Enel S.p.A.
Annual Report 2014

Plain-text annual report

Annual Report 2014 enel.com Annual Report 2014 Contents Report on operations Reports Report of the Board of Auditors to the Shareholders' Meeting of Enel SpA | 360 Report of the independent audit firm on the 2014 financial statements of Enel SpA | 368 Report of the independent audit firm on the 2014 consolidated financial statements of the Enel Group | 372 Summary of the resolutions of the Ordinary and Extraordinary Shareholders’ Meeting | 376 Attachments Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, 2014 | 380 Report on Corporate Governance and Ownership Structure | 418 Enel organizational model | 6 Corporate Boards | 9 Letter to shareholders and other stakeholders | 11 Summary of results | 14 Overview of the Group’s operations, performance and financial position | 23 Results by business area | 34 Performance and financial position of Enel SpA | 58 Significant events in 2014 | 63 Reference scenario | 74 Main risks and uncertainties | 102 Outlook | 107 Other information | 108 Sustainability | 111 Related parties | 132 Reconciliation of shareholders’ equity and net income of Enel SpA and the corresponding consolidated figures | 133 Consolidated financial statements Consolidated financial statements | 136 Notes to the consolidated financial statements | 143 Declaration of the Chief Executive Officer and the officer responsible for the preparation of corpora- te financial reports | 286 Separate financial statements of Enel SpA Separate financial statements | 290 Notes to the financial statements | 297 Declaration of the Chief Executive Officer and the officer responsible for the preparation of corpora- te financial reports | 356 3 4 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSReport on operations Enel organizational model On July 31, 2014, the Enel Group adopted a new organizational structure, based on a matrix of divisions and geographical areas, focused on the industrial objectives of the Group, with clear specification of roles and responsibilities in order to: > pursue and maintain technological leadership in the sectors in which the Group operates, ensuring ope- rational excellence; > maximize the level of service offered to customers in local markets. Thanks to this organization, the Group can benefit from reduced complexity in the execution of manage- ment actions and the analysis of key factors in value creation. DIVISIONS Global Infrastructure & Networks Global Generation Renewable Energy Global Trading Upstream Gas Italy Iberia Latin America Eastern Europe REGIONS/ COUNTRIES KPI: Revenues Operating expenses (staff/services) Cash flow • • • KPI: • Optimization of investments • Best practice sharing and efficiency gains More specifically, the new Enel Group structure is organized into: > Divisions (Global Infrastructure and Networks, Global Generation, Global Trading, Renewable Energy, and Upstream Gas), which are responsible for managing and developing assets, optimizing their performance and the return on capital employed in the various geographical areas in which the Group operates. The Divisions are also tasked with improving the efficiency of the processes they manage and sharing best practices at the global level. The Group can benefit from a centralized industrial vision of projects in the various business areas. Each project will be assessed not only on the basis of its financial return, but also on the basis of the best technologies available at the Group level; > Regions and countries (Italy, Iberia, Latin America, Eastern Europe), which are responsible for managing relationships with institutional bodies and regulatory authorities, as well as selling electricity and gas, in each of the countries in which the Group is present, while also providing staff and other service support to the Divisions; > Global service functions (Procurement and ICT), which are responsible for managing information and com- munication technology activities and procurement at the Group level; > Holding company functions (Administration, Finance and Control, Human Resources and Organization, Communication, Legal and Corporate Affairs, Audit, European Union Affairs, and Innovation and Sustai- nability), which are responsible for managing governance processes at the Group level. 6 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSThe new organization will modify the reporting structure, the analysis of the Group’s performance and fi- nancial position and, accordingly, the representation of consolidated results only from the start of 2015. Consequently, in this Annual Report 2014, in line with practice in previous periods, the results by business area are discussed using the previous organizational structure, taking account of the provisions of IFRS 8 concerning the “management approach”. More specifically, the previous operational model, adopted in early 2012, provided for the organization of the Group on the basis of: > Holding company functions, which are responsible for directing and controlling strategic activities for the entire Group; > Global service functions, which are responsible for providing services to the Group, maximizing synergies and economies of scale; > Business lines, represented by six Divisions, as well as the Upstream Gas function (which pursued selective vertical integration to increase the competitiveness, security and flexibility of strategic sourcing to meet Enel’s gas requirements) and the Carbon Strategy function (which operated in the world’s CO2 certificate markets). The activities of the individual Divisions are set out below. The Generation, Energy Management and Sales Italy Division is responsible for: > the generation and sale of electricity: - generation from thermal and schedulable hydroelectric power plants in Italy (through Enel Produzione and other smaller companies); - trading on international and Italian markets, primarily through Enel Trade; > provisioning for all of the Group’s needs and the sale of energy products, including the sale of natural gas to distributors, through Enel Trade; > the development of natural gas regasification (Nuove Energie); > commercial activities in Italy, with the objective of developing an integrated package of electricity and gas products and services for end users. More specifically, it is responsible for the sale of electricity on the re- gulated market (Enel Servizio Elettrico) and the sale of electricity on the free market and the sale of natural gas to end users (Enel Energia). As from July 1, 2013, these activities have been expanded to include retail plant and franchising operations in Italy following the acquisition of Enel.si from the Renewable Energy Division. The Infrastructure and Networks Division is primarily responsible for the distribution of electricity (Enel Distribuzione) and public and artistic lighting (Enel Sole) in Italy. The Iberia and Latin America Division focuses on developing Enel Group’s presence and coordinating its operations in the electricity and gas markets of Spain, Portugal and Latin America. The geographical areas in which it operates are as follows: > Europe, with the generation, distribution and sale of electricity and the sale of natural gas in Spain and Portugal; > Latin America, with the generation, distribution and sale of electricity in Chile, Brazil, Peru, Argentina and Colombia. The International Division supports the Group’s strategies for international growth, as well as managing and integrating the foreign businesses outside the Iberian and Latin American markets, monitoring and de- veloping business opportunities that should present themselves on the electricity and fuel markets. The chief 7 geographical areas of operation for this Division are: > central Europe, where the Division is active in power generation in Slovakia and Belgium (Slovenské elektrárne and Marcinelle Energie) and electricity sales in France (Enel France); > south-eastern Europe, mainly with the development of generation capacity (Enel Productie) and electrici- ty distribution and sales in Romania (Enel Distributie Banat, Enel Distributie Dobrogea, Enel Energie, Enel Distributie Muntenia and Enel Energie Muntenia); > Russia, with power generation and electricity sales activities (Enel Russia OJSC). The Renewable Energy Division has the mission of developing and managing operations for the genera- tion of electricity from renewable resources, ensuring their integration within the Group in line with the Enel Group’s strategies. The geographical areas of operation for this Division, which in 2014 were modified with regard to operations in the Iberian peninsula, are: > Europe, with power generation from non-schedulable hydroelectric plants, as well as geothermal, wind and solar plants in Italy (Enel Green Power and other minor companies), Greece (Enel Green Power Hellas), France (Enel Green Power France), Romania (Enel Green Power Romania), Bulgaria (Enel Green Power Bul- garia) and Spain and Portugal (Enel Green Power España); > Latin America, with power generation from renewable sources (various companies); > North America, with power generation from renewable sources (Enel Green Power North America). The mission of the Engineering and Research Division (formerly Engineering and Innovation) is to serve the Group by managing the engineering processes related to the development and construction of power plants (conventional and nuclear), while meeting the quality, temporal and financial objectives set for it. In addition, it is responsible for coordinating nuclear technology operations, providing independent monitoring of the Group’s nuclear activities with regard to safety issues. Finally, it manages research activities identified in the process of managing innovation, with a focus on strategic research and technology scouting. Finally, on the basis of the criteria set out by IFRS 8, the generation and energy management results of the Generation, Energy Management and Sales Italy Division are shown separately from the results pertaining to electricity sales in Italy, consistent with the structure of internal reporting to top management. In addition, account was also taken of the possibilities for the simplification of disclosures associated with the materia- lity thresholds also established under IFRS 8 and, therefore, the item “Other, eliminations and adjustments” includes not only the effects from the elimination of intersegment transactions, but also the figures for the Parent Company, Enel SpA, the Services and Other Activities area and the Engineering and Research Division, as well as the Upstream Gas function. 8 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSCorporate Boards Board of Directors Chairman Chief Executive Directors Secretary Patrizia Grieco Manager Officer and General Francesco Starace Claudio Sartorelli Alessandro Banchi Alberto Bianchi Paola Girdinio Alberto Pera Anna Chiara Svelto Angelo Taraborrelli Board of Auditors Chairman Auditors Alternate auditors Sergio Duca Lidia D’Alessio Gennaro Mariconda Giulia De Martino Pierpaolo Singer Franco Luciano Tutino Independent auditors Reconta Ernst & Young SpA 9 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 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 May 23, 2014, 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 and to sign on its behalf, and in addition is vested by a Board resolution of May 23, 2014 with all powers for mana- ging 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. 10 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSLetter to shareholders and other stakeholders Dear shareholders and stakeholders, the year 2014 was one of great change for the Enel Group. We launched a series of strategic and managerial initiatives to rise to the challenges of an increasingly dynamic and complex environment. In the 1st Half of the year, we focused on the buyout of minority shareholders in Latin America and the launch of the disposal of assets in Eastern Europe. In the 2nd Half, after the appointment of the new Board of Directors and top management, we launched the new organizational structure, a key element in enhancing our efficiency and accelerating our refocusing. In line with the reorganization effort, we undertook a corporate restructuring by separating Endesa from the Enersis subsidiary, which is in charge of operations in five Latin American countries. Finally, we sold a stake of about 22% of Endesa, increasing its liquidity on the market. Thanks to these steps we brought debt to our target level, and we can now turn to face the new challenges of the coming years. The macroeconomic environment The global macroeconomic environment in the past year has been marked by uneven, halting economic performance. Among the mature markets, the United States has established itself as the locomotive of global growth, while Europe has once again demonstrated the difficulties it is facing in sparking a real and lasting recovery. The emerging markets showed the first signs of a slowdown, while maintaining relatively strong levels of growth. The fall in oil prices, the depreciation of the euro as a result of both the expectations of rising interest rates in the US and the quantitative easing in the euro area, the violent Russian currency crisis and tensions in Ukraine all had a major impact last year. In the coming months, some of these factors will help foster a revival of growth of the European economies, such as Italy and Spain, where the Enel Group is present, stimulating household consumption through increased access to credit and increasing current levels of industrial production. The expected economic recovery will then generate a rise in elec- 11 tricity consumption from the trough reached this year, albeit partially contained by the development of energy efficiency. The countries of Latin America, after a decade of strong expansion, showed some signs of slowing down. The decrease in the pace of growth in world trade, the fall in commodity prices and the excessive volatility of certain currencies have all impacted current economic performance, but have not diverted the medium-term trend in development, which remains based on fundamentals such as high rates of population growth, increasing consumption and spreading urbanization, all of which will lead to strong growth in demand for electricity and gas. Management initiatives Despite such a complex environment, the Group managed to achieve the objectives announced to the mar- ket thanks to the soundness of its strategy, the technological leadership developed over the years and the swift implementation of management initiatives in 2014. The buyback of non-controlling interests in Latin America enabled Enersis, the Enel company heading Group operations in South America, to increase its stake in the capital of a number of companies in which it already held a significant interest, such as Coelce, Edegel and Gas Atacama. These transactions are part of a broader plan for reorganization and corporate restructuring in Latin America, in which we have decided to separate our activities in the Iberian peninsula from those in Latin America, enabling Enersis to report directly to Enel SpA and simultaneously increasing our stake in that Chilean company by about 5%. As part of the process of reducing our debt, we continued to implement the disposal program, previously announced to investors. In particular, the public offering of 21.92% of Endesa, carried out after the separation from Enersis, and other smaller operations enabled us to achieve our targets. Last but not least, the Group reorganization, which saw the creation of five global business lines (Infrastruc- ture and Networks, Generation, Renewable Energy, Trading and Upstream Gas), which are responsible for the allocation of investments in their respective areas and the sharing of best practices at the Group level, and four geographical areas (Italy, Iberia, Latin America and Eastern Europe), whose primary task is to su- stain revenue and the generation of cash flow. This new and more responsive structure has also simplified and streamlined the units of the Parent Com- pany, which enters 2015 with a more simple and agile form. Performance in 2014 Revenue in 2014 totaled €75.8 billion, down 3.7% compared with €78.7 billion in 2013, mainly due to the reduction in revenue from electricity sales, itself a consequence of a decline in quantities sold, compounded by the adverse impact of developments in the exchange rates of the currencies of some of the countries in which the Group operates (particularly in Latin America and Russia). EBITDA amounted to €15.7 billion, down 5.6% from €16.7 billion in 2013, mainly due to the different contribution of disposals to performance in the two years. Excluding these items, EBITDA amounted to €15.5 billion (€15.8 billion in 2013), a reduction of 1.9%, essentially due to changes in exchange rates. This factor was partially offset by the improvement in the margin on electricity sales on the Italian market. Net financial debt at the end of 2014 amounted to €37.4 billion (excluding €0.6 billion regarding net assets classified as “held for sale”), a decrease of €2.3 billion from €39.7 billion at the end of 2013. The decline reflects the positive effects of ordinary operations, which were particularly significant in the 4th Quarter of the year, as well as cash flow generated by extraor- dinary transactions. These positive effects were partially offset by the cash requirements of the payment of dividends and investments for the period, as well as exchange rate losses (€1.1 billion), primarily in respect of medium- and long-term debt denominated in currencies other than the euro. 12 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSFuture strategy and forecasts for 2015 In order to compete effectively in the macroeconomic environment of today and tomorrow and, at the same time, seize new business opportunities in the energy industry, the Enel Group is shifting to a new industrial strategy based on four key pillars: i) achieving high levels of operating efficiency through the optimal mana- gement of the costs and maintenance capex of our assets; ii) reviving the Group’s “industrial” growth with a sharp increase in growth capex; iii) actively managing our portfolio with a view to creating value; and iv) the Group’s new dividend policy. The Enel Group’s new business plan therefore sets out the priorities and action plans necessary to pursue these objectives. In order to boost operating efficiency, we will leverage our new Global Business Lines in order to share internal best practices for optimizing operating expenses and managing assets efficiently. The new path to industrial growth will be sustained by major investment in promising markets and businesses, beginning with renewables, by expanding our positioning in areas where we are already operating, such as in Latin America, and entering new countries, partly with a view to subsequently positioning ourselves in other businesses. Other growth areas will include new smart di- stribution grids and expanding our range of value-added products and services in retail markets. The active management of our portfolio will be targeted at the disposal of non-strategic assets and subsequent rein- vestment of the proceeds in order to create value and rationalize the Group structure. Finally, the introduc- tion of a new dividend policy is designed to lend certainty to the pay-out in the near term, with the potential for significant growth in the medium to long term. The Group has a unique presence in the world utilities market, thanks both to its size, its technological diversification, its presence along the entire value chain and its geographical diversification. Our new orga- nizational structure gives management a tool to leverage these characteristics to create even more value in a rapidly evolving global environment. The Chairman of the Board of Directors The Chief Executive Officer Patrizia Grieco Francesco Starace 13 Summary of results Electricity sold (TWh) 261.0 Electricity transported (TWh) Net electricity generation (TWh) Net electricity generation by source (TWh) 395.4 283.1 283.1 Abroad 173.4 Abroad 173.6 Abroad 211.3 Gas sales (billions of m3) 7.8 Abroad 4.3 Italy 3.5 Capital expenditure by business area (millions of euro) 6,701 Italy 87.6 Italy 221.8 Italy 71.8 94.9 Renewables 34% Coal 29% Nuclear 14% combined gas turbine Oil and 10% Gas cycle 13% Net electricity generation by renewable resource (TWh) Hydroelectric 78% Employees by business area 68,961 Wind 15% Geothermal Biomass 6% and solar 1% International 936 Iberia and Latin America 2,602 Sales 111 Generation and Energy Management 285 Infrastructure and Networks 996 Renewable Energy 1,658 Other, eliminations and adjustments 113 International Iberia and 10,403 Latin America Sales 3,633 22,801 Generation and Energy Infrastructure and Networks Management 17,398 Renewable Other, Energy 3,609 eliminations and adjustments 5,314 5,803 Performance data 2014 (millions of euro) (as compared with 2013 restated) Employees by geographical area Revenue 75,791 -3.7% Gross operating margin 15,757 -5.6% Operating income 3,087 -68.3% Net income 772 Iberian peninsula 16% 19% 4% Russia 48% 13% Latin America Italy Other countries Electricity sold (TWh) 261.0 Electricity Net electricity transported (TWh) generation (TWh) Net electricity generation by source (TWh) 395.4 283.1 283.1 Abroad 173.4 Abroad 173.6 Abroad 211.3 Italy 87.6 Italy 221.8 Renewables 34% Coal 29% Nuclear 14% Gas combined cycle 13% Oil and gas turbine 10% Net electricity generation by renewable resource (TWh) Italy 71.8 94.9 Hydroelectric 78% Employees by business area 68,961 Wind 15% Geothermal 6% Biomass and solar 1% Gas sales (billions of m3) 7.8 Abroad 4.3 Italy 3.5 Capital expenditure by business area (millions of euro) 6,701 International Iberia and 936 Latin America Sales 111 2,602 Generation and Energy Infrastructure and Networks Management 996 Renewable Other, Energy 1,658 eliminations and adjustments 285 113 International 10,403 Iberia and Latin America 22,801 Sales 3,633 Generation and Energy Management 5,314 Infrastructure and Networks 17,398 Renewable Energy 3,609 Other, eliminations and adjustments 5,803 Performance data 2014 (millions of euro) (as compared with 2013 restated) Employees by geographical area Revenue 75,791 -3.7% Gross operating margin Operating income Net income 15,757 -5.6% 3,087 -68.3% 772 16% Iberian peninsula 4% Russia Latin America Italy Other countries 19% 48% 13% Performance data Revenue Revenue in 2014 amounted to €75,791 million, a decrease of €2,872 million (-3.7%) on 2013. The decline is essential- ly attributable to the decrease in revenue from the sale of electricity, largely due to a fall in amounts sold, the adverse impact of changes in the exchange rates of the currencies of a number of the countries in which the Group operates against the euro, and the smaller contribution to perfor- mance of disposal of strategic equity interests. These factors were only partly offset by an increase in revenue from the Millions of euro -3.7% 75,791 78,663 2014 2013 restated sale of fuels. Millions of euro Sales Generation and Energy Management Infrastructure and Networks Iberia and Latin America International Renewable Energy Other, eliminations and adjustments Total 2014 15,226 22,606 7,366 30,547 5,278 2,921 (8,153) 75,791 2013 restated Change 16,921 22,798 7,698 30,674 6,296 2,769 (8,493) 78,663 (1,695) (192) (332) (127) (1,018) 152 340 (2,872) -10.0% -0.8% -4.3% -0.4% -16.2% 5.5% 4.0% -3.7% Gross operating margin The gross operating margin in 2014 amounted to €15,757 million, down 5.6% compared with 2013. Excluding the impact of non-recurring transactions, the gross operating margin came to €15,502 million (€15,769 million in 2013), a decline of €267 million (-1.7%). The change reflected the adverse effects of changes in exchange rates, the impact of Millions of euro -5.6% 15,757 16,691 which was offset by the improvement in the margin on sales 2014 2013 restated of electricity on the domestic market. Millions of euro Sales Generation and Energy Management Infrastructure and Networks Iberia and Latin America International Renewable Energy Other, eliminations and adjustments Total 16 2013 restated Change 2014 1,081 1,163 3,979 6,294 1,204 1,938 98 866 1,084 4,009 6,638 1,293 1,780 1,021 15,757 16,691 215 79 (30) (344) (89) 158 (923) (934) 24.8% 7.3% -0.7% -5.2% -6.9% 8.9% -90.4% -5.6% ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS Operating income Millions of euro Operating income in 2014 amounted to €3,087 million, a decrease of 68.3% compared with 2013 (€9,740 million). In addition to the decline in the gross operating margin, the contraction is attributable to an increase in impairment los- ses in 2014 compared with 2013. More specifically, while in 2013 the item was entirely accounted for by the writedown -68.3% 3,087 9,740 of part of the goodwill of the Enel Russia cash generating 2014 2013 restated unit (formerly Enel OGK-5), in 2014 impairment losses were recognized after impairment testing in the total amount of €6,427 million. The impairment included adjustments to fair value of the net assets held for sale pertaining to Slovenské elektrárne (€2,878 million), conventional generation assets in Italy (€2,108 million), and water use rights for a number of rivers in the Aysén region of Chile (€589 million). Millions of euro Sales Generation and Energy Management Infrastructure and Networks Iberia and Latin America International Renewable Energy Other, eliminations and adjustments Total 2014 455 (1,539) 2,943 2,789 (2,682) 1,124 (3) 3,087 2013 restated Change 362 493 3,029 3,767 (23) 1,205 907 9,740 93 (2,032) (86) (978) (2,659) (81) (910) (6,653) 25.7% - -2.8% -26.0% - -6.7% - -68.3% 17 Millions of euro 6.000 5.000 4.000 3.000 2.000 1.000 0 -83.8% 772 255 517 4,780 1,545 3,235 2014 2013 restated Earnings per share €0.06 Earnings per share €0.34 euro Group Non-controlling interests Millions of euro 6.000 5.000 4.000 3.000 2.000 1.000 0 -4.3% 88,528 51,145 37,383 92,538 52,832 39,706 2014 2013 restated Group shareholders’ equity per share €3.35 Group shareholders’ equity per share €3.82 Net financial debt Shareholders’ equity (including non-controlling interests) Net income Net income pertaining to shareholders of the Parent Company amounted to €517 million in 2014, compared with €3,235 million the previous year. The decrease is essentially attributable to the decline in operating income, the increase in net financial expense and impairment losses on a number of minority interests held by the Group. These factors were partly offset by lower taxes for 2014, which reflected the recognition of a tax credit of €1,392 million in respect of dividends distributed by Endesa following major corporate operations carried out in the last Quarter of 2014, and the impact on deferred taxation of impairment losses. Financial data Net capital employed Net capital employed, including net assets held for sale of €1,488 million (mainly related to Slovenské elektrárne), amounted to €88,528 million at December 31, 2014 and was financed by equity pertaining to shareholders of the Parent Company and non-controlling interests of €51,145 million and net financial debt of €37,383 million. At December 31, 2014, the debt/equity ratio came to 0.73 (0.75 at December 31, 2013). Net financial debt came to €37,383 million, a decrease of €2,323 million compared with December 31, 2013. More specifically, cash flows from operations, the disposal of a number of non-strategic assets and the proceeds of the disposal of 21.92% of Endesa in November in a public offer more than covered capital expenditure in the period and the payment of dividends. 18 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSCash flows from operations Cash flows from operations amounted to €10,058 million in 2014, up €2,804 million on the previous year. Capital expenditure Capital expenditure amounted to €6,701 million in 2014 (of which €6,019 million in respect of property, plant and equipment), an increase of €781 million on 2013. Millions of euro +38.7% 10,058 7,254 2014 2013 restated Millions of euro +13.2% 6,701 5,920 2014 2013 restated Millions of euro Sales Generation and Energy Management Infrastructure and Networks Iberia and Latin America International Renewable Energy Other, eliminations and adjustments Total 2014 2013 restated Change 111 285 996 2,602 936 1,658 113 6,701 99 313 1,046 2,160 924 1,294 (1) 84 5,920 12 (28) (50) 442 12 364 29 781 12.1% -8.9% -4.8% 20.5% 1.3% 28.1% 34.5% 13.2% (1) The figure for 2013 does not include €1 million regarding units classified as “held for sale”. Operations Net electricity generated by Enel (TWh) Electricity transported on the Enel distribution network (TWh) Electricity sold by Enel (TWh) (1) Gas sold to end users (billions of m3) Employees at year-end (no.) (2) Italy Abroad Total Italy Abroad Total 2014 211.3 173.6 173.4 4.3 71.8 221.8 87.6 3.5 283.1 395.4 261.0 7.8 2013 210.6 173.7 178.3 4.5 71.2 228.9 92.2 4.1 281.8 402.6 270.5 8.6 33,405 35,556 68,961 34,246 36,096 70,342 (1) Excluding sales to resellers. (2) Includes 4,430 in units classified as “held for sale” at December 31, 2014 (37 at December 31, 2013 restated). 19 Net electricity generation by source (2014) 13% Net electricity generated by Enel in 2014 rose by 1.3 TWh (+0.5%), with an increase in generation abroad (+0.7 TWh) and in Italy (+0.6 TWh). More specifically, the increase in re- 34% newables generation (+3.6 TWh), thanks to an expansion of 14% 10% 29% Renewables Coal Oil and gas turbine Nuclear Gas combined cycle Electricity sold by geographical area (2014) 6% 24% 34% 36% Italy Iberian peninsula Latin America Other countries Employees by geographical area (at December 31, 2014) 13% installed capacity and more favorable weather conditions, was more than offset by a reduction in nuclear generation (-1.3 TWh), with an especially sharp contraction in Spain, and in thermal generation (-1.0 TWh), attributable to the shut-down of a number of plants in Latin America. Electricity transported on the Enel distribution net- work came to 395.4 TWh, a decrease of 7.2 TWh (-1.8%), essentially due to the decline in electricity demand in Italy and Spain, only partly offset by the growth posted in Latin America, especially Brazil. Electricity sold by Enel decreased by 9.5 TWh (-3.5%), mainly reflecting a decrease in quantities sold in Italy (-4.6 TWh), France (-4.6 TWh) and the Iberian peninsula (-2.2 TWh), only partly offset by higher sales in Latin America (+1.9 TWh). At December 31, 2014, Enel Group employees numbered 68,961 (-1,381 on the end of 2013). The contraction in the Group workforce is attributable to the balance between new hirings and terminations (for a net decrease of 1,404) and the change in the scope of consolidation (an increase of 23). 48% 19% 4% 16% Italy Iberian peninsula Russia Latin America Other countries Sales Generation and Energy Management (1) Infrastructure and Networks Iberia and Latin America (2) International (3) Renewable Energy Other, eliminations and adjustments Total Employees (no.) 2014 3,633 5,314 17,398 22,801 10,403 3,609 5,803 68,961 2013 restated 3,687 5,621 17,689 22,541 11,439 3,469 5,896 70,342 (1) Includes 41 in units classified as “held for sale” at December 31, 2014. (2) Includes 15 in units classified as “held for sale” at December 31, 2014. (3) Includes 4,374 in units classified as “held for sale” at December 31, 2014 (37 at December 31, 2013 restated). 20 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSRestatement of the income statement and the balance sheet > the application of the new provisions of IAS 32, applica- ble since January 1, 2014 with retrospective effect, con- cerning the offsetting of financial assets and liabilities under certain conditions, which led to the restatement of several items in the consolidated balance sheet at De- cember 31, 2013. These changes did not have an impact The figures in the income statement and the balance sheet at on consolidated shareholders’ equity; December 31, 2013, reported here for comparative purposes > the definitive allocation of the purchase prices for a only, have been restated to reflect: number of companies in the Renewable Energy Division > the application of the new IFRS 11, applicable since Ja- (including Parque Eólico Talinay Oriente) in transactions nuary 1, 2014 with retrospective effect, under which the that had been completed after December 31, 2013. As only permissible method for accounting for joint ven- a result, a number of items in the balance sheet at that tures is the equity method. This change eliminated the date were restated. option, permitted under the previous IAS 31 and utilized previously by the Group, of consolidating such interests For more detail, please see note 4 to the consolidated financial on a proportionate basis, resulting in the restatement statements in this Annual Report 2014. of all the income statement and balance sheet figures, The following tables show the impact of the restatement on although this did not change the Group’s net result or revenue, the gross operating margin and operating income in consolidated shareholders’ equity; 2013, by business area. Revenue Millions of euro Sales Generation and Energy Management Infrastructure and Networks Iberia and Latin America International Renewable Energy Other, eliminations and adjustments Total Gross operating margin Millions of euro Sales Generation and Energy Management Infrastructure and Networks Iberia and Latin America International Renewable Energy Other, eliminations and adjustments Total Operating income Millions of euro Sales Generation and Energy Management Infrastructure and Networks Iberia and Latin America International Renewable Energy Other, eliminations and adjustments Total 2013 16,921 22,919 7,698 30,935 7,737 2,827 (8,502) 80,535 2013 866 1,176 4,008 6,746 1,405 1,788 1,022 17,011 2013 362 554 3,028 3,836 85 1,171 908 9,944 Effect of IFRS 11 2013 restated - (121) - (261) (1,441) (58) 9 (1,872) 16,921 22,798 7,698 30,674 6,296 2,769 (8,493) 78,663 Effect of IFRS 11 2013 restated - (92) - (108) (112) (8) - (320) 866 1,084 4,008 6,638 1,293 1,780 1,022 16,691 Effect of IFRS 11 2013 restated - (61) - (69) (108) 34 - (204) 362 493 3,028 3,767 (23) 1,205 908 9,740 21 Sustainability indicators ISO 14001-certified net efficient capacity (% of total) Average efficiency of thermal plants (%) Total specific emissions of CO2 from net generation (gCO2/kWheq) (1) “Zero-emission” generation (% of total) Enel injury frequency rate (2) Enel injury severity rate (3) Serious and fatal injuries at Enel Serious and fatal injuries at contractors Average hours of training per employee Verified violations of the Code of Ethics (4) 2014 2013 restated Change 94.3 40.3 395 47.4 1.32 0.07 4 38 42.3 27 93.9 39.8 396 46.8 1.43 0.07 13 26 40.0 36 0.4 0.5 (1) 0.6 (0.1) - (9) 12 2.3 (9) 0.4% 1.3% -0.3% 1.3% -7.8% - -69.2% 46.2% 5.8% -25.0% (1) Specific emissions are calculated as total emissions from simple thermal generation and co-generation of electricity and heat as a ratio of total renewables generation, nuclear generation, simple thermal generation and co-generation of electricity and heat (including the contribution of heat in MWh equivalent). (2) The indicator is calculated as the ratio between the total number of injuries and the number of hours worked, in millions (INAIL standard). (3) The indicator is calculated as the ratio between the number of days lost for injuries and the number of hours worked, in thousands (INAIL standard). (4) The analysis of reports received in 2013 was completed in 2014. For that reason, the number of verified violations for 2013 was restated from 27 to 36. The proportion of ISO 14001-compliant capacity was equal and intensive information, training and awareness-raising to 94.3% at December 31, 2014. The rise reflects the new activities conducted in order to disseminate a culture of installed capacity of Enel Green Power. safety at all levels and to promote the adoption of safe be- In 2014 the average efficiency of thermal plants increased havior, as well as the ongoing implementation of measu- from the 39.8% posted in 2013 to 40.3%, the result of gre- res to enhance workplace health and safety standards and ater operation of the most efficient thermal plants. management processes. Specific emissions of CO2 were unchanged compared with 2013. Serious and fatal injuries involving Enel personnel decrea- sed by about 70% compared with 2013, even though there In 2014, 47.4% of Enel’s generation came from zero-emis- were 3 fatal workplace accidents. Serious and fatal injuries sions resources, an increase of 1.3% compared with 2013. involving the employees of contractors working for Enel The percentage rise is due to the increase in installed re- increased by 12 compared with 2013. newables generation capacity in 2014, which amounted The average number of hours of training per employee to 630 MW, confirming the Group’s commitment to deve- showed an increase of 5.8%, on the previous year, under- loping carbon-free generation, which will continue in the scoring Enel’s constant commitment to this area. years to come. As regards the Code of Ethics, the number of verified vio- The Enel injury frequency rate declined by 7.8%, while the lations declined by 25%, essentially in line with the reduc- injury severity rate was unchanged, thanks to constant tion in the number of reports received during the year. 22 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSOverview of the Group’s operations, performance and financial position > Net current assets: calculated as the difference between “Current assets” and “Current liabilities” with the excep- tion of: - “Long-term financial receivables (short-term portion)”, “Receivables for factoring advances”, “Securities”, “Fi- nancial receivables and cash collateral” and “Other fi- nancial receivables”; - “Cash and cash equivalents”; - “Short-term borrowings” and the “Current portion of long-term borrowings”. > Net assets held for sale: calculated as the algebraic sum of “Assets held for sale” and “Liabilities held for sale”. > Net capital employed: calculated as the algebraic sum of “Net non-current assets” and “Net current assets”, provi- sions not previously considered, “Deferred tax liabilities” and “Deferred tax assets”, as well as “Net assets held for sale”. > Net financial debt: a financial structure indicator, deter- mined by “Long-term borrowings”, the current portion of such borrowings and “Short-term borrowings” less “Cash and cash equivalents”, “Current financial assets” and “Non-current financial assets” not previously considered in other balance sheet indicators. More generally, the net financial debt of the Enel Group is calculated in confor- mity with paragraph 127 of Recommendation CESR/05- 054b implementing Regulation (EC) 809/2004 and in line with the CONSOB instructions of July 26, 2007, net of fi- nancial receivables and long-term securities. Definition of performance indicators In order to present the results of the Group and the Parent Company and analyze its financial structure, Enel has pre- pared separate reclassified schedules that differ from those envisaged under the IFRS-EU adopted by the Group and Enel SpA and presented in the consolidated and separate financial statements, respectively. These reclassified sche- dules contain different performance indicators from those obtained directly from the consolidated and separate fi- nancial statements, which management feels are useful in monitoring Group and Parent Company performance and representative of the financial performance of our busi- ness. In accordance with Recommendation CESR/05-178b published on November 3, 2005, the criteria used to calcu- late these indicators are described below. > Gross operating margin: an operating performance indi- cator, calculated as “Operating income” plus “Deprecia- tion, amortization and impairment losses”. > Group net ordinary income: this is Group net income pro- duced by ordinary operations. > Net non-current assets: calculated as the difference between “Non-current assets” and “Non-current liabili- ties” with the exception of: - “Deferred tax assets”; - “Securities held to maturity”, “Financial investments in funds or portfolio management products at fair value through profit or loss”, “Securities available for sale” and “Other financial receivables”; - “Long-term borrowings”; - “Post-employment and other employee benefits”; - “Provisions for risks and charges”; - “Deferred tax liabilities”. 