Information and auditing

 

INFORMATION AND AUDITING
CAPITAL STRUCTURE

The share capital of EDPR is, as from the initial public offering (IPO) in June 2008, EUR 4,361,540,810, represented by 872,308,162 shares with a face value of EUR 5 each. All shares integrate a single class and series and are fully issued and paid.

The shares representing 100% of the EDPR share capital were admitted to trading in the official stock exchange NYSE Euronext Lisbon on June 4th, 2008.

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QUALIFIED HOLDINGS

Qualifying holdings in EDPR are subject to the Spanish Law, which regulates the criteria and thresholds of the shareholders’ holdings.

As of Dec. 31st , 2012, no qualifying holdings in EDPR were identified with the exception of EDP – Energias de Portugal, S.A.

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The free-float level is unchanged since the IPO at 22.5%. By Dec.
31st, 2012, EDPR’s free float comprised about 100,000 institutional and private investors spread across more than 45 different countries with special focus on Portugal, United States and United Kingdom. Rest of Europe more representative countries are Norway, France and Switzerland.

Institutional Investors represented 80% of the EDPR’s freefloat, while private investors, mostly Portuguese, stand for the remaining 20%.

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SHAREHOLDERS WITH SPECIAL RIGHTS

There are no holders of special rights.

RESTRICTIONS TO SHARE TRANSFERABILITY

Pursuant to the Article 8 of the Company’s Articles of Association there are no restrictions on the transfer of EDPR shares.

SHAREHOLDERS AGREEMENT

As far as the EDPR Board of Directors is aware there are currently no shareholders’ agreements that might lead to restrictions in the transfer of securities or voting rights.

RULE S APPLI CABLE TO THE AMENDMENT OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

The Amendment of the Articles of Association of the company is of the responsibility of the General Shareholders’ Meeting who has the power to decide on this matter. According to Article 17 of the company’s Articles of Association (“Constitution of the General Shareholders’ Meeting, Adoption of resolutions”), to validly approve any necessary amendment to the Articles of Association, the Ordinary or Extraordinary Shareholders’ Meeting will need:

• On the first call, that the Shareholders either present or represented by proxy, represent at least fifty percent (50%) subscribed voting capital.

• On the second call, that the Shareholders either present or represented by proxy, represent at least twenty five percent (25%) of the subscribed voting capital.

In the event the shareholders attending represent less than fifty percent (50%) of the subscribed voting capital, the resolutions referred to in the present paragraph will only be validly adopted with the favourable vote of two-thirds (2/3) of the present or represented capital in the General Shareholders’ Meeting.

CONTROL MECHANISMS PLANNED FOR ANY EMPLOYEE CAPITAL HOLDING SYSTEM TO THE EXTENT THAT VOTING RIG HTS ARE NOT EXE RCISED BY SUCH EMPLOYEES

There is no system specifically providing for any share capital holding by employees in the Company as a result of which the relevant voting rights are not directly exercised by such employees.

PERFORMANCE OF EDPR SHARE PRICE

EDPR had by December 31st, 2012 a market capitalization of EUR 3.5 billion, down 15.5% from the EUR 4.1 billion of Dec. 31st, 2011, equivalent to EUR 3.99 per share. The EDPR share price underperformed the NYSE Euronext Lisbon benchmark index – PSI20 (3%) and the Dow Jones Eurostoxx Utilities – SX6E (-9%). The year’s low was recorded on July 24th (EUR 2.31) and the year’s high was reached on January 6th (EUR 4.86).

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In 2012 there were 207 million EDPR shares traded, representing an 11% year-on-year decrease on the liquidity and corresponding to a turnover of approximately EUR 0.7 billion. On average, 0.8 million shares were traded per day. The total number of shares traded represented 24% of the total shares admitted to trading and to 106% of the company’s free float.

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The graph below shows the evolution in EDPR share price over the year and the announcements and relevant events that may have impacted them.

