Corporate Governance System

Corporate Governance System 15 December 2015

Published: December 2015 By: IBERDROLA, S.A. Design and Layout: IBERDROLA, S.A. IBERDROLA 2011 All rights reserved. For purposes of the provisions of Section 32 of the restated text of the Intellectual Property Law, approved by Royal Legislative Decree 1/1996, of 12 April Iberdrola, S.A. expressly opposes any commercial use of the contents of this publication without the express authorization thereof, including, in particular, any reproduction, alteration, registration, copying, exploitation, distribution, communication, transmission, sending, reuse, publication, treatment or any other total or partial use of this publication by any means and in any manner or format. Any reproduction, distribution, public communication or transformation of this work may only be carried out with the authorization of its owners, except as otherwise provided by Law. Printed on ecological paper

Introduction 2 / Corporate Governance System

Introduction THE CORPORATE GOVERNANCE SYSTEM IBERDROLA, S.A. (the Iberdrola or the Company ) and the companies belonging to the group of which the Company is the controlling entity (the Group ) are committed to a common mission, vision, and values approved by the Board of Directors. The mission of the Group is to create value sustainably for society, citizens, customers, and shareholders, as the leading multinational group in the energy sector providing a quality service through the use of environmentally-friendly energy sources, which engages in innovation and considers its employees to be a strategic assets, fostering their development, training, and conciliation measures, favouring a good working environment and equality of opportunity, committed to social return through all of its business activities, generating employment and wealth in its environment, all within its strategy of social responsibility and compliance with tax regulations. This mission is complemented by a vision, which is based on the ambition to play the lead towards a better future, sustainably creating value with a quality service for the people and communities in which the Group does business, as well as with twelve values: the creation of sustainable value, ethical principles, good corporate governance and transparency, development of the human resources of the Group, social commitment, a sense of belonging, safety, reliability, quality, innovation, protection of the environment, customer focus, and institutional loyalty. The mission, vision, and values of the Group inspire the content of the Corporate Governance System, which is the set of internal regulations that, in accordance with applicable law and exercising the corporate autonomy protected by such law, ensure the best accomplishment of the corporate purpose of the Company as leading multinational group in the energy sector operating under widely differing economic and social conditions, as well as the fulfilment of the corporate interest, which is understood as the common interest of all shareholders of an independent company oriented towards the sustainable development of its corporate object and the creation of long-term value, with a significant institutional and retail shareholder base. A basic pillar of this commitment is the application, development, revision, and ongoing and systematic improvement of the most stringent corporate governance standards, for which purpose the recommendations generally recognised in international markets are taken into account, as are the changes in corporate governance trends, such as those reflected in the Good Governance Code for Listed Companies, with which Iberdrola is in almost complete compliance. As a result of this ongoing work of improvement, the shareholders at the last Ordinary General Shareholders Meeting approved amendments to the By-Laws and the Regulations for the General Shareholders Meeting, thus culminating a cycle of changes and improvements focused on the shareholders, with particular stress on their involvement in corporate life. Along this same line, the Company has continued to work on strengthening its framework of relations with all other stakeholders. In particular, the Board of Directors has engaged in a profound review of the mission, vision, and values of the Group to better conform them to a complex business group, with the goal of leadership in all facets of its business (both economically and especially socially) using a new focus that stresses the sustainable creation of value and emphasises the social impact of its activities. PRINCIPLES The Corporate Governance System is based on the following principles: 1. Shareholder Engagement The Company believes that promoting the effective engagement of its shareholders in corporate life to be a fundamental aim, and thus has a Shareholder Engagement Policy, which establishes the mechanisms and appropriate guarantees for this purpose. This policy was approved by the Board of Directors based on the proposals of a working committee made up of representatives of the Company, of significant European shareholder associations, and of professionals with special qualifications and experience in corporate governance. It establishes a framework for relations between the Company and its shareholders based on transparency, which sufficiently protects the shareholders right to information with full respect for the principle of equal treatment of all those who are in identical conditions, which encourages their informed participation at the General Shareholders Meeting, energises their activities, and which includes the most advanced international practices in this area. It also contemplates multiple channels of communication with significant potential for achieving the effective engagement of its shareholders. Along these lines, the Ordinary General Shareholders Meeting is held within the framework of Shareholder Day, a day that allows for involving the shareholders in the business, corporate and institutional reality of Iberdrola, fostering two-way interaction between the Company and its shareholders, and encouraging their involvement in corporate life. A sustainable event management system will also be used to organize the General Shareholders Meeting starting in 2016. Corporate Governance System / 3

