Transcription

1 annual report 2008

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3 ANNUAL REPORT 2008

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6 Contents

7 REPORT ON OPERATIONS corporate governance 8 The Enel structure 266 Report on corporate governance and ownership structure 10 Corporate boards 13 Letter to shareholders and stakeholders 21 Summary of results 27 Significant events in Reference scenario 38 Enel and the financial markets 40 Developments in the main market indicators 41 Economic developments in the countries in which Enel operates 43 Italy 61 International 77 Overview of the Group s performance and financial position 93 Results by Division 98 Sales 101 Generation and Energy Management 104 Engineering and Innovation 105 Infrastructure and Networks 107 Iberia and Latin America 112 International 116 Renewable Energy 120 Parent Company, Services and Other Activities 122 Main risks and uncertainties 127 Outlook 129 Research and development DECLARATION OF THE CHIEF EXECUTIVE OFFICER AND THE MANAGER RESPONSIBLE FOR THE PREPARATION OF CORPORATE FINANCIAL REPORTS 308 Declaration of the Chief Executive Officer and the manager responsible for the preparation of the corporate financial reports of the Enel Group ATTACHMENTS 312 Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, Human resources and organization 141 Stock incentive plans 150 Reconciliation of shareholders equity and net income of Enel SpA and the corresponding consolidated figures CONSOLIDATED FINANCIAL STATEMENTS REPORTS 154 Consolidated financial statements 348 Report of the Independent Auditors 155 Consolidated Income Statement 156 Consolidated Balance Sheet 158 Consolidated Statement of Cash Flows 159 Statement of Recognized Income and Expenses for the Period 160 Notes to the financial statements

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9 Report on operations 7

10 8 The Enel structure Corporate Enel SpA Sales Generation and Energy Management Engineering and Innovation Infrastructure and Networks Enel Servizio Elettrico Enel Produzione Enel Produzione Enel Distribuzione Enel Energia Enel Trade Enel Rete Gas Vallenergie Enel Trade Hungary Enel Sole Enel Trade Romania Deval Nuove Energie Hydro Dolomiti Enel Enel Stoccaggi Iberia and Latin America International Renewable Energy Services and Other Activities Endesa Slovenské elektrárne Enel Green Power Enel Servizi Enel Maritza East 3 Enel.si Sfera Enel Operations Bulgaria Enel Latin America Enelpower Enel Distributie Muntenia Enel Distributie Banat Enel Distributie Dobrogea Enel Energie Muntenia Enel Energie Enel Productie (formerly Global Power Investment) Enel Romania Enel Servicii Comune RusEnergoSbyt SeverEnergia OGK-5 Enel France Enelco Marcinelle Energie Americas Generation Corporation (1) Inelec Enel Unión Fenosa Renovables Blu Line Enel North America Enel Green Power Bulgaria (formerly Enel Maritza East 4) Enel Erelis International Wind Power Wind Parks of Thrace International Wind Parks of Thrace Hydro Constructional International Wind Parks of Crete Enel.NewHydro Enel.Factor Enel.Re (1) Since October 30, 2008, Enel Panama and Enel Panama Holding (formerly Enel Fortuna) have been merged into Americas Generation Corporation. ENEL Annual Report 2008 Report on operations

11 9 In September 2008, a new organizational structure was implemented with the creation of the Renewable Energy Division alongside the existing Divisions in the organization implemented in December 2007 and operational since January 1, 2008, which had involved the establishment of the new Iberia and Latin America and Engineering and Innovation Divisions alongside the Sales, Generation and Energy Management, Infrastructure and Networks and International Divisions, and the Parent Company and Services and Other Activities areas. The Sales Division operates in the end-user market for electrical power and gas in Italy, developing an integrated package of products and services for the various customer segments and ensuring that commercial services meet quality standards. The Generation and Energy Management Division is responsible for generating power at competitive costs while safeguarding the environment. The mission of the Infrastructure and Networks Division is to distribute electricity and gas, optimizing the management of Enel s networks and ensuring the efficient operation of measurement systems and compliance with technical service quality standards. The Iberia and Latin America Division focuses on developing Enel s presence and coordinating its operations in the electricity and gas markets of Spain, Portugal and Latin America, formulating growth strategies in the related regional markets. The Engineering and Innovation Division is charged with managing the engineering processes associated with the development and construction of generation facilities on behalf of the Group, ensuring achievement of the quality, temporal and financial objectives set for it. In addition, it is responsible for coordinating and supplementing Group research activities, ensuring the scouting, development and leveraging of innovation opportunities in all Group business areas, with a special focus on the development of major environmental initiatives. The International Division s mission is to support Enel s international growth strategy, consolidate the management and integration of foreign operations (with the exception of the Spanish, Portuguese and Latin American markets and the renewables operations included in the Renewable Energy Division), seeking out opportunities for acquisitions in the electricity and gas markets. The Renewable Energy Division has the mission of developing and managing operations for the generation of electricity, ensuring their integration within the Group in line with Enel s strategies. The activities of the operational Divisions are supported by the Parent Company and Services and Other Activities areas, which aim to leverage Group synergies and optimize the management of services supporting Enel s core business. In the 2008 consolidated financial statements, the results of the Divisions have therefore been presented in accordance with the current structure, while the figures for 2007 presented for comparative purposes have been reallocated to the Divisions on the basis of the new organizational structure in effect since September Accordingly, compared with December 31, 2007, the figures for the Engineering and Innovation Division have been drawn from those for Generation and Energy Management Division and those for the Iberia and Latin America Division have been reallocated from the International Division, while those for the Renewable Energy Division have been taken from: >> the Generation and Energy Management Division for non-schedulable hydroelectric plants, geothermal and solar plants, and wind plants; >> the Iberia and Latin America Division for Enel Latin America, Inelec, Americas Generation Corporation and Enel Unión Fenosa Renovables; >> the International Division for International Wind Parks of Thrace, Wind Parks of Thrace, International Wind Power, International Wind Parks of Crete, Hydro Constructional, Enel Green Power Bulgaria (formerly Enel Maritza East 4), Blue Line, Enel North America, and Enel Erelis; >> the Sales Division for Enel.si.