23 Main changes in the scope of consolidation In the two periods under review, the scope of consolidation changed as a result of the following main transactions. 2013 2014 > Acquisition, on March 22, 2013, of 100% of Parque Eólico > Loss of control, as from January 1, 2014, of SE Hydro- Talinay Oriente, a company operating in the wind gene- power, under agreements signed in 2010 upon the ac- ration sector in Chile; quisition of the company, providing for the change in > acquisition, on March 26, 2013, of 50% of PowerCrop, governance structure as from that date. This resulted in a company operating in the biomass generation sector; the Enel Group no longer meeting the requirements for in view of the joint control exercised over the company control of the company, which has instead become an together with another operator, the company is now entity under joint control. With these new governance accounted for using the equity method under the provi- arrangements, the investment was reclassified as a joint sions of IFRS 11; operation under IFRS 11; > disposal, on April 8, 2013, of 51% di Buffalo Dunes Wind > acquisition, through a tender offer in effect between Project, a company operating in the wind generation sec- January 14, 2014 and May 16, 2014, of an additional tor in the United States; 15.18% stake in Coelce, an electricity distribution com- > acquisition, on May 22, 2013, of 26% of Chisholm View pany in Brazil, already under the Group’s control prior to Wind Project and Prairie Rose Wind, two companies ope- the tender offer; rating in the wind generation sector in the United States > acquisition, on April 22, 2014, of 50% of Inversiones Gas in which the Group held a stake of 49%; as a result of Atacama, a company operating in the natural gas tran- the purchase, the companies are no longer accounted for sport and electricity generation sector in Chile in which using the equity method but are now consolidated on a the Group already held 50%; therefore, the company line-by-line basis; is now consolidated on a line-by-line basis rather than > acquisition, on August 9, 2013, of 70% of Domus Energia using equity method accounting; (now Enel Green Power Finale Emilia), a company opera- > acquisition, on May 12, 2014, of 26% of Buffalo Dunes ting in the biomass generation sector; Wind Project, a company operating in the wind gene- > acquisition, on October 31, 2013, of 100% of Compañía ration sector in the United States in which the Group Energética Veracruz, a company operating in the deve- already held 49%; therefore, the company is now con- lopment of hydroelectric plants in Peru; solidated on a line-by-line basis rather than using equity > disposal, on November 13, 2013, of 40% of Artic Russia, method accounting; with the consequent deconsolidation of the interest held > acquisition, on July 22, 2014, of the remaining 50% of by the latter in SeverEnergia; Enel Green Power Solar Energy, an Italian company ope- > acquisition, in November and December 2013, of nine rating in the development, design, construction and ope- companies (representing three business combinations) ration of photovoltaic plants, in which the Group had operating in the development of wind power projects in previously held 50%; therefore, the company is now con- the United States; solidated on a line-by-line basis rather than using equity > disposal, on December 20, 2013, of the remaining stake method accounting; in Enel Rete Gas, previously accounted for using the equi- > acquisition, on September 4, 2014, of the remaining 39% ty method. 24 of Generandes Perú (previously controlled through a sta- ke of 61%), a company that controls, with an interest of 54.20%, Edegel, a company operating in the power ge- neration sector in Peru; > acquisition, on September 17, 2014, of 100% of Osage Wind LLC, a company that owns a 150 MW wind deve- lopment project in the United States. In October 2014, a stake of 50% in the company was sold. Consequently, ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSthe company, held under joint control, began to be ac- In addition, following the internal reorganization of the counted for using the equity method; Group designed to restructure the holdings of the Iberia and > disposal, on November 21, 2014, of 21.92% of Endesa in Latin America Division, there were a number of changes in a public offering. The operation did not involve any loss non-controlling interests in a number of subsidiaries. More af control; specifically, on October 23, 2014 Endesa (of which the Group > during 2014, agreements were completed for the ac- holds 92.06%) sold 100% of Endesa Latinoamérica (an in- quisition of wind and solar projects in Chile, in the total vestment holding company that owned 40.32% of Enersis) amount of about €7 million, and a wind project in Uru- and 20.3% of Enersis, the parent company for operations in guay for €4 million; Latin America, to Enel Energy Europe, now Enel Iberoaméri- > disposal in December 2014 of the entire stake (36.2%) ca (a wholly-owned subsidiary). The operation increased the held in LaGeo, a geothermal generation company in El Group’s stake in Enersis by 4.81%. Salvador; > disposal in December 2014 of 100% of Enel Green Power France, a renewables generator in France. Group performance Millions of euro Total revenue Total costs Net income/(expense) from commodity contracts measured at fair value 2014 75,791 59,809 (225) 2013 restated 78,663 61,594 (378) GROSS OPERATING MARGIN 15,757 16,691 Depreciation, amortization and impairment losses OPERATING INCOME Financial income Financial expense 12,670 3,087 3,326 6,456 6,951 9,740 2,449 5,253 Total financial income/(expense) (3,130) (2,804) Share of income/(losses) of equity investments accounted for using the equity method INCOME BEFORE TAXES Income taxes NET INCOME FROM CONTINUING OPERATIONS NET INCOME FROM DISCONTINUED OPERATIONS NET INCOME (Group and non-controlling interests) Net income attributable to shareholders of the Group Net income attributable to non-controlling interests (35) (78) (850) 772 - 772 517 255 217 7,153 2,373 4,780 - 4,780 3,235 1,545 Change (2,872) (1,785) 153 (934) 5,719 -3.7% -2.9% -40.5% -5.6% 82.3% (6,653) -68.3% 877 1,203 (326) (252) (7,231) (3,223) 35.8% 22.9% -11.6% - - - (4,008) -83.8% - - (4,008) -83.8% (2,718) (1,290) -84.0% -83.5% 25 Revenue Millions of euro Electricity sales and transport and transfers from the Electricity Equalization Fund and similar bodies Gas sold and transported to end users Remeasurement at fair value after changes in control Gains on the disposal of assets Other services, sales and revenue Total 2014 59,844 4,087 82 292 11,486 75,791 2013 restated 65,504 4,452 21 943 7,743 78,663 Change (5,660) (365) 61 (651) 3,743 (2,872) -8.6% -8.2% - -69.0% 48.3% -3.7% Revenue from electricity sales and transport and tran- > €82 million from the adjustment to the sale price of Artic sfers from the Electricity Equalization Fund and similar Russia, which was sold in the 4th Quarter of 2013. The bodies in 2014 amounted to €59,844 million, down €5,660 adjustment was made in the 1st Quarter of 2014 with the million compared with 2013 (-8.6%). The decline, which also triggering of the earn-out clause included in the agree- reflects the adverse impact of exchange rate developments, ments reached with the buyer prior to closing the sale; especially in Russia, Chile and Brazil, is attributable to the > €31 million from the gain on the sale of 100% of Enel following factors: Green Power France. > a decrease of €2,958 million in revenue from wholesale electricity sales, mainly due to a decline in sales on elec- The gain from remeasurement at fair value after changes tricity exchanges, only marginally offset by greater sales in control amounted to €82 million in 2014 (€21 million in under bilateral contracts with generation companies; 2013). The gain is attributable to the remeasurement at fair > a reduction of €1,662 million in revenue from the sale of value of the assets and liabilities attributable to the Group: electricity to end users, of which €1,477 million on regu- > following the loss of control, as from January 1, 2014, of lated markets and €185 million on free markets, essen- SE Hydropower following changes in its governance ar- tially associated with the decline in electricity demand; rangements (€50 million); > a decrease of €807 million in revenue from electricity tra- > already held by Enel prior to the acquisition of full control ding, as volumes handled declined; of Inversiones Gas Atacama (€29 million) and Buffalo Du- > a decrease of €470 million in revenue from the transport nes Wind Project (€3 million). of electricity, due essentially to a decline in revenue from In 2013, these gains regarded the Group’s residual holding the transport of electricity on the regulated market; (49%) following the loss of control of Buffalo Dunes Wind > an increase of €237 million in revenue from transfers Project. from the Electricity Equalization Fund and similar bo- dies, essentially reflecting changes in the regulatory fra- Income from other services, sales and revenue in 2014 mework for companies operating in the non-peninsular amounted to €11,486 million (€7,743 million in 2013), an market in Spain. increase of €3,743 million (+48.3%) on the previous year. The rise is essentially due to the following factors: Revenue from gas sold and transported to end users > an increase of €3,035 million in revenues from the sale of amounted to €4,087 million, down €365 million (-8.2%) on fuels for trading, including revenues for shipping services, the previous year. The contraction mainly reflects the decli- essentially due to an increase in volumes handled against ne in revenue from the transport of gas to end users, prima- a reduction in generation activities, and an increase of rily owing to a decrease in amounts transported. €893 million in sales of environmental certificates, mainly Gains on the disposal of assets amounted to €292 million > a decrease of €156 million in connection fees, together in 2014. They essentially regard: with a reduction of €71 million in government grants to > €123 million from the gain on the disposal of the stake in the Argentine distribution company Edesur concerning LaGeo, a geothermal generation company in El Salvador; the Mecanismo de Monitoreo de Costos. green certificates and CO2 emissions allowances; 26 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS  Costs Millions of euro Electricity purchases Consumption of fuel for electricity generation Fuel for trading and gas for sale to end users Materials Personnel Services, leases and rentals Other operating expenses Capitalized costs Total 2014 23,317 6,005 7,848 2,275 4,864 14,662 2,362 (1,524) 59,809 2013 restated Change 27,325 (4,008) 6,675 5,196 1,550 4,555 14,906 2,821 (1,434) 61,594 (670) 2,652 725 309 (244) (459) (90) (1,785) -14.7% -10.0% 51.0% 46.8% 6.8% -1.6% -16.3% -6.3% -2.9% Costs for electricity purchases amounted to €23,317 mil- lowing the implementation of the measures provided for in lion in 2014, a decrease of €4,008 million (-14.7%). The Article 4 of Law 92/2012 and the concomitant termination decline essentially reflects the impact of lower purchases of the transition-to-retirement plan. Excluding these fac- on electricity exchanges (€3,105 million) and lower costs tors, personnel costs declined by €206 million, essentially for electricity purchases on domestic and foreign markets owing to the contraction in the average workforce, which (€853 million), essentially connected with the general de- was especially large in Italy (794 employees) as a result of crease in demand. the early retirement plans. Costs for the consumption of fuel for electricity gene- The Enel Group’s workforce at December 31, 2014 numbe- ration in 2014 amounted to €6,005 million, a decrease of red 68,961 (70,342 at December 31, 2013), of whom 52% €670 million compared with the previous year (-10.0%), es- were employed abroad. sentially attributable to the impact of the decline in volu- The Group’s workforce decreased by 1,381 during the year, mes of electricity from thermal generation and the average reflecting the balance between new hirings and termina- purchase prices of the associated fuel. tions (a decrease of 1,404) and the change in the scope of Costs for the purchase of fuel for trading and gas for sale an additional 50% of Inversiones Gas Atacama (a gain of 163 to end users came to €7,848 million, an increase of €2,652 employees), the disposal of Enel Green Power France (a de- million (51.0%) on 2013. The rise reflects an increase in in- crease of 48 employees), the change in the method of con- termediation in commodity markets, as discussed under solidating SE Hydropower from full line-by-line to proportio- consolidation, essentially attributable to the acquisition of revenue. nate following the loss of control as a result of the changes in governance arrangements (a decrease of 51 employees) and Costs for materials amounted to €2,275 million in 2014, an other minor disposals (a decrease of 41 employees). increase of €725 million on 2013, mainly due to changes in The change compared with December 31, 2013 breaks inventories of CO2 emissions allowances and environmental certificates. down as follows. Personnel costs in 2014 amounted to €4,864 million, an incre- Change in scope of consolidation Balance at December 31, 2013 restated ase of €309 million (+6.8%) compared with the previous year. More specifically, the rise mainly reflects the voluntary early retirement plan introduced in Spain in 2014, which invol- ved the recognition of a charge of €345 million, as well as Hirings Terminations Balance at December 31, 2014 (1) the net benefit (€170 million) recognized in Italy in 2013 fol- 2013). 27 (1) Includes 4,430 in units classified as “held for sale” (37 at December 31, 70,342 23 4,821 (6,225) 68,961 Costs for services, leases and rentals in 2014 amounted plant in Slovakia in the amount of €103 million; to €14,662 million, a decrease of €244 million (-1.6%) on > an increase of €698 million in impairment of intangible 2013. The change is essentially related to the decrease in assets (mainly attributable to the impairment of water electricity transport costs (€294 million), related to the use rights for a number of rivers in the Aysén region of decline in consumption in the main markets in which the Chile); Group operates. Another factor was the decrease in ope- > a decrease of €551 million in impairment of goodwill. rating costs of electrical systems (€265 million), including More specifically, writedowns in 2014 regarded the Enel fees for transport capacity use rights in respect of the Russia and Enel Green Power Hellas CGUs totaling €194 Energy Markets Operator (GME). These effects were partly million; in 2013, the item included the partial impairment offset by an increase in costs for leases and rentals, which of goodwill on the Enel Russia CGU in the amount of among other factors includes the effects of the changes in €744 million; water use fees in Spain introduced with Law 15/2012. > an increase of €135 million in impairment losses on trade receivables. Other operating expenses in 2014 amounted to €2,362 These factors were only partly offset by a decrease of €122 million, a decrease of €459 million on the previous year million in depreciation, due in part to the extension in 2013 (-16.3%). More specifically, the decline mainly reflects the of the useful life of nuclear plants in Spain. impact of the recognition in 2013 of taxes on conventio- nal generation introduced in Spain with Law 15/2012 and Operating income for 2014 amounted to €3,087 million, a reduction in costs for charges for emissions. These fac- a decrease of €6,653 million compared with the previous tors were partly offset by an increase in costs associated year (-68.3%). with the reintroduction of the Bono Social in Spain totaling €204 million. Net financial expense in 2014 amounted to €3,130 mil- lion, an increase of €326 million compared with the pre- Capitalized costs amounted to €1,524 million in 2014 vious year (€2,804 million), mainly accounted for by: (€1,434 million in 2013), with the increase mainly reflecting > an increase of €221 million in interest expense on net fi- the rise in investments. nancial debt; > an increase of €1,616 million in net income from deriva- Net income/(expense) from commodity contracts me- tives, which more than offset the rise of €1,551 million in asured at fair value showed net charges of €225 million net exchange rate losses; in 2014 (€378 million the previous year). More specifically, > a reduction of €78 million in net income from equity in- the net charges for 2014 reflect €43 million in net realized vestments, essentially reflecting the recognition in 2013 income for the period (€264 million of net charges in 2013) of the gain on the disposal of Medgaz (€64 million); and net charges from the fair value measurement of deri- > a writedown of financial assets (€92 million) in respect of vatives positions open at the end of the year in the amount service concessions following a rate review for the Brazi- of €268 million (€114 million in 2013). lian companies Ampla and Coelce in 2014; > the impact of a writeback of €66 million in 2013 in re- Depreciation, amortization and impairment losses to- spect of the receivable due from the Slovakian National taled €12,670 million, an increase of €5,719 million (82.3%). Nuclear Fund, the effect of which was entirely offset The rise largely reflects the net impact of: by the income of the same amount recognized in 2014 > an increase of €2,878 million in impairment of Slovenské following the renegotiation of a finance lease for the elektrárne, classified under assets held for sale, following Gabčíkovo hydroelectric plant, which brought forward their measurement at estimated realizable value as de- the expiry of the contract to 2015, from its original expi- termined on the basis of bids received; ration date of 2036; > an increase of €2,727 million in impairment of property, > a reduction of €78 million in charges for the with-re- plant and equipment, essentially comprising conventio- course assignment of trade receivables; nal generation plants in Italy in the amount of €2,096 > an increase of €36 million in expense for the accretion of million in 2014, thermal plants in Russia, with impairment provisions. losses of €205 million, and the Gabčíkovo hydroelectric 28 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS The share of income/(losses) of equity investments ac- €850 million (a liability of €2,373 million in 2013). More counted for using the equity method showed net los- specifically, the difference in the tax burden for 2014 (com- ses of €35 million in 2014, a deterioration of €252 million pared with an effective rate of 33.2% in 2013) reflected compared with the previous year. The decline included the the grant of a tax credit of €1,392 million in respect of the impairment losses on the investment in Centrales Hidro- distribution of dividends by Endesa in the 4th Quarter, as eléctricas de Aysén amounting to €88 million (as a result of well as the tax effect of impairment losses. In addition, the uncertainty concerning permits for the development the tax burden in 2014 reflected the net benefit of €138 of a hydroelectric plant in Chile) and in the Greek compa- million from changes in tax rates in Spain, Chile, Colombia, nies of the Renewable Energy Division (“Elica 2”) in the to- Peru and Italy. The change in the latter case was associated tal amount of €89 million. with the court ruling that the Robin Hood Tax was uncon- stitutional, closing a long-running administrative dispute. Income taxes for 2014 showed a net creditor position of Analysis of the Group’s financial position Millions of euro Net non-current assets: - property, plant and equipment and intangible assets - goodwill - equity investments accounted for using the equity method - other net non-current assets/(liabilities) Total net non-current assets Net current assets: - trade receivables - inventories - net receivables due from the Electricity Equalization Fund and similar bodies - other net current assets/(liabilities) - trade payables Total net current assets Gross capital employed Sundry provisions: - post-employment and other employee benefits - provisions for risks and charges and net deferred taxes Total provisions Net assets held for sale Net capital employed Total shareholders’ equity Net financial debt at Dec. 31, 2014 at Dec. 31, 2013 restated Change 89,844 14,027 872 (741) 104,002 12,022 3,334 (2,994) (4,827) (13,419) (5,884) 98,118 (3,687) (7,391) (11,078) 1,488 88,528 51,145 37,383 98,499 14,967 1,372 (1,209) (8,655) (940) (500) 468 113,629 (9,627) 11,378 3,555 (2,567) (5,058) (12,363) (5,055) 644 (221) (427) 231 (1,056) (829) 108,574 (10,456) (3,677) (12,580) (16,257) 221 92,538 52,832 39,706 (10) 5,189 5,179 1,267 (4,010) (1,687) (2,323) -8.8% -6.3% -36.4% -38.7% -8.5% 5.7% -6.2% -16.6% -4.6% 8.5% -16.4% -9.6% 0.3% -41.2% 31.9% - -4.3% -3.2% -5.9% Property, plant and equipment and intangible assets (inclu- Aysén region of Chile), and exchange rate losses of €917 ding investment property) came to €89,844 million at De- million. These factors were partly offset by capital expendi- cember 31, 2014, a decrease of €8,655 million. The decrea- ture of €6,701 million for the year. se is essentially attributable to the reclassification to assets held for sale, notably those of Slovenské elektrárne (€5,966 Goodwill amounted to €14,027 million, a decrease of €940 million), depreciation, amortization and impairment losses million compared with December 31, 2013. The change is for the year (€8,835 million, of which €2,108 million in re- essentially due to the impairment loss recognized following spect of the impairment recognized on conventional ge- the impairment testing of the Enel Russia CGU (€160 mil- neration plants in Italy and €589 million in respect of the lion) and the reclassification of the goodwill of Slovenské impairment of water use rights for a number of rivers in the elektrárne (€697 million), which was then written down fol- 29 lowing an assessment of its estimated realizable value. The- > an increase in net receivables due from the Electricity se factors were compounded by the impact of the apprecia- Equalization Fund and similar bodies of €427 million, the tion of the euro against other currencies (about €52 million) consequence of the application of equalization mechani- and the decrease in goodwill from the disposal of entities, in sms to electricity purchases; particular Enel Green Power France, more than offset by the > an increase in other net current assets less related liabi- goodwill recognized in the acquisitions of Inversiones Gas lities of €231 million. The change is the result of the fol- Atacama and Buffalo Dunes Wind Project. lowing developments: - a decrease of €74 million in other receivables, mainly Equity investments accounted for using the equity method due to a reduction in receivables in respect of derivati- amounted to €872 million, a decrease of €500 million com- ves on commodities; pared with December 31, 2013. The decline reflected the - a decrease in net income tax receivables of €170 mil- acquisition of control of Inversiones Gas Atacama, Buffalo lion, mainly due to a decline in payments on account in Dunes Wind Project and Enel Green Power Solar Energy, 2014 by Enel SpA;. which had previously been recognized under this item but - a decline of €224 million in other current liabilities as are now consolidated on a line-by-line basis, as well as the a result of the increase in liabilities for dividends to be disposal of shareholdings in the Spanish company Tirme paid to non-controlling shareholders, partly in reflec- and the Salvadoran company LaGeo. In addition, the item tion of the dilution of the holding in Endesa; was also impacted by the impairment of the investments in - an increase in net current financial assets of €251 mil- Centrales Hidroeléctricas de Aysén and the companies ac- lion, essentially due to the rise in the fair value of com- counted for at equity held in Greece (“Elica 2”) for a total modity derivatives, partly offset by developments in of €177 million. The decreases engendered by these non- the fair value of derivatives on exchange rates; recurring operations were partly offset by the net income > an increase in trade payables of €1,056 million. attributable to the shareholders of the Parent Company ear- ned by the companies. Sundry provisions amounted to €11,078 million, an incre- ase of €5,179 million compared with the previous year. The Other net non-current liabilities at December 31, 2014 rise essentially reflects the following factors: amounted to €741 million, a decrease of €468 million com- > a decrease of €2,733 million in provisions for risks and pared with December 31, 2013 (net liabilities of €1,209 mil- charges. The decline is mainly attributable to the reclas- lion). sification to liabilities held for sale of the nuclear de- The change is mainly attributable to the following factors: commissioning provision for the Slovakian plants, the > an increase of €667 million in net assets in respect of cash decrease in the provision for litigation as a result of the flow hedge derivatives on exchange rates, only partly of- settlement agreement to resolve the dispute between fset by a decrease in the net fair value of the analogous Enel Distribuzione and A2A, and the use of the early re- interest rate hedges; tirement incentive provisions in Italy and in Spain; in the > a decrease in net deferred income (€36 million) and the latter case, the use was partly offset by the new voluntary value of other equity investments (€72 million), including early retirement plan; the remeasurement to fair value of the investment in Ba- > a decrease of €2,456 million in net deferred tax liabilities, yan Resources. mainly due to the recognition of deferred tax assets by Enel Iberoamérica (formerly Enel Energy Europe) on di- Net current assets came to a negative €5,884 million at De- vidends received in non-recurring operations carried out cember 31, 2014, up €829 million compared with December in the last Quarter of 2014 in the amount of €1,392 mil- 31, 2013. The change is attributable to the following factors: lion. Other factors were the net impact of the reclassifi- > an increase in trade receivables of €644 million, mainly cation of deferred tax assets and liabilities of the compa- due to a rise in receivables as a result of the increase in nies classified as held for sale and changes in tax rates in sales of fuels, especially gas; Spain, Chile and Colombia in 2014, as well as the impact > a decrease in inventories of €221 million, largely due to of the elimination of the Robin Hood Tax in Italy. a contraction of about €202 million in stocks of nuclear fuel; 30 Net assets held for sale amounted to €1,488 million at De- ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS cember 31, 2014 (€221 million at December 31, 2013). They Net capital employed at December 31, 2014 amounted to include the net assets of Slovenské elektrárne, SE Hydropo- €88,528 million and was funded by shareholders’ equity attri- wer and other minor companies that in view of the deci- butable to the shareholders of the Parent Company and non- sions taken by management meet the requirements of IFRS controlling interests in the amount of €51,145 million and 5 for classification as assets held for sale. net financial debt of €37,383 million. At December 31, 2014, the debt/equity ratio was 0.73 (0.75 at December 31, 2013). Analysis of the Group financial structure Net financial debt Net financial debt and changes in the period are detailed in the table below. Millions of euro Long-term debt: - bank borrowings - bonds - other borrowings Long-term debt Long-term financial receivables and securities Net long-term debt Short-term debt: Bank borrowings: - short-term portion of long-term bank borrowings - other short-term bank borrowings Short-term bank borrowings Bonds (short-term portion) Other borrowings (short-term portion) Commercial paper Cash collateral and other financing on derivatives Other short-term financial payables Other short-term debt Long-term financial receivables (short-term portion) Factoring receivables Financial receivables and cash collateral Other short-term financial receivables Cash and cash equivalents with banks and short term securities Cash and cash equivalents and short-term financial receivables Net short-term debt NET FINANCIAL DEBT Net financial debt of “Assets held for sale” at Dec. 31, 2014 at Dec. 31, 2013 restated Change 7,022 39,749 1,884 48,655 (2,701) 45,954 824 30 854 4,056 245 2,599 457 166 7,523 (1,566) (177) (1,654) (323) (13,228) (16,948) (8,571) 37,383 620 7,873 41,483 1,549 50,905 (4,965) 45,940 1,750 118 1,868 2,648 260 2,202 119 45 5,274 (2,976) (263) (1,720) (527) (7,890) (13,376) (6,234) 39,706 (10) (851) (1,734) 335 (2,250) 2,264 14 (926) (88) (1,014) 1,408 (15) 397 338 121 2,249 1,410 86 66 204 (5,338) (3,572) (2,337) (2,323) 630 -10.8% -4.2% 21.6% -4.4% -45.6% - -52.9% -74.6% -54.3% 53.2% -5.8% 18.0% - - 42.6% 47.4% 32.7% 3.8% 38.7% -67.7% -26.7% 37.5% -5.9% - Net financial debt amounted to €37,383 million at De- More specifically, long-term bank borrowings amounted to cember 31, 2014, a decrease of €2,323 million compared €7,022 million, a decline of €851 million, primarily reflecting: with December 31, 2013. In particular, the increase of €14 > the reclassification of borrowings held by Slovenské million in net long-term debt was partly offset by a decre- elektrárne at the end of 2014 to “assets held for sale” in ase of €2,337 million in net short-term debt. the amount of €1,557 million; 31  > the repayment of credit facilities in the amount of €450 compared with the end of 2013, the result of a decrease in million by Slovenské elektrárne; short-term bank borrowings amounting to €1,014 million (es- > the repayment of EIB loans by Enel Distribuzione in the sentially due to a decrease in the short-term portion of credit amount of €266 million; facilities and bank borrowings in the amount of about €926 > the repayment of €880 million by Endesa; million), a decrease of €3,572 million in cash and cash equiva- > repayments by Enersis in the total amount of €221 million. lents and short-term financial receivables and an increase in These developments were partly offset by drawings on lines other short-term debt of €2,249 million. of financing by Enersis in the amount of €105 million, EIB lo- Commercial paper includes issues by Enel Finance Interna- ans to Enel Green Power International in the amount of €150 tional, Endesa Latinoamérica, and Endesa Capital in the to- million and bank borrowings in the amount of €153 million, tal amount of €2,599 million. Finally, cash collateral paid to EIB loans to Enel Produzione in the amount of €150 million, counterparties in over-the-counter derivatives transactions on to Enel Green Power Chile in the amount of €103 million, to interest rates, exchange rates and commodities totaled €1,654 Enel Green Power Brasil in the amount of €217 million, to Slo- million, while cash collateral received from such counterpar- venské elektrárne in the amount of €855 million and to Enel ties amounted to €457 million. Green Power México in the amount of €77 million. Cash and cash equivalents and short-term financial receivables amounted to €16,948 million, an increase of €3,572 million Bonds amounted to €39,749 million, a decrease of €1,734 compared with the end of 2013, mainly reflecting an increa- million on the end of 2013, mainly reflecting the repayment se in liquidity held with banks and short-term securities in the of a €1,000 million bond issued by Enel SpA in 2007, the re- amount of €5,338 million and a decrease in the current por- payment of a $1,250 million bond issued by Enel Finance In- tion of long-term financial receivables in the amount of €1,410 ternational, repayments of bonds issued by Enel Finance Inter- million, which is discussed in greater detail in note 27.1. national in the amount of €762 million and new issues carried out in 2014, including the issue of hybrid financial instruments Among major transactions in 2014, on April 24, 2014, Enel by Enel SpA (€1,000 million fixed-rate 5%, maturing on Janua- SpA renegotiated a bilateral revolving credit facility in the ry 15, 2075 with a call option at January 15, 2020 and £500 overall amount of €550 million, falling due in 2016, replacing million fixed-rate 6.625%, maturing on September 15, 2076, the credit facility obtained on July 18, 2013, falling due in July with a call option at September 15, 2021). 2015, in the amount of €400 million. These effects were partly offset by the reclassification to short term of the current portion of a bond issued by Enel Finan- In addition, as part of the optimization of finance operations ce International in 2011 in the amount of €1,195 million and and the active management of maturities and the cost of bonds issued by Endesa in the amount of €480 million. funds, on October 28, 2014 Enel Finance International repur- chased its own bonds, secured by Enel, in the total amount of Net short-term debt showed a creditor position of €8,571 about €762 million. million at December 31, 2014, a decrease of €2,337 million Cash flows Millions of euro Cash and cash equivalents at the beginning of the period (1) Cash flows from operating activities Cash flows from investing/disinvesting activities Cash flows from financing activities Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the period (2) 2014 7,900 10,058 (6,137) 1,536 (102) 13,255 2013 restated 9,768 7,254 (4,103) (4,598) (421) 7,900 Change (1,868) 2,804 (2,034) 6,134 319 5,355 (1) Of which cash and cash equivalents equal to €7,873 million at January 1, 2014 (€9,726 million at January 1, 2013), short-term securities equal to €17 million at January 1, 2014 (€42 million at January 1, 2013) and cash and cash equivalents pertaining to assets held for sale in the amount of €10 million at January 1, 2014 (none at January 1, 2013). (2) Of which cash and cash equivalents equal to €13,088 million at December 31, 2014 (€7,873 million at December 31, 2013), short-term securities equal to €140 million at December 31, 2014 (€17 million at December 31, 2013) and cash and cash equivalents pertaining to assets held for sale equal to €27 million at December 31, 2014 (€10 million at December 31, 2013). 