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DIVIDEND POLICY

The distribution of dividends must be proposed by EDPR ’s Board of Directors and authorized by a resolution approved in the Company’s Shareholders Meeting. In keeping with the legal provisions in force, namely the Spanish Companies Law, the EDPR Articles of Association require that profits for a business year consider:

• The amount required to serve legal reserves;
• The amount agreed by the same General Shareholders’ Meeting to allocate to dividends of the outstanding shares;
• The amount agreed by the General Shareholders’ Meeting to constitute or increase reserve funds or free reserves;
• The remaining amount shall be booked as surplus.

The expected dividend policy of EDPR, as announced in the EDPR Investor Day of May 22nd, 2012, is to propose dividend distribution each year from 2013-15, representing 25% to 35% of EDPR’s distributable profit. Accordingly, for 2013, EDPR’s Board of Directors proposes a dividend of EUR 34,892,326.48, or €0.04 per share, which corresponds to a pay-out ratio of 28% on the consolidated results of EDPR net profit of 2012.

SHARE GRAN TS OR STOCK OPTION PLANS

EDPR currently has no share grant or stock option plans.

Therefore, this chapter it is not applicable.

TRANSACTIONS BE TWEEN THE COMPANY AND MEMBERS OF THE COMPANY’S GOVERNING BODIES OR GROUP COMPANIES

During 2012, EDPR has not signed any contracts with the members of its corporate bodies or with holders of qualifying holdings, excluding EDP, as mentioned below.

Regarding related-party transactions, EDPR and/or its subsidiaries have signed the contracts detailed below with EDP – Energias de Portugal, S.A. (hereinafter, EDP) or other members of its group not belonging to the EDPR subgroup. The contracts signed between EDPR and its related parties are analyzed by the Related-Party Transactions Committee according to its competences, as mentioned on chapter II.3 C) of the report.

FRAMEWORK AGREEMENT

The framework agreement was signed by EDP and EDPR on May 7th, 2008 and came into effect when the latter was admitted to trading. The purpose of the framework agreement is to set out the principles and rules governing the legal and business relations existing when it came into effect and those entered into subsequently.

The framework agreement establishes that neither EDP nor the EDP Group companies other than EDPR and its subsidiaries can engage in activities in the field of renewable energies without the consent of EDPR. EDPR shall have worldwide exclusivity,with the exception of Brazil, where it shall engage its activitiesthrough a joint venture with EDP – Energias do Brasil, S.A., for the development, construction, operation, and maintenance of facilities or activities related to wind, solar, wave and/or tidal power, and other renewable energy generation technologies that may be developed in the future. Nonetheless, the agreement excludes technologies being developed in hydroelectric power, biomass, cogeneration, and waste in Portugal and Spain.

It lays down the obligation to provide EDP with any information that it may request from EDPR to fulfill its legal obligations and prepare the EDP Group’s consolidated accounts.

The framework agreement shall remain in effect for as long as EDP directly or indirectly owns more than 50% of the share capital of EDPR or appoints more than 50% of its Directors.

EXECUTIVE MANAGEMENT SERVICES AGREEMENT

On November 4th, 2008 EDP and EDPR signed an Executive Management Services Agreement that was renewed on May 4th, 2011 and effective from March 18th, 2011 and renewed again on May 10th, 2012.

Through this contract, EDP provides management services to EDP Renováveis, including matters related to the day-to-day running of the Company. Under this agreement EDP nominates four people from EDP to be part of EDPR’s Management: i) two Executive Managers which are members of the EDPR Executive Committee and (ii) two Non-Executive Managers, for which EDP Renováveis pays EDP an amount defined by the Related Party Committee, and approved by the Board of Directors and the Shareholders Meeting.

Under this contract, EDPR is due to pay an amount of EUR 1,295,000.00, corresponding to the fixed and variable remuneration, for the management services rendered in 2012.

The term of the contract is on June 21st 2014.

