		7		1,855		17,313	Suppliers		16		21,750			11,315
Accounts receivable from clients		8		19,249		16,173	Payroll-associated and labor-law obligations		17		5,836			4,856
Financial leasing		9		303		—	Tax obligations		18		9,573			10,476
Taxes recoverable		10		3,684		2,787	Advances from clients		19		460			460

Prepaid expenses				34		32	Total, Current liabilities
Other				899		281

Total, Current assets				27.058		41,455	Non-current liabilities

							Loans and debentures		15		37,621			8,504
Non-current assets							Payroll-associated and labor-law obligations		17, 28		2,801			1.454
Long term assets							Tax obligations		18		2,466			—
Securities – Cash investments		7		83		342	Advances from clients		19		4,579			5,069
Financial leasing		9		11,876		—	Provisions for risks		20		82			313
‘Guarantee’ overdraft accounts				—		4,062	Uncovered liabilities of jointly controlled entity		12		—			76,708
Taxes recoverable		10		2,997		2,749	Related parties		21		3,410			—
Deferred income tax and Social Contribution tax		11		8,037		11,828	Other				84			84

Derivative financial instruments		12		4,586		—	Total, Non-current liabilities				51,043			92.132

Other				908		953
							STOCKHOLDERS’ EQUITY
							Share capital		22		241,741			225,081
Investment in affiliated company		12		19,744		—	Equity valuation adjustments		28		(756	)		(75	)
Property, plant and equipment		13		261,613		249,761	Retained losses		22		(47,006	)		(56,989	)

Intangible assets		14		9,490		6,625	Total equity				193,979			168.017

Total, Non-current assets				319,334		276,320

TOTAL ASSETS				346,392		317,775	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY				346,392			317,775

The Notes are an integral part of the Financial Statements.

307

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2016

(In thousands of Reais, except net loss per share)


		Whole period
	Note	2016			2015
					(Re-presented)
NET REVENUE FROM PROVISION OF SERVICES	23		102,446			120,614
COST OF SERVICES PROVIDED	24		(67,868	)		(83,367	)

GROSS PROFIT			34,578			37,247
OTHER OPERATIONAL REVENUES (EXPENSES)
General and administrative expenses	24		(34,184	)		(26.364	)
Sales and marketing expenses	24		(523	)		(1.280	)
Other operational revenues	25		28,891			1.956
Gain on change in percentage equity holding	12		24,717			—
Operational expenses	24		(7,028	)		(692	)
Equity method gains in non-consolidated investees, net	12, 24		(27,165	)		(28.833	)

Total			(15,292	)		(55.213	)
NET PROFIT BEFORE FINANC. REV. (EXP.), INCOME TAX AND SOCIAL CONTRIBUTION TAX
			19,286			(17,966	)

Financial revenues	26		3,999			4.053
Financial expenses	26		(9,161	)		(5.778	)

PROFIT BEFORE INCOME AND SOCIAL CONTRIBUTION TAXES			14,124			(19,691	)
Current income tax and Social Contribution tax	11		—			(6.589	)
Deferred income tax and Social Contribution tax	11		(4,141	)		(9.551	)

NET PROFIT (LOSS) FOR THE PERIOD			9,983			(35,831	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES IN CIRCULATION (thousands of shares)			397,683			381,023

BASIC AND DILUTED PROFIT (LOSS) PER SHARE (in Reais)			25.10			(94.04	)

The Notes are an integral part of the Financial Statements.

308

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE PERIOD ENDED DECEMBER 31, 2016

R$ ‘000


	Share capital		Equity valuation adjustment			Retained losses			Total
BALANCES ON DECEMBER 31, 2014		225,081		248			(21,158	)		204,171
Actuarial losses, net of taxes		—		(323	)		—			(323	)
Net loss for the period		—		—			(35,831	)		(35,831	)

BALANCES ON DECEMBER 31, 2015 (RE-PRESENTED)		225,081		(75	)		(56,989	)		168,017

Capital increases		16,660		—			—			16,660
Actuarial losses, net of taxes		—		(681	)		—			(681	)
Net profit for the year		—		—			9,983			9,983

BALANCES ON DECEMBER 31, 2016		241,741		(756	)		(47,006	)		193,979

The Notes are an integral part of the Financial Statements.

309

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2016

R$ ’000


	Whole period
	2016			2015
				(Re-presented)
Net profit (loss) for the period		9,983			(35,831	)
Other comprehensive income:
Actuarial gains/losses – net of taxes		(681	)		(323	)

Total Comprehensive income for the period		9,302			(36,154	)

COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the Company		9,302			(36,154	)

COMPREHENSIVE INCOME FOR THE PERIOD		9,302			(36,154	)

The Notes are an integral part of the Financial Statements.

310

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2016

R$‘000


	Note		2016			2015
						(Re-presented)
CASH FLOW FROM OPERATIONS
Net profit (loss) for the period				9,983			(35,831	)
Adjustments to reconcile net profit to cash generated by operations:				29,042			100,593

Depreciation and amortization		13, 14, 24		37,741			48,968
Costs of financings		15		8,481			5,062
Deferred income tax and Social Contribution tax		11		4,141			9,551
Current income tax and Social Contribution tax		11		—			6,589
Cost of fixed assets written off		13		309			170
Net value of financial leasing transaction		25		(3,215	)		—
Appreciation of assets received from Eletronet		13, 25		(20,423	)		—
Gain on change in percentage of equity holding		12		(24,717	)		—
Gain on financial derivative instrument		25		(4,586	)		—
Reversal of contingency provision				(231	)		—
Addition (reversal) of doubtful receivables				(182	)		1,195
Equity in earnings of unconsolidated investees, net		12		27,165			28,833
Provision for indemnity for contingencies in Ativas		21		3,410			—
Provision for obsolescence		13, 24		1,149			225
Variations in assets and liabilities				37,741			48,968
Reduction (increase) in assets:
Financing guarantee accounts				4,062			56
Accounts receivable from clients				(2,003	)		2,673
Taxes recoverable				(1,145	)		5,996
Other assets				(575	)		(69	)
Increase (reduction) in liabilities:
Accounts payable to suppliers and others				10,435			(2,263	)
Payroll-related and tax obligations				3,981			(1,900	)
Advances from clients				(490	)		(491	)
Other liabilities				—			(388	)
Income tax and Social Contribution tax paid				(1,121	)		(6,589	)
Interest paid		15		(5,342	)		(4,816	)

Net cash from operational activities				46,827			56,971
CASH FLOWS IN INVESTMENT ACTIVITIES
Acquisition of fixed assets / PP&E		13		(41,790	)		(42,969	)
Reductions (increase) in securities and cash investments				15,717			(8,950	)
Received under financial leasing				(658	)		—
Capital increase in affiliated company		12		(98,900	)		—
Increase in intangible assets		14		(901	)		(8	)

Net cash applied in investment activities				(126,532	)		(51,927	)
CASH FLOW FROM FINANCING ACTIVITIES
Capital increase		22		16,660			—
Loans and financings obtained and debentures issued		15		98,682			33,000
Payment of loans, financings and debentures		15		(39,472	)		(37,887	)

Net cash from (used in) financing activities				75,870			(4,887	)

NET INCREASE (REDUCTION) IN CASH AND CASH EQUIVALENTS				(3,835	)		157

CASH AND CASH EQUIVALENTS
At start of period				4,869			4,712
At end of period				1,034			4,869

INCREASE (REDUCTION) IN CASH AND CASH EQUIVALENTS				(3,835	)		157

The Notes are an integral part of the Financial Statements.

311

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

ADDED VALUE STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2016

R$‘000


	Dec. 31, 2016			%		Dec. 31, 2015			%
1 – REVENUES		232,031					190,706

1.1) Sale of products and services		136,523					147,099
1.2) Reversal (provision) for doubtful receivables		181					(1,195	)
1.3) Additions to fixed assets in progress		34,338					35,909
1.4) Gain on change in percentage equity holding		24,717					—
1.5) Appreciation of assets of Eletronet realized		20,423					—
1.6) Gain on financial derivative		4,586					—
1.7) Gain on financial leasing		3,215					—
1.8) Others		8,048					8,893
2 – INPUTS ACQUIRED FROM THIRD PARTIES		72,462					72,667

2.1) Cost of goods and services sold
2.2) Materials, power, outsourced services and others
2.3) Loss / recovery of asset value
2.3) Others
3 – GROSS VALUE ADDED (1-2)		159,569					118,039

4 – RETENTIONS		37,741					48,968

4.1) Depreciation and amortization		37,741					48,968

5 – NET ADDED VALUE PRODUCED BY THE ENTITY (3-4)		121,828					69,071

6 – ADDED VALUE RECEIVED BY TRANSFER		(23,166	)				(24,780	)

6.1) Equity method gains in non-consolidated investees, net		(27,165	)				(28,833	)
6.2) Financial revenues		3,999					4,053

7 TOTAL ADDED VALUE DISTRIBUTABLE (5+6)		98,662					44,291

8 – DISTRIBUTION OF ADDED VALUE		98,662			100%		44,291			100%

8.1) Personnel and payroll-related charges		28,067			28%		20,825			47%

8.1.1) Direct remuneration		16,691					13,517
8.1.2) Benefits		5,590					3,589
8.1.3) Workers’ Time of Service Guarantee Fund (FGTS)		2,746					994
8.1.4) Others		3,040					2,725
8.2) Taxes		44,513			45%		46,519			105%

8.2.1) Federal		16,579					27,063
8.2.2) State		27,934					19,456
8.3) Remuneration of external capital		16,099			16%		12,778			29%

8.3.1) Interest		9,161					5,778
8.3.2) Rentals		6,938					7,000
8.4) Remuneration of own capital		9,983			10%		(35,831	)		-81%

8.4.1) Profit (loss) for the period		9,983					(35,831	)

The Notes are an integral part of the Financial Statements.

312

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Notes to the financial statements

Year ended December 31, 2016

(In thousands of Brazilian Reais – R$ ‘000 – except where otherwise indicated)

1.	Operating context

(a)

The Company

CEMIG Telecomunicações S.A. – CemigTelecom (‘the Company’) is a listed corporation and a wholly-owned subsidiary of Companhia Energética de Minas Gerais S.A. – Cemig. It offers optical fibers for carriage of telecommunication services, in the State of Minas Gerais and other States of Brazil’s Northeast and Center-West, using the electrical power transmission and distribution infrastructure of power concession holders, principally Cemig.

It is domiciled in Brazil with address at Rua dos Inconfidentes 1051, Ground Floor, Funcionários, Belo Horizonte, MG. It is authorized by the Brazilian telecoms regulator (Agência Nacional de Telecomunicações, or Anatel) to commercially operate Multimedia Communication Services (SCM), for an indeterminate period, by Act No. 41002 of December 3, 2003.

Created on January 13, 1999, CemigTelecom focuses on providing telecommunication services for the corporate segment of internet access providers (ISPs) and telecommunications operators. It operates in the wholesale market renting specialized circuits to providers of fixed telephony, mobile telephony, cable TV, business carriers, datacenters, broadband and other services.

The Company’s core business is provision of telecommunication services in the segment of operators, internet service providers (ISPs) and specialized services for the corporate segment, making network and internet access solutions available such as: Corporate internet access, data communication between head office and branch offices, high capacity, high-quality solutions, rental of specialized circuits (links, IP/MPLS networks AND VPNs), customized service for each business, connectivity solutions, and other services.

CemigTelecom makes available the largest optical network for transport of telecommunications in Minas Gerais, with presence in more than 70 cities of the state, covering approximately 90% of the state’s GDP. Additionally, it makes services available through optical networks in the metropolitan regions of Salvador, Recife, Goiânia and Fortaleza, as well as having points of presence in the cities of São Paulo and Rio de Janeiro.

To provide feasibility for the entry of a new partner into Ativas, CemigTelecom assumed a significant amount in short-term debt. As a result, on December 31, 2016 CemigTelecom’s current liabilities exceeded its current assets by R$ 74,312. On December 31, 2016, CemigTelecom’s short and long-term loans and debentures totaled R$ 63,751 and R$ 37,621 respectively, with maturities in the second and fourth quarters of 2017 in the amounts of R$ 18,134 and R$ 46,827, respectively; however, the Company reported positive operational cash flow in 2016 and 2015 of R$ 46,827 and R$ 56,971 respectively.

For the purpose of amortization of the program debt maturities, the Company expects to raise significant amounts of capital from third parties and/or entry of cash from its stockholder, and it can continue to depend on the contracting of additional debts.

The Company has various initiatives to increase liquidity through signing of new loan contracts to roll over debts, and also has the benefit of financial support from its controlling stockholder, Companhia Energética de Minas Gerais – Cemig.

313

Management believes that the Company has satisfactory capacity to generate operational cash flow, and the conditions necessary to comply with its short-term obligations and continue to make the necessary investments for continuation of the projects in progress.

(b)

Investment in affiliated company

Until October 18, 2016, the Company shared control, as a joint venture, of the company Ativas Data Center S.A. (‘Ativas’), with a 49% holding in the share capital of that company. As from this date, with the entry of Sonda Procwork Outsourcing Informática Ltda (‘Sonda’), a new partner in the business, its holding was diluted to 19.6%, and thereafter this interest is classified as being in an affiliated company. The management and the principal corporate decisions are exercised by the new controlling stockholder, under a stockholders’ agreement.

Ativas is an entity domiciled in Brazil. Its headquarters and technological facilities are at Rua Agenério Araújo 20, Camargos, Belo Horizonte, MG, and it has commercial offices in São Paulo, Rio de Janeiro, Porto Alegre and Curitiba. The corporate Objects of Ativas are:

(i)	provision of ITC (Information Technology and Communication) infrastructure supply services, comprising physical hosting of IT physical environments;

(ii)	storage of databases and site backup;

(iii)

provision of professional information and availability security services;

(iv)	provision of consultancy services in ITC and connectivity with sale of internet access and bandwidth; and

(v)	licensing and assignment of rights to use computer program

With the entry of the new controlling stockholder, Sonda, various actions were taken to adapt its organizational, operational and financial structure. As part of the restructuring plan of this affiliated company, in October 2016 early settlement was made of a substantial part of its loans, financings and debentures, with a view to obtaining a capital structure compatible with the size of its business

2.	Basis of preparation

(a)

Statement of compliance

These financial statements were prepared in accordance with accounting practices adopted in Brazil, which comprise: those included in the Brazilian Corporate Law, and the Pronouncements; the Orientations and Interpretations issued by the Accounting Pronouncements Committee (CPC) and approved by the Federal Accounting Council (CFC) and by the Brazilian Securities Commission (CVM); and International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB).

All the material information used by Management in the management of the Company is shown in the Financial Statements.

On April 6, 2017 the Board of Directors authorized the issuance of these financial statements.

(b)

Basis of measurement

The financial statements have been prepared based on historic cost as a basis of value and adjusted to reflect the fair value of assets and liabilities, when applicable.

(c)

Functional currency and currency of presentation

These financial statements are presented in Reais, the Company’s functional currency. All the financial information presented in Reais has been rounded to the closest unit of thousands, except where otherwise indicated.

314

(d)

Use of estimates and judgments

Preparation of financial statements under IFRS and under the rules of the CPC requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reported in assets, liabilities, revenues and expenses. Future reported results may differ from these estimates.

Estimates and assumptions are continuously reviewed. Revisions in relation to accounting estimates are recognized in the period in which the estimates are reviewed, and in any future periods affected.

The information on uncertainties, assumptions and estimates that have a significant risk of resulting in a material adjustment within the next business period are included in the following explanatory notes:

•

Note 4 – Fair value of assets and liabilities

•

Note 8 – Allowance for doubtful accounts

•

Note 9 – Estimate of realization from financial leasing

•

Note 11 – Use of tax losses and realization of temporary differences

•

Note 13 – Results of investment in affiliated company

•

Notes 14 and 15 – Estimates of useful life and of residual values of fixed and intangible assets

•

Note 21 – Provisions and contingencies

•

Note 28 – Financial Instruments

•

Note 29 – Measurement of actuarial assets and liabilities of post-employment benefits to employees.

3.	Principal accounting policies

The accounting policies described in detail below have been applied consistently to all the periods presented in these financial statements.

(a)

Financial instruments

(i)

Non-derivative financial assets

The Company initially recognizes receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognized initially on the transaction date, which is the date on which the Company becomes one of the parties to the contractual provisions of the instrument.

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the rights to receive the contractual cash flows on a financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.

Financial assets or liabilities are offset, and the net amount presented in the balance sheet, when, and only when, the Company has the legal right to offset the amounts and has the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

The company has the following non-derivative financial assets:

•

Cash and cash equivalents:

This includes balances of cash and cash investments with original maturity of three months or less from the date of contracting, which are subject to an insignificant risk of change in value. Cash and cash equivalents are maintained for the purpose of meeting cash commitments in the short term and not for investment or other purposes.

315

•

Financial assets held to maturity:

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the company has a manifest intention, and financial capacity, to hold them to maturity. After the initial evaluation, investments held to maturity are valued at amortized cost using the effective rates method, less any impairments. The amortized cost is calculated taking into consideration any discount or premium on the acquisition, and charges or costs incurred. The amortization of effective interest is included in financial revenue, in the Profit and loss account. Losses due to impairment are recognized as a financial expense in the Profit and loss account.

•

Financial assets measured at fair value through profit or loss:

A financial asset is classified in this category if it was acquired, principally, for the purpose of sale in the short term. For this reason, they are usually classified in Current assets. However, if these assets are given in guarantee or there is any other restriction on their use in the short term, they may be classified in Non-current assets. Regular purchases and sales of financial assets are recognized on the date of the transaction, the date on which the Company undertakes to buy or sell the asset. Investments are, initially recognized at fair value. Transaction costs incurred in investments measured at fair value through profit or loss are debited to the Profit and loss account, as expenses, on the transaction date. After this date, the variations in their fair value are accounted directly in the Profit and loss account for the business period, in the group Financial revenues and expenses. These assets are written down when the rights to receive cash flows related to the asset have expired or when the Company has, significantly, transferred all the risks and benefits of its ownership.

•

Receivables:

These are financial assets with fixed or calculable payment which are not quoted on an active market. These assets are recognized initially at fair value plus any attributable transaction costs. After initial recognition, loans and receivables are measured at amortized cost by the effective interest method, less any loss by impairment.

Receivables include accounts receivable from clients and other credits.

(ii)

Non-derivative financial liabilities

The Company recognizes debt securities issued initially on the date on which they are originated. All other financial assets are recognized initially on the transaction date on which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are withdrawn, are canceled or expire.

The Company has the following non-derivative financial liabilities: Loans, Suppliers, and Other accounts payable.

These liabilities are recognized initially at fair value, plus any attributable transaction costs. After the initial recognition, they are measured at amortized cost using the effective rates method.

(iii)

Share capital

Common shares – Common shares are classified as stockholders’ equity. Additional costs directly attributable to issuance of shares and options on shares are recognized as deductions from Stockholders’ equity, net of any tax effects. The whole of the Company’s share capital is represented by common shares.

Minimum mandatory dividends, when declared, in accordance with the by-laws, are recognized as a liability.

316

(iv)

Derivative financial instruments

When applicable, derivatives are recognized initially at their fair value and the attributable transaction costs are recognized in the Profit and loss account when they are incurred. After the initial recognition, derivatives are measured at fair value and changes in fair value are accounted in the Profit and loss account.

(b)

Property, plant and equipment

(i)

Recognition and measurement.

Items of PP&E are measured at historic cost of acquisition or construction, less accumulated depreciation, and any accumulated impairment losses, when applicable.

The cost includes expenditures that are directly attributable to the acquisition of an asset. The cost of assets built by the entity itself include the cost of materials and direct labor, any other costs, including those of loans on qualifiable assets, that are necessary to placement of the asset in the location and condition necessary for it to be able to operate in the manner intended by the Management.

Any software purchased that is an integral part of the functionality of an item of equipment is capitalized as part of that equipment

When parts of an item of PP&E have different useful lives, they are recorded as individual items (principal components) of PP&E.

Gains or losses on disposal of an item of fixed assets/PP&E are calculated by comparison with the proceeds of the sale with the accounting value of the item, and are recognized, net, in Other revenues, in the Profit and loss account.

(ii)

Spare part assets

Materials and equipment with the status of spare parts of certain items of PP&E, whose probable future allocation is to replace assets in operation and to be used for more than one business year are classified in Spare part inventory, in PP&E, until their final allocation. New assets acquired for this purpose are incorporated into PP&E in service only at the moment when they are requisitioned. Goods withdrawn from PP&E in service due to replacement are reintegrated into the inventory of spare parts and their depreciation is normally continued, provided that their repair and reuse are possible.

(iii)

Subsequent costs

The cost of substitution of a component of PP&E is recognized in the book value of the item when it is probable that the economic benefits incorporated into the component will flow to the Company and that their cost can be reliably measured. The book value of a component replaced by another is transferred to the inventory of spare parts of written off, depending on the case. The costs of routine maintenance of PP&E are recognized in the Profit and loss account when incurred, and include the amount paid for the services of de-activation and repair, and also the cost of materials and components necessarily for replacement and re-placement of the asset in a functioning condition.

(iv)

Depreciation

Depreciation is calculated on the depreciable amount, which is the cost of an asset, or on a substitute amount of cost, less residual value.

317

Depreciation is recognized in the Profit and loss account based on the straight line method in relation to the estimated useful lives of each part of an item of PP&E, since this method is the one that most closely reflects the pattern of consumption of future economic benefits incorporated into the asset.

As revealed in Note 13, the Company’s management reviews, annually, the estimate of useful lives and of the residual values of assets at least once in each business year, or whenever any indication of alteration in these estimates is identified. Any adjustments are recognized as changes in accounting estimates.

Assets leased are depreciated for the period that is shorter of: The period of the lease and their useful lives; unless it is reasonably certain that the Company will obtain ownership at the end of the period of leasing. Land holdings are not depreciated.

The estimated useful lives for the present and compared periods are presented in Note 14.

When it is possible to identify one or more asset associated with a specific solution that aims to comply with a specific contract for provision of services, their useful lives become limited to the estimated period of validity of the contract.

(c)

Intangible assets

(i)

Licenses for use of software

Software use licenses acquired from third parties are recorded in intangible assets and measured based on costs of acquisition and implantation, and are amortized by the respective estimate useful life.

Software acquired as an integral part of the functionality of an item of equipment is recorded as a cost of that equipment and classified in PP&E.

(ii)

Other intangible assets

Other intangible assets that are acquired by the Company and which have finite useful lives are measured at cost, less accumulated amortization and any accumulated impairment.

(iii)

Amortization

Amortization of intangible assets is calculated on the cost of an asset or other substituted amount of cost, less residual value.

Amortization is recognized in the Profit and loss account on the straight-line method in relation to the estimated useful lives of intangible assets, with the exception of any goodwill premium, as from the date on which these are available for use, since this method is the one that best reflects the pattern of consumption of future economic benefits incorporated into the asset. The estimated useful lives for the present and compared periods are presented in Note 14.

Methods of amortization, useful lives and residual values are reviewed at each closing of a financial year and adjusted if necessary.

(d)

Impairment

(i)

Financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect that can be reliably estimated on the estimated future cash flows of that asset.

318

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of the amount payable to the Company on conditions that the Company would not consider in other transactions, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Company considers any impairment of receivables or investments held to maturity individually. All receivables and investments held to maturity that are individually significant are evaluated for impairment.

An impairment loss in relation to a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in the Profit and loss account and reflected in an allowance account against receivables. If in a later period an impairment can be objectively related to an event that took place after the impairment having been recognized, the impairment previously recognized is reversed in the Profit and loss account, provided that the book value of the investment on the date of this reversal does not exceed the amortized cost if the impairment had not been recognized.

(ii)

Non-financial assets

The book values of the Company’s non-financial assets, with the exception of deferred income tax and Social Contribution tax, are reviewed at least on each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. In the case of goodwill premium and intangible assets with undefined useful life, the recoverable value is estimated every year at the same time.

The recoverable value of an asset or a cash-generating unit (unidade geradora de caixa, or UGC) is the greater of: Value in use; and fair value less in estimated sale expenses. When evaluating the value in use, future estimated cash flows are discounted to present values using the pre-tax discount rate that reflects the existing market conditions in relation to the recoverability of the capital and the specific risks of the asset. For the purpose of testing recoverable value, assets that cannot be tested individually are grouped together in the smallest group of assets that generates entry of cash and is in continual use which are largely independent of the cash flows of other assets or groups of assets (UGCs). For testing of impairment of goodwill, the amount of the goodwill ascertained in a business combination is allocated to the UGC or the group of UGCs for which the benefit of synergies from the combination is expected. This allocation reflects the lowest level at which the goodwill is monitored for internal purpose and is not greater than an operational segment, determined in accordance with IFRS 8 and CPC 22.

An impairment is recognized if the book value of an asset or its UGC exceeds its estimated recoverable value. Losses of value are recognized in the Profit and loss account. Impairments related to the UGCs are allocated initially to reduce the book value of each item of goodwill allocated to the UGCs, and then, if there is remaining impairment, to reducing the book value of the other assets within the UGC or group of UGCs, on a pro-rata basis.

The corporate assets of the Company do not generate cash inflow individually. If there is an indication that a corporate asset shows impairment, then the impairment is allocated to the UGC or group of UGCs to which the corporate asset belongs, on a reasonable and consistent basis.

An impairment related to goodwill is not reversed. For other assets, impairments recognized in prior periods are evaluated at each reporting date for any indications that the impairment may have increased, diminished or no longer exist. An impairment is reversed if there has been a change in the estimates used to determine the recoverable value. An impairment is reversed only when the book value of the asset does not exceed the book value that has been ascertained, net of depreciation or amortization, if the impairment had not been recognized.

319

(e)

Benefits to employees

(i) Mixed

Benefit Private Pension Plan (‘Plan B’)

This is a defined-benefit contribution plan in the fund accumulation phase for retirement benefits for normal time of service, and as a defined-benefit plan for disability or death of participants still in active employment, and for receipt of benefits for time of contribution.