32 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSCash flows from operating activities in 2014 amounted to > the acquisition of an additional 39% (€321 million) of €10,058 million, an increase of €2,804 million on the pre- Generandes Perú (already controlled through a stake of vious year, reflecting the decreased use of cash connected 61%), a company which holds a controlling interest of with the change in net current assets, which was only 54.20% of Edegel; partly offset by the decline in operating income. > the acquisition of non-controlling interests of 4.81% (€659 million including transaction costs) of Enersis, fol- Cash flows from investing/disinvesting activities absorbed lowing the disposal by Endesa to Enel Energy Europe funds in the amount of €6,137 million compared with (now Enel Iberoamérica) of 100% of Endesa Latinoméri- €4,103 million in 2013. More specifically: ca (now Enel Latinoamérica) and 20.3% of Enersis; > investments in property, plant and equipment and in > the disposal of 21.92% of Endesa in a public offering intangible assets amounted to €6,701 million, up €781 (€3,087 million net of transaction costs). million on the previous year, mainly due to the increase in expenditure by the Renewable Energy Division; Cash flows from operating activities in the amount of > investments in entities or business units, net of cash and €10,058 million and cash flows from financing activities cash equivalents acquired, amounted to €73 million, and totaling €1,536 million more than covered the cash requi- regarded business combinations involving the acquisi- rements of investing activities in the amount of €6,137 mil- tion of control of a number of companies. These included lion. The difference is reflected in the increase in cash and the acquisition of an additional 50% of Inversiones Gas cash equivalents, which at December 31, 2014 amounted Atacama, the acquisition of an additional 26% of Buffa- to €13,255 million, compared with €7,900 million at the lo Dunes Wind Project (following which Enel’s stake rose end of 2013. The change also reflects exchange rate losses to 75%), the acquisition of 100% of Aurora Distributed of €102 million. Solar, and the acquisition of an additional 50% of Enel Green Power Solar Energy; > disposals of entities or business units, net of cash and cash equivalents sold, amounted to €312 million and re- gard the disposal of 100% of Enel Green Power France, the collection of the price adjustment on the disposal in 2013 of Artic Russia, the disposal of Construcciones y Pro- yectos Los Maitenes, and the disposal of smaller compa- nies of the Renewable Energy Division; > liquidity generated by other investing/disinvesting acti- vities amounted to €325 million, comprising the disposal of 36.2% of LaGeo, the disposal of the investment in Tir- me, the acquisition of 100% and subsequent disposal of 50% of Osage Wind, and other ordinary disinvestments during the period. Cash flows from financing activities generated cash in the amount of €1,536 million, compared with cash ab- sorption of €4,598 million in 2013. More specifically, the positive impact of new issues of hybrid instruments and net proceeds from disposals/acquisitions of non-control- ling interests was only partly offset by cash requirements associated with the payment of dividends to the Group’s non-controlling shareholders. More specifically, transac- tions in non-controlling interests regarded: > the acquisition of an additional 15.18% of Coelce (€180 million) in Brazil; 33 Average number of electricity customers Average number of gas customers Free market 5,473,322 4,769,204 3,470,692 3,245,996 2014 2013 restated Performance 2014 (millions of euro) 2014 2013 restated Revenue 15,226 Gross operating margin 1,081 Capital expenditure 111 Results by business area The representation of performance by business area presen- vely as from January 1, 2014 prompted the restatement, for ted here is based on the approach used by management in comparative purposes only, of the performance figures for monitoring Group performance for the two periods under 2013 of the Divisions and business areas of the Group. In review, taking account of the operational model adopted addition, those changes led to appropriate adjustments of by the Group as described above. As discussed in the sec- the operational data for those Divisions and business areas, tion “Summary of results”, amendments of a number of the where affected, for 2013. IFRS-EU adopted by the Group and applicable retrospecti- Segment information for 2014 and 2013 Results for 2014 (1) Millions of euro Revenues from third parties Revenues from transactions with other segments Total revenue Net income/(expense) from commodity contracts measured at fair value Gross operating margin Depreciation, amortization and impairment losses Operating income Capital expenditure Sales 15,116 110 15,226 (34) 1,081 626 455 111 GEM 18,908 3,698 22,606 (146) 1,163 2,702 (1,539) 285 Infra. & Networks Iberia & Latin America 3,618 30,412 3,748 7,366 135 30,547 3,979 1,036 2,943 996 (115) 6,294 3,505 2,789 2,602 Int’l 4,920 358 5,278 (5) 1,204 3,886 (2,682) 936 Other, eliminations and adjustments Renewable Energy Total 2,662 155 75,791 259 2,921 (8,308) - (8,153) 75,791 76 1,938 814 1,124 1,658 (1) 98 (225) 15,757 101 12,670 (3) 113 3,087 6,701 (1) Segment revenues include both revenues from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the period. Results for 2013 restated (1) (2) Millions of euro Revenues from third parties Revenues from transactions with other segments Total revenue Net income/(expense) from commodity contracts measured at fair value Gross operating margin Depreciation, amortization and impairment losses Operating income Capital expenditure Sales 16,704 217 16,921 (82) 866 504 362 99 GEM 18,758 4,040 22,798 (165) 1,084 591 493 313 Infra. & Networks Iberia & Latin America 3,669 30,563 4,029 7,698 - 4,008 980 3,028 1,046 111 30,674 (148) 6,638 2,871 3,767 2,160 Other, eliminations and adjustments Renewable Energy Total 2,281 1,026 78,663 488 2,769 (9,519) - (8,493) 78,663 21 1,780 - (378) 1,022 16,691 575 1,205 1,294 (3) 114 908 84 6,951 9,740 5,920 Int’l 5,662 634 6,296 (4) 1,293 1,316 (23) 924 (1) Segment revenues include both revenues from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the period. (2) The figures have been restated as a result of the change, with retrospective effect, in accounting treatment with IFRS 11. (3) Does not include €1 million regarding units classified as “held for sale”. 34 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSRegulated market21,734,57523,050,6771 Sales Average number of electricity customers Average number of gas customers Free market 5,473,322 4,769,204 3,470,692 3,245,996 2014 2013 restated Performance 2014 (millions of euro) 2014 2013 restated Revenue 15,226 Gross operating margin 1,081 Capital expenditure 111 Operations Electricity sales Millions of kWh Free market: - mass-market customers - business customers (1) - safeguard market customers Total free market Regulated market: - enhanced protection market customers TOTAL 2014 2013 restated Change 25,148 10,742 1,479 37,369 49,734 87,103 25,913 9,265 1,721 36,899 54,827 91,726 (765) 1,477 (242) 470 (5,093) (4,623) (1) Large customers and energy-intensive users (annual consumption greater than 1 GWh). -3.0% 15.9% -14.1% 1.3% -9.3% -5.0% 35 Regulated market21,734,57523,050,677Average number of customers Free market: - mass-market customers - business customers (1) - safeguard market customers Total free market Regulated market: 2014 2013 restated Change 5,387,579 4,693,080 694,499 51,215 34,528 38,566 37,558 12,649 (3,030) 5,473,322 4,769,204 704,118 - enhanced protection market customers 21,734,575 23,050,677 (1,316,102) TOTAL 27,207,897 27,819,881 (611,984) (1) Large customers and energy-intensive users (annual consumption greater than 1 GWh). 14.8% 32.8% -8.1% 14.8% -5.7% -2.2% Electricity sold in 2014 amounted to 87,103 million kWh, from the regulated system to the free market, was only down 4,623 million kWh compared with the previous year. partly offset by an increase in volumes delivered to business More specifically, the decline in sales on the regulated mar- customers. ket, essentially reflecting the ongoing shift of customers Gas sales and customers Gas sales (millions of m3) - mass-market customers (1) - business customers Total sales 2014 2013 restated Change 2,937 559 3,496 3,394 707 4,101 (457) (148) (605) Average number of customers 3,470,692 3,245,996 224,696 (1) Includes residential customers and microbusinesses. -13.5% -20.9% -14.8% 6.9% Gas sold in 2014 amounted to 3,496 million cubic meters, with the previous year, affecting all categories of customer a decrease of 605 million cubic meters (-14.8%) compared and mainly reflecting the adverse economic climate in Italy. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2014 2013 restated Change 15,226 1,081 455 111 16,921 (1,695) -10.0% 866 362 99 215 93 12 24.8% 25.7% 12.1% Revenue in 2014 amounted to €15,226 million, a decrease ted electricity market, mainly associated with the de- of €1,695 million compared with 2013 (-10.0%), reflecting cline in quantities sold (-5.1 TWh) and the reduction in the following main factors: revenues from the rate component covering generation > a decrease of €1,055 million in revenue on the regula- costs. These factors were only partly offset by an increase 36 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSin revenue recognized for sales services and the positive > an increase of €239 million in the margin on the free mar- impact of €109 million from prior-year items, essentially ket for electricity and gas, due mainly to the rise in the associated with equalization payments for purchases the unit margins on both commodities, partly offset by gre- previous year; ater costs essentially linked to customer acquisition and > a decrease of €359 million in revenue from the sale of management; natural gas to end users, essentially connected with the > a decrease of €24 million in the margin on the regula- decline in volumes sold, especially in the mass-market ted electricity market, largely due to a decline in services segment; rendered to the companies of the Infrastructure and Net- > a decrease of €293 million in revenue on the free electri- works Division. This factor was only partly offset by an in- city market, largely as a result of the decline in average crease of €39 million in the margin on electricity, despite sales prices charged to the various customer segments, as the decline in quantities sold, and a reduction in certain well as the recognition of prior-year charges as a result of operating expenses. the adjustment of volumes notified to the national grid operator. These factors were only partly offset by a rise in Operating income in 2014, after depreciation, amortiza- volumes sold (+0.5 TWh). tion and impairment losses of €626 million (€504 million in 2013), came to €455 million, an increase of €93 million com- The gross operating margin in 2014 totaled €1,081 mil- pared with 2013, mainly reflecting the developments in the lion, an increase of €215 million compared with 2013 gross operating margin and an increase of €111 million in (+24.8%). More specifically, the rise reflects: impairment losses on trade receivables. Capital expenditure Capital expenditure amounted to €111 million, broadly in line with 2013 (€99 million). 37 2 Generation and Energy Management Net efficient generation capacity (MW) Performance 2014 (millions of euro) 33,690 36,220 Thermal 22,463 Thermal 24,629 Revenue 22,606 Gross operating margin 1,163 Hydroelectric 11,186 Hydroelectric 11,550 Alternative energy resources 41 Alternative energy resources 41 2014 2013 restated Capital expenditure 285 Operations Net electricity generation Millions of kWh Thermal Hydroelectric Other resources Total net generation - of which Italy - of which Belgium 2014 2013 restated Change 42,528 15,861 8 58,397 57,707 690 42,728 16,612 9 59,349 57,976 1,373 (200) (751) (1) (952) (269) (683) -0.5% -4.5% -11.1% -1.6% -0.5% -49.7% In 2014, net electricity generation by the Generation and The impact of this change was only partially offset by the Energy Management business area amounted to 58,397 rise in hydroelectric output (+700 million kWh) connected million kWh, a decrease of 1.6% compared with 2013. The with the improved water conditions in the period. decrease in hydroelectric output (-751 million kWh) is lar- Thermal generation in Italy increased by 483 million kWh, gely due to the change in the scope of consolidation of SE thanks to the good performance of coal-fired plants. Bel- Hydropower (-1,451 million kWh) following the changes gium registered a decline in the output of the Marcinelle in governance arrangements at that company, which led Energie plant (-683 million kWh), which until the end of to the loss of control and a change in the method of ac- 2014 was operated through a tolling agreement, reflecting counting for the entity from full consolidation to proportio- the unfavorable conditions in the northern European mar- nate consolidation, as it now qualifies as a joint operation. ket. 38 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSContribution to gross thermal generation Millions of kWh High-sulfur fuel oil (S>0.25%) Low-sulfur fuel oil (S<0.25%) Total fuel oil Natural gas Coal Other fuels TOTAL 2014 2013 restated Change 475 24 499 7,761 37,146 498 1.0% 0.1% 1.1% 16.9% 80.9% 1.1% 426 165 591 9,616 35,106 696 0.9% 0.4% 1.3% 20.9% 76.3% 1.5% 45,904 100.0% 46,009 100.0% 49 (141) (92) (1,855) 2,040 (198) (105) 11.5% -85.5% -15.6% -19.3% 5.8% -28.4% -0.2% Gross thermal generation in 2014 totaled 45,904 million kWh, in the competitiveness of conventional thermal generation in a decline of 105 million kWh (-0.2%) compared with 2013. The the Italian fuel mix, in an environment of falling demand for decrease was experienced by all the major fuel types, with the electricity as a result of the recession in Italy. exception of coal. It was essentially connected with the decline Net efficient generation capacity MW Thermal plants (1) Hydroelectric plants Alternative energy resources Total at Dec. 31, 2014 at Dec. 31, 2013 restated Change 22,463 11,186 41 33,690 24,629 11,550 41 (2,166) (364) -8.8% -3.2% - - 36,220 (2,530) -7.0% (1) Of which 5,460 MW unavailable due to long-term technical issues (3,631 MW at December 31, 2013). Net efficient capacity in 2014 totaled 33,690 MW, a reduc- the Ministries for the Environment and for Economic Deve- tion of 2,530 MW on the previous year. lopment to shut down generation assets pursuant to the The increase in unavailability due to long-term technical provisions of Law 290 of October 27, 2003. issues is mainly connected with additional requests from Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2014 22,606 1,163 (1,539) 285 2013 restated Change 22,798 1,084 493 313 (192) 79 (2,032) (28) -0.8% 7.3% - -8.9% Revenue in 2014 amounted to €22,606 million, a decrease les on the Power Exchange (€3,713 million), associated of €192 million (-0.8%) compared with 2013. The decline is with the decline in output in a market with lower ave- mainly attributable to the following factors: rage sales prices, was only partly offset by an increase in > a decrease of €2,685 million in revenue from electricity revenue from electricity sales to other domestic resellers sales. More specifically, the reduction in revenue from sa- (€904 million), as well as an increase in revenue from 39 electricity sales to other Group companies, notably the > an increase of €170 million in the margin on sales and Italian companies operating in end-user markets (€149 trading of natural gas and other commodities; million); > the above-mentioned gain of €50 million from the reme- > a decrease of €811 million in revenue from trading on asurement at fair value of the assets and liabilities of SE international electricity markets, essentially due to the Hydropower, partly offset by a decline in the margin as a reduction in quantities handled (-4.3 TWh); result of the change in the scope of consolidation of the > an increase of €2,392 million in revenue from fuel tra- company (€29 million); ding, largely due to an increase in the volume of natural > a reduction of €72 million in the generation margin, es- gas transactions (€2,433 million); sentially due to the decline in electricity sales prices, the ef- > gains from the remeasurement at fair value of the as- fects of which were only partly offset by an improvement sets and liabilities of SE Hydropower (€50 million), to the in the generation mix thanks to better water condition, extent corresponding to the Group’s interest in the com- and by an increase in the margin on green certificates; pany, due to the loss of control following changes in that > an increase in operating expenses, as well as the net ne- company’s governance arrangements as from January 1, gative impact of the measurement of outstanding com- 2014. Those gains were only partly offset by the reduc- modity risk instruments at the end of the year. tion of €62 million in the company’s contribution to the revenue of the area, as a result of the change in the me- The operating result showed a loss of €1,539 million, a thod of consolidation noted earlier; deterioration of €2,032 million from the income of €493 > an increase of €848 million in revenue from the sale of million posted in 2013. The development reflects the incre- CO2 emissions allowances and green certificates as a result, respectively, of an increase in volumes handled ase in impairment losses, only partly offset by a decline in amortization and depreciation following the revision of the (owing to greater market volatility) and the adoption of useful lives of certain plants. More specifically, the impai- a portfolio optimization strategy. rment losses registered in 2014 following the impairment The gross operating margin in 2014 totaled €1,163 mil- million, reflecting the ongoing economic crisis in Italy and lion, an increase of €79 million (+7.3%) on the €1,084 mil- the adverse impact of these conditions on the conventional lion posted in 2013. The rise is attributable to: generation segment. testing of the Enel Produzione CGU amounted to €2,108 Capital expenditure Millions of euro Power plants: - thermal - hydroelectric - alternative energy resources Total power plants Other investments in property, plant and equipment and intangible assets TOTAL 2014 2013 restated Change 187 69 1 257 28 285 210 71 5 286 27 313 (23) (2) (4) (29) 1 (28) -11.0% -2.8% -80.0% -10.1% 3.7% -8.9% Capital expenditure amounted to €285 million, of which construction of the new Porto Empedocle facility, sundry €257 million in respect of power plants. The main investments works at the Brindisi and Torrevaldaliga Nord plants, and in 2014 included the continuation of the construction or re- other work on the Soverzene and Gerosa plants. furbishment of thermal plants (€187 million), including the 40 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS3 Infrastructure and Networks Electricity distribution network (km) Total electricity distribution network 1,136,667 High-voltage lines 20 Medium-voltage lines 350,358 Low-voltage lines 786,289 Performance 2014 (millions of euro) Capital expenditure 996 Revenue 7,366 Gross operating margin 3,979 Operations Electricity distribution and transmission networks High-voltage lines at year-end (km) Medium-voltage lines at year-end (km) Low-voltage lines at year-end (km) 20 350,358 786,289 - 349,386 782,624 Total electricity distribution network (km) 1,136,667 1,132,010 20 972 3,665 4,657 Electricity transported on Enel’s distribution network (millions of kWh) (1) 221,850 228,918 (7,068) - 0.3% 0.5% 0.4% -3.1% 2014 2013 restated Change (1) The figure for 2013 reflects a more accurate determination of amounts transported. The electricity distribution network expanded by 4,657 km, on the Enel network in Italy in 2014 amounted to 221,850 essentially due to new connections of customers, both end million kWh, a decrease of 3.1% compared with the previous users and generators, to distribution grids, although this re- year, reflecting the decline in domestic demand. presented a decline on the previous year. Energy transported 41 Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2014 7,366 3,979 2,943 996 2013 restated Change 7,698 4,008 3,028 1,046 (332) (29) (85) (50) -4.3% -0.7% -2.8% -4.8% Revenue in 2014 amounted to €7,366 million, a decrease of fee equalization mechanism; €332 million (-4.3%) on the previous year. The decline is es- - the decline in quantities transported. sentially due to: These factors were only partly offset by an increase in di- > the recognition of adjustments and revisions of estimates stribution rates and grants from the Electricity Equaliza- from prior years totaling €224 million; tion Fund; > a decrease in connection fees amounting to €100 million, > a reduction of €103 million in connection fees from new largely due to the year-on-year decline in the number of customers; connections noted above; > an improvement (€268 million) in the margin on white > a reduction of rate revenues amounting to €96 million, certificates due to the cost reimbursement mechanism largely due to the registration in 2013 of the connection for the purchase of such certificates as a result of the fee equalization mechanism (Resolution 607/2013 of the changes introduced with Authority Resolution 13/2014; Authority for Electricity, Gas and the Water System – the > the positive adjustment of €63 million of the provisions Authority), and to the decrease in quantities transported. for risks and charges, carried out in early 2014, following These factors were only partly offset by an increase in di- the settlement agreement between Enel Distribuzione, stribution rates as a result of the above resolution; A2A and A2A Reti Elettriche, which provided for Enel Di- > an increase of €81 million in grants from the Electricity stribuzione to pay €89 million to A2A Reti Elettriche, with Equalization Fund for the sale of white certificates. the waiver by the latter of any further claim. The gross operating margin amounted to €3,979 million, a Operating income, after depreciation, amortization and im- decrease of €29 million (-0.7%) largely attributable to: pairment losses of €1,036 million (€980 million in 2013), tota- > a decrease of €235 million in the margin on electricity, led €2,943 million, a decrease of €85 million on the previous reflecting: year (-2.8%). The decline is largely due to the increase of €46 - the prior-year items noted earlier; million in impairment losses on trade receivables. - the effect of the registration in 2013 of the connection Capital expenditure Millions of euro Electricity distribution networks Other investments in property, plant and equipment and intangible assets Total 2014 2013 restated Change 996 - 996 997 49 1,046 (1) (49) (50) -0.1% - -4.8% Capital expenditure in 2014 amounted to €996 million, a nections for customers and generation plants, only partly decrease of €50 million on the previous year. The decrease is offset by an increase in expenditure on service quality. mainly accounted for by a reduction in expenditure on con- 42 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS4 Iberia and Latin America Net efficient generation capacity (MW) Performance 2014 (millions of euro) 38,315 37,299 Thermal 21,405 Thermal 20,569 Nuclear 3,318 Nuclear 3,318 Revenue 30,547 Hydroelectric 13,514 Hydroelectric 13,334 Revenue by geographical area Gross operating margin 6,294 Gross operating margin by geographical area Wind 78 2014 Wind 78 2013 restated Electricity distribution network (km) Total electricity distribution network 626,280 High-voltage lines 31,686 Medium-voltage lines 272,644 Low-voltage lines 321,950 Europe 20,900 Latin America 9,647 Europe 3,203 Latin America 3,091 Iberia 993 Latin America 1,609 Capital expenditure 2,602 Operations Net electricity generation Millions of kWh Thermal Nuclear Hydroelectric Wind Total net generation - of which Iberian peninsula - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru 2013 restated Change 2014 62,283 24,762 42,777 158 63,472 25,892 40,379 145 129,980 129,888 69,681 14,390 5,225 18,063 13,559 9,062 68,439 15,743 4,992 19,438 12,747 8,529 (1,189) (1,130) 2,398 13 92 1,242 (1,353) 233 (1,375) 812 533 -1.9% -4.4% 5.9% 9.0% 0.1% 1.8% -8.6% 4.7% -7.1% 6.4% 6.2% 43 Net electricity generation by the Division came to 129,980 ca, conversely, net electricity output fell by 1,150 million million kWh, an increase of 92 million kWh on 2013. kWh, mainly due to lower thermal generation in Argentina In particular, in 2014 net generation in the Iberian penin- and Chile, reflecting in particular the shutdown of the Bo- sula increased by 1,242 million kWh (+1.8%) as a result of camina II plant, only partly offset by an increase in hydro- greater thermal output (+9.4%), only partly offset by a de- electric output in Chile and Colombia thanks to improved cline in nuclear and hydroelectric output, the latter due to water conditions. better water conditions the previous year. In Latin Ameri- Contribution to gross thermal generation Millions of kWh High-sulfur fuel oil (S>0.25%) Natural gas Coal Nuclear fuel Other fuels Total 2014 2013 restated Change 7,050 24,541 27,958 25,776 5,831 7.7% 26.9% 30.7% 28.3% 6.4% 7,789 24,233 27,154 26,983 6,400 8.4% 26.2% 29.3% 29.2% 6.9% (739) 308 804 (1,207) (569) 91,156 100.0% 92,559 100.0% (1,403) -9.5% 1.3% 3.0% -4.5% -8.9% -1.5% Gross thermal generation by the Division in 2014 came to ar and fuel-oil generation, only partly offset by an increase 91,156 million kWh, a decrease of 1,403 million kWh on the in coal and natural gas generation. previous year (-1.5%), mainly owing to the decline in nucle- Net efficient generation capacity MW Thermal Nuclear Hydroelectric Wind Total net efficient capacity - of which Iberian peninsula - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru at Dec. 31, 2014 at Dec. 31, 2013 restated Change 21,405 3,318 13,514 78 38,315 21,713 4,403 976 6,286 3,012 1,925 20,569 3,318 13,334 78 37,299 21,699 4,403 977 5,521 2,878 1,821 836 - 180 - 1,016 14 - (1) 765 134 104 4.1% - 1.3% - 2.7% 0.1% - -0.1% 13.9% 4.7% 5.7% Net efficient generation capacity at December 31, 2014 Inversiones Gas Atacama, which enable the consolidation came to 38,315 MW, an increase of 1,016 MW on the end of the 781 MW thermal plant in the Atacama desert. of 2013. The rise includes the impact of the acquisition of 44 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSElectricity distribution and transport networks 2014 2013 restated Change High-voltage lines at year-end (km) Medium-voltage lines at year-end (km) Low-voltage lines at year-end (km) 31,686 272,644 321,950 31,428 270,409 329,419 Total electricity distribution network (km) 626,280 631,256 Electricity transported on Enel’s distribution network (millions of kWh) 159,512 159,704 - of which Iberian peninsula - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru 96,404 14,980 19,982 13,257 8,225 6,664 98,456 14,953 18,799 13,030 8,010 6,456 258 2,235 (7,469) (4,976) (192) (2,052) 27 1,183 227 215 208 0.8% 0.8% -2.3% -0.8% -0.1% -2.1% 0.2% 6.3% 1.7% 2.7% 3.2% At December 31, 2014, the size of the electricity distribu- kWh, a decrease of 192 million kWh, which reflects the tion network of the Iberia and Latin America Division had divergent developments in electricity demand in the two decreased by 4,976 km, with an especially significant con- areas covered by the Division: demand fell in the Iberian traction in low-voltage lines in Spain, partly offset by the peninsula and expanded in Latin America, especially in expansion of the grid in the Latin American countries. Brazil and Colombia. Electricity transported in 2014 came to 159,512 million Electricity sales Millions of kWh Free market Regulated market Total - of which Iberian peninsula - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru 2014 2013 restated Change 99,819 57,217 101,806 55,565 157,036 157,371 93,928 14,980 19,982 13,257 8,225 6,664 96,123 14,953 18,799 13,030 8,010 6,456 (1,987) 1,652 (335) (2,195) 27 1,183 227 215 208 -2.0% 3.0% -0.2% -2.3% 0.2% 6.3% 1.7% 2.7% 3.2% Electricity sales to end users in 2014 amounted to 157,036 the economic crisis was only partly offset by the rise in quan- million kWh, a decrease of 335 million kWh compared with tities sold in Latin America (+1,860 million kWh), the conse- 2013. The contraction in quantities sold in the Iberian pe- quence of a rise in electricity demand, with especially large ninsula (-2,195 million kWh) owing to the continuation of rises in Brazil and Colombia. 45 Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2014 2013 restated Change 30,547 6,294 2,789 2,602 30,674 6,638 3,767 2,160 (127) (344) (978) 442 -0.4% -5.2% -26.0% 20.5% The table below shows performance by geographical area. Millions of euro Revenue Gross operating margin Operating income 2014 2013 restated Change Europe 20,900 21,123 (223) Latin America 9,647 9,551 96 2014 3,203 3,091 2013 restated 3,195 3,443 Total 30,547 30,674 (127) 6,294 6,638 Change 8 (352) (344) 2014 1,240 1,549 2013 restated 1,382 2,385 Change (142) (836) 2,789 3,767 (978) Revenue in 2014 declined by €127 million, reflecting: The gross operating margin amounted to €6,294 mil- > a decrease of €223 million in revenue in Europe, largely lion, a decrease of €344 million (-5.2%) compared with due to: 2013, reflecting: - the fall in electricity demand, which had an adverse im- > an increase of €8 million in the gross operating margin in pact on amounts generated and sold on the end-user Europe, essentially due to the improvement in the mar- market, against a background of lower average whole- gin on regulated businesses (mainly attributable to extra- sale prices and prices in end-user markets; peninsular generation), offset by a decline in the margin - a decrease in revenue from the transport of natural gas on unregulated activities and the charges recognized in owing to lower sales prices. 2014 in respect of a new early retirement incentive plan; These factors were partly offset by an increase in grants > a decrease of €352 million in the gross operating margin for extra-peninsular generation (€217 million), the net in Latin America, essentially due to: effect of a rise in grants due to a number of changes in - exchange rate effects totaling €294 million, largely of- the regulatory framework in Spain and a decline in grants fset by the improvement in the margin due to an incre- associated with the reduction in generation; ase in output in an environment of rising prices; > an increase of €96 million in revenue in Latin America, - an increase electricity provisioning costs, due in parti- largely attributable to: cular to the shutdown of the Bocamina II plant in Chile, - the change in the scope of consolidation with the ac- which forced the Group to increase its recourse to the quisition of an additional 50% of Gas Atacama (€150 spot and pool markets to meet customer demand; million), thereby acquiring control and consequently - an increase in operating expenses in Argentina to cope consolidating the company on a full line-by-line basis; with the service interruptions caused by the heat emer- - rate increases in various Latin American countries, gency in early 2014, as well as a decrease in grants to especially for distribution companies in Brazil; Edesur under the Mecanismo de Monitoreo de Costos - an increase in revenue from electricity sales, especially compared with the previous year. in Colombia and Peru owing to an increase in volumes handled and a rise in average sales prices; Operating income in 2014 came to €2,789 million, a de- - adverse developments in the exchange rates of local crease of €978 million compared with 2013, in line with currencies against the euro, with an overall negative the change in the gross operating margin. The increase in impact of €1,208 million. impairment losses in 2014 includes the impact of the im- 46 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSpairment losses on rights held by Endesa Chile to use wa- restrictions (€589 million). Another factor was the impai- ter resources in the region of Aysén, which were recogni- rment losses recognized on a number of smaller conces- zed as a result of the uncertainty about the continuation sions held by the Group in Portugal and Spain (totaling of the project owing to a number of legal and procedural €66 million). Capital expenditure Millions of euro Power plants: - thermal - hydroelectric - nuclear - alternative energy resources Total power plants Electricity distribution networks Other investments in property, plant and equipment and intangible assets TOTAL 2014 2013 restated Change 508 385 138 4 1,035 1,049 518 2,602 326 366 128 - 820 919 421 2,160 182 19 10 4 215 130 97 442 55.8% 5.2% 7.8% - 26.2% 14.1% 23.0% 20.5% Capital expenditure amounted to €2,602 million, an incre- €427 million in Latin America, also including investments on ase of €442 million on the previous year. In particular, capi- plants operated on a concession basis). Investment in power tal expenditure in 2014 concerned work on the distribution plants (€1,035 million) focused primarily on the construction network (€1,049 million, of which €502 million in Europe and of the El Quimbo hydroelectric plant in Colombia. 47 5 International Net efficient generation capacity (MW) Performance 2014 (millions of euro) 14,481 14,912 Thermal 10,310 Thermal 10,742 Nuclear 1,814 Hydroelectric 2,329 Other resources 28 2014 Nuclear 1,814 Hydroelectric 2,329 Other resources 27 2013 restated Electricity distribution network (km) Total electricity distribution network 91,132 High-voltage lines 6,572 Medium-voltage lines 34,998 Low-voltage lines 49,562 Revenue 5,278 Gross operating margin 1,204 Revenue by geographical area Gross operating margin by geographical area Central Europe 2,776 South-eastern Europe 1,008 Russia 1,494 Central Europe 547 Russia 358 South- eastern Europe 299 Central Europe 665 South-eastern Europe 83 Russia 188 Capital expenditure 936 Operations Net electricity generation Millions of kWh Thermal Nuclear Hydroelectric Other sources Total net generation - of which Russia - of which Slovakia 48 2014 2013 restated Change 44,229 14,420 4,225 52 62,926 42,376 20,550 43,802 14,624 4,759 59 63,244 41,901 21,343 427 (207) (534) (7) (318) 475 (793) 1.0% -1.4% -11.2% -11.9% -0.5% 1.1% -3.7% ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSNet efficient generation capacity (MW) Performance 2014 (millions of euro) 14,481 14,912 Thermal 10,310 Thermal 10,742 Nuclear 1,814 Hydroelectric 2,329 Other resources 28 2014 Nuclear 1,814 Hydroelectric 2,329 Other resources 27 2013 restated Electricity distribution network (km) Total electricity distribution network 91,132 High-voltage Medium-voltage Low-voltage lines 6,572 lines 34,998 lines 49,562 Revenue 5,278 Gross operating margin 1,204 Revenue by geographical area Gross operating margin by geographical area Central Europe 2,776 South-eastern Russia 1,494 Europe 1,008 Central Europe 547 Russia 358 South- eastern Europe 299 Central Europe 665 South-eastern Europe 83 Russia 188 Capital expenditure 936 Net generation in 2014 came to 62,926 million kWh, a de- (-534 million kWh), only partly offset by the increase in ther- crease of 318 million kWh compared with 2013. The decline mal generation posted by Enel Russia (formerly Enel OGK-5, is attributable to the decrease in hydroelectric generation +475 million kWh). by Slovenské elektrárne compared with the previous year Contribution to gross thermal generation Millions of kWh High-sulfur fuel oil (S>0.25%) Natural gas Coal Nuclear fuel Total 2014 2013 restated Change 186 25,325 21,255 15,499 0.3% 40.7% 34.1% 24.9% 120 23,159 23,027 15,720 0.2% 37.3% 37.1% 25.4% 62,265 100.0% 62,026 100.0% 66 55.0% 2,166 (1,772) (221) 239 9.4% -7.7% -1.4% 0.4% Gross thermal generation in 2014 increased by 239 million plants in Russia, entirely offsetting the decline in genera- kWh, to 62,265 million kWh, compared with 62,026 mil- tion with other resources. More specifically, the decrease lion kWh in 2013. The rise is attributable to an increase in in coal generation is attributable to a number of technical natural gas generation and the output of combined-cycle shutdowns at the Reftinskaya plant. Net efficient generation capacity MW Thermal Nuclear Hydroelectric Other resources Total net efficient capacity - of which Russia - of which Slovakia - of which Belgium at Dec. 31, 2014 at Dec. 31, 2013 restated Change 10,310 1,814 2,329 28 14,481 9,107 4,968 406 10,742 (432) -4.0% 1,814 2,329 27 14,912 9,107 5,399 406 - - 1 (431) - (431) - - - - -2.9% - -8.0% - Net efficient generation capacity decreased by 431 MW in 2014, attributable to the decommissioning of one of the units of the Vojany coal-fired plant in Slovakia. Electricity distribution and transport networks High-voltage lines at year-end (km) Medium-voltage lines at year-end (km) Low-voltage lines at year-end (km) Total electricity distribution network (km) Electricity transported on Enel’s distribution network (millions of kWh) 2014 2013 restated Change 6,572 34,998 49,562 91,132 14,063 6,586 34,923 49,397 90,906 13,996 (14) 75 165 226 67 -0.2% 0.2% 0.3% 0.2% 0.5% 49 At December 31, 2014 the size of the electricity distri- voltage connections installed during the year. bution network (located entirely in Romania) showed Electricity transported increased by 0.5%, going from an increase of 226 km, largely attributable to new low- 13,996 million kWh to 14,063 million kWh in 2014. Electricity sales Millions of kWh Free market Regulated market Total - of which Romania - of which France - of which Slovakia 2014 2013 restated Change 10,410 13,737 5,926 7,210 (3,327) (1,284) 16,336 20,947 (4,611) 8,156 3,442 4,738 8,754 8,068 4,125 (598) (4,626) 613 -24.2% -17.8% -22.0% -6.8% -57.3% 14.9% Electricity sold by the International Division in 2014 ket, which has been fully operational since the start of amounted to 16,336 million kWh, a decrease of 4,611 mil- 2014; lion kWh (-22.0% compared with 2013). The decline is attri- > a decrease of 4,626 million kWh in sales by Enel France, butable to: largely attributable to the decline in volumes of availa- > a reduction of 598 million kWh in sales in Romania, re- ble capacity; flecting the gradual liberalization of the business mar- > an increase of 613 million kWh in sales in Slovakia. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure The table below shows performance by geographical area. 2014 5,278 1,204 (2,682) 936 2013 restated Change 6,296 1,293 (23) 924 (1,018) (89) (2,659) 12 -16.2% -6.9% - 1.3% Gross operating margin Operating income Millions of euro Central Europe South-eastern Europe Russia Total Revenue 2013 restated 3,488 1,116 1,692 2014 2,776 1,008 1,494 Change 2014 (712) (108) (198) 547 299 358 2013 restated 605 289 399 Change 2014 (2,676) 195 (201) (58) 10 (41) (89) 2013 restated 360 154 (537) Change (3,036) 41 336 5,278 6,296 (1,018) 1,204 1,293 (2,682) (23) (2,659) Revenue in 2014 amounted to €5,278 million, a decrease pe, largely attributable to the fall in revenue in Slovakia of €1,018 million on the previous year (€6,296 million). This (-€397 million), as a result of lower sales prices, and in performance reflected the following factors: France (-€315 million), as a result of the reduction in the > a decrease of €712 million in revenue in central Euro- volume of available capacity; 50 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS  > a decrease of €198 million in revenue in Russia, reflecting against the euro was only partially offset by an increase the sharp depreciation of the ruble against the euro. This in average sales prices for electricity; factor entirely offset the increase in sales revenue in local > an increase of €10 million in the gross operating margin currency as a result of an increase in sales prices on the in south-eastern Europe, mainly due to lower operating electricity market; expenses in Romania. > a decrease of €108 million in revenue in south-eastern Europe, entirely attributable to Romania as a result of the The operating result in 2014 showed a loss of €2,682 mil- decline in prices on the free market. lion, a deterioration of €2,659 million on the previous year after an increase of €2,570 million in depreciation, amor- The gross operating margin amounted to €1,204 million, tization and impairment losses. The latter development is a decrease of €89 million on 2013 (€1,293 million). The fall largely attributable to the impairment loss recognized on is associated with the following factors: Slovenské elektrárne (€2,878 million) to align the carrying > a decrease of €58 million in the gross operating margin in amount of its assets with their estimated realizable value, central Europe, attributable in part to generation in Slo- as determined on the basis of the non-binding offers recei- vakia (-€171 million), the result of a contraction in output ved so far. Another factor was the impairment loss on the and lower electricity prices. The decline was offset by the goodwill and plant assets of the Enel Russia CGU (formerly impact of the recognition in 2013 of provisions for risks Enel OGK-5) to reflect the expected contraction in future and charges in respect of litigation concerning a number cash flows as a result of the persistent signs of slowing in of investments in foreign entities and by the improve- economic growth and the consequent contraction in fore- ment in the margin in France; cast price growth in the medium term (equal to €365 mil- > a decrease of €41 million in the gross operating margin in lion in 2014 and €744 million in 2013). Russia, where the impact of the depreciation of the ruble Capital expenditure Millions of euro Power plants: - thermal - hydroelectric - nuclear Total power plants Electricity distribution networks Other investments in property, plant and equipment and intangible assets TOTAL 2014 2013 restated Change 189 6 649 844 70 22 936 196 7 594 797 96 31 924 (7) (1) 55 47 -3.6% -14.3% 9.3% 5.9% (26) -27.1% (9) 12 -29.0% 1.3% Capital expenditure amounted to €936 million, an increa- a decrease in investment in electricity distribution plants in se of €12 million on the previous year, largely reflecting an Romania and a reduction in expenditure on power plants in increase in nuclear expenditure in Slovakia, partly offset by Russia. 