CORPORATE GOVERNANCE

CORPORATE BOARDS AND COMMITTEES

B. CORPORATE BOARDS AND COMMITTEES

I. GENERAL SHAREHOLDERS’ MEETING

A. COMPOSITION OF THE BOARD OF THE GENERAL MEETING

11. BOARD OF THE GENERAL SHAREHOLDERS’ MEETING

The Members of the Board of the General Shareholders’ Meeting are its Chairman, the Chairman of the Board of Directors or his substitute, the other Directors and the Secretary of the Board of Directors.

The Chairman of the General Shareholders’ Meeting is José António de Melo Pinto Ribeiro, who was elected on the General Meeting of April 8th, 2014, for a three-year (3) term; and re-elected on the General Shareholders’ Meeting held on April 6th,2017 for an additional three-year (3) term.

The Chairman of the Board of Directors is António Mexia, who was re-elected for a three-year (3) term on the General Shareholders’ Meeting held in April 9th, 2015.

The Secretary of the Board of Directors is Emilio García-Conde Noriega who is also the Secretary of the General Shareholders’ Meeting, and was appointed as Secretary of the Board of Directors on December 4th 2007. The Secretary of the Board of Directors’ mandate does not have an end of term date according to the Spanish Companies Law since he is a non-Member of the Board.

The Chairman of the General Shareholders’ Meeting of EDPR has at his disposal, the necessary human and logistical resources required for the performance of his duties. Therefore, in addition to the resources provided by the Company’s General Secretary, the Company hires a specialized entity to give support to the meeting and to collect, process and count the votes submitted by the shareholders on each General Shareholders’ Meeting.

B. EXERCISING THE RIGHT TO VOTE

12. VOTING RIGHTS RESTRICTIONS

Each share entitles its holder to one vote. EDPR’s Articles of Association have no restrictions regarding voting rights.

13. VOTING RIGHTS

EDPR’s Articles of Association have no reference to a maximum percentage of voting rights that may be exercised by a single shareholder or by shareholders that are in any relationship. All shareholders, regardless the number of shares owned, may attend to the General Shareholders’ Meeting and request the information or explanations that they consider relevant regarding the matters included in the Agenda of the convened meeting, and are entitled as shareholders of the Company, to take part in its deliberations and to participate in its voting process.

In order to exercise their right to attend, the Company informs in the related Notice and Shareholders’ Guide of each General Shareholders’ Meeting, that the shareholders must have the ownership of their shares duly registered in the Book Entry Account at least five (5) days prior to the date of the General Shareholders’ Meeting.

Any shareholder may be represented at the General Shareholders’ Meeting by a third party, even if such representative is not a shareholder, by means of a revocable Power of Attorney. The Board of Directors may require shareholders’ Power of Attorney to be in the Company’s possession at least two (2) days in advance, indicating the name of the representative.

These Powers of Attorney shall be granted specifically for each General Shareholders’ Meeting and can be evidenced, in writing or by remote means of communication, such as mail or post.

Shareholders may vote on the topics included on the Meeting’s Agenda, in person (or by means of the corresponding representative) at the meeting, by ordinary mail or by electronic communication. Remote votes can be revoked subsequently by the same means used to cast them, always within the deadlines established for that purpose; or by personal attendance to the General Shareholders’ Meeting of the shareholder who casted the vote to his/her representative.

The Board of Directors approves a Shareholder’s Guide for each General Shareholders’ Meeting, detailing mail and electronic communication voting forms among other matters. This Guide is available at the Company’s website ( ).

Votes by post shall be sent in writing to the place indicated on the Notice of the meeting, accompanied by the documentation indicated in the Shareholder’s Guide. In order to vote by electronic means, the shareholders who requested it, will receive a password in accordance with the deadlines and form established in the Notice of the General Shareholders’ Meeting.

Pursuant to the terms of article 15 of the Articles of Association, both electronic and mail-in votes must be received by the Company before midnight (24.00 hours) of the day before the scheduled meeting date of first call.

14. DECISIONS THAT CAN ONLY BE ADOPTED BY A QUALIFIED QUORUM

According to EDPR’s Articles of Association and as established in the law, both ordinary and extraordinary General Shareholders’ Meetings are validly constituted when first called if the shareholders, either present or represented, jointly reach at least twenty-five percent (25%) of the subscribed voting capital. On second call, the General Shareholders’ Meeting will be validly constituted regardless of the amount of the capital present or represented.

To validly approve the issuance of bonds, the increase or reduction of capital, the transformation, global assignment of assets and liabilities, merger or spin-off of the Company, the transfer of the Registered Office abroad, the elimination or limitation of pre-emptive rights of new shares and in general, any necessary amendment to the Articles of Association, in the Ordinary or Extraordinary Shareholders’ Meeting, it is required that on first call, the Shareholders, either present or represented, reach at least fifty percent (50%) of the subscribed voting capital and, on second call, at least twenty five percent (25%) of the subscribed voting capital.

In relation to the quorum required to validly approve these matters, in accordance with the Law and the Articles of Association, when the shareholders attending represent more than fifty percent (50%) of the subscribed voting capital, the above mentioned resolutions will be validly adopted by absolute majority, and in the case the shareholders attending represent between the twenty-five percent (25%) and the fifty percent (50%) – but without reaching it – the favourable vote of the two-thirds (2/3) of the present or represented capital in the General Shareholders’ Meeting will be required to approve these resolutions.