A defined contribution plan is a post-employment benefits plan under which an entity pays fixed contributions into a separate entity (pension fund) and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the Statement of income in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset if a cash refund or a reduction in future payments is available.

A defined benefit plan is a post-retirement benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their services rendered in the current and prior periods. The future benefit is discounted to present value at an interest-free interest rate. Any unrecognized costs of past service and the fair value of any plan assets are deducted. The discount rate is the yield presented on the reporting date for AA credit-rated bonds, or in their absence based on rates for government securities, that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the asset recognized is limited to the total of any unrecognized costs of past service and the present value of actuarial losses and the present value of the economic benefits available in the form of future reimbursements or reductions in future contributions to the plan.

An economic benefit is available to the Company if it is realizable during the life of the plan.

The costs of passed services are recognized immediately in the Profit and loss account. Actuarial gains and losses arising from adjustment based on experience and on changes in the actuarial assumptions are reported directly in Stockholders’ equity, as Other comprehensive income, when they occur, and are not reclassified for the Profit and loss account.

(ii)

Other long-term benefits to employees – Health (‘Integrated Pro-Saúde’) Plan and Dental Plan

The Company’s net obligation in respect of employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior years. That benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds, or in their absence based on rates for government securities, which have maturity dates approximating the conditions of the Company’s obligations. The calculation is carried out by the projected unit credit method. Actuarial gains and losses are recognized in the Profit and loss account in the period in which they arise.

(f)

Provisions

A provision is recognized, as a result of a past event, if the Company has a legal or constructive obligation that can reliably be estimated and it is probable that an economic resource will be required to settle the obligation.

320

(g)

Recognition of revenue

Operational revenue comprises the fair value of the consideration received or to be received for provision of rental and services in the normal course of the Company’s activities. Operational revenue is recognized when there is convincing evidence that it is probable that the financial economic benefits will flow to the entity, and that the amount of operational revenue and the respective associated costs can be reliably estimated and/or measured. Revenue is presented net of taxes, cancellations and unconditional discounts, and also net of eliminations of transactions not realized between related parties.

(i) Provision

of services

The Company considers to have been provided any services which, by formal commercial agreement, result in an irrecoverable obligation to deliver to its clients the benefits arising from the operational activities exercised by the Company, independently of the way in which they are settled.

Services are provided continuously to clients for the period agreed in the contract. Revenues are recognized in the Profit and loss account based on the stage of delivery or availability of the services contracted.

a) Telecoms

Article 60 of the General Telecommunications Law (LGT), Law 9472 of July 16, 1997, defines telecommunication service as: “The group of activities that makes possible the offer of capacity for transmission, emission or reception, by wire, radio, optical means or any other electromagnetic process, of symbols, characters, signals, written matter, images, sounds or information of any type”. Such services are divided into various modalities. The Company is authorized by Anatel to provide telecommunication services in Multimedia Communication Service (Serviço de Comunicação Multimídia, or SCM) modality, under the SCM regulations approved by Anatel Resolution 614 of May 28, 2013. The contracts for provision of services are remunerated on fixed monthly bases, the values of which are negotiated principally as a function of the rate of transmission, distance between the connected points, quantity contracted and fidelity period, which generally varies between one and five years.

Telecommunications revenues comprise the initial amount agreed in the contract, plus any variations arising from additional requests, less any amounts agreed to be omitted and/or other discounts arising from incentive arrangements based on volume of contracting. Revenues are recognized as long as it is probable that they will result in revenue and can be reliably measured.

The amount attributable of revenue in relation to the stage of delivery or availability of the telecommunication services is measured, on a monthly basis, in the manner specified in contracts. Services begun or canceled during the course of the month of reference are valued on a pro-rata-die basis, in proportion to the extent of delivery or having been placed at disposal of clients.

(ii)

Other revenues

a) Rental of networks

Certain commercial agreements provide for use by the client of part of the Company’s fiber optic networks, without, however, any equipment or services of its ownership or responsibility being allocated to these networks. This is not to be confused with telecommunication service, since it does not fulfill the characteristics of the definition in the General Telecommunications Law.

Rental revenue is recognized in the Profit and loss account by the accrual method in the period of a contract.

321

b) Right of way (sub-rental of transmission and distribution infrastructure)

The Company has a “Right of way” contract on the transmission and distribution lines of Cemig, for which concession it pays monthly to the concession grantor, through a share of revenue, which constitutes a type of royalty varying with the revenue received by the Company. This operational agreement confers on the Company the possibility of subrogation of these rights of passage to third parties, provided there is express agreement by the grantor. The revenue from right of way arising from subrogation of such rights is recognized by the accrual method, according to the essence of the applicable contracts.

c) Indemnity for early rescission of contract

Contracts for telecommunication services have protection clauses that guarantee for the company the right of indemnity (pre-set penalty representing losses and damages) in the event of early and unilateral cancellation of the agreement by clients, so as to ensure the minimum return on the investment realized by the Company in providing the service contracted.

(h)

Financial revenue (expenses)

Financial revenues are, principally, revenue from cash investments, late charges on overdue telecoms service account, and interest on other financial assets. Interest income is recognized in the Statement of income using the effective interest method.

Financial expenses are, principally, financial costs on debentures and loans. Interest expense on the Company’s borrowings is recognized in the Profit and loss account using the effective interest method.

(i)

Leasing transactions

1)	Operational leasing transactions

Leasings in which a significant portion of the risks and benefits of the ownership is retained by the lessor are classified as ‘operational leasing’. Payments made under operational leasing agreements (net of any incentive amounts received from the lessor) are recognized by the lessee in the Profit and loss account by the straight-line method during the period of contracting of the leasing.

2)	Financial leasing – assets and liabilities

Leasings of PP&E assets in which the Company substantially holds all the risks and benefits inherent to ownership are classified as ‘financial leasings’, the minimum payments of which are systematically and separately allocated between unrealized assets and liabilities and revenues or expenses to be appropriated. Financial expenses are allocated at each period during the period of the leasing, aiming to produce a constant periodic rate of interest on remaining balance of the asset or liability.

At the same time, as shown in Note 9, the Company leased certain assets and liabilities in which the main characteristics of the contract indicated their classification as financial leasing, and as a result recorded the transaction as a disposal.

The assets acquired in the modality of financial leasing, and lessee, are classified in PP&E and depreciated in accordance with their estimated useful life.

322

3)	Policy on identification and classification of leasing transactions

At the beginning of a contract, it is defined whether or not the document is or contains a leasing agreement. A specific asset is the object of a leasing agreement if compliance with the contract depends on the use of that specific asset. Leasing agreements in the terms of which the lessee assumes the risks and benefits inherent to ownership are classified as financial leasings. In the initial recognition, asset and liability are recognized at amounts equal to the fair value of the asset leased, or if lower, to the present value of the minimum payments of the leasing contract, each one being determined at the start of the leasing contract. The Company, when it is lessee, depreciates the asset leased in accordance with the expected useful life in the same way as its own assets, or for a shorter period, if applicable, as per terms of the leasing contract in question At the same time, when the Company is lessor, it writes down the asset leased against the profit for the business year. Receipts or minimum payments of financial leasings are segregated into two components: The financial expense, and the reduction of the outstanding asset or liability.

Other leasing agreements are classified as operational leasing and are recognized as an expense on the straight-line basis during the period of the leasing, unless any other systematic basis is more representative of the timing pattern of the benefit.

(j)

Income tax and Social Contribution tax

Income tax and the Social Contribution tax, current and deferred, are calculated based on the rates of: income tax at 15%, plus the additional rate of 10% on taxable income exceeding R$ 240,000 (two hundred and forty thousand Reais) per year; and for the Social Contribution tax, 9% on taxable profit. They include the offsetting of tax losses/carryforwards for both taxes, the aggregate total of which offsetting is limited to 30% of the real profit.

The expense on Income tax and the Social Contribution tax comprises current and deferred tax. The current tax and the deferred tax are recognized in the Profit and loss account unless they relate to a business combination, or items directly recognized in Stockholders’ equity or in Other comprehensive income.

1)	Current income tax and Social Contribution tax

The current tax is the expected tax payable or receivable on the taxable profit for the business year, at the rates currently in force or substantially in force on the reporting date, and any adjustment to the taxes payable in relation to prior years. The taxable profit is different from the profit presented in the income statement, because it excludes revenues or expenses that are taxable or deductible in other reporting periods, and also excludes items that are non-taxable or non-deductible permanently. The provision for income tax and Social Contribution tax is calculated based on the rates in force at the close of the reporting period.

2)	Deferred income tax and Social Contribution tax

This is the effect arising from the difference of treatment between the accounting profit and the taxable profit ascertained in each period – these figures can arise from calculation of tax losses offsetable in future periods or recording of accounting transactions which, due to express provisions of law, have their tax effects (positive or negative) suspended or postponed – also known as temporary differences.

Deferred tax is not recognized for the following temporary differences: initial recognition of assets or liabilities in a transaction that is not a business combination and which does not affect accounting, nor taxable profit or loss; and differences related to investments in subsidiaries and controlled entities, when it is probable that they will not be reversed in a foreseeable future.

323

Positive (receivable) deferred income tax ceases to be recognized in the financial statements when it is probable that, in the light of existing evidence, the economic benefits of tax deductibility of the credits which gave rise to it will not be available for use to offset future taxable profit, or their realization is uncertain, indeterminate, or does not fulfill the requirements for accounting recognition specified in CVM (Securities Commission) Instruction 371/02. Deferred income tax and Social Contribution tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax is measured at the rates that it is expected will be applied to the temporary differences when they are realized, based on the legislation in effect on the reporting date.

Deferred tax assets and liabilities are classified individually as ‘Non-current’ assets or liabilities, independently of whether there is any expectation of realization or reversal in the subsequent business year, and may be set off against each other if there is a legal right to offset current tax liabilities and assets, and if they are related to income taxes posted by the same tax authority on the same taxable entity.

(k)

Profit per share

Basic

Basic earnings per share (EPS) is calculated by dividing the profit or loss attributable to the controlling shareholders and non-controlling interest of the Company by the common shares outstanding in the respective period.

2)	Diluted

Diluted EPS is calculated by the said average number of shares in circulation, adjusted for any instruments potentially convertible into shares, with dilutive effect, in the periods presented, in the terms of CPC 41 (IAS 33).

In view of the non-existence of financial instruments that could cause dilution of the capital, no differences were calculated between basic and diluted profits of the Company.

(l)

Segment reporting

Operational segments are strategic units of a business that offer different services, whose operations are separately managed and which require the application of different technologies and operational strategies Reportable operational segments are defined based on the reports used by Management for taking decisions and monitoring business, and are frequently reviewed by the Executive Board of the Company.

The financial statements of the Company include only one material operational segment. This being so, for the purpose of these financial statements only the operational segment related to the business of provision of telecommunications infrastructure was considered.

(m)

Statements of added value

The Company has prepared an Added Value Statement (DVA) in accordance with technical pronouncement CPC 09 – Added Value Statements, which is presented as an integral part of the financial statements in accordance with BRGAAP applicable to listed companies, while under IFRS its status is that of additional information.

324

(n)

Distribution of Interest on Equity, and dividends

Distribution of dividends, and Interest on Equity, to the Company’s stockholders is recognized as a liability in the financial statement at the moment when these benefits are declared. Under the Company’s by-laws, decision on payment of interim Interest on Equity is a decision for the Board of Directors. The tax benefit arising from Interest on Equity is recognized in the Profit and loss account, by reduction of the taxable amount of current income tax and Social Contribution tax.

(o)

Adoption of new and/or revised accounting pronouncements, orientations and interpretations

1)	New and revised rules and interpretations, applicable for the business year ending December 31, 2016

The following new and revised elements of IFRS, in effect for business years starting on or after January 1, 2016, were adopted in the financial statement Adoption of these new and revised components of IFRS applicable to the Company had no material effect on the amounts reported and/or disclosed for the current and prior periods.


Pronouncement		Description
• Changes to IFRS 10, IFRS 12 and IAS 28		• Investment entities: Applying the exception of consolidation
• Alterations to IFRS 11		• Accounting of acquisitions of interests in joint operations
• Alterations to IAS 1		• Disclosure initiative
• Alterations to IAS 16 and IAS 38		• Clarification on acceptable methods of depreciation and amortization
• Alterations to IAS 16 and IAS 41		• Agriculture: Carrying amounts for plants
• Alterations to IAS 27		• Equity reporting method and separate financial statement
• Annual Improvements		• 2012-2014 IFRS Cycle

2)	New and revised rules and interpretations already issued and not yet adopted:


Pronouncement		Description
• IFRS 9		• Financial instruments (b)
• IFRS 15		• Revenue from contracts with clients (b)
• IFRS 16		• Leasing (c)
• Alterations to IFRS 2		• Share-based Payment
• Alterations to IFRS 10 and IAS 28		• Sale or contribution of assets between an investor and its affiliate or joint venture (d)
• Alterations to IAS 7		• Disclosure initiative (d)
• Alterations to IAS 12		• Recognition of deferred tax assets for unrealized losses (a)
• IFRIC 22		• Advances in foreign currencies (b)
• Annual Improvements		• 2014-2016 IFRS Cycle (a) (b)
• Alterations to IAS 40		• Transfer of investment properties (b)

(a)	In effect for annual periods starting on or after January 1, 2017, with early adoption allowed.

(b)	In effect for annual periods starting on or after January 1, 2018, with early adoption allowed.

(c)	In effect for annual periods starting on or after January 1, 2019, with early adoption allowed.

(d)	In effect for annual periods starting on or after a date to be decided.

The Company’s Management is evaluating the possible effects arising from the revisions of IFRS 9, 15 and 16, and adjustments to IFRS 12.

325

4.	Determination of fair value of assets and liabilities

Numerous accounting policies and disclosures of the Company call for determination of the fair value of assets and liabilities, financial and non-financial. The fair values have been calculated for the purposes of measurement and/or disclosure based on the methods below. When applicable, the additional information on the assumptions used in calculation of fair values is disclosed in specific notes to the asset or liability concerned.

(i)

Derivatives

When applicable, derivatives are recognized initially at their fair value; and the attributable transaction costs are recognized in the Profit and loss account when they are incurred. After the initial recognition, derivative are measured at fair value.

(ii)

Non-derivative financial liabilities

Fair value, which is determined for the purposes of disclosure, is calculated based on the present value of the principal, and future cash flows, discounted at the market interest rate found on the reporting date. For financial leasing transactions, the interest rate is found by reference to similar leasing contracts.

5.	Re-presentation of the financial statements

The Company’s financial information for the period ended December 31, 2005, presented for the purpose of comparison, has been adjusted and is being re-presented, as specified in CPC 23 – Accounting policies, changes in estimates and correction of errors, and CPC 26(R1) – Presentation of accounting statements, due to certain adjustments made in the financial statements of the affiliated company Ativas. The effects resulting from these adjustments have an impact on the gain accounted by the equity method on holdings in non-consolidated investees, in the Profit and loss account, and the balances of accounts of uncovered liabilities of the subsidiary, and retained losses in the Statement of financial position (Balance sheet). The Management of CemigTelecom believes that this change presents its operations in the most reliable form and results in reliable and material information. These alterations have no effect on the initial balances at January 1, 2015, which is why the column relating to the balances on that base date has not been presented.

The effects on the financial statements of the Company can be demonstrated as follows:

STATEMENT OF FINANCIAL POSITION


	Dec. 31, 2015
	Initial balance			Adjustments			Balance Re-presented
Current assets		41,455			—			41,455
Non-current assets		276,320			—			276,320

Total assets		317,775			—			317,775

Current liabilities		57,626			—			57,626
Non-current liabilities		90,127			—			92,132
Uncovered liabilities of jointly controlled entity		74,703			2,005			76,708
Other non-current liabilities		15,424			—			15,424
Stockholders’ equity
Share capital		225,081			—			225,081
Equity valuation adjustments		(75	)		—			(75	)
Retained losses		(54,984	)		(2,005	)		(56,989	)

Total equity		170,022			(2,005	)		168,017

Total liabilities and Stockholders’ equity		317,775			—			317,775

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PROFIT AND LOSS ACCOUNT


	Dec. 31, 2015
	Initial balance			Adjustments			Balance Re-presented
Net revenue from provision of services		120,614			—			120,614
Cost of services provided		(83,367	)		—			(83,367	)

Gross profit		37,247			—			37,247
Net operational revenue (expenses)		(26,380	)		—			(26.380	)
Equity method gains in non-consolidated investees, net		(26,828	)		(2,005	)		(28.833	)

Total		(53,208	)		(2,005	)		(55.213	)

Operational profit before Financial revenue (expenses)		(15,961	)		(2,005	)		(17,966	)
Net financial revenues (expenses)		(1,725	)		—			(1.725	)

Profit before income and Social Contribution taxes		(17,686	)		(2,005	)		(19,691	)
Current income tax and Social Contribution tax		(6,589	)		—			(6.589	)
Deferred income tax and Social Contribution tax		(9,551	)		—			(9.551	)

Net loss for the period		(33,826	)		(2,005	)		(35,831	)

STATEMENT OF COMPREHENSIVE INCOME


	Dec. 31, 2015
	Initial balance			Adjustments			Balance Re-presented
Net loss for the period		(33,826	)		(2,005	)		(35,831	)
Other comprehensive income:
Actuarial losses, net of taxes		(323	)		—			(323	)

Total Comprehensive income for the period		(34,149	)		(2,005	)		(36,154	)

STATEMENTS OF CASH FLOW


	Dec. 31, 2015
	Initial balance			Adjustments			Balance re-presented
Net loss for the period		(33,826	)		(2,005	)		(35,831	)
Adjustments to reconcile net profit to cash generated by operations:		98,588			2,005			100,593

Provision made for doubtful receivables		1,195			—			1,195
Equity method gains in non-consolidated investees, net		26,828			2,005			28,833
Depreciation and amortization		48,968			—			48,968
Other adjustments for reconciliation of Net profit for the period		22,792			—			22,792
Variations in assets and liabilities		(7,791	)		—			(7,791	)


Net cash from operational activities		56,971			—			56,971
Net cash applied in investment activities		(51,927	)		—			(51,927	)
Net cash applied in financing activities		(4,887	)		—			(4,887	)

INCREASE IN CASH AND CASH EQUIVALENTS		157			—			157

CASH AND CASH EQUIVALENTS
At start of period		4,712			—			4,712
At end of period		4,869			—			4,869

INCREASE IN CASH AND CASH EQUIVALENTS		157			—			157

327

6.	Cash and cash equivalents


	Dec. 31, 2016		Dec. 31, 2015
Cash and bank deposits		261		1.359
Fixed-income funds
Bank certificates of deposit (a)		105		872
Overnight (b)		668		2.638

Total		1,034		4,869

On December 31, 2016, the Company had 100.00% of its cash investments (cash equivalents and securities – Note 7) in the Pampulha Fund (Fundo Pampulha), an exclusive investment fund of the Cemig Group. The weighted average profitability of the financial investments of the Pampulha Fund in this period was approximately 106.31% of the rate for interbank certificates of deposit, published by Cetip S.A. – the CDI Rate (this percentage was 103.0% on December 31, 2015).

(a)	Floating rate bank CDs, remunerated at a percentage of the CDI Rate (which varies between 100.5% and 105.25%, depending on the transaction).

(b)	Short-term (overnight) transactions (usually Treasury bonds, notes, etc., referenced to a fixed rate), with availability for redemption on the next day after investment.

7.	Securities

Securities refers to: (i) fixed-income securities, comprising units in funds managed by financial institutions that meet the requirements for reputation, reliability and solidity established by the controlling stockholder group; and (ii) investments in securities and bank CDs (CDBs), with maturities of more than 90 days, the amounts of which, reported in Current assets, take into account the expectation of realization in the short term.


Fixed income securities	Dec. 31, 2016		Dec. 31, 2015
Current
Fixed-income funds
Bank certificates of deposit (a)		59		2,873
Debentures (b)		131		3,242
Treasury Financial Notes (c)		349		1,890
Financial Notes – Banks (d)		1,316		9,308

Subtotal		1,855		17,313

Non-current
Financial Notes – Banks (d)		25		338
Other		—		4
Debentures and Notes		58		—

Subtotal		83		342

Total		1,938		17,655

(a)	Floating-rate bank CDs, remunerated at a percentage of the CDI rate (varying between 100.5% and 105.25%, depending on the transaction).

(b)	Floating-rate debentures, remunerated at a percentage of the CDI rate (varying between 100% and 113%, depending on the transaction).

(c)	Floating-rate treasury Financial Notes, the remuneration of which is given by the variation of the daily Selic rate recorded between the date of settlement of the purchase and date of maturity of the security plus, if any, premium or discount at the moment of purchase.

(d)	Floating-rate bank Financial Notes, remunerated at a percentage of the CDI (between 104.25% and 112.7%, depending on the transaction).

328

8.	Accounts receivable from clients


	Dec. 31, 2016			Dec. 31, 2015
Related parties (Note 21) (*)		5,210			1,919
Third parties		15,464			16,713
Allowance for doubtful accounts		(1,425	)		(2,459	)

Total		19,249			16,173

(*)	Excluding the amounts of ICMS tax of the entities linked to the Government.

Below is a summary of past due accounts receivable, by time overdue:


	Dec. 31, 2016
Past due accounts receivable	Related parties		Third parties			Total			Dec. 31, 2015
1 to 30 days		1,059		1,847			2,906			1,880
31 to 60 days		1,070		311			1,381			179
61 to 90 days		543		100			643			85
91 to 180 days		201		223			424			242
Over 180 days		766		1,749			2,515			2,456

Total		3,639		4,230			7,869			4,842

Provision for doubtful receivables)		—		(1,425	)		(1,425	)		(2,459	)

Percentage loss recognized on past due accounts receivable		0%		34%			18%			51%

The estimate for losses on doubtful receivables is recorded after individual assessment of the receivables. Those on which there is doubt as to realization have their losses recognized in the Profit and loss account in the amount expected to be incurred.

The change in the estimate for losses on accounts receivable can be expressed as follows:


	2016			2015
Balance on January 1		(2,459	)		(1,264	)
Provision permanently written off		853			—
New provisions		(101	)		(1,195	)
Reversals		282			—

Balance at December 31		(1,425	)		(2,459	)

On December 31, 2016 the Company had a total of R$ 5,354 in accounts receivable from clients up to 180 days past due, of which R$ 4,504 was settled by February 2017. The other credits are in negotiation.

329

9.	Financial leasing

Leasing transactions in which the Company is lessor and substantially transfers the risks and benefits of ownership to the lessee are classified as financial leasings. These transactions are recognized as a receivable at the lower of: Fair value of the asset leased; and Present value of the flow of receipts specified in the contract, discounted at a risk-free interest rate. Interest related to leasing is recognized in the Profit and loss account as Financial revenue during the period that the contract is in force.


	Dec. 31, 2016
GPON network – condominiums		12,179

Total		12,179

Current		303

Non-current		11,876

GPON network – condominiums

On July 5, 2016 Cemig signed an irrecoverable leasing contract with Algar Telecom S.A. (Algar) for the FTTH GPON Network owned by CemigTelecom, located in 39 residential districts and condominiums in the Southern Zone of the Metropolitan Region of Belo Horizonte. The contract, signed for a period of 15 years, specifies monthly remuneration of R$ 112 in the first 60 months, and R$ 132 as from the 61^st month, with annual adjustment by the IGP-M inflation index.

The nominal value of the flows of receipts specified in the contract was as follows:


	Dec. 31, 2016
Up to 1 year		1,344
1 to 5 years		7,080
After 5 years		13,494

Total		21,918

The value of the considerations receivable on the transaction date was R$ 12,306, discounted to present value based on a real interest rate of 9% per year.

330

10.

Taxes recoverable


	Dec. 31, 2016		Dec. 31, 2015
ICMS (local state value added tax) (a)		4,929		4,695
Income tax and Social Contribution tax recoverable		595		426
Income tax withheld at source		1,098		401
Other		59		14

Total		6,681		5,536

Current		3,684		2,787

Non-current		2,997		2,749

(a)	This refers, basically, to ICMS tax credits recoverable, stated separately on tax invoices for acquisitions of PP&E assets. These can be used in up to 48 months from their being recording in the CIAP (Fixed Assets ICMS Tax Credit Monitoring) book.

11.

Current and deferred income tax and Social Contribution tax

The item Deferred income tax and Social Contribution tax refers to the deferred tax credit constituted, principally, on temporary differences, tax losses and negative balances of Social Contribution tax ascertained up to the reporting date. Reporting of the deferred income tax is based on a technical study of viability made by the Executive Board and approved by the Audit Board and the Board of Directors on March 18, 2016.

The assumptions used in the preparation of that technical feasibility study were based on the projection of future taxable profits. On December 31, 2015, considering the Company’s business plan and the outlook for the macroeconomic scenario, the feasibility study indicated that future taxable profits foreseen for the period of 10 years would not be sufficient to exhaust the totality of tax credits recorded, and for this reason the Company reverted part of the deferred income tax and Social Contribution tax recognized in prior years, in the amount of R$ 13,491, of which R$ 12,057 referred to the tax loss and negative base for Social Contribution tax, and R$ 1,434 in temporary differences. Since this is a change of estimate, the adjustment was recognized in the Profit and loss account with a counterpart in Expenses on income tax and deferred Social Contribution tax.

On December 31, 2016 a further technical study was made, which indicated the possibility of complementing the balance of deferred income tax and Social Contribution tax with the amount of R$ 1,569.

The portion of tax credits not recognized amounts to R$ 10,385. This amount will be maintained under monitoring in the tax records until it satisfies the technical requirements for its accounting recognition.

The accounting value of the deferred tax asset is reviewed periodically, and the forecasts, annually. If there are material factors that change the forecasts, the technical feasibility study will be reviewed by the Company during the business year.