The more than twenty open channels include the pioneering interactive On-Line Shareholders (OLS) system, which has reached more than 4,000 shareholders registered, and the new mobile app IBERDROLA Investor Relations, which permits continuous and permanent information for the shareholders, not just on occasion of the call to the general shareholders meetings. The high level of development of the Corporate Governance System and the good governance practices implemented by the Company, particularly in the area of the lists of information to and communication with its shareholders, place it in a quite advantageous position to successfully meet the challenge of engagement, which is a new milestone in the evolution of the model for relations between the Company and its shareholders. For its part, the Company trusts that shareholders will exercise their rights and perform their duties in a loyal manner, in good faith, and transparently, in order to further the corporate interest, which prevails over their respective individual interests, and in accordance with the Corporate Governance System. 2. Taking into Consideration the Legitimate Interests of Other Stakeholders The Company and the Group seek to achieve the corporate interests taking into consideration other legitimate public or private interests that converge within its business activities and institutional reality, and particularly those of the various communities and regions in which the Company does business, those of its employees, and those of the other stakeholders linked to the Group. The companies of the Group try to involve all of their stakeholders in its business enterprise, maintaining a continuous and constructive dialogue with them in order to know their expectations and to build strong bonds, thereby generating trust and forging a sense of belonging to an excellent company of which they feel they are an integral part. For these purposes, the Company has a Stakeholder Relations Policy intended to foster a framework of relations that favours the inclusion of stakeholders in the businesses and activities of the Group through an efficient instrument of coordination. This Stakeholder Relations Policy has recently been revised to include proposals for improvement made by a working group created specifically for such purpose with the participation of Company representatives and experts in corporate governance and social responsibility. 3. Balanced and Diverse Composition of the Board of Directors The composition of Board of Directors of the Company has been designed to optimise the alignment thereof with the needs created by the various businesses and markets in which the Group does business. It also encourages a laddered renewal, establishing a goal of submitting approximately one fourth of its members to a vote of the shareholders at the General Shareholders Meeting each year. This selection of candidates results in a balanced Board of Directors, made up of a large majority of independent directors with high professional qualifications and a broad diversity of knowledge, origin, and gender. This, coupled with the dedication required of its members, ensures the effective operation of the Board of Directors. Candidates for the position of director submitted to the shareholders at the General Shareholders Meeting for appointment are selected on the basis of a wide array of standards, of which their professional qualifications, experience, origin and personal qualities deserve particular mention. As for the standards and procedures governing the operation of the Board of Directors, the following aspects deserve particular mention: a) The internal selection and evaluation procedures seek to assure the respectability, capability, expertise, competence, experience, qualifications, training, availability, and commitment to their duties. b) The Board of Directors has created specialised advisory committees within the Board that support the performance of its oversight and control duties, and are made up exclusively of non-executive directors. c) Director and senior officer remuneration policies are based on principles that combine motivation, loyalty-building, and the objective evaluation of management and performance with dedication and achievement of the goals and results of the Company and its Group within the context of the international activities thereof, and include bad actor (malus) provisions in variable remuneration. 4. A Corporate and Governance Structure that Combines Decentralised Management with Proper Coordination at the Group Level The corporate structure of the Group is made up of the Company, country subholding companies, and head of business companies. The Company, which only performs the functions of a holding company, is the entity that holds the equity stakes in the country subholding companies. Each country subholding company, in turn, groups together the energy head of business companies that conduct their activities in each country in which the Group operates. The Group also has country subholding companies that hold certain interests in other entities, including the non-energy head of business companies. One of the 4 / Corporate Governance System

Introduction main functions of the country subholding companies is to centralise the provision of services common to such companies, always in accordance with the provisions of applicable law. This corporate structure, which is successfully implemented in Spain, Mexico, Brazil, and the United Kingdom, favours an agile and rapid decision-making process in day-to-day management corresponding to the head of business companies, while at the same time achieving appropriate coordination at the Group level in the performance of the supervisory duties of the country subholding companies and of Iberdrola. In the United States of America, the Company holds a majority interest in a country subholding company called Avangrid, Inc., which is listed on the New York Stock Exchange. For this company, the Corporate Governance System contemplates a special framework of strengthened autonomy that properly protects the interests of its minority shareholders, intensifying the monitoring of related-party transactions with the other companies of the Group, and providing it with a higher level of independence in the coordination of the companies in which it holds an interest and the management of its businesses. The governance of the Company and the Group conforms to the structure described above and duly separates the duties relating to strategy, oversight, and control of the Group as a whole, the duties of organisation and coordination of the energy businesses in each country and the multinational non-energy businesses, and those of day-to-day administration and effective management of each business. It is established on the following bases: a) The Board of Directors of the Company, which only performs holding company functions, is assigned powers relating to the establishment of the Group s policies and strategies and of the basic guidelines for the management thereof, as well as general oversight of the development of such policies, strategies, and guidelines and of decisions on matters that are strategically significant at the Group level. b) The chairman of the Board of Directors & chief executive officer of the Company, with the technical support of the Operating Committee, the Group s Business CEO, and the rest of the management team, assumes the duty of organisation and strategic coordination of the Group through the dissemination, implementation, and monitoring of the overall strategy and of the basic management guidelines established by the Board of Directors. c) This organisation and coordination duty is strengthened through the boards of directors of country subholding companies, which include independent directors, and their own audit committees, internal audit areas, and compliance units or divisions. d) The head of business companies of the Group assume decentralised executive responsibilities, enjoy the independence necessary to carry out the day-to-day administration and effective management of each of the businesses, and are responsible for the day-to-day control thereof. These head of business companies are organised through their respective boards of directors and their own decision-making bodies. The corporate and governance structure of the Group described above operates jointly with the Group s Business Model, which entails the global integration of the businesses and aims to maximise the operational efficiency of the various units. The Business Model ensures the dissemination, implementation, and monitoring of the overall strategy and the basic management guidelines established for each business, primarily through the exchange of best practices among the various companies of the Group, without detracting from their independence in decision-making. In any event, the Company and the Group assume the legally established commitments in connection with the legal and functional separation of regulated companies, while the country subholding companies are responsible for ensuring compliance with the legal provisions on this issue. 5. An Efficient System of Checks and Balances The corporate and governance structure of the Group is designed such that management power is no centralised within a single governance body or a single person, but rather is decentralised among the boards of directors of the head of business companies, the Company s main function being the supervision, organisation, and strategic coordination of the Group. This function of organisation and coordination is also strengthened with the existence of country subholding companies in those countries and businesses in which the Board of Directors of the Company has so decided. The Corporate Governance System provides the measures necessary to ensure that neither the chairman of the Board of Directors, nor the Executive Committee nor any chief executive officers have a decision-making power that is not subject to appropriate checks and balances, as well as the measures to ensure that both the chairman of the Board of Directors & chief executive officer as well as the Executive Committee are under the effective supervision of the Board of Directors. The Board of Directors is made up of a wide majority of independent directors, and all of the consultative committees are made up entirely of non-executive directors. In addition, the appointment of an executive director as chairman of the Board of Directors requires a favourable vote of at least two-thirds of its members. Corporate Governance System / 5