51 6 Renewable Energy Net efficient generation capacity (MW) Total renewable energy 9,626 Hydroelectric 2,624 Geothermal 833 Wind 5,696 Other resources 473 Performance 2014 (millions of euro) Revenue by geographical area Gross operating margin by geographical area Europe 1,988 Latin America 537 North America 396 Europe 1,460 Latin America 202 North America 276 Europe 399 Latin America 927 North America 332 Capital expenditure 1,658 Revenue 2,921 Gross operating margin 1,938 Operations Net electricity generation Millions of kWh Hydroelectric Geothermal Wind Other resources Total - of which Italia - of which Iberian peninsula - of which France - of which Greece - of which Romania and Bulgaria - of which United States and Canada - of which Panama, Mexico, Guatemala and Costa Rica - of which Brazil and Chile - of which other countries 2014 11,452 5,954 13,896 496 31,798 14,117 4,359 347 488 1,351 6,674 2,904 1,550 8 2013 restated Change 10,921 5,581 12,086 710 29,298 13,225 4,792 362 566 1,166 5,360 2,703 1,124 - 531 373 1,810 (214) 2,500 892 (433) (15) (78) 185 1,314 201 426 8 4.9% 6.7% 15.0% -30.1% 8.5% 6.7% -9.0% -4.1% -13.8% 15.9% 24.5% 7.4% 37.9% - Net electricity generation by the Division came to 31,798 year. Of the total increase, 1,608 million kWh is attributa- million kWh in 2014, up 2,500 million kWh on the previous ble to greater generation abroad, mainly due to greater 52 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS wind generation in the United States (+1,481 million kWh, conditions) and a contraction in hydroelectric output in the associated with the consolidation of Buffalo Dunes Wind United States (-147 million kWh). Power generation in Italy Project), in Chile (+306 million kWh, as a result of the increa- increased by 892 million kWh in 2014, reflecting the rise in se in installed capacity), in Romania (+162 million kWh) and hydroelectric output (+638 million kWh, thanks to more in Mexico (+111 million kWh). These factors were only partly favorable water conditions) and geothermal output (+247 offset by a reduction in wind generation in the Iberian pe- million kWh). ninsula (-218 million kWh, owing to less favorable weather Net efficient generation capacity MW Hydroelectric Geothermal Wind Other resources Total - of which Italy - of which Iberian peninsula - of which France - of which Greece - of which Romania and Bulgaria - of which United States and Canada - of which Panama, Mexico, Guatemala and Costa Rica - of which Brazil and Chile - of which other countries at Dec. 31, 2014 at Dec. 31, 2013 restated Change 2,624 833 5,696 473 9,626 3,133 1,836 - 290 576 2,623 795 5,085 310 8,813 3,057 1,857 186 290 576 2,083 1,683 816 882 10 715 449 - 1 38 611 163 813 76 (21) (186) - - 400 101 433 10 - 4.8% 12.0% 52.6% 9.2% 2.5% -1.1% - - - 23.8% 14.1% 96.4% - Total net efficient capacity showed an increase of 813 MW, a number of solar plants in Chile and Italy. Finally, the incre- of which 737 MW outside of Italy. More specifically, the in- ase in net installed geothermal capacity mainly regards a crease in net installed wind capacity mainly regards new number of plants in Italy. plants in the United States (400 MW), Brazil (198 MW), Me- These factors were partly offset by the disposal of Enel Gre- xico (100 MW) and Chile (99 MW). The increase in genera- en Power France in December 2014, which led to the de- tion from other resources reflects the entry into service of consolidation of 186 MW in France. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2014 2013 restated Change 2,921 1,938 1,124 1,658 2,769 1,780 1,205 1,294 (1) 152 158 (81) 364 5.5% 8.9% -6.7% 28.1% (1) The figure for 2013 does not include €1 million in investments regarding units classified as “held for sale”. 53   The table below shows performance by geographical area. Millions of euro Revenue Gross operating margin Operating income Europe Latin America North America Total 2014 2013 restated 1,988 1,998 537 396 407 364 Change 2014 2013 restated Change 2014 2013 restated Change (10) 130 32 1,460 1,331 202 276 203 246 129 (1) 30 833 142 149 926 140 139 (93) 2 10 2,921 2,769 152 1,938 1,780 158 1,124 1,205 (81) Revenue increased by €152 million (5.5%), going from The gross operating margin amounted to €1,938 million, €2,769 million to €2,921 million. The change reflects: up €158 million (8.9%) compared with 2013. The change is > an increase of €130 million in revenue in Latin America, attributable to: due to the increase in output, mainly in Chile, Mexico and > an increase of €129 million in the margin posted in Euro- Brazil; pe; excluding the non-recurring items mentioned under > an increase of €32 million in revenue in North America; revenue, the gross operating margin would have decli- excluding the financial impact (gains and remeasure- ned by €41 million, largely due to the fall in prices in Italy ment at fair value) of the disposal of shareholdings in the and Spain, partly offset by the recognition of the indem- two periods considered, revenue would have increased nity provided for in the off-take agreement with Sharp by €64 million, mainly due to the increase in generation; concerning the purchase of the entire output of 3SUN; > a decrease of €10 million in revenue in Europe; excluding > a rise of €30 million for the North American area; exclu- the proceeds from the disposal of shareholdings during ding the non-recurring items discussed under revenue, the final Quarter of 2014, the decrease would have been the margin would have increased by €62 million, in line €180 million, largely due to: with developments in revenue. - a decline of €63 million in revenue from the sale of pho- tovoltaic panels in Italy as a result of the exit from the Operating income amounted to €1,124 million, a decrease scope of consolidation of Enel.si following its sale to the of €81 million, after an increase in depreciation, amortization Sales Italy business in the 2nd Half of 2013. This factor and impairment losses of €239 million, largely due to the en- was partly offset by the recognition of the indemnity try into service of new plants and the impairment losses re- provided for in the off-take agreement with Sharp con- cognized following the impairment testing of the Enel Green cerning the purchase of the entire output of 3SUN; Power Hellas CGU. - a decrease in revenue from electricity sales in the Ibe- rian peninsula as a result of the regulatory changes in- troduced in Spain with Royal Decree Law 9/2013. 54 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSCapital expenditure Millions of euro Power plants: - hydroelectric - geothermal - alternative energy resources Total power plants Other investments in property, plant and equipment and intangible assets TOTAL 2014 2013 restated Change 196 169 1,251 1,616 42 1,658 109 226 923 1,258 36 1,294 (1) 87 (57) 328 358 6 364 79.8% -25.2% 35.5% 28.5% 16.7% 28.1% (1) The figure for 2013 does not include €1 million in investments regarding units classified as “held for sale”. Capital expenditure in 2014 amounted to €1,658 million, (€77 million); photovoltaic plants in Chile (€198 million); an increase of €364 million on the previous year. hydroelectric plants in Italy, Brazil, Costa Rica, Guatemala, Investments mainly regarded wind farms in Latin America Chile and the United States (€196 million) and geothermal (€601 million), North America (€313 million) and Europe plants in Italy and North America (€169 million). 55 7 Other, eliminations and adjustments Operations Hydrocarbon reserves and annual output Hydrocarbon reserves: Proven reserves (1P) of hydrocarbons at the end of the year (millions of barrels of oil equivalent) - of which proven reserves (1P) of natural gas at the end of the year (billions of m3) Proven and probable reserves (2P) of hydrocarbons at the end of the year (millions of barrels of oil equivalent) - of which proven and probable reserves (2P) of natural gas at the end of the year (billions of m3) Annual output: Hydrocarbon output (millions of barrels of oil equivalent) - of which natural gas (billions of m3) 2014 2013 restated Change 18 2 46 6 - - 18 2 46 6 29 3.9 - - - - (29) (3.9) In 2012, the Upstream Gas function initiated the process at the end of 2014 are located: of certifying the reserves of the assets it had under deve- > in Algeria, where the Group, through Enel Trade, holds lopment, for which the function used an independent a stake of 18.4% of the “Isarene” permit in partnership certifier, DeGolyer & McNaughton. On the basis of the as- with Petroceltic International and Sonatrach (an Alge- sessment performed in 2012 and taking account of the di- rian state-owned company); sposal of the stake held in SeverEnergia in 2013, Enel’s sha- > in Italy, where the Group, through Enel Longanesi Deve- re in 2014 is equal to 18 million barrels of oil equivalent of lopment, holds 33.55% of the hydrocarbon extraction proven reserves and 46 million barrels of oil equivalent of permit at Bagnacavallo. proven and probable reserves. Projects under development Performance Millions of euro Revenue (net of eliminations) Gross operating margin Operating income Capital expenditure 2014 2,013 98 (3) 113 2013 restated Change 2,885 1,022 908 84 (872) (924) (911) 29 -30.2% -90.4% - 34.5% Revenue, net of eliminations, amounted to €2,013 mil- in SeverEnergia, recognized in 2013 (capital gain of €964 lion in 2014, a decrease of €872 million on the previous million) and in 2014 (income of €82 million from the price year (-30.2%). Excluding the gains from the disposal of adjustment under the earn-out clause of the sale contract Artic Russia, and indirectly the interest held by the latter with the buyer), revenue would have increased by €10 mil- 56 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS lion compared with 2013. The performance is essentially provisions for the transition-to-retirement plan following attributable to: its termination in September 2013, only partly offset by the > an increase of €34 million in revenue from engineering provision for the obligations assumed in implementation activities, largely attributable to activities at the Porto of Article 4, paragraphs 1-7 ter, of Law 92/2012 (the “For- Empedocle regasification terminal and the Brindisi plant, nero Act”), and to the contraction in margins on a number as well as environmental upgrading at the Litoral de Al- of services provided to other Group Divisions. meria coal-fired plant; > a decrease in revenue in the Services and other activities The operating result in 2014 showed a loss of €3 million, area, mainly associated with the support and staff servi- a deterioration of €911 million compared with 2013, ta- ces provided to the other Group companies. king account of the effects of the sale of Artic Russia and a reduction of €13 million in depreciation, amortization and The gross operating margin in 2014 amounted to €98 impairment losses. million, a decrease of €924 million compared with 2013, largely due to the dual impact of the disposal of Artic Rus- sia discussed above. Excluding this factor, the gross ope- Capital expenditure rating margin declined by €42 million. The contraction is Capital expenditure in 2014 amounted to €113 million, largely attributable to the effect of the recognition in 2013 an increase of €29 million compared with 2013, mainly as- of lower personnel costs connected with the reversal of sociated with software development. 57 Performance and financial position of Enel SpA Performance The following table summarizes the performance of Enel SpA in 2014 and 2013. Millions of euro Revenue Revenue from services Other revenue and income Total Costs Electricity purchases and consumables Services, leases and rentals Personnel Other operating expenses Total Gross operating margin Depreciation, amortization and impairment losses Operating income Net financial income/(expense) and income from equity investments Income from equity investments Financial income Financial expense Total Income before taxes Income taxes NET INCOME FOR THE YEAR 2014 2013 Change 245 1 246 2 185 120 19 326 (80) 543 (623) 1,818 2,412 3,331 899 276 (282) 558 269 6 275 6 230 90 14 340 (65) 9 (74) 2,028 1,812 2,602 1,238 1,164 (208) 1,372 (24) (5) (29) (4) (45) 30 5 (14) (15) 534 (549) (210) 600 729 (339) (888) (74) (814) Revenue from services totaled €245 million (€269 million million on the previous year. The item is essentially compo- in 2013) and essentially regards services provided to subsi- sed of the rebilling of costs for the personnel of Enel SpA diaries as part of Enel SpA’s direction and coordination fun- seconded to other Group companies. ctions and the rebilling of costs incurred by Enel SpA but pertaining to the subsidiaries. Costs for electricity purchases and consumables The decrease of €24 million is mainly attributable to a de- amounted to €2 million in 2014. They are entirely accounted cline in pass-through rebilling of a number of Group com- for by purchases of materials, whereas in 2013 they inclu- panies for costs in respect of business combinations and ded the second revision of prices in the long-term import corporate reorganizations, as well as a reduction in revenue contract with Alpiq, which, although it expired on Decem- from management fees and in revenue from services provi- ber 31, 2011, provided for that revision to take place within ded to the subsidiaries. three years of the invoice date (€4 million). Other revenue and income came to €1 million, down €5 Costs for services, leases and rentals amounted to €185 58 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS  million in 2014, of which charges from third parties in the The operating result showed a loss of €623 million, a dete- amount of €127 million and from Group companies in the rioration of €549 million on 2013. amount of €58 million. The costs attributable to third par- ties mainly regarded communication expenses, technical Income from equity investments amounted to €1,818 and professional services as well as strategic, management million. The item regards dividends approved in 2014 by and corporate organization consulting. Those in respect of subsidiaries, associates and other companies and shows a services provided by Group companies regard IT and admi- decrease of €210 million on the previous year (€2,028 mil- nistrative services and purchasing, as well as rental income lion in 2013), largely due to the reduction in dividends distri- and personnel training received from Enel Italia Srl, and buted by Enel Distribuzione SpA (€252 million). costs for the personnel of a number of Group companies seconded to Enel SpA. The total decrease compared with Net financial expense amounted to €919 million and es- 2013 amounted to €45 million and is attributable to lower sentially reflects interest expense on financial debt (€1,038 costs in respect of services rendered by non-Group counter- million) and net costs on interest rate derivatives (€81 mil- parties (€24 million) and a reduction in costs in respect of lion), offset by interest and other income on financial assets services rendered by Group companies (€21 million). (totaling €212 million). Personnel costs totaled €120 million in 2014, an increase of lion, mainly reflecting the joint impact of an increase in inte- €30 million on the previous year. The rise is essentially attri- rest and other expense on financial debt (€71 million) and a butable to the increase in “wages and salaries” and the as- reduction in interest and other income on current and non- sociated social security contributions (a total of €12 million), current financial assets (€40 million), attributable to chan- The increase on the previous year amounted to €129 mil- the increase in early retirement incentives (€6 million) and ges in the debt and in interest rates. in charges for the “Long Term Incentive Plan” (€4 million), as well as the impact of the recognition in 2013 of the re- Income taxes showed a tax receivable of €282 million, lease of provisions for the transition-to-retirement plan (€6 mainly due to the reduction in taxable income for IRES pur- million). poses, as a result of the exclusion of 95% of dividends re- ceived from subsidiaries. The estimate of income taxes also Other operating expenses amounted to €19 million in takes account of the deductibility of Enel SpA interest ex- 2014, up €5 million compared with 2013, essentially due to pense for the Group’s consolidated taxation mechanism in a reduction in releases of the provision for litigation. accordance with corporate income tax law (Article 96 of the The gross operating margin was a negative €80 million, a the difference between the two years in the amount of divi- deterioration of €15 million on the previous year. dends received from subsidiaries and the non-deductibility Uniform Income Tax Code). This essentially reflected both Depreciation, amortization and impairment losses ting the requirements of Article 87 of the Uniform Income of impairment losses on equity investments in 2014 mee- amounted to €543 million in 2014, up €534 million on the Tax Code. previous year. The rise is largely attributable to the impai- rment loss recognized on the interest in Enel Produzione Net income for the year totaled €558 million, compared SpA (€512 million) and in Enel Ingegneria e Ricerca SpA (€19 with €1,372 million the previous year. million) as well as greater amortization and depreciation. 59 Analysis of financial position Millions of euro Net non-current assets: - property, plant and equipment and intangible assets - equity investments - net other non-current assets/(liabilities) Total Net current assets: - trade receivables - net other current assets/(liabilities) - trade payables Total Gross capital employed Provisions: - post-employment and other employee benefits - provisions for risks and charges and net deferred taxes Total Net capital employed Shareholders’ equity NET FINANCIAL DEBT at Dec. 31, 2014 at Dec. 31, 2013 Change 19 38,754 (299) 38,474 132 (533) (139) (540) 20 39,289 (500) 38,809 216 (433) (212) (429) 37,934 38,380 (302) 115 (187) 37,747 25,136 12,611 (336) 126 (210) 38,170 25,867 12,303 (1) (535) 201 (335) (84) (100) 73 (111) (446) 34 (11) 23 (423) (731) 308 Net non-current assets amounted to €38,474 million, a de- of tax authorities for the IRES of companies participating cline of €335 million. The change is essentially the net result in the consolidated taxation mechanism (€533 million), of: partly offset by an increase in the income tax receivables > a decrease of €535 million attributable to the impairment of Enel SpA (€371 million); of equity investments in Enel Produzione SpA (€512 mil- > a decrease of €73 million in trade payables. lion), Enel Ingegneria e Ricerca SpA (€19 million) and El- cogas SA (€4 million); Net capital employed at December 31, 2014 came to > a decrease of €201 million in “net other non-current liabi- €37,747 million, funded by shareholders’ equity of €25,136 lities”, essentially due to the increase in the value of non- million and net financial debt of €12,611 million. current derivatives (€624 million), partly offset by a rise in the value of derivatives classified as non-current liabilities Shareholders’ equity came to €25,136 million at Decem- (€386 million). ber 31, 2014, a decrease of €731 million on the previous year. The change is attributable to the distribution of the Net current assets came to a negative €540 million, an in- dividend for 2013 of €1,223 million (€0.13 per share) and crease of €111 million on the negative €429 million at De- the recognition of net income for the year of €492 million cember 31, 2013. The change is attributable to: (including a loss recognized directly in equity of €66 million, > a decrease of €84 million in trade receivables from Group largely attributable to the change, net of tax effects, of the companies, largely attributable to the improvement in reserve for cash flow hedge derivatives). the invoicing and collection process and to the decline in revenues from management fees and for service acti- Net financial debt came to €12,611 million at the end of vities; the year, with a debt/equity ratio of 50.2% (47.5% at the > an increase of €100 million in “net other current liabili- end of 2013). ties”, mainly in respect of the debtor position in respect 60 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS  Analysis of the financial structure Net financial debt and changes in the period are detailed in the table below. Millions of euro Long-term debt: - bonds Long-term debt - financial receivables from others - debt assumed and loans to subsidiaries Net long-term debt Short-term debt/(liquidity): - short-term portion of long-term borrowings - short-term bank borrowings - short-term debt due to Group companies - cash collateral received Short-term debt - short-term portion of loans assumed/granted - short-term loans to Group companies - other short-term financial receivables - cash collateral paid - net short-term financial position with Group companies - cash and cash equivalents and short-term securities Net short-term debt/(liquidity) NET FINANCIAL DEBT at Dec. 31, 2014 at Dec. 31, 2013 Change 17,288 17,288 (4) (117) 17,167 2,363 3 500 423 3,289 - - (3) (672) (198) (6,972) (4,556) 12,611 17,764 17,764 (5) (117) 17,642 1,061 4 - 118 1,183 (21) (500) - (1,018) (1,860) (3,123) (5,339) 12,303 (476) (476) 1 - (475) 1,302 (1) 500 305 2,106 21 500 (3) 346 1,662 (3,849) 783 308 Net financial debt at December 31, 2014 amounted to > the repayment of €500 million by the subsidiary Enel Fi- €12,611 million, an increase of €308 million, the result of a nance International NV on the Intercompany Revolving decrease in the net short-term creditor position (€783 mil- Facility Agreement granted by Enel SpA in 2013; lion) and a decrease in net long-term financial debt (€475 > drawings on the Intercompany Short Term Deposit Agre- million). ement (a short-term credit facility with Enel Finance In- The main transactions in 2014 impacting debt can be sum- ternational NV) in the amount of €500 million. marized as follows: > the issue of two hybrid bonds in the total amount of Cash and cash equivalents amounted to €6,972 million, €1,602 million; an increase on December 31, 2013 of €3,849 million, due > the repayment of a retail bond issued in 2007 in the mainly to the impact on the central treasury of the extraor- amount of €1,000 million; dinary corporate transactions associated with the optimiza- > the repayment of two tranches of the Ina and Ania bonds tion of the corporate structure of the Group, as well lower and the repurchase of own bonds in the total amount of tax payments in 2014. €103 million; 61   Cash flows Millions of euro Cash and cash equivalents at the start of the year Cash flows from operating activities Cash flows from investing/disinvesting activities Cash flows from financing activities Cash and cash equivalents at the end of the year 2014 3,123 926 (11) 2,934 6,972 2013 6,461 1,669 (113) (4,894) 3,123 Change (3,338) (743) 102 7,828 3,849 Cash flows from operating activities came to a positive €926 Cash flows in respect of financing activities were a positi- million (€1,669 million in 2013). The change is essentially ve €2,934 million (a negative €4,894 million in 2013). They attributable to dividends from subsidiaries, partially offset were generated by the transactions discussed earlier under by balance of interest paid and collected and payments on net financial debt. account of IRES on behalf of all Group companies participa- ting in the consolidated taxation mechanism. In 2014, the cash flows generated by operating activities Cash flows from investing activities were a negative €11 activities, increased cash and cash equivalents by €3,849 million (a negative €113 million in 2013). They essentially million. Consequently, cash and cash equivalents at Decem- regard investments in property, plant and equipment and ber 31, 2014 amounted to €6,972 million, compared with intangible assets. €3,123 million at the start of the year. and financing activities, as well as those used by investing 62 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS  Significant events in 2014 8 January Issue of hybrid financial instruments > £500 million maturing on September 15, 2076, issued at a price of 99.317 with an annual fixed coupon of 6.625% (swapped into euros at a rate of about 5.60%) until the first early redemption date set for September 15, 2021. As from that date and until maturity, the rate will be In execution of the resolution of the Board of Directors of equal to the 5-year GBP swap rate plus a spread of 408.9 Enel of May 7, 2013, on January 8, 2014, Enel launched a basis points and interest rate step-ups of 25 basis points multi-tranche issue of non-convertible bonds for institutio- from September 15, 2026 and an additional 75 basis nal investors on the international market in the form of su- points from September 15, 2041. bordinated hybrid instruments with an average maturity of The offering was led by a syndicate of banks comprising, for about 61 years, denominated in euros and pounds sterling, the euro tranche, Banca Imi, Banco Bilbao Vizcaya Argen- in the total amount of approximately €1.6 billion. taria SA, BNP Paribas, Crédit Agricole-CIB, Deutsche Bank, The issue forms part of the measures to strengthen the fi- ING, J.P. Morgan, Mediobanca, Natixis, Société Générale nancial structure of the Enel Group set out in the business Corporate & Investment Banking, UniCredit Bank, and, for plan presented to the financial community on March 13, the sterling tranche, Barclays, BNP Paribas, Deutsche Bank, 2013. HSBC, J.P. Morgan, The Royal Bank of Scotland, Santander The transaction was structured in the following two tran- Global Banking & Markets, UBS Investment Bank. ches: > €1,000 million maturing on January 15, 2075, issued at a price of 99.368 with an annual fixed coupon of 5% until the first early redemption date set for January 15, 2020. As from that date and until maturity, the rate will be equal to the 5-year euro swap rate plus a spread of 364.8 13 January Agreement for the development of geothermal generation and smart grids in Mexico basis points and interest rate step-ups of 25 basis points On January 13, 2014, Enel signed a memorandum of under- from January 15, 2025 and a further 75 basis points from standing with the Instituto de Investigaciones Eléctricas, the January 15, 2040; Mexican electricity research body, aimed at cooperation in 63 geothermal generation as well as smart grids. Through this agreement the two parties will cooperate to exchange infor- mation and experiences regarding smart grids and geother- mal generation by means of pilot projects, training programs and technology transfers in the respective areas of interests. 24 March Enel Green Power receives a €153 million loan from Banco Santander The Mexican government aims at implementing smart grids On March 24, 2014, Enel Green Power, acting through its projects in the country to improve efficiency and the quality Dutch subsidiary Enel Green Power International BV, sig- of the service. This will be accompanied by diversification of ned a €153 million loan agreement with Banco Santander power generation as a key to strengthening the security of as lender and sole agent. The agreement is covered by the the supply by increasing the contribution of renewables to Spanish Export Credit Agency (“CESCE”). The 12-year term the country’s energy mix. loan bears an interest rate in line with the market bench- 14 January Acquisition of an additional 15.18% stake in Coelce As part of the reorganization of equity investments in Latin America following the Enersis capital increase in 2013, on mark and is intended to finance investments in wind farms located in Mexico. 8 April Memorandum of understanding with State Grid Corporation of China January 14, 2014, Enersis, the Chilean subsidiary of the Enel On April 8, 2014, Enel signed a memorandum of understan- Group, launched a friendly tender offer for about 42% of ding in Beijing with State Grid Corporation of China, the Companhia Energética do Ceará (“Coelce”), which opera- world’s largest power distribution and transmission com- tes in the electricity distribution sector in Brazil, of which it pany and the Chinese leader in the sector. The agreement already indirectly holds about 58%. After the conclusion of focuses on cooperation in the field of smart grid technolo- the offering period, on February 17, 2014, Enersis had ac- gies for sustainable urban development and the exchange quired an additional 15.13% of Coelce on Brazil’s Bovespa of experience in renewables generation. exchange, for about $242 million (€176 million). For ordina- ry shares only, in accordance with Brazilian law, the offer re- mained open for a further 90 days in order to give sharehol- ders who did not take up the offer the time they need to decide. Taking account of additional purchases, the number of shares held by Enersis at the close of the offering period 8 April Contracts to supply gas from the United States equaled 15.18% of the Brazilian company’s share capital, at On April 8, 2014, Enel signed two 20-year contracts with a total cost of €180 million. Corpus Christi Liquefaction, a subsidiary of Cheniere Ener- 15 January Price adjustment in the disposal of Artic Russia gy, for the supply of LNG (liquefied natural gas) from shale gas fields in the United States, for a total of 3 billion cubic meters a year, of which 2 billion cubic meters for the Ibe- rian market and about 1 billion cubic meters for the Italian market. Thanks to the agreements, Enel has increased the diversification and flexibility of its gas supply portfolio for On January 15, 2014, Eni announced the sale of its 60% the coming years. stake in Artic Russia, held through Eni International, to the Both contracts have a term of 20 years, with an option for a Russian company Yamal Development. Considering the further 10 years, with the agreements taking force as from agreements signed by Itera and the Enel Group prior to the the first deliveries, which are expected to begin in 2018. completion of the sale of Enel’s 40% stake in Artic Russia, The gas will be supplied as LNG, on a free on board (FOB) the Group asked Itera to adjust the price of Artic Russia by basis, therefore with full flexibility of destination, at the around $112 million, which was collected on July 11, 2014. Corpus Christi terminal that Cheniere Energy is building on the Texas coast, an area that is closely integrated with the 64 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONScountry’s main gas pipelines. From there, the fuel will be Regulatory Commission. Enel Green Power North America transported to the Group’s regasification facilities. therefore holds 75% of the “Class A” shares of the company 22 April Acquisition of an additional 50% of Inversiones Gas Atacama operating the wind farm, while the GE Capital subsidiary re- tains a 25% stake. The Buffalo Dunes wind farm, located in Kansas, has been operational since December 2013 and was the largest wind project in the United States to start operation last year. The plant required a total investment of about $370 million and On April 22, 2014, Endesa Chile completed the acquisition is supported by a long-term power purchase agreement. of 50% of Inversiones Gas Atacama from Southern Cross for In July 2013, Enel Green Power North America Development a total of $309 million (around €224 million). As a result of and EFS Buffalo Dunes had signed a capital contribution this acquisition, which terminated the shareholders’ agree- agreement with a consortium headed by JPM Capital Cor- ment signed by the two partners in August 2007, the Group poration, together with Wells Fargo Wind Holdings LLC, indirectly holds 100% of the Chilean company (previously Metropolitan Life Insurance Company and State Street Bank it held 50%), with a book value equal to €174 million. The and Trust Company, obtaining financing of about $260 mil- purchase price also includes loans granted to Atacama Paci- lion for the project. fic Energy Finance (a subsidiary of Southern Cross), which at the transaction date amounted to about $29 million (about €22 million). Inversiones Gas Atacama operates a 781-MW thermal plant in northern Chile, a gas pipeline between the cities of Mejillones and Taltal and another pipeline that con- 15 May nects Chile with Argentina. Enel Green Power and IFC sign a $200 million loan agreement for the development of renewables in Brazil 30 April Acquisition of an additional 39% of Generandes Perú On May 15, 2014, Enel Green Power, acting through its Bra- zilian subsidiary Enel Brasil Participações Ltda, the holding company for the Brazilian subsidiaries of the Enel Green Po- wer group, and IFC, a member of the World Bank Group, signed a $200 million loan agreement. The loan will help finance the construction of over 300 MW of wind plants in On April 30, 2014, the Chilean subsidiary Enersis signed a the states of Bahia, Pernambuco and Rio Grande do Norte, contract to purchase 39% of the share capital of Generandes located in north-eastern Brazil. Perú (which in turn holds 54.2% of Edegel) from Inkia Ame- The IFC 10-year term loan bears an interest rate in line with ricas Holding Limited for $413 million (around €300 million). the market benchmark and is secured by a parent company guarantee issued by Enel Green Power. 12 May Acquisition of control of the Buffalo Dunes wind farm On May 12, 2014, Enel Green Power North America (“EGP 11 June Memorandum of understanding with leading Chinese electricity companies NA“) signed an agreement to purchase an additional 26% On June 11, 2014, Enel signed two agreements with the he- of the “Class A” shares of Buffalo Dunes Wind Project LLC, ads of China Huaneng Group and China National Nuclear the company operating the 250-MW Buffalo Dunes wind Corporation, leading Chinese electricity companies. farm, from EFS Buffalo Dunes LLC, a GE Capital subsidiary, Following up on the joint work begun in 2009 in the field for about $60 million. of carbon capture and storage, Enel and China Huaneng The option to purchase the additional interest was provided Group have decided to further expand and deepen their for in the original agreement between Enel Green Power relationship, forging a collaborative effort in the areas of North America and the GE Capital subsidiary. The transac- scientific and technological cooperation, the development tion was closed following approval by the Federal Energy of projects for the use of electricity from conventional and 65 renewable energy sources, management research in the Colbun was notified of these resolutions on July 14, 2014. fields of social economy, sustainable development, policies After having assessed the documentation received, the and regulation, as well as management of carbon assets Company is now analyzing its legal options for best protec- and carbon strategy. ting the Group’s interest in Chile. The memorandum of understanding with China National Nuclear Corporation, the state-owned company responsible for all aspects of nuclear programs in China, establishes a framework for the exchange of information and best prac- tices related to the development, design, construction, ope- ration and maintenance of nuclear power plants. 