331


	Dec. 31, 2016			Dec. 31, 2015
Assets
Deferred tax credits
Tax losses and negative Social Contribution balances		4,973			1,599
Allowance for doubtful accounts		451			425
Provision for swap balance in the assets of Ativas		1,159			—
Voluntary retirement program		539			—
Profit sharing (‘PLR’)		—			844
Depreciation – Law 11941/09		7,018			6,834
Actuarial loss recorded in Other comprehensive income		390			38
Provision for obsolescence		390			—
Provision for impairment of investment		1,495			1,495
Other temporary additions		623			593

Total, deferred income tax/Social Contribution receivable		17,038			11,828


Liabilities
Deferred tax obligations
GPON network condominium leasing		(764	)		—
Gain on derivative financial instruments		(1,559	)		—
Appreciation of assets received from Eletronet		(6,678	)		—

Total, deferred income tax and Social Contribution payable		(9,001	)		—

Net non-current assets		8,037			11,828

The reconciliation of the expense calculated by application of the nominal tax rates and of the expense of income tax and Social Contribution reported in the Profit and loss account for the year is as follows:


	Year
	2016			2015
Profit (loss) before income tax and Social Contribution tax		14,124			(19,691	)
Gain on change in percentage equity holding		(24,717	)		—
Equity in earnings of unconsolidated investees, net		27,165			28,833

Profit before income and Social Contribution taxes		16,572			9,142
Nominal rate of income and Social Contribution tax		34%			34%

Income tax and the Social Contribution tax		(5,635	)		(3,108	)
Adjustments to obtain effective rate:
Tax effects applicable to:
Deductions for tax incentives		—			312
Other additions and exclusions, net		(75	)		147
Partial posting (reversal) of deferred income tax and Social Cont.		1,569			(13,491	)

Income and social contribution taxes – effective expense		(4,141	)		(16,140	)


Income tax and Social Contribution tax
Current		—			(6,589	)
Deferred		(4,141	)		(9,551	)

Total		(4,141	)		(16,140	)

332

The Company’s statements of the Company’s earnings are subject to review by the tax authorities for a period of five years. Other taxes, charges and contributions are also subject to the conditions, under applicable legislation.

The changes in the deferred tax assets during the 2016 business year can be shown as follows:


	Balance on Dec. 31, 2015		Accumulated in the year						Balance on Dec. 31, 2016
Deferred tax credits	Balance on Dec. 31, 2015		Inclusions			Utilization			Balance on Dec. 31, 2016
Tax losses and negative Social Contribution balances		1,599		3,374			—			4,973
Allowance for doubtful accounts		425		26			—			451
Provision for swap balance in the assets of Ativas		—		1,159			—			1,159
Voluntary retirement program		—		539			—			539
Profit sharing (‘PLR’)		844		—			(844	)		—
Depreciation – Law 11941/09		6,834		184			—			7,018
Provision for obsolescence		—		390			—			390
Provision for impairment of investment		1,495		—			—			1,495
Other temporary additions		593		30			—			623

Total		11,790		5,750			(844	)		16,648

Deferred tax obligation
GPON network condominium leasing		—		(764	)		—			(764	)
Gain on derivative financial instruments		—		(1,559	)		—			(1,559	)
Appreciation of assets received from Eletronet		—		(6,678	)		—			(6,678	)

Total		—		(9,298	)		—			(9,001	)

Tax credit (obligation) recognized in Profit and loss account		11,790		(3,548	)		(844	)		7,647

Actuarial loss recorded in Other comprehensive income		38		352			—			390

Total of tax credit (obligation) recognized		11,828		(3,196	)		(844	)		8,037

12.

Investment in affiliated company

On December 31, 2015 the Company was holder of 49% (forty nine per cent) of the voting stock of the company Ativas Data Center S.A. On December 31, 2015 the Company was holder of 49% (forty nine per cent) of the voting stock of the company Ativas Data Center S.A. On October 19, 2016 entry of the new strategic stockholder, Sonda Procwork Outsourcing Informática Ltda. (‘Sonda’) as one of the stockholders of Ativas Data Center S.A. was concluded. The closing took place after approval of the transaction without restrictions by Brazil’s Monopolies Authority, Cade, and compliance with the other conditions precedent, on October 19, 2016.

Following the subscription by Sonda of R$ 114,000, through a capital increase, Sonda holds 60% of the equity of Ativas; CemigTelecom holds 19.6% (representing share capital of R$ 98,900); and Ativas Participações holds 20.4% (representing share capital of R$ 102,937). Since after the transaction CemigTelecom no longer had shared control of Ativas, its interest was from that point onward recognized as investment in an affiliated company.

Until the finalization of the phase of construction of its datacenter, in January 2011, Ativas was pre-operational and by December 31, 2016 it had reported accounting losses of R$ 323,867 since its constitution in 2009 (R$ 194,040 up to Dec. 31, 2015).

333

The principal information on this affiliated company is given below, aligning the accounting practice of Ativas with those of CemigTelecom:


	Dec. 31, 2016			Dec. 31, 2015
				(Re-presented)
Assets		180,449			230,698
Liabilities		51,735			292,450
Net equity (uncovered liability)		128,714			(61,752	)
Net revenue		67,557			59,212
Profit (loss) for the period		(126,744	)		(39,047	)

The development of the investment in the capital of Ativas in 2015 and 2016 is as follows:


Dec. 31, 2015			Dec. 31, 2016
	Re-presented
Jan. 1, 2015	Equity income	Dec. 31, 2015	Balance Jan. 1, 2016	Equity income	Gain on dilution of holding	Capital increase	Balance Dec. 31, 2016
(47,875)	(28,833)	(76,708)	(76,708)	(27,165)	24,717	98,900	19,744

The value of the investment on December 31, 2016 and 2015 can be shown as follows:


	Dec. 31, 2016			Dec. 31, 2015
Stockholders’ equity of the investee as per company’s accounts		128,714			(61,752	)
Effect of deferred income tax asset recognized by investee		(27,979	)		(94,796	)
Adjusted stockholders’ equity of investee		100,735			(156,548	)
Percentage interest (%)		19,6%			49%

Investments valued by the equity method		19,744			(76,708	)
Premium paid on subscription		4,397			4.397
Provision for impairment of the premium		(4,397	)		(4,397	)

Balance of the investment (uncovered liability)		19,744			(76,708	)

Loss by equity method		(27,165	)		(28,833	)

This shows the stockholding structure of Ativas on December 31, 2016 and 2015:


	Dec. 31, 2016				Dec. 31, 2015
Stockholder	Thousand shares		Stake, %		Thousand shares		Stake, %
Ativas Participações S.A.		93,134		20.40%		68,144		51.00%
Cemig Telecomunicações S.A.		89,482		19.60%		65,472		49.00%
Sonda Procwork Outsourcing Informática Ltda.		273,925		60.00%		—		—

Total		456,541		100%		133,616		100%

334

Capital increase

Injections of capital in 2016


					October 19, 2016
	Feb. 16, 2016		Mar. 14, 2016		1st tranche		2nd tranche		Total
CemigTelecom		3,800		12,860		45,000		37,240		98,900
Ativas Participações		3,955		13,385		46,837		38,760		102,937
Sonda Procwork		—		—		—		114,000		114,000

Total		7,755		26,245		91,837		190,000		315,837

Financial assets/liabilities relating to sale/purchase options

On October 19, 2016, Cemig Telecomunicações S.A. – ‘CemigTelecom’, Ativas Participações S.A. (‘Ativas Participações’) and Sonda Procwork Outsourcing Informática Ltda. (‘Sonda’) signed an investment contract, for entry of Sonda as stockholder of the investee Ativas Data Center S.A. (‘Ativas Data Center’), which until that date was an exclusive investee of CemigTelecom (49%) and Ativas Participações (51%).

After the entry of the new partner Sonda, by dilution of CemigTelecom and Ativas Participações, Sonda assumed stockholding control, as owner of 60.0% of the shares of Ativas Data Center, the stockholder CemigTelecom and Ativas Participações S.A. now holding 19.6% and 20.4%, respectively.

As part of the process of stockholding restructuring, CemigTelecom and Sonda signed a Purchase Option Agreement (issued by CemigTelecom) and a Sale Option Agreement (issued by Sonda).

The measurement was carried out by specialized consulting company through the use of the Black-Scholes-Merton (BSM) model, it being ensured that its results were consistent with other stochastic approaches involving numerical procedures.

In the calculation of the fair value of the Ativas Options based on the BSM model, the following variables are taken into account: closing price of the underlying asset on December 31, 2016; the risk-free interest rate; the volatility of the price of the underlying asset; the time to maturity of the option; and the exercise prices on the exercise date.

335

The closing price of the underlying asset was based on the value of the transaction in shares of Ativas by Sonda, which took place on October 19, 2016. The calculation of the risk-free interest rate was based on yields of National Treasury Bills (Letras do Tesouro Nacional – LTNs). The time to maturity was calculated assuming exercise date on March 31, 2021. Considering that the exercise prices of the options are contingent upon the future financial accounting results of Ativas, the estimate of the exercise prices on the date of maturity was based on statistical analyzes and on information of comparable listed companies. The exercise prices of adopted in the BSM method were corroborated with statistical distributions analyzed through numerical procedures. On December 31, 2016, the derivative financial instrument is recorded, with the amount of R$ 4,586, in the account line Derivative financial instrument, in Assets.

13.

Property, plant and equipment


	Dec. 31, 2016									Dec. 31, 2015
	Cost			Accumulated depreciation			Net value			Net value
Land		82			—			82			82
Real estate property		55			(16	)		39			40
Facilities		68			(25	)		43			102
Machinery and equipment		11			(2	)		9			10
Furniture and utensils		1,524			(1,074	)		450			472
Computers and peripherals		1,953			(1,760	)		193			270
Test instruments		2,833			(2,674	)		159			238
Improvements		246			(227	)		19			33
Satellite reception system		9,283			(9,282	)		1			2
Telecoms network equipment		361,943			(266,084	)		95,859			94,869
Materials		61,098			(38,694	)		22,404			25,009
Cable		192,373			(91,632	)		100,741			106,141
OPGW cables		18,894			(630	)		18,264			—
ADSS cables		1,529			(153	)		1,376			—
Network infrastructure		19,342			(13,140	)		6,202			7,869
Fixed assets in progress		17,146			—			17,146			14,849

Subtotal		688,380			(425,393	)		262,987			249,986

Provision for obsolescence		(1,374	)		—			(1,374	)		(225	)

Total, net		687,006			(425,393	)		261,613			249,761

The depreciation rates and remaining useful lives were determined through technical opinions issued by engineers of the Company, and reflect the expectation of useful life of the goods and assets, as follows:

336

Depreciation rates and useful lives of the assets:


Class of asset	Average percentage depreciated up to Dec. 31, 2016			Average remaining useful life (years)		Annual average depreciation rates
Class of asset	Average percentage depreciated up to Dec. 31, 2016			Average remaining useful life (years)		Annual average depreciation rates
Real estate property		29	%		35.5		2	%
Facilities		37	%		6.3		10	%
Machinery and equipment		18	%		8.2		10	%
Furniture and utensils		70	%		3.0		10	%
Computers and peripherals		90	%		0.5		20	%
Test instruments		94	%		0.6		10	%
Improvements		92	%		0.4		20	%
Satellite reception system		100	%		0.0		8	%
Telecoms network equipment		74	%		2.4		11	%
Materials		63	%		5.2		7	%
Cable		48	%		10.5		5	%
OPGW cables		3	%		14.5		7	%
ADSS cables		10	%		4.5		20	%
Network infrastructure		68	%		5.8		3 to 10	%

The movement in PP&E in 2016 can be shown as follows:


	Dec. 31, 2015		Additions			Written off			Transfers			Dec. 31, 2016
Land		82		—			—			—			82
Real estate property		55		—			—			—			55
Facilities		152		—			(84)			—			68
Machinery and equipment		11		—			—			—			11
Furniture and utensils		1,469		55			—			—			1,524
Computers and peripherals		1,934		19			—			—			1,953
Test instruments		2,833		—			—			—			2,833
Improvements		246		—			—			—			246
Satellite reception system		9,283		—			—			—			9,283
Telecoms network equipment		342,087		—			(7,684)	(d)		27,540			361,943
Materials		61,301		—			(2,560)	(d)		2,357			61,098
Cable		190,788		—			(3,983)	(d)		5,568			192,373
OPGW cables		—		18,894	(c)		—			—			18,894
ADSS cables		—		1,529	(c)		—			—			1,529
Network infrastructure		19,342		—			—			—			19,342
Fixed assets in progress		14,849		41,716	(a)		(225)			(39,194)			17,146

Total cost		644,432		62,213			(14,536)			(3,729)			688,380

Accumulated depreciation		(394,446)		(35,976)			5,029	(d)		—			(425,393)
Provision for obsolescence		(225)		225			(1,374)			—			(1,374)

Net amount depreciable		249,761		26,462			(10,881)			(3,729)	(b)		261,613

(a)	Spending relating to projects in progress for expansion of telecommunications networks and inventories.

(b)	Transfers made between PP&E lines and intangible assets (Note 14).

(c)	Assets transmitted by Eletronet S.A.

(d)	The write-offs made in the period are as described in Note 9, goods which the Company has leased, the main characteristics of the contract of which indicated their classification as financial leasing, the transaction consequently being posted as a disposal.

337

The Company periodically evaluates the useful lives applied to its assets that have defined useful life. The evaluation of useful lives of the assets are carried out by professionals of the Company’s technical engineering team, and they consider, among other aspects, the following principal indications for formation of their opinion: (i) technical information related to the use and maintenance of the assets; (ii) outlook for technological and market changes; (iii) the Company’s capacity to obtain services and parts in the market for replacement of goods; and (iv) the possibility of realizing upgrades in the related equipment and software, and also of the capacity for its combination with future technologies.

For tax purposes, the useful lives of the assets accepted by the tax legislation were maintained, and the difference between the accounting and tax bases are treated as temporary differences, the effects resulting from which are recognized as a deferred tax credit or debit in the period in which those differences occur.

Receipt of assets by reason of a contract

In the third quarter of 2016 the Company recognized ownership of certain assets transferred by Eletronet S.A, comprising 715 Km of OPGW cables, in the amount of R$ 18,894 and ADSS cables in the amount of R$ 1,529, by reason of a provision in a contract which transferred ownership and domain over these assets to CemigTelecom.

During the period of the contract, bankruptcy of Eletronet was declared, on May 16, 2003, with continuity of its operations being maintained. This fact had no effect on compliance with the contract signed between the parties, but the legal uncertainty caused by the possibility of these assets being confiscated by the receiver and the unpredictable consequences, led to a scenario of uncertainty that continued even after the date of extinction of the contract in 2015.

In the first quarter of 2016 a Rio de Janeiro court gave judgment ratifying the settlement with the creditors governing the assets of the company, and the bankruptcy was ended. Due to the complexity of the case, the Company’s legal advisors, for prudence, recommended that these assets should be recorded in the accounts only when all the elements indicating that the risks of loss of this right, and of the legal uncertainties, were no longer present.

In view of the present stage of the process and the expiration of the period for a contrary statement by the creditors and the Public Attorneys’ office, and also the acceptance of the conditions of payment ratified in the court agreement referred to, the Company’s legal advisors concluded that the chance of modification of the judgment could be considered improbable.

The Company’s management, based on the existing evidence as a whole and on the conviction of its internal and external legal advisors as to the remoteness of the possibility of reversal of the legal situation of Eletronet, decided in favor of accounting recognition of these assets, and contracted a specialized company for their valuation. That Company’s opinion, issued on June 30, 2016, indicated the total amount of R$ 20,423, and remaining useful economic life of 15 years, for the OPGW cables and five years for the ADSS cables.

14.

Intangible assets


	Dec. 31, 2015			Accumulated in the year						Dec. 31, 2016
	Dec. 31, 2015			Additions			Transfers			Dec. 31, 2016
Software use license		1,137			901			—			2,037
Grant of radio concession		230			—			—			230
Management systems		9,268			—			3,729			12,998

Total cost		10,635			901			3,729			15,265

Accumulated amortization		(4,010	)		(1,765	)		—			(5,775	)

Net value amortizable		6,625			(864	)		3,729	(a)		9,490

(a)	The remaining balances in the transfers shown in the table above refer to the transfers made between the accounts Fixed assets and Intangible assets (Note 13).

338

Amortization rates and useful lives: The annual amortization rates practiced for the 2016 business year were as follows:


Class of asset	Estimated useful life (years)	Average percentage amortized up to Dec. 31, 2016			Average remaining useful life (years)		Annual average depreciation rates
Class of asset	Estimated useful life (years)	Average percentage amortized up to Dec. 31, 2016			Average remaining useful life (years)		Annual average depreciation rates
Software use license	5 years		83	%		0.8		20	%
Grant of radio concession	15 years		11	%		13.4		6.7	%
Management systems	10 years		30	%		7.0		10	%

15.

Loans and debentures


	Dec. 31, 2016		Dec. 31, 2015
Debentures (a)		—		16,414
Promissory Notes (b)		—		22,609
Loan (c)		101,372		—

Total		101,372		39,023

Current		63,751		30,519

Non-current		37,621		8,504

(a)

Debentures

The movement of the financing via BNDES – Debentures in the year was as follows:


Debentures				Accumulated in the year
BNDES	Balance on			Payment of interest			Amortization			Charges appropriated		Balance on
	Dec. 31, 2015			Payment of interest			Amortization			Charges appropriated		Dec. 31, 2016
1st. Series		8,157			(524	)		(8,157	)		524		—
2nd. Series		3,003			(606	)		(3,003	)		606		—
3rd. Series		1,119			(60	)		(1,119	)		60		—
4th. Series		2,434			(145	)		(2,434	)		145		—
5th. Series		1,001			(79	)		(1,001	)		79		—
6th. Series		758			(39	)		(758	)		39		—

Subtotal		16,472			(1,453	)		(16,472	)		1,453		—

Funding costs		(58	)		—			—			58		—

Total		16,414			(1,453	)		(16,472	)		1,511		—

On October 14, 2016, the Company made early settlement of the debtor balance on the First Debenture Issue, as specified in Clause 15 of the Debenture Deed. The debtor balance including financial charges on the date of payment was R$ 10,741. On October 17, 2016 the BNDES issued the term of quittance and release of the guarantees. On November 3, 2016 the guarantee account in the amount of R$ 4,187 was redeemed.

339

(b)

Promissory Notes

On December 23, 2015, under CVM Instructions 566 (of July 31, 2015) and 476 (January 16, 2009), the Company made its second issue, in a single series, of commercial Promissory Notes (‘2nd NP’) in the total amount of R$ 23,000, represented by 46 (forty six) Promissory Notes with nominal unit value of R$ 500, guaranteed by a surety from Companhia Energética de Minas Gerais – Cemig, under the regime of firm guarantee of subscription, through public distribution, with restricted distribution efforts, and maturity at 360 (three hundred and sixty) days from issue date, paying remuneratory interest at 120.0% (one hundred and twenty per cent) of the CDI Rate. The proceeds from the issue were used to replenish the Company’s cash position.

The movement of the loan in the modality Promissory Notes in the year was as follows:


				Accumulated in the year
	Dec. 31, 2015			Payment of interest			Amortization			Charges appropriated		Dec. 31, 2016
Single Series		23,073			(3,889	)		(23,000	)		3,816		—
Funding costs		(464	)		—			—			464		—

Total		22,609			(3,889	)		(23,000	)		4,280		—

On December 19, 2016, the Company made settlement of the debtor balance on the promissory notes. On the date of payment the total of the amount due and financial charges was R$ 26,889.

(c)

Loans


	Dec. 31, 2015		Funds raised			Charges appropriated		Dec. 31, 2016
Sonda Procwork (1)		—		45,000			1,310		46,310
Sonda Procwork (2)		—		37,240			1,086		38,326
Cemig Holding company (3)		—		18,000			134		18,134

Subtotal		—		100,240			2,530		102,770

Funding transaction costs		—		(1,558	)		160		(1,398	)

Total		—		98,682			2,690		101,372

(1)	Loan from Sonda, at 110% of CDI, due October 19, 2017, to support the investment in Ativas Datacenter.

(2)	Loan from Sonda, rate 110% of CDI, to support the investment in Ativas Datacenter. The loan becomes due on date of exercise of the put option by the Company, as regulated by the Stockholders’ Agreement.

(3)	Loan from Cemig Holding company, at 132.9% of CDI, due April 30, 2017, to support working capital.

16.

Suppliers


	Dec. 31, 2016		Dec. 31, 2015
Third parties		11,606		6,369
Related parties (Note 21) (*)		10,144		4,946

Total		21,750		11,315

(*)	Leaves out of account the amounts of ICMS tax of the entities linked to the Government, and indemnity for contingencies in Ativas.

The Company’s exposure to currency and liquidity risks on suppliers and accounts payable is given in Note 27.

340

17.

Payroll-associated and employment-law obligations


	Dec. 31, 2016		Dec. 31, 2015
Vacation pay, 13^th salary and charges payable		2,906		2,284
Employee profit shares		1,257		2,483
Long-term benefits to employees (Note 28)		2,801		1,454
Voluntary retirement program		1,583		—
Other		90		89

Total		8,637		6,310

Current		5,836		4,856

Non-current		2,801		1,454

Voluntary retirement program

On March 18, 2016 the Company’s management launched the Incentivated Voluntary Retirement Program (PDVI) for 2016, with the objective of adapting the workforce to the needs of the Company’s Business Plan, for preservation of the staff necessary for optimization of its processes and costs, maintaining the focus on achieving the targets of its strategic plan and generation of value. Employees could accept the terms of the plan as from March 21, to May 19, 2016.

12% of the Company’s staff joined the program. It was available to employees with administrative and technical careers with at least 13 years’ work at CemigTelecom or with any other company provided they were retired or qualified for retirement. The retirement dates were programmed at the Company’s option, and may occur in up to 18 months after the termination of the acceptance period. The plan provides a financial incentive equivalent to 0.4 times the monthly salary for each year of employment relationship with the company, for those who joined in the first 30 days of the joining period, and of 0.2 times the salary for those who joined between the 31st day of the period and its closing date. Additionally, the program grants those with eligible employment the right to receive the 40% ‘penalty’ payment on the balance of the employee’s FGTS account, as well as receipt of the other dismissal amount specified by law.

18.

Tax obligations


	Dec. 31, 2016		Dec. 31, 2015
Income tax withheld at source (IRRF)		341		284
Corporate income tax (IRPJ)		—		497
The Social Contribution tax on net profit (CSLL)		—		269
ICMS (local state value added tax)		2,560		1,838
The Contribution to Finance Social Security – Cofins		1,320		459
Social Integration Program (PIS)		286		99
Telecommunication Services Universalization Fund (FUST)		90		77
Telecoms Technical Development Account – FUNTTEL		7,137		6,722
Other		305		231

Total		12,039		10,476

Current		9,573		10,476

Non-current		2,466		—

341

(a)	As from January 2016, various Brazilian states increased the rate of ICMS tax on telecommunication service to improve the cash situation of the states, as follows:


State	Change in rate (from – to)	Legislation
Minas Gerais	25% – 27%	Law 21781/2015
Pernambuco	28% – 30%	Law 15599/2015
Ceará	27% – 30%	Law 5892/2015
Rio de Janeiro	27% – 30%	Law 7175/2015
Rio Grande do Norte	27% – 30%	Law 9991/2015

(b)

With the conversion of Provisional Measure 638/14 into Law 12996/14, and consequent renewal of permission for payment in installments as per Laws 11941/09 and 12249/10, the Company sought to include the debits to FUNTTEL for the years 2006 to 2013 within the REFIS program. This was however negated on administrative basis, due to its not being inscribed in the national receivable debt.

The Company reacted to this by seeking an order of mandamus against the act of an allegedly coercive authority, seeking to force those debits into the debt refinancing program referred to, but the case and the application for mandamus were refused and the case set aside. This case awaits judgment in appeal to the Regional Federal Appeal Court of the 1st Region.

The accumulated value of the tax obligation on December 31, 2016 is R$ 7,137, including interest and penalty payments calculated up to that date on the debts past due.

The debits incurred as from 2014 are being paid regularly.

Due to the remote possibility of inclusion of the FUNTTEL debits in the REFIS program, the company awaits the inscription of these debits in the Federal Receivable Debt register, with a view to arrangement for payment of the outstanding balance in installments, directly with the federal government. Until December 31, 2016, the debits for the years 2008 and 2009 were inscribed in the Federal Receivable Debt. The amounts receivable were agreed to be paid in ordinary installment in 60 months.

The movement on the installment payment of debits to FUNTTEL, inscribed in the Federal Receivable Debt, was as follows:


	Accumulated in the period
Tax year	Consolidated costs		Amortization			Charges appropriated		Balances at December 31, 2016
2008		1,006		(132	)		44		918
2009		880		(90	)		45		835

Total		1,886		(222	)		89		1,753

342

19.

Advances from clients

Contract
Signed

Period of

contract

Amount
contracted

Dec. 31, 2016

Dec. 31, 2015

Accumulated revenue

Contract

Appropriated

To be
appropriated

Appropriated

to be
appropriated

1 optical fiber pair for 181 km

08/08/2011

10 years

2,187

1,149

1,041

930

1,257

1 optical fiber pair for 46 km

12/10/2012

20 years

925

185

740

138

787

1 optical fiber pair for 231 km

12/04/2013

20 years

3,822

584

3,238

392

3,430

Other

515

495

460

Total

7,449

2,413

5,039

1,920

5,529

Current

460

Non-current

4,579

5,069

The contracts related to the advances from clients are for irrevocable concession of dark fiber pairs, not including the grant of any equipment or provision of any telecommunication services.

The contracts have average duration of 17 years and do not contain clauses for renewal or option for sale of the assets. The revenue linked to these contracts, recognized in the year ended December 31, 2016, was R$ 493.

20.

Provisions for risks


	Dec. 31, 2016		Dec. 31, 2015
Civil cases		—		313
Employment-law cases		82		—

		82		313

On December 31, 2016, the Company had a provision for risks and contingencies identified by management of R$ 83 (R$ 313 on December 31, 2015), representing employment-law claims, in which the chances of loss have been assessed as ‘probable’.