Furthermore, the role of lead director, the powers of which are significantly strengthened by the By-Laws, serves as an effective counterbalance to the chairman when he has the status of executive director, ensuring that the activities thereof are subject to proper controls. Specifically, the lead director is called upon to play a key role in the evaluation, re-election, and succession plan of the chairman that the Board of Directors has approved and publicised as an annex to the General Corporate Governance Policy. The effective application of this system of checks and balances is verified on an annual basis as part of the evaluation of the operation of the Board of Directors. A prestigious international firm collaborates in said evaluation, the collections of which are set forth in a report. 6. Promotion of the Group s Culture of Global Social Responsibility Iberdrola contributes to the development of the communities in which it does business not only from the business viewpoint, but also through a social responsibility strategy, with measures intended to promote education and culture and protect vulnerable groups. The Corporate Social Responsibility Policies of the Company are intended to promote a global culture of social responsibility within the Group, which contributes to sustainable development of the communities in which it does business and to the well-being of people. 7. Efficient Management of Risks and Development of a Proactive Regulatory Compliance Function The Company is permanently committed to the application of ethical corporate governance practices and to the maintenance, development, and monitoring of effective compliance policies. This includes compliance with applicable laws and regulations and with risk management policies, as well as the application of the Corporate Governance System, including the external evaluation of the operation of the General Shareholders Meeting and of the Board of Directors and the committees thereof. In addition, the Group makes a permanent commitment to monitor and punish fraudulent acts and conduct, to implement and develop effective mechanisms to communicate with and raise the awareness of all professionals, and to develop a corporate culture of ethics and honesty, for which purpose it has effective and updated policies and programmes in place to prevent crimes and combat fraud. To this end, the Company has a Compliance Unit that reports to the Corporate Social Responsibility Committee and proactively ensures regulatory compliance, and which is configured in accordance with the Corporate Governance System. The Compliance Unit has the broadest powers, budgetary autonomy and independence of action to meet its goals. STRUCTURE The Company s Corporate Governance System is made up of: BY-LAWS: constituting the basic governing document of the Company in accordance with the law and with general corporate governance principles. CORPORATE POLICIES: further developing the principles on which the Company s Corporate Governance System is based and containing the guidelines that govern the actions of the Company and the companies belonging to its Group, as well as those of their directors, officers, and professionals. In turn, the Corporate Policies are structured in three categories: I. Corporate Governance and Regulatory Compliance Policies. II. Risk Policies. III. Social Responsibility Policies. INTERNAL CORPORATE GOVERNANCE RULES: covering regulations required by provisions of law or by regulations applicable generally or deriving from good governance recommendations. They include the Regulations for the General Shareholders Meeting, the Regulations of the Board of Directors, the Regulations of the Audit and Risk Supervision Committee, the Regulations of the Appointments Committee, the Regulations of the Remuneration Committee, and the Regulations of the Corporate Social Responsibility Committee. OTHER INTERNAL CODES AND PROCEDURES: these are internal rules required or recommended by industry provisions or issued for the implementation of the aforementioned corporate governance rules, approved by the appropriate bodies of the Company. They include the Directors Code of Ethics, the Code of Ethics, the Regulations of the Compliance Unit, the Procedure for Conflicts of Interest and Related-Party Transactions with Directors, Significant Shareholders, and Senior Officers, the Internal Regulations for Conduct in the Securities Markets, the Internal Rules for the Processing of Inside Information, the Summary of the Action Protocol for Investigating Possible Unlawful Uses of Inside Information, the Action Protocol for the Management of 6 / Corporate Governance System