10 July Start of disposal of equity investments in Slovakia and Romania 8 July Capital contribution agreement for two wind plants in the United States At its meeting of July 10, 2014, the Board of Directors of Enel SpA examined developments in the disposal program being implemented to strengthen the Group’s financial structu- re, as provided for in the 2014-2018 business plan. More specifically, the Chief Executive Officer informed the Board that, as part of that program, possible disposals by the Enel On July 8, 2014, Enel Green Power North America (“EGP Group would include: NA”) signed a capital contribution agreement for about > 66% of Slovenské elektrárne (held by Enel through Enel $400 million with a consortium led by the J.P. Morgan in- Produzione), Slovakia’s main power generation com- vestment bank. Under the agreement, the consortium has pany, with a market share of close to 80%; committed to funding the 150-MW Origin wind project lo- > 64.4% of Enel Distributie Muntenia and Enel Energie cated in Oklahoma and the 200-MW Goodwell project in Muntenia, 51% of Enel Distributie Banat, Enel Distributie Oklahoma and Texas. The consortium disbursed the funds Dobrogea and Enel Energie, and 100% of Enel Romania, for Origin in November 2014, once the plant entered servi- a services company (all held by Enel through Enel In- ce, and will disburse the funds for Goodwell the 4th Quarter vestment Holding). of 2015, subject to compliance with the requirements set For both Slovakia and Romania, the Group has formally noti- out in the agreement. Both projects are associated with fied the subsidiaries and their non-controlling shareholders long-term power purchase agreements. Within the fra- (state-controlled companies or entities) of the start of the mework of the agreement, the J.P. Morgan-led consortium disposal process, and has appointed the financial advisors will make a capital contribution totaling about $400 million (BNP Paribas and Deutsche Bank for the Slovakian assets to EGP NA. In exchange, the consortium will receive an equi- and Citigroup and UniCredit for the Romanian assets) and ty interest with limited voting rights. This interest will allow legal counsel that will be providing support for the opera- the consortium to obtain a percentage of the tax benefits to tion. be attributed to the Origin and Goodwell projects. On February 25, 2015, the Board of Directors, under the gui- 9 July Chilean government resolutions on the Aysén hydroelectric project delines set out in the new business plan, decided to suspend the process of disposing of distribution and sale assets in Romania and to continue with the disposal of generation assets held in Slovakia. For more information, please see note 30 - Assets and liabi- lities held for sale. On July 9, 2014, the Chilean government’s Committee of Ministers issued Resolutions 569 and 570 in response to pe- titions filed by citizens and local communities, voiding the previous Resolution 225/2011 issued by the Comisión de Evaluación de la Región de Aysén that had granted an envi- ronmental permit for the hydroelectric project proposed by 11 July Agreement reached between EGP, Sharp and STMicroelectronics Centrales Hidroeléctricas de Aysén, a joint venture between On July 11, 2014, Enel Green Power SpA (“EGP”) and Sharp Endesa Chile and Colbun. Corporation reached an agreement for Enel Green Power to 66 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSassume Sharp’s obligations arising from the off-take agre- ement under which EGP and Sharp had committed to pur- chasing the entire output of photovoltaic panels manufac- tured at the Catania factory of 3SUN, the equally held joint venture between Enel Green Power, Sharp and STMicro- 4 September Acquisition of 21.1% of Edegel electronics. The panels produced at the factory, which are On September 4, 2014, Enersis, the Chilean subsidiary of especially well-suited for high-temperature applications, are the Enel Group, successfully completed an operation begun used by EGP to build its photovoltaic plants in the various the previous April to acquire a majority stake in Edegel, a geographical areas envisaged in the company’s 2014-2018 Peruvian generation company with 1,524 MW of installed business plan, including South America and South Africa. capacity. The transaction involved the acquisition, for $421 The price to be paid by Sharp to EGP was set at €95 million, million, of all the shares indirectly held by Inkia Americas divided into a number of instalments, the last of which will Holdings Limited in Generandes Perú (the company that be paid in March 2015. Following this agreement, on July controls Edegel with a holding of 54.20%), equal to 39.01% 22, 2014, EGP acquired (for €30 million) Sharp’s 50% stake of its share capital. Accordingly, Enersis now has a direct and in Enel Green Power & Sharp Solar Energy Srl, the equally indirect stake of 58.6% in Edegel, increasing its holding by held joint venture created to develop, build and operate 21.1% from the 37.5% already held indirectly through its photovoltaic plants, using the photovoltaic panels manu- subsidiary Endesa Chile. factured at the 3SUN plant. The acquisition gave the Group 100% control of Enel Green Power & Sharp Solar Energy. Finally, on July 23, 2014, EGP signed an agreement with the other partner in the joint venture, STMicroelectronics, un- der which STMicroelectronics will pay EGP €15 million, fully freeing STMicroelectronics from any obligations associated 24 September Agreement with Hubject for electric mobility with participation in the joint venture or in respect of EGP. On September 24, 2014, Enel Distribuzione and Hubject (a The accord also provides for EGP to buy out the interests German company that since 2013 has operated the European held by the other venturers, Sharp Corporation and STMi- eRoaming platform bringing together more than 120 opera- croelectronics, in 3SUN. The agreement will become effecti- tors) announced the signature of a memorandum of under- ve subject to the approval of the lender banks and the com- standing under which the parties will work together for the petent authorities (where necessary). development of an Europe-wide eRoaming platform. Through 20 July Amendments of the bylaws eRoaming, electric vehicle drivers can recharge their vehicles at facilities that are not owned or operated by the utility of which they are customers. The goal of the agreement is to enable electric vehicle recharging at around 5,000 stations across an area spanning from Sicily to Lapland, with automatic debiting of the charge to customer’s ordinary utility bills. On July 20, 2014, the Board of Directors of Enel SpA appro- The collaboration between Enel and Hubject in the eRoaming ved a number of amendments of the bylaws with a view field is one of the main outcomes of Green eMotion, the EU re- to ensuring their compliance with the provisions intro- search project on electric mobility grouping 43 partners drawn duced by Decree Law 21 of March 15, 2012 (ratified with from industry, the energy sector, electric vehicle manufactu- amendments with Law 56 of May 11, 2012) concerning the rers, local authorities, universities and research institutions. special powers of the Italian government in strategic indu- stries and to eliminating references to a number of autho- rizations to increase share capital (mainly in the service of stock option plans) that, having been approved some time ago, have now been executed or are no longer in effect. 30 September Acquisition of upstream licenses in Algeria On September 30, 2014, Enel was awarded, in partnership with the multinational Dragon Oil, two gas exploration 67 blocks within the framework of the fourth bid round to offer conducted between October 20 and 27, 2014, purchased award hydrocarbon exploration and exploitation contracts notes it had issued and that are listed on the Dublin exchange launched in January 2014 by Algeria’s state oil licensing and guaranteed by Enel for a total of around €762 million. body. The operation was performed as part of efforts to optimize Enel will hold 70% of the partnership for Msari Akabli in Enel Finance International’s finance operations and is aimed at south-eastern Algeria, where promising oil and gas discove- actively managing maturities and debt servicing costs. ries have been already made, and will serve as project ope- rator, while Dragon Oil will hold the remaining 30%. At Tinrhert Nord, situated in the Illizi basin in western Alge- ria, an area with a number of producing oil fields and whe- re Enel already holds the South East Illizi concession, Enel will hold 30% of the partnership and Dragon Oil (serving as 4 November Appointment of officer responsible for the preparation of the financial reports project operator) will hold 70%. On November 4, 2014, the Board of Directors of Enel, after 14 October Memorandum of understanding with Bank of China receiving a favorable opinion from the Board of Auditors, appointed Alberto De Paoli as the officer responsible for the preparation of the financial reports of Enel SpA, replacing Luigi Ferraris, starting from November 12, 2014. He also replaced Luigi Ferraris as the Chief Financial Officer of the Company starting from that date. On October 14, 2014, Enel signed a memorandum of un- derstanding with Bank of China, a leader in the Chinese banking sector. The agreement calls for undertaking a joint assessment of future, potential financial transactions over the next five years. Specifically, Bank of China declares itself available, through its headquarters and global network, to 7 November Agreement for the sale of SE Hydropower and SF Energy grant potential financing facilities to Enel of up to €1 bil- On November 7, 2014, Enel Produzione and Società Elettrica lion, subject to a joint assessment with Enel. These facilities Altoatesina SpA (“SEL”, a company controlled by the Autono- include loans, credit support as well as project and trade mous Province of Bolzano) signed contracts for the sale of the finance and, if employed, will be used to partially finance stakes held by Enel Produzione in SE Hydropower and SF Ener- Enel Group projects in China and elsewhere. Moreover, ba- gy for a total of €400 million. sed upon its experience in the renminbi (“RMB”) currency More specifically, the price for the sale of the 40% stake held market, Bank of China will provide its advisory services to by Enel Produzione in SE Hydropower is expected to total €345 Enel for its operations in that market. In turn, Enel will re- million. The completion of the transaction is conditional on the gard Bank of China as its strategic partner for global RMB- approval of the Italian antitrust authorities and on SEL obtai- denominated transactions and will consider the possibility ning a commitment from the banks to provide the funding for of using RMB as the base currency for its transactions with the purchase of the above shareholding. Bank of China. Other services Bank of China will provide in- The price for the sale of the stake held by Enel Produzione in SF clude hedging instruments, financial consulting, as well as Energy (whose share capital is held in equal amounts by Enel support in relationships with strategic partners in the China Produzione, SEL and Dolomiti Energia) is expected to amount and Asia region. 31 October Enel Finance International repurchases bonds to €55 million. The completion of the transaction is subject to the right of pre-emption held pro-rata by the shareholder Do- lomiti Energia and is also conditional on SEL obtaining a com- mitment from the banks to provide the funding for the purcha- se of the above shareholding. This transaction is part of the disposal plan announced by Enel to the market and will enable the Group to reduce its consoli- On October 31, 2014, Enel Finance International, a wholly- dated net financial debt by an amount equal to about the total owned subsidiary of Enel, following the non-binding tender price reported above. 68 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS14 November Enel Green Power signs a $104 million loan agreement with Banco Santander 25 November Reorganization of operations in the Iberian peninsula and in Latin America On November 14, 2014, Enel Green Power SpA (“EGP”), acting Approval of the reorganization plan through its fully owned subsidiary Dominica Energía Limpia, On July 30, 2014, the Board of Directors of Enel SpA approved signed a $104 million loan agreement with Banco Santander plans to reorganize Group operations in the Iberian peninsula as lender, sole lead arranger and agent. The agreement is co- and in Latin America. The main objectives of the project are: vered by the Spanish Export Credit Agency (“CESCE”). > to align the corporate structure with the new organiza- The 15-year term loan is secured by a parent company gua- tional structure of the Group, simplify the chain of control rantee issued by EGP. The loan is aimed at supporting the of the companies operating in Latin America and crea- investment executed in the company’s 100-MW “Dominica ting the conditions for optimizing the Group’s cash flows; I” wind farm, which amounts to approximately $196 million. > to focus the operations of Endesa as the leading com- The operating plant, located in the municipality of Charcas, pany in energy markets in the Iberian peninsula, by me- in the state of San Luis Potosí, Mexico, is comprised of fifty ans of a new business plan focused on the development 2-MW turbines and is capable of generating up to 260 GWh of current business platforms and leveraging the compe- per year. titiveness of operations in Spain and Portugal. The loan bears an interest rate in line with the market bench- mark and is the second granted to the Enel Green Power Binding proposal of Enel Energy Europe to Endesa for Group by Banco Santander with the coverage of CESCE in the acquisition of the interests in Enersis and Endesa La- 2014, increasing the overall amount relating to such loans up tinoamérica to more than €230 million. On September 11, 2014, the Board agreed and approved: 19 November Enel admitted to CDP Italy Climate Disclosure Leadership Index 2014 and STOXX Global ESG Leaders index > the presentation to Endesa by Enel Energy Europe, now Enel Iberoamérica, a wholly-owned Spanish subsidiary of Enel, which in turn holds 92.06% of Endesa, of a binding proposal for the acquisition of the 60.62% interest held directly and indirectly by Endesa in the Chilean company Enersis, parent company for operations in Latin America. On November 19, 2014, the Enel Group was admitted to the More specifically, the stakes to be acquired are 20.30% of prestigious CDP Italy Climate Disclosure Leadership Index Enersis held directly by Endesa and 100% of Endesa La- 2014, published in the CDP Italy 100 Climate Change Report tinoamérica, which in turn holds 40.32% of Enersis. The 2014. Enel was ranked in the index as a leading company proposal provides for a total purchase price for the above in terms of quality, comprehensiveness and transparency of interests in an amount equal to €8,252.9 million (based climate change data it made available to the market throu- upon an implicit price for Enersis shares of 215.0 Chilean gh CDP, the international NGO promoting sustainable eco- pesos, equal to €0.28 at the exchange rate prevailing on nomy. September 10, 2014), net of overheads and the net liabi- Furthermore, Enel was admitted for the first time to the lities of Endesa Latinoamérica, equal to a negative €144 STOXX Global ESG Leaders index, a benchmark designed million. The price was determined using international to measure the performance of companies demonstrating valuation procedures and methods generally accepted strong Environmental, Social and Governance (ESG) prac- for these operations, supported by the fairness opinion tices. The index was created by financial services supplier issued by Mediobanca as a financial advisor; STOXX Limited, which is in turn owned by the German and > the concomitant presentation by Enel Iberoamérica of a the Swiss stock exchanges. proposal for Endesa to distribute an extraordinary cash dividend, in an amount equal to the consideration re- ceived by Endesa for the sale of 60.62% of Enersis, the payment of which will be dependent upon the execution of the sale. 69 The proposal regarding the purchase of 60.62% of Enersis ry cash dividend equal to €0.76 per share, for an overall provides for, inter alia, a clause under which, for a period of amount of about €800 million, to be paid in 2015; two years from the closing date of such transaction, Enel - for 2015 and 2016, the target of an annual increase of Iberoamérica shall pay Endesa, in the event of the sale for at least 5% in the ordinary cash dividend of €0.76 per cash of a stake in the share capital of Enersis to a non-Enel share; Group purchaser that reduces the total stake held (directly - payment of the ordinary dividends to be made in two or indirectly) to below 60.62%, any positive difference instalments, during the months of January and July, in between the price per Enersis share upon which such sale is conformity with the usual practice of Endesa’s main based and that on which the purchase of 60.62% of Enersis competitors. is based, multiplied by the number of Enersis shares sold. Acceptance by Endesa Shareholders’ Meeting of Enel Acceptance of Enel Energy Europe’s proposal by Ende- Energy Europe’s proposal and resolutions on the distri- sa’s Board of Directors bution of dividends Both the proposal for the sale of 60.62% of Enersis and that On October 21, 2014, the Endesa Shareholders’ Meeting for the extraordinary cash dividend were then examined by approved the binding proposal presented by the Board of the Board of Directors of Endesa, which on September 17, Directors of Endesa regarding the abovementioned acquisi- 2014, approved the operation, submitting it for approval to tion of Enersis and the distribution of the two extraordinary the Shareholders’ Meeting based on the proposals formu- cash dividends. lated by a special internal committee comprised entirely of independent directors, which had been mandated to verify Resolution of the Board of Directors of Enel SpA for the that the reorganization plan is in line with the corporate placement by Enel Energy Europe of a portion of the interests of Endesa from an economic, financial, legal and share capital of Endesa on the market strategic standpoint. Finally, on November 4, 2014, the Board of Directors appro- ved the placement by Enel Energy Europe, now Enel Ibero- Approval of the Board of Directors of Endesa of the di- américa, of Endesa shares on the market. The initial amount stribution of an extraordinary dividend and Endesa’s to be placed will be equal to 17% of Endesa’s share capital new dividend policy and may reach up to a maximum of 22%, including in any On October 7, 2014, the Board of Directors of Endesa, in the case the greenshoe option (under such option, the Joint context of updating that company’s business plan, discus- Global Coordinators may acquire up to a maximum of 15% sed and approved the following: of the shares to be placed). > the distribution of a further extraordinary cash dividend, by way of an interim dividend on profits for 2014, equal Public offering of Endesa shares to €6.00 per share, for an overall amount of €6,353 mil- On November 6, 2014, the Spanish securities market autho- lion, with the aim of establishing a more balanced and rity, Comisión Nacional del Mercado de Valores (“CMNV”), efficient financial structure. The dividend is being paid approved the publication of the prospectus for the above in addition to the extraordinary dividend announced on placement of shares, consisting of: September 17, 2014, submitted for approval to Endesa’s > a public offering of shares in Spain to retail investors, shareholders at the extraordinary meeting of October 21, representing 15% of the Initial Offer (excluding the 2014, equal to €7.795 per share, for an overall amount of greenshoe option), with the possibility of re-allotting a €8,253 million, related to the sale to Enel Energy Europe, portion of the shares originally aimed at the Institutional now Enel Iberoamérica, of the 60.62% interest held both Offer to the Public Offer (so-called clawback provision), in directly and indirectly by Endesa in the share capital of which case the amount of the Public Offer could be rai- the Chilean company Enersis; sed up to a maximum of 30% of the Initial Offer and up > a new dividend policy for the financial years 2014-2016 to a maximum of 23.27% of the Maximum Offer (exclu- which, given the greater cash flows expected to be gene- ding the greenshoe option). The maximum price for the rated by Endesa, includes the following: Endesa shares to be placed through the Public Offer, - for 2014, in addition to the two extraordinary cash divi- which began on November 7, 2014, was set at €15.535 dends mentioned above, the distribution of an ordina- per share, corresponding to the highest of the closing 70 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSprices for Endesa shares reported on the Spanish stock over-allotted and under the greenshoe option if exercised), exchange between October 29 and November 5, 2014. equal to 21.92% of the share capital of Endesa, for a total The final price for the Public Offer is equal to the lesser value of €3,133 million. The number of shares for the Glo- of the aforementioned maximum price and the price set bal Offer was determined by taking account of the demand for the Institutional Offer. A bonus share incentive will be from institutional investors, the Global Offer price and mar- available for the Public Offer, providing for the awarding ket conditions. The definitive number of shares allotted of one free Endesa share for every 40 shares purchased through the Global Offer was therefore equal to 34,810,500 during the Public Offer and held for 12 months without shares for the Public Offer and 197,259,500 shares for the interruption from the date of settlement. A mechanism Institutional Offer (including 30,270,000 shares under the for preferred allotment of the shares under the Public Of- greenshoe option). The shares placed through the Public fer to shareholders of Endesa as of November 5, 2014 is Offer were allotted to retail investors as indicated in the also envisaged; prospectus. The offer aimed at institutional investors was > an offering of shares to Spanish and international insti- handled by a consortium of banks led by Banco Santander, tutional investors, totaling 85% of the Initial Offer (exclu- BBVA, Credit Suisse and J.P. Morgan as Joint Global Coordi- ding the greenshoe option and unless the clawback nators, while Goldman Sachs International, Morgan Stanley provision for the Public Offer is exercised). The price for and UBS Limited acted as Joint Bookrunners. the shares placed through the Institutional Offer, which BBVA and Banco Santander also coordinated the consor- began on November 13, 2014, was determined on No- tium handling the offer to retail investors in Spain. Medio- vember 20, 2014 in consultation with the Joint Global banca acted as financial advisor to Enel and to Enel Ibero- Coordinators, taking into account, among other conside- américa (in its capacity as offeror). rations, the quantity and quality of the orders received for the Institutional Offer, as well as the overall demand Exercise of greenshoe option relating to the Global Offer and market conditions. On November 25, 2014, Credit Suisse Securities (Europe) Li- On November 19, 2014, the Public Offer was closed. Accor- mited, acting as Stabilization Agent on behalf of the consor- ding to the information provided by the Joint Global Coordi- tium of banks handling the Public Offer aimed at institutio- nators, demand totaled approximately 1.7 times the amount nal investors, fully exercised the greenshoe option for a total initially offered. Considering the results of the Public Offer, of 30,270,000 Endesa shares at the offer price of €13.50 per Enel Energy Europe, now Enel Iberoamérica, having taken share. Following the exercise of the greenshoe option, the advice from the Joint Global Coordinators, decided to avail Global Offer, launched by Enel Energy Europe, now Enel Ibe- itself of the possibility to increase the number of shares ori- roamérica, therefore involved the sale of 232,070,000 Ende- ginally intended for retail investors, allocating to the Public sa shares, equal to 21.92% of the company’s share capital, Offer a further 11,333,823 shares, thus increasing the total for a total consideration of €3,132,945,000. number of shares for retail investors to 34,810,500 shares. With the exercise of the greenshoe option, the stabiliza- The allocation of the shares to retail investors was made in tion period, which had initially been scheduled to end on accordance with the provisions indicated in the prospectus. December 15, 2014, was concluded. Credit Suisse Securities Subsequently, on November 23, 2014, the Board of Direc- (Europe) Limited had not carried out any stabilization tran- tors of Enel SpA, having taken advice from the Joint Global sactions in Endesa shares. Coordinators, decided, within the scope of its powers, to set the price for the offer aimed at institutional investors (“Insti- tutional Offer”) at €13.50 per Endesa share. The price will also be applied to the offer for retail investors (the “Public Offer” and, together with the Institutional Offer, the “Global Offer”), since, as previously announced to the 27 November Enel signs an agreement with China’s ZTE Corporation on electric mobility, smart grids and renewables market, the Public Offer price will be equal to the lesser of On November 27, 2014, Enel SpA signed a framework agre- the maximum price for the Public Offer (equal to €15.535 ement with ZTE Corporation, a leading Chinese IT company. per share) and the price set for the Institutional Offer. This agreement will kick-start cooperation between the two The number of shares to be placed through the Global Offer groups in the areas of electric mobility, smart grids and re- was set at 232,070,000 shares (including 30,270,000 shares newable generation to achieve strategic objectives through 71 the development of sustainable, innovative technologies. Regarding electric mobility, Enel and ZTE have agreed to share information on the technological solutions developed by both companies on vehicle charging, as well as exploring integrated solutions and synergies for a possible joint com- 11 December Enel Green Power and Itaú Unibanco sign a $100 million loan agreement mercial development. On December 11, 2014, Enel Green Power, acting through On smart grids, the parties have agreed to evaluate busi- its Brazilian subsidiary Enel Brasil Participações, and Itaú Uni- ness opportunities in markets of common interest, based on banco signed a 10-year term loan agreement for over 260 Enel’s technology and solutions in the field. million Brazilian reais (approximately $100 million). The loan In the renewable sector, Enel and ZTE will start collaborating with Itaú, arranged by the International Finance Corpora- on existing Enel projects to identify optimization opportuni- tion (“IFC”), will cover part of the investment to construct ties to better integrate IT solutions toward improving per- over 260 MW of wind power in the states of Bahia, Pernam- formance of renewable power plants. buco and Rio Grande do Norte, located in north-eastern A dedicated effort will focus on cooperation in off-grid re- Brazil. The loan comes on top of the $200 million Brazilian newable generation, including collaboration at the Ollagüe Real-linked loan closed in May 2014 on IFC’s own account, site in Chile. In Ollagüe, a village near the Bolivian border, in support of Enel Green Power’s wind power development Enel Green Power is constructing an innovative 232 kW off- projects in those areas. grid hybrid plant combining photovoltaic power and a mi- ni-wind turbine generator coupled with an energy storage system. Such a collaborative effort addressing the Ollagüe project is aimed at exploring possible optimization and identifying further development opportunities for similar 12 December installations. 1 December Enel Green Power awarded 114 MW of wind capacity in Brazilian public tender Sale of LaGeo On December 12, 2014, Enel Green Power (“EGP”) and Inver- siones Energéticas (“INE”), the Salvadorian state-owned ener- gy company, signed an agreement for the sale of the 36.2% stake EGP owns in LaGeo (the EGP and INE joint venture for the development of geothermal power in El Salvador) to INE which is already the majority shareholder of the Salvadorian On December 1, 2014, following the A-5 Brazilian public company with a 63.8% stake. auction, Enel Green Power was awarded the right to sign With this agreement EGP sold off its entire shareholding in 20-year power supply contracts with a pool of Brazilian LaGeo to INE for approximately $280 million (about €224 mil- electricity distribution companies with power produced by lion), thereby closing its operations in the country. a new 114-MW wind project. EGP and INE began negotiations under the umbrella of the In- The wind farm, Morro do Chapéu, will be constructed in Ba- ternational Centre for Settlement of Investment Disputes (IC- hia state, in north-eastern Brazil, where the company alre- SID) of the World Bank in Washington D.C. aimed at finding a ady manages approximately 400 MW of wind projects in mutually beneficial solution and ending an eight-year dispute operation or under construction and over 254 MW of pho- between the two companies. tovoltaic projects awarded within the last “Leilão de Reser- The sale was made under the framework of a settlement agre- va” public tender. ement signed with the El Salvadorian government in regard Morro do Chapéu, with a total installed capacity of 114 MW to ongoing ICSID litigation. The full effectiveness of the final and an average load factor of more than 50%, equivalent to settlement of the dispute with the Republic of El Salvador is approximately 4,500 hours of energy production per year, subject to certain conditions (termination of the pending lo- will be able to generate over 500 GWh per year, avoiding cal litigation against EGP and its representatives) to be verified the annual emission of over 150,000 tons of CO2 into the atmosphere. within the next six months. 72 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS18 December Sale of Enel Green Power France On December 18, 2014, Enel Green Power International (“EGPI”), a wholly-owned subsidiary of Enel Green Power, sold the entire share capital of Enel Green Power France (“EGP Fran- ce”) to Boralex EnR, an indirect French subsidiary of the Cana- dian company Boralex Inc. for a total of €298.4 million, inclu- ding the reimbursement of an outstanding shareholder loan granted to EGP France. With this sale, Enel Green Power exits the renewable energy sector in France. The total of €298.4 million paid to EGPI accounts for a €3.3 mil- lion net cash position and is subject to a price adjustment in line with the standard procedures for this type of transactions. The full amount was paid at the closing of the transaction. 73 Reference scenario Enel and the financial markets Gross operating margin per share (euro) Operating income per share (euro) Group net earnings per share (euro) Group net ordinary earnings per share (euro) Dividend per share (euro) Group shareholders’ equity per share (euro) Share price - 12-month high (euro) Share price - 12-month low (euro) Average share price in December (euro) Market capitalization (millions of euro) (1) No. of shares outstanding at December 31 (millions) (1) Calculated on average share price in December. Enel stock weighting in: - FTSE MIB index - Bloomberg World Electric index Rating Standard & Poor’s Outlook Medium/long-term Short-term Outlook Medium/long-term Short-term Outlook Medium/long-term Short-term Moody’s Fitch (1) Figures updated to January 31, 2015. 2014 2013 restated 1.68 0.33 0.05 0.32 0.14 3.35 4.46 3.13 3.75 35,307 9,403 1.78 1.04 0.34 0.33 0.13 3.82 3.38 2.30 3.10 29,190 9,403 Current (1) at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2012 9.49% 2.94% Stable BBB A-2 9.45% 2.89% Stable BBB A-2 8.82% 3.12% 11.02% 3.17% Stable Negative BBB A-2 BBB+ A-2 Negative Negative Negative Negative Baa2 P2 Stable BBB+ F2 Baa2 P2 Baa2 P2 Baa2 P2 Stable Watch Negative Watch Negative BBB+ F2 BBB+ F2 BBB+ F2 In 2014, the United States experienced an acceleration in decline in inflation expectations, posting record lows in economic growth, which remained weak in the emerging many countries. economies, the euro area and Japan. The outlook for global expansion is clouded by the risk of a further slowdown in In this economic climate, the main European equity indices the Chinese economy and a deterioration in the economic closed 2014 largely unchanged. The FTSE Italia All Share po- and financial situation in Russia. sted a loss of just -0.3%. Conversely, the European utilities In the advanced economies, 2014 saw a continuation of segment ran counter to this trend, closing the year sharply the decline in long-term interest rates. Yields on the 10- higher (about +13% on the close of the previous year). year government securities of the euro-area countries con- As regards Enel shares, 2014 ended with the stock price up tinued to subside over the course of the year owing to the significantly at €3.696 a share, a gain of 16% on the close of 74 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS    2013, outperforming both the Italian index and the Europe- For further information we invite you to visit the Investor Re- an utilities index. lations section of our corporate website (http://www.enel. com/en-GB/investor/), which contains financial data, pre- On June 26, 2014 Enel paid the dividend on 2013 profits of sentations, on-line updates of the share price, information €0.13 a share. on corporate bodies and the regulations of Shareholders’ Meetings, as well as periodic updates on corporate gover- At December 31, 2014, the Ministry for the Economy and Fi- nance issues. nance held 31.2% of Enel, while institutional investors held 44.7% and individual investors held the remaining 24.1%. We have also created contact centers for private investors On February 26, 2015, the Ministry for the Economy and Fi- (which can be reached by phone at +39-0683054000 or by nance sold a stake of 5.74% in the Company. Following the e-mail at azionisti.retail@enel.com) and for institutional in- transaction, the Ministry’s holding declined from 31.24% to vestors (phone: +39-0683051; e-mail: investor.relations@ 25.50%. enel.com). Performance of Enel share price and the Bloomberg World Electric and FTSE Italia All Share indices from January 1, 2014 to February 5, 2015 EURO 4.5 4.3 4.1 3.9 3.7 3.5 3.3 3.1 2.9 2.7 2.5 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Enel Bloomberg World Electric STOXX 600 Utilities FTSE Italia All Share 75 Economic and energy conditions in 2014 Economic developments Economic growth in 2014 differed among the main geo- in the foreign exchange market, increased inflation and graphical areas. Of the advanced economies, the United eroded competitiveness, especially vis-à-vis countries that States acted as the driver of the world economy (+2.2% in export manufactured goods (largely the south-east Asian 2014), while Europe and Japan struggled to sustain a reco- countries). Recent years have seen an outflow of foreign very, which continues to lag. The emerging economies saw direct investment in emerging economies (with foreign di- growth slow sharply from the pace experienced in recent rect investment - FDI of less than 1% of GDP in 2014 for the years. first time in 15 years). The most vulnerable countries were More specifically, the United States was the beneficiary of those most specialized in commodity exports (such as Ar- a strong recovery in domestic consumption, buoyed by the gentina, Brazil, Colombia, Peru and Russia) and countries return of employment to its pre-crisis levels, the rise in wa- with current account deficits (South Africa, Brazil, Indonesia ges and the recovery in the real estate sector (these deve- and Peru). In Latin America, Argentina and Brazil struggled lopments prompted the FED’s announcement that it would the most. The Argentine economy has been struggling with bring its monetary stimulus to an end). The difficulties en- a currency crisis for a number of years now, with a real in- countered by the mature economies also affected the Ja- flation rate of more than 30%, a persistent contraction in panese economy, which in 2014 saw growth stagnate at exports, a large budget deficit and an unresolved foreign- around 0% of GDP, with even a fiscal stimulus in the form of currency debt crisis. Brazil continues to be afflicted by high increased public spending having a smaller than expected inflation, modest growth, and large budget and current impact. account deficits that are jeopardizing the status of its so- For the euro area, 2014 ended with modest growth vereign debt. Chile, Colombia and Peru displayed signs of (+0.8%), impeded mainly by the slowdown in consumption a slowdown in 2014, although they still posted positive and by low inflation. Italy was the only G7 country to post a growth rates (+1.8%, +5.1%, +2.6% respectively). Chile was contraction in GDP in 2014 (-0.4%), the worst performance affected by a decline in demand from China (its main tra- among the more highly indebted European countries. By ding partner), the slowdown in FDI in the minerals industry contrast, Spain continued to display significant signs of re- and high inflation (with core inflation well above the tar- covery, registered growth of 1.4% in 2014. The country be- get of 3%). The collapse of oil prices was the main adverse nefitted from the recovery in the labor market and the de- factor for Colombia (exports of crude oil and refined pro- cline in energy costs, factors that are sustaining the revival ducts accounted for 55% of total foreign sales), with a con- of private consumption and the improvement in the trade sequent deterioration in the current account deficit (more balance (with the increase in exports also being supported than 5% of GDP). In Peru, in 2014 the outflow of foreign by the weakness of the euro). investment and the decline in metals prices (copper, gold, Growth in the emerging economies slowed compared with silver), which account for 70% of total exports, gave rise to the previous year (+4.4% compared with +4.7% in 2013). A a decline in commodity prices. number of factors played a role, such as the deterioration in The year 2014 was especially challenging for Russia, which the outlook for growth in China and the fall in commodity is mired in a recession worsened by the collapse in the price prices. The Chinese slowdown will dampen the propensity of Brent oil and the international sanctions imposed in re- to invest in capital goods (from the emerging economies) sponse to the Ukraine crisis, which have severely restricted and will spur greater demand for durables (from the advan- access to capital markets. GDP growth came in at 0.6% in ced economies), with dangerous repercussions for the 2014, compared with 1.3% in 2013. In order to counter the emerging economies that export raw materials (Argentina, fall in the ruble, the Russian central bank (CBR) raised offi- Brazil, Chile, Colombia, Indonesia, Peru, Russia and South cial rates by 750 bp in December, bringing them to 17%, Africa). For the latter, the collapse of commodity prices in and said it would maintain a restrictive policy stance until 2014 as a result of the global economic slowdown helped Brent prices returned to a level consistent with budget ba- slow growth, caused current account balances and bud- lance. get deficits to deteriorate, sparked considerable volatility 76 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSThe following table shows the growth rates of GDP in the main countries in which Enel operates. Annual real GDP growth % Italy Spain Portugal Greece France Romania Russia Brazil Chile Colombia Mexico Peru Canada USA 2014 -0.4 1.4 0.8 1.0 0.4 2.9 0.6 -0.1 1.8 5.1 2.2 2.5 2.4 2.4 Source: National statistical institutes and Enel based on data from ISTAT, INE, EUROSTAT, IMF, OECD and Global Insight. Developments in the main market indicators Money market 1.60 1.55 1.50 1.45 1.40 1.35 1.30 1.25 1.20 1.15 1.10 Feb 2012 Sep 2012 Apr 2013 Nov 2013 May 2014 Dec 2014 Euro - US dollar 3-month Euribor 2013 -1.9 -1.2 -1.4 -4.0 0.4 3.5 1.3 2.5 4.1 4.7 1.4 5.8 2.0 2.2 1.2 1.0 0.8 0.6 0.4 0.2 0 77 International commodity prices In 2014 the price of Brent, which was $55.8/barrel at year- supply by 2.8 million barrels/day (compared with growth in end (compared with $110.8/barrel in 2013), experienced a demand of 0.7 million barrels/day). sharp fall the likes of which had not been seen since the oil The impact of these factors was compounded by the re- shock at the end of 2008, for reasons mainly related to struc- luctance shown by the OPEC countries at the end of 2014, tural developments in supply and demand. Saudi Arabia first and foremost, to reduce production levels On the demand side, several factors slowed consumption, in order to maintain market shares. In addition to these fun- including (i) the slowdown in global economic growth and damentals, a number of financial factors, such as the termi- (ii) stringent environmental constraints that have discoura- nation of expansionary monetary measures (quantitative ged consumption. The supply side was characterized by (i) easing) and the resulting expected increase of interest rates the strong expansion in unconventional production in the by the Federal Reserve, have further increased downward United States and Canada (tight oil) and (ii) the strong re- pressures. covery in Libyan output over the past year, which increased Commodity prices 900 800 700 600 500 400 300 200 100 0 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Zeebrugge Gas (€/toe) API2 coal (€/toe) Brent (€/toe) The abrupt drop in Brent oil prices only impacted gas and which is also affected by excess supply, caused transport coal prices in the final month of the year. The price of coal costs to plunge by about 50% in December alone. amounted to $71.3/metric ton at the end of the year, a re- The spot price of natural gas at the Zeebrugge hub in Europe duction of 13% on the previous year. The growth in energy contracted by 25% over the course of the year, going from demand is slowing and in many mature markets has turned 64.8 pence/therm (2013) to 48.4 pence/therm (2014). The negative as a result of the combined impact of the deterio- decline was driven by the weakness of demand for thermal ration in economic conditions, new energy efficiency mea- generation purposes and residential uses. With regard to sures, stringent environmental policies and the ever increa- thermal generation in particular, the reduction in demand sing competition from renewables, giving rise to a surplus of associated with the economic slowdown and weather fac- supply on the market. tors was compounded by the expansion of renewables ge- In addition, structural conditions in the shipping market, neration. 