12 10 Corporate boards Board of Directors Chairman Piero Gnudi Chief Executive Officer and General Manager Fulvio Conti Directors Giulio Ballio Lorenzo Codogno Renzo Costi Augusto Fantozzi Alessandro Luciano Fernando Napolitano Gianfranco Tosi Secretary Claudio Sartorelli Board of Auditors Chairman Franco Fontana Auditors Carlo Conte Gennaro Mariconda Alternate auditors Giancarlo Giordano Paolo Sbordoni Independent auditors KPMG SpA ENEL Annual Report 2008 Report on operations

13 11 Powers Board of Directors The Board is vested by the bylaws with the broadest powers for the ordinary and extraordinary management of the Company, and specifically has the power to carry out all the actions it deems advisable to implement and attain the corporate purpose. Chairman of the Board of Directors The Chairman is vested by the bylaws with the powers to represent the Company legally and to sign on its behalf, presides over Shareholders Meetings, convenes and presides over the Board of Directors, and ascertains that the Board s resolutions are carried out. Pursuant to a Board resolution of June 18, 2008, the Chairman has been vested with a number of additional non-executive powers. Chief Executive Officer The Chief Executive Officer is also vested by the bylaws with the powers to represent the Company legally and to sign on its behalf, and in addition is vested by a Board resolution of June 18, 2008 with all powers for managing the Company, with the exception of those that are otherwise assigned by law or the bylaws or that the aforesaid resolution reserves for the Board of Directors.

14 12 ENEL Annual Report 2008 Report on operations

15 Letter to shareholders and stakeholders 13 Dear shareholders and stakeholders, With the acquisition of OGK-5 in Russia, which was completed in March 2008, and the signing, in February 2009, of the agreement with Acciona, which gave Enel full control over Endesa, the international expansion of our Group has now been completed successfully. The formation of the new Renewable Energy Division dedicated to the development and management of power generation from renewable sources at the international level will enable Enel to play a leading role in a market segment with great potential for growth even in a weak economic environment such as that in which we currently find ourselves. Today, Enel is the second largest electricity group in Europe, with an installed capacity at end-2008 of 83.3 GW and 49.3 million customers in 22 countries on 4 continents, and, thanks to the consolidation of Endesa, stands poised to become the leading private-sector group in Latin America. Enel has thus reached an optimum size to play a major role in an increasingly integrated and global energy market, with a well balanced mix of regulated and generation activities capable of generating stable cash flows over time. The contribution from acquisitions abroad, the resulting synergies and the continuous pursuit of operational excellence and efficiency in all our Divisions contributed decisively to improving the Group s results: in 2008, the gross operating margin increased by 45.5% over the previous year, while net income attributable to shareholders of the Parent Company amounted to 5,293 million, up 35.2%. In line with the strategy adopted so far, the Enel Group s programs for the coming years will be aimed at maintaining leadership in the domestic energy market, consolidating and integrating the international operations and continuing the pursuit of operational excellence and the development of innovative technologies, renewables and nuclear power. The company continues to carefully manage operating cash flow and will pursue initiatives to leverage certain assets in the portfolio with the aim of further reducing its debt.