Introduction News and Rumours, the Regulations for the Electronic Shareholders Forum, and the Internal Rules on Composition and Duties of the Operating Committee. This structure ensures a systematic ordering of the rules and principles governing the organisation, operation, and conduct of the Company and its Group on the pattern of a true system, at the core of which is the dynamism inherent in the Corporate Policies, which are periodically revised and updated by the Board of Directors. DISSEMINATION The Company believes that the goal of ongoing development, review, and improvement of its Corporate Governance System must go hand in hand with the use of the most technologically advanced systems of dissemination that are respectful of the environment. Therefore, the full text or a summary of the documents that make up the Company s Corporate Governance System is available on the corporate website. It is also published as an ebook, in the standard epub format, such that it can be read through the most widely used electronic tools, including computers, e-readers, tablets, smartphones, and PDAs, via the Company s corporate website (www.iberdrola.com). Notice of the publication of updates is also provided through the social media in which the Company participates. In order to further improve and continually update the Corporate Governance System, the Company draws on the external advice of the law firms CMS Albiñana & Suárez de Lezo, Cortés, Abogados, Garrigues, and Uría Menéndez. Bilbao, 15 December 2015 The Board of Directors of IBERDROLA, S.A. Corporate Governance System / 7

Summary BOOK ONE OF THE BY-LAWS 11 1. By-Laws 14 BOOK TWO OF THE CORPORATE POLICIES 31 PART I. CORPORATE GOVERNANCE AND REGULATORY COMPLIANCE POLICIES 35 1. General Corporate Governance Policy 38 2. Shareholder Engagement Policy 54 3. Shareholder Remuneration Policy 59 4. Policy regarding Communication and Contacts with Shareholders, Institutional Investors and Proxy Advisors 61 5. Policy for the Definition and Coordination of the Iberdrola Group and Foundations of Corporate Organisation 67 6. Brand Policy 71 7. Director Candidate Selection Policy 74 8. Director Remuneration Policy 77 9. Senior Officer Remuneration Policy 82 10. Auditor Appointment Policy 85 11. Crime Prevention and Anti-Fraud Policy 88 12. Corporate Tax Policy 92 13. Personal Data Protection Policy 95 PART ii. RISK POLICIES 99 1. General Risk Control and Management Policy 102 2. Corporate Risk Policies 106 Corporate Credit Risk Policy 107 Corporate Market Risk Policy 107 Operational Risk in Market Transactions Policy 107 Insurance Policy 107 Investment Policy 108 Financing and Financial Risk Policy 108 8 / Corporate Governance System

Summary Treasury Share Policy 108 Risk Policy for Equity Interests in Listed Companies 109 Reputational Risk Framework Policy 109 Information Technologies Policy 109 Cybersecurity Risk Policy 109 Procurement Policy 110 3. Summary of the Specific Risk Policies for the Various Group Businesses 114 Risk Policy for the Liberalised Businesses of the Iberdrola Group 115 Risk Policy for the Renewables Energy Businesses of the Iberdrola Group 115 Risk Policy for the Networks Businesses of the Iberdrola Group 115 Risk Policy for the Non- Energy Business of the IberdrolaGroup 116 PART iii. Social responsibility policies 117 1. General Corporate Social Responsibility Policy 120 2. Stakeholder Relations Policy 127 3. Innovation Policy 131 4. Policy on respect for Human Rights 133 5. Quality Policy 135 6. Corporate Security Policy 137 7. Human Resources Framework Policy 139 8. Knowledge Management Policy 144 9. Recruitment and Selection Policy 146 10. Equal Opportunity and Reconciliation Policy 148 11. Occupational Safety and Health Policy 151 12. Sustainability Policy 154 13. Environmental Policy 157 14. Policy against Climate Change 161 15. Biodiversity Policy 163 Corporate Governance System / 9

book three of the internal corporate governance regulations 165 I. REGULATIONS for the general shareholders meeting 168 II. REGULATIONS of the BOARD of DIRECTORS 190 III. regulations of the audit and risk supervision committee 222 IV. REGULATIONS OF THE APPOINTMENTS COMMITTEE 234 V. REGULATIONS OF THE REMUNERATION COMMITTEE 244 VI. Regulations of the Corporate social RESPONSIBILITY Committee 250 BOOK FOUR OF THE OTHER INTERNAL CODES AND PROCEDURES 257 I. DIRECTORS CODE OF ETHICS 258 II. code of ETHICS 266 III. REGULATIONS OF THE COMPLIANCE UNIT 284 IV. PROCEDURE FOR CONFLICTS OF INTEREST AND RELATED-PARTY TRANSACTIONS WITH DIRECTORS, SIGNIFICANT SHAREHOLDERS, AND SENIOR OFFICERS V. internal REGULATIONS for CONDUCt in the segurities markets 304 VI. INTERNAL RULES FOR THE PROCESSING OF INSIDE INFORMATION 322 VII. SUMMARY OF THE ACTION PROTOCOL FOR INVESTIGATING POSSIBLE UNLAWFUL USES OF INSIDE INFORMATION VIII. ACTION PROTOCOL FOR THE MANAGEMENT OF NEWS AND Rumours 334 IX. REGULATIONS FOR THE ELECTRONIC SHAREHOLDERS FORUM 340 X. INTERNAL RULES ON COMPOSITION AND DUTIES OF THE OPERATING COMMITTEE 296 332 346 10 / Corporate Governance System