FINANCE AGREEMENTS AND GUARANTEES

The finance agreements between EDP Group companies and EDPR Group companies were established under the above described Framework Agreement and currently include the following:

LOAN AGREEMENTS

EDPR (as the borrower) has loan agreements with EDP Finance BV (as the lender), a company 100% owned by EDP – Energias de Portugal, S.A.. Such loan agreements can be established both in EUR and USD, usually have a 10-year tenor and are remunerated at rates set at an arm’s length basis. As at December 31st, 2012, such loan agreements totalled EUR 1,451,042,386 and USD 1,986,641,541.

COUNTER-GUARANTEE AGREEMENT

A counter-guarantee agreement was signed, under which EDP or EDP Energias de Portugal Sociedade Anónima, sucursal en España (hereinafter guarantor or EDP Sucursal) undertakes on behalf of EDPR, EDP Renewables Europe SLU (hereinafter EDPR EU), and EDPR North America LLC (hereinafter EDPR NA) to provide corporate guarantees or request the issue of any guarantees, on the terms and conditions requested by the subsidiaries, which have been approved on a case by case basis by the EDP executive board.

EDPR will be jointly liable for compliance by EDPR EU and EDPR NA. The subsidiaries of EDPR undertake to indemnify the guarantor for any losses or liabilities resulting from the guarantees provided under the agreement and to pay a fee established in arm’s length basis. Nonetheless, certain guarantees issued prior to the date of approval of these agreements may have different conditions. As of December 31st, 2012, such counter-guarantee agreements totalled EUR 155,169,622 and USD 573,208,391.

There is another counter-guarantee agreement signed, under which EDP Energias do Brasil, SA or EDPR undertakes on behalf of EDPR Brasil, to provide corporate guarantees or request the issue of any guarantees, on the terms and conditions requested by the subsidiaries, which have been approved on a case by case basis by the EDPR Executive Committee. Each party undertakes to indemnify the other pro-rata to its stake of any losses or liabilities resulting from the guarantees provided under the agreement and to pay a fee established in arm’s length basis. As of December 31st 2012, such counter-guarantee agreements totaled in terms of fees from EDPR to EDP – Energias do Brasil of BRL 291,105,540.

CURRENT ACCOUNT AGREEMENT

EDP Sucursal and EDPR signed an agreement through which EDP Sucursal manages EDPR’s cash accounts. The agreement also regulates a current account between both companies, remunerated on arm’s length basis. As of December 31st 2012, there are three different current accounts with the following balance and counterparties:

• in USD, with EDP Sucursal for a total amount of USD 137,229,686.66 in favor of EDPR;
• in EUR, with EDP Sucursal for a total amount of EUR 49,884,584.07 in favor of EDPR;
• in EUR, with EDP Servicios Financieros España for a total amount of EUR 62,137,593.97 in favor of EDPR. The agreements in place are valid for one year as of date of signing and are automatically renewable for equal periods.

CROSS CURRENCY INTEREST RATE SWAPS

Due to the net investment in EDPR NA, EDPR Brazil, and Polish companies, EDPR’s accounts were exposed to the foreign exchange risk. With the purpose of hedging this foreign exchange risk, EDPR settled the following Cross Currency Interest Rate Swap (CIRS):

• in USD and EUR, with EDP Sucursal for a total amount of USD 2,632,613,000.00;
• in BRL and EUR, with EDP Energias de Portugal, S.A.l for a total amount of BRL 118,000,000.00;
• in PLN and EUR, with EDP Energias de Portugal, S.A. for a total amount of PLN 544,376,188.00.

HEDGE AGREEMENTS – EXCHANGE RATE

EDP Sucursal and EDPR entered into several hedge agreements with the purpose of managing the transaction exposure related with the short term positions in the North American, Polish, and Romanian subsidiaries, fixing the exchange rate for EUR/USD, EUR/PLN and EUR/RON in accordance to the prices in the forward market in each contract date. As of December 31st 2012, the following amounts remained outstanding.