EDPR has not established any mechanism that may intend to cause mismatching between the rights to receive dividends or the subscription of new securities and the voting right of each common share and has not adopted mechanisms that hinder the passing of resolutions by shareholders, including fixing a quorum for resolutions greater than that provided by the law.


II. MANAGEMENT AND SUPERVISION

A. COMPOSITION

15. CORPORATE GOVERNANCE MODEL

EDPR is a Spanish Company listed in a regulated stock exchange in Portugal. The corporate organization of EDPR is subject to its personal law and to the extent possible, to the recommendations contained in the Portuguese Corporate Governance Code, (“Código de Governo das Sociedades”) approved by the Comissão do Mercado de Valores Mobiliários (“CMVM” – Portuguese Securities Market Commission) in July 2013. This governance code is available at CMVM website (www.cmvm.pt).

The organization and functioning of EDPR corporate governance model aims to achieve the highest standards of corporate governance, business conduct and ethics referenced on the best national and international practices.

EDPR has adopted the governance structure currently applicable in Spain. It comprises a General Shareholders’ Meeting and a Board of Directors that represents and manages the Company.

As contemplated in the law and in its Articles of Association, the Company’s Board of Directors has set up four committees. These are the Executive Committee, the Audit and Control Committee, the Nominations and Remunerations Committee and the Related-Party Transactions Committee.

In order to ensure a better understanding of EDPR corporate governance by its shareholders, the Company publishes its updated Articles of Association as well as its Committees Regulations at its website ( ).

The governance model of EDPR was designed to ensure the transparent and meticulous separation of duties and the specialization of supervision. EDPR performs the management and supervision activities os the Company though the following governing bodies:

  • General Shareholders’ Meeting
  • Board of Directors
  • Executive Committee
  • Audit and Control Committee
  • External auditor

The purpose of the choice of this model is, to the extent possible, to adapt the Company’s corporate governance structure to the Portuguese legislation. The governance model adopted by EDPR therefore seeks, as far as it is compatible with its personal law, to correspond to the so-called “Anglo-Saxon” model set forth in the Portuguese Commercial Companies Code, in which the management body is a Board of Directors, and the supervision and control duties are of the responsibility of an Audit and Control Committee.

The experience of institutional operating indicates that the governance model approved by EDPR shareholders, and adopted in EDPR, is appropriate to the corporate organization of its activity, especially because it affords transparency and a healthy balance between the management functions of the Executive Committee, the supervisory functions of the Audit and Control Committee and oversight by different Board of Directors special committees.

The institutional and functional relationship between the Executive Committee, the Audit and Control Committee and the other Non-Executive members of the Board of Directors has been of internal harmony conductive to the development of the Company’s business.

16. RULES FOR THE NOMINATION AND REPLACEMENT OF DIRECTORS

According to Article 29.5 of the Company’s Articles of Association, the Nominations and Remunerations Committee is empowered by the Board of Directors to advise and inform the Board regarding the appointments (including by co-option), re-elections, removals and remuneration and duties of the Board Members, as well as the composition of the several Committees of the Board. The Committee also advises on the appointment, remuneration and dismissal of top management officers. The Committee proposes the appointment and re-election of the Directors and of the composition the Committees by presenting a proposal with the names of the candidates that considers to have the best qualities to fulfil the role of Board Member.

Following the best Corporate Governance practices, in 2016 EDPR analyzed and discussed about the possible criteria applicable in the selection of the new members of its Governing Bodies. As a conclusion, within others, it was agreed to take into account the following: the education, experience in the energy sector, integrity and independence, having a proven expertise and the diversity that such candidate may provide to the related body. Based on this, the Board of Directors would submit a proposal to the General Shareholders’ Meeting which should be approved by majority, for an appointment for an initial period of three (3) years. These members may be re-elected once or more times for further periods of three (3) years. For more information about the composition of the Board of Directors please check the Sustainability chapter at its topic GRI 405-1, and the Annex of this report which includes the curricular details of its Members.

Pursuant to Articles 23 of the Articles of Association and 243 of the Spanish Companies Law, shareholders may group their shares until constituting an amount of capital equal or higher than the result of dividing the company’s capital by the number of Members of the Board, to be entitled to appoint a number of Directors equal to the result of the fraction using only whole amounts. Those shareholders making use of this power, cannot intervene in the nomination of the other members of the Board of Directors.

In case of a vacancy, pursuant to the Articles of Association and the Spanish Companies Law, the Board of Directors may co-opt a new Board Member, who will occupy the position until the next General Shareholders’ Meeting, to which a proposal will be submitted for the ratification of such appointment by co-option. Pursuant to the Spanish Companies Law, the co-option of Directors must be approved by absolute majority of the Directors at the meeting.

17. COMPOSITION OF THE BOARD OF DIRECTORS

Pursuant to Articles 20 and 21 of the Company’s Articles of Association, the Board of Directors shall consist of no less than five (5) and no more than seventeen (17) Directors. The term of office shall be of three (3) years, and may be re- elected once or more times for equal periods.

The number of Board Members was established in seventeen (17) members according to the decision of the General Shareholders’ Meeting held on June 21st 2011. As of December 31st, 2017, the members of the Board of Directors are:

18. EXECUTIVE, NON-EXECUTIVE AND INDEPENDENT MEMBERS OF THE BOARD OF DIRECTORS

EDPR’s Articles of Association, which are available at Company’s website ( ), contain the rules on independence for the fulfilment of duties in any body of the Company. The independence of the Directors is evaluated according to the Company’s personal law, the Spanish law.