Classification of the contingencies in relation to expectation of loss


	Chances of loss assessed as:
	‘Remote’		‘Possible’		‘Probable’		Total
Tax cases (a)		80		—		—		80
Employment-law cases (b)		188		1,801		82		2,071
Civil cases (c)		31		479		—		510

Total		299		2,280		82		2,661

(a)

The tax cases are for claims of incorrect allocation of tax liabilities in charging of social contributions in the telecommunication sector (Fust/Funtel), which Anatel has the responsibility for collecting. There are also tax disputes on the legitimacy of the manner of joint charging of federal and state taxes, and also defenses in tax execution.

(b)	A great majority of the employment law cases are from employees of other companies, contractual partners of CemigTelecom, in which CemigTelecom is included as defendant, in which the plaintiff requests concession of salary equality and the same advantages that the Company pays to its employees.

(c)

The civil cases include a class action by the Public Attorney’s Office of Minas Gerais, questioning the legality of outsourcing of services, where the manpower employed is alleged to be related to the Company’s end-activity. Judgment was given against CemigTelecom at first instance and it was ordered to pay a fine of R$ 200, and prohibited from continuing to employ outsourced labor in these activities. In 2014, the Company obtained an injunction from the Higher Employment Law Appeal Court, suspending the effects of the first instance judgment until the result of a General Precedent Case currently before the Federal Supreme Court. The Company’s lawyers have assessed the chances of loss as ‘possible’ and in the event of the judgment against it being upheld the Company may be compelled to carry out part or all of those activities with direct employees. On March 22, 2017, the lower house of Congress approved Draft Law 4302/1998, which closes the discussion by allowing companies to outsource their end-activities. This Draft Law was sanctioned by the President of the Republic and published in the Federal Official Gazette on March 31, 2017.

343

21.

Related party transactions

CemigTelecom is a wholly-owned subsidiary of Companhia Energética de Minas Gerais S.A – Cemig, which has as its principal stockholders, with the right to vote, the Government of the State of Minas Gerais (51%) and Andrade Gutierrez Concessões Energia (20%). The controlling group, Cemig, also has direct stockholding interests in the following principal companies: Axxiom Soluções Tecnológicas S.A. (49%), Cemig Geração e Transmissão S.A. (100%), Cemig Distribuição S.A. (100%), Companhia de Gás do Estado de Minas Gerais S.A. – Gasmig (99.57%), Rosal Energia (100%), Sá Carvalho (100%), Light S.A. (26.06%) and Transmissora Aliança de Energia Elétrica – TAESA (31.54%).

The Company considers as related parties, as well as its affiliated company (‘Ativas’), the controlling stockholder and its related legal entity, companies or people that directly or indirectly have significant influence of the management of the Company, the private pension plan entities (Forluz) and the administrator of the health and dental plan (Cemig Saúde), in which the Company is co-sponsor jointly with the other companies of the Cemig Group and the managers and employees of the Company.

Asset transactions (sales) – The principal asset commercial transactions maintained by the Company with related parties concern the sale of circuits and other telecommunication services in general, in which the companies of the controlling group, Cemig, currently account for 15.11% of the Company’s billing (12.79% in 2015).

Liability transactions (purchases) – The principal liability transactions of the Company with related parties are the supply of electricity to feed the telecommunications equipment, provision of services of management and maintenance of the telecommunications network, and rental (sharing) of the power transmission and distribution infrastructure for installation of telecommunication cables and equipment.

The affiliated company Ativas has an item in its accounts receivable, from the minority stockholders, in the amount of R$ 6,958, relating to the indemnity clause arising from liabilities pre-existing, or not revealed, on the date of the transaction, as specified in the investment contract signed on August 25, 2016 between CemigTelecom, Ativas and Sonda Procwork Outsourcing Informática Ltda. Of this amount recorded, 49% is attributed as the responsibility of CemigTelecom, and a provision was constituted of R$ 3,410 in relation to this.

The principal balances of assets and liabilities on December 31, 2016 and the transactions that influenced the result for the period, in relation to transactions with related parties, arise from transactions made for conditions and periods agreed between the parties for the respective types of operation.

344

Balances on December 31, 2016


	Dec. 31, 2016				Accumulated in the year
Companhia Energética de Minas Gerais	Assets		Liabilities		Sales		Bought
Telecoms services		26		—		—		—
Reimbursement of costs of seconded personnel		1,170		2,566		1,653		1,878
Other		3		—		3		—

Total		1,199		2,566		1,656		1,878

Cemig Distribuição S.A.
Telecoms services		3,399		—		11,870		—
Revenue from supply of electricity		—		263		—		3,158
Network maintenance services		—		3,319		—		1,878
Right of way/infrastructure		—		2,771		—		3,955
Other		38		—		—		—

Total		3,437		6,353		11,870		8,991

Cemig Geração e Transmissão S.A.
Telecoms services		272		—		3,255		—
Network maintenance services		—		328		—		187
Other		23		—		—		16

Total		295		328		3,255		203

Fundação Forluminas de Seguridade Social (‘Forluz’)
Telecoms services		4		—		61		—
Private pension plan		—		482		—		—

Total		4		482		61		—

Cemig Saúde (Health)
Communication services		2		—		63		—
Medical and dental care		—		228		—		9

Total		2		228		63		9

Companhia de Gás de Minas Gerais (Gasmig),
Communication services		21		—		193		—
Reimbursement of costs of seconded personnel		—		—		—		—

Total		21		—		193		—

345


	Dec. 31, 2016				Accumulated in the year
	Assets		Liabilities		Sales			Bought
Entities linked to the Minas Gerais State Government
Current
Communication services		94		—		659			—
Recoverable taxes – ICMS		1,552		2,034		(25,851	)		—
Non-current
Recoverable taxes – ICMS		2,020		—		—			—

Total		3,666		2,034		(25,192	)		—

Axxiom
Communication services		3		—		40			—
Software maintenance		—		131		—			1,078

Total		3		131		40			1,078

Ativas Data Center S.A.
Communication services		249		—		2,474			—
Indemnity for contingencies in Ativas		—		3,410		—
Data Center Outsourcing Service		—		56		—			739
Reimbursement of costs of seconded personnel		—		—		318			—

Total		249		3,466		2,792			739

Total at December 31, 2016		8,876		15,588		(5,262	)		12,898


Balances on December 31, 2015	Dec. 31, 2015				Accumulated in the period
	Assets		Liabilities		Sales		Bought
Companhia Energética de Minas Gerais
Communication services		26		—		—		—
Reimbursement of costs of seconded personnel		389		1,286		1,132		1,065
Other		3		—		—		—

Total		418		1,286		1,132		1,065

Cemig Distribuição S.A.
Communication services		955		—		11,655		—
Revenue from supply of electricity		—		861		—		5,124
Network maintenance services		—		1,418		—		1,890
Sharing of infrastructure		—		647		—		4,786
Other		38		—		—		—

Total		993		2,926		11,655		11,800

Cemig Geração e Transmissão S.A.
Communication services		273		—		3,410		—
Network maintenance services		—		141		—		188
Other		23		—		—		—

Total		296		141		3,410		188

Fundação Forluminas de Seguridade Social (‘Forluz’)
Communication services		9		—		102		—
Private pension plan		—		374		—		1,097

Total		9		374		102		1,097

346


Balances on December 31, 2015	Dec. 31, 2015				Accumulated in the period
	Assets		Liabilities		Sales			Bought
Cemig Saúde (Health)
Communication services		2		—		56			—
Medical and dental care		—		176		—			408

Total		2		176		56			408

Companhia de Gás de Minas Gerais (Gasmig),
Communication services		19		—		172			—
Reimbursement of costs of seconded personnel		—		—		—			—

Total		19		—		172			—

Entities linked to the Minas Gerais State Government
Current
Recoverable taxes – ICMS		3,099		1,425		(17,927	)		—

Total		3,099		1,425		(17,927	)		—

Axxiom
Communication services		3		—		37			—
Software maintenance		—		21		—			460

Total		3		21		37			460

Ativas Data Center S.A.
Communication services		150		—		1,736			—
Data Center Outsourcing Service		—		22		—			988
Reimbursement of costs of seconded personnel		29		—		347			22

Total		179		22		2,083			1,010

Total at December 31, 2015		5,018		6,371		720			16,028

Fixed income fund – Pampulha – The Company is a unit holder of the Pampulha Fund, which has the characteristics of fixed income and follows the investment policy of the Company. On December 31, 2016 the amounts invested by the fund, corresponding to CemigTelecom’s participation, are recorded in Cash and cash equivalents, and Securities, in Current and Non-Current assets.

The Cemig Group has investments in the Pampulha Fund (see breakdown below), which in turn has investments in promissory notes and debentures of companies of the Cemig Group.

347

Assets corresponding
to CemigTelecom’s
participation

Pampulha Fund

Period of validity

Contractual conditions

Dec. 31,
2016

Dec. 31,
2015

CemigTelecom investment in Pampulha Fund – ref. Axxiom (Debentures)

April 2013 to Jan. 2016

112.0% of CDI + 1.3% p.a.

—

173

CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)

Jan. 2014 to Dec. 2016

CDI + 0.8% p.a.

—

761

CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)

Apr. 2013 to Feb. 2017

CDI + 0.9% p.a.

165

CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)

Jul. 2015 to Jul 2018

CDI + 1.60%

817

CemigTelecom investment in Pampulha Fund – ref. ATIVAS (Notes)

Jul. 2014 to Oct. 2016

CDI + 3.5% p.a.

—

332

CemigTelecom investment in Pampulha Fund – ref. ATIVAS (Notes)

Jul. 2014 to Oct. 2016

CDI + 3.5% p.a.

—

415

CemigTelecom investment in Pampulha Fund – ref. ETAU (Debentures)

Dec. 2014 to Dec. 2019

108% of the CDI Rate

154

CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)

Mar. 2016 to Dec. 2018

CDI + 3.9%

—

CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)

Jul. 2016 to Dec. 2018

CDI + 4.2% p.a.

—

CemigTelecom investment in Pampulha Fund – ref. Axxiom (Debentures)

April 2016 – Jan. 2017

112.00% of CDI Rate

—

The return of the Pampulha Fund, in the year ended December 31, 2016, was R$ 2,325 (R$ 1,566 in December 31, 2015).

Loan – On December 16, 2016, CemigTelecom signed a loan contract with Cemig in the amount of R$ 18,000, to complement the funds necessary for full payment of the first Promissory Note. This was for 137 days, with payment scheduled for April 30, 2017, in a single payment, plus interest at 132.9% of the average DI (Interbank Deposit) rate. The balance recorded at December 31, 2016, plus financial charges, calculated pro-rata temporis was R$ 18,134 – see Note 15.

Remuneration of Managers – In 2016 the Company paid remuneration and other benefits to the Managers totaling R$ 3,579 (R$ 2,934 in 2015), as follows:

Position

Remuneration

Benefits

Total

Dec. 31,
2016

Dec. 31,
2015

Dec. 31,
2016

Dec. 31,
2015

Dec. 31,
2016

Dec. 31,
2015

Chief Officers

2,489

2,213

291

189

2,780

2,402

Board members

799

532

—

799

532

Total

3,288

2,745

291

189

3,579

2,934

On April 29, 2016 a General Meeting of Stockholders of the Company set the global annual limit for the 2016 business year of R$ 5,450 (R$ 3,900 for the 2015 business year) for remuneration of Chief Officers, the Board of Directors and the Audit Board.

348

Private Pension Plans and other benefits to employees – As per Note 28, the Company is co-sponsor of the private pension plan for Forluz and Cemig Saúde, which is responsible for management of medical and dental plan of the employees. The contributions by the Company were as follows:


	Dec. 31, 2016				Dec. 31, 2015
	Forluz		Cemig Saúde		Forluz		Cemig Saúde
Mixed Benefit Private Pension Plan (‘Plan B’)		3,235		—		2,549		—
Pró-Saúde Integrado (PSI) Plan		—		1,469		—		1,077
Dental Plan		—		52		—		43

Total		3,235		1,521		2,549		1,120

Additionally, as well as the benefits specified in Law, the Company also gave its employees: access to a day-care center, group life insurance, restaurant and food meal tickets, and culture vouchers.

Employees’ profit shares – The Company’s bylaws specify distribution to the employees as profit shares of an annual amount as a way of incentivizing the employees to achieve better results. The indicators and targets are established periodically in a collective working negotiation. In the year 2016, the Company made a profit for distribution, and the amount provisioned was of the order of R$ 1,856, for payment of profit shares by April 2017. A tranche, of R$ 599, was paid in 2016, and on December 31, 2016 the amount of the provision for employees’ profit shares was R$ 1,257.

22.

Stockholders’ equity

(a)

Share capital

On February 18, 2016 Cemig mad a capital increase in CemigTelecom of R$ 16,660, having subscribed 16,660 new nominal shares without par value, thus altering the Company’s share capital from R$ 225,081 to R$ 241,741 from that date.

The capital subscribed and paid up on December 31, 2016 and 2015, is in nominal common shares, as follows:


December 31, 2016
Shareholders	Shares		Amount		Stake
Companhia Energética de Minas Gerais		397,683,384		241,741		100	%
Other		1		—		—

Total		397,683,385		241,741		100	%

349


December 31, 2015
Shareholders	Shares		Amount		Stake
Companhia Energética de Minas Gerais		381,023,384		225,081		100	%
Other		1		—		—

Total		381,023,385		225,081		100	%

(b)

Remuneration to stockholders

The stockholders are guaranteed a minimum mandatory dividend of 50% of the adjusted net profit of each year.

(c)

Legal reserve

This is constituted as 5% of the net profit found in any business year in accordance with Article 193 of Law 6404/76, up to the limit of when it totals 20% of the share capital.

As a result of a balance of accumulated losses, no constitution of the legal reserve was made in 2016.

(d)

Retained earnings reserve

This aims to strengthen working capital and meet needs for funds for the Company’s investment in the subsequent years.

(e)

Profit (loss) per share

The profit (loss) and the weighted average number of common shares used in the calculation of the basic and diluted profit per share are as follows:


	2016		2015
Basic and diluted profit (loss) per share		9,983		(35,831	)

Profit (loss) for the period		397,683		381,023

Weighted average number of common shares in circulation
(thousands of shares)

Basic and diluted profit (loss) per share (in Reais)		25.10		(94.04	)

The Company does not have any dilutive instruments. Hence diluted profit (loss) is the same as basic profit (loss).

23.

Net revenue


	2016			2015
Dedicated circuits		103,698			91,541
Transport of signal		7,374			34,634
Integrated services		21,973			17,497
Other		3,478			3,427

Gross revenue		136,523			147,099

Taxes, returns, adjustment to present value and discounts		(34,077	)		(26,485	)

Net revenue		102,446			120,614

350

24.

Costs and expenses


Classification by type	2016		2015
Network infrastructure		(13,258)		(14,413)
Electricity		(3,342)		(5,298)
Depreciation and amortization		(37,741)		(48,968)
Maintenance and repair service		(17,553)		(19,680)
Personnel		(25,479)		(17,517)
Outsourced services		(3,293)		(3,159)
Real estate properties rented		(1,701)		(1,976)
Equity method gains in non-consolidated investees, net		(27,165)		(28,833)
PIS and Cofins taxes on financial leasing		(1,636)		—
Indemnity for contingencies in Ativas		(3,410)		—
Provision for obsolescence		(1,149)		—
Other		(1,041)		(692)

Total		(136,768)		(140,536)

(*)	Expenses on personnel allocates in telecommunications network construction projects were recorded in Fixed Assets. They totaled R$ 7,865 in 2016, and R$ 6,923 in 2015.


Classification by function	2016		2015
COST OF SERVICES PROVIDED		(67,868)		(83,367)
Selling expenses		(523)		(1,280)
General and administrative expenses		(34,184)		(26,364)
Equity method gains in non-consolidated investees, net		(27,165)		(28,833)
Other expenses		(7,028)		(692)

Total		(136,768)		(140,536)

25.

Other operational revenues


Other operational revenues
	2016		2015
Appreciation of assets received from Eletronet (Note 13)		20,423		—
Gain on financial leasing		3,215		—
Gain on financial derivative (Note 27)		4,586		—
Fines and penalty payments		283		1,956
Other revenues		384		—

Total		28,891		1,956

351

26.

Financial revenue and expenses recognized in the P&L


Financial revenues
	2016		2015
Revenue from cash investments		2,792		2,185
Interest (received)		169		640
Other financial revenues		1,038		1,228

Total		3,999		4,053


Financial expenses
	2016			2015
Interest (paid)		(7,956	)		(5,408	)
Other financial expenses		(1,205	)		(370	)

Total		(9,161	)		(5,778	)

27.

Financial instruments

(a)

Financial risk management

The Company has exposure to the following risks arising from the use of financial instruments:

•

Credit risk

•

Market risk

•

Liquidity risk

This note presents information on the Company’s exposure to each of these risks, the Company objectives, policies and processes for measurement and management of risk, and the Company’s capital management.

Risk management structure

The Board of Directors has the global responsibility for establishment and supervision of the Company’s risk management structure. The risk management policies applied by the Company and its jointly-controlled subsidiary entity are subordinated to those of the Cemig Group, which is responsible for development and monitoring of the risk management policies of the Company as a whole.

The Company’s risk management policies are established to identify and analyze the risks faced, to define appropriate risk limits and controls and to monitor risks and adherence to the limits established. The risk management policies and systems are frequently reviewed to reflect changes in market conditions and in the Company’s activities. The Company, through its training and management rules and procedures, is to develop a disciplined and constructive control environment, in which all the employees understand their roles and obligations.

352

CREDIT RISK

Credit risk is the risk of financial loss in the event that a client or counterparty in a financial instrument fails to comply with its contractual obligation, which arise principally from the Company’s receivables from clients and investment securities.

The Company’s sales policies are subordinated to the credit policies set by its Management and aimed to minimize any problems arising from default by its clients. The portfolio of clients is mainly in large fixed and mobile telephone operators and operators of cable TV and internet broadband, and also corporate clients and internet service providers, as well as the parent company itself. In view of the change of focus of the Company aiming to increase its market share in the corporate and ISP providers market, and the gradual decline in operators’ market share, since 2015, the risk of loss on receipt of credit by the Company has been significantly diluted through diversification of its portfolio of clients. The sales efforts for the corporate market have been sufficient to offset the losses of cancellation of circuits by operators and to significantly reduce the market risk. The share of CemigTelecom’s gross revenue provided by operators fell from 58% in 2015 to 35% in 2016, while the number of corporate clients, including internet service providers, increased from 216 in January 2016 to 755 in December 2016. Further, as from 2015 the Company’s management has reviewed the policy for granting of credit. Even so, the main instrument that guarantees minimization of credit risk continues to be the Company’s right to interrupt supply of signal in the event of noncompliance with a contract (including lack of payment).

The Company’s exposure to credit risk is principally influenced by the individual characteristics of each client. However, Management also takes into account the market segment in which clients operate, since this factor can influence credit risk, especially through the sensitivity of the telecommunication sector to the economic services of the country. The maximum concentration of the Company’s revenue attributable to a single client is approximately 15%.

The level of losses arising from lack of payment is insignificant. This can be attributed to the fact that the policy established by the Company specifies constant monitoring of default, in which contractual penalties are applied in the event of delay in payment, and can in extreme cases even culminate in discontinuation of services to clients.

The Company establishes a provision for impairment, which represents its estimate of losses in relation to accounts receivable from clients and other creditors. The sensitivity and the expectation of losses related to significant individual risks are the only parameters considered in this analysis. This is because the Company is substantially centered on the market of service to the large telecoms operators and the corporate market, and for this reason historic losses or global, geographical sector analysis do not usually provide a reasonable basis to estimate losses on accounts receivable. At December 31, 2016 the Company has a provision for losses on doubtful receivables of R$ 1,425 (R$ 2,459 in 2015), which represents 7% (13% in 2015) of the total balance of accounts receivable and not received, and 18% (51% in 2015) of past due accounts receivable.

In relation to the risk of losses arising from insolvency of the financial institutions at which the Company has deposits, the Cemig Group has had a cash investment policy in effect since 2004, in which each institution is analyzed according to criteria of current liquidity, degree of leverage, level of default, profitability, and costs. Additionally, the Company takes into consideration the ratings given by three financial risk rating agencies. The Company assigns each financial institution a maximum fund allocation limit, which is reviewed for appropriateness both periodically and also in the event of any change in the macroeconomic scenarios of the Brazilian economy.

353

MARKET RISK

Market risk is the risk that exposes the Company to changes in market prices, such as exchange rates and interest rates, which can have a significant financial impact on the Company. The objective of market risk management is to keep exposures to market risks under control, within acceptable parameters, and at the same time to optimize return.

1.	Currency risk

The Company is not subject to currency risk in the balances payable to suppliers or loans denominated in a currency other than its functional currency.

2.	Interest rate risk

Interest rate risk arises from issuance of non-convertible securities. These liabilities, when linked to variable interest rates, expose the Company to cash flow risk. At the same time, liabilities linked to fixed interest rates expose the Company to the risk of fair value associated with interest rates.

The Company is permanently evaluating its exposure to interest rate risk. Various scenarios are simulated, taking into account the alternatives of refinancing, renewal of existing positions or acquisition of new financing’s and alternative hedges.

The Company has exposure to the risk of increase in interest rates, with an effect on loans with floating interest rates linked principally to indices referenced to the basic interest rate in Brazilian economy, in the amount of R$ 101,372 (Note 15).

In relation to the most significant interest rate risk, the Company estimates that, in a probable scenario, the CDI rate will be approximately 10.40%, and the TJLP will be 7.10%. The Company has made a sensitivity analysis of the effects on the Company’s profit arising from higher values for the indicators in relation to this ‘probable’ scenario. As part of the definitions of this analysis, the expected variation in the CDI rate has been considered to be similar to the variation in the Selic rate.

The table below shows the sensitivity of the financial instruments. It is prepared in accordance with CVM Instruction 475/2008, to show the balances of the principal assets and liabilities, calculated at a rate projected up to the final settlement date of each contract, considering a probable scenario (Scenario I), appreciation of 25% (Scenario II), and appreciation of 50% (Scenario III).

The purpose of this sensitivity analysis is to measure the impact of the changes in market variables on the Company’s financial instruments referred to, assuming all other market indicators are constant. These amounts may be different, at the time of settlement, from the figures shown above, due to the estimates used in their preparation. The table below includes the amounts of principal and interest.


	Book		Risk of increase in domestic interest rates – scenarios (percent p.a.)
	value		Base		Scenario I		Scenario II		Scenario III
			CDI		CDI		CDI		CDI
			14.00%		9.38%		11.73%		14.07%
Assets
Cash and cash equivalents
Fixed-income funds		773		881		846		864		882
Securities
Fixed-income funds		1,938		2,209		2,120		2,165		2,211

Positive net exposure				3,090		2,966		3,029		3,093

354

3.	Price risk

The Company operates in a business segment where prices are freely agreed, thus there is no need to maintain a policy of mitigation of this type of risk.

Fair value of financial instruments

The balances of financial instruments used by the Company on December 31, 2016 are, mostly, recorded at accounting cost, which does not significantly differ from the corresponding estimated market value. They are classified as follows:

—

Financial assets held to maturity: This category includes financial assets which are expected to be held to maturity. These are valued at amortized cost using the effective rates method, less any impairments. After the initial evaluation, investments held to maturity are valued at amortized cost using the effective rates method, less any impairments.

—	Financial assets measured at fair value through profit or loss: Fixed-income security held for trading are in this category. They are valued at fair value through profit or loss, as per Level 2.

—	Loans and receivables: Balances receivable from clients are in this category. They are recognized at their nominal realization value, which is similar to fair value.

—	Loans: Measured at amortized cost, using the effective interest method.

—	Suppliers: These are balances payable to suppliers, and are recognized at nominal settlement value, similar to fair value.

Fair value is a market-based measurement based on assumptions that market participants would use in pricing an asset or liability. The Fair Value Hierarchy aims to increase consistency and comparability: it divides the inputs used in measuring fair value into three broad levels, as follows:

—

—	Level 3 – No active market – No observable inputs: The fair value of investments in securities for which there are no prices quoted on an active market, or of derivatives linked to them which are to be settled by delivery of unquoted securities,

In the 2015 business year the Company did not operate with derivatives.

LIQUIDITY RISK

Liquidity risk is the risk that the Company may find difficulties in complying with the obligations associated with the financial liabilities that are settled by payment in cash or with another financial asset. The Company’s approach to management of liquidity is to guarantee, to the maximum possible, that there is always sufficient liquidity to comply with its obligation on maturity, under normal conditions and stress conditions, without causing unacceptable losses or risk of loss to the Company’s reputation.

355

The Company operates with a profit margin that provides it with positive operational cash flow. Typically, the Company maintains immediate cash availability ensuring it can comply with commitments for at least 60 days’ operation, including financial obligations and investments. Events with potential impact arising from extreme circumstances that cannot be reasonably foreseen, such as natural disasters or major economic crisis, are not taken into consideration in this analysis.

To provide feasibility for the entry of a new partner into Ativas, CemigTelecom assumed a significant amount in short-term debt. As a result, on December 31, 2016 CemigTelecom’s current liabilities exceeded its current assets by R$ 74,312. On December 31, 2016, CemigTelecom’s short and long-term loans and debentures totaled R$ 63,751 and R$ 37,621 respectively, with maturities in the second and fourth quarters of 2017 in the amounts of R$ 18,134 and R$ 46,310, respectively; however, the Company reported positive operational cash flow in 2016 and 2015 of R$ 46,827 and R$ 56,971 respectively.

The Company manages liquidity risk by permanently monitoring its cash flow in a conservative, budget-oriented manner. Balances are projected monthly, for a period of 12 months ahead, and daily liquidity balances are projected over 90 days.

Short-term allocations also obey rigid principles established in a Cash Investment Policy, investing in exclusive private credit investment funds. Excess amounts are applied in repos, remunerated by the CDI rate, as per the orientations set by the Cemig Group, with a view to consolidating management of the funds available, and do not depend on any individual analysis by CemigTelecom.

The table below shows the Company’s financial liabilities, by maturity, including the portions of future principal and interest to be paid in accordance with contractual clauses.