• EUR/USD, with EDP Servicios Financieros España for a total amount of USD 329,000,000.00;
• EUR/RON, with EDP SA for a total amount of RON 297,813,400.20;
• EUR/PLN, with EDP SA for a total amount of PLN 533,594,285.30.

HEDGE AGREEMENTS – COMMODITIES

EDP and EDPR EU entered into hedge agreements for a total volume of 1,599 MWh for 2012 at the forward market price at the time of execution related with the expected sales of energy in the Spanish market.

TRADEMARK LICENSING AGREEMENT

On May 14th 2008, EDP and EDPR signed an agreement under which the former granted to the latter a non-exclusive license for the trademark “EDP Renováveis” for use in the renewable energy market and related activities.

In return for the granting of the trademark license, EDPR will pay to EDP fees calculated on the basis of the proportion of the costs pertaining to the former in the Group’s annual budget for image and trademark services, which are subject to annual review. The fee established for 2012 was EUR 1,500,000.

The license is granted indefinitely and shall remain in effect until the expiry of EDP’s legal ownership of the trademark or until EDP ceases to hold the majority of the capital or does not nominate the majority of Directors of EDPR. EDP may also terminate the agreement in case of non-payment or breach of contract.

The licensing agreement is restricted by the terms of the framework agreement.

CONSULTANCY SERVICE AGREEMENT

On June 4th, 2008, EDP and EDPR signed a consultancy service agreement. Through this agreement, and upon request by EDPR, EDP (or through EDP Sucursal) shall provide consultancy services in the areas of legal services, internal control systems, financial reporting, taxation, sustainability, regulation and competition, risk management, human resources, information technology, brand and communication, energy planning, accounting and consolidation, corporate marketing, and organizational development.

The price of the agreement is calculated as the cost incurred by EDP plus a margin. For the first year, it was fixed at 8% based on an independent expert on the basis of market research. For 2012 the estimated cost of these services is EUR 6,658,273,00. This was the total cost of services provided for EDPR, EDPR EU, and EDPR NA.

The duration of the agreement is one (1) year tacitly renewable for equal periods.

RESEARCH AND DEVELOPMENT AGREEMENT

On May 13th, 2008, EDP Inovação, S.A. (hereinafter EDP Inovação), an EDP Group company, and EDPR signed an agreement regulating relations between the two companies regarding projects in the field of renewable energies (hereinafter the R&D Agreement).

The object of the R&D Agreement is to prevent conflicts of interest and foster the exchange of knowledge between companies and the establishment of legal and business relationships.

The agreement forbids EDP Group companies other than EDP Inovação to undertake or invest in companies that undertake the renewable energy projects described in the agreement.

The R&D Agreement establishes an exclusive right on the part of EDP Inovação to project and develop new renewable energy technologies that are already in the pilot or economic and/or commercial feasibility study phase, whenever EDPR exercises its option to undertake them.

The agreement shall remain in effect for as long as EDP directly or indirectly maintains control of more than 50% of both companies or nominate the majority of the members of the Board and Executive Committee of the parties to the agreement.

MANAGEMENT SUPPORT SERVICES AGREEMENT BETWEEN EDP RENOVÁVEIS PORTUGAL S.A. AND EDP VALOR – GESTÃO INTEGRADA DE RECURSOS, S.A.

On January 1st, 2003, EDP Renováveis Portugal, S.A., holding company of the EDPR subgroup in Portugal, and EDP Valor – Gestão Integrada de Recursos, S.A. (hereinafter EDP Valor), an EDP Group company, signed a management support service agreement.

The object of the agreement is the provision to EDP Renováveis Portugal by EDP Valor of services in the areas of procurement, economic and financial management, fleet management, property management and maintenance, insurance, occupational health and safety, and human resource management and training.

The remuneration paid to EDP Valor by EDP Renováveis Portugal and its subsidiaries for the services provided in 2012 totalled EUR 952,127.36.