Despite the applicable CMVM recommendations do not specifically require a minimum of independent members within the Board of Directors, and only recommends to take into account some criteria as the adopted governance model, the size of the Company, its shareholder structure and the relevant free float; article 12 of EDPR’s Board of Directors regulations requires that at least a twenty-five percent (25%) of the Members of the Board shall be independent. Likewise, Article 20.2 of EDPR’s Articles of Association defines independent members of the Board of Directors as those who are able to perform their duties without being limited by relations with the Company, its significant Shareholders, or its management officers and comply with the other legal requirements.

In addition, Article 23 of the Articles of Association refers to the incompatibilities with the position of Director of the Company, establishing that the following may not be Directors:

  • Those who are directors of or are associated with any competitor of EDPR, or have family relations with them. In this respect a Company shall be considered as a competitor of EDPR, whenever it is engaged, if it is directly or indirectly involved in the production, storage, transport, distribution, marketing or supply of electricity or fuel gas; or also if has interests opposed to those of EDPR, or to the ones of any competitor or any of the companies in its group, and the Board members, employees, lawyers, consultants, or representatives of any of them. Under no circumstances shall companies belonging to the same group as EDPR, including abroad, be considered competitors;
  • Those who are in any other situation of incompatibility or prohibition under the law or EDPR’s Articles of Association. Under Spanish law, among others, are not allowed to be Directors those who are underage – under eighteen (18) years – and were not emancipated, disqualified, competitors, convicted of certain offences, or that hold certain management positions.

The Chairman of EDPR’s Board of Directors does not have executive duties.

In accordance with the law and pursuant the last amendment of Articles of Association, it has been established that a Non-Executive Directors can only be represented in the Board meetings by other Non-Executive Director. The following table includes the executive, non-executive and independent members of the Board of Directors. The independent members mentioned below meet the independence and compatibility criteria required by the law and the Articles of Association.


19. PROFESSIONAL QUALIFICATIONS AND BIOGRAPHIES OF THE MEMBERS OF THE BOARD OF DIRECTORS

The main positions held by the members of the Board of Directors in the last five (5) years, those that they currently hold, positions in Group and non-Group companies and other relevant curricular information details are available in the Annex of this Report.

20. FAMILY, PROFESSIONAL AND BUSINESS RELATIONSHIPS OF THE MEMBERS OF THE BOARD OF DIRECTORS WITH QUALIFYING SHAREHOLDERS

Qualifying Shareholders in EDPR are subject to the Spanish Law, which regulates the criteria and thresholds of the shareholders’ holdings. As of December 31st 2017, and as far as the Company was informed, there are no family or business relationships of Members of the Board of Directors with qualifying shareholders but only professional relationships due to the fact that some of the Members of EDPR’s Board of Directors are currently Members of the Board of Directors in other companies belonging to the same group as EDP Energias de Portugal S.A., which are the following:

  • António Mexia;
  • João Manso Neto;
  • Nuno Alves;
  • Manuel Menéndez Menéndez.

Or employees in other companies belonging to EDP’s Group, which are the following:

  • João Paulo Costeira;
  • Duarte Bello;
  • Miguel Ángel Prado.


21. MANAGEMENT STRUCTURE

According to the Spanish Law and Spanish companies’ practices, the daily management of the business is guaranteed by a Chief Executive Officer who is empowered to ensure the day-to-day management of the Company. This type of organization is different from what occurs on the Portuguese companies in which a ”Conselho de Administração Executivo” takes the assignment of areas of business and each Executive Director is responsible to and for an area of business.

In 2017, EDPR approved the new composition and areas of responsibility of the Executive Committee in order to address the challenges faced by the Company, namely the fulfilment of the Business Plan targets and the increased importance of Offshore Wind business. As part of these organizational restructuration, it was agreed to appoint João Paulo Costeira as the Chief Operating Officer Offshore (“COO Offshore”) and Chief Development Officer (“CDO”) of EDPR.

Likewise, the Board of Directors approved the proposal from the Nominations and Remunerations Committee for the appointment of both Duarte Bello and Miguel Ángel Prado as Members of EDPR’s Board of Directors and of its Executive Committee, and for their appointments as Joint Directors and as Chief Operating Officer of Europe & Brazil and Chief Operating Officer of North America respectively. Given such approvals, as of 31st December 2017, EDPR Executive Committee is composed by the following members, who are also Joint Directors:

B. FUNCTIONING

22. BOARD OF DIRECTORS REGULATIONS

EDPR’s Board of Directors Regulations is available at Company’s website ( ), and at Company’s headquarters at Plaza de la Gesta, 2, Oviedo, Spain.

23. NUMBER OF MEETINGS HELD BY THE BOARD OF DIRECTORS

According to the Law and its Articles of Association, EDPR’s Board of Directors meetings take place at least once every quarter. During the year ending on December 31st 2017, the Board of Directors held eight (8) meetings. Minutes of all meetings were drawn. The table below expresses the attendance percentage of the participation of the Directors to the meetings held during 2017:

24. COMPETENT BODY FOR THE PERFORMANCE APPRAISAL OF EXECUTIVE DIRECTORS

The Nominations and Remunerations Committee is the body responsible for the evaluation of the performance of the Executive Directors. According to Article 249 bis of the Spanish Companies Law, the Board of Directors supervises the effective functioning of its Committees as well as the performance of the delegated bodies and Directors designated.

25. PERFORMANCE EVALUATION CRITERIA

The criteria for assessing the Executive Directors’ performance are described on topics 70, 71 and 72 of this Report.