Non-derivative financial liabilities

Dec. 31,
2016

Contractual
flow

Up to 1
year

Cemig loan

18,134

Sonda loan

46,310

45,617

Total

64,444

63,751

356

(b)

Criteria and assumptions used in the calculation of market values

Cash and cash equivalents, securities, accounts receivable from clients, suppliers: due to the short-term nature of these balances, the amounts reported are close to the fair values of the instruments on the reporting date.

Debentures: The fair value of the debentures on December 31, 2015 was R$ 15,345.

28.

Benefits to employees

The obligations under employee benefit plan include private pension plans, a health plan, a dental plan and group life insurance.

Private pension plan – Forluz

The Company is co-sponsor of Fundação Forluminas de Seguridade Social, or Forluz, a nonprofit legal entity created to provide its participants and related dependents with an income to supplement retirement and other pensions.

The pension plan, co-sponsored by the Company, named the ‘Mixed Benefit Private Pension Plan – Plan B’, comprises benefits such as: (i) Addition to Pension for Time of Service, Special Reasons or Age (MAT); (ii) Addition to Retirement Pension due to Disablement (MAI); (iii) Annual Bonus (AA); (iv) Continuous Income for Death (RCM); and Imprisonment Assistance (AR).

The Sponsor’s contribution to this plan is 27.52% for the portion with defined-benefit characteristics – this refers to coverage for disablement and death for participants still employed, and is used to amortize obligations defined by an actuarial calculation. The remaining 72.48%, for the part of the plan with defined contribution characteristics, goes to the nominal accounts of the participants. These contributions are recognized in the Profit & loss account in accordance with the payments made by the sponsors under Personnel expenses.

Health plan – Cemig Saúde

The Company is co-sponsor of health and dental plans of its employees, which are administered by Cemig Saúde.

The amounts of the contributions to the pension, health and dental plans are determined annually, by the amounts considered to be sufficient for coverage of the respective expenses expected in each business year, as per an evaluation made by an independent actuary contracted for the purpose. The three plans are optional to join, for the employee, and the participants make a contribution equal to that of the employee.

In this Note the Company demonstrates the net actuarial assets/liabilities and the expenses in connection with the Retirement Plan, Health Plan and Dental Plan, in accordance with the terms of CPC Technical Pronouncement 33 (Benefits to employees) and an independent actuarial opinion for base-date December 31, 2016.

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This table shows a reconciliation of the actuarial assets and liabilities:


	Forluz			Cemig Saúde (Health)
	Mixed Benefit Private Pension Plan (‘Plan B’)			Integrated Pro-Saúde (PSI) Health Plan			Dental Plan
December 31, 2016
Fair value of plan assets		(2,112	)		—			—
Present value of the actuarial obligation of the plan, net		2,112			(2,695	)		(106	)

Net actuarial assets (liabilities) recognized		—			(2,695	)		(106	)


	Forluz			Cemig Saúde (Health)
	Mixed Benefit Private Pension Plan (‘Plan B’)			Integrated Pro-Saúde (PSI) Health Plan			Dental Plan
December 31, 2015
Fair value of plan assets		1,350			—			—
Present value of the actuarial obligation of the plan, net		(1,578	)		(1,174	)		(52	)

Present value of funded obligations (total)		(228	)		(1,174	)		(52	)
Changes in the limiting effect of the net defined benefit assets on the asset ceiling		—			—			—

Net actuarial assets (liabilities) recognized		(228	)		(1,174	)		(52	)

This table shows the changes in the present value of the benefit obligation:


	Mixed Benefit Private Pension Plan (‘Plan B’)			PSI Health Plan			Dental Plan
Defined-benefit obligation on December 31, 2015		(1,578	)		(1,174	)		(52	)
Cost of current service		(70	)		(104	)		(5	)
Interest on the actuarial obligation		(204	)		(154	)		(7	)
Actuarial (losses) recognized		(302	)		(1,281	)		(43	)
Benefits paid		111			18			1

Defined-benefit obligation on December 31, 2015		(2,043	)		(2,695	)		(106	)

This table shows the changes in the fair value of the assets of the pension benefits plan:


	Mixed Benefit Private Pension Plan (‘Plan B’)
Fair value of the plan assets at December 31, 2015		1,350
Real return on the investments		840
Contributions from the employer		33
Benefits paid		(111	)

Fair value of the plan assets at December 31, 2016		2,112

358

This table shows the annual expense on the plans:


	Mixed Benefit Private Pension Plan (‘Plan B’)			Health Plan			Dental Plan			Total
Cost of current service		(70	)		(104	)		(5	)		(179	)
Net interest on the defined-benefit liabilities (assets)		(28	)		(154	)		(7	)		(189	)

Expense recognized in the Profit & loss account		(98	)		(258	)		(12	)		(368	)

Table showing the change in net actuarial assets (liabilities):


	Mixed Benefit Private Pension Plan (‘Plan B’)			Health Plan			Dental Plan			Total
Net liabilities on December 31, 2015		(228	)		(1,174	)		(52	)		(1,454	)
Expense recognized in Profit and loss account		(98	)		(258	)		(12	)		(368	)
Gain (loss) recognized in Other comprehensive income		363			(1,281	)		(43	)		(961	)
Changes in the limiting effect of the net defined benefit assets on the asset ceiling		(70	)		—			—			(70	)
Contributions paid		33			18			1			52

Net liabilities on December 31, 2016		—			(2,695	)		(106	)		(2,801	)

Actuarial assumptions used

The assumptions used by the independent actuary in determination of the actuarial calculations are as follows:

Mixed Benefit Private
Pension Plan (‘Plan B’)
Plan B

Integrated
Pro-Saúde Plan (PSI)

Dental Plan

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2016

Dec. 31, 2015

Dec. 31, 2016

Dec. 31, 2015

Nominal discount rate for the actuarial obligation

10.50%

13.20%

10.40%

13.14%

10.04%

13.14%

Nominal expected return on plan assets

10.50%

13.20%

N/A

Estimated nominal salary increase index

6.59%

5.50%

N/A

Estimated nominal benefit increase index

4.50%

5.50%

N/A

Nominal growth rate of medical costs

N/A

4.50%

5.50%

4.50%

5.50%

Estimated long-term inflation

4.50%

5.50%

4.50%

5.50%

4.50%

5.50%

General mortality rate table

AT-2000M,
20%
smoothing

Disability rate table

Álvaro
Vindas
D10%

Álvaro
Vindas

Disabled mortality rate

Winklevoss
less 30%

Expected turnover rate

Retirement probability rate

(a)

(a)	100% at first age of acquisition of full benefit right.

359

29.

Commitments

The Company has contractual obligations and commitments, mainly amortization of loans and financing, contracts to share infrastructure and leasing of dark fiber as follows:


R$ ’000	2017		2018		2019		2020		2021		After 2021		Total
Sharing of infrastructure		3,180		2,607		1,178		312		230		—		7,507
Dark fiber leasing		2,438		1,966		1,344		83		142		399		6,372
Loans and financing’s		69,747		—		—		—		61,944		—		131,691

Total		75,365		4,573		2,522		395		62,316		399		145,570

30.

Insurance

The Company has reassessed the risks involving its telecommunications assets, and the probability of interruption of its operations as a result of potential claim events. This study shows that the probability of simultaneous large-scale adverse events that could represent significant financial operation losses for the Company is significantly remote, due mainly to the diversity of the geographical distribution of the assets exposed to risks. For this reason, the Company’s management has opted, for the moment, not to contract insurance cover against adverse events involving its Operations Center and Headends, and other events that could affect its network equipment, cables and other fixed assets. Since the start of its operations the Company has not experienced any significant losses as a result of the above-mentioned risks. The risk assessment assumptions adopted by the Company, due to their nature, are not part of the scope of an audit of the financial statements, and consequently not examined by the external auditors.

31.

Subsequent Events

On March 15, 2017 the Federal Supreme Court, in a judgment on Extraordinary Appeal (RE) 574.706, decided by majority to exclude ICMS tax paid or payable from the base amount on which the PIS and Cofins taxes are calculated, on the grounds that the amount collected as ICMS does not become part of the taxpayer patrimony, so that it cannot be part of the calculation base of the contributions referred to. The Company has Special and Extraordinary Appeals still outstanding on this subject, on which judgment has not yet been given, which indicates good probabilities of success in which it expects to recover amounts unduly paid since 2003, estimated at R$ 7,000. A position statement by the Supreme Court on whether this judgment shall have the effect of obligatory precedent (affecting all cases) is awaited – as is also awaited the application of this understanding to the specific case of CemigTelecom.

ii.

On January 9, 2017, the Board of Directors of CemigTelecom approved the second issue of nonconvertible debentures, in a single series, for R$ 34,000, with surety guarantee and collateral guarantee by finding assignment of the Issuer receivables in the amount of 130% (one hundred and thirty percent) of the amounts of amortization and remuneration becoming due. On January 20, 2017 the Company’s Board of Directors adjusted the amount to R$ 27,000, and on the same date the Board of Directors of Cemig approved provision of a surety for this transaction. Management believes that receipt of funding from the second debenture issue will be complete by April 15, 2017.

360

Appendix IX

COMMENTS ON RESULTS FOR

3RD QUARTER 2017

In the quarter ended September 30, 2017 (3Q17), CemigTelecom reports Net operational revenue of R$ 30,593, or 18% more than in 3^rd quarter 2016 (R$ 25,952). We attribute this to the Company’s sales efforts, aiming to increase its activities in the segment of internet providers, and the corporate segment, serving both companies and government.

Cost of sales, including depreciation, were 12% higher year-on-year, accompanying the increase in sales; while general and administrative expenses were 29% higher, at R$ 8,051 in 3Q17, vs. R$6,264 in 3^rd quarter 2016 (3Q16).

Management’s internal adjusted Ebitda^(*) was R$ 13,252, or 11% higher than in 3Q16 (R$11,952), the result of operational efficiency, and was reflected in net profit for the quarter of R$ 535.

As a result of financial leverage, the Company had negative working capital at the end of the quarter of R$ 61,458 (R$ 74,312 on December 31, 2016), improved due to a debenture issue and lengthening of some maturities to 2018 and 2019.

In the first half of 2017 the Company invested R$ 34,734 (R$ 28,459 in the first half 2016), in formation of fixed and intangible assets, with forces concentrated on serving the last mile for clients, who are usually interested in obtaining the associated revenue.

The Management

(*)	Adjusted management Ebitda = Ebitda as per CVM instruction 527/12, adjusted for the effects of equity gain/loss in nonconsolidated investees, and other revenues and expenses that have no effect on cash and cash equivalents.

361

Cemig Telecomunicações S.A.

Interim Accounting Statements for the quarter ended

September 30, 2017

with external auditor’s report on review of the Quarterly Information

362

Cemig Telecomunicações S.A.

Interim Accounting information at September 30, 2017

Index


External auditor’s report on review of the quarterly information			1
Interim accounting information
Statement of financial position			3
Profit and loss accounts			4
Statement of comprehensive income			5
Statement of changes in stockholders’ equity			6
Statements of cash flow			7
Added value statement			8
Notes to the interim financial information			9

363

Edifício Phelps Offices Towers

Rua Antônio de Albuquerque, 156 11º andar – Savassi

30112-010 – Belo Horizonte – MG – Brazil

Tel: +55 31 3232-2100

Fax: +55 31 3232-2106

ey.com.br

External auditor’s report on review of the quarterly information

To the

Stockholders, Members of the Board of Directors, and Managers of

Cemig Telecomunicações S.A.

Belo Horizonte, Minas Gerais

Introduction

We have reviewed the interim financial statements of Cemig Geração e Telecomunicações S.A. (‘the Company’), contained in the ITR (Quarterly Information) form for the quarter ended September 30, 2017, which comprise the statement of financial position (balance sheet) at September 30, 2017, the related statements of income and comprehensive income for the periods of three and nine months ended on that date, and the statements of changes in equity, and of cash flows, for the period of nine months ended on that date, including the explanatory notes.

The company’s management has the responsibility for preparing the interim financial information in accordance with Technical Pronouncement CPC 21(R1) – Interim Reporting (‘Demonstração Intermediária’), and in accordance with international standard IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB); and also for presenting that information in a manner compliant with the rules issued by the Brazilian Securities Commission (Comissão de Valores Mobiliários, CVM) governing the preparation of Quarterly Information (‘ITR’). Our responsibility is to express a conclusion on this interim accounting information based on our review.

Scope of the review

We conducted our review in accordance with the Brazilian and international rules for review of interim information: respectively, Brazilian Accounting Standard (NBC) TR 2410 – Review of Interim Information Performed by the Auditor of the Entity (Revisão de Informações Intermediárias Executada pelo Auditor da Entidade), and ISRE 2410 – Review of Interim Financial Information Performed by the Independent Auditor of the Entity). A review of interim information consists of questioning, principally of the persons responsible for the financial and accounting matters, and application of analytical procedures and other procedures of review. The scope of a review is significantly less than that of an audit conducted in accordance with the rules of auditing and, consequently, did not enable us to obtain certainty that we had become aware of all the material matters that could be identified in an audit. Thus, we do not express an auditing opinion.

A member company of Ernst & Young Global Limited

364

LOGO

Conclusion

Based on our review, we are not aware of any fact that could lead us to believe that the interim accounting information included in the Quarterly Information referred to above was not prepared, in all material aspects, in accordance with CPC 21(R1) and IAS 34, applicable to the preparation of Quarterly Information, and presented in a way that is in accordance with the rules issued by the CVM (Comissão de Valores Mobiliários).

Other matters

Added value statement

We have also reviewed the Statement of added value (DVA), for the nine-month period ended September 30, 2017. This was prepared under the responsibility of the Company’s management. Presentation of these statements is required under the rules issued by the CVM for preparation of Quarterly Information (ITR); and is considered to be supplementary information under IFRS – which do not require presentation of the DVA. This statement was submitted to the same procedures of review described above, and based on our review we are not aware of any fact that could lead us to believe that it was not prepared, in all material aspects, in a way consistent with the interim accounting information taken as a whole.

Financial statements of prior periods examined, and interim accounting information reviewed by another independent auditor

The examination of the Statement of financial position on December 31, 2016, and the review of the interim accounting information for the periods of three and nine months ended on September 30, 2016, presented for the purposes of comparison, were conducted under the responsibility of other independent auditors, who issued an audit report and a report on review, without qualifications, dated April 6, 2017 and November 11, 2016, respectively.

Belo Horizonte, November 10, 2017.

Ernst & Young Auditores Independentes S.S.

CRC-2SP015199/O-6

LOGO

365

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

STATEMENT OF FINANCIAL POSITION

AT SEPTEMBER 30, 2017 AND DECEMBER 31, 2016

R$ ’000


ASSETS	Note		Sep. 30, 2017		Dec. 31, 2016		LIABILITIES AND STOCKHOLDERS’ EQUITY	Note		Sep. 30, 2017			Dec. 31, 2016
Current assets Cash and cash equivalents		3		1,616		1,034	Current liabilities Loans and debentures		12		58,973			63,751
Securities – Cash investments		4		6,110		1,855	Suppliers		13		18,723			21,750
Accounts receivable from clients		5		17,258		19,249	Payroll-associated and employment-law obligations		14		4,848			5,836
Financial leasing		6		323		303	Tax obligations		15		9,525			9,573
Taxes recoverable		7		5,181		3,684	Deferred revenues		16		460			460

Prepaid expenses				62		34	Total, Current liabilities				92,529			101,370

Other				535		899

Total, Current assets				31,085		27,058	Non-current liabilities

							Loans and debentures	12		58,998			37,621
Current assets							Payroll-associated and employment-law obligations		14		3,192			2,801
Long term assets							Tax obligations		15		1,982			2,466
Securities – Cash investments		4		203		83	Deferred revenues		16		4,219			4,579
Financial leasing		6		11,631		11,876	Provisions for risks		17		67			82
Taxes recoverable		7		3,334		2,997	Related parties		18		6,394			3,410
Deferred income tax and Social Contribution tax		8		8,935		8,037	Other				84			84

Derivative financial instruments		9		4,484		4,586	Total, Non-current liabilities				74,936			51,043

Other				239		908	STOCKHOLDERS’ EQUITY
Investment in affiliated company		9		17,793		19,744	Share capital		19		241,741			241,741
Property, plant and equipment		10		269,946		261,613	Equity valuation adjustments				(756	)		(756	)
Intangible assets		11		9,917		9,490	Retained losses				(50,883	)		(47,006	)

Total, Non-current assets				326,482		319,334	Total equity				190,102			193,979

TOTAL ASSETS				357,567		346,392	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY NET				357,567			346,392

The notes are an integral part of the Interim Accounting Information.

366

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Profit and loss accounts

FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2017

(R$ ’000, except net loss per share)


			Third quarter:						Nine months to:
3Q17	NOTE		3Q16			Sep. 30, 2017			Sep. 30,2016
NET REVENUE FROM PROVISION OF SERVICES		20		30,593			25,952			88,303		74,641
COSTS OF SERVICES PROVIDED		21		(17,671	)		(15,922	)		(52,624	)	(46,348	)

GROSS PROFIT				12,922			10,030			35,679		28,293
OTHER OPERATIONAL REVENUES (EXPENSES):
General and administrative expenses		21		(8,285	)		(6,641	)		(24,881	)	(23,806	)
Sales and marketing expenses		21		(238	)		(124	)		(728	)	(259	)
Other operational revenues				76			20,963			87		21,225
Other operational expenses		21		(233	)		(466	)		(3,522	)	(572	)
Equity gain in investees		9		(459	)		(10,141	)		(1,951	)	(25,647	)

Total				(9,139	)		3,591			(30,995	)	(29,059	)

NET PROFIT BEFORE FINANCIAL REVENUE (EXPENSES), INCOME TAX AND SOCIAL CONTRIBUTION TAX				3,783			13,621			4,684		(766	)

Financial revenues		22		1,226			844			2,147		3,039
Financial expenses		22		(3,857	)		(1,628	)		(11,501	)	(5,047	)

PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAX				1,152			12,837			(4,670	)	(2,774	)
Current income tax and Social Contribution tax		8		(105	)		62			(105	)	(24	)
Deferred income tax and Social Contribution tax		8		(512	)		(7,918	)		898		(7,766	)

PROFIT (LOSS) FOR THE PERIOD				535			4,981			(3,877	)	(10,564	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES IN CIRCULATION (thousands of shares)				397,683			397,683			397,683		397,683

BASIC AND DILUTED PROFIT (LOSS) PER SHARE (Reais)				0.00			0.01			(0.01	)	(0.03	)

The notes are an integral part of the Interim Accounting Information.

367

Cemig Telecomunicações S.A. (‘CemigTelecom’)

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

STATEMENT OF COMPREHENSIVE INCOME

FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2017

R$ ’000


	Third quarter:				Nine months:
	3Q17		3Q16		9M17			9M16
Profit (loss) for the period		535		4,981		(3,877	)		(10,564	)
Other comprehensive income		—		—		—			—

Total comprehensive income for the period		535		4,981		(3,877	)		(10,564	)

The notes are an integral part of the Interim Accounting Information.

368

Cemig Telecomunicações S.A. (‘CemigTelecom’)

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

R$ ’000


	Share capital		Equity valuation adjustment			Retained losses			Total
BALANCES AT DECEMBER 31, 2015		225,081		(75	)		(56,989	)		168,017
Capital increase		16,660		—			—			16,660
Loss for the period		—		—			(10,564	)		(10,564	)

BALANCES AT SEPTEMBER 30, 2016		241,741		(75	)		(67,553	)		174,113

BALANCES AT DECEMBER 31, 2016		241,741		(756	)		(47,006	)		193,979

Loss for the period		—		—			(3,877	)		(3,877	)

BALANCES AT SEPTEMBER 30, 2017		241,741		(756	)		(50,883	)		190,102

The Notes are an integral part of the Interim Accounting Information.

369

Cemig Telecomunicações S.A. (‘CemigTelecom’)

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

STATEMENTS OF CASH FLOW

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

R$ ’000


	9M17			9M16
CASH FLOW FROM OPERATIONS
Profit (loss) for the period Adjustments to reconcile net profit to cash generated by operations		(3,877 41,143	)		(10,564 41,968	)

Depreciation and amortization		25,974			24,947
Costs of financings		10,690			4,433
Deferred income tax and Social Contribution tax		(898	)		7,766
Cost of fixed assets written off		—			117
Appreciation of assets received from Eletronet		—			(20,423	)
Fair value of financial derivative		102			—
Reversal of provision for risks Net addition (reversal) of provision for doubtful receivables		(15 355	)		(32 (262	) )
Equity in earnings of unconsolidated investees, net		1,951			25,647
Constitution of provision for indemnity		2,984			—
Reversal of provision for obsolescence		—			(225	)
Variations in assets and liabilities		(5,814	)		(5,138	)

Reduction (increase) of assets: Accounts receivable from clients		1,861			(2,584	)
Taxes recoverable		(1,938	)		(494	)
Other assets		1,005			(672	)
Increase (reduction) in liabilities:
Accounts payable to suppliers and others		(3,028	)		680
Payroll-related and tax obligations		(1,129	)		371
Deferred revenues		(360	)		(368	)
Income tax and Social Contribution tax paid		105			(1,097	)
Interest paid		(2,330	)		(974	)

Net cash from operational activities		31,452			26,266
CASH FLOW IN INVESTMENT ACTIVITIES
Acquisition of fixed and intangible assets		(34,734	)		(28,459	)
Reductions (increase) in securities and cash investments		(4,375	)		8,461
Capital increase in affiliated company		—			(16,660	)

CASH FLOW IN FINANCING ACTIVITIES
Net cash used in investment activities Capital increase		(39,109 —	)		(36,658 16,660	)
Loans and financings obtained, and debentures issued Payment of principal of loans, financings and debentures		26,239 (18,000	)		— (5,961	)

Net cash from financial activities		8,239			10,699

NET INCREASE IN CASH AND CASH EQUIVALENTS		582			307

CASH AND CASH EQUIVALENTS
At start of period		1,034			4,869
At end of period		1,616			5,176

NET INCREASE IN CASH AND CASH EQUIVALENTS		582			307

The Notes are an integral part of the Interim Accounting Information.

370

Cemig Telecomunicações S.A. (‘CemigTelecom’)

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

ADDED VALUE STATEMENT

FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

R$ ’000


	3Q17			3Q16
1 – REVENUES		146,797			153,977

1.1) Sales of services		117,853			99,087
1.2) Reversal (provision) for doubtful receivables		(355	)		262
1.3) Additions to fixed assets in progress		23,973			27,934
1.5) Appreciation of assets received from Eletronet 1.6) Gain (loss) on financial derivative		— (102	)		20,423 —
1.8) Others		5,428			6,271
2 – INPUTS ACQUIRED FROM THIRD PARTIES		58,386			51,282

2.1) Cost of services sold		12,856			8,279
2.2) Materials, power, outsourced services and others		42,392			42,903
2.3) Loss / recovery of asset value		2,984			—
2.3) Others		154			100

3 – GROSS VALUE ADDED (1–2)		88,411			102,695

4 – RETENTIONS		25,974			24,947

4.1) Depreciation and amortization		25,974			24,947
5 – NET ADDED VALUE PRODUCED BY THE ENTITY (3–4)		62,437			77,748

6 – ADDED VALUE RECEIVED BY TRANSFER		197			(22,608	)

6.1) Equity method gains in non-consolidated investees, net		(1,951	)		(25,647	)
6.2) Financial revenues		2,148			3,039

7 TOTAL ADDED VALUE DISTRIBUTABLE (5+6)		62,634			55,140

8 – DISTRIBUTION OF ADDED VALUE		62,634			55,140

8.1) Personnel and payroll-related charges		17,635			19,768

8.1.1) Direct remuneration		10,547			11,067
8.1.2) Benefits		3,679			4,059
8.1.3) Workers’ Time of Service Guarantee Fund (FGTS)		1,009			2,381
8.1.4) Others		2,400			2,261
8.2) Taxes		32,095			35,952

8.2.1) Federal		8,083			16,123
8.2.2) State		24,012			19,829
8.3) Remuneration of external capital		16,781			9,984

8.3.1) Interest		11,501			5,047
8.3.2) Rentals		5,280			4,937
8.4) Remuneration of own capital		(3,877	)		(10,564	)

8.4.1) Loss for the period		(3,877	)		(10,564	)

The Notes are an integral part of the Interim Accounting Information.

371

Cemig Telecomunicações S.A. (‘CemigTelecom’)

CEMIG TELECOMUNICAÇÕES S.A. – CEMIGTELECOM

EXPLANATORY NOTES TO THE QUARTERLY ACCOUNTING INFORMATION AT SEPTEMBER 30, 2017

(In thousands of Brazilian Reais – R$ ’000 – except where otherwise indicated)

1.	OPERATING CONTEXT

a)	The Company

Cemig Telecomunicações S.A. – CemigTelecom (‘the Company’) is a listed corporation and a wholly-owned subsidiary of Companhia Energética de Minas Gerais S.A. – Cemig. It offers optical fibers for carriage of telecommunication services, in the State of Minas Gerais and other States of Brazil’s Northeast and Center-West, using the electrical power transmission and distribution infrastructure of power concession holders, principally Cemig.

It is domiciled in Brazil with address at Rua dos Inconfidentes 1051, Ground Floor, Funcionários, Belo Horizonte, MG. It is authorized by the Brazilian telecoms regulator (Agência Nacional de Telecomunicações – Anatel) to commercially operate Multimedia Communication Services (SCM), for an indeterminate period, by Act No. 41002 of December 3, 2003.

Created on January 13, 1999, CemigTelecom focuses on providing telecommunication services for the corporate segment of internet access providers (ISPs) and telecommunications operator It operates in the wholesale market renting specialized circuits to providers of fixed telephony, mobile telephony, cable TV, business carriers, data-centers, broadband and other services.