The initial duration of the agreement was five (5) years from date of signing and it was tacitly renewed for a new period of five (5) years on January 1st, 2008.

Either party may renounce the contract with one (1) year’s notice.

INFORMATION TECHONOLOGY MANAGEMENT SERVICES AGREEMENT BE TWEEN EDP RENOVÁVEIS S.A. AND EDP – ENERGIAS DE PORTUGAL , S.A.

On January 1st, 2010 EDPR and EDP signed an IT management services agreement.

The object of the agreement is to provide to EDPR the information technology services described on the contract and its attachments by EDP.

The amount to be paid to EDP for the services provided in 2012 totalled EUR 479,476.21.

The initial duration of the agreement is one (1) year from date of signing and it is tacitly renewed for a new period of one (1) year.

Either party may renounce the contract with one (1) month notice.

REPRESENTATION AGREEMENT WITH HIDROELÉTRICA DEL CANTÁBRICO S.A. FOR THE EDP RENOVÁVEI S, S.A. PORTFOLIO IN SPAIN

On October 27th, 2011 EDPR and Hidroeletrica del Cantábrico S.A. signed an Agreement for Representation services.

The object of this agreement was to provide EDPR representation services in the market and risk management for a fix tariff based in volume (0,12€/MWh) in the electricity market. The initial duration of the agreement is one (1) year from date of signing and it is tacitly renewed for a new period of one (1) year.

CONSULTANCY AGREEMENT BE TWEEN EDP RENOVÁVEIS BRASIL S.A., AND EDP ENERGIAS DO BRASIL S.A.

The object of the agreement is to provide to EDP Renováveis Brasil S.A. (hereinafter EDPR Brasil) the consultancy services described on the contract and its attachments by EDP – Energias do Brasil S.A. (hereinafter EDP Brasil). Through this agreement, and upon request by EDPR Brasil, EDP Brasil shall provide consultancy services in the areas of legal services, internal control systems, financial reporting, taxation, sustainability, regulation and competition, risk management, human resources, information technology, brand and communication, energy planning, accounting and consolidation, corporate marketing, and organizational development.

The amount to be paid to EDP Brasil for the services provided in 2012 totalled BRL 246,330,09.

The initial duration of the agreement is one (1) year from date of signing and it is tacitly renewed for a new period of one (1) year.

SUPPLY SERVICES AND INFRA-STRUCTURES AGREEMENT BETWEEN EDP RENEWABLES EUROPE S.L.U, HIDROCANTÁBRICO DISTRIBUCIÓN ELÉCTRICA S.A.U AND HIDROCANTÁBRICO EXPLOTACIÓN DE REDE S S.A.U

On January 10th, 2012 EDPR Europe S.L.U, Hidrocantábrico Distribución Eléctrica S.A.U (HCDE) and Hidrocantábrico Explotación de Redes S.A.U signed a supply services and infrastructures agreement.

The object of this agreement is the provision to EDPR Europe S.L.U of communication services and technical assistance related to the infra-structures of energy production.

The amount to be paid to HCDE for the services provided in 2012 totalled EUR51,560.26.

The initial duration of the agreement is one (1) year from date of signing and it is tacitly renewed for a new period of one (1) year.

TRANSACTIONS WITH QUALIFIED SHAREHOLDERS

During 2012, EDPR has not signed any contracts with other holders of qualifying holdings other than EDP, as mentioned above. However, there was a contract signed between EDPR and China Three Gorges (CTG), qualified shareholder of EDP, but not of EDPR, for the acquisition of 49% of the share capital of EDP Renewables Portugal (EDPR subsidiary). Transaction closing is pending on regulatory approval. For this transaction EDPR’s Audit and Control Committee issued a favorable opinion as referred on Recommendation IV.1.2 of CMVM.