26. AVAILABILITY OF THE MEMBERS OF THE BOARD OF DIRECTORS

The members of Board of Directors of EDPR are fully available for the performance of their duties having no constraints for the execution of this function simultaneously with other positions. The positions held at the same time in other companies within and outside the group, and other relevant activities undertaken by members of the Board of Directors throughout the financial year are listed in the Annex of this report.

C. COMMITTEES WITHIN THE BOARD OF DIRECTORS OR SUPERVISORY BOARD AND BOARD DELEGATES

27. BOARD OF DIRECTORS’ COMMITTEES

Pursuant to Article 10 of the Company’s Articles of Association, the Board of Directors may have delegated bodies. The Board of Directors has set up four Committees:

  •  Executive Committee
  •  Audit and Control Committee
  •  Nominations and Remunerations Committee
  •  Related-Party Transactions Committee
    With the exception of the Executive Committee, all Committees are composed of independent members. The regulations of EDPR Board of Directors’ Committees are available at the Company’s website ( ).

28. EXECUTIVE COMMITTEE COMPOSITION
Pursuant to Article 27 of the Company’s Articles of Association, the Executive Committee shall consist of no less than four (4) and no more than seven (7) Directors.
Its constitution, the nomination of its members and the extension of the powers delegated must be approved by two-thirds (2/3) of the members of the Board of Directors.
In its meeting held on September 26th 2017, the Board of Directors acknowledged the resignation of Gabriel Alonso and Miguel Dias Amaro from their positions as members of the Board and Executive Committee, and thus the Board agreed to appoint by cooption of both Duarte Bello and Miguel Ángel Prado as members of EDPR Board of Directors, of its Executive Committee and Joint Directors. Given such approvals, as of December 31st 2017, EDPR Executive Committee is composed by the following members, who are also Joint Directors:

  • João Manso Neto, who is the Chairman and CEO
  • João Paulo Costeira
  • Duarte Bello
  • Miguel Ángel Prado
  • Additionally, Emilio García-Conde Noriega is the Secretary of the Executive Committee.

29. COMMITTEES COMPETENCES

EXECUTIVE COMMITTEE

FUNCTIONING

In addition to the Articles of Association, this committee is also governed by its regulations approved on June 4th 2008 and last amended on November 2nd 2016. The committee regulations are available at the Company’s website ( ).

In order to adopt the best practices of Corporate Governance and with the aim of promoting the transparency in the management of the Company, the regulations of this committee include within the list of non – delegable matters of the Board of Directors a clarification on the definition of the matters that should be considered as strategic matters based on economical, risk or special features criteria.

The Executive Committee shall meet at least once a month and whenever is deemed appropriate by its Chairman, who may also suspend or postpone meetings when he sees fit. The Executive Committee shall also meet when requested by at least two (2) of its members.

The Chairman of the Executive Committee, who is currently also the Vice-Chairman of the Board of Directors, submits to the Chairman of the Audit and Control Committee and to the rest of the members of the Board, the convening notices and minutes of the meetings of this Committee.

Meetings of the Executive Committee are valid if half of its members plus one are present or represented. Decisions shall be adopted by majority. In the event of a tie, the Chairman shall have the casting vote.

Executive Directors shall provide any clarifications needed by the other Directors or corporate bodies whenever requested to do so.

The composition of the Executive Committee is described on the previous topic.

The Executive Committee is a permanent body to which all the competences of the Board of Directors that are delegable under the law and the Articles of Association can be assigned. The non-delegable competences are the following:

  • Election of the Chairman of the Board of Directors;
  • Appointment of Directors by co-option;
  • Request to convene or convening of General Shareholders’ Meetings and the preparation of the agenda and proposals of resolutions;
  • Preparation of the Annual Reports and Management Reports and their presentation to the General Shareholders’ Meeting;
  • Change of registered office;
  • Preparation and approval of mergers, spin-off, or transformation projects of the Company;
  • Monitoring the effective functioning of the Board of Directors committees and the performance of delegated bodies
    and appointed directors;
  • Definition of the Company’s general policies and strategies. In any case, the following transactions individually
    considered, shall be subject to the prior approval of the Board of Directors, or its ratification in cases of justified urgency:

    • Acquisition or sale of assets, rights or participations with an economic value higher than seventy-five million Euros (EUR 75,000,000) and not included in the budget approved by the Board of Directors;
    • Opening or closing of establishments/branches or relevant parts of establishments /branches, as well as the extension or reduction of its activity;
      Other business activity or transactions, including expansion investments, with a significant strategic relevance or with an economic value higher than seventy-five million Euros (EUR 75,000,000) and not included in the budget approved by the Board of Directors; or
    • Creation or termination of strategic alliances or partnerships or other forms of long-term cooperation;
  • Authorization or waiver of the obligations arising from duty of loyalty;
  • Organization and functioning of the Board of Directors;
  • Preparation of any report required by the law to the management body, provided that the operation referred in the
    report cannot be delegated;
  • Appointment and dismissal of Chief Executive Officer, top management directly depending from the Board of
    Directors or any of its members, and their general contractual conditions including remuneration;
  • Decisions concerning director’s remuneration within the Articles of Association’s frame and, if any, the remuneration
    policy approved by the General Meeting;
  • Policy concerning own shares;
  • The faculties that the General Meeting may have delegated on the Board of Directors, except for the cases expressly authorized by the first to sub delegate them.

2017 ACTIVITY

In 2017 the Executive Committee held 50 meetings. The Executive Committee’s main activity is the daily management of the Company.