Book One of the By-Laws BY-LAWS 20 July 2015

Content TITLE I. THE COMPANY, ITS SHARE CAPITAL, AND ITS SHAREHOLDERS 15 Chapter I. General Provisions 15 Article 1. Company Name 15 Article 2. Applicable Legal Provisions and Corporate Governance System 15 Article 3. Corporate Interest and Ethical Principles 15 Article 4. Object of the Company 15 Article 5. Duration 16 Article 6. Registered Office 16 Article 7. The Iberdrola Group 16 Article 8. Permanent Contact with Shareholders and Transparency 16 Article 9. Corporate Website 16 Chapter II. Share Capital and Shares 16 Article 10. Share Capital 16 Article 11. The Shares 16 Article 12. Shareholder Status 17 Chapter III. The Shareholders 17 Article 13. Involvement of the Shareholders 17 Article 14. The Shareholders and the Corporate Governance System 17 TITLE II. THE GENERAL SHAREHOLDERS MEETING 17 Article 15. The General Shareholders Meeting 17 Article 16. Participation of the Shareholders 17 Article 17. Powers of the Shareholders Acting at a General Shareholders Meeting 17 Article 18. Call to the General Shareholders Meeting 18 Article 19. Shareholders Right to Receive Information 18 Article 20. Place of the Meeting 19 Article 21. Establishment of a Quorum for the General Shareholders Meeting 19 Article 22. Right to Attend 19 Article 23. Right to Proxy Representation 20 Article 24. Presiding Committee, Chair of, and Secretary for the General Shareholders Meeting 20 Article 25. List of Attendees 20 Article 26. Deliberations and Voting 20 Article 27. Absentee Voting 21 Article 28. Conflicts of Interest 21 Article 29. Approval of Resolutions 21 TITLE III. MANAGEMENT OF THE COMPANY 22 Chapter I. General Provisions 22 Article 30. Management and Representation of the Company 22 12 / Corporate Governance System

Content BY-LAWS Chapter II. The Board of Directors 22 Article 31. Regulation of the Board of Directors 22 Article 32. Powers of the Board of Directors 22 Article 33. Composition of the Board of Directors and Appointment of Directors 22 Article 34. Types of Directors 23 Article 35. Meetings of the Board of Directors 23 Article 36. Quorum for the Meeting and Majorities Required to Adopt Resolutions 24 Chapter III. Committees and Positions within the Board of Directors 24 Article 37. Committees of the Board of Directors 24 Article 38. Executive Committee 24 Article 39. Audit and Risk Supervision Committee 25 Article 40. Appointments and Remuneration Committee 25 Article 41. Corporate Social Responsibility Committee 25 Article 42. Chairman and Vice-Chair or Vice-Chairs 25 Article 43. Chief Executive Officer 26 Article 44. Secretary and Deputy Secretary or Deputy Secretaries of the Board of Directors 26 Article 45. Checks and Balances System: the Lead Director 27 Chapter IV. Rules Applicable to Directors 27 Article 46. General Duties of Directors 27 Article 47. Term of Office 27 Article 48. Director Remuneration 27 Article 49. Powers of Information and Inspection 28 TITLE IV. BREAKTHROUGH OF RESTRICTIONS IN THE EVENT OF TAKEOVER BIDS 28 Article 50. Removal of Voting Limitations 28 Article 51. Effectiveness of the Removal 28 Article 52. Amendments to Articles in Title IV and Related Provisions 28 TITLE V. ANNUAL ACCOUNTS, DISSOLUTION, AND LIQUIDATION 28 Chapter I. Annual Accounts 28 Article 53. Financial Year and Preparation of Annual Accounts 28 Article 54. Approval of Accounts and Allocation of Profits/Losses 29 Chapter II. Dissolution and Liquidation of the Company 29 Article 55. Grounds for Dissolution 29 Article 56. Liquidation of the Company 29 Corporate Governance System / 13