78 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSElectricity markets Electricity demand Developments in electricity demand GWh Italy Spain Romania Russia (1) Slovakia Argentina Brazil (2) Chile (2) (3) Colombia 2014 309,006 243,395 50,452 772,255 27,950 130,654 474,033 49,409 63,772 2013 318,475 246,372 49,809 767,804 28,682 129,166 463,626 48,136 60,885 Change -3.0% -1.2% 1.3% 0.6% -2.6% 1.2% 2.2% 2.6% 4.7% (1) Europe/Urals. (2) Net of grid losses. (3) Figure for the SIC - Sistema Interconectado Central. Source: Enel based on TSO figures. In Europe, electricity demand decreased in the Mediterra- Russia, demand increased slightly (+0.6%) in 2014 compa- nean countries, primarily due to the slowdown in industrial red with the previous year. Demand continued to rise in La- consumption and to weather effects. More specifically, in tin America, with a significant increase in Colombia (+4.7%) Italy (-3.0%) and Spain (-1.2%) the negative performance and smaller gains in Chile (+2.6%), Argentina (+1.2%) and of the industrial sector and the macroeconomic uncertainty Brazil (+2.2%). had a decisive impact on the level of electricity demand. In Italy Domestic electricity generation and demand Millions of kWh Net electricity generation: - thermal - hydroelectric - wind - geothermal - photovoltaic Total net electricity generation Net electricity imports Electricity delivered to the network Consumption for pumping Electricity demand 2014 2013 Change 165,684 183,404 (17,720) 58,067 14,966 5,541 23,299 267,557 43,703 311,260 (2,254) 309,006 54,068 14,812 5,319 21,229 278,832 42,138 320,970 (2,495) 318,475 3,999 154 222 2,070 (11,275) 1,565 (9,710) 241 (9,469) Source: Terna - Rete Elettrica Nazionale (monthly report - December 2014). -9.7% 7.4% 1.0% 4.2% 9.8% -4.0% 3.7% -3.0% 9.7% -3.0% 79 Domestic electricity demand in 2014 decreased by 3.0% on 11,275 million kWh, to 267,557 million kWh. More speci- 2013, to 309,006 million kWh. Of total electricity demand, fically, in an environment of depressed electricity demand, 85.9% was met by net domestic electricity generation for the increase in hydroelectric generation (3,999 million consumption (86.8% in 2013) with the remaining 14.1% kWh), mainly attributable to improved water availability being met by net electricity imports (13.2% in 2013). conditions, and the rise on other renewables generation Net electricity imports in 2014 increased by 1,565 million mal generation up 222 million kWh and wind generation kWh, mainly as a result of lower average sales prices on in- up 154 million kWh) as a result of the expansion in installed ternational markets. capacity in the country, led to a reduction in thermal gene- (photovoltaic generation up 2,070 million kWh, geother- Net electricity generation in 2014 decreased by 4.0% or ration of 17,720 million kWh. Spain Electricity generation and demand in the peninsular market Millions of kWh Net electricity generation Consumption for pumping Net electricity exports (1) Electricity demand 2014 253,429 (5,330) (4,704) 243,395 2013 260,331 (5,958) (8,001) 246,372 Change (6,902) 628 3,297 (2,977) -2.7% 10.5% 41.2% -1.2% (1) Includes the balance of trade with the extra-peninsular system. Source: Red Eléctrica de España (Estadística diaria - December 2014 report). Volumes for 2013 are updated to November 30, 2014. Electricity demand in the peninsular market in 2014 declined in exports and an increase in imports, due to lower average by 1.2% compared with 2013, to 243,395 million kWh. De- sales prices on international markets. mand was entirely met by net domestic generation for con- sumption. Net electricity generation in 2014 contracted by 2.7% or 6,902 million kWh., essentially due to lower demand for electricity Net electricity exports in 2014 decreased by 41.2% compared in the peninsular market. with 2013, essentially reflecting the net impact of a decrease Electricity generation and demand in the extra-peninsular market Millions of kWh Net electricity generation Net electricity imports Electricity demand 2014 13,290 1,298 14,588 2013 13,441 1,269 14,710 Change (151) 29 (122) -1.1% 2.3% -0.8% Electricity demand in the extra-peninsular market in 2014 Net electricity generation in 2014 fell by 1.1% or 151 million decreased by 0.8% compared with 2013, falling to 14,588 kWh as a result of lower demand for electricity in the extra- million kWh. Of total demand, 91.1% was met by net ge- peninsular market. neration in the extra-peninsular areas and 8.9% by net im- ports. Net electricity imports in 2014 amounted to 1,298 million kWh, all of which regarded trade with the Iberian peninsula. 80 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS Electricity prices Electricity prices Italy Spain Russia Slovakia Brazil Chile Colombia Average baseload price 2014 (€/MWh) Change in baseload price 2014-2013 Average peakload price 2014 (€/MWh) Change in peakload price 2014-2013 52.1 42.1 21.7 33.6 220.7 101.5 84.9 -17.3% -4.8% -12.6% -9.8% 140.7% -12.5% 19.1% 55.7 46.4 25.0 42.9 263.6 208.7 180.5 -16.2% -3.5% -12.6% -12.2% 36.3% -5.8% 7.2% Price developments in the main markets Eurocents/kWh Final market (residential) (1) Italy France Portugal Romania Spain Slovakia Final market (industrial) (2) Italy France Portugal Romania Spain Slovakia 2014 2013 Change 15.4 10.6 12.7 9.1 17.7 12.2 10.8 7.4 10.3 7.5 11.9 11.1 15.0 10.5 12.3 8.9 17.7 13.8 11.2 7.2 10.1 8.6 11.5 12.3 2.6% 1.0% 3.4% 1.9% - -11.0% -3.6% 3.8% 1.6% -12.6% 2.7% -10.2% (1) Half-year price net of taxes – annual consumption of between 2,500 kWh and 5,000 kWh. (2) Half-year price net of taxes – annual consumption of between 500 MWh and 2,000 MWh. Source: Eurostat. Electricity price developments in Italy 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2014 2013 Power Exchange - PUN IPEX (€/MWh) 52.4 46.5 50.5 58.8 63.8 57.4 65.5 65.1 Average residential user with annual consumption of 2,700 kWh (eurocents/kWh): price including taxes 19.2 19.0 19.0 19.3 19.1 18.9 19.2 19.0 Source: GME (Energy Markets Operator); Authority for Electricity, Gas and the Water System. In Italy, the average uniform national sales price of electrici- The average annual price (including taxes) for residential ty on the Power Exchange fell sharply compared with 2013, users set by the Authority for Electricity, Gas and the Water dropping by 17.3%. System was essentially unchanged on the previous year. 81 Natural gas markets Gas demand Millions of m3 Italy Spain 2014 61,501 25,897 2013 69,478 28,662 Change (7,977) (2,764) -11.5% -9.6% Demand for natural gas in 2014 contracted sharply both in se economic conditions and the mix of generation sources, Italy and Spain. The drop was mainly attributable to adver- characterized by the growing use of renewable energy. Italy Domestic gas demand Millions of m3 Residential and civil Industrial and services Thermal generation Other (1) Total 2014 29,239 13,098 17,368 1,796 61,501 2013 33,709 13,174 20,672 1,923 69,478 Change (4,470) (77) (3,304) (127) (7,977) -13.3% -0.6% -16.0% -6.6% -11.5% (1) Includes other consumption and losses. Source: Enel based on data from the Ministry for Economic Development and Snam Rete Gas. Domestic demand for natural gas in 2014 totaled 61,501 sentially the result of lower generation volumes, was com- million cubic meters, a decrease of 11.5% on the previous pounded by a decrease in consumption for domestic and year. civil uses, attributable to the impact of colder weather in The contraction in consumption for thermal generation, es- 2013. Price developments Average residential user with annual consumption of 1,400 m3 (eurocents/ m3): price including tax 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2014 2013 86.3 83.0 77.8 82.0 92.8 88.9 88.4 86.2 Source: Authority for Electricity, Gas and the Water System. The annual average sales price of natural gas in Italy decreased by 7.6% in 2014. 82 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS Regulatory and rate issues The European regulatory framework State aid modernization process On May 8, 2012, the European Commission set out a reform plan to modernize the framework of rules and controls con- cerning state aid. The three main, closely linked objectives are: foster growth in a strengthened, dynamic and compe- titive internal market; focus enforcement on cases with the biggest impact on the internal market; and streamlined ru- les and faster decisions. The European framework for state aid for the energy sector includes the Environmental and Energy Aid Guidelines (EEAG), the General Block Exemption Regulation (GBER) and the Research, Development and In- novation Programme (RDI) Guidelines. On April 9, 2014 the Commission approved the revised EEAG for the 2014-2020 term, entering into force as of July 1, 2014. These promote a gradual transition to market-based mecha- Market Abuse Rules (MAR and MAD) Regulation (EU) 596/2014 on market abuse (MAR) and Di- rective 2014/57/EU on criminal sanctions for market abuse (MAD) were published in the Official Journal of the Europe- an Union on June 12, 2014. The new rules, which replace Directive 2003/6/EC and will enter force in June 2016, update and strengthen the exi- sting framework to ensure investor protection and the inte- grity of the financial markets. Energy Efficiency Communication 2014 nisms, such as auctions or feed-in premiums, for supporting On July 23, 2014, the European Commission published renewable energy, establish criteria for supporting large the Energy Efficiency Communication, which analyzes the energy consumers that face international competition and regulatory period through 2020 and seeks to identify the include provisions for infrastructure aid and mechanisms for potential gains achievable by 2030. With regard to the for- ensuring secure and adequate supplies (for example, capaci- mer issue, it found that with current measures the EU will ty remuneration mechanisms) in the internal energy market. achieve energy savings of 18-19% by 2020, compared with Rules on the provision of investment services (MiFID II) The new framework of rules governing the provision of in- vestment services in Europe (“MiFID II”) was published in the Official Journal of the European Union on June 12, 2014. Mi- FID II is comprised of Directive 2014/65/EU (MiFID) and Re- gulation (EU) 600/2014 (MiFIR), which replace the previous MiFID Directive 2004/39/EC. Among other things, the new rules expand the scope of appli- cation of the financial regulations, broadening the definition of financial instruments and narrowing the exemptions cur- rently available to companies that trade commodity derivati- ves, including electricity and gas. The MiFID II rules shall apply starting from January 2017. Prior to that date the Member States must transpose the Directive, while the European Commission and the European Securities and Markets Authority (ESMA) will be responsible for defining and adopting the implementing and delegating measures provided for under MiFID II. the original target of 20%. In the light of this, the Com- mission asserts that if all Member States work to properly implement the agreed legislation, the 20% target can be reached without the need for additional measures. For the period after 2020, the Commission has proposed a target of a 30% reduction in energy use by 2030 compared with 2007 projections. Industrial Emissions Directive As part of the process of implementing the Industrial Emis- sions Directive (Directive 2010/75/EU) the European Com- mission is working to update the reference document on best available techniques for large combustion plants (BREF LCP), which includes the emissions levels associated with the best available technologies to be considered in the integra- ted environmental permitting process. The completion of the review process scheduled for the end of 2015 could be delayed until the early months of 2016. 83 The Italian regulatory framework The current structure of the Italian electricity market is the Sales Division Electricity result of the liberalization process begun in 1992 with Direc- tive 1992/96/EC, transposed into Law with Legislative De- Retail market cree 79/1999. This decree provided for: the liberalization of As provided for by Directive 2003/54/EC, starting from electricity generation and sale; reserving transmission and July 1, 2007 all end users may freely choose their electri- ancillary services to an independent network operator; the city supplier on the free market or participate in regulated granting of concessions for distribution to Enel and other markets. Law 125/2007 identified these regulated markets companies run by local governments; the unbundling of as the “enhanced protection” market (for residential custo- network services from other activities. mers and small businesses with low-voltage connections) The introduction of Directives 2003/54/EC and 2009/72/ and the “safeguard” market (for large customers not eligi- EC (transposed with Law 125/2007 and Legislative Decree ble for enhanced protection services). 93/2011, respectively) in Italy lent further impetus to the Free-market operators are awarded contracts to provide process, particularly through the complete opening of the safeguard services on a geographical basis through th- retail market and the confirmation of the total independen- ree-year auctions. Enel Energia was awarded contracts to ce of the national transmission network operator (already provide services to five of the ten areas subject to auction provided for in the Decree of the Prime Minister of May 11, for the 2014-2016 period (Veneto, Emilia Romagna, Friuli 2004) by separating its ownership from that of other electri- Venezia Giulia, Sardinia, Campania, Abruzzo, Calabria and city operators. Sicily). The process of liberalizing the natural gas market began By contrast, enhanced protection service is provided by with Directive 1998/30/EC, transposed in Italy through Le- sellers connected with distributors. The prices and related gislative Decree 164/2000, calling for the liberalization of terms are set by the Authority and are updated quarterly the import, production and sale of gas and the separation based on criteria designed to ensure that the operators’ of network infrastructure management from other activi- costs are covered. More specifically, the Authority annually ties through the establishment of distinct companies. As re- updates the component for covering the operators’ costs gards the model for unbundling transport from other non- in the enhanced protection market (RCV) so as to ensure network activities, with Resolution 515/2013/R/gas, the that their costs are covered (operating costs, delinquency Authority for Electricity, Gas and the Water System (the “Au- charges and amortization and depreciation) and that they thority”) mandated the transition to ownership unbundling receive a fair return on capital. pursuant to Directive 2009/73/EC. Operators set their own prices for free market services, with the Authority’s role limited to setting rules to protect both customers and operators. In this role, the Authority has adopted a number of measu- res aimed at containing operators’ credit risk, which has ri- sen in recent years due in particular to the economic crisis. The Authority is in the process of launching the Integrated Information System (IIS). This system, established under Law 129/2010, is designed to manage the flow of infor- mation between gas and electricity market operators and is based upon a central databank of withdrawal points, initially created for the electricity sector, that will be exten- ded to the gas sector starting from 2015. 84 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSGas Retail market Generation and Energy Management Division Legislative Decree 164/2000 established that, as from Ja- nuary 1, 2003, all customers may freely choose their natural Electricity gas supplier on the free market. However, alongside this, operators must offer a safeguard Wholesale production and market service to their customers (only for residential customers Electricity generation was completely liberalized in 1999 pursuant to Decree Law 69 of June 21, 2013), together with with Legislative Decree 79/1999 and can be performed by their own commercial offers, at the regulated prices establi- anyone possessing a specific permit. shed by the Authority. The electricity generated can be sold wholesale on the or- If there is no company supplying this service, the continuity ganized spot market (IPEX), managed by the Energy Mar- of supply for small customers not in arrears on bill payments kets Operator (GME), and through organized and over- (residential and other uses with an annual consumption of the-counter platforms for trading forward contracts. The less than 50,000 standard cubic meters) and for users in- organized platform includes the Forward Electricity Market volved in providing public services shall by ensured by the (FEM), managed by the GME, in which forward electrici- supplier of last resort. If the customer is in arrears with bill ty contracts with physical delivery are traded. Trading can payments or it is not possible for the supplier of last resort also be conducted in derivatives with electricity as their un- to provide service, supply continuity is ensured by the de- derlying. The organized market for such transactions is the fault distribution supplier selected, like the supplier of last forward market (IDEX), operated by Borsa Italiana, while fi- resort, through voluntary tenders for geographically-based nancial derivatives can also be negotiated on OTC platforms. contracts. The public procedures carried out in September Generators may also sell electricity to companies engaged in 2014 identified the suppliers of last resort for the period energy trading, to wholesalers that buy electricity for resale October 1, 2014 - September 30, 2016. Enel Energia was at retail, and to the Acquirente Unico (Single Buyer), whose identified as supplier of last resort for 7 out of the 8 geo- duty is to ensure the supply of energy to enhanced protec- graphical areas covered by the auction and as default distri- tion customers. bution supplier for 6 out of 8 areas. In addition, for the purposes of the provision of dispatching Starting from October 1, 2013, the reform of the financial services, which is the efficient management of the flow of terms and conditions applied to safeguard customers ente- electricity on the grid to ensure that deliveries and withdra- red force. In this situation, the Authority modified the pro- wals are balanced, electricity generated may be sold on a cedures for determining raw material component, indexing dedicated market, the Ancillary Services Market (ASM), whe- it fully to spot market prices, introduced graduality compo- re Terna procures the required resources from generators. nents (including one specifically for the renegotiation of The Authority and the Ministry for Economic Development long-term contracts) and increased the component cove- are responsible for regulating the electricity market. More ring retail sales costs to enhance cost-reflectivity. specifically, with regard to dispatching services, the Authori- With regard to the raw material cost component (QE), on ty has adopted a number of measures regulating plants es- January 24, 2014, the Regional Administrative Court of sential to the security of the electrical system. These plants Lombardy, in the course of an action brought by Enel Ener- are deemed essential based on their geographical location, gia and Enel Trade, voided the resolutions by which the Au- their technical features and their importance to the solution thority changed the formula for determining (and thereby of certain critical grid issues by Terna. In exchange for being reducing) the QE component for the 2010-2011 and 2011- required to have electricity available and providing binding 2012 gas years. On April 10, 2014, the Authority filed an offers, these plants receive special remuneration determi- appeal with the Council of State. ned by the Authority. With Decree Law 91 of June 24, 2014, all schedulable gene- ration units located in Sicily with a capacity of more than 50 MW were declared “essential to system security”. The mea- sure will be in force until the completion of the “Sorgente- 85 Rizziconi” interconnector between Sicily and Calabria and Authority. In applying this mechanism, the Ministry for Eco- the other works needed to increase interconnection capa- nomic Development (MED) selected several of Enel Produ- city. The essentially units are required, starting from January zione’s plants using fuel oil for 2012-2013 and 2013-2014 1, 2015, to offer supply on energy and service markets and gas years. The MED did not employ this mechanism for the are entitled to fees to cover incurred generation costs based 2014-2015 gas year. upon rules analogous to those that already apply to other plans essential to system security. Since the launch of the market in 2004, the regulations have provided for a form of administered compensation for ge- neration capacity. In particular, plants that make their ca- Gas Wholesale market pacity available for certain periods of the year identified in The extraction, import (from EU countries) and export of advance by the grid operator to ensure the secure operation natural gas have been liberalized. of the national electrical system receive a special fee. According to the provisions of Legislative Decree 130/2010, In August 2011, the Authority published Resolution operators cannot hold a market share that exceeds 40% of 98/2011, which establishes the criteria for introducing a domestic consumption. This limit may be raised to 55% if market mechanism for compensating generation capacity the operator commits to creating 4 billion cubic meters in that replaces the current administered reimbursement. This new storage capacity by 2015. Under this provision, the mechanism involves holding auctions through which Terna Ministry for Economic Development approved Eni’s propo- will purchase from generators the capacity required to en- sed plan to create new storage in early 2011. As of today, sure that the electricity system is adequately supplied in the 2.6 billion cubic meters in new storage capacity has been coming years. created. Law 9/2014 establishes that, in order to limit the With a Decree of the Minister for Economic Development costs for the system, the remaining storage capacity (up to of June 30, 2014, the capacity market operational mechani- 4 billion cubic meters) be created only if there is market de- sm previously issued for consultation by the Authority was mand for it. The operators have not shown any interest in approved. the auctions held and, therefore, no further storage capaci- The mechanism is based on the allotment, by auction, of op- ty has been created. tion contracts (reliability options) that provide for payment Following the approval of the Parliamentary committe- of a premium, established in the auction with the setting es and the positive opinion of the Authority, on March 6, of a marginal price, against which a generator undertakes 2013, the ministerial decree approving the rules for the na- to return any positive difference between the price formed tural gas forward market was signed, with operations be- on the spot electricity and auxiliary services market and a ginning on September 2, 2013. The forward market com- benchmark price set ex-ante in the option contract. pleted the structure of the Italian wholesale market, joining The rules approved provide for a cap and a floor for the pre- the spot trading platform (the “Gas Exchange”), which has mium to be paid for existing capacity. The floor is paid for all been operating since 2010, and the balance market begun existing capacity and will be set by the Authority. in December 2011 under the rules set by the Authority. The first auctions for the award of option contracts will be held in 2015, with delivery as from 2019-2020. In order to cope with emergencies in the gas system, such Transport, storage and regasification as the one that occurred between February 6 and 16, 2012, Transport, storage and regasification (of LNG) are subject to Decree Law 83/2012 – ratified with Law 134 of August 7, regulation by the Authority, which sets the rate criteria for 2012 – required the identification on an annual basis as engaging in these activities at the start of each regulatory from the 2012-2013 gas year of thermal generation plants period (lasting 4 years) and updates the payments annually. that can contribute to the security of the system thanks With regard to gas transport rates, Enel Trade filed an appe- to the use of fuels other than gas. Such plants, which are al with the Regional Administrative Court challenging the different from those essential to the electrical system, are resolutions establishing the rate criteria for the 2014-2017 entitled to reimbursement of the costs incurred in ensuring period and the approval of the amounts due for 2014. The availability in the period from January 1 to March 31 of each dispute concerning the previous rate period (2010-2013), gas year on the basis of the procedures established by the for which the Regional Administrative Court of Lombar- 86 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSdy accepted Enel Trade’s claim, is still pending before the were envisaged for investments as from 2012 and further Council of State. increases (between 1.5% and 2%) are also envisaged for Storage is carried out under a concession (for a maximum of certain categories of investments (for example, medium- 20 years) issued by the Ministry for Economic Development voltage lines in historical town centers, connection in areas (MED) to applicants that satisfy the requirements of Legi- with a high density of renewables generation). The X-factor slative Decree 164/2000. The Decree of February 19, 2014 used in updating the operating costs component is 2.8% of the MED changed the criteria for allocating capacity, for distribution and 7.1% for metering. establishing that it will be assigned solely through auction. Electricity distribution is also subject to service quality rules, LNG activities are subject to the grant of a special ministe- under which the Authority establishes the annual trend le- rial permit. vels for the following service continuity indicators for custo- Access to transport, storage and regasification capacity is mers connected to low-voltage service: provided through non-discriminatory mechanisms esta- > duration of long service interruptions; blished by the Authority, in order to guarantee third-part > number of long and short interruptions. access (TPA). The Ministry for Economic Development may Each year distributors receive bonuses or penalties depen- grant an exemption from the TPA rules to companies that ding on whether their actual performance as determined own storage or regasification plants or cross-border gas in- using these efficiency indicators is better or worse than the terconnectors. The exemption is granted upon the explicit established trend values. request of the companies involved and on the basis of an With Resolution 483 of October 9, 2014, the Authority ini- assessment of the benefits of the infrastructure for the sy- tiated the process of defining the regulations on electricity stem. distribution and metering rates and service quality for the Infrastructure and Networks Division Electricity Distribution and metering Enel Distribuzione provides distribution and metering within the Infrastructure and Networks Division under a 30-year concession set to expire in 2030. The distribution rates are set by the Authority at the start of each regulatory period (lasting 4 years) based on cove- ring the total cost of providing distribution and metering services, considering operating costs, depreciation and an appropriate return on capital. The rate component covering operating costs is updated annually using a price-cap mechanism (i.e. based on the inflation rate and an annual rate of reduction of unit costs called the X-factor). The return-on-capital and depreciation components are revised each year to take account of new investments, depreciation and the revaluation of existing assets using the deflator for gross fixed capital formation. For the 2014-2015 period, the Authority has reduced the return-on-capital for distribution rate to 6.4% on the basis of the yield on 10-year Italian government bonds (BTP). In addition, increases of the return-on-capital rate of 1% new regulatory period. Energy efficiency White certificates Energy efficiency in final uses has been promoted in Italy mainly through the Energy Efficiency Certificate mechani- sm (EECs or white certificates) launched on January 1, 2005 in accordance with the provisions of the related decrees of July 20, 2004. The mechanism requires the MED to determine the natio- nal energy savings targets that must be achieved each year by distribution companies. With the Decree of December 28, 2012, the MED establi- shed the energy savings targets for the 2013-2016 period. In order to avoid penalties, distributors must demonstrate by May 31 of each year that they hold a number of whi- te certificates equal to at least 50% (60% for years 2015- 2016) of their obligation, with the residual obligation be covered in the subsequent years. The Decree also set out the process for transferring mana- gement of the white certificate mechanism to the Energy Services Operator (GSE), while the Authority will remain responsible for determining the rate grant using the new criteria set out in the ministerial decree. The Authority, with its Resolution 13/2014 of January 23, 2014, introduced a mechanism for recovering the costs of 87 purchasing white certificates. It allows distributors to reco- on a system of comprehensive feed-in tariffs that have been ver a cost equal to the market average, less a spread of €2 reduced by an average of 40% from the previous system. per certificate. The Decree sets an annual ceiling on total incentives (inclu- The potential financial impact of the mechanism is signifi- ding those already paid out under the previous Energy Ac- cantly reduced, although distributors are still subject to the counts) of €6.7 billion, which was reached on June 6, 2013. “physical” obligation to deliver the EECs in order to meet As a result the incentives under the Fifth Energy Account the national targets. ended as from July 6, 2013. On June 30, 2014, the Authority set the definitive rate sub- sidy for 2013 equal to €110.27/toe and the preliminary rate subsidy for 2014 at €110.39/toe. The preliminary rate subsidy will be revised based upon the final market prices for the reference period. Legislative Decree 102 of July 4, 2014, implementing Di- rective 2012/27/EU on energy efficiency, set out the cu- mulative national energy savings target for the 2014-2020 period to be achieved using a variety of incentives. It also established that the EEC mechanism must result in a saving at least 60% of such target by 2020. The decree also required the MED, in the course of updating the guidelines on the procedures for issuing EECs, to include measures for making the mechanism more efficient, enhan- cing energy savings achieved through measures aimed at im- proving practices and preventing speculative practices. Renewable Energy Division Renewable resources other than solar power: green certificates and comprehensive tariffs The primary incentive mechanism used is green certificates (in- troduced with Legislative Decree 79/1999). Under this system, electricity producers and importers are required to deliver a share of renewable energy. This obligation can be satisfied by purchasing green certificates from renewables generators. The amount of the incentive depends upon the market va- lue at which operators can purchase green certificates to meet their obligation. This market value is set within a ran- ge. The maximum value is equal to the price at which the GSE places the certificates it holds on the market (calculated as provided for in Article 2(148) of Law 244/2007), which came to €114.46/MWh of renewables generation in 2013. The minimum price is equal to the price at which the GSE withdraws green certificates exceeding the required share In Italy, a variety of mechanisms, differing by resource and from the market. For the years in the period from 2012 to size of plant, are used to encourage electricity generation 2015, that price is set at 78% of the difference between a from renewable resources. The objectives and support in- pre-set amount (€180/MWh) and the average sale price for struments are established by Parliament in a manner consi- electricity for the preceding year. stent with EU directives in this sector, while implementation Legislative Decree 28/2011, transposing Directive 2009/28/ is handled by the Energy Services Operator (GSE), which is EC, and the associated ministerial Decree of July 6, 2012, responsible for managing incentives for renewables. substantially revised existing incentive mechanisms for Solar power incentives - Energy Account Photovoltaic plants receive incentives through the so-called Energy Account, which consists of the payment of feed-in premiums over and above the price of the electricity for po- wer delivered to the grid over 20 years. With the ministerial Decree of July 5, 2012, the incentive system for photovoltaics was overhauled in order to ensu- re the more orderly growth of the sector and realign tariffs with European averages. The Fifth Energy Account is based plants that will enter service as from January 1, 2013. More specifically, small plants (with a capacity of up to 5 MW, as well as hydroelectric plants up to 10 MW and geo- thermal plants up to 20 MW) will receive incentives through a comprehensive feed-in tariff mechanism, with rates (set in the Decree) differentiated by type and size of the plant. Larger plants will qualify for comprehensive incentives esta- blished on the basis of Dutch auctions run by the GSE. Plant owners must submit bids for a percentage reduction from the opening price, equal to the comprehensive rate for the last capacity bracket for small plants. The green certificates mechanism will be gradually elimina- ted through: 88 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS > the progressive reduction of the mandatory share to zero increase in non-schedulable renewable resource plants by 2015; – essentially photovoltaic and wind – the Authority, with > the provision of incentives to plants already participating Resolution 281/2012, decided to eliminate the previous in the green certificate system through rates equivalent exemption from imbalancing payments as from January 1, to the current withdrawal value of certificates (as from 2013, in order to foster better programming and integra- 2015). tion of such plants into the national electrical system. In order to ensure control of incentive costs, the Decree of Following an appeal lodged by a number of associations of July 6, 2012 set a ceiling of €5.8 billion on aggregate annual renewables generators, the Council of State voided Resolu- cost – including plants already receiving incentives through tion 281/2012, at the same time establishing the standards the green certificate system – of incentives for resources to be followed by the Authority in properly regulating the other than solar power. subject matter. More specifically, the Council of State clarified Restructuring of incentives that non-schedulable renewable resource plants must parti- cipate in sharing imbalancing costs, thereby avoiding impro- per socialization of costs. Likewise, the regulation must take Decree