 

AUDIT AND CONTROL COMMITTEE

COMPOSITION

Pursuant to Article 28 of the Company’s Articles of Association and Article 9 of the Committee’s Regulations, the Audit and Control Committee consists of no less than three (3) and no more than five (5) members.
According to Article 28.5 of the Articles of Association the term of office of the Chairman of the Audit and Control Committee is a maximum of six (6) years. Jorge dos Santos was first elected on April 8th, 2014 for the position of Chairman of the Audit and Control Committee, following the opinion presented by the Nominations and Remuneration Committee.
The Audit and Control Committee consists of three (3) independent members, plus the Secretary. As of December 31st 2017, the members of the Audit and Control Committee are:

  • Jorge Santos, who is the Chairman
  •  João Manuel de Mello Franco
  • João Lopes Raimundo
  • Additionally, Mr. Emilio García-Conde Noriega is the Secretary of the Audit and Control Committee.

COMPETENCES
The competences of the Audit and Control Committee are as follows:

  •  Reporting, through the Chairman, to the General Shareholders’ Meetings on questions falling under its jurisdiction;
  •  Proposing the appointment of the Company’s auditors to the Board of Directors for subsequent approval by the General Shareholders’ Meeting, as well as the contractual conditions, scope of the work – specially concerning audit services, “audit related” and “non-audit” – annual activity evaluation and revocation or renovation of the auditor
    appointments;
  •  Supervising the finance reporting and the functioning of the internal risk management and control systems, as well as, evaluating those systems and proposing the adequate adjustments according to the Company necessities;
  •  Supervising internal audits and compliance;
  • Establishing a permanent contact with the external auditors to assure the conditions, including independence, that
    may be adequate for provision of services performed by them acting as the Company speaker for these subjects related to the auditing process, and receiving and maintaining information on any other questions regarding accounting subjects;
  • Preparing an annual report on its supervisory activities, including eventual constraints, and expressing an opinion on the Management Report, the accounts and the proposals presented by the Board of Directors;
  • Receiving notices of financial and accounting irregularities presented by the Company’s employees, shareholders, or entities that have a direct interest and judicially protected, related with the Company’s social activity;
  • Engaging the services of experts to collaborate with Committee members in the performance of their functions (when engaging the services of such experts and determining their remuneration, it must be taken into account the importance of the matters entrusted to them and the economic situation of the Company);
  • Drafting reports at the request of the Board and its Committees;
  • Any other powers entrusted to it by the Board of Directors or the Articles of Association.

FUNCTIONING


In addition to the Articles of Association and the law, this Committee is governed by its regulations approved on June 4th 2008 and amended on May 4th 2010, which are available at the Company’s website ( ).
The committee shall meet at least once a quarter and additionally whenever its Chairman sees fit. This committee shall draft minutes of every meeting held and inform the Board of Directors of its decisions at the first Board meeting after each committee meeting.
Decisions shall be adopted by majority. The Chairman shall have the casting vote in the event of a tie.
2017 ACTIVITY
In 2017 the Audit and Control Committee’s activities included the following:

  • Monitor the closure of quarterly accounts, first half-year and year-end accounts, to familiarize itself with the preparation and disclosure of financial information, internal audit, internal control and risk management activities;
  •  Analysis of relevant rules to which the committee is subject in Portugal and Spain;
  • Information about the independence of the External Auditor and the rules of the appointment of an External Auditor
    for 2018, 2019 and 2020;
  • Issuance of the favorable opinion about the proposals received to perform external auditor services, and proposal of the new External Auditor of EDPR to be submitted to the Board of Directors to its presentation to the General
    Shareholders’ Meeting to be held in 2018 (including its contractual conditions and scope);
  • Assessment of the external auditor’s work, especially concerning the scope of work in 2017, approval of all “audit related” and “non-audit” services and analysis of external auditor’s remuneration;
  • Supervision of the quality and integrity of the financial information in the financial statements and participation in the Executive Committee meeting at which these documents were analyzed and discussed;
  • Drafting of an opinion about the individual and consolidated reports and accounts, in a quarterly, half year
    and yearly basis;
  • Monitoring of the 2017 Internal Audit Action Plan and pre-approval of the 2018 Internal Audit Action Plan;
  • Monitoring of the Internal Audit recommendation issued at June 2017 closing;
  • Supervision of the quality, integrity and efficiency of the internal control system, risk management and internal
    auditing;
  • Information about Whistle-Blowing;
  • Information about the contingencies affecting to the Group;
  •  Information about the proposal of application of results for the fiscal year ended on December 31st and the distribution of dividends;
  • Quarterly and annual report of its activities and self-assessment about its performance.
    The Audit and Control Committee found no constraints during its control and supervision activities.

    The information regarding the meetings celebrated by this Committee and the attendance of its related members during the year 2017 is described at topic 35.