16 14 Sales Division A year and a half has now passed since, on July 1, 2007, all Italian households joined businesses in being free to choose their supplier of electricity. The Sales Division has, from day one, offered the market a portfolio of products and services geared to meet the needs of all customers, with innovative offerings that take account of environmental concerns, such as the dual energy option (the combined supply of electricity and gas services). Currently, more than 3 million households are Enel customers on the free market for electricity and gas. In the segment of small and medium-sized enterprises, over 1.2 million customers and our well-established position with large industrial customers give Enel the leadership position in the market for business customers. Enel thus confirms its role as Italy s leading supplier of electricity on the free market, with a share of 27% of total volumes delivered, and the number two group in the sale of natural gas. These results are the fruit of the great attention we pay to our customers, as underscored by the success of our commercial offers. Our customers have responded enthusiastically to our blocked-price offers and the certified renewable energy option. In 2008 Enel had a major success with the E-light offer, which combines a competitive price with the Internet to enable customers to manage normal commercial transactions directly. Innovation and efficiency are the lines of development that the Sales Division intends to continue expanding on the free market, establishing itself as a standard for excellence in the provision of products and services to customers. Generation and Energy Management Division In 2008 the program of transformation and development of the Division s generation facilities continued, with the aim of increasing the efficiency and competitiveness of Enel s generation resources in the Italian market. In particular, construction continued on the Torrevaldaliga Nord clean-coal plant at Civitavecchia: on November 21, 2008, the first of the three units that will gradually come on line by early 2010, with a total capacity of about 1,900 MW, was connected to the electricity grid. Moreover, in 2008, the Division again renewed its commitment to the pursuit of cost reduction and improving the operational management of its generation facilities through projects designed to enhance operational efficiency and safety. As part of the Group project to leverage renewable energy resources, last year saw the transfer of wind, geothermal, photovoltaic and non-schedulable hydroelectric plants to the new company Enel Green Power, with a total installed capacity of 2,547 MW. Considering the new organization of plant assets, in 2008 the Generation and Energy Management Division produced about 85 TWh of electricity in Italy, an increase of 1.4% over the previous year thanks to excellent performance of generation plants, effectively countering the effect of the decline in demand for electricity on the grid and the increase in the output of other generation companies. ENEL Annual Report 2008 Report on operations

17 Renewable Energy Division Last year saw the creation of the new Renewable Energy Division and, at the same time, Enel Green Power, the Enel Group company dedicated to the development and management of power generation from renewable sources at the international level. The Division ended the year with an installed capacity of 4,464 MW divided between wind, solar, geothermal, non-schedulable hydroelectric and biomass, and over 500 plants operating throughout the world. The level of output in 2008 makes Enel Green Power a world leader in this field: the 17.3 TWh of power generated meets the demand of approximately 6,500,000 households, avoiding the emission of 13 million metric tons of CO 2 a year. Enel Green Power is present in Italy, Europe, Latin America and North America. In Italy, with a total installed capacity of about 2,547 MW and 10.9 TWh of energy produced, the company is the leader in geothermal, hydroelectric and solar technologies, and in the coming years it intends to greatly increase its total installed capacity. This objective will be achieved by consolidating its leadership position in the mini-hydro and geothermal sectors, and developing its presence in solar and wind power. Elsewhere in the rest of Europe, Enel Green Power has a presence in Spain, Greece, France, Romania and Bulgaria, with 502 MW of installed capacity and major projects under development. In the United States and Canada, the company is present in 20 US states and two Canadian provinces. In this region, Enel Green Power is one of the few companies to have a diversified portfolio in the four areas of wind, geothermal, hydroelectric and biomass technologies, with an installed capacity of 749 MW and output in 2008 of 1.9 TWh. With a strong focus on technological innovation, in North America Enel Green Power is completing two new geothermal plants using binary technology with a capacity of 65 MW in Churchill County (Nevada). In October 2008, the company inaugurated the Smoky Hills wind farm in Kansas, Enel s largest wind facility in the world. With a capacity of 250 MW, it can satisfy the consumption needs of 85,000 American households and avoid the emission of around 750,000 metric tons of CO 2. In Central and South America, Enel Green Power is present with the development and operation of 35 plants in Mexico, Costa Rica, Guatemala, Nicaragua, Panama, El Salvador, Chile and Brazil. With a variety of technologies ranging from hydroelectric to wind and geothermal, Enel operates in the region with 667 MW of renewables capacity and 3.5 TWh of electricity generated in Hydro power is currently the principal energy resource in Enel Green Power s portfolio in the area, with over 30 facilities located in 6 countries with a total capacity of 643 MW. In Panama, Enel Green Power operates through its subsidiary Americas Generation Corporation, with a 300 MW hydroelectric plant the second largest civil infrastructure in the country after the Canal that generates 23% of the country s electricity. In Chile, work is under way in the north of the country on the deep prospecting of two geothermal fields with a potential capacity exceeding 100 MW. In the coming years, Enel Green Power intends to grow significantly, increasing installed capacity substantially and optimizing the technology-country mix with a view to value creation, building on the skills that Enel has long had in this field. 15