1. By-Laws 20 July 2015 14 / Corporate Governance System

By-Laws TITLE I. THE COMPANY, ITS SHARE CAPITAL, AND ITS SHAREHOLDERS Chapter I. General Provisions BY-LAWS Article 1. Company Name The name of the company is IBERDROLA, S.A. (the Company ). Article 2. Applicable Legal Provisions and Corporate Governance System 1. The Company is governed by the legal provisions relating to listed companies and other applicable laws and regulations, as well as by its Corporate Governance System. 2. The Corporate Governance System is the Company s internal system of rules, configured in accordance with applicable law in the exercise of corporate autonomy supported thereby, and that applies to the entire group of companies controlled by the Company. It is intended to ensure through rule-making the best development of the corporate object of the Company, as an international business entity that operates in quite varied economic, legal, and social contexts, as well as the fulfilment of the corporate interest. 3. The Corporate Governance System is made up of these By-Laws, the Corporate Policies, the internal corporate governance rules, which include the Regulations for the General Shareholders Meeting, the Regulations of the Board of Directors and those of its committees, and of the other internal codes and procedures approved by the competent decision-making bodies of the Company. 4. The shareholders acting at a General Shareholders Meeting and the Board of Directors, within their respective purview, develop, apply, and interpret the rules making up the Corporate Governance System in order to ensure compliance at all times with the purposes thereof and, particularly, the fulfilment of the corporate interest. Article 3. Corporate Interest and Ethical Principles 1. The Company pursues the fulfilment of the corporate interest, which is understood as the common interest of all shareholders of an independent company oriented towards the sustainable exploitation of its corporate object and the creation of long-term value for the shareholders benefit, taking into account other stakeholders related to its business activity and to its institutional reality, and especially the legitimate interests of the various communities and territories in which the Company acts and those of its employees. 2. The Company aspires for its conduct and that of the persons connected therewith to conform and adhere not only to applicable law and its Corporate Governance System but also to ethical principles and generally accepted principles of social responsibility. The Board of Directors has for such purpose approved a Code of Ethics that includes this commitment under the By-Laws. Article 4. Object of the Company 1. The Company s object is: a) To carry out all manner of activities, works, and services inherent in or related to the business of production, transmission, switching, and distribution or supply of electric power or electricity by-products and applications thereof, and the raw material or energy needed for the generation thereof; energy, engineering, informationtechnology, telecommunications, and internet -related services; water treatment and distribution; the integral provision of urban and gas supply, as well as other gas storage, regasification, transportation, or distribution activities, which will be carried out indirectly through the ownership of shares or equity interests in other companies that will not engage in the supply of gas. b) The distribution, representation, and marketing of all manner of goods and services, products, articles, merchandise, software programs, industrial equipment and machinery, tools, utensils, spare parts, and accessories. c) The investigation, study, and planning of investment and corporate organisation projects, as well as the promotion, creation, and development of industrial, commercial, or service companies. d) The provision of services assisting or supporting companies and businesses in which it has an interest or which are within its corporate group, for which purpose it may provide appropriate guarantees and bonds in favour thereof. 2. The aforementioned activities may be carried out in Spain as well as abroad, and may be carried out, in whole or in part, either directly by the Company or through the ownership of shares or equity interests in other companies, subject in all cases and at all times to applicable legal provisions for each industry, especially the electricity industry. Corporate Governance System / 15

Article 5. Duration The duration of the Company is indefinite, its operations having commenced on the date of formalisation of its deed of incorporation. Article 6. Registered Office 1. The registered office of the Company is in Bilbao (Biscay) at Plaza Euskadi número 5. 2. Such registered office may be transferred to another location within the same municipal area by resolution of the Board of Directors. Article 7. The Iberdrola Group 1. The Company is configured as a listed holding company and is the controlling entity of a multinational group of companies (the Group ). 2. The corporate and governance structure of the Company is defined based on the following: a) The Company has duties relating to the design of the Corporate Governance System and to the establishment, supervision, and implementation of the policies and strategies of the Group, of the basic guidelines for the management thereof, and of decisions on matters of strategic importance at the Group level. b) The country subholding companies, which are directly or indirectly subordinate to the Company, carry out the function of organisation and strategic coordination in those countries where the Board of Directors of the Company so decides. These entities, which group together equity stakes in the head of business companies in the various countries in which the Group operates, are also responsible for disseminating, implementing, and ensuring compliance with the policies, strategies, and general guidelines of the Group in each of the countries in which it operates, taking into account the characteristics and unique aspects of such countries. c) Finally, the head of business companies of the Group are in charge of the day-to-day administration and effective management of each one of the Group s businesses within a country, as well as the day-to-day control thereof. Article 8. Permanent Contact with Shareholders and Transparency Permanent contact with its shareholders and ongoing attention to the transparency of corporate information and of relations with its shareholders and with the market generally, in accordance with the provisions of law and the Corporate Governance System, are primary objectives of the Company. Article 9. Corporate Website 1. The Company maintains a corporate website, envisaged as an instrument for channelling its relations with shareholders and investors, which is intended to foster their involvement in corporate life. 2. Through the corporate website: a) shareholders and investors are provided with the documents and information required by law and the Corporate Governance System and other information deemed appropriate, taking into account the provisions of the preceding section; b) shareholders are provided with the means to exercise the rights to receive information and to participation in the General Shareholders Meeting recognised by law and by the Corporate Governance System; and c) full or summarised versions of the rules making up the Corporate Governance System are published. Chapter II. Share Capital and Shares Article 10. Share Capital The share capital is 4,752,652,500 euros, represented by 6,336,870,000 ordinary shares having a nominal value of 0.75 euro each, belonging to a single class and series, which are fully subscribed and paid-up. Article 11. The Shares 1. The shares are represented in book-entry form. 2. If shares have not been entirely paid up, this circumstance shall be reflected in the corresponding book entry. 16 / Corporate Governance System