The Company’s core business is provision of telecommunication services in the segment of operators, internet service providers (ISPs) and specialized services for the corporate segment, making available network and internet access solutions such as: corporate internet access, data communication between head office and branch offices, high capacity, high-quality solutions, rental of specialized circuits (links, IP/MPLS networks AND VPNs), customized service for each business, connectivity solutions, and other services.

CemigTelecom makes available the largest optical network for transport of telecommunications in Minas Gerais, with presence in more than 70 cities of the state. Additionally, it makes services available through optical networks in the metropolitan regions of Salvador, Recife, Goiânia and Fortaleza, as well as having points of presence in the cities of São Paulo and Rio de Janeiro. In total, it is present in more than 100 cities.

In fourth quarter 2016, to provide feasibility for the entry of a new partner into Ativas, CemigTelecom assumed a significant amount in short-term debt, with a guarantee from its controlling stockholder. As a result, on September 30, 2017 CemigTelecom’s current liabilities exceeded its current assets by R$ 61,445 (R$ 74,312 on December 31, 2016). On September 30, 2017, CemigTelecom’s short-term loans totaled R$ 58,973, of which R$ 50,426 had maturities in fourth quarter 2017.

Management increased the Company’s share capital by R$ 50,657 for settlement of the loan, on October 23, 2017, and believes that it has satisfactory operational cash generation capacity with adequate conditions to comply with its short-term obligations and continue to make the investments necessary for maintaining its projects.

372

Cemig Telecomunicações S.A. (‘CemigTelecom’)

b)	Investment in affiliated company

Until October 18, 2016, the Company had shared control, as a joint venture, of the company Ativas Data Center S.A. (‘Ativas’), with a 49% holding in the share capital of that company. As from that date, with the entry of Sonda Procwork Outsourcing Informática Ltda. (‘Sonda’), the new partner in the business, its equity interest was diluted to 19.6%, and it classified the investment as an affiliated company. The management and the principal corporate decisions are exercised by the new controlling stockholder, under a stockholders’ agreement.

(i)

provision of ITC (Information Technology and Communication) infrastructure supply services, comprising physical hosting of IT physical environments;

(ii)

storage of databases and site backup;

(iii)

provision of professional security services in relation to information and availability ;

(iv)

provision of consultancy services in ITC and connectivity with sale of internet access and bandwidth; and

(v)

licensing and assignment of rights to use computer programs.

2.	BASIS OF PREPARATION

2.1.

Presentation of the Quarterly Information

The Quarterly Information (ITR) has been prepared in accordance with Technical Pronouncement CPC 21 (R1) – Interim Financial Statements and IAS International Standard 34 – Interim Financial Reporting issued by the International Accounting Standards Board – IASB, and in a manner compliant with the rules issued by the Brazilian Securities Commission (CVM) applicable to preparation of Quarterly Information (ITR).

This Interim Accounting Information has been prepared according to principles, practices and criteria consistent with those adopted in the preparation of the annual financial statements at December 31, 2016. Thus these ITRs should be read in conjunction with those Financial Statements, approved by the Board of Directors and filed with the CVM on April 6, 2017.

Management certifies that all the material information in the Interim accounting information, and only that information, is being presented, and that it corresponds to the information used by Management in its administration of the company.

On November 10, 2017 the Executive Board authorized conclusion and publication of this Interim Accounting Information.

373

Cemig Telecomunicações S.A. (‘CemigTelecom’)

3.	CASH AND CASH EQUIVALENTS


	Sep. 30, 2017		Dec. 31, 2016
Cash and bank deposits		333		261
Fixed-income funds
Bank certificates of deposit (a)		218		105
Overnight (b)		1,065		668

Total		1,616		1,034

On September 30, 2017, the company had 100% of its cash investments (cash equivalents and securities – Note 4) in the Pampulha fund (Fundo Pampulha), an exclusive investment fund of the Cemig Group. The weighted average profitability of the financial investments of the Pampulha Fund in this period was approximately 104.37% of the rate for interbank certificates of deposit, published by Cetip S.A. – the CDI Rate (this percentage was 106.31% on December 31, 2016).

a)	Bank Certificates of Deposit with floating rates, remunerated at a percentage of the CDI Rate (Interbank Rate for Certificates of Deposit – which varies between 100.5% and 105.25%, depending on the transaction) published by Cetip S.A. – Mercados Organizados.

b)	Short-term (‘overnight’) transactions (usually Treasury bonds, notes, etc., referenced to a fixed rate), with availability for redemption on the next day after investment.

4.	SECURITIES

Securities refers to: (i) fixed-income securities, comprising units in funds managed by financial institutions that meet the requirements for reputation, reliability and solidity established by the Controlling Group; and (ii) investments in securities and bank CDs (CDBs), with maturities of more than 90 days, the amounts of which, reported in Current assets, take into account the expectation of realization in the short term.


Fixed-income securities	Sep. 30, 2017		Dec. 31, 2016
Current Fixed-income funds, with portfolios comprising:
Bank certificates of deposit (a)		75		59
Repos (b)		646		131
Treasury Financial Notes (b)		881		349
Financial Notes – Banks (c)		4,508		1,316

Subtotal		6,110		1,855

Non-current
Financial Notes – Banks (c)		—		25
Debentures and Notes (b)		203		58

Subtotal		203		83

Total		6,313		1,938

(a)	Bank Certificates of Deposit with floating rates, remunerated at a percentage of the CDI Rate (Interbank Rate for Certificates of Deposit – which varies between 100.5% and 105.25%, depending on the transaction) published by Cetip S.A. – Mercados Organizados.

(b)	Floating-rate debentures, remunerated at a percentage of the CDI rate (varying between 100% + 0.78% and 113%, depending on the transaction).

(c)	Floating-rate treasury Financial Notes, the remuneration of which is given by the variation of the daily Selic rate recorded between the date of settlement of the purchase and date of maturity of the security plus, if any, premium or discount at the moment of purchase.

(d)	Floating-rate bank Financial Notes, remunerated at a percentage of the CDI (between 100 + 0.52% and 112%, depending on the transaction).

374

Cemig Telecomunicações S.A. (‘CemigTelecom’)


5. ACCOUNTS RECEIVABLE FROM CLIENTS
	Sep. 30, 2017			Dec. 31, 2016
Related parties (Note 18)		2,880			5,299
Third parties		16,158			15,375
Doubtful receivables		(1,780	)		(1,425	)

Total		17,258			19,249

Below is a summary of accounts receivable, by time / maturity:


	Sep. 30, 2017
	Related parties		Third parties		Total		Dec. 31, 2016
Accounts receivable
Not yet due		1,010		13,308		14,318		12,805
1 to 30 days		76		891		967		2,906
31 to 60 days		76		58		134		1,381
61 to 90 days		76		39		115		643
91 to 180 days		232		185		417		424
Over 180 days		1,410		1,677		3,087		2,515

Total		2,880		16,158		19,038		20,674

Provision for doubtful receivables		—		(1780)		(1780)		(1425)

Total		2,880		14,378		17,258		19,249

Percentage loss recognized on past due accounts receivable				62%		38%		18%

The estimate for losses on doubtful receivables is recorded after individual assessment of receivables that are more than 180 days past due. Those on which there is doubt as to realization have their losses recognized in the Profit and loss account in the amount expected to be incurred.

The change in the estimate for losses on accounts receivable can be expressed as follows:


	Sep. 30, 2017			Dec. 31, 2016
Balances at start of period		(1,425	)		(2,459	)
Provision permanently written off		—			853
New provisions		(361	)		(101	)
Reversals		6			282
Balances at end of period		(1,780	)		(1,425	)

375

Cemig Telecomunicações S.A. (‘CemigTelecom’)

6.	FINANCIAL LEASING – GPON Networks – condominiums

Leasings in which the Company is lessor and substantially transfers the risks and benefits of ownership to the lessee are classified as financial leasings. These transactions are recognized as a receivable at the lower of: Fair value of the asset leased, and Present value of the flow of receipts specified in the contract, discounted at a risk-free interest rate. Interest related to leasing is recognized in the Profit and loss account as Financial revenue during the period that the contract is in force.


	Sep. 30, 2017		Dec. 31, 2016
Current		323		303

Non-current		11,631		11,876

Total		11,954		12,179

GPON network condominiums

On July 5, 2016 CemigTelecom signed an irrecoverable contract with Algar Telecom S.A. (Algar) for the FTTH GPON Network owned by CemigTelecom, located in 39 residential districts and condominiums in the Southern Zone of the Metropolitan Region of Belo Horizonte. The contract, signed for a period of 15 years, specifies monthly remuneration of R$ 112 in the first 60 months, and R$ 132 as from the 61^st month, with annual adjustment by the IGP-M inflation index.

The normal value of the flows of receipts specified in the contract was as follows:


	Sep. 30, 2017		Dec. 31, 2016
Up to 1 year		1,345		1,345
1 to 5 years		5,678		7,080
Over 5 years		13,887		13,493

Total		20,910		21,918

7.	TAXES RECOVERABLE


	Sep. 30, 2017		Dec. 31, 2016
ICMS (local state value added tax) (a)		6,053		4,929
Income tax and Social Contribution tax offsetable		873		595
Income tax withheld at source		1,550		1,098
Other		39		59

Total		8,515		6,681

Current		5,181		3,684

Non-current		3,334		2,997

(a)	This refers, basically, to ICMS tax credits recoverable, stated separately on tax invoices for acquisitions of PP&E assets. These can be used in up to 48 months from their recording in the CIAP book (ICMS tax credits monitoring book).

376

Cemig Telecomunicações S.A. (‘CemigTelecom’)

8.	CURRENT AND DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION TAX

The item Deferred income tax and Social Contribution tax refers to the deferred tax credit constituted, principally, on temporary differences, tax losses and negative balances of Social Contribution tax ascertained up to the reporting date. Reporting of the deferred income tax is based on a technical study of feasibility made by the Executive Board and approved by the Audit Board and the Board of Directors on April 6, 2017.

On December 31, 2016 a further technical study was made, which indicated the possibility of complementing the balance of deferred income tax and Social Contribution tax with the amount of R$ 1,569. The portion of tax credits not recognized amounts to R$ 10,385. This amount will be maintained under monitoring in the tax records until it satisfies the technical requirements for its accounting recognition.

The accounting value of the deferred tax assets is reviewed periodically, and the forecasts, annually. If there are material factors that change the forecasts, the technical feasibility study will be reviewed by the Company during the business year.


	Sep. 30, 2017			Dec. 31, 2016
Assets
Deferred tax credits
Tax losses and negative Social Contribution balances		4,920			4,973
Allowance for doubtful accounts		573			451
Tax, social-security, employment-law, third-party provisions		28			33
Provision for reimbursement – Ativas		2,174			1,159
Voluntary retirement program		373			539
Depreciation – Law 11941/09		6,438			7,018
Actuarial loss recorded in Other comprehensive income		390			390
Provision for obsolescence		467			390
Provision for impairment of investment		1,495			1,495
Other temporary additions		723			590

Total, deferred income tax/Social Cont. asset		17,581			17,038

Liabilities
Deferred tax obligations
Leasing of GPON Network – Condominiums		(843	)		(764	)
Gain on derivative financial instruments		(1,524	)		(1,559	)
Appreciation of assets received from Eletronet		(6,279	)		(6,678	)

Total, deferred income tax and Social Contribution liabilities		(8,646	)		(9,001	)

Total non-current assets, net		8,935			8,037

377

Cemig Telecomunicações S.A. (‘CemigTelecom’)


	3Q17			3Q16			9M17			9M16
Profit before income tax and Social Contribution tax		1,152			12,837			(4,670	)		(2,774	)
Equity in earnings of unconsolidated investees, net		459			10,141			1,951			25,647
Adjusted profit before income tax and Social Contribution tax		1,611			22,978			(2,719	)		22,873
Nominal rate of income tax and Social Contribution tax		34%			34%			34%			34%
Expectation for Income tax and Social Contribution tax		(548	)		(7,813	)		924			(7,777	)
Adjustments to obtain effective rate:
Tax effects applicable to:
Other additions and exclusions, net		(69	)		(43	)		(131	)		(13	)
Net effect of income tax and Social Contribution tax		(617	)		(7,856	)		793			(7,790	)
Income tax and Social Contribution tax
Current		(105	)		62			(105	)		(24	)
Deferred		(512	)		(7,918	)		898			(7,766	)

Total		(617	)		(7,856	)		793			(7,790	)

The Company’s statements of earnings are subject to review by the tax authorities for a period of five years. Other taxes, charges and contributions are also subject to these conditions, under applicable legislation.

The changes in the deferred tax assets in the period can be shown as follows:


	Dec. 31. 2016			Added			Used			Sep. 30, 2017
Deferred tax credits
Tax losses and negative Social Contribution tax amounts		4,973			—			(53	)		4,920
Allowance for doubtful accounts		451			122			—			573
Provisions for tax, social-security, employment-law and civil cases		33			—			(5	)		28
Provision for reimbursement – Ativas		1,159			1,015			—			2,174
Voluntary retirement program		539			—			(166	)		373
Depreciation – Law 11941/09		7,018			—			(580	)		6,438
Provision for obsolescence		390			77			—			467
Provision for impairment of investment		1,495			—			—			1,495
Other temporary differences		590			133			—			723

Total		16,648			1,347			(804	)		17,191

Deferred tax obligations
GPON Network Leasing – Condominiums		(764	)		(79	)		—			(843	)
Gain on derivative financial instruments		(1,559	)		—			35			(1,524	)
Appreciation of assets received from Eletronet		(6,678	)		—			399			(6,279	)

Total		(9,001	)		(79	)		434			(8,646	)

Tax credit (obligation) recognized in Profit and loss account		7,647			1,268			(370	)		8,545

Actuarial loss recorded in Other comprehensive income		390			—			—			390

Total of tax credit (obligation) recognized		8,037			1,268			(370	)		8,935

378

Cemig Telecomunicações S.A. (‘CemigTelecom’)

9.	INVESTMENT IN AFFILIATED COMPANY

Up to the third quarter of 2016 the Company was holder of 49% (forty nine per cent) of the voting stock of the company Ativas Data Center S.A. On October 19, 2016 entry of the new strategic stockholder, Sonda Procwork Outsourcing Informática Ltda. (‘Sonda’) as one of the stockholders of Ativas Data Center S.A. was concluded. The closing took place after approval of the transaction without restrictions by Brazil’s Monopolies Authority, CADE, and compliance with the other conditions precedent.

Until the finalization of the phase of construction of its datacenter, in January 2011, Ativas was pre-operational and by September 30, 2017 it had reported accounting losses of R$ 330,065 since its constitution in 2009 (R$ 322,122 up to Dec. 31, 2016).

The principal information on this affiliated company is given below, aligning the accounting practices of Ativas with those of CemigTelecom:


	Sep. 30, 2017			Dec. 31, 2016
Assets		168,873			180,449
Liabilities		50,112			51,735
Stockholders’ equity		118,761			128,714

	9M17			9M16
Net Revenue		49,370			46,654
Loss for the period		(9,954	)		(52,342	)

The movement of investment in the capital of Ativas in the periods ended September 30, 2017 and 2016 was as follows:


9M16				9M17
Jan. 1, 2016	Equity method gain	Capital increase	Sep. 30, 2016	Jan. 1, 2017	Equity method gain	Sep. 30, 2017
(76,708)	(25,647)	16,660	(85,695)	19,744	(1,951)	17,793

The value of the investment can be shown as follows:


	30/09/2017			31/12/2016
Stockholders’ equity of the investee as per accounting records		118,761			128,714
Effect of deferred income tax asset recognized by investee		(27,979	)		(27,979	)
Adjusted stockholders’ equity of the investee		90,782			100,735
Percentage interest (%)		19,6%			19,6%

Investments valued by the equity method		17,793			19,744
Premium paid on subscription		4,397			4,397
Provision for impairment of the premium		(4,397	)		(4,397	)

Balance of the investment		17,793			19,744

Loss by equity method		(1,951	)		(27,165	)

379

Cemig Telecomunicações S.A. (‘CemigTelecom’)

The stockholding structure of Ativas on September 30, 2017 and December 31, 2016 is as follows:


Stockholder	Shares (thousands)		Stake%
Ativas Participações S.A.		93,134		20,40%
CEMIG Telecomunicações S.A.		89,482		19,60%
Sonda Procwork Outsourcing Informática Ltda		273,925		60,00%

Total		456,541		100%

Capital increase

Subscriptions of capital in 2016


	Feb. 16, 2016		Mar. 14, 2016		1st tranche		2nd tranche		Total
CemigTelecom		3,800		12,860		45,000		37,240		98,900
Ativas Participações		3,955		13,385		46,837		38,760		102,937
Sonda Procwork		—		—		—		114,000		114,000

Total		7,755		26,245		91,837		190,000		315,837

Financial assets / liabilities relating to sale / purchase options

On October 19, 2016, Cemig Telecomunicações S.A. – ‘CemigTelecom’, Ativas Participações S.A. (‘Ativas Participações’) and Sonda Procwork Outsourcing Informática Ltda. (‘Sonda’) signed an investment contract, permitting entry of Sonda as stockholder of the investee Ativas Data Center S.A. (‘Ativas Data Center’), which until that date was an exclusive investee of CemigTelecom (49%) and Ativas Participações (51%).

After the entry of the new partner Sonda, by dilution of CemigTelecom and Ativas Participações, Sonda assumed stockholding control, as owner of 60.0% of the shares of Ativas Data Center, the stockholders CemigTelecom and Ativas Participações S.A. now holding 19.6% and 20.4%, respectively.

As part of the process of stockholding restructuring, CemigTelecom and Sonda signed a Purchase Option Agreement (issued by CemigTelecom) and a Sale Option Agreement (issued by Sonda).

The put and call options in Ativas (‘the Ativas Options’) were measured at fair value and posted at their net value, i.e. the difference between the fair values of the two options on the reporting date of the financial statements for the quarter ended September 30, 2017. Depending on the value of the options, the net value of the Ativas Options may be an asset or a liability of the Company.

380

Cemig Telecomunicações S.A. (‘CemigTelecom’)

The measurement was carried out by a specialized consulting company through the use of the Black-Scholes-Merton (BSM) model, it being ensured that its results were consistent with other stochastic approaches involving numerical procedures.

In the calculation of the fair value of the Ativas Options based on the BSM model, the following variables are taken into account: closing price of the underlying asset on September 30, 2017; the risk-free interest rate; the volatility of the price of the underlying asset; the time to maturity of the option; and the exercise prices on the exercise date.

The closing price of the underlying asset was based on the value of the transaction in shares of Ativas by Sonda, which took place on October 19, 2016. The calculation of the risk-free interest rate was based on yields of National Treasury Bills. The time to maturity was calculated assuming exercise date on March 31, 2021. Considering that the exercise prices of the options are contingent upon the future financial accounting results of Ativas, the estimate of the exercise prices on the date of maturity was based on statistical analyzes and on information of comparable listed companies. The exercise prices adopted in the BSM method were corroborated with statistical distributions analyzed through numerical procedures. On September 30, 2017, the derivative financial instrument is recorded, with the amount of R$ 4,484 (R$ 4,586 on December 31, 2016) in the account line Derivative financial instrument – Assets

10.

PROPERTY, PLANT AND EQUIPMENT


	Sep. 30, 2017									Dec. 31, 2016
	Cost			Accumulated Depreciation			Net value			Net value
Land		82			—			82			82
Real estate property		55			(17	)		38			39
Facilities		107			(32	)		75			43
Machinery and equipment		11			(3	)		8			9
Furniture and utensils		1,582			(1,136	)		446			450
Computers and peripherals		2,206			(1,858	)		348			193
Test instruments		2,833			(2,730	)		103			159
Improvements		246			(233	)		13			19
Satellite reception system Telecoms network equipment		9,283 392,054			(9,283 (278,811	) )		— 113,243			1 95,859
Materials		64,137			(40,929	)		23,208			22,404
Cable		196,331			(99,263	)		97,068			100,741
OPGW cables		18,894			(1,575	)		17,319			18,264
ADSS cables		1,529			(382	)		1,147			1,376
Network infrastructure		19,342			(13,597	)		5,745			6,202
Spare parts		10,413			—			10,413			9,312
Fixed assets in progress		2,064			—			2,064			7,834

Subtotal		721,169			(449,849	)		271,320			262,987

Provision for obsolescence		(1,374	)		—			(1,374	)		(1,374	)

Total, net		719,795			(449,849	)		269,946			261,613

381

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Depreciation rates and useful lives of the assets:


	Average percentage depreciated up to Sep. 30, 2017		Average remaining useful life (years)		Annual average depreciation rates
Class of assets
Real estate property		31%		34.5		2%
Facilities		30%		7.0		10%
Machinery and equipment		27%		7.3		10%
Furniture and utensils		72%		2.8		10%
Computers and peripherals		84%		0.8		20%
Test instruments		96%		0.4		10%
Improvements		95%		0.3		20%
Satellite reception system		100%		0.0		8%
Telecoms network equipment		71%		2.6		11%
Materials		64%		5.2		7%
Cable		51%		9.9		5%
OPGW cables		8%		13.7		7%
ADSS cables		25%		3.8		20%
Network infrastructure		70%		5.4		3 a 10%

The movement in PP&E can be shown as follows:


			Accumulated in nine months ended Sep. 30, 2017
	Dec. 31, 2016		Additions		Written off		Transfers			Sep. 30, 2017
Land		82		—		—		—			82
Real estate property		55		—		—		—			55
Facilities		68		39		—		—			107
Machinery and equipment		11		—		—		—			11
Furniture and utensils		1,524		58		—		—			1,582
Computers and peripherals		1,953		253		—		—			2,206
Test instruments		2,833		—		—		—			2,833
Improvements		246		—		—		—			246
Satellite reception system		9,283		—		—		—			9,283
Telecoms network equipment		361,943		—		—		30,111			392,054
Materials		61,098		—		—		3,039			64,137
Cable		192,373		—		—		3,958			196,331
OPGW cables		18,894		—		—		—			18,894
ADSS cables		1,529		—		—		—			1,529
Network infrastructure		19,342		—		—		—			19,342
Spare parts		9,312		9,500		—		(8,399)			10,413
Fixed assets in progress		7,834		23,973		—		(29,713)			2,064

Total cost		688,380		33,793		—		(1,004)			721,169

Accumulated depreciation		(425,393)		(24,456)		—		—			(449,849)
Provision for obsolescence		(1,374)		—		—		—			(1,374)

Net value depreciable		261,613		9,337		—		(1,004)	(**)		269,946

(a)	Spending relating to projects in progress for expansion of telecommunications networks and inventories.

382

Cemig Telecomunicações S.A. (‘CemigTelecom’)


			Accumulated in nine months ended Sep. 30, 2016
	Dec. 31, 2015		Additions			Written off		Transfers			Sep. 30, 2016
Land		82		—			—		—			82
Real estate property		55		—			—		—			55
Facilities		152		—			(84)		—			68
Machinery and equipment		11		—			—		—			11
Furniture and utensils		1,469		6			—		—			1,475
Computers and peripherals		1,934		10			—		—			1,944
Test instruments		2,833		—			—		—			2,833
Improvements Satellite reception system		246 9,283		— —			— —		— —			246 9,283
Telecoms network equipment		342,087		—			(239)		19,552			361,400
Materials		61,301		—			—		1,557			62,858
Cable		190,788		—			—		4,088			194,876
OPGW cables		—		18,894	(**)		—		—			18,894
ADSS cables		—		1,529	(**)		—		—			1,529
Network infrastructure		19,342		—			—		—			19,342
Spare parts		8,030		5,735			(225)		(4,915)			8,625
Fixed assets in progress		6,819		21,878			—		(22,561)			6,136

Total cost		644,432		48,052			(548)		(2,279)			689,657

Accumulated depreciation		(394,446)		(23,904)			206		—			(418,144)
Provision for obsolescence		(225)		—			225		—			—

Net amount depreciable		249,761		24,148			(117)		(2,279)	(*)		271,513

(*)	The remaining balances in the transfers shown in the previous table refer to the transfers made between the accounts Fixed assets and Intangible assets (Note 13).

(**)	Refers to the assets transferred by Eletronet S.A.

Assets transmitted by Eletronet S.A.

The Company periodically evaluates the useful lives applied to their assets with defined useful life. The works of valuation of useful lives of the assets are carried out by professionals of the Company’s technical engineering team, and they consider, among other aspects, the following principal indications for formation of their opinion: (i) technical information related to the use and maintenance of the assets; (ii) outlook for technological and market changes; (iii) the Company’s capacity to obtain services and parts in the market for replacement of goods; and (iv) the possibility of realizing upgrades in the related equipment and software, and also of the capacity for its combination with future technologies.

383

Cemig Telecomunicações S.A. (‘CemigTelecom’)

11.

INTANGIBLE ASSETS


			Accumulated in the nine months ended Sep. 30, 2017
	Dec. 31, 2016		Additions		Transfers		Sep. 30, 2017
Software use license		2,037		941		—		2,978
Grant of radio concession		230		—		—		230
Management systems		12,998		—		1,004		14,002

Total cost		15,265		941		1,004		17,210
Accumulated amortization		(5,775)		(1,518)		—		(7,293)

Net value amortizable		9,490		(577)		1,004		9,917


			Accumulated in the nine months ended Sep. 30, 2016
	Dec. 31, 2015		Additions		Transfers			Sep. 30, 2016
Software use license		1,137		830		—			1,967
Grant of radio concession		230		—		—			230
Management systems		9,268		—		2,279			11,547

Total cost		10,635		830		2,279			13,744
Accumulated amortization		(4,010)		(1,043)		—			(5,053)

Net value amortizable		6,625		(213)		2,279	(*)		8,691

(*)	The remaining balances in the transfers shown in the previous table refer to the transfers made between the accounts Fixed assets and Intangible assets (Note 10).

Amortization rates and useful lives: The annual rates of amortization were determined as a function of the expectation of use of the asset, and are as follows:


Class of asset	Estimated useful life (years)		Average percentage amortized up to Sep. 30, 2017			Average remaining useful life (years)		Annual average depreciation rates
Software use license		5 years		45	%		2.8		20	%
Grant of radio concession		15 years		24	%		11.3		6.7	%
Management systems		10 years		42	%		5.8		10	%

12.