18 16 Engineering and Innovation Division Established at the end of 2007, the Engineering and Innovation Division implemented and consolidated its current operational arrangements in In December, the Torrevaldaliga Nord clean-coal plant was successfully started up for the first time. The opening of this facility, the most technologically advanced in the world of this type, confirms Enel s undisputed technical and technological leadership in the development and construction of thermal power plants. In Belgium and Russia, work has begun on the construction of combined cycle plants in Marcinelle and Nevinnomiskaya, underscoring the Division s commitment to international development in support of the Enel Group and its strategy. In the nuclear power field, the 2008 program for the integration of Enel technicians and engineers in the EdF team in France was completed. The project involves the design and construction of the third-generation advanced EPR facility at Flamanville in France. At the beginning of 2009, Enel signed a Memorandum of Understanding (MoU) with EdF to extend this cooperation to the new EPR project at Penly announced recently. In Slovakia, work has begun on the construction of units 3 and 4 of the Mochovce nuclear power plant. Finally, activity has also begun on Enel s program for the return to nuclear power in Italy, including a collaborative initiative with EdF for the development of EPR technology at four new units in the coming years. On the innovation front, a Group Technological Innovation Plan was developed, marking the start of a new approach to managing technological innovation projects, aimed at ensuring the maximum effectiveness of the research activities of the Enel Group. At Fusina, testing began for the start-up of the experimental plant that will enable Enel, the first in the world, to test and develop, as from March 2009, the technology for the use of hydrogen as a fuel for gas turbine installations. Finally, the E-mobility project was launched in collaboration with Daimler-Mercedes. Enel will develop a test network in Pisa, Rome and Milan for the intelligent recharging of 100 electrically powered Smart cars, as part of a pilot project to be launched in Infrastructure and Networks Division The Infrastructure and Networks Division achieved excellent results again in 2008, despite the many changes that regulators introduced regarding rates, technical and commercial quality and management of the free electricity market. The level of service quality in terms of the duration and number of interruptions per customer is among the best in Europe, enabling Enel Distribuzione to once again receive bonus payments from the Authority for Electricity and Gas. The total length of service interruptions in Italian territory reached 56 minutes. Enel s automated system for remote contract management and metering handled over 12 million contract transactions and more than 250 million remote readings in 2008, further increasing operational efficiency and facilitating the execution of an increasing number of operations, particularly those for operators and customers on the free market connected to the Enel network. The leadership of Enel in smart metering and the practical implementation of the technologies underlying the implementation of smart grids is confirmed by the Group s plans for the development of remote systems abroad: in Spain, in addition to the continuation of the installation of 750,000 meters with Viesgo customers, the deployment plan for the more than 11 million customers of Endesa was developed. In Malta, Enel reached an agreement with Enemalta for the sale of 250,000 meters in 2008, while in Russia further opportunities ENEL Annual Report 2008 Report on operations

19 for the development of existing pilot projects were identified. With regard to operational efficiency, in addition to the benefits obtained with the remote management system, the Zenith Pegaso-SixSigma project involved commercial quality processes and is gradually being extended to other processes with excellent results. Thanks to these initiatives, operating costs per customer declined by a further euro compared with 2007, reaching a level of absolute excellence in Europe. At the end of 2008, an agreement was signed with Terna for the sale of approximately 19,000 kilometers of high-voltage network that is not considered strategic by Enel Distribuzione. At the same time, offers were invited for the sale of a majority stake in Enel Rete Gas. For the latter, 2008 was a year of growth and consolidation of business, in line with achievements in The public lighting business line confirmed the positive results of the previous year and the commercial launch of new LED street lighting systems, which will begin to be installed in the 1st Quarter of Iberia and Latin America Division 2008 was a year of important results for the Iberia and Latin America Division. Endesa posted improved results despite the difficult context, which was characterized by slower growth in demand than in the previous year in both Spain and Latin America, mainly due to the unfavorable global economic conditions that marked the second half of the year. Performance in Latin America was especially strong, thanks to the positive results of activities in Chile and Colombia, especially in generation. On the Spanish market, the improved performance was due in particular to energy management and greater internal efficiency. Endesa s contribution to the Division s operating income and net profit, consolidated at 67.05% for the year, rose significantly in Enel and Endesa launched major collaboration projects with a view to generating synergies. As well as implementing numerous initiatives to share best practices in the generation and distribution of electricity and in purchasing, a plan for installing Enel s digital meter on the Endesa network was developed, with appropriate adaptations to suit the particular needs of the Spanish market. The synergy plan was activated successfully. The plan presented in 2007 set a goal of 680 million for Following further joint analysis, in the 1st Quarter of 2008 this target was revised upwards, to a total of more than 730 million by The target for 2008 established in the synergy plan was easily surpassed. In February 2009, Enel and Acciona reached agreement for the transfer to Enel of the 25,01% of Endesa held by the latter, bringing forward by at least one year the exercise of the put option held by Acciona as provided for in the original 2007 contract. With the agreement, Enel s stake in Endesa will reach 92.06%, thus transferring full management and operational control. Enel and Endesa can thereby accelerate the process of generating industrial, technological and market synergies to the benefit of all customers and creating opportunities for improving performance to the benefit of all shareholders. International Division The cycle of international expansion completed in 2008 with the finalization of the acquisition of OGK-5 in Russia and Muntenia Sud in Romania has established a new scope of operations for the International Division. The Division is engaged in implementing a selective investment policy, coupled with