INTERVENTION OF THE SUPERVISORY BODY IN THE PREVIOUS ASSESSMENT OF TRANSACTIONS BE TWEEN THE COMPANY AND ITS SHAREHOLDERS

The contracts signed between EDPR and its Shareholders are analyzed by the Related-Party Transactions Committee according to its competences, as mentioned on chapter II.3 C) of the report and the Audit and Control Committee. According with Article 9º nº 1 c) of the Related-Party Transactions Committee Regulation, the committee ratifies, in the correspondent term according to the necessities of each specific case, the transactions between Qualifying Holdings other than EDP with entities from the EDP Renováveis Group whose annual value is superior to EUR 1.000.000. This information is included on the annual report of the Audit and Control Committee regarding those cases that needed a previous opinion from the committee. The mechanisms established on both committees regulation and also the fact that one of the members of the Related-Party Transactions Committee is the President of the Audit and Control Committee constitutes a relevant element for an adequate evaluation of the relations established between EDPR and third entities.

DESCRIPTION OF STATISTICAL DATA(NUMBER, AVERAGE , AND MAXIMUM VALUE ) FOR TRANSACTIONS SUBJECT TO PRIOR INTERVENTION BY THE
SUPERVISORY BODY

The Related Party Transactions Committee and the Audit and Control Committee were informed that in 2012 the average value and the maximum value regarding the transactions analyzed by the Committee was EUR 1,837,724.50 and EUR 6,658,273, respectively. The total value of the operations with the EDP Group in 2012 was EUR21 million which corresponds to a 8.1% of the total value of S&S, and EUR 262 million for total operational costs.

ANNUAL REPORT OF THE AUDIT AND CONTROL COMMITTEE

Information available on chapter II.4.

INVESTOR RELATIONS DEPARTMENT

EDPR seeks to provide to shareholders, investors, and stakeholders all the relevant information about the Company and its business environment. The promotion of transparent, consistent, rigorous, easily accessible, and high‑quality information is of fundamental importance to an accurate perception of the company’s strategy, financial situation, accounts, assets, prospects, risks, and significant events.

EDPR, therefore, looks to provide investors with information that can support them in making informed, clear, and concrete investment decisions.

An Investor Relations Office was created to ensure a direct and permanent contact with all market related agents and stakeholders, to guarantee the equality between shareholders and to prevent imbalances in the information access.

The EDPR Investor Relations Department is the intermediary

between EDPR and its actual and potential shareholders, the financial analysts that follow the Company’s activity, all investors, and the financial market agents in general. The main purpose of the department is to guarantee the principle of equality among shareholders, prevent asymmetries in access to information, and reduce the market perception gap of the company’s strategy and intrinsic value. The department responsibility encompasses developing and implementing EDPR’s communication strategy and preserving an appropriate institutional and informative relationship with the financial market, the stock exchange at which EDPR shares trade, and the regulatory and supervisory entities (CMVM) – Comissão de Mercado de Valores Mobiliários – in Portugal and CMNV – Comisíon Nacional del Mercado de Valores – in Spain). The company representative for relations with the market is the Executive Board of Directors member, Mr. Rui Teixeira. The Investor Relation Department is coordinated by Mr. Rui Antunes and is located at the company’s head offices in Madrid, Spain. The department contacts are as follows:

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During 2012, the EDPR management and the IR team held more than 200 meetings in the company’s offices and in 19 of the major financial cities of Europe and of the US.

EDPR is clearly aware of the importance of delivering clear and detailed information to the market on time. Consequently, EDPR publishes the company’s price sensitive information before the opening of the NYSE Euronext Lisbon stock exchange through CMVM’s information system, and simultaneously, we make that same information available on the website investors’ section and through the IR department’s mailing list.

On each earnings announcement, EDPR promotes a conference call and webcast, at which the Company’s management updates the market on EDPR’s activities. On each of these events shareholders, investors, and analysts had the opportunity to directly submit their questions and to discuss EDPR’s results as well as the company’s outlook.