LOANS AND DEBENTURES


	Sep. 30, 2017		Dec. 31, 2016
Loans		91,479		101,372
Debentures		26,492		—

Total		117,971		101,372

Current		58,973		63,751

Non-current		58,998		37,621

384

Cemig Telecomunicações S.A. (‘CemigTelecom’)

The movement of loans and debentures in the nine months ended September 30, 2017 was as follows:


	Dec. 31, 2016		Funds raised		Amortizations		Charges appropriated in the period		Sep. 30, 2017
Sonda Procwork (1)		46.310		—		—		4.106		50.416
Sonda Procwork (2)		38.326		—		—		3.396		41.722
Cemig Holding (3)		18.134		—		(19.235)		1.101		—
Debentures (4)		—		27.000		(1.095)		1.159		27.064

Subtotal		102.770		27.000		(20.330)		9.762		119.202

Funding cost		(1.398)		(761)		—		928		(1.231)

Total		101.372		26.239		(20.330)		10.690		117.971

(1)	Loan from Sonda, rate 110% of CDI, maturing October 19, 2017, to support the investment in Ativas Data-center.

(2)	Loan taken from Sonda, rate 110% of CDI, to support the investment in Ativas Data Center. The loan will become due on the date of exercise of the put option by the Company, as regulated by the Stockholders’ Agreement.

(3)	Loan taken from Cemig holding company, at 132.9% of the CDI, maturing May 31, 2017, to support the Company’s working capital – this was settled early, on May 22, 2017.

(4)

The Company issued 2,700 debentures, under CVM Instruction 476, in a single series, all known and non-convertible, with floating guarantee and nominal unit value of R$ 10, on May 22, 2017, with maturity May 22, 2019. The debentures issued are remunerated at 128.5% of the CDI rate. This funding was for settlement of loan with the Stockholder Cemig Energética S.A., of R$ 19,235 and to replenish the Company’s cash position.

13.

SUPPLIERS


	Sep. 30, 2017		Dec. 31, 2016
Third parties		7,945		11,514
Related parties (Note 18)		10,778		10,236

Total		18,723		21,750

The Company’s exposure to risks of currency and liquidity related to suppliers and accounts payable is given in Note 23.

14.

PAYROLL-ASSOCIATED AND EMPLOYMENT-LAW OBLIGATIONS


	Sep. 30, 2017		Dec. 31, 2016
Vacation pay, 13^th salary and charges payable		3,665		2,906
Employee profit shares		—		1,257
Long-term benefits to employees (Note 24)		3,192		2,801
Voluntary retirement program		1,097		1,583
Other		86		90

Total		8,040		8,637

Current		4,848		5,836

Non-current		3,192		2,801

385

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Voluntary retirement program

12% of the Company’s staff joined the program. It was available to employees with administrative and technical careers with at least 13 years’ work in CemigTelecom or with any other company provided they were retired or qualified for retirement. The retirement dates were programmed at the Company’s option, and may occur in up to 18 months after the termination of the acceptance period. The plan provides a financial incentive equivalent to 40% of the monthly salary for each year of employment relationship with the company, for those who joined in the first 30 days of the joining period, and 20% times the monthly salary for those who joined between the 31st day of the period and its closing date. Additionally, the program grants those with eligible employment the right to receive the 40% ‘penalty’ payment on the balance of the employee’s FGTS account, as well as receipt of the other dismissal amount specified by law. The PDVI program was concluded, and the last employees left the company on October 18, 2017.

(512) TAX OBLIGATIONS


	Sep. 30, 2017		Dec. 31, 2016
Income tax withheld at source (IRRF)		173		341
Corporate income tax (IRPJ)		90		—
The Social Contribution tax on net profit (CSLL)		15		—
ICMS (local state value added tax) (a)		2,445		2,560
The Contribution to Finance Social Security – Cofins Social Integration Program (PIS)		1,339 291		1,320 286
Telecommunication Services Universalization Fund (FUST) Telecoms Technological Development Fund (FUNNTEL) (b)		99 6,666		90 7,137
Others		389		305

Total		11,507		12,039

Current		9,525		9,573

Non-current		1,982		2,466

(a)	As from January 2016, various Brazilian states increased the rate of ICMS tax on telecommunication service to improve the cash situation of the states, as follows:


State	Change in rate (from – to)	Legislation
Minas Gerais	25% – 27%	Law 21781/2015
Pernambuco	28% – 30%	Law 15599/2015
Ceará	27% – 30%	Law 15892/2015
Rio de Janeiro	27% – 30%	Law 7175/2015
Rio Grande do Norte	27% – 30%	Law 9991/2015

386

Cemig Telecomunicações S.A. (‘CemigTelecom’)

(b)

With the conversion of Provisional Measure 638/14 into Law 12996/14, and consequent renewal of permission for payment in installments as per Laws 11941/09 and 12249/10, the Company sought to include the debits to FUNTTEL for the years 2006 to 2013 within the REFIS program. However, this right was denied on an administrative basis, on the grounds of the Revenue Service’s allegation that it did not have the standing to manage the funds arising from this revenue specifically.

The accumulated value of the tax obligation on September 30, 2017 is R$ 6,666, including interest and penalty payments calculated up to that date on the debts past due. The Company joined the PERT program, including the amounts that were in the ordinary agreement for payment by installments, and a tax amnesty in the amount of R$ 465,000 was recognized in September 2017.

The debits incurred as from 2014 are being paid regularly.

The movements in the payments by installments of the debits to Funttel, which are inscribed in the federal receivable debt, are as follows:


	Accumulated in the period
Period	Consolidated debits		Amortization			Charges appropriated		Amnesty			Balances at September 30, 2017
2008 and 2009		1,886		(537	)		165		(465	)		1,049

Total		1,886		(537	)		165		(465	)		1,049

The Company joined the PERT program, including the amounts that were in the ordinary agreement for payment by installments, and a tax amnesty in the amount of R$ 465,000 was recognized in September 2017.

16.

DEFERRED REVENUES


							Sep. 30, 2017				Dec. 31, 2016
Contract	Signature of the contract		Period of the contract		Amount contracted		Accumulated revenue Appropriated		To be appropriated		Accumulated revenue Appropriated		To be appropriated
1 optical fiber pair, for 181 km		08/08/2011		10 years		2,187		1,312		875		1,149		1,041
1 optical fiber pair, for 46 km		12/10/2012		20 years		925		221		704		185		740
1 optical fiber pair, for 231 km		12/04/2013		20 years		3,822		726		3,096		584		3,238
Other						515		511		4		495		20

Total						7,449		2,770		4,679		2,413		5,039

Current										460				460

Non-current										4,219				4,579

The contracts linked to the advances from clients are for irrevocable assignment of dark optical fiber pairs, not including provision of any equipment or provision telecommunication services.

The contracts have an average period of duration of 17 years, and do not contain clauses for renewal or option for sale of the assets. The revenue linked to these contracts, recognized in the quarter ended September 30, 2017, was R$ 117.

387

Cemig Telecomunicações S.A. (‘CemigTelecom’)

17.

PROVISION FOR EMPLOYMENT LAW RISK


	30/09/2017		31/12/2016
Employment- law cases		67		82

		67		82

On September 30, 2017, the Company had a provision for risks and contingencies identified by management of R$ 67 (R$ 82 on December 31, 2016), representing employment-law claims, for which the chances of loss have been assessed as ‘probable’.

The Company also has other cases, claims and disputes in both the courts and the administrative sphere, totaling R$ 2,652 (R$ 2,661 on December 31, 2016), as follows:

Classification of risk by assessed chances of loss


	Expectation of loss
	‘Possible’		‘Probable’		Total
Tax (a)		—		—		—
Employment-law cases (b)		2,051		67		2,118
Civil cases (c)		601		—		601

Total		2,652		67		2,719

(a)

The tax cases are tax claims seeking to impugn allegedly incorrect tax classification for collection of the FUST and FUNTEL social contributions of the telecommunication sector, which are collected by Anatel. To charge and collect the FUST the agency of the federal government has unduly widened the calculation base for the contribution, and this has been regularly impugned in the administrative sphere. In the courts there is a case in progress in the federal courts which disputes the posting for the year 2010. The whole of the debit related to FUNTEL is under dispute in the courts, in a case questioning the standing of the Federal Revenue Service to administer the debt relating to this contribution and included in the federal scheme for payment by installments. The oldest part of this debt (for the years 2008 and 2009) was constituted, and a tax execution relating to it has been suspended, due to grant of permission for payment by installments; the most recent debits await further agreement for payment by installments. There are other tax claims, discussing the legitimacy of the form of joint collection of federal and state taxes, and defenses in tax executions.

(b)

The employment-law cases are mostly claims by employees of other companies, which had been contractual partners of CemigTelecom in which both companies have been made defendants. The claims for employment-law rights are made against the service providing companies, and in these cases CemigTelecom has been included as defendant solely for the purpose of guaranteeing payment in the case of success in the claim.

388

Cemig Telecomunicações S.A. (‘CemigTelecom’)

(c)

Among the civil cases is one in which the Minas Gerais Public Attorneys’ Office for employment-law matters has filed a class action against CemigTelecom on the legality of outsourcing of services when the labor employed is supposedly related to its end-activity. At the court of the first instance, CemigTelecom was ordered to pay a fine of R$200, and prohibited from continuing to employ outsourced labor in these activities. In 2014, CemigTelecom obtained an injunction in the Higher Employment-Law Appeal Court, suspending the effects of the first instance judgment until a judgment by the Federal Supreme Court (STF) – ARE 791.932 – on whether its judgment should be given the status of mandatory precedent for all other judgments on the issue. Management has assessed the chances of loss as ‘possible’. In the event that it loses, CemigTelecom might be compelled to bring part or all of these activities into direct employment relationships. On March 31, 2017 Law 13429/2017 was published, altering Law 6019/74 to enable outsourcing of the end-activity in contracts for temporary labor. With the treatment of the same subject in the text of the recently-passed Law 13429/17, referred to as the Employment Reform Law, and with the increase in disputes that will take place, we believe there is a tendency for the courts to start to see this subject from a different point of view. This reasoning enables management to infer that there is a trend for making contracting of outsourced labor more flexible, which may have a favorable influence on the judgment in this case.

18.

RELATED PARTY TRANSACTIONS

CemigTelecom is a listed corporation and a wholly-owned subsidiary of Companhia Energética de Minas Gerais S.A. – Cemig.

The principal holders of voting stock in which are the Government of the State of Minas Gerais (51%) and Andrade Gutierrez Concessões Energia (20%). The controlling stockholder, Cemig, has other direct stockholdings in the following main companies, as well as CemigTelecom: Axxiom Soluções Tecnológicas S.A. (49%), Cemig Geração e Transmissão S.A. (100%), Cemig Distribuição S.A. (100%), Companhia de Gás do Estado de Minas Gerais S.A. – Gasmig (99.57%), Rosal Energia (100%), Sá Carvalho (100%), Light S.A. (26.06%) and Transmissora Aliança de Energia Elétrica – Taesa (31.54%).

As well as its affiliated company Ativas, CemigTelecom considers the following to be related parties: the controlling stockholder and its related parties, the companies or persons who directly or indirectly have significant influence of the Management of the Company, the private pension plan (Forluz) and the administrator of the health and dental plan (Cemig Saúde) in which the Company is co-sponsor together with the other companies of the Cemig Group, and the managers and employees of the Company.

389

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Asset transactions (sales) – The main commercial transactions between the Company and related parties that generate revenue are commercial transactions relating to circuits and other telecommunication services in general, in which the controlling group, Cemig, currently represents 8.38% of the Company’s sales revenue (14.39% in 2016).

Purchase transactions (purchases) – The Company’s principal transactions resulting in outflow with related parties are for supply of electricity to feed the telecommunication equipment, provision of services of management and maintenance of the telecommunications network and rental (sharing) of power transmission distribution infrastructure for installation of telecommunication cables and equipment.

The affiliated company Ativas has an item of R$ 8,959 in its accounts receivable from the minority stockholders, for an indemnity clause arising from liabilities that predated or were not revealed on the transaction date, as specified in the investment contract signed on August 25, 2016 between CemigTelecom, Ativas and Sonda Procwork Outsourcing Informática Ltda. Of this amount recorded, 49% is attributable to the responsibility of CemigTelecom, and a provision for it has been constituted in the amount of R$ 3,410, on December 31, 2016, with a complimentary addition of R$ 2,984 in the nine months ended September 30, 2017, making a total of R$ 6,394.

The main receivable and payable amounts at September 30, 2017, and the transactions that influenced the profit for the period, in relation to related parties, arise from transactions carried out for conditions and periods agreed between the parties for the respective types of operation.

390

Cemig Telecomunicações S.A. (‘CemigTelecom’)


	Sep. 30, 2017				Accumulated in the period ended Sep. 30, 2017
	Assets		Liabilities		Sales			Bought
Companhia Energética de Minas Gerais S.A.
Communications services		26		—		—			—
Reimbursement of costs of seconded personnel		1,780		2,789		1,066			366
Other		3		—		—			—

Total		1,809		2,789		1,066			366

Cemig Distribuição S.A
Communications services		554		—		5,090			—
Supply of electricity		—		246		—			2,561
Network maintenance services		—		4,239		—			945
‘Right of way’/infrastructure Other		— 38		2,540 —		— —			3,208 —

Total		592		7,025		5,090			6,714

Cemig Geração e Transmissão S.A.
Communications services		126		—		1,143			—
Network maintenance services Other		— 23		422 —		— —			94 —

Total		149		422		1,143			94

Fundação Forluminas de Seguridade Social (‘Forluz’)
Communications services		4		—		38			—
Private pension plan		—		226		—			1,308

Total		4		226		38			1,308

Cemig Saúde (Health)
Communications services		6		—		53			—
Medical and dental care		—		135		—			721

Total		6		135		53			721

Companhia de Gás de Minas Gerais – Gasmig
Communications services		—		—		23			—
Total		—		—		23			—
Entities linked to Minas Gerais State Govt. (*)
Current
Communications services		95		—		659			—
Taxes offsettable – ICMS		1,650		2,023		(25,851	)		—
Non-Current Taxes offsettable – ICMS		2,640		—		—			—

Total		4,385		2,023		(25,192	)		—

Axxiom
Communications services		3		—		31			—
Software maintenance		—		123		—			1,097

Total		3		123		31			1,097

Ativas Data Center S.A.
Communications services		222		—		2,063			—
Indemnity of contingencies in Ativas		—		6,394		—			2,984
Data center outsourcing services		—		58		—			526
Reimbursement of costs of seconded personnel		—		—		118			—

Total		222		6,452		2,181			3,510

Total at Sep. 30, 2017		7,170		19,195		(15,567	)		13,810

(*)	Entities linked to Minas Gerais State Government are not part of accounts receivable and suppliers for the purposes of ICMS tax.

391

Cemig Telecomunicações S.A. (‘CemigTelecom’)


	Dec. 31, 2016					Period ended ended Sep. 30, 2016
	Assets			Liabilities		Sales			Bought
Companhia Energética de Minas Gerais S.A
Communications services		26			—		—			—
Reimbursement of costs of seconded personnel		1,170			2,566		1,300			1,355
Other		3			—		—			—

Total		1,199			2,566		1,300			1,355

Cemig Distribuição S.A
Communications services		3,399			—		7,609			—
Supply of electricity		—			264		—			2,335
Network maintenance services		—			3,295		—			1,417
‘Right of way’/infrastructure others		— 38			2,771 —		— —			2,825 —

Total		3,437			6,330		7,609			6,577

Cemig Geração e Transmissão S.A.
Communications services		272			—		2,444			—
Network maintenance services		—			328		—			141
Other		23			—		—			16

Total		295			328		2,444			157

Fundação Forluminas de Seguridade Social (‘Forluz’)
Communications services		4			—		48			—
Private pension plan		—			482		—			—

Total		4			482		48			—

Cemig Saúde (Health)
Communications services		(3	)		—		46			—
Medical and dental care		—			228		—			6

Total		(3	)		228		46			6

Companhia de Gás de Minas Gerais (Gasmig)
		21			—		144			—

Total		21			—		144			—

Entities linked to Minas Gerais State Govt.^(*)
Current
Communications services		94			—		660			—
Taxes off-settable – ICMS		1,553			2,035		(18,495	)		—
Non-Current
Taxes off-settable – ICMS		2,020			—		—			—

Total		3,667			2,035		(17,835	)		—

Axxiom
Communications services		3			—		30			—
Software maintenance		—			131		—			744

Total		3			131		30			744

Ativas Data Center S.A.
Communications services		249			—		1,812			—
Indemnity of contingencies in Ativas		—			3,410		—			—
Data center outsourcing service Reimbursement of costs of seconded personnel		— —			171 —		— 231			565 —

Total		249			3,581		2,043			565

Total		8,872			15,681		(4,171	)		9,404

(*)	Entities linked to Minas Gerais State Government are not part of accounts receivable and suppliers for the purposes of ICMS.

392

Cemig Telecomunicações S.A. (‘CemigTelecom’)


	Sep. 30, 2017				Dec. 31, 2016
	Assets		Liabilities		Assets		Liabilities
ACCOUNTS RECEIVABLE FROM CLIENTS		2,880		—		5,299		—
Suppliers		—		10,778		—		10,236
Taxes recoverable (AC)		1,650		—		1,553		—
Taxes recoverable (PC)		2,640		—		2,020		—
Tax obligations (PC)		—		2,023		—		2,035
Related parties		—		6,394		—		3,410

Total		7,170		19,195		8,872		15,681

Fixed income fund – Pampulha: The Company holds units in Fundo Pampulha, which has the characteristics of fixed income and obeys the Company’s cash investment policy. On September 30, 2017 the amounts invested by the fund, corresponding to CemigTelecom’s participation, are accounted under ‘Cash and Cash Equivalents’ and ‘Securities’ in Current and Non-Current assets.

The Cemig Group has cash investments in Pampulha (see breakdown below), which in turn has investments in notes and debentures of companies of the Cemig Group.


Fundo Pampulha			Value of CemigTelecom position – R$ ’000
	Period	Rate p.a.	Sep. 30 2017	Dec. 31, 2016
	Period	Rate p.a.	Sep. 30 2017	Dec. 31, 2016
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Aug. – Nov. 2017	128% of CDI rate	28	—
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Aug. – Nov. 2017	128% of CDI	84	—
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Aug. – Nov. 2017	128% of CDI	56	—
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Apr. 2013 –Feb. 2017	CDI + 0.9%	—	15
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Jul. 2015 – Jul. 2018	CDI + 1.6%	115	74
CemigTelecom investment in Pampulha Fund – ref. ETAU (Debentures)	Dec. 2014 –Dec. 2019	108% of CDI	48	14
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Mar. 2016 –Dec. 2018	CDI + 3.9%	51	14
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Jul. 2016 – Dec. 2018	CDI + 4.2%	48	13
CemigTelecom investment in Pampulha Fund – ref. Axxiom (Debentures)	Apr. 2016 – Jan. 2017	112% of CDI	—	8
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Jun – Nov. 2017	108% of CDI	251	—
CemigTelecom investment in Pampulha Fund – ref. CEMIG GT (Debentures)	Jun – Aug 2017	108% of CDI	50	—

The return of the Pampulha Fund, in the nine months ended September 30, 2017, was R$352 (R$2,018 at September 30, 2016).

Loan – On December 16, 2016 CemigTelecom signed a loan contract with Cemig for R$ 18,000, to complement the funds necessary for full payment of the first Promissory Note issue, with maturity at 167 days, for settlement in a single payment on May 31, 2017, plus interest at 132.9% of the average DI (interbank deposit) Rate. The updated balance of R$ 19,235 was settled on May 22, 2017.

393

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Remuneration of Managers – In the nine months to September 30, 2017 the Company paid managers a total of R$ 4,034 in remuneration and other benefits (R$ 2,667 up to September 30, 2016), as follows:


Post	Remuneration						Benefits				Total
R$ ’000	9M17		9M16		9M17		9M16		9M17		9M16
Chief Officers		3,264		1,845		286		230		3,550		2,075
Board members		484		592		—		—		484		592

Total		3,748		2,437		286		230		4,034		2,667

On April 28, 2017 the General Meeting of Stockholders set the annual global limit as from 2017 of R$5,850 (R$5,450 for the 2016) for remuneration of Chief Officers, members of the Board of Directors, and the Audit Board.

Private Pension Plan and other employee benefits – As per Note 25, the Company is co-sponsor of the Private Pension Plan for Forluz and Cemig Saúde, responsible for management of the employees’ health and dental plan. The contributions made by the Company were as follows:


	3Q17				3Q16				9M17				9M16
	Forluz		Health plan		Forluz		Health plan		Forluz		Health plan		Forluz		Health plan
Mixed Benefits Pension Plan (‘Plan B’)		611		—		695		—		2,273		—		2,401		—
Integrated health plan (PSI)		—		388		—		351		—		1,117		—		1,018
Dental Plan		—		16		—		14		—		46		—		39

Total		611		404		695		365		2,273		1,163		2,401		1,057

Further to the benefits specified in Law, the Company also provided its employees with: a day-care center, group life insurance, restaurant and food tickets, and Culture Tickets.

Employees’ profit shares – The Company’s bylaws specify distribution to the employees as share of profits an annual amount as a means of incentivating employees to achieve the best results – for which indicators and targets are periodically established in a collective work negotiation.

394

Cemig Telecomunicações S.A. (‘CemigTelecom’)

19.

STOCKHOLDERS’ EQUITY

a)	Share capital

On February 18, 2016 Cemig made a capital increase in CemigTelecom of R$ 16,660, subscribing 16,660 new nominal common shares without par value, increasing the share capital from R$ 225,081 to R$ 241,741 from that date.

The full capital subscribed and paid up at September 30, 2017 and December 31, 2017 comprises common shares, without par value, as follows:


Shareholders	Shares		Amount		Stake %
Companhia Energética de Minas Gerais		397,683,384		241,741		100%
Other		1		—		—

Total		397,683,385		241,741		100%

b)	Remuneration to stockholders

Stockholders are guaranteed the minimum mandatory dividend of 50% of the adjusted net profit for each business year.

c)	Legal reserve

This reserve is constituted from 5% of the net profit of each business year, under Article 193 of Law 6404/76, until the reserve reaches 20% of the share capital.

Since there was a balance of retained losses, no legal reserve was constituted in 2017.

d)	Retained Earnings reserve

The aim of this reserve is to strengthen working capital and meet needs for funds for the Company’s investments in the subsequent years.

e)	Profit (loss) per share

The profit (loss) and weighted average number of common shares used in the calculation of the basic and diluted profit per share are as follows:


Basic and diluted profit (loss) per share	3Q17		3Q16		9M17			9M16
Profit (loss) for the period – R$ ’000		535		4,981		(3,877	)		(10,564	)
Weighted average number of common shares in circulation – thousands		397,683		397,683		397,683			397,683

Basic and diluted loss per share – Reais		0.00		0.01		(0.01	)		(0.03	)

Since the Company has no dilutive instruments, diluted loss per share is the same as basic loss per share.

395

Cemig Telecomunicações S.A. (‘CemigTelecom’)

20.

NET REVENUE


	3Q17	3Q16	9M18	9M16
Dedicated circuits	33,696	26,590	96,785	74,940
Transport of signal	1,438	1,792	4,875	5,376
Integrated services	4,487	5,537	13,431	16,169
Other	1,177	879	2,762	2,602

Gross revenue	40,798	34,798	117,853	99,087

Taxes, returns, adjustments to present value and discounts	(10,205)	(8,846)	(29,550)	(24,446)

Net Revenue	30,593	25,952	88,303	74,641

21.

COSTS AND EXPENSES


Classification by type	3Q7			3Q16			9M17			9M16
Network infrastructure		(4,000	)		(3,289	)		(12,093	)		(9,011	)
Supply of electricity		(803	)		(665	)		(2,757	)		(2,475	)
Depreciation and amortization		(8,966	)		(8,611	)		(25,974	)		(24,947	)
Maintenance and repair service		(5,629	)		(4,300	)		(16,266	)		(12,453	)
Personnel		(5,574	)		(4,586	)		(15,673	)		(17,842	)
Outsourced services		(798	)		(755	)		(4,073	)		(2,222	)
Real estate property rented		(417	)		(427	)		(1,301	)		(1,290	)
Equity method gains in non-consolidated investees, net		(459	)		(10,141	)		(1,951	)		(25,647	)
PIS and Cofins taxes on financial leasing		(168	)		(151	)		(353	)		(393	)
Loss on financial derivative		(20	)		—			(103	)		—
Other (Recovery of expenses)		(52	)		(369	)		(3,162	)		(352	)

Total		(26,886	)		(33,294	)		(83,706	)		(96,632	)


Classification by function	3Q17			3Q16			9M17			9M16
Cost of services provided		(17,671	)		(15,922	)		(52,624	)		(46,348	)
General and administrative expenses		(8,285	)		(6,641	)		(24,881	)		(23,806	)
Sales and marketing expenses Equity method gain		(238 (459	) )		(124 (10,141	) )		(728 (1,951	) )		(259 (25,647	) )
Other expenses		(233	)		(466	)		(3,522	)		(572	)

Total		(26,886	)		(33,294	)		(83,706	)		(96,632	)

22.

FINANCIAL REVENUE (EXPENSES)


Financial revenue	3Q17		3Q16		9M17		9M16
Revenue from cash investments		139		741		386		2,431
Interest (received)		144		17		177		148
Other financial revenues		943		86		1,584		460

Total		1,226		844		2,147		3,039


Financial expenses	3Q17			3Q16			9M17			.9M16
Interest (paid)		(3,128	)		(1,434	)		(10,081	)		(4,246	)
Other financial expenses		(729	)		(194	)		(1,420	)		(801	)

Total		(3,857	)		(1,628	)		(11,501	)		(5,047	)

396

Cemig Telecomunicações S.A. (‘CemigTelecom’)

23.