20 18 initiatives to improve operational management and develop assets to make our foreign companies more efficient in order to tackle an increasingly competitive market. In 2008, Slovenské elektrárne, the largest generation company in Slovakia, confirmed its status as a strong, sound company capable of making a significant contribution to Group performances and, above all, to meet the growing energy needs of the country. The launch in November 2008 of work to complete the Mochovce nuclear power plant, with the 880 MW capacity of the new units 3 and 4, which are scheduled to start operation in 2012 and 2013 respectively, is an important component of the stability of the area s energy system and Enel s nuclear power strategy. In the nuclear field, collaboration continues with EdF in France on the development of the EPR systems and the parallel expansion of a platform for the sale of electricity. In March, the successful conclusion to the takeover of OGK-5 completed Enel s strong and balanced presence throughout the value chain in Russia, stretching from the extraction of natural gas to the sale of electricity to customers. The process of liberalizing the electricity market, with its prospects for development, remains one of the main drivers of Enel s strategy in Russia. In order to seize these opportunities for growth fully and leverage them effectively, 2008 saw the launch of a far-reaching industrial renewal program to integrate and boost the efficiency of processes, systems and structures. Compared with 2007, plant availability rose by 8.2% and sales by 10.5%. At the same time, work began on the construction of two new 410 MW CCGT plants in Nevinnomiskaya and Reftinskaya to strengthen Enel s presence in the Urals and the Caucasus. With the completion in June 2008 of the acquisition of Electrica Muntenia Sud (now Enel Distributie Muntenia and Enel Energie Muntenia), the electricity distribution and sales company in the Bucharest area, Enel has doubled the scale of its operations in Romania. The integration of this new company is part of a broader optimization project to exploit synergies with other Romanian companies (Enel Energie, Enel Distributie Banat and Enel Distributie Dobrogea), increase service quality, develop the electricity grid and expand generation resources. Within the framework of initiatives to enhance sustainability and environmental compatibility, in February 2009, the modernization of the Maritza East 3 plant in Bulgaria was completed with the entry into operation of the fourth and final unit. It thus becomes the only lignite-fired plant in the Balkan area that fully complies with Europe s most recent and stringent environmental requirements. ENEL Annual Report 2008 Report on operations

21 Outlook With the agreement signed in February 2009 with Acciona, thanks to which Enel will exercise full control of Endesa, and with the strengthening of the Group s presence in the Russian market, Enel has completed its growth through major acquisitions and taken another important step in the consolidation and integration of the Group. The size the Group has achieved and its leading presence in European energy markets and in the other countries in which it operates represent the prerequisite and foundation for continuing to pursue the strategies developed in the last few years. The Group s attention will be focused on the further consolidation and integration of its various parts, with the aim of creating value by leveraging the professionalism, skills and synergies it possesses, without neglecting the search for new opportunities in technological innovation and in organic growth in the areas and businesses in which it operates. At the same time, the portfolio optimization efforts designed to reinforce the Group s financial position, which has been affected considerably by the international expansion policy pursued in recent years, will continue. Enel will also continue to pursue investment in research and development and in the renewable energy field, with a focus on technological excellence and close concern for environmental issues. Finally, Enel will define and implement the program for the return of nuclear power in Italy as soon as the regulatory framework currently being drafted by Parliament is completed. The consolidation and integration of Enel s international operations, the optimization of the portfolio and the development and efficiency programs planned for the operational Divisions will have a positive impact already in 2009, contributing to improving Group performance despite the continuing recession in the world economy. 19 The Chief Executive Officer Fulvio Conti

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23 Summary of results 21

24 22 Gross operating margin (millions of euro) Capital expenditure (millions of euro) Employees (no.) 1,044 1, (71) 554 3, ,865 4, ,432 4,170 6,829 1, ,407 4,647 3,719 2,382 17,827 21,683 Sales Generation and Energy Management Engineering and Innovation Infrastructure and Networks Iberia and Latin America International Renewable Energy Parent Company Services and Other Activities Income data Millions of euro (1) Revenues 61,184 43,688 Gross operating margin 14,318 9,840 Operating income 9,541 6,781 Net income before minority interests 6,034 4,131 Group net income 5,293 3,916 Group net income per share in circulation at year-end (euro) (1) The figures have been adjusted for comparative purposes only to take account of the effects of the completion at December 31, 2008 of the Purchase Price Allocation of the Endesa acquisition, as well as the effects of the classification of the performance of gas distribution activities in Italy under discontinued operations. Revenues in 2008 amounted to 61,184 million, an increase of 17,496 million (up 40.0%) compared with The rise is essentially attributable to the increased revenues earned abroad, due to the effects of acquisitions completed in the two periods and to increased revenues from electricity generation and sales in the Italian market. The gross operating margin in 2008 amounted to 14,318 million, an increase of 4,478 million (up 45.5%) on the previous year, largely thanks to the general increase posted by all the operational Divisions, notably the Iberia and Latin America Division, which reflects the different period of consolidation of Endesa. Operating income in 2008 came to 9,541 million, up 40.7% on the 6,781 million in 2007, mainly due to the results of the foreign acquisitions as well as the growth posted by all the other operational Divisions. ENEL Annual Report 2008 Report on operations