The IR Department of EDPR was in permanent contact with the financial analysts who evaluated the Company and with all shareholders and investors by e‑mail, phone, or face‑to‑face meetings. In 2012, as far we are aware, the sell‑side analysts issued more than 200 reports evaluating EDPR’s performance.

ANALYSTS

At the end of the 2012, as far as the company is aware of, there were 24 institutions elaborating research reports and following actively the Company’s activity. As of December 31st, 2012, the average price target of those analysts was of EUR 4.66 per share with most of them reporting “Buy” recommendations on EDPR’s share: 17 Buys, 5 Neutrals and only 1 analyst with rating suspended.

ONLINE IN FORMATION: WEB SITE AND E-MAIL

EDPR considers online information a powerful tool in the dissemination of material information, and accordingly updates its website with all the relevant documents. Apart from all the required information by CMVM and CNMV regulations, the Company website also carries financial and operational updates of EDPR’s activities ensuring all an easy access to information.

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REMUNERATION OF THE EXTERNAL AUDITOR

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In EDPR there is a policy of pre-approval by the Audit and Control Committee for the selection of the External Auditor and any related entity for non-audit services, according to Recommendation III.1.5 of the Portuguese Corporate Governance Code. This policy was strictly followed during 2012.

The services, other than auditing services, provided to the Company by the External Auditor and entities in a holding relationship with or incorporated in the same network as the External Auditor were previously approved by the Audit Committee, upon review of each specific service, which considered the following aspects: (i) such services having no effect on the independence of the External Auditor and any safeguards used; and (ii) the position of the External Auditor in the provision of such services, notably the External Auditor’s experience and knowledge of the Company.

Furthermore, although hiring services other than auditing services to the External Auditor is admissible, it is envisaged as an exception. In this way, as referred to above, in 2012 such services reached only around 5% of the total amount of services provided to the Company.

In order to safeguard the independence of the External Auditors, the following powers of the Audit Committee were exercised during the 2012 financial year and should be highlighted:

• Nominate and hire the External Auditors and responsibility for establishing their remuneration as well as pre-approval of any services to be hired from the External Auditors;

• Direct and exclusive supervision by the Audit Committee;

• Assessment of the qualifications, independence, and performance of the External Auditors, and obtaining, yearly and directly from the External Auditors, written information on all relations existing between the Company and the Auditors or associated persons, including all services rendered and all services in progress; in fact, the Audit Committee, in order to evaluate independence, obtained from the External Auditors information on their independence in light of article 62B of Decree-Law no. 224/2008 of 20 November 2008, which amends the articles of association of the Chartered Accountant Professional Association;

• Review of the transparency report, signed by the Auditor and disclosed at its website. This report covers the matters provided for under article 62A of Decree-Law no. 224/2008, including those regarding the quality control internal system of the audit firm and the quality control procedures carried out by the competent authorities;

• Definition of the Company’s hiring policy concerning persons who have worked or currently work with the External Auditors;

• Review, with the External Auditors, of the scope, planning, and resources to be used in their services;

• Responsibility for the settlement of any differences between the Executive Committee and the External Auditors concerning financial information.

Within this context, it should be particularly stressed that External Auditor independence was safeguarded by the implementation of the Company’s policy on pre-approval of the services to be hired to External Auditors (or any entity in a holding relationship with or incorporating the same network as the External Auditors), which results from the application of the rules issued by SEC on this matter. According to such policy, the Audit Committee makes an overall pre-approval of the services proposal made by the External Auditors and a specific pre-approval of other services that will eventually be provided by the External Auditors, particularly tax consultancy services and services other than “audit and audit related” services.

REFERENCE TO THE ROTATION PERIOD OF THE EXTERNAL AUDITOR

EDPR’s External Auditor is, since the year 2007, KPMG Auditores S.L.. The external auditor is currently in its second mandate of three years, therefore there is still no need to rotate the auditor according to Recommendation III.1.3 of the Portuguese Corporate Governance Code.