NOMINATIONS AND REMUNERATIONS COMMITTEE


COMPOSITION

Pursuant to Article 29 of the Company’s Articles of Association and Article 9 of its Regulations, the Nominations and Remunerations Committee shall consist of no less than three (3) and no more than six (6) members. At least one of its members must be independent and shall be the Chairman of the committee.
In accordance with Recommendation 52 of the Spanish Unified Code of Good Governance (“Código Unificado de Buen Gobierno”) approved by the Board of CNMV on February 18th 2015, the Nominations and Remunerations Committee must be entirely constituted by Non-Executive Directors and being the majority of them independent. In compliance with this Recommendation, and to the extent possible, also with the recommendation indicated in chapter II.3.1 of the Portuguese Corporate Governance Code (as considering that in Spain this committee shall be entirely comprised by members of its Board of Directors), EDPR’s Nominations and Remunerations Committee is entirely constituted by Non-Executive and independent members of its Board of Directors.
As of December 31st 2017, the Nominations and Remunerations Committee consists of four (4) independent members, plus the Secretary:

  • João Manuel de Mello Franco, who is the Chairman
  • António Nogueira Leite
  • Acácio Jaime Liberado Mota Piloto
  • Francisco Seixas da Costa

Additionally, Emilio García-Conde Noriega is the Secretary of the Nominations and Remunerations Committee.
None of the committee members are spouses or up to third degree relatives in direct line of the other members of the Board of Directors.
The committee members shall maintain their positions for as long as they are Company Directors. Nonetheless, the Board may decide to discharge members of the committee at any time and the members may resign said positions while remaining Company Directors.
COMPETENCES
The Nominations and Remunerations Committee is a permanent body belonging to the Board of Directors with an informative and consultative nature and its recommendations and reports are not binding.
The Nominations and Remunerations Committee has no executive functions. The main functions of the Nominations and Remunerations Committee are to assist and report to the Board of Directors about appointments (including by co-option), re-elections, removals, and the remuneration of the Board Members and its Officers, the composition of the Board delegated Committees, as well as the appointment, remuneration, and removal of executive staff.

Nominations and Remunerations Committee shall also inform the Board of Directors on general remuneration and incentive policy and incentives for Board members and executive staff. These functions include the following:

  • Defining the standards and principles governing the composition of the Board of Directors and the selection and appointment of its members;
  •  Proposing the appointment and re-election of Directors in cases of appointment (also by co-option) for the submission to the General Shareholders’ Meeting by the Board of Directors;
  • Proposing to the Board of Directors the candidates for the different committees;
  • Proposing to the Board, within the limits established in the Articles of Association, the remuneration system, distribution method, and amounts payable to the Directors;
  • Making proposals to the Board of Directors on the conditions of the contracts signed with Directors;
  • Informing and making proposals to the Board of Directors regarding the appointment and/or removal of executives
    and the conditions of their contracts and generally defining the hiring and remuneration policies of executive staff;
  • Reviewing and reporting on incentive plans, pension plans, and compensation packages;
  • Reflecting on the governance system adopted by EDPR in order to identify areas for improvement;
  •  Any other functions assigned to it in the Articles of Association or by the Board of Directors.
    FUNCTIONING
    In addition to the Articles of Association, the Nominations and Remunerations Committee is governed by its Regulations approved on June 4th 2008. The committee’s regulations are available at the Company’s website ( ).
    This committee shall meet at least once every quarter and also whenever its Chairman sees fit. This committee shall draft minutes of every meeting held and inform the Board of Directors of its decisions at the first Board meeting after each committee meeting. Decisions shall be adopted by majority. The Chairman shall have the deciding vote in the event of a tie.

2017 ACTIVITY

  • In 2017 the Nominations and Remunerations Committee activities were:
  • Proposing to the Board of Directors submitting the re-election Jose Antonio Pinto Ribeiro as Chairman of the General Shareholder’s Meeting for the statuary term of three (3) years to the Shareholder’s Meeting hold in April 9th, 2017.Performance evaluation of the Board of Directors and the Executive Committee;
  • Drafting of the Remuneration Policy and Remuneration Model for 2017-2019 to be proposed to the Board of Directors and submitted to the General Shareholders’ Meeting;
  • Drafting the report of its activities performed during the year 2017;
  •  Analysis and issuance of a reflection on the Corporate Governance system adopted by EDPR;
  •  Proposing to the Board of Directors the submission of the proposal to the Shareholder’s Meeting of the appointment
    by co-option of Duarte Bello and Miguel Ángel Prado as new members of the Board of Directors due to the vacant positions;
  • Proposing the appointment of Duarte Bello and Miguel Ángel Prado as Members of the Executive Committee of EDPR;
  • Reflection about the rotation and re- assignment of the competences between the Officers;
  • Considering the increased importance of Offshore Wind business, propose to appoint João Paulo Costeira as the Chief Operating Officer Offshore (“COO Offshore”) and Chief Development Officer (“CDO”) of EDPR;
  • Reflection and approval of the contractual conditions of the new appointments, including the proposal for Complementary Long Term Programs for the positions of COO NA and COO Offshore in accordance with the market conditions and the strategic long term targets of the Company.

RELATED-PARTY TRANSACTIONS COMMITTEE

COMPOSITION

Pursuant to Article 30 of the Articles of Association, the Board of Directors may set up other committees, such as the Related-Party Transactions Committee. This committee shall consist of no fewer than three (3) members the majority of whom must be independent. Currently, the Related-Party Transactions committee consists of three (3) independent members plus the Secretary.

Members of the Related-Party Transactions Committee shall be considered independent if they can perform their duties without being conditioned by their relations with EDPR, its majority shareholders or its Directors, and where appropriate, meet the other requirements of the applicable legislation.

As of December 31st, 2017, the members of this Committee are:

  • José Ferreira Machado, who is the Chairman
  • Acácio Jaime Liberado Mota Piloto
  • Francisca Guedes de Oliveira

Additionally, Emilio García-Conde Noriega is the Secretary of the Related-Party transactions Committee.
The committee members shall maintain their positions for as long as they are Company Directors. Nevertheless, the Board may decide to discharge members of the committee at any time and the members may resign these positions while, still remaining Company Directors.