25 Group net income in 2008 totaled 5,293 million, compared with 3,916 million in the previous year, an increase of 35.2%. This performance reflects strong operating performance, partly offset by an increase in net financial expense, and the positive effects of a decline in income taxes. The latter comprises the net positive impact ( 1,858 million) of the adjustment of deferred taxation following the realignment of the differences between the statutory and tax values of certain items of property, plant and equipment, net of the specific tax envisaged in the 2008 Finance Act, and the negative effects ( 290 million) of the increase in the corporate income tax rate (IRES) established with Decree Law 112/2008 for companies operating in the production and sale of electricity and gas. 23 Financial data Millions of euro (1) Net capital employed 76,262 82,424 Net financial debt 49,967 55,791 Shareholders equity (including minority interests) 26,295 26,633 Group shareholders equity per share in circulation at year-end (euro) Cash flow from operations 10,510 6,070 Capital expenditure on tangible and intangible assets 6,502 4,929 (1) The figures have been adjusted for comparative purposes only to take account of the effects of the completion at December 31, 2008 of the Purchase Price Allocation of the Endesa acquisition, as well as the effects of the classification of the performance of gas distribution activities in Italy under discontinued operations. Net capital employed, including net assets held for sale of 3,460 million, amounted to 76,262 million at December 31, 2008, and was financed by shareholders equity of 26,295 million and net financial debt of 49,967 million. At December 31, 2008, the debt/equity ratio came to 1.90 (2.09 at December 31, 2007). Net financial debt, excluding debt attributable to assets held for sale amounting to 795 million at year-end ( 1,725 million a year earlier), came to 49,967 million at December 31, 2008, down 5,824 million on December 31, The decrease is largely attributable to the benefits from the completion of the sale of the assets of Endesa Europa and Viesgo to E.On, partially offset by resources used to complete acquisitions carried out in Capital expenditure amounted to 6,502 million in 2008 (of which 6,186 million in respect of property, plant and equipment), an increase of 1,573 million on The increase is mainly attributable to greater investments by the Iberia and Latin America and Renewable Energy Divisions (of 1,127 million and 288 million respectively).

26 24 Operating data Italy Abroad Total Italy Abroad Total Net electricity generated by Enel (TWh) Net efficient capacity (GW) Electricity transported on the Enel distribution network (TWh) Electricity sold by Enel (TWh) (1) No. of end-user electricity customers (millions) Gas sold to end users (billions of m 3 ) Gas transported (billions of m 3 ) Employees at year-end (no.) (2) 40,327 35,654 75,981 41,746 31,754 73,500 (1) Excluding sales to resellers. (2) Of which 1,413 in units classified as Held for sale (2,614 at December 31, 2007). Net electricity generated by Enel (TWh) Abroad Italy Net electricity generated by Enel in 2008 increased by 99.7 TWh (up 65.0%) as a result of greater output abroad (up 97.6 TWh, of which 76.1 TWh and 22.5 TWh attributable to the different period of consolidation of Endesa and the acquisition of OGK-5, respectively, net of the effects of the deconsolidation of the Viesgo Group) and an increase in generation in Italy (up 2.1 TWh). Electricity transported on the Enel distribution network came to TWh, an increase of 91.2 TWh (up 30.2%), mainly due to an increase in power transported abroad (up 92.3 TWh, of which 91.4 TWh attributable to the different period of consolidation of Endesa). Electricity sold by Enel rose by 74.1 TWh (up 37.7%), with total sales of TWh to 49.3 million customers. The increase is largely attributable to increased sales abroad (up 79.3 TWh, of which 78.2 TWh from the different period of consolidation of Endesa). Gas sold to end users amounted to 8.2 billion cubic meters in 2008, with volumes increasing both in Italy (up 16.3%) and abroad thanks to the consolidation of Endesa. At December 31, 2008 Enel Group employees totaled 75,981 (73,500 at December 31, 2007), an increase of 2,481 attributable to the change in the scope of consolidation due to acquisitions abroad (up 3,891 employees), which more than offset the net decrease of 1,410 resulting from hirings and terminations. The number of employees at Group companies registered abroad came to 35,654. ENEL Annual Report 2008 Report on operations

27 Results by Division 25 Millions of euro Revenues Gross operating margin Operating income Sales 22,609 22, Generation and Energy Management 22,143 17,062 3,113 2,743 2,259 1,918 Engineering and Innovation 1, Infrastructure and Networks (1) 6,537 5,457 3,719 3,543 2,844 2,742 Iberia and Latin America (2) 15,805 4,517 4,647 1,420 2, International 4,708 2,794 1, Renewable Energy 1,852 1,536 1, Parent Company (71) (59) (94) (75) Services and Other Activities 1,169 1, Eliminations and adjustments (15,371) (12,884) (6) (21) (6) (21) Total 61,184 43,688 14,318 9,840 9,541 6,781 Millions of euro Operating assets Operating liabilities Capital expenditure Sales 8,105 7,530 6,127 5, Generation and Energy Management 15,357 15,606 4,468 4, Engineering and Innovation Infrastructure and Networks (1) 19,773 (3) 18,223 6,023 (4) 5,123 1,407 1,587 Iberia and Latin America (2) 53,201 (5) 64,789 9,255 (6) 9,824 2,382 1,255 International 12,562 7,524 5,098 3, Renewable Energy 5,593 4, Parent Company 1,233 1,228 1,351 1, Services and Other Activities 1,883 1,610 1,658 1, Eliminations and adjustments (5,714) (3,907) (5,150) (3,064) - - Total 112, ,349 29,995 28,696 6,502 4,929 (1) The 2007 figures have been adjusted for comparative purposes only to take account of the effects of the classification of gas distribution activities in Italy under discontinued operations. (2) The 2007 figures have been adjusted for comparative purposes only to take account of the effects of the completion at December 31, 2008 of the Purchase Price Allocation of the Endesa acquisition. (3) Of which e2,871 million regarding units classified as Held for sale (0 at December 31, 2007). (4) Of which e324 million regarding units classified as Held for sale (0 at December 31, 2007). (5) Of which e2,368 million regarding units classified as Held for sale (e12,579 million at December 31, 2007). (6) Of which e36 million regarding units classified as Held for sale (e2,147 million at December 31, 2007). Employees (no.) at Dec. 31, 2008 at Dec. 31, 2007 Sales 4,170 4,669 Generation and Energy Management 6,829 6,931 Engineering and Innovation 1, Infrastructure and Networks (1) 21,683 22,710 Iberia and Latin America (2) 17,827 19,786 International 16,865 11,259 Renewable Energy 2,432 2,313 Parent Company Services and Other Activities 4,406 4,223 Total 75,981 73,500 (1) Of which 1,289 in units classified as Held for sale (0 at December 31, 2007). (2) Of which 124 in units classified as Held for sale (2,614 at December 31, 2007).

