CEED4 Companhia Estadual de Distribuição de Energia Elétrica - CEEE-D

Companhia Estadual de Distribuição de Energia Elétrica – CEEE-D is a public electricity distribution utility operating exclusively in the State of Rio Grande do Sul, with shares traded on B3 under the tickers CEED3 and CEED4. The company was created in 2006 following the partial spin-off of the former Companhia Estadual de Energia Elétrica (CEEE), in a context of adaptation to the new Brazilian power sector model defined by Federal Law No. 10,848/2004, which required the separation of generation, transmission and distribution activities. Under the same restructuring, CEEE was renamed Companhia Estadual de Geração e Transmissão de Energia Elétrica – CEEE-GT, while the newly created CEEE-D assumed the distribution concession. Control came to be exercised by Companhia Estadual de Energia Elétrica Participações – CEEE-Par, a holding company created by the State of Rio Grande do Sul in October 2006 to consolidate its shareholdings in the power group.

The corporate history of CEEE-D was marked by a strong influence of the state government until the privatization process. In July 2019, State Law No. 15,298 authorized the privatization of the distributor, and in August of the same year a contract was signed with the Brazilian Development Bank (BNDES) to structure the sale of control. On March 31, 2021, B3 hosted the auction for the sale of the State’s shares in CEEE-D, in which Equatorial Participações e Investimentos S.A. emerged as the winner. With the settlement of the auction in July 2021, Equatorial acquired approximately 95.12% of CEEE-D’s total share capital, becoming its direct controlling shareholder and adding the distributor to the portfolio of Grupo Equatorial Energia, which operates in several regional distribution markets across the country.

CEEE-D’s business model is entirely based on the exploitation of the electricity distribution concession, formalized under Concession Agreement No. 81/1999 entered into with the Brazilian Electricity Regulatory Agency (ANEEL), which represents the Federal Government as granting authority. The company does not generate electricity; its core activity consists of purchasing power in regulated environments, using the transmission grid and operating the distribution network to the end consumer in its concession area. In 2021, through the Fifth Amendment to the Concession Agreement, the term of the concession was extended for another 30 years, ensuring the company the right to provide the public distribution service until 2045, with the possibility of a further extension at ANEEL’s discretion. The agreement also establishes obligations related to quality, continuity, safety and tariff affordability, and provides for penalties in the event of noncompliance.

From an operational standpoint, CEEE-D operates in a single segment: electricity distribution, which accounts for 100% of net operating revenue, totaling approximately R$ 5.34 billion in fiscal year 2024. The company serves 1.958 million consumer units in 72 municipalities in Rio Grande do Sul, within a concession area of 73,249 km² in the south-southeast region of the state, representing about 1% of Brazil’s territory, 2.1% of total customers and 1.7% of the volume of electricity distributed in the country, according to ANEEL data as of December 2024. The power system operated by the company comprises high-, medium- and low-voltage networks, predominantly overhead, with some underground networks in specific areas, forming an extensive and branched infrastructure to connect residential, commercial, industrial and public service consumers.

CEEE-D’s power supply chain reflects the regulatory design of the Brazilian electricity sector. The distributor acquires virtually all of the required electricity through regulated auctions promoted by ANEEL, via Regulated Environment Power Purchase Agreements (CCEAR), supplemented by Itaipu quotas, Proinfa contracts, supply from Eletronuclear, quotas of physical guarantee from hydropower generators and purchases in the short-term market. As of December 31, 2024, 58% of the contracted electricity volume came from CCEAR and 42% from structural programs and contracts such as PROINFA, Eletronuclear, Itaipu and quotas. The supply mix consisted of 46.6% hydropower, 26.5% power from fossil fuels and 26.9% from alternative sources, including wind and solar. The company had 446 CCEAR contracts with 344 suppliers, evidencing a broad and diversified regulated supply base.

In market terms, CEEE-D operates as a natural monopoly in electricity distribution within its concession area, under strict economic and technical regulation by ANEEL and the State Agency for the Regulation of Delegated Public Services of Rio Grande do Sul (AGERGS). Distribution tariffs follow a "price-cap" model, under which ANEEL defines the maximum level to be applied, with a tariff structure divided into Portion A, which covers generation, transmission and sector charges, and Portion B, which includes operating costs under the concessionaire’s management. Tariffs are periodically adjusted and reviewed, with mechanisms designed to preserve the economic and financial balance of the concession, taking into account inflation (IGP-M or IPCA), the X efficiency factor and the recomposition of regulatory costs. This structure, combined with the obligation to provide adequate service, strongly shapes the company’s revenue formation and profitability.

CEEE-D’s consumption base is dominated by the captive residential and commercial markets, with a smaller share of the industrial segment. In 2024, total electricity delivered to captive and free markets reached 8,791 GWh, a 3.0% increase compared with 2023. The captive market accounted for 6,613 GWh, up 0.6% year-on-year. The residential class, responsible for 56.9% of captive consumption, posted 5.3% growth in 2024, while captive industrial consumption, with a 2.8% share of the captive market, fell 23.2%, reflecting, among other factors, the migration of consumers to the free market and industry-specific economic dynamics. Captive commercial consumption, which represents 22.1% of the captive market, declined 5.1% in the period, although total commercial consumption, combining captive and free markets, grew 2.1% versus 2023. The customer base is highly fragmented, with no significant concentration: no individual customer accounted for more than 10% of net revenue in 2024.

Companhia Estadual de Distribuição de Energia Elétrica – CEEE-D operates fully under the legal framework governing public service concessions in Brazil, particularly the Federal Constitution, the General Concessions Law and specific electricity sector legislation. The granting authority, through ANEEL, holds prerogatives such as oversight, imposition of sanctions, intervention and, in specific situations, expropriation (encampação) or forfeiture (caducidade), always in compliance with rules for indemnifying investments in reversible assets that have not yet been amortized. Changes in corporate control of distribution concessionaires require ANEEL’s prior consent, as occurred in the process of transferring control to Equatorial Participações in 2021. The concessionaire is also strictly liable for damages arising from the provision of services, may use public assets and request the expropriation of areas needed for grid expansion, assuming the related indemnities.

In the environmental, social and governance (ESG) field, CEEE-D is part of Grupo Equatorial and follows its Sustainability Policy, which seeks to incorporate social, environmental and governance criteria into business management. The group publishes an annual Sustainability Report, prepared based on the GRI and SASB methodologies and on sector indicators reported to ANEEL, and subject to independent assurance, which includes CEEE-D’s data. The company has been a signatory to the UN Global Compact since 2021 and highlights as its priority Sustainable Development Goals quality education, affordable and clean energy, and climate action. In line with these guidelines, the company carried out a greenhouse gas emissions inventory covering scopes 1, 2 and 3, with independent audit, and Grupo Equatorial is conducting an assessment to comply with IFRS S1 and S2 standards, which are expected to serve as a basis for future alignment with TCFD recommendations, enhancing transparency on climate-related risks and opportunities associated with power distribution.

As an issuer with CEED3 and CEED4 shares listed on B3, CEEE-D is part of the public utilities segment of the Brazilian capital market, providing specific exposure to the distribution link in the electricity value chain. Its economic and financial performance is driven by long-term concession contracts, regulated tariff rules, quality targets, ongoing grid investment and the governance and transparency discipline required both by electricity sector regulators and by the equity market environment in which it operates.