By-Laws 3. Unpaid subscriptions must be paid at the time fixed by the Board of Directors, within a period of five years from the date of the resolution approving the capital increase. The form and other circumstances of the payment shall be governed by the provisions of the resolution approving the capital increase, which may provide for cash as well as non-cash contributions. BY-LAWS Article 12. Shareholder Status 1. Each share of the Company confers upon its legitimate holder the status of shareholder, and vests such holder with the rights and obligations established by law and by the Corporate Governance System. In this regard, the Company shall acknowledge as a shareholder any party that appears entitled thereto as owner in the entries of the corresponding book-entry register. 2. The Company may, as legally allowed, access the information needed to fully identify its shareholders, including addresses and means of contact for communication with them. Chapter III. The Shareholders Article 13. Involvement of the Shareholders The Company shall foster continuous and appropriate information for its shareholders, permanent contact therewith, and their involvement in corporate life. For this purpose, the Board of Directors shall establish the channels for participation through which the Company will foster their involvement with appropriate guarantees and coordination mechanisms. Article 14. The Shareholders and the Corporate Governance System 1. The ownership of shares entails consent to the Corporate Governance System and the duty to respect and comply with the legally adopted decisions of the governance bodies of the Company. 2. Shareholders must exercise their rights vis-à-vis the Company and the other shareholders, and must comply with their duties, acting with loyalty, in good faith, and transparently, within the framework of the corporate interest as the paramount interest ahead of the private interest of each shareholder and in accordance with the Corporate Governance System. TITLE II. THE GENERAL SHAREHOLDERS MEETING Article 15. The General Shareholders Meeting 1. The shareholders, meeting at a General Shareholders Meeting, shall decide, by the majorities required in each case and in accordance with law and the Corporate Governance System, on the matters within their power. 2. Resolutions that are duly adopted at a General Shareholders Meeting shall bind all shareholders, including shareholders who are absent, dissenting, abstain from voting, or lack the right to vote, without prejudice to the rights they may have to challenge such resolutions. 3. The General Shareholders Meeting is governed by the provisions of law, these By-Laws, the Regulations for the General Shareholders Meeting, other applicable provisions of the Corporate Governance System, and other implementing rules approved by the Board of Directors within the scope of its powers. Article 16. Participation of the Shareholders The Board of Directors shall adopt appropriate measures to encourage maximum participation of the shareholders at the General Shareholders Meeting, including, if appropriate, the payment of attendance bonuses pursuant to a predefined and public policy. Article 17. Powers of the Shareholders Acting at a General Shareholders Meeting 1. The shareholders acting at a General Shareholders Meeting shall decide the matters assigned thereto by law, the Regulations for the General Shareholders Meeting, or other rules of the Corporate Governance System, and particularly regarding the following: a) The approval of the annual accounts, the allocation of profits or losses, and the approval of corporate management. b) The appointment, re-election, and removal of directors, as well as the ratification of directors designated by interim appointment to fill vacancies. c) The approval of the director remuneration policy. Corporate Governance System / 17