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29 Significant events in

30 28 Acquisition of OGK-5 On March 6, 2008, the number of shares (as verified by the competent bodies) tendered to Enel, acting through its subsidiary Enel Investment Holding (EIH), amounted to 8,012,088,702, equal to 22.65% of the share capital of OGK-5. These shares, together with the 37.15% of OGK-5 already held by EIH before the public tender offer, therefore gave EIH a total holding of 59.8% in the company. The price offered in the bid was rubles per share, for a total of about 993 million. Subsequently, EIH sold the European Bank for Reconstruction and Development a minority stake of about 4.1% in OGK-5 for some 175 million and acquired 0.16% from former managers of the company. Following the transactions, at December 31, 2008, EIH s interest in OGK-5 was equal to 55.86% Sale of Endesa and Enel assets under the agreement with E.On On March 18, 2008, Enel, Acciona and E.On reached an agreement to modify part of the assets held by Endesa to be sold to E.On under the contract of April 2, Specifically, the thermal power stations in Spain at Foix (fuel oil, with an installed capacity of 520 MW which includes a project under development for the construction of an 800 MW combined cycle plant) and Besos 3 (combined cycle, with an installed capacity of 388 MW) were replaced by the thermal plant at Tarragona (combined cycle, with an installed capacity of 395 MW). Following the notification of the valuation of the Endesa and Enel assets to be sold to E.On by the banks engaged to conduct the appraisal, on March 28, 2008 the Board of Directors of E.On formally notified the company s intention to acquire the assets. Having obtained the necessary administrative authorizations, on June 26, 2008 the sale to E.On of the assets of both Endesa and the Enel Group was finalized. The assets were identified by the parties by common consent. The parties have further agreed not to undertake the planned sale to E.On of the drawing rights for electricity generated by the Endesa nuclear power stations in Spain (450 MW per year for 10 years), as originally envisaged in the agreement of April 2, The total value of the transaction amounts to about 11.5 billion, including the debt (about 1.8 billion) transferred with the companies that have been sold and net of minority interests. In particular: >> the 100% equity investment of Endesa in Endesa Europa has been sold to E.On for 7,126 million, with an additional 1,159 million for the balance of the net intragroup financial position. The price is subject to adjustment following the detailed calculation of debt at the sale date; >> the sale of the thermal power stations of Tarragona and Los Barrios has been finalized for 769 million; >> the assets of the Enel Group in respect of Viesgo have been sold to E.On for million. ENEL Annual Report 2008 Report on operations

31 Agreement with the Region of Liguria 29 On March 21, 2008, Enel and the Region of Liguria signed a protocol of understanding regarding joint initiatives for the development of renewable energy resources in the port and airport area of Genoa. The protocol will run until November 30, 2012, unless the parties decide to extend or renew it. With this initiative, Enel and the Region of Liguria agree to define the operational and financial tools necessary to develop wind and photovoltaic systems for the generation of electricity with a total capacity of about 22 MW. Cooperation agreement with EGAS On April 9, 2008, Enel and the Egyptian Natural Gas Holding Company (EGAS) signed a cooperation agreement for the joint development of the upstream gas sector, focusing on liquefied gas and the sale of natural gas. Under the terms of the accord, Enel will also share its international experience with EGAS to assess investment opportunities to improve the efficiency of Egyptian generation plants. Acquisition of Electrica Muntenia Sud (EMS) On April 25, 2008, as part of the privatization of Electrica Muntenia Sud (EMS) and in accordance with the privatization contract signed on June 11, 2007, Enel acquired 50% of EMS from Electrica for 395 million. At the same time, the shareholders meeting of EMS approved a capital increase that was subscribed by Enel in the amount of 425 million. Following the decision of EMS s minority shareholder to exercise the right to subscribe a pro rata share of the capital increase, Enel s final stake came to 64.4% of EMS. At the same time as the acquisition of EMS, in performance of the privatization contract, Enel granted Electrica a three-year put option giving the latter the right to sell a minimum of 13.6% of the EMS shares it still holds, as well as all other shares not sold to EMS employees as part of the mechanism giving them the right to subscribe up to 10% of the company s share capital on the occasion of the privatization. Consequently, the shares subject to the option could vary from a minimum of about 13.6% to a maximum of 23.6% (if no employee should take up the right to subscribe the shares). Agreements signed in China for the reduction of greenhouse gases On May 5, 2008, Enel signed two cooperation agreements in Beijing for the abatement of greenhouse gas emissions. The first agreement consists of a memorandum of understanding between Enel, the Ministry of Science and Technology of the People s Republic of China and the Italy s Ministry for the Environment. The accord will enable Enel to collaborate on research and development activities to promote the use of clean coal technologies in China, leveraging the experience gained in Italy at the Torrevaldaliga Nord plant and the demonstration projects now under way on the implementation of CO 2 capture

