In July 2006, Companhia Energética de São Paulo (CESP) joined BM&FBovespa´s Corporate Governance Level One, which consists of a set of rules governing the relationship between the controlling shareholder, the board of directors, the executive board, the other company shareholders, and especially the capital markets. The adherence to BM&FBovespa’s Corporate Governance Levels better advertises the efforts of the company to improve the relationship with its investors and increases the potential for appreciation in asset value.

The rules of Level One largely undertake to improve methods of disclosure to the market and to disperse their shares among the largest number of shareholders possible. Thus, the main practices required to join are: (i) maintenance of a free-float of at least 25 percent of the capital; (ii) public offerings have to use mechanisms to favor capital dispersion; (iii) improvement in quarterly reports, including the disclosure of consolidated financial statements and special audit revision; (iv) monthly disclosure of trades involving equities issued by the company on the part of the controlling shareholders;  and (v) disclosure of an annual calendar of corporate events.

CESP stands out from other companies for going beyond the minimum requirements of Level One and has adopted the following corporate governance best practices which were incorporated into its byelaws: (i) participation in the BM&FBovespa Arbitration Chamber to settle any doubts of a corporate nature; (ii) 100 percent Tag Along – Right of Class B preferred shareholders to joint sale of shares on the same terms and conditions, in the event of sale of controlling interest; (iii) two year mandate for the executive board and the board of directors; and (iv) board of directors formed by 20 percent independent councillors.

Stocks distribution and properties
The paid-up capital stock of the company amounts to $3.5bn and is divided into 109m common shares (CESP3), 8m Class A preferred shares (CESP5) and 210m Class B preferred shares (CESP6). If there is net profit in the end of the period, all shares have the right of dividends up to 10 percent calculated over the value of fully paid capital stock represented by each class of shares, but the Class A preferred shares has priority in the distribution of dividends.

Investor relations area
CESP’s Finance Board has an Investor Relations (IR) area which coordinates the information release to the financial markets in general, investors, market analysts, financial institutions, regulatory and inspection bodies, through annual public meetings, teleconferences to discuss quarterly results, and one-to-one meetings with analysts, fund managers and investors.

Ombuds Office
On its website, CESP has a communication channel with the purpose of protecting the interests of citizens inside the company, receiving, explaining and answering all queries raised, including actions causing internal transformation aimed at improving the quality of services provided by the company.

Board of directors
CESP’s board of directors is responsible for setting general business policies and guidelines, including the company’s long-term strategy. The board consists of a minimum three and maximum 15 members, with two year terms of office and permitted re-election as provided for in the byelaws. The board meetings are ordinarily held once a month and extraordinarily whenever necessary and are held with attendance of the majority of its members in office. Its members are elected by CESP’s shareholders at a general meeting. One independent councillor is appointed by the minority preferred shareholders, one councilor is elected by the company employees, and two other independent councillors and the remaining councillors are elected by the controller shareholder, the Treasury of the State of São Paulo.

Executive board
CESP’s executive board is composed of up to five members, and is responsible for business management and the implementation of resolutions taken by the board of directors. The company directors take office for two years and re-election is permitted. They have responsibilities established by the board of directors, the byelaws and internal policy. Executive board meetings are convened by the CEO or at the request of the majority members of the executive board, and are held with the attendance of the majority of its members.

Audit committee
CESP’s audit committee operates on a permanent basis and currently consists of five staff members and an equal number of substitutes, elected at the general meeting for one year of office. The controlling shareholder or holder of common shares issued by the company appoints three staff members and their substitutes to represent it and the holders of preferred shares, as minority and preferred shareholder appoint two staff members and their respective substitutes to represent them. The main responsibility of the audit committee is to supervise the management’s activities and keep shareholders informed of its findings. For that purpose, as an independent body and unrelated to the independent auditors, it reviews the company’s financial statements and advises shareholders about their contents, in addition to reporting on matters relating to CESP’s budget, changes in its capitalisation, distribution of dividends and corporate reorganisations.

Risk committee
In 2008, the company started the project to implement the model for corporate risk management, based on the principles of the committee of Sponsoring Organisations (COSO) and Control Objectives for Information and Related Technology (COBIT).

The committee is composed of company directors, a representative of corporate Management and a representative of internal audit. The committee is required to support the CEO in defining the guidelines and strategies for risk management and controls, including risk appetite and tolerance, risk assessment and action plans submitted by the company managers and to advise and direct to risk management coordination, in line with the guidelines and strategies defined by the CEO.

Code of conduct
In response to the growing society demands, especially from the capital market regarding the disclosure ethical principles adopted by the company, in 2009 CESP implemented its Code of Conduct, which meets the demands of society on the adoption of ethical principles as guiding principles of the company’s activities, and should contribute positively to its internal and external relationship, raising its level of confidence level with all its partners (investors, suppliers, clients, creditors, government officials and its own employees).

Sustainability
CESP, aware of its responsibility to sustainability, has sought to align itself with the effort to contribute to the advancement of sustainable practices and has incorporated into its work schedule activities in tune with this subject. To undertake sustainable actions that contribute ultimately to the effort to assure the right to a life in harmony with nature for present and future generations, CESP has developed several environmental projects. Preservation actions are implemented in partnership with the scientific community in order to promote the exchange of information with agencies and research institutes in Brazil and abroad.

BM&FBovespa, the Brazilian stock exchange, launched its Corporate Sustainability Index – ISE – in 2006 to be a benchmark for socially responsible investments. The index is composed by sustainable companies that create value to the shareholder in the long term by being better prepared to face economic, social and environmental risks. Since its creation, CESP remains in the ISE index for the fifth year, being recently approved for the period from January to December 2011.

CESP is a signatory of the UNEP International Declaration of Cleaner Production, and is also running a climate change programme, aimed at promoting sustainable development, the exercise of social responsibility and environmental management activities. After the release of the second inventory of greenhouse gases in June 2009, recording the emission of 9,700 tonnes of carbon equivalent (tCO2) for the year of 2008, it was created a plan with a goal to reduce by 10 percent the greenhouse gases emissions of the year 2011 in comparison with 2008 emissions. The company also studies the inclusion of activities in the carbon market through the approval of clean development mechanism projects (CDM) of the Kyoto treaty and/or voluntary market.

Company profile
Companhia Energética de São Paulo (CESP) is a Brazilian public company controlled by the State of São Paulo government, whose main activity is clean and renewable electricity generation through a 100 percent hydraulic power generation complex. CESP is the largest generator of electric power in the State of Sao Paulo, responsible for approximately 57 percent of the energy produced in the state, and the fourth largest electric power generator in the country, producing almost nine percent of all electric energy generated in Brazil.

CESP’s power generation complex consists of six power plants with total installed capacity of 7,455.3 MW, located in the basins of rivers Paraná, Tietê and Paraíba do Sul. The six dams are strategically located in the economic centre and most populated Brazilian region and are critical for the operation of the Brazilian National Interconnected System (SIN).