COMPETENCES

The Related Party Transactions Committee is a permanent body belonging to the Board of Directors that performs the following duties, without prejudice, to others that the Board may assign to it:

  • Periodically reporting to the Board of Directors on the commercial and legal relations between EDPR or related entities and EDP or related entities;
  • In connection with the approval of the Company’s annual results, reporting on the commercial and legal relations between the EDPR Group and the EDP Group and the transactions between related entities during the fiscal year in question;
  • Ratifying the transactions executed between EDPR and/or related entities, and EDP and/or related entities by the stipulated deadline in each case, provided that the value of the transaction exceeds EUR 5,000,000 or represents 0.3% of the consolidated annual income of the EDPR Group for the previous fiscal year;
  • Ratifying any modification of the Framework Agreement signed by EDPR and EDP on May 7th 2008;
  • Making recommendations to the Board of Directors of the Company or its Executive Committee regarding the transactions between EDPR and related entities with EDP and related entities;
  • Asking EDP for access to the information needed to perform its duties;
  • Ratifying, 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;
  • Ratifying, in the corresponding terms according to the necessities of each specific case, the transactions between Board Members, “Key Employees” and/or family members with entities from EDP Renováveis Group whose annual value is superior to EUR 75,000.


In case the Related Party Transactions Committee does not ratify the commercial or legal relations between EDP or its related entities and EDP Renováveis and its related entities, as well as those related with Qualifying Holders other than EDP, Board Members, “Key Employees” and/or their relatives, such relations must be approved by 2/3 of the members of the Board of Directors as long as half of the members proposed by entities different from EDP, including independent Directors, vote favourably, except when a majority of members expresses its approval prior to submitting the matter to the Related Party Transactions Committee for its approval.

The terms of the bullet points above shall not apply to transactions between EDP or its related entities and EDPR or its related entities carried out under standardized conditions, and are applied equally to different related entities of EDP and EDPR, even standardized price conditions.

FUNCTIONING

In addition to the Articles of Association, the Related-Party Transactions Committee is governed by its regulations approved on June 4th 2008 and amended on February 28th 2012. The committee’s regulations are available at the Company’s website (www.edprenovaveis.com).

This committee shall draft minutes of every meeting held and inform the Board of Directors of decisions that it makes at the first Board meeting held after each committee meeting. Decisions shall be adopted by majority. The Chairman shall have the casting vote in the event of a tie.

2017 ACTIVITY

In 2017, the Related Party Transactions Committee revised, approved and proposed to the Board of Directors the approval of all agreements and contracts between related parties submitted to its consideration.

Chapter E – I, topic 90, of this report includes a description of the fundamental aspects of the agreements and contracts between related parties.

 

III. SUPERVISION

A. COMPOSITION

30. SUPERVISORY BOARD MODEL ADOPTED

EDPR’s governance model, as long as it is compatible with its personal law (Spanish law), corresponds to the so-called “Anglo-Saxon” model set forth in the Portuguese Commercial Companies Code, in which the management body is a Board of Directors, and the supervision and control duties are of the responsibility of an Audit and Control Committee.

31. COMPOSITION OF THE AUDIT AND CONTROL COMMITTEE

Composition of Audit and Control Committee is reflected on topic 29. The dates of first appointment as members of the

Audit and Control Committee are the following:

32. INDEPENDENCE OF THE MEMBERS OF THE AUDIT AND CONTROL COMMITTEE

Information concerning the independence of the members of the Audit and Control Committee is available on the chart of topic 18 of the report. As mentioned on the first paragraph of topic 18, the independence of the members of the Board and of its Committees is evaluated according to the Company’s personal law, the Spanish law.

33. PROFESSIONAL QUALIFICATIONS AND BIOGRAPHIES OF THE MEMBERS OF THE AUDIT AND CONTROL COMMITTEE

Professional qualifications of each member of the Audit and Control Committee and other important curricular information, are available in the Annex of this report.

B. FUNCTIONING

34. AUDIT AND CONTROL COMMITTEE REGULATIONS

The Audit and Control Committee regulations are available at the Company’s website ( ) and at the Company’s Headquarters at Plaza de la Gesta, 2, Oviedo, Spain.

35. NUMBER OF MEETINGS HELD BY THE AUDIT AND CONTROL COMMITTEE

The Audit and Control Committee held eight (8) formal meetings and several follow up meetings along 2017.

On June 14th, 2017, Jorge Santos and João Melo Franco attended the meeting of the Risk Committee were it was discussed the report about the “US market basis risk & unwind of Brazilian regulated PPAs” and on June 29th, 2017, João Melo Franco also attended to the Directors meeting (“Encuentro de Consejeros”) convened by the “Instituto de Auditores Internos de España” where there were discussed matters as the technical guidelines applicable to the Audit Committees of Public Interest Entities, cybersecurity for Directors or corporate criminal liability.

In 2017, Jorge Santos and João Melo Franco also met the Committee in charge of the Finance issues of EDP Group and KMPG to discuss the main conclusions about the Company results.

The table below shows the attendance percentage to the meetings of the Audit and Control Committee. During the year 2017 none of the members delegated their votes in other member.

36. AVAILABILITY OF THE MEMBERS OF THE AUDIT AND CONTROL COMMITTEE

The members of the Audit and Control Committee are fully available for the performance of their duties having no constraints for the execution of this function simultaneously with positions in other companies. The positions held simultaneously in other companies inside and outside the Group and other relevant activities undertaken by members of this Committee throughout the financial year are listed in the Annex of this report.