32 30 and sequestration techniques. The second agreement is a contract between Enel and the Wuhan Iron & Steel Group for the acquisition of emissions permits originated through the implementation of five energy efficiency projects that will reduce CO 2 emissions by million metric tons between 2008 and Strategic agreement with Sharp for the development of photovoltaic systems On May 15, 2008, Enel and Sharp Corporation signed an agreement to form a strategic partnership in the photovoltaic sector. The memorandum of understanding provides for Enel and Sharp to carry out a detailed analysis for the construction in Italy of a plant for the integrated manufacture of photovoltaic panels using Sharp s exclusive triple-junction thin-film technology. Sharp and Enel will develop and build photovoltaic fields with a total capacity of 161 MW by the end of Completion of the sale of Weather On June 4, 2008, Enel received 1,025 million from Weather Investments II Sàrl (Weather II, a holding company controlled by the Egyptian businessman Naguib Sawiris) as the second and final installment (equal to 962 million) of the price for the sale of 26.1% held by Enel in Weather Investments SpA (Weather). The installment included interest earned at market rates ( 63 million). With the payment, Enel completed its exit from the telecommunications market. Upon receipt of the funds, Enel released the pledge (without voting rights) of 26.1% of Weather as collateral. Acquisition of wind projects in France On June 13, 2008, Enel, acting through its subsidiary Enel Erelis, completed the acquisition for about 14 million of new wind projects in France at various stages of development totaling 120 MW, some of which will enter service as early as Agreement with Termoelectrica and E.On for the construction of a plant in Romania On June 18, 2008, the state-owned Romanian company Termoelectrica and a consortium formed by the German company E.On Kraftwerke and Enel signed a memorandum of understanding to start work on a new 800 MW coal-fired plant at Braila, an existing Romanian power plant, which will use the most advanced technologies and will fully comply with the environmental standards established by the European Union. Under the terms of the agreement, Termoelectrica will contribute the assets of the existing Braila plant, while the consortium formed by E.On and Enel will contribute capital for the investment; the consortium will have a majority of the shares in the joint venture. ENEL Annual Report 2008 Report on operations

33 Acquisition of Marcinelle Energie 31 On June 30, 2008, Enel, acting through its subsidiary Enel Investment Holding, acquired 80% of Marcinelle Energie, a special purpose company that is developing a 420 MW combined cycle gas turbine plant in the Wallonia region of Belgium, from the Duferco steel group. Enel will pay Duferco a total of 32 million (not including some 4 million provided for in the contract addendum) for the stake, of which 19.2 million have already been paid, with the remaining 12.8 million to be settled in two installments in 2009 and At the same time, Enel granted Duferco a put option for the remaining 20% of Marcinelle Energie. The option can be exercised for a period of six years starting one year after operations begin at the power plant. The strike price takes accounts of the valuation of the company and financial parameters, capital increases by the minority shareholder and dividends distributed to the latter. Construction work, which will be performed by Enel Produzione, will be completed at the start of 2011, with a total estimated investment of about 290 million. Once fully operational, the plant will generate about 2.5 TWh of electricity a year on the most competitive terms while complying with stringent environmental standards. The power will serve the Belgian domestic market. Design deposited for installation of off-shore wind farms On July 10, 2008, Enel deposited the design for one of the first off-shore wind farms in the Mediterranean. The request for an environmental impact study has been delivered by Enel to the Ministry for the Environment and the Region of Sicily. Italy s first off-shore wind facility will involve the installation of 115 large wind generators with a capacity of between 3 and 5 MW each in the waters of the Gulf of Gela, at least 3 nautical miles from the coast, between the towns of Licata (Agrigento), Butera and Gela (Caltanissetta). The project is being pursued through a joint venture between Enel (57%) and Moncada Costruzioni (43%) and will have a total installed capacity of between 345 and 575 MW. Once fully operational, the plant will generate 1,150 million kwh of power. The investment will total about 500 million. Sale of Hydro Dolomiti Enel On July 25, 2008, in implementation of the investment agreement signed on April 24, 2008 between Enel Produzione and Dolomiti Energia for the joint development of the hydroelectric power sector in the Autonomous Province of Trento, Enel Produzione sold Dolomiti Energia 51% of Hydro Dolomiti Enel ( HDE ) for 333 million. The parties will use HDE as the vehicle for the joint development activities. The transaction was completed after the conditions established in the agreement were satisfied, namely receipt of: >> approval of the transaction by the Competition Authority; >> approval by the Autonomous Province of Trento of the transfer of the hydroelectric concessions (with the exception of the San Floriano plant) to HDE; >> the extension by the Autonomous Province of Trento of the concessions for major hydroelectric diversions until December 31, 2020, enabling the full implementation of the business plan developed by the parties.