d) The approval of the establishment of systems for remuneration of the Company s directors consisting of the delivery of shares or of rights therein or remuneration based on the value of the shares. e) Relieving the directors from the prohibitions arising from the duty of loyalty, when authorisation is attributed by law to the shareholders acting at a General Shareholders Meeting, as well as from the obligation not to compete with the Company. f) The appointment, re-election, and removal of the auditors. g) The amendment of these By-Laws. h) An increase or reduction in share capital. i) The delegation to the Board of Directors of the power to increase share capital, in which case it may also grant thereto the power to exclude or limit pre-emptive rights, upon the terms established by law. j) The delegation to the Board of Directors of the power to carry out a capital increase already approved by the shareholders at a General Shareholders Meeting, within the periods set forth by law, indicating the date or dates of execution and establishing the conditions for the increase as to all matters not provided for by the shareholders. In this case, the Board of Directors may make use of such delegation in whole or in part, or may refrain from using it, in view of market conditions or the condition of the Company itself, or of particularly relevant facts or circumstances that justify such decision, and shall report thereon to the shareholders at the first General Shareholders Meeting held after the end of the period granted for the use of such delegation. k) The exclusion or limitation of pre-emptive rights. l) The authorisation for the derivative acquisition of the Company s own shares. m) The transformation, merger, split-off, or overall assignment of assets and liabilities, and the transfer of the registered office abroad. n) The dissolution of the Company and the appointment and removal of the liquidators. o) The approval of the final liquidating balance sheet. p) The issuance of debentures and other negotiable securities and the delegation to the Board of Directors of the power to issue them, as well as the power to exclude or limit pre-emptive rights, upon the terms established by law. q) The exercise of derivative liability actions against directors, auditors, and liquidators. r) The approval and amendment of the Regulations for the General Shareholders Meeting. s) The transfer to controlled entities of core activities that were previously carried out by the Company itself, even if it retains full ownership of such entities; t) The acquisition, transfer, or contribution of key assets from or to another company. u) The approval of transactions having an effect equivalent to liquidation of the Company. 2. The shareholders at a General Shareholders Meeting shall also decide on any matter that the Board of Directors or the shareholders submit for their consideration, upon the terms and with the requirements established by law and the Corporate Governance System. Article 18. Call to the General Shareholders Meeting 1. The General Shareholders Meeting must be formally called by the Board of Directors through an announcement published as much in advance as required by law. 2. The announcement of the call to meeting shall be disseminated through the following media, at a minimum: a) The Official Gazette of the Commercial Registry (Boletín Oficial del Registro Mercantil) or one of the more widely circulated newspapers in Spain. b) The website of the National Securities Market Commission (Comisión Nacional del Mercado de Valores). c) The Company s corporate website. Article 19. Shareholders Right to Receive Information 1. From the date of publication of the call to the General Shareholders Meeting through and including the fifth day prior to the date set for the meeting to be held on first call, the shareholders may request in writing the information or clarifications that they deem are required, or ask the written questions that they deem relevant, regarding (i) the matters contained in the agenda for the meeting; (ii) information accessible to the public that has been provided by the 18 / Corporate Governance System

By-Laws Company to the National Securities Market Commission since the holding of the last General Shareholders Meeting, and (iii) the audit report. 2. During the course of the General Shareholders Meeting, the shareholders may verbally request the information or clarifications that they deem appropriate regarding the matters set forth in the preceding section. 3. The Board of Directors shall be required to provide the information requested pursuant to the two preceding sections in the form and within the periods set forth in the law, in these By-Laws, and in the Regulations for the General Shareholders Meeting, except in cases in which it is unnecessary for the protection of shareholder rights, there are objective reasons to believe that it might be used for ultra vires purposes, or that publication of the information might prejudice the Company or related companies. The information requested may not be denied if the request is supported by shareholders representing at least twenty-five per cent of the share capital. 4. The announcement of the call to the General Shareholders Meeting shall state the means whereby any shareholder may obtain from the Company, without charge and on an immediate basis, the documents that must be submitted for the approval of the shareholders at such General Shareholders Meeting, as well as, if applicable, the management report and the audit report. 5. The Company shall make available to its shareholders the information and documentation required by the provisions of law and the Corporate Governance System. Article 20. Place of the Meeting The General Shareholders Meeting shall be held at the place indicated in the call to meeting within the municipal territory of Bilbao. Article 21. Establishment of a Quorum for the General Shareholders Meeting 1. The General Shareholders Meeting shall be validly established with the minimum quorum required by law, taking into account the matters appearing on the agenda. 2. Notwithstanding the provisions of the preceding section, shareholders representing two-thirds of subscribed share capital with voting rights must be in attendance at the first call to the General Shareholders Meeting, and shareholders representing sixty per cent of such share capital must be in attendance at the second call, in order to adopt resolutions regarding a change in the object of the Company, transformation, total split-off, dissolution of the Company, and the amendment of this section 2. 3. The absence of shareholders occurring once a quorum for the General Shareholders Meeting has been established shall not affect the validity of the meeting. 4. If the attendance of shareholders representing a particular minimum percentage of share capital or the consent of specific interested shareholders is required pursuant to law or the Corporate Governance System in order to adopt a resolution regarding one or more items on the agenda, and such percentage is not reached or such shareholders are not present in person or by proxy, the shareholders at the General Shareholders Meeting shall limit themselves to deliberating and deciding on those items on the agenda that do not require such percentage of share capital or the consent of such shareholders. Article 22. Right to Attend 1. The holders of at least one voting share may attend the General Shareholders Meeting and take part in deliberations thereof, with the right to be heard and to vote. 2. The General Shareholders Meeting may be attended by going to the place where the meeting is held or, if so indicated in the call to meeting, to other places provided for such purpose by the Company and that are connected with the principal meeting place by systems that allow recognition and identification of the parties attending, permanent communication among the attendees regardless of their location, and participation and voting, all in real time. Attendees at any of such places shall be considered to be attendees at the same individual meeting, which shall be deemed to have been held at the principal location thereof. 3. In order to exercise the right to attend, shareholders must cause the shares to be registered in their name in the corresponding book-entry register at least five days prior to the day on which the General Shareholders Meeting is to be held. 4. The chair of the General Shareholders Meeting may authorise the attendance of officers, employees, and other persons related to the Company. The chair may also grant access to the media, to financial analysts, and to any other person the BY-LAWS Corporate Governance System / 19