C. POWERS AND DUTIES

37. PROCEDURES FOR HIRING ADDITIONAL SERVICES TO THE EXTERNAL AUDITOR

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 IV.2 of the Portuguese Corporate Governance Code. This policy was strictly followed during 2017.

The non–audit services provided 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 and Control Committee according to Article 8.2, b) of its Regulations and 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 2017 such services reached only around 14.5% of the total amount of services provided to the Company.

38. OTHER DUTIES OF THE AUDIT AND CONTROL COMMITTEE

Apart from the competences expressly delegated on the Audit and Control Committee according to Article 8 of its Regulations and in order to safeguard the independence of the External Auditor, the following powers of the Audit and Control Committee were exercised during the 2017 financial year and should be highlighted:

  • Proposal of re-election and hiring of the External Auditor and responsibility for establishing their remuneration as well as pre-approval of any services to be hired from the External Auditor and perform its direct and exclusive supervision;
  • 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 order to evaluate independence, the Audit Committee, obtained the information regarding External Auditors’ independence in light of the Spanish Law no. 22/2015 of July 20th, 2015 (“Ley de Auditoría de Cuentas”);
  • Review of the transparency report, signed by the Auditor and disclosed at its website. This report covers the matters provided for under Law no. 22/2015 of July 20th, 2015 (“Ley de Auditoría de Cuentas”); 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 their scope, planning, and resources to be used in their provision of services;
  • Responsibility for the settlement of any differences between the Executive Committee and the External Auditors
    concerning financial information;
  • Contracts signed between EDPR and its Qualified Shareholders that were analysed by the Audit and Control
    Committee. 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.

Within this context, it should be particularly stressed that the External Auditor’s independence was safeguarded by the implementation of the Company’s policy for the 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 the European Union on this matter. According to such policy, the Audit and Control 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.

IV-V. STATUTORY AND EXTERNAL AUDITORS

39-41.

According to the Spanish law, the External Auditor (“Auditor de Cuentas”) is appointed by the General Shareholders’ Meeting and corresponds to the statutory auditor body (“Revisor Oficial de Contas”) described on the Portuguese Law. Consequently, the information about the External Auditor is available on chapter V of the report, points 42 to 47.

42. EXTERNAL AUDITOR IDENTIFICATION

EDPR’s External Auditor is, since 2007, KPMG Auditores S.L., a Spanish Company whose partner in charge of accounts auditing is, currently and since January 2014, Estibaliz Bilbao. KPMG Auditores S.L. is registered at the Spanish Official Register of Auditors under number S0702 and with Tax Identification Number B-78510153.

43. NUMBER OF YEARS OF THE EXTERNAL AUDITOR

KPMG Auditores S.L. is in charge of EDPR’s accounts auditing, having been performing these duties during ten (10) consecutive years from the date EDPR became Public Interest Entity.

44. ROTATION POLICY

According to the personal Law of EDPR -the Spanish Law- amended in 2015, the maximum term for an auditing firm is established in a 10-year term from the date the company is declared as a “Public Interest Entity”.

In the case of EDPR, this date is when the IPO was launched in 2008. On December 31st 2017, KPMG Auditores S.L. has ended its last consecutive year as EDPR’s External Auditor from the date that it became Public Interest Entity. Consequently it is foreseen that the Company External Auditor will rotate at the next General Shareholders’ Meeting.

45. EXTERNAL AUDITOR EVALUATION

The Audit and Control Committee is responsible for the evaluation of the External Auditor according to the competences granted by its Regulations. The evaluation of the Audit and Control Committee is made annually. The Audit and Control Committee acts as the company speaker for the relevant matters with the External Auditor and with whom establishes a permanent contact throughout the year to assure the conditions, including the independence, adequate to the services provided by them related to the auditing process, and receiving and maintaining information on any other questions regarding accounting subjects. In 2017, according to the Audit and Control Committee’s competences and in line with Recommendation II.2.2, it was the first and direct recipient and the corporate body in charge of the permanent contact with the external auditor on matters that may pose a risk to their independence and any other matters related to the auditing of accounts. It also receives and stores information on any other matters provided for in legislation on audits and in auditing standards in effect at any time. The External Auditor within the scope of its duties, verified the implementation of the remuneration policies and systems of the corporate bodies as well as the efficiency and effectiveness of the internal control mechanisms and report any shortcomings to the supervisory body of the Company.

46. NON-AUDIT SERVICES CARRIED OUT BY THE EXTERNAL AUDITOR

According to the rules described on topic 29 of this Report, in EDPR there is a policy of pre-approval by the Audit and Control Committee for the selection non-audit services according to Article 8.2, b) of the Audit and Control Committee Regulations.

During 2017 the non-audit services provided by the External Auditor for EDPR’s business units consisted mostly on i) quarterly review of the Spanish and Portuguese companies’ financial statements which is considered a non-audit service according to the respective local regulations; ii) review of the internal control system on financial reporting for the EDPR Group iii); review of the non-financial information related to sustainability included in the EDPR Group’s annual report; and iv) agreed upon procedures requested by non-controlling interests and by financial institutions in order to obtain certified assurance over certain financial information.

KPMG was engaged to provide the above-mentioned services due to its in-depth knowledge of the Group’s activities and processes. These engagements did not risk the independence of the External Auditor and were pre-approved by the Audit and Control Committee prior to rendering the services.

47. EXTERNAL AUDITOR REMUNERATION IN 2017