FINANCIAL INSTRUMENTS

a)	Financial risk management

The Company has exposure to the following risks arising from the use of financial instruments:

•

Credit risk

•

Market Risk

•

Liquidity risk

This note presents information on the Company’s exposure to each one of the above risks, the Company’s objectives, policies and processes for measurement and management of risk, and the Company’s management of capital.

Risk management structure

The Board of Directors has the global responsibility for establishing and supervising the structure of the Company’s risk management. The risk management policies applied by the Company and its jointly-controlled subsidiary entity are subordinated to those of the Cemig Group, which is responsible for creating and monitoring the risk management policies of the Company as a whole.

The Company’s risk management policies are established to identify and analyze the risks faced, to set appropriate risk in its own controls, and to monitor risks and compliance with the limits established. The risk management policies and systems are frequently reviewed to reflect changes in market conditions and in the Company’s activities. Through its training and management rules and procedures the Company aims to develop a disciplined and constructive control environment, in which all the employees understand their roles and obligations.

CREDIT RISK

Credit risk is the risk of financial loss in the event that a client or counter-party of a financial instrument fails to comply with its contractual obligations, which arise principally from the Company’s receivables from the clients and in investment securities.

The Company’s sales policies are subordinated to the credit policies set by the Management and aimed to minimize any problems arising from default by its clients. The client portfolio comprises large operators of fixed and mobile telephone service, cable TV and internet broadband, also corporate clients and internet service providers, as well as the Company’s own majority stockholder. In view of the Company’s change of focus with a view to increasing its market share in the segments of corporate market and internet providers, and the gradual decline of operators participation in the market since 2015, the risk of losses in receipt of credits by the Company has been significantly diluted through the diversification of its portfolio of clients. The effort of sales to the corporate market have been sufficient to offset the losses from cancellation of circuits by operators and significantly reduces market risk.

By market segment: In September 2017, 37% of CemigTelecom’s sales revenue was from the corporate sector, 34% from ISPs, and 29% from telecoms operators – showing the diversification of revenue, which reduces risk of segment concentration. In September 2017 CemigTelecom had a total of 1,023 clients.

397

Cemig Telecomunicações S.A. (‘CemigTelecom’)

In 2015 management began a review of the Company’s policy for granting credit. Even so, the main instrument that ensures minimization of credit risk continues to be the Company’s right to interrupt supply of signal in the event of contractual default – which includes failure to pay.

The Company’s exposure to credit risk is influenced primarily by the individual characteristics of each client. However, Management also takes into consideration the market segment in which clients operate, since this factor can influence credit risk, especially due to the sensitivity of the telecommunication sector to the economic circumstances of the country. The maximum concentration of the Company’s revenue attributable to a single client is approximately 9%.

The level of losses due to lack of payment is insignificant. This is because the Company’s policy establishes constant monitoring of default, in which contractual penalties are applied in the case of arrears in payment, which may, in the extreme cases culminate in discontinuation of services to clients.

The Company makes a provision for impairment that represents its estimate of losses on accounts receivable from clients and other creditors. Sensitivity, and expectation of losses related to significant individual risks, are the only parameters considered in this analysis. This is because the Company’s business is substantially centered on the market for service to large telecommunications operators and the corporate market, and thus historic losses and global/geographical sector analysis do not usually supply a reasonable basis to estimate losses on accounts receivable. The Company has a provision for doubtful receivables in the amount of R$ 1,780, at September 30, 2017 (R$ 1,425 on December 31, 2017), which represents 9.4% (7% in 2016) of the total unpaid amount of accounts receivable 38% (18% in 2016) of past due accounts receivable.

In relation to the risk of losses arising from insolvency of a financial institution at which the Company has deposits, the Cemig Group’s Cash Investment Policy has been in effect since 2004: under it, each institution is analyzed according to criteria of current liquidity, degree of leverage, level of default, profitability, and costs; and also analysis by three financial risk rating agencies. The Company assigns each financial institution a maximum fund allocation limit, which is reviewed for appropriateness both periodically and also in the event of any change in the macroeconomic scenarios of the Brazilian economy.

398

Cemig Telecomunicações S.A. (‘CemigTelecom’)

MARKET RISK

Market risk is the risk of exposure to changes in market prices, such as exchange rate and interest rates, which can have a significant financial impact on the Company. The aim of market risk management is to keep exposures to market risks under control, within acceptable parameters, and at the same time to optimize return.

1.	Currency risk

The Company is not subject to currency risk as it does not have balances with suppliers, or loans, denominated in any currency different from its functional currency.

2.	Interest rate risk

Interest rate risk arises from issuance of non-convertible securities. When these are linked to variable interest rates, they expose the Company to cash-flow risk. Liabilities linked to fixed interest rates expose the Company to risk of fair value associated with the interest rate.

The Company continues to evaluate its exposure to interest rate risk. Various scenarios are simulated, using various refinancing alternatives, renewal of existing positions and acquisition of new financings and alternative hedges.

The Company is exposed to the risk of increase in interest rates, affecting loans and debentures with floating interest rates principally linked to indices referenced to the basic interest rate of the Brazilian economy, in the amount of R$ 117,971 (Note 12).

In relation to the most significant interest rate, the Company estimates that, in a probable scenario, the CDI rate will be close to 8.14% at its future reference date. The Company has made a sensitivity analysis of the effects on its profit arising from increase in these indicators to levels above the ‘probable’ scenario. One of the assumptions of this analysis is that the expected variation in the CDI rate will be similar to the variation in the Selic rate.

Below is a table showing the sensitivity of the financial instruments, prepared in accordance with CVM Instruction 475/2008, to show the balances of the principal financial assets and liabilities, calculated at a projected rate up to the date of final settlement of each contract, assuming a ‘probable’ scenario (Scenario I), a scenario with appreciation of 25% (Scenario II), and one with 50% (Scenario III).

The aim of this sensitivity analysis is to measure the impact of changes in the market variables on the financial instruments referred to, assuming all other market indicators constant. When these amounts are settled they may be different from those shown above, due to the estimates used in the process of preparation. The table below includes the amounts of principal and interest.

399

Cemig Telecomunicações S.A. (‘CemigTelecom’)


	Amount		Risk of increase in domestic interest rates – scenarios (percent p.a.) scenarios (% p.a.)
	Book		Scenario I CDI		Scenario II CDI		Scenario III CDI
				8.14%		10.18%		12.21%
Assets
Cash and cash equivalents
Fixed income funds		1,283		104		131		157
Securities
Fixed income funds		6,313		514		642		771
Liabilities
Debentures		(27,064)		(2,203)		(2,754)		(3,305)
Loans		(92,138)		(7,500)		(9,375)		(11,250)
Net positive (negative) exposure				(9,085)		(11,356)		(13,627)

PRICE RISK

The Company operates in a business segment where prices are freely agreed, and thus maintaining risk mitigation policies of this type can be dispensed with.

Fair value of financial instruments

The balances of financial instruments used by the Company at September 30, 2017 are mostly recorded at accounting cost, which is not significantly different from the corresponding estimated market values. They are classified as follows:

•

Financial assets held to maturity: Cash investments which are expected to be held to maturity are in this category. These are valued at amortized cost using the effective rates method, less any impairments.

•

Financial asset measured at fair value through profit or loss: Fixed income securities held for trading are in this category. These are valued at fair value through profit or loss, as per Level 2.

•

Receivables: Balances receivable from clients are in this category. They are recognized at their nominal realization value, which is similar to fair value.

•

Loans: These are measured at amortized cost, using the effective interest method.

•

Suppliers: These are balances payable to suppliers, and are recognized at nominal settlement value, similar to fair values.

•

400

Cemig Telecomunicações S.A. (‘CemigTelecom’)

•


	Sep. 30, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash and banks		333		—		—		333
Bank certificates of deposit		—		218		—		218
Repos (‘Overnight’)		—		1,065		—		1,065
Securities		—		6,313		—		6,313

Total		333		7,596		—		7,929


	Dec. 30, 2016
	Level 1		Level 2		Level 3		Total
Assets
Cash and banks		261		—		—		261
Bank certificates of deposit		—		105		—		105
Overnight		—		668		—		668
Securities		—		1,938		—		1,938

Total		261		2,711		—		2,972

LIQUIDITY RISK

Liquidity risk is the risk that the Company will have difficulty complying with the obligations associated with its financial liabilities that are met with payment in cash or another financial asset. The Company’s approach in managing liquidity is to guarantee to the maximum possible that there is always sufficient liquidity to comply with its obligations when they become due, and normal conditions and stress conditions, without causing unacceptable losses or a risk to harm the Company’s reputation.

The Company operates with a profitability margin that results in it having a positive operational cash flow. Typically, the Company maintains immediate financial balances that guarantee compliance with commitments for at least 60 days’ operation, including financial obligations and investments. Events with potential impact of extreme circumstances that cannot be reasonably foreseen, such as natural disasters or large-scale economic crisis, are not taken into consideration in this analysis.

401

Cemig Telecomunicações S.A. (‘CemigTelecom’)

Management made an increase in the Company’s capital of R$ 50,657 for settlement of the loan, on October 23, 2017, and believes that it has satisfactory operational cash generation capacity, with adequate conditions to comply with its short-term obligations and continue to make the investments necessary for maintaining its projects.

The Company uses a group of methods, procedures and instruments that are coherent with the complexity of the business, and applied in permanent control of the financial processes, to guarantee appropriate risk management.

Short-term allocations also obey rigid principles established in a Cash Investment Policy, in which funds are invested in exclusive private credit investment funds, and any balance remaining is invested in repos remunerated at the CDI rate, according to orientations decided by the Cemig Group, with a view to a consolidated management of the available funds, which does not depend on any individual analysis by CemigTelecom.

The table below analyzes the Company’s financial assets, by period of maturity, including the installments of principal and future interest to be paid in accordance with contractual clauses.


Non-derivative financial liabilities	Sep. 30, 2017		Contractual cash-flow
Non-derivative financial liabilities	Sep. 30, 2017		1 to 2 years		3 to 5 years
Debentures		26,492		29,466		—
Sonda loans		91,479		51,413		55.663
Suppliers		18,723		18,723		—
Deferred revenues		4, 679		920		3.759
Related parties		6,394		—		6,394

Total		143,088		100,522		65,816

24.

BENEFITS TO EMPLOYEES

The obligations related to employee benefit plans, include private pension plans, a health plan, a dental plan and group life insurance.

Private pension plan – Forluz

The Company is co-sponsor of Fundação Forluminas de Seguridade Social (Forluz), a non-profit legal entity created to provide its participants and their dependents with an income to supplement retirement and pension.

The pension plan, co-sponsored by the Company, called the “Mixed Benefit Private Pension Plan – Plan B”, comprises benefits including: (i) Addition to Retirement Pension for Time of Service, Special reasons or Age – MAT; (ii) Improvement to Pension for Disability – MAI; (iii) Annual Bonus – AA; (iv) Continuous Revenue due to Death—RCM; and Prisoner Family Assistance – AR.

402

Cemig Telecomunicações S.A. (‘CemigTelecom’)

The sponsors’ contribution to this plan is 27.52% for the portion with defined-benefit characteristics, relating to the coverage for death or disability of participants still working, and is used to amortize the obligations defined by an actuarial calculation. The remaining 72.48%, referring to the portion of the plan with defined contribution characteristics, is allocated to the participants’ nominal accounts. These contributions are recognized in the Profit & Loss account in accordance with the payments made by the sponsors under Personnel Expenses.

Medical care – Cemig Saúde

The Company is co-sponsor of the health and dental plans of its employees, which are administered by Cemig Saúde.

The amounts of the contributions to the pension plans, the health plan and the dental plan are determined annually, from the amounts considered sufficient to cover the respective expenses expected in each business year, according to an evaluation made by an independent actuary contracted for the purpose. The three plans are optional to join, for the employee, and the sponsors’ contributions match those made by the participants.

In this Note the Company demonstrates the net actuarial assets/liabilities and the expenses in connection with the Retirement Plan, Health Plan and Dental Plan, in accordance with the terms of CPC 33 Technical Pronouncement (Benefits to employees) and an independent actuarial opinion issued as of December 31, 2016.

This table shows a reconciliation of the actuarial assets and liabilities:


	Forluz Plan B		Cemig Saude Health			Dental			Total
Net actuarial Assets (Liabilities) at December 31, 2016		—		(2,695	)		(106	)		(2,801	)
Estimated expense recognized in the profit and loss account		—		(377	)		(14	)		(391	)

Net actuarial Assets (Liabilities) at September 30, 2017		—		(3,072	)		(120	)		(3,192	)

25.

CONTRACTUAL COMMITMENTS

The Company has contractual obligations and commitments, which principally include amortization of loans, contracts for sharing of infrastructure and rental of dark fiber, as follows:


	2017		2018		2019		2020		2021		After 2021		Total
Sharing of infrastructure		1,198		3,777		1,486		283		212		—		6,956
Dark fiber rental		533		1,196		805		22		22		76		2,654
Loans and financings		51,413		17,981		11,485		—		55,663		—		136,542

Total		53.144		22,954		13,776		305		55,897		75		146,152

403

Cemig Telecomunicações S.A. (‘CemigTelecom’)

26.

INSURANCE

The Company has reassessed the risks involving its telecommunications assets, and the probability of interruptions of its operations in the event of any adverse concurrences. This study shows that the probability of simultaneous occurrences of claimed events on a large-scale such as might represent significant financial and operational losses to the Company is significantly remote, mainly due to the diversity of the geographical distribution of the assets exposed to risks. For this reason the Company’s management has opted, at present, not to contract insurance cover for claim events involving its Operations Center and Headends, and also events that could affect its network equipment, cables and other goods of its fixed assets. Since its operation started, the Company has never experienced significant losses as a function of the risks mentioned above. The assumptions for evaluation of risks adopted by the Company, due to their nature, are not part of the scope of review of the Quarterly Information (ITR). Consequently they have not been reviewed by the external auditors.

27.

SUBSEQUENT EVENTS

On November 8, 2017, as provided in the budgets of the stockholder, the Company made a capital increase in the amount of R$ 50,657. The transaction was approved by an Extraordinary General Meeting of Stockholders held on that date and involved issuance of 50,657,437 (fifty million, six hundred fifty seven thousand, four hundred thirty seven) new nominal common shares without par value. The proceeds were entirely used for settlement of Loan I with the creditor Sonda Procwork.

404

NOTICE TO STOCKHOLDERS DATED AS OF JANUARY 17, 2018: CANCELATION OF THE CONVOCATION TO THE EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS SCHEDULED FOR JANUARY 24, 2018

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

CNPJ 17.155.730/0001-64 – NIRE 31300040127

EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS

CANCELLATION OF CONVOCATION

JANUARY 24, 2018

Stockholders are hereby advised that:

The Extraordinary General Meeting of Stockholders called for 3 p.m. on January 24, 2018 at the company’s head office has been canceled.

The agenda of the meeting was: to vote on (1) an authorization for certain limits in the by-laws to be exceeded; and (2) an extension of the current term of office of the members of the Board of Directors.

Belo Horizonte, January 17, 2018.

José Afonso Bicalho Beltrão da Silva

Chief Finance and Investor Relations Officer

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

406

SUMMARY OF THE MINUTES OF THE 721TH MEETING OF THE BOARD OF DIRECTORS HELD ON JANUARY 17, 2018

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

BOARD OF DIRECTORS

Meeting of January 17, 2018

SUMMARY OF MAIN RESOLUTIONS

At its 721^st meeting, held on January 17, 2018, the Board of Directors of Cemig (Companhia Energética de Minas Gerais) resolved the following:

Cancellation of the Convocation to an Extraordinary General Meeting of Stockholders scheduled for January 24, 2018 at 3 p.m. at the Company’s head office, Avenida Barbacena 1200, 21^st floor, Belo Horizonte, Minas Gerais, Brazil.

The agenda of the meeting was:

(1) Authorization for certain limits in the by-laws to be exceeded; and

(2) Extension of the current term of office of the members of the Board of Directors.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

408

MARKET ANNOUNCEMENT DATED AS OF JANUARY 17, 2018: CANCELATION OF THE EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS SCHEDULED FOR JANUARY 24, 2018

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MARKET ANNOUNCEMENT

Extraordinary General Meeting

of January 24, 2018 canceled

Cemig (Companhia Energética de Minas Gerais – listed in São Paulo, New York and Madrid), in accordance with CVM Instruction 358 of January 3, 2002 as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

In the meeting held on the date hereof, the Board of Directors of Cemig decided to cancel the Extraordinary General Meeting of Stockholders scheduled for January 24, 2018.

The resolution of the Board of Directors for the cancellation of the Extraordinary General Meeting, pursuant to the terms of CVM Instruction No. 372 of 2002, results from the CVM Official Letter 11/2018/CVM/SEP/GEA-3, of January 16, 2018, which nformed Cemig about a request for the interruption of the term for calling the Extraordinary General Meeting of Stockholders, filed by a minority stockholder based on Article 124, §5º, II of Law 6404/1976.

Belo Horizonte, January 17, 2018

Adézio de Almeida Lima

Chief Finance and Investor Relations Officer

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

410

MARKET ANNOUNCEMENT DATED AS OF JANUARY 24, 2018: BEGIN OF THE 30-DAY EXTENSION TO THE EXCLUSIVITY PERIOD GRANTED TO BROOKFIELD ENERGIA RENOVÁVEL S.A. TO CONTRIBUTE TO THE CAPITAL STOCK OF RENOVA ENERGIA S.A.

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MARKET ANNOUNCEMENT

BEGIN OF THE 30-DAY EXTENSION TO THE EXCLUSIVITY PERIOD GRANTED TO BROOKFIELD ENERGIA RENOVÁVEL S.A.

Today Cemig’s affiliated company Renova Energia S.A. (“Renova”) released the following Market Announcement:

“Under the scope of the Material Announcement dated as of November 24, 2017, Renova Energia S.A. (RNEW11) (“Renova”), in accordance with CVM Instruction 358/2002 as amended, hereby informs to its stockholders and the market in general the following:

Today begins the 30-day extension to the exclusivity period granted to Brookfield Energia Renovável S.A. to make the capital contribution to the capital stock of Renova as set forth in the binding offer approved by the Board of Directors of Renova.

Renova reaffirm its commitment to keep stockholders and the market in general fully and timely informed in accordance with the applicable legislation.”

Belo Horizonte, January 24, 2018

Adézio de Almeida Lima

Chief Finance and Investor Relations Office

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

412

SUMMARY OF THE MINUTES OF THE 722TH MEETING OF THE BOARD OF DIRECTORS HELD ON FEBRUARY 8, 2018

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

BOARD OF DIRECTORS

Meeting of February 8, 2018

SUMMARY OF MAIN RESOLUTIONS

At its 722^nd meeting, held on February 8, 2018, the Board of Directors of Cemig (Companhia Energética de Minas Gerais) decided the following:

Advance for Future Capital Increase in Cemig D.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

414

MARKET ANNOUNCEMENT DATED AS OF FEBRUARY 16, 2018: REPLY TO CVM INQUIRY LETTER 65/2018-CVM/SEP/GEA-1 OF FEBRUARY 15, 2018

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MARKET ANNOUNCEMENT

Reply to CVM Inquiry Letter 65/2018-CVM/SEP/GEA-1, of February 15, 2018

Question made by the Brazilian Securities Commission (CVM)

Rio de Janeiro, February 15, 2018.

To Mr. Adézio de Almeida Lima

Investor Relations Director

Companhia Energética de Minas Gerais – CEMIG

Av. Barbacena 1200 – 5th floor, B1 Wing, Santo Agostinho,

30190131 Belo Horizonte, MG

Fax: (31) 35065026

Email: ri@cemig.com.br

cc: emissores@bvmf.com.br

Subject: Request for information on news report.

Dear Sir,

1.	We refer to the news report published in the newspaper Valor Econômico, in the section Empresas, under the headline:

“Sale of assets of Eletrobras, and losses, affect the process of Light”

which contains the following statements:

“

While negotiating to try to improve the offers already received – from Equatorial and from Enel – Cemig also does not rule out reopening the data room (the computerized ‘information room’), in the expectation that new interested parties may emerge, according to a source close to the subject. In this event, the negotiations would re-start from zero.

According to another source, binding proposals are likely to be received in the second quarter of this year, when the process of due diligence (operational and financial audit) on the company that is offered for sale will take place. Until the end of last year, Cemig expected to complete the transaction in the first half of this year, which now seems increasingly distant.

The offers received for the assets so far do not totally meet Cemig’s financial needs, Valor has ascertained. Equatorial made a proposal for the whole equity stake in Light owned by Cemig, but for part of the payment to be made in shares. With the stock price of Equatorial rising 12% in the last three months, and the stock price of Light falling 9% in the same period, the transaction becomes more attractive for Equatorial. As a result Equatorial – controlling stockholder of Celpa and Cemar – would use fewer shares to complete the purchase of Light.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

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However, if it wants to do this, it will need to convince Cemig to negotiate the terms, and accept at least part of the payment in shares.

At the same time, Light is not the only target of Equatorial – which is seen as one of the leading candidates to buy the distributors of Eletrobras. Equatorial has some successful experiences in the recovery of Cemar, of the state of Maranhão, and Celpa, of the state of Pará – both companies that had been previously financially in tatters.

Cemig’s initial plan, however, is to receive only cash. Since it has now succeeded in refinancing a large part of its debt, extending maturities, the sale of Light has become less ‘urgent’. Thus, it is trying to improve the offers received.

Enel of Italy, on the other hand, is interested only in Light’s distribution assets, and thus has an even longer path ahead even though it may be considered to be one of the strongest interested parties. Its proposal would be for an amount implying R$ 17 per share, a source says.

This offer provides more attractive terms than the one made by Equatorial, but it is very unlikely that Cemig would sell only the distribution segment. To do this, the transaction would need to include a split of Light – an operation that is considered to be very complex. Not only would this need to be approved by a stockholders’ meeting, but the company would have to renegotiate covenants with creditors, which might result in early maturity of debts.

Cemig intends to use the proceeds from the sale of Light to pay the put option (option to sell their equity interest in Light to Cemig) that is still held by the banks that are its partners in Light – Santander, Banco do Brasil and Votorantim – which represents an amount of approximately R$ 700 million. Part of the option, which was to become due in November 2017, was extended for one year. If it uses the proceeds from the sale of Light to pay the banks with dividends, Cemig would have a tax advantage. This would only be possible if Light is sold for cash.”

2.	We request your statement in relation to the veracity of this news report, and if it is true, that you explain the reasons why you believe that this is not a fact of material importance, and also comment on any other information considered to be important on the subject.

We also remind you of the obligation in the sole sub-paragraph of Article 4 of CVM Instruction 358/02, to question managers and controlling stockholders of the Company, and all other persons with access to material events or facts, to ascertain whether they had knowledge of information that should be disclosed to the market.

4.	Your statement should be given through the Empresas.NET system, in the category: Market Announcement, under the sub-category: Responses to consultations by CVM/B3; subject heading: Media News Reports, and should include a transcription of this letter.

Be advised that, by order of our Company Relations Supervision Management, using its legal powers under Sub-item II of Article 9 of Law 6385/1976 and CVM Instruction 452/07, a coercive fine of R$ 1,000 (one thousand Reais) is applicable, without prejudice to other administrative sanctions, for non-compliance, by February 16, 2018, with the requirement contained in this Official Letter, which is sent exclusively by e-mail, notwithstanding the provisions of §1 of Article 6 of CVM Instruction 358/02.

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

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Reply by CEMIG

Dear Ms. Nilza Maria Silva de Oliveira,

In reply to Official Letter 65/2018-CVM/SEP/GEA-1, of February 15, 2018, we advise you that, through its Material Announcement of June 1, 2017, subsequently updated on July 7, 2017, Cemig has disclosed and described its disinvestment program. Light, among other assets, is included in the said program.

Additionally, a Material Announcement was published on November 13, 2017, in which it was emphasized that:

“

Cemig has received non-binding proposals related to the process of disinvestment, as a result of the first phase of access to the documents and information contained in the Data Room of the Light group.

These proposals are undergoing internal analysis for possible selection for inclusion in the next phase.

If any selection is made, conclusion of the process of disinvestment will also be subject to a phase of due diligence and technical visits, submission of binding proposals, negotiations and final approvals for signature of definitive agreements for the transaction referred to, and also approvals of the conditions precedent that are usual in this type of transaction.”

We inform you that, up to the present moment, the process of disposal of the equity interest in Light continues to be under internal analysis by the Company.

Cemig takes this opportunity of reiterating its commitment to opportune and timely disclosure of all and any facts that are of interest to its stockholders, in accordance with Article 2 of CVM Instruction 358/2002.

Belo Horizonte, February 16, 2018

José Maria Rabelo

Acting Chief Finance and Investor Relations Officer

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

418

MARKET ANNOUNCEMENT DATED AS OF FEBRUARY 19, 2018: RESIGNATION OF THE CEO OF RENOVA

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COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

LISTED COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127

MATERIAL ANNOUNCEMENT

Resignation of the CEO of Renova

Cemig (Companhia Energética de Minas Gerais), a listed company with securities traded on the stock exchanges of São Paulo, New York and Madrid, as per CVM Instruction 358 of January 3, 2002, as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the market as follows:

Today Cemig’s affiliated company Renova Energia S.A. (‘Renova’) published the following Material Announcement:

“Renova Energia S.A. (RNEW11) (‘Renova’), in accordance with CVM Instruction 358/2002 as amended, hereby informs its stockholders and the market as follows:

On today’s date Mr. Carlos Figueiredo Santos delivered to the Chairman of the Board of Directors his resignation from the position of Chief Executive Officer of Renova.

He will remain in his position until February 28, 2018. If a new officer to replace him is not elected by that date, the present Chief Financial Officer will assume the position as interim Chief Executive Officer, as per the terms of the by-laws and the Stockholders’ Agreement signed on December 19, 2014.”

Belo Horizonte, February 19, 2018

José Maria Rabelo

Acting Chief Finance and Investor Relations Officer

Av. Barbacena 1200

Santo Agostinho

30190-131 Belo Horizonte, MG

Brazil

Tel.: +55 31 3506-5024

Fax +55 31 3506-5025

This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.

420