Law 145 of December 23, 2013, ratified as amen- into account the specific characteristics of each resource in ded by Law 9 of February 21, 2014, introduced a measure terms of predicting the delivery of electricity to the grid. for distributing over time a portion of the costs associated The Authority, with Resolution 522 of October 23, 2014, with incentives for renewable resources. More specifically, reimposed imbalancing payments on NSRRs, in accordance those who generate electricity from renewable resources with the guidelines of the Council of State, starting from Ja- other than solar power are given the option of extending nuary 1, 2015. the incentive period for seven years in exchange for a reduc- tion in the incentive received. Non-participating producers continue to receive the incentives under the original terms (rate and duration), but lose the right to further incentives for the same location involving electricity rates for 10 years after the expiration of the incentive period. Decree Law 91 of June 24, 2014 established that, starting from January 1, 2015, the subsidized rate for energy gene- rated by solar plants with a nominal capacity of more than 200 kW be restructured over an incentive period of 24 years, Iberia and Latin America Division Spain General information rather than 20, without the imposition of interest. As an al- In order to address the rate deficit problem, Law 24/2013, ternative to restructuring the incentive, solar power produ- amending Law 54/1997, which governed the electricity cers may elect to reduce the incentive by 8% over the remai- market, was published on December 26, 2013. The law ning incentive period, that is, until the start of the 21st year established a new mechanism for market operation and of the incentive period. Those who accept the restructured the regime applicable to sector activities and operators. incentive will be able to take advantage of a subsidized loan More specifically, it introduced the key principle concerning from Cassa Depositi e Prestiti, in a maximum amount equal the economic and financial sustainability of the electrical to the difference between the incentive due at December system. According to this principle, revenues must be suf- 31, 2014 and the “restructured” incentive. ficient to cover all costs. In order to achieve this balance, Imbalancing for non- schedulable plants In addition to direct incentives (special rates and green certi- ficates), non-schedulable renewable resources (NSRRs) were exempt from fees for imbalancing (the difference between actual power delivered to the grid and planned power de- liveries defined on the basis of energy markets). With the a system for revising rates was introduced. The tempora- ry differences between system costs and revenues will be financed proportionally by all the participants in the payment system. The law recognized a deficit cap of €3.6 billion for 2013, which can be securitized, in accordance with the process set out in the regulation, and must be recovered within 15 years. The government budget will finance 50% of the annual compensation for the penin- sular and extra-peninsular electrical system (Sistema Eléc- 89 trico Insular y Extrapeninsular - SEIE). The law establishes a National coal subsidy compensation rate for regulated activities fixed during the initial regulatory period (which will end in December 2019) equal to the average yield on 10-year Spanish government securities plus 200 basis points (300 basis points for plants that generate electricity from renewable energy resources, co-generation and residual waste). Along with the publication of Law 24/2013, the go- vernment began to craft regulations governing: transport, distribution and generation within the SEIE, renewables, self-consumption, capacity payments and electricity sales. A portion of these measures were launched in 2013 and 2014. The gas sector is primarily regulated by Law 34/1998, amended by Law 12/2007. Regulated-activity deficit In order to quantify the deficit for 2013, which is subject to securitization, Law 24/2013 required that a supplementary payment be made prior to December 1, 2014. This payment was approved on November 26, 2014, resulting in a final defi- cit of €3.5 billion, securitized by financial institutions. Based upon the note issued by the Spanish national markets and competition commission (Comisión Nacional de los Mer- December 31, 2014 marked the conclusion of the period of effect of Royal Decree 134/2010, which governed the pro- cess of lifting the restrictions intended to promote a secure coal supply. The decision of the European Commission ap- proving the measure stated that the mechanism cannot be extended. Voluntary Price for Small Consumers (PVPC) Starting from April 2014, the Tarifa de Último recurso (TUR) was replaced by the Precio Voluntario para el Pequeño Con- sumidor (PVPC). This will be the price that the Comercializa- dora de Último Recurso (CUR) will be required to offer eligi- ble customers. The cost of producing electricity contained in the PVPC will be calculated based upon hourly prices reported in the day- ahead and intraday markets for the corresponding billing period. In addition to these costs the PVPC also covers the costs of adapting their systems and other supply-related costs. Furthermore, CURs are required to offer a fixed annual price as an alternative to customers eligible for the PVPC. cados y la Competencia - CNMC) and the calculations con- Social bonus tained in Regulation IET/2444/2014 of December 19, 2014, which sets out the electricity access rates for 2015, rate balan- ce should be achieved in 2014. Renewable energy resources, co- generation and waste Law 24/2013 introduced the social bonus as a public service obligation, the cost of which is borne by the parent compa- nies of companies that generate, distribute and sell electri- city in proportion to the sum of connection points and num- ber of customers served. Endesa’s share was set at 41.61% for 2014. In 2014, development of the regulatory framework for plants that generate electricity from renewable energy re- Voluntary service interruptions sources, co-generation and waste was completed: > the remuneration system guarantees a return capital em- ployed based upon the average yield on 10-year Spanish government securities plus 300 basis points. This remu- neration will be revised every six years; > in addition to the revenues received from the sale of elec- tricity on the market, plants will receive a fixed amount intended to help them recover their investment costs. Furthermore, if the production cost is higher than the expected market price, the producer will receive supple- mental remuneration to offset the difference; > for new plants, the incentive amount will be determined using competitive mechanisms. Voluntary service interruption is a compensated service, provided by those consumers who are to reduce their con- sumption when the system is under stress, making it possible to efficiently manage demand. Regulation IET/2013/2013 requires that voluntary service in- terruption be assigned through an auction managed by the System Operator so as to ensure effective performance of the service and to minimize the costs to the system. During November and December 2014, two auctions were held to assign the service. The cost for voluntary service interruption will amount to €508 million in 2015. This amount is no longer a regulated cost for the system since it is financed by the end customers who buy such electricity. 90 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSExtra-peninsular electrical systems Other regulatory changes Law 17/2013, which addresses the security of supply and On October 15, 2014, Law 18/2014 concerning urgent me- the promotion of competition in the island and extra-penin- asures for expansion, competition and efficiency enhance- sular electrical systems, established that new plants in these ment was approved. Among other things, the law reforms electrical systems owned by companies (or groups of com- the methods for remunerating the gas system with the goal panies) that hold more than 40% of the installed capacity in of making it economically sustainable and of minimizing the the specific electrical system receive the peninsular market costs for the end consumer. Furthermore, the law introdu- price (there are, however, a few exceptions to this rule). ces the National Energy Efficiency Fund to help achieve the The law also provides that the System Operator will be the energy efficiency targets. sole owner of pumping and regasification plants. During 2014, work on transposing the guidelines set out in Law 17/2013 continued. In the course of this, the proposed Latin America Royal Decree governing the generation and dispatching in the The Division operates in Latin America (Argentina, Brazil, island and extra-peninsular systems, currently under discus- Chile, Colombia and Peru) through Endesa. Each country has sion, establishes a system similar to the present one, which its own regulatory framework, the main features of which is comprised of a reimbursement of fixed costs (investment are described below for the various business activities. costs, operating costs and overheads) and a reimbursement for variable costs (to cover fuel costs and variable maintenan- ce and operating costs). In January 2015, the Ministry of Indu- Generation stry, Energy and Tourism presented a new draft of the Royal Under the regulations established by the competent autho- Decree, which also incorporates taxation drawn from Law rities (regulatory authorities and ministries) in the various 15/2012 on fiscal measures for energy sustainability. countries, operators are free to make their own decisions In addition, in accordance with Law 24/2013 on the elec- concerning investment in generation. Only in Argentina, fol- tricity sector, the remuneration rate for net investments is lowing the change in energy policy in recent years, is there a equal to the average yield on 10-year Spanish government regulatory framework that envisages greater public control securities plus 200 basis points. of investments. In Brazil plans for new generation capacity Distribution are imposed by ministerial order, and this capacity is develo- ped through auctions open to all. All of the countries have a centralized dispatching system Royal Decree 1048/2013 establishes the principles for the with a system marginal price. Usually, the merit order is cre- remuneration of the distribution of electricity with incor- ated based on variable production costs that are measured porates factors that will guide future compensation for this periodically, with the exception of Colombia, where the me- activity. The principles set out in the decree are as follows: rit order is based on the bids of market operators. > only the costs required to provide distribution service are Currently in Argentina and Peru, regulatory measures are remunerated; in place governing the formulation of the spot market pri- > mechanisms for controlling investments are established; ce. In Argentina, the measure, adopted in 2002 following > investments that have not yet been amortized or depre- the economic and energy crisis that affected that country, ciated are remunerated on the basis of the net value of is based on the assumption that there are no restrictions the asset and the rate of remuneration is equal to the on the supply of gas in the country. Nevertheless, in view average yield on Spanish government securities plus 200 of the current financial challenges faced by the wholesale basis points; market, the government has announced its intention to > in order to improve quality and reduce losses and fraud, modify the existing regulatory framework and, in 2013- the regulation includes incentive and penalty mechani- 2014, develop an electricity market based on a cost-plus sms; model. > during 2014 and lasting until the new regulatory period Long-term auction mechanisms are widely used for whole- begins, the remuneration for distribution was calculated sale energy and/or capacity sales. These systems guarantee by applying the methodology envisaged in the second continuity of supply and offer greater stability to generation annex to Royal Decree Law 9/2013. companies, with the expectation that this encourages new 91 investments. Long-term sales contracts (up to 30 years) are part in a variety of activities in the electricity sector (gene- used in Chile, Brazil, Peru and Colombia. In Brazil, the price ration, distribution, sales). Usually, greater restrictions are at which electricity is sold is based on the average long-term imposed on participation in transmission activities so as to auction prices for new and existing energy. In Colombia, the ensure that all operators have adequate access to the net- price is set by auction between the operators, which usually work. There are special restrictions on generation and distri- enter into medium-term contracts (up to four years). Final- bution companies holding stakes in transmission companies ly, a regulatory framework recently introduced in Chile and in Argentina, Chile and Colombia. Furthermore, in Colombia Peru allows distribution companies to sign long-term con- companies formed after 1994 may not adopt or maintain a tracts to sell electricity on regulated end-user markets. vertically-integrated structure. Chile, Peru and Brazil have also approved legislation to en- As to concentration within the industry, Argentina, Brazil courage the use of unconventional renewable resources, and Chile have not set any specific restrictions on vertical which sets out the objectives for the contribution of renewa- or horizontal integration, while in Peru business combina- ble resources to the energy mix and governs their generation. tions require prior authorization above certain thresholds. Distribution and sale In Colombia, no company may control more than 25% of the generation and sales markets, while in Brazil, as pre- viously mentioned, there are no explicit restrictions on in- Distribution is performed mainly under concession arrange- tegration in the electricity sector, although administrative ments, using long-term contracts (ranging from 30 to 95 ye- authorization is required for business combinations that ars or in some cases with unspecified terms), with regulations would result in market share of over 40%, or that involve a governing prices and network access. Distribution rates are company whose annual turnover exceeds BRL 400 million revised every four years (Chile, Peru and the region of Brazil (about €177 million). served by Coelce) or five years (Colombia and the region of Brazil served by Ampla). As a result of the Ley de Emergencia Económica (the economic emergency law) of 2002, no rate Chile reviews have yet been conducted in Argentina, despite rules mandating such revisions every five years. Law on interconnection On January 30, 2014, a law on interconnection derogating from In Chile, Brazil and Peru, distribution companies hold auctions the provisions of the General Law on electricity services was pro- to procure electricity for regulated market customers, while mulgated. Under the new provisions, the state may promote in Colombia sales companies negotiate prices directly with interconnection projects between the northern interconnected generation companies, passing through the average market system (SING) and the central interconnected system (SIC). price to end users. In general, all countries have implemen- ted a remuneration approach based on the RAB and a rate of return tied to the WACC, which ensures remuneration of the capital employed. Energy Agenda On May 15, 2014, President Michelle Bachelet presented the new Energy Agenda containing the primary energy policy The liberalization of the end-user market is generally at a targets. The document sets out the timetable and identifies fairly advanced stage, though not yet complete. Eligibility the parties involved in the next regulatory steps to be taken thresholds are set at 30 kW in Argentina (20% of volumes and lays out the plans of investments that the government in 2010), 3 MW in Brazil (30% of volumes), 0.3 MW in Chi- intends to make by the end of its term. le (40% of volumes), 0.1 MW in Colombia (35% of volumes More specifically, the Agenda envisages a more active role in 2010) and 0.2 MW in Peru (44% of volumes). Free-market by the state and calls for reducing marginal electricity costs customers can sign bilateral contracts with generation com- on Chile’s Sistema Interconectado Central, or “SIC” (30% re- panies for electricity. The regulatory authorities set the rates duction in the 2013 average by 2017), redefining the rules for regulated market customers. for auctions between generators and distributors in order Limits on concentration and vertical integration to reduce the resulting price (25% reduction over the next 10 years as compared with the 2013 price), setting a target for 45% of new installed capacity to be supplied by uncon- ventional renewable energy (ERNC) by 2025, establishing In principle, existing legislation permits companies to take the target of cutting energy consumption by 20% by 2020, 92 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSestablishing a system for participation in energy planning, which permits distributors to turn to the Conta de Desenvol- developing interconnection projects between the SIC and vimento Energético (CDE) to cover additional costs arising the SING (Sistema Interconectado del Norte Grande) and, fi- from their involuntary exposure to the spot market and nally, introducing a new law for the promotion of geother- from thermal dispatching. The Brazilian regulation guaran- mal power by 2015. tees full coverage during the subsequent rate cycle. Furthermore, the Agenda contains both short-term (aimed Also for this purpose, on April 2, 2014, the government at making access to regasification structures more transpa- published Decree 8.221, which, as an alternative to the re- rent) and long-term measures (aimed at expanding current covery of additional costs through the rate cycle, envisages capacity) for encouraging the use of natural gas in genera- providing immediate financial coverage for distributors by ting electricity. Argentina setting up a new regulated environmental trading account (Conta ACR), which will be managed by the Câmara de Co- mercialização de Energia Elétrica (CCEE). On April 28, 2014, following the receipt of bank financing, the CCEE reimbur- Resolution 529/2014 On May 20, 2014 the Secretaría de Energía published Reso- sed Ampla and Coelce for a part of the higher costs incurred as a result of this involuntary exposure to the spot market lution 529/2014, which updated, retroactively starting from price and the coverage of the higher costs of transporting February 2014, the remuneration received by generation the electricity from the generation plant. companies, previously established by Resolution 95/2013. On November 25, 2014, ANEEL approved the new ceiling In addition to raising the remuneration for fixed and varia- and floor on the differences settlement price (Precio de Li- ble costs, the new resolution introduces a new item inten- quidación de las Diferencias - PLD) for 2015. The decision ded to cover extraordinary maintenance costs, which will has generated a great deal of debate, beginning with public be paid through the issuance of LVFVDs (Liquidaciones de consultation 09/2014 and subsequently at the public hea- Venta con Fecha de Vencimiento a Definir). ring 54/2014. Secretaría de Energía Note 4012 On June 24, 2014 the Secretaría de Energía approved Note The main effect of the new limits is that of reducing the fi- nancial impact of possible future risks associated with con- tractual exposure on the spot market on distributors, as well 4012, which establishes the inflation rate (cost monitoring me- as mitigating the irreversible risk of business and financial chanism “MMC” index) for EDESUR for the period between Oc- exposure if production falls below contractual requirements tober 2013 and March 2014 and allows it to be offset against on producers. the corresponding debt in respect of the PUREE program for This settlement mechanism ensures that the 2014 deficit is the same period, as was previously allowed for the period offset by appropriate rates in 2015. between February 2013 and September 2013 by Note 6852. Finally, on December 10, 2014, an addendum to the conces- Brazil Technical note 112/2014-SRE-ANEEL - revi- sion of 2014-2018 Ampla rates On April 7, 2014, the regulator, ANEEL, approved technical note 112/2014-SRE-ANEEL concerning the revision of the rates applied by electricity distributor Ampla, taking effect as from March 15, 2014. It ensures recognition of all capital sion contract for Brazilian distributors (Ampla and Coelce) was signed, permitting the recognition of receivables associated with the 2014 deficit, ensuring their recovery through reco- gnition of the regulated assets as part of the capital that can be offset at the end of the concession period, in the event it is not possible to offset it during the contract period via the rate. Full recognition of ICMS costs On March 11, 2014, ANEEL, during the 7th ordinary meeting expenditure and operating costs incurred by the distributor. of its board, approved Coelce’s request to fully recognize The average increase for consumers will be equal to 2.64%, both future and past (from 2003 to 2013) sales tax (ICMS) applicable starting from April 8, 2014. paid to generators. Recovery of the amounts through rates Involuntary exposure of distributors to the spot market On March 7, 2014, the government published Decree 8.203, On May 20, 2014, the federal public prosecutor’s office re- quested that the adjustment of Coelce’s rates be suspen- ded. The action is aimed at stopping the recovery of ICMS will take place over four years, starting from April 2014. 93 through the rate, as established by ANEEL, thereby limiting delaying the closing of two nuclear power plants and intro- the rate increase to 13.68% (rather than 16.77%). ducing support instruments for conventional plants. International Division France Law 344/2014 - Suspension of regulated electricity and gas rates for industrial customers Romania Market coupling On April 29, 2014, the Romanian national regulator (ANRE) published the market coupling model integrating the Slo- vakian, Czech and Hungarian day-ahead trading markets. On September 11, 2014, ANRE approved the regulation establishing its rules of operation. The common trading On March 27, 2014, the country’s Official Journal publi- platform went live on November 19, 2014. shed Law 344/2014, establishing the gradual abolition of regulated electricity and gas rates for industrial consumers, starting from January 1, 2015 for the gas sector and from Regulated rates January 1, 2016 for the electricity sector. Based upon the calendar for liberalizing the Romanian re- On June 18, 2014, the energy transition bill, which sets out tail market, the electricity rates for residential customers the four basic guidelines for the new national energy stra- for 2014 remain regulated by 80% in the first Half of the tegy, was presented: year and 70% in the second Half. Non-residential custo- > cutting greenhouse gases by 40% by 2030 compared mers are no longer eligible for regulated rates starting with 1990 levels; from July 1, 2014. As of that date residential customers > achieving a renewable energy target of 32% of overall received a 2.6% reduction in the average final unit price, gross energy consumption by 2030 (around 40% of ove- mainly as a result of the 46% decline in the co-generation rall electricity consumption); tax. However, this reduction was partly offset by the intro- > reducing overall energy consumption by 50% by 2050; duction of a new tax on special construction, which affects > capping nuclear capacity at 63.2 GW and reducing the the cost of generation and has caused a 1.89% increase in share of nuclear power to 50% of domestic generation the regulated rate. by 2025. The bill was adopted by the National Assembly on October 14, 2014 and will be sent to the Senate for examination Energy efficiency within the next few months. Law 121 on energy efficiency, issued on July 18, 2014, impo- Belgium sed new obligations on sellers in terms of information that must be disclosed in billing. Furthermore, it establishes the criteria for launching the new smart metering systems and On March 26, 2014 the law creating a strategic reserve requires that distribution companies must have an energy designed to provide a secure energy supply was adopted. manager and perform an energy audit every four years. Under the law, an operator that decides to close a plant At the same time, the launch of smart meter pilot projects must notify the regulator well ahead of time and, if the was postponed from 2014 to 2015, with a resulting exten- regulator believes it necessary, it must present an offer to sion of the timeline for their wide-scale installation. make the plant available to the grid operator, who will use it to maintain balance in the system. The law prohibits the closure of thermal plants that are needed to provide a se- Distribution rates cure supply of energy. On November 5, 2014, the national regulator made the fol- On July 22, 2014, the tender for the construction of two new lowing changes to the methodology for determining the gas plants was concluded. However, no bid was accepted. distribution rates approved in 2013 for the third regulatory The new Belgian government, formed on October 10, 2014, period covering the years 2014 through 2018: announced various measures in the energy field, including > distributors will benefit from efficiencies achieved with 94 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSregard to grid losses at the end of the regulatory period, The heat market rather than on an annual basis; > for the fourth regulatory period (2019-2023), the Regu- latory Asset Base (RAB) recognized at the beginning of 2019 will no longer be indexed to the inflation rate; > the ex-post bonus of 0.5% on the Weighted Average Cost of Capital (WACC) for smart meters was eliminated. In addition, on December 12, 2014, the regulator, ANRE, reduced the real pre-tax WACC recognized from 8.52% to 7.7% starting from January 1, 2015. The new distribution rates for 2015 were published on December 19, 2014. Only the rates for the distribution company Banat experienced a reduction of 2-3%. Russia Government Decree 505/2014 - Decisions on wholesale and capacity rates On June 4, 2014, the government published the decree establishing that capacity market (KOM) prices will remain as indexed for 2014 (equal to 6.5%, in line with the increase in the CPI for 2013) and eliminating, starting from 2015, in- dexing for KOM prices and the regulated capacity and ener- gy rates for 2014 and 2015. Government Decree 820/2014 - Rules on the operation of the wholesale electricity market and capacity auctions for 2014 With Government Decree 820/2014, published on August 20, 2014, the Government presented more stringent requi- rements for participation in auctions, seeking to encourage generation companies to comply with planned maintenan- ce schedules and the orders of the system operator. The main measures envisaged in the decree include: > the elimination of capacity payments if limits set by the system operator for maintenance are exceeded (180 days a year or 360 days over four years); > an increase, as from January 2015, in the value of a num- ber of penalty coefficients pre-agreed with power gene- rators; > introduction of an option to submit capacity bids for plants in operation for more than 55 years and a live ste- am pressure of less than 9 megapascal only if they had a utilization factor of more than 8% the previous year. On October 2, 2014, Government Decree 1949/2014 was published, setting out the main stages of the reform of the heat market. With regard to the liberalization of prices for end users, the decree provides for a transition period du- ring which prices are defined with respect to the price of a domestic boiler (to be calculated using an as-yet undefined method) using annual indexing of rates. The decree also de- fines the “Unified Heat Suppliers” (UHS) who act as system operators, suppliers and commercial distributors in their respective zones. The implementation of the new market design should be completed by the start of 2023. The tran- sition period will begin in 2015, during which the detailed measures for implementing the reform are expected to be issued. On December 1, 2014, Federal Law 404/2014 concerning heat supplies was enacted. It represents one of the first im- plementing acts of the reform of the heat market. The law introduces, with effect from January 1, 2015, the possibility of entering into bilateral contracts for heat producers and consumers of steam and/or industrial users of directly con- nected heat, with prices being negotiable up to a ceiling de- termined on the basis of the relevant tariffs. As from January 1, 2018, it will also be possible to use bilateral contract for the supply of steam and/or heat at fully liberalized prices for directly connected industrial users, with the exception of users with an annual consumption of less than 50,000 giga- calories (GCal) (including residential customers). Start of trading on gas exchange On October 24, 2014, trading began on the first gas exchan- ge in Russia, established by the St. Petersburg International Mercantile Exchange (SPIMEX). For now, the only contracts traded are for volumes to be delivered in the subsequent month, but in the near future the exchange will also offer weekly and daily products. Gazprom and other indepen- dent gas producers are being encouraged to channel some of their output through the trading platform. The exchan- ge rules give Gazprom the right to handle half of the vo- lumes, with independent suppliers handling the remainder. For 2015, the goal is to achieve a trading volume of at least 35 billion cubic meters. The volumes of gas traded on the exchange have priority in transportation. The launch of the gas exchange is a key stage in the liberalization of the gas market and enhancing price transparency. 95 Slovakia General information > suppliers of auxiliary services and suppliers electric elec- tricity to the transmission grids, as well as hydroelectric plants with an installed capacity of less than 5 MW, were exempted from the mechanism; The wholesale market has been liberalized completely and > as regards the must-run obligation of the ENO plant, the has become increasingly liquid thanks to transparent, well- variable costs directly associated with the purchase of li- operated regional trading platforms. The Slovakia - Czech Republic - Hungary market coupling project seeks to improve gnite, the purchase of CO2 allowances and other costs (water, naphtha, other additives) will be considered as the conditions necessary to increase liquidity and short-term eligible costs and will be reimbursed. Fixed costs will balancing. be adjusted on the basis of the utilization factor of the More than half of the electricity generated in Slovakia is produ- plant. ced by nuclear power plants, following by conventional ther- mal and hydroelectric power. Lignite is the only domestic fossil fuel used in electricity generation. This is the reason its use is Energy efficiency considered to be in the “general economic interest” and is re- Directive 2012/27/EC on energy efficiency was transposed gulated under special rules, which govern the operation of the into national legislation in October 2014. The main ele- Nováky power plant (ENO). The remuneration system will be ments of the law transposing the directive are: the defini- in effect until 2020 and the local regulatory authority (URSO) tion of a regulatory framework for energy efficiency in order recognizes the costs incurred by the plant in an annual decree. to achieve the targets set out in the directive; the establi- The regulation of renewables generation underwent a swee- shment of non-binding targets for energy companies; the ping reform with the enactment of Law 309/2009. The sup- introduction of energy savings obligations in the residential port mechanism uses a feed-in tariff guaranteed for 15 years. sector; the definition and implementation of energy audits, All customers can choose their own supplier and the market energy services and energy performance contracts; and the has been entirely liberalized since 2007. Final prices for resi- specification of the rights and duties of national monitoring dential customers and small and medium-sized companies authorities. that consume no more than 30 MWh per year are still regula- ted by the local regulatory authority (URSO). On November 5, 2014, the government adopted a new ener- gy policy that sets the objectives and priorities for the energy Suspension of the Gabčíkovo hydroelectric plant sector through 2035, including the construction of a nucle- Following the Slovakian government’s decision to termina- ar power plant, the continuation of the rules applied to the te the contract between Slovenské elektrárne and the state- Nováky thermal plant and the extension of the operating per- owned company Vodohospodárska výstavba, operation of mit for the Slovenské elektrárne nuclear plant. the Gabčíkovo hydroelectric plant will be suspended as of March 10, 2015. Decree on the regulation of the electricity industry URSO Decree 221/2013 on the regulation of the electricity industry received final approval in July 2013. The main issues Renewable Energy Division addressed can be summarized as follows: > with regard to fees for access to the transmission and di- Bulgaria stribution grids (G-component), an access fee was levied on generators connected to the transmission or distribu- tion grids, to apply as from 2014. The fee was set at a maximum of €0.5/MWh for generators connected to the transmission grid, while for generators connected to the distribution grid the fee is calculated at 30% of the cost of the reserved capacity, with no cap; The Bulgarian incentive system primarily uses resource- based feed-in tariffs. On-shore wind plants, photovoltaic plants, hydroelectric plants of less than 10 MW and biomass plants of less than 5 MW are eligible for these incentives. The government made the following amendments to the law on renewable resources: > reduced the incentive period from 15 to 12 years for all 96 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSresources, except for photovoltaic, for which the period > reduction of feed-in tariffs for new plants entering service was cut from 25 to 20 years; after April 1, 2014; > the rates are calculated annually (June) and are held con- > elimination of the mechanism for adjusting the feed-in ta- stant during the entire incentive period (without inde- riffs at 25% of the consumer price index; xing); > extension of the validity of power purchase agreements > eligibility for incentives takes effect as from the date the (PPAs) by seven years on certain conditions. work is completed. In the course of approving the 2014 Budget Act, two further measures charged to renewables generators were introdu- Romania ced, which take effect as from January 2014: The main form of incentive in Romania for all renewable ener- > a tax of 20% on profits from the sale of electricity; gy resources is the green certificates system. The only excep- > a cap on the amount of electricity that can be sold to tion regards hydroelectric plants with a capacity of more than the national market operator (NEK) at the preferential 10 MW, which are not eligible for any incentive mechanism. prices. Sellers are required to purchase a specified share of renewa- In June 2014, the Bulgarian regulator began to require re- ble energy each year through the purchase of green certifica- newable energy producers to make imbalancing payments. tes on the basis of annual targets set by law for the share of In order to stabilize the balancing market, the government gross generation from renewables. The Romanian regulator announced a number of measures in December, such as in- publishes the mandatory share, revised to balance supply and troducing a ceiling on imbalancing prices (range of between demand. The value of the green certificates varies on the ba- €0 and €100/MWh) and a number of changes to the metho- sis of coefficients that differ by generation technology. The dology for calculating imbalancing costs. price of the green certificates is determined by law within a Greece specified range (cap & floor). Sellers are subject to penalties in the event of non-compliance. The measure temporarily modifying the green certificate system (EGO 57/2013) was is- The Greek incentive system uses a feed-in tariff differen- sued in June and received final approval in December 2013. It tiated by renewable energy resource. The incentives are temporary suspended (from July 1, 2013 to March 31, 2017) awarded through a 20-year contract for all resources, with trade in part of the green certificates due to renewables ge- the exception of roof-mounted photovoltaic systems with a nerators. Trading in the deferred green certificates could gra- capacity of less than 10 kW, which have a 25-year contract. dually resume after April 1, 2017 for photovoltaic and mini- Law 4092/2012, partially modified in May 2013 by Law hydro and after January 1, 2018 for wind, continuing until 4153/2013, introduced a temporary tax (July 2012 - June December 2020. 2014) on the revenues of existing renewable energy plants On December 16, 2013, Resolution 994/2013 was published. (equal to 10% for all renewable technologies except for It reduced the number of green certificates for new plants as photovoltaic, for which the tax is either 37-42% or 34-40% from January 1, 2014. More specifically, 1.5 certificates per based upon the plant’s commercial operation date). MWh of wind generation until 2017 (after 2017, 0.75 green On March 30, 2014, the Greek parliament approved Law certificates), 3 certificates per MWh of photovoltaic output 4254 – the so-called “New Deal” – seeking to rationalize sub- and 2.3 certificates per MWh of hydroelectric generation. sidies for renewables. The main changes, which took effect On March 19, 2014, the Romanian government reduced the as from April 1, 2014, include: share of electricity generated from renewables to be incenti- > a partial reduction of the revenues registered in 2013 vized in 2014 to 11.1% from 15%. with the issue of a credit note (10% on revenues from On June 11, 2014 the government approved a Decision, pu- wind and mini-hydro and 35-37.5% on revenues from blished in the Official Journal on July 4, 2014, that introduces photovoltaics); a mechanism for the exemption from the obligation to ac- > a reduction, as from April 1, 2014, of the feed-in tariffs quire green certificates for a number of large electricity users. (FITs) applied to existing plants of about 6% for wind and The measure was approved by the European Commission on mini-hydro plants and about 45% on photovoltaic plants, October 15, 2014. The support system, which has a term of and the consequent elimination of the Turnover Tax in for- 10 years and is applicable as from December 1, 2014, will re- ce until the end of June 2014; duce the obligation in a variable amount depending on the 97 level of consumption and expenditure on electricity of each the next phase of the process. With regard to the appeal of company, up to a maximum of 85%. the Ministerial Order, the Spanish Supreme Court was asked On December 12, 2014 the government approved the share for additional information and, once this information is pre- of electricity generated from renewables to be incentivized in sented, Enel Green Power will have 20 business days starting 2015 to 11.9% from 16%. from the date of receipt of such documentation in which to Spain submit its claims. On August 5, 2014, Ministerial Order IET/1459/2014 was pu- blished. It defines the parameters for remuneration and the The Spanish incentive system for renewables was mainly ba- mechanism for assigning specific remuneration rules to new sed on feed-in tariff and feed-in premium mechanisms. The wind and photovoltaic plants in the extra-peninsular electri- energy policies for both 2012 and 2013 mainly focused on cal systems. the need to resolve the “rate deficit” problem. That is why, with Royal Decree Law 1/2012, the Spanish government su- spended the pre-register procedures and eliminated incenti- Portugal ve mechanisms for new renewable energy projects not alrea- The rate system for wind farms is primarily based upon a feed- dy entered in the register. in tariff mechanism. On June 24, 2014, Decree Law 94/2014 Law 15/2012 introduced a tax of 7% on electricity generated was published in an effort to increase the capacity of existing with any technology and a royalty of 22% for the use of water wind farms that meet certain technical requires and wind re- for electricity generation (reduced by 90% for plants with a sources. The Decree Law governs the conditions for delive- capacity of less than 50 MW). ring power in excess of the connection capacity to the grid In 2013, Royal Decree 2/2013 eliminated the option of remu- and the associated remuneration. neration based on the market price plus a feed-in premium, leaving only the feed-in tariff option (price of energy inclu- ded) or the market price, with no premium, and modified the Latin America basis of the indexing used for the feed-in tariff for renewables The development of renewable energy resources in Latin and cogeneration. America is less diversified than in Europe. In particular, the As part of the reform of the electricity sector begun in July territory has historically had electric matrixes with a large 2013 through the adoption of Royal Decree Law 9/2013, on number of major hydroelectric plants, although in the last June 6, 2014 Royal Decree 413/2014, regulating production few years a gradual diversification has been under way. The from renewable energy resources, co-generation and resi- main remunerative approach involves long-term power pur- dual waste, was approved. The decree introduces a new re- chase agreements (PPA), tax incentives and facilitated tran- muneration system based on the concept of “reasonable pro- sport rates. fitability”, which is equal to the yield on 10-year government securities plus 300 basis points. For the first regulatory pe- riod, lasting six years starting from June 2013, the return on Brazil investment is expected to be 7.4% in real terms before taxes. The incentive system for renewable energy in Brazil was crea- The new system calls for remuneration based on the sale of ted in 2002 with the implementation of a feed-in mechanism electricity at the market price, to which supplemental annual (PROINFA), and was then harmonized with the sales system remuneration is added only in the event the market price is for conventional power using competitive auctions. The auc- not enough to ensure the established reasonable profitabili- tions are divided between new plants and existing plants and ty. Any supplemental remuneration is calculated based upon comprise: the standard operating and investment costs of an efficient, > Leilão Fontes Alternativas, reserved to renewable wind, well-run company and for clusters of plants. These standard biomass and hydroelectric technologies up to 50 MW; parameters were determined on June 20, 2014 with the ap- > Leilão Energia de Reserva, for which all projects that will en- proval of Ministerial Order IET/1045/2014. On July 8, 2014, ter operation within three years of the date on which the Enel Green Power filed an administrative appeal of Royal De- auction is held are eligible. These auctions are normally or- cree 413/2014 and Ministerial Order IET/1045/2014. As to ganized to increase reserve capacity and/or promote the the appeal of the Royal Decree, the company is waiting for development of certain technologies (such as renewables); 98 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONS > Leilão de Energia Nova, for which all projects that will All renewable energy resources are eligible for the purposes enter operation more than three years after the date on of meeting the requirement. For hydroelectric plants with a which the auction is held are eligible. These auctions are capacity of up to 40 MW, the system provides for a correcti- divided into A-3 and A-5 auctions on the basis of the ge- ve factor which counts all of the first 20 MW and a declining nerator’s obligation to supply the energy awarded after proportion of the capacity between 20 and 40 MW. The me- three or five years. chanism also establishes penalties for failure to achieve the An auction typically has two phases: the descending-clock mandatory share. phase in which the auction organizer establishes the opening In May 2014, the country’s new Energy Agenda was presen- price for the auction and the generators submit decreasing ted, setting out the primary energy policy targets, the next bids; and the pay-as-bid phase in which the remaining gene- regulatory steps to be taken and the plans of investments rators further reduce the price until the supply of power co- that the government intends to make in its next term. Spe- vers all the demand up for auction. The winning bidders are cifically with regard to renewables, the Agenda confirms the granted long-term contracts whose term varies by resource: target of cutting energy consumption by 20% by 2025 and 15 years for thermal biomass plants, 20 years for wind plants introduces an additional target that 45% of new capacity to and 30 years for hydroelectric plants. be installed between 2014-2025 be supplied by renewable Four auctions were held in 2014, resulting in contracts being power plants. signed for a total of more than 8 GW (of which more than 90% for new capacity). More specifically, on October 31, 2014, the first federal reserve auction, with a block of capacity reserved Mexico for solar power was held, with around 890 MW awarded. In 2014, the laws and regulations resulting from the im- On December 17, 2014, the Ministry of Energy published portant energy reform measures, published on December the new sector expansion plan (PDE2023 - Plano Decenal de 20, 2013 and intended to reorganize the energy and oil Expansão de Energia), which envisages significant growth in industries, were gradually approved and published. renewable capacity. Based upon the plan presented, the go- In August, the secondary energy reform legislation was pu- vernment estimates that wind capacity will rise an average of blished. With regard to the electricity sector, the following 2 GW per year until 2023, while solar and biomass capacity were published: will account for around 13% of total installed capacity in Bra- > Ley de la Industria Eléctrica, which calls for the introduc- zil by 2023. tion of a competitive power generation market and the On November 25, 2014, with Resolution 1832, the regulator, creation of an independent operator to manage the ANEEL, modified the range in which the differences settle- market, the introduction of a clean energy certificates ment price (Preço de liquidação das diferenças - PLD) is per- mechanism and the establishment of rules governing the mitted to fluctuate, setting the new floor (around €12/MWh) transition period prior to the official launch of the whole- and ceiling (around €151/MWh). sale power market; Chile > Ley de Energía Geotérmica, which defines a special regu- latory framework for exploration activities and electricity generation from geothermal resources, the mechanism Chile has a system mandating achievement of specified re- for identifying areas to be concessioned and the proce- newable energy targets for those who withdraw power for dures for awarding such concessions; sale through distributors or sales companies. The law sets two > Ley de la Comisión Federal de Electricidad, which redefi- different targets based upon the date the contract is signed: nes the role and structure of the former public electricity > for all power under contract between August 31, 2007 monopolist (Federal Electricity Commission - CFE). and June 30, 2013, renewable resources are to account On October 31, 2014 the relative regulations, including the for 5% of the electricity starting from 2014, an amount guidelines for a “Certificados de Energía Limpia” mechanism that will increase by 0.5% per year to reach a share of to achieve the target of 35% of electricity generated from 10% by 2024; non-polluting resources by 2024, were published. This re- > for all contracts signed starting from July 1, 2013, Law quirement will come into force starting from 2018 and the 20698 of 2013 sets a target of 20% by 2025 to be achie- corresponding target will be determined by March 2015. ved by gradually raising the initial share of 6% in 2014. In preparation for the launch of the wholesale market, 99 scheduled for January 1, 2016, the independent mar- Panama ket operator (CENACE - Centro Nacional de Control de la Energía) was officially established. With regard to the remuneration of plants generating po- wer from renewable resources, the regulatory framework prior to the reform was based upon the renewables pro- motion law (LAERFTE), published in 2008. Specifically, pri- vate investors participated as either as independent power producers who sold all their output to the Comisión Fede- ral de Electricidad using auction mechanisms, self-suppliers or small-scale producers (with an installed capacity of less than 30 MW) who sold their output at rates governed by the Comisión Federal de Electricidad. In line with the new regulatory structure: > plants in operation on the date the market is launched and those party to an interconnection contract will be permitted to maintain the remuneration arrangement they had prior to the reform; > new plants and those that are not yet party to an inter- connection contract will be able to take advantage of a different sales system introduced under the reform (auctions for supplying regulated customers, bilateral contract with free-market customers and wholesale spot On June 12, 2013, in line with an energy policy directed at diversifying the energy mix, the Panamanian government ratified Law 605, which establishes tax incentives to support the development of solar power. The new incentives pro- vide for an exemption from import tax, tax credits and the option of acceleration depreciation. On March 31, 2014, the President of the Republic published Resolution 41, authorizing payment of $75 million, to be spread out between March 31, 2014 and December 31, 2016, to the Enel Group hydroelectric plant Fortuna. This amount was authorized as a result of production restric- tions imposed by the government on the plant due to the government’s delay in expanding the Panama transmission grid. On October 22, 2014 Resolution AN 7966 was published, introducing the option of exporting electricity through the Regional Electricity Market. The measure will allow market operators to bypass the current limitations of the transmis- sion grid in expectation of its expansion, which is scheduled to occur between 2016 and 2017. market) that is currently being defined. Costa Rica In the first few months of 2015 the Federal Electricity Com- mission (Comisión Federal de Electricidad) will identify the sites where it plans to autonomously develop geothermal power and those sites that will later be auctioned off to private investors for development (Ronda Zero). Central America SIEPAC - Regional Electricity Market The final section of the SIEPAC transmission line for the Re- gional Electricity Market (REM), officially launched on June 1, 2013 by the regional regulator (CRIE - Comisión Regional de Interconexión Eléctrica), was completed on September 29, 2014. During the second Half of 2014, CRIE also issued a series of resolutions designed to complete the regional regulations and terminate the transitional system in place since March 2013. The implementation of regional regulations marks the first step towards the consolidation of the rules gover- ning cross-border trade in electricity among six countries in Central America (Guatemala, El Salvador, Honduras, Nicara- gua, Costa Rica and Panama). The regulator, ARESEP, modified the rates for new and exi- sting renewable power plants based upon the results of a series of public consultations held in November. The chan- ges will have a positive impact on existing plants (hydro- electric and wind), the rates for which were increased by 13%. However, the effect on new plants will be negative since the rate was reduced by 16% compared with the 2014 level. USA The United States has a two-level renewables incentive sy- stem. The federal level envisages various types of support, including tax incentives for production and investment (the Production Tax Credit and the Investment Tax Credit), acce- lerated depreciation and federal subsidies. At the state level, the main incentive is a Renewable Portfolio Standard (RPS) mechanism, i.e. a system of mandatory percentages of ge- neration from renewables for utilities, with targets differing from state to state. Most states have adopted systems of tra- dable certificates but there is no corresponding platform acti- ve at the federal level. The Production Tax Credit (PTC), the tax incentive to encou- rage renewable electricity generation, expired at the end 100 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSof 2013. It was renewed by the Tax Increase Prevention Act Purchase Agreement with the national utility, Eskom, with of December 20, 2014. Thanks to this extension, eligible payments guaranteed by the government. projects that were “under construction” by December 31, 2014 could qualify for the PTC. The Internal Revenue Service (IRS) is expected to issue additional guidelines defining the concept of “continuous efforts”, which is required for quali- fication, in the first and second Quarter of 2015. The Investment Tax Credit, the tax incentive for investment in renewables, is still applicable to plants that enter service by December 31, 2016. On June 2, 2014, the Environmental Protection Agency (EPA) published a proposed regulation for fossil-fuel power plants currently in operation that aims to achieve a 30% re- duction in CO2 emissions by 2030 as compared with 2005 levels. Specific emission-reduction targets were established for each state and they were given ample flexibility in the policies and strategies to be adopted. The consultation pha- se has been completed and the proposal is currently being revised, but the EPA expects it to be definitively approved by the third Quarter of 2015. In that case, the states will have until June 2016 to present their plans for reaching the tar- gets to the EPA. South Africa In May 2011, South Africa approved a target of 17.8 GW of installed renewable capacity by 2030 based upon the long- term energy strategy set out in the 2010-2030 Integrated Resource Plan. The primary tool to be used in achieving this target is the Renewable Energy Independent Power Pro- ducer Procurement (REIPPPP), an auction system launched in 2011 that seeks to install around 7 GW in new renew- able capacity between 2014 and 2020 (hydroelectric <40 MW, concentrated solar and photovoltaic, wind, biomass, biogas and landfill gas power). Currently, fiive rounds (bid windows) are scheduled, four of which have already been held. As of now, around 5,000 MW of capacity has been awarded, including Round 4, the winners of which will be announced in the first Quarter of 2015. After a pre-qualification phase, which is concerned with technical and financial issues, qualified projects are cho- sen based upon two criteria: the bid price (weighted 70%) and the economic development content of the project (weighted 30%). The latter is based upon a series of pa- rameters focusing on the economic development of the country, including local content and the creation of jobs for South Africans, especially non-whites. The winners will be invited to enter into a 20-year Power 101 Main risks and uncertainties Due to the nature of its business, the Group is exposed to country/business line level, for managing and controlling a variety of risks, notably market risks, credit risk, liquidity financial risks (market, credit and liquidity risks) that assign risk, industrial and environmental risks and regulatory risk. strategic policy-making and supervision responsibilities for In order to mitigate its exposure to these risks, the Group risk management to special committees, establish policies conducts specific analysis, monitoring, management and and procedures for identifying risk management and con- control activities, as described in this section. trol roles and responsibilities and define a system of opera- From an organizational standpoint, Enel adopts governance tional limits. arrangements, both at the Group level and at the Division/ Risks connected with market liberalization and regulatory developments The energy markets in which the Group operates are cur- generation mix, improving the competitiveness of plants rently undergoing gradual liberalization, which is being im- through cost leadership, seeking out new high-potential plemented using different approaches and timetables from markets and developing renewable energy resources with country to country. appropriate investment plans in a variety of countries. As a result of these processes, the Group is exposed to incre- The Group often operates in regulated markets or regulated asing competition from new entrants and the development regimes, and changes in the rules governing operations in of organized markets. such markets and regimes, and the associated instructions The business risks generated by the natural participation and requirements with which the Group must comply, can of the Group in such markets have been addressed by in- impact our operations and performance. tegrating along the value chain, with a greater drive for In order to mitigate the risks that such factors can engender, technological innovation, diversification and geographical Enel has forged closer relationships with local government expansion. More specifically, the initiatives taken have incre- and regulatory bodies, adopting a transparent, collabo- ased the customer base in the free market, with the aim of rative and proactive approach in tackling and eliminating integrating downstream into final markets, optimizing the sources of instability in regulatory arrangements. Risks connected with CO2 emissions In addition to being one of the factors with the largest po- tential impact on Group operations, emissions of carbon dioxide (CO2) are also one of the greatest challenges facing the Group in safeguarding the environment. tigate the risk factors associated with CO2 regulations, the Group monitors the development and implementation of EU and Italian legislation, diversifies its generation mix to- wards the use of low-carbon technologies and resources, EU legislation governing the emissions trading scheme im- with a focus on renewables and nuclear power, develops poses costs for the electricity industry, costs that could rise strategies to acquire allowances at competitive prices and, substantially in the future. In this context, the instability of above all, enhances the environmental performance of its the emissions allowance market accentuates the difficulties generation plants, increasing their energy efficiency. of managing and monitoring the situation. In order to mi- 102 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSMarket risks As part of its operations, Enel is exposed to a variety of separation of units responsible for operations and those in market risks, notably the risk of changes in interest rates, charge of managing risk. exchange rates and commodity prices. The financial risk governance system also defines a system The financial risk governance arrangements adopted by the of operating limits at the Group and individual Division/ Group establish specific internal committees responsible for business line levels for the various types of risk, which are policy setting and supervision of risk management, as well monitored periodically by risk management units. as specific policies at the Group and individual Division/bu- To maintain market risk within the limits set out in the siness line levels that establish the roles and responsibilities Group’s risk management policies, Enel uses derivatives for risk management, monitoring and control processes, obtained in the market. ensuring compliance with the principle of organizational Risks connected with commodity prices and supply continuity Given the nature of its business, Enel is exposed to changes risk and the implementation of a hedging strategy using in the prices of fuel and electricity, which can have a signifi- derivatives. cant impact on its results. For a more detailed examination of commodity risk mana- To mitigate this exposure, the Group has developed a stra- gement and the outstanding derivatives portfolio, please tegy of stabilizing margins by contracting for supplies of see note 41 of the consolidated financial statements. fuel and the delivery of electricity to end users or wholesa- In order to limit the risk of interruptions in fuel supplies, lers in advance. the Group has diversified fuel sources, using suppliers from The Group has also implemented a formal procedure that different geographical areas and encouraging the construc- provides for the measurement of the residual commodity tion of transportation and storage infrastructure. risk, the specification of a ceiling for maximum acceptable Exchange rate risk The Group is exposed to the risk that changes in the exchan- > financial assets/liabilities measured at fair value. ge rates between the euro and the main other currencies The consolidated financial statements are also exposed to could give rise to adverse changes in the euro value of per- the exchange rate risk associated with the consolidation va- formance and financial aggregates denominated in foreign lues of equity investments denominated in currencies other currencies. The exposure to exchange rate risk, which is than the euro (translation risk). mainly denominated in US dollars, is attributable to: Exchange rate risk is managed within the Group policies for > cash flows in respect of the purchase or sale of fuel or managing financial risks, which provide for the stabilization electricity on international markets; of the effects of changes in exchange rates with the exclu- > cash flows in respect of investments in foreign currency, sion of translation risk. To this end, the Group has develo- dividends from unconsolidated foreign subsidiaries or ped operational processes that ensure the systematic cove- the purchase or sale of equity investments; rage of exposures through appropriate hedging strategies, > financial liabilities assumed by the holding company or which typically involve the use of financial derivatives. the individual subsidiaries denominated in currencies For more details, please see note 41 of the consolidated fi- other than the currency of account or functional currency nancial statements. of the company holding the liability; 103 Interest rate risk The nature of the financial risks to which the Group is expo- Our interest rate risk management policy seeks to maintain sed is such that changes in interest rates could give rise to the risk profile established within the framework of the for- increases in net financial expense or adverse changes in the mal risk governance procedures of the Group, curbing bor- value of assets/liabilities measured at fair value. rowing costs over time and limiting the volatility of results. The main source of exposure to interest rate risk for the Enel This goal is pursued through the strategic diversification of Group comes from the fluctuation in the interest rates as- the nature of our financial assets and liabilities and the use sociated with its floating-rate debt and from the need to of derivatives on over-the-counter markets. refinance debt falling due on changing market terms and For more details, please see note 41 of the consolidated fi- conditions. nancial statements. Credit risk The Group’s commercial, commodity and financial opera- As part of the management of credit risk even more effec- tions expose it to credit risk, i.e. the possibility that an unex- tively, for a number of years the Group has carried out non- pected change in the creditworthiness of a counterparty recourse assignments of receivables for specific segments of could impact the creditor position, in terms of insolvency the commercial portfolio. Partly in view of the macroecono- (default risk) or changes in its market value (spread risk). mic environment, as from 2011 the use of assignments was Beginning in the last few years, with the instability and extended both geographically and to invoiced receivables uncertainty of the financial markets and the global econo- and receivables to be invoiced of companies operating in mic crisis, average payment times for trade receivables by other segments of the electricity industry than retail sales counterparties have increased. In order to pursue the mini- (such as, for example, receivables from generation activities, mization of credit risk, the Group’s general policy calls for sales of electricity as part of energy management opera- the application of uniform criteria in all the main regions/ tions, the sale of green certificates or electricity transport countries/business lines for measuring credit exposures in services). order to promptly identify any deterioration in credit quality All of the above transactions are considered as non-recourse – determining any mitigation actions to implement – and transactions for accounting purposes and therefore invol- to enable the consolidation and monitoring of exposures at ved the full derecognition of the corresponding assigned the Group level. assets from the balance sheet, as the risks and rewards asso- As regards credit risk in respect of commodities transactions, ciated with them have been transferred. Enel uses a uniform counterparty assessment system across the Group, which has also been implemented at the local level. Beginning in 2013, portfolio limits approved by the Liquidity risk Group Credit Risk Committee were applied and monitored by Liquidity risk is the risk that the Group, while solvent, would region/country/business line and at the consolidated level. not be able to discharge its obligations in a timely manner As to credit risk in respect of financial transactions, including or would only be able to do so on unfavorable terms owing those involving derivatives, risk is minimized by selecting to factors connected to the perception of its riskiness by the counterparties with high credit ratings from among lea- market or to systemic crises (credit crunches, sovereign debt ding Italian and international financial institutions, portfo- crises, etc.). lio diversification, entering into margin agreements for the As part of the Group’s formal risk governance procedures, exchange of cash collateral, and/or the use of netting arran- risk management policies are designed to maintain a level gements. In 2014, operating limits on credit risk approved of liquidity sufficient to meet its obligations over a specified by the Group Financial Risk Committee were again applied time horizon, without having recourse to additional sources and monitored, using an internal valuation system, at both of financing, as well as to maintain a prudential liquidity buf- the individual region/country/business line level and at the fer sufficient to meet unexpected obligations. In addition, in consolidated level. order to ensure that the Group can discharge its medium and 104 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSlong-term commitments, Enel pursues a borrowing strategy efforts and the large contribution of regulated activities. that provides for a diversified structure of financing sources At the end of the year Enel’s rating was: (i) “BBB” for Stan- to which it can turn and a balanced maturity profile. Liquidity dard & Poor’s with a stable outlook; (ii) “BBB+”, with a stable requirements are primarily met through cash flows genera- outlook for Fitch; and (iii) “Baa2”, with a negative outlook ted by normal operations, ensuring the appropriate manage- for Moody’s. ment of any excess liquidity. In order to optimize liquidity management within the Group, Enel SpA (directly and through its subsidiary Enel Finance Country risk International NV) meets the cash needs of the Group com- By now, more than 50% of the revenues of the Enel Group panies through centralized access to the money and capital are generated outside Italy. The major international expan- markets and provides management and coordination servi- sion of the Group – located, among other countries, in Latin ces for Group companies that can access market financing America and Russia – therefore requires the Group to assess directly. its exposure to country risk, namely the macroeconomic, Underscoring the Enel Group’s continued capacity to access financial, regulatory, market, geopolitical and social risks the credit market despite the recent crisis in the financial mar- whose manifestation could have a negative impact on inco- kets, in 2014 the Group carried out bond issues with a total me or jeopardize corporate assets. In order to mitigate this value of €2.4 billion, of which €1.6 billion by Enel SpA, in the form of risk, the Group has adopted a country risk calcula- form of hybrid instruments, and €436 million by Endesa Chile tion model (using a shadow rating approach) that specifi- in the form of Yankee Bonds. cally monitors the level of country risk in the areas in which In the final Quarter of 2014, Enel Finance International NV the Group operates. initiated a liability management program in the total amount Overall, the world economy experienced a hesitant recovery of €4 billion, to be executed by December 31, 2015. It is in- in economic activity in 2014, and the risk of a relapse in the tended to optimize the management of excess liquidity, ena- next two years still threatens. World trade, which is expan- bling the reduction of gross debt, lowering the average cost ding more slowly than in the period before the financial cri- of funds and improving the maturity profile. sis six years ago, struggled to gain traction until the autumn The Company subsequently carried out its first transaction of last year. with the repurchase of its own bonds with a total nominal In Europe, growth in 2015 is forecast to rise to 1.7% for the value of €762 million. European Union as a whole and 1.3% for the euro area, For more information, please see note 40 “Financial instru- while in 2016 those rates are expected to rise to 2.1% and ments” to the consolidated financial statements. 1.9% respectively, thanks to stronger internal and external Rating risk demand, a very accommodative monetary policy stance and a broadly neutral fiscal stance. The prospects for growth in Europe as a whole are still dam- Credit ratings, which are assigned by rating agencies, impact pened by an unfavorable environment for investment and the possibility of a company to access the various sources of high unemployment. Key developments last autumn impro- financing and the associated cost of that financing. Any re- ved the short-term outlook, however: oil prices fell more ra- duction in the rating could limit access to the capital market pidly than before, the euro depreciated sharply, the ECB an- and increase finance costs, with a negative impact on the nounced it would begin a quantitative easing program and performance and financial situation of the company. the European Commission presented its investment plan for At the end of 2014, despite the downgrade of Italian Repu- Europe. All of these factors will have a positive impact on blic securities (BBB- with a stable outlook, compared with growth. BBB and a negative outlook previously), Standard & Poor’s The macroeconomic projections for the US economy are confirmed Enel’s rating at BBB with a stable outlook. very optimistic, reflecting the highly expansionary monetary That decision mainly reflected the Group’s broad geographi- policy stance and the very positive data on unemployment, cal and technological diversification outside Europe, as well which has fallen considerably. as the expectation that the Company will achieve and main- The outlook for other areas of the world is mixed, althou- tain performance and financial targets commensurate with gh still positive. In Japan, the increase in value-added tax in its current rating as a result of its continued deleveraging April 2014 harmed the economy more than expected. Given 105 the expansionary stance of monetary policy, in the coming Any residual risk is managed using specific insurance poli- Quarters the Japanese economy should return to moderate cies to protect corporate assets and provide liability covera- growth. In China, economic activity has remained relatively ge in the event of harm caused to third parties by accidents, robust, but is structurally low (6-7%), which is hardly surpri- including pollution, that may occur during the production sing given the level of development the country has achie- and distribution of electricity and gas. ved and the potential constraint represented by the labor As part of its strategy of maintaining and developing its cost force. The situation in other major emerging economies is leadership in the markets in which it has generation ope- varied: while the Indian economy is picking up steam, the rations, the Group is involved in numerous projects for the recovery in Brazil is shaky. Once again, expectations for Rus- development, improvement and reconversion of its plants. sia have deteriorated: as a result of the geopolitical tensions These projects are exposed to the risks commonly associa- over Ukraine and the low price of oil, the country has slipped ted with construction activities, which the Group mitigates into a recession that threatens to trigger a foreign exchange by requiring its suppliers to provide specific guarantees and, crisis. The state of alert in the Middle East and North Afri- where possible, obtaining insurance coverage against all ca remains high owing to developments in Syria and Libya, phases of construction risk. which could trigger lasting changes in regional and global New risk assessment models were also developed for balances, with consequent uncertainty that could impact project risk management, which enable the Group, as part the global macroeconomic environment. of its capital intensive initiatives, to measure the quantitati- ve and statistical aspects of postponements of the commer- cial operation date and the potential increase in investment costs due to the associated risks, including those posed by environmental factors. With regard to nuclear power generation, Enel operates in Slovakia through Slovenské elektrárne and in Spain throu- gh Endesa. In relation to its nuclear activities, the Group is exposed to operational risk and may face additional costs because of, inter alia, accidents, safety violations, acts of ter- rorism, natural disasters, equipment malfunctions, malfun- ctions in the storage, movement, transport and treatment of nuclear substances and materials. In the countries where Enel has nuclear operations, specific laws based on interna- tional conventions require operators to obtain insurance co- verage for liability for risks associated with the use and tran- sport of nuclear fuel, with coverage ceilings and other terms and conditions set by law. Other mitigating measures have been taken in accordance with international best practices. Industrial and environmental risks Breakdowns or accidents that temporarily interrupt opera- tions at Enel’s plants represent an additional risk associated with the Group’s business. Industrial and environmental risks are managed by the Global Generation business line using statistical modeling techniques, which assess risks in probabilistic and moneta- ry terms for each plant/grid/project. In addition to typically industrial risk models (business interruption, operation and maintenance), Enel has developed models to measure di- saster risks linked to seismic events, a model for assessing fire risks and environmental models to assess the exposure of each plant to risks involving all possible segments of the environment, such as the air, water, land and underground. All of this is done with the objective of identifying the most critical areas and preparing appropriate instruments to safe- guard the industrial value of plants. During 2014, Enel developed an assessment model for in- dustrial and environmental risks for the Upstream Gas area. In addition, we also conducted exercises to assess risks as- sociated with the operation of the distribution networks managed by the Infrastructure and Networks business line. In order to mitigate such risks, the Group adopts leading prevention and protection strategