CESP Companhia Energetica de São Paulo : ITR/DFP 2Q21

CONDENSED PARENT COMPANY AND CONSOLIDATED INTERIM FINANCIAL STATEMENTS

AT JUNE 30, 2021

CESP621.IMC.DOCX

(A free translation of the original in Portuguese)

Contents
Condensed parent company and consolidated interim financial statements
Performance reviews……………………………………………………………………………………………………………3
Condensed interim statement of income ......................................................................................................................	8
Condensed interim statement of comprehensive loss..................................................................................................	9
Condensed interim statement of cash flows ...............................................................................................................	10
Condensed interim balance sheet ..............................................................................................................................	11
Condensed interim statement of changes in equity....................................................................................................	13
Condensed interim statement of value added ............................................................................................................	14
Notes to the condensed parent company and consolidated interim financial statements
1 General information ..........................................................................................................................................	15

• Presentation of the parent company and consolidated financial statements and summary of significant

	accounting policies ...........................................................................................................................................	17
3	Net revenue ......................................................................................................................................................	19
4	Costs and expenses .........................................................................................................................................	20
5	Financial result .................................................................................................................................................	23
6	Cash and cash equivalents ..............................................................................................................................	24
7	Accounts receivable .........................................................................................................................................	24
8	Other assets .....................................................................................................................................................	25
9	Judicial deposits and security deposits ............................................................................................................	25
10	Deferred income tax and social contribution ....................................................................................................	25
11	Asset subject to indemnification .......................................................................................................................	28
12	Investments ......................................................................................................................................................	29
13	Asset.................................................................................................................................................................	30
14	Intangible ..........................................................................................................................................................	31
15	Suppliers...........................................................................................................................................................	31
16	Debentures .......................................................................................................................................................	32
17	Sectorial charges ..............................................................................................................................................	33
18	UBP - Use of the public good ...........................................................................................................................	33
19	Social and environmental obligations ...............................................................................................................	33
20	Energy futures contracts...................................................................................................................................	34
21	Post-employment benefits ................................................................................................................................	34
22	Provision for contingencies...............................................................................................................................	35
23	Other liabilities ..................................................................................................................................................	36
24	Transactions with related parties......................................................................................................................	37
25	Equity................................................................................................................................................................	39
26	Financial instruments and risk management....................................................................................................	41
26.1	Financial leverage ratio and maturity of liabilities.............................................................................................	41
27	Insurance (not reviewed) ..................................................................................................................................	46
28	Subsequent event.............................................................................................................................................	46

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Performance reviews

Periods ended June 30

(A free translation of the original in Portuguese)

FINANCIAL PERFORMANCE

NET REVENUE

Net operating revenue in 2Q21 amounted to BRL525 million, an increase of BRL40 million (+8%) from BRL486 million in 2Q20, explained mainly by the following:

• Trading Operations: Increase of BRL53 million, due to the higher volume and average price of the trading operations by CESP Comercializadora, whose revenue in 2Q21 stood at BRL80 million, compared to BRL27 million in 2Q20.
• Derivative financial instruments1: Reduction in the expenses by BRL9 million due to the Brazilian real appreciation against the U.S. dollar between periods, with a total expense of BRL20 million in 2Q21 vs. BRL29 million in 2Q20.
• Regulated Market - Energy Auction: Increase of BRL4 million due to contractual price adjustments, with revenue of BRL125 million in 2Q21 vs. BRL121 million in 2Q20.
• Short-termenergy: Increase of BRL3 million due to higher energy sales in this market in 2Q21 compared to 2Q20, for total revenue of BRL9 million in 2Q21 vs. BRL6 million in 2Q20.
  These effects were partially offset by:
• Free Market - Bilateral Agreements: Reduction of BRL18 million explained by the by the non- recurring effect of the balance settlement with the CCEE in 2Q20 (R$19 million), partially offset by the increase in volume and price of energy sales contracts.
• Deductions: Expense increase of BRL12 million, mainly due to the higher PIS and COFINS taxes on operating income due to the growth in sales by the trading company, for a total deduction of BRL71 million in 2Q21 vs. BRL59 million in 2Q20.

• Derivative financial instruments used by the Company to hedge against exchange exposure of agreements in the free market, indexed to the U.S. dollar (BRL5.4760 on June 30, 2020 vs. BRL5.0022 on June 30, 2021). Source: Central Bank of Brazil.

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Performance reviews

Periods ended June 30

(A free translation of the original in Portuguese)

OPERATING COSTS & EXPENSES

Operating costs and expenses amounted to BRL393 million in 2Q21, compared to BRL188 million in 2Q20, increasing BRL205 million between periods, mainly due to:

• Reversal of provision for litigation: Negative impact of BRL126 million, due to reversal of the provision in the amount of BRL134 million in 2Q20 vs. BRL8 million in 2Q21, with no cash effect.
• Energy purchase costs: BRL197 million in 2Q21 vs. BRL137 million in 2Q20, an increase of BRL60 million from 2Q20, mainly due to:
• • Increase of BRL56 million in purchases for trading operations in 2Q21 (BRL72 million) vs. 2Q20, in line with the Company's strategy; and
  • Higher price of energy purchased (free and spot markets) to equalize the energy balance, resulting in an impact of BRL2 million (BRL119 million in 2Q21 vs. BRL117 million in 2Q20) in the period. In 2Q21, 297 MW average were purchased, 19% less than in 2Q20 (367 MW average), with a 20% increase in average prices (BRL193/MWh in 2Q21 vs. BRL161/MWh in 2Q20).
• Future Energy Contracts: Expense of BRL34 million in 2Q21 vs. BRL3 million in 2Q20, an increase of BRL31 million, with a non-cash effect, mainly due to market volatility given the challenging hydrological scenario.
• PMSO:

1. Personnel, Materials and Third-party Services (PMS): Increase of BRL5 million between
   periods (BRL33 million in 2Q21 vs. BRL28 million in 2Q20), explained mainly by: (i) increase of approx. BRL3 million in Personnel expenses, due to inflation adjustment in post-employment benefits, increase in labor indemnity and collective bargaining

provision and (ii) increase in expenses with maintenance and upkeep of assets as a result of scheduled maintenance carried out at our plants that did not take place in the same period of the previous year.

1. Other expenses (O): Increase of BRL5 million due to the reversal of expense in the total amount of BRL5 million in 2Q20, which did not recur in 2Q21. The reversal is explained by the write-off of the quota provision of Global Reversion Reserve2 (RGR) in 2020.

These effects were partially offset by:

• Write-offof judicial deposits: In 2Q20, BRL24 million was recognized from the write-off of judicial deposits, which did not recur in 2Q21.
• Other non-casheffects3: These effects amounted to BRL97 million in 2Q21 vs. BRL100 million in 2Q20, representing a reduction of BRL3 million in the expense, mainly due to the effective reduction in depreciation and amortization expenses between periods.

Excluding all non-recurring and non-cash effects, operating costs and expenses in 2Q21 amounted to BRL270 million, increasing 38% from 2Q20 (BRL196 million), mainly due to the impact detailed above in the line energy purchases.

2 The RGR is a charge of the Brazilian electric sector paid monthly by the energy generation, transmission and distribution concessionaires. Created in 1957, as of Decree No. 41.019, the Global Reversion Reserve Account finances improvement and expansion projects for companies in the energy sector.

• Other non-cash items include depreciation/amortization and provisions for PIS/COFINS for judicial deposits. 4 of 49

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Performance reviews

Periods ended June 30

(A free translation of the original in Portuguese)

EBITDA

	(BRL thousand)				2Q21			2Q20				∆		1H21	1H20	∆
	Net Income	(18,129)		137,798				n.m.	97,669	191,611	-49%
	Net IR/CSLL4			(7,164)			65,800				n.m.		56,803	111,574	-49%
	Financial Result	157,576		94,326		67%		325,439	203,536	60%
	= EBIT			132,283			297,924			-56%		479,911 506,721	-5%
	Depreciation & Amortization	97,371		99,876		-3%		195,226	200,271	-3%
	EBITDA			229,654			397,800			-42%		675,137 706,992	-5%
	Reversal of provision for litigation			(7,937)			(134,167)			-94%		(210,809)	(107,188)	97%
	Write-off of judicial deposits			-			23,643				n.m.		39,781	23,643	68%
	Adjusted EBITDA			221,717			287,276			-23%		504,109 623,447 -19%
	Adjusted EBITDA margin			42%			59%				-17 p.p.		47%	66%	-19 p.p.

Adjusted EBITDA amounted to BRL222 million in 2Q21, with margin of 42%, down 23% from the same period in 2020 (BRL287 million). The variations in adjusted EBITDA are mainly explained by: (i) reversal of the provision for litigation in the amount of BRL134 million in 2Q21 vs. BRL8 million in 2Q21; (ii) the hydro crises effect on energy price and volume, impacting the energy margin in R$24 million; and (iii) the negative effect of BRL31 million from the mark-to-market adjustment of future energy contracts for trading (BRL-34 million in 2Q21 vs. BRL-3 million in 2Q20).

• 2Q21: Net IR and CSLL resulting from BRL17 million of current tax and BRL25 million of deferred tax, of which BRL16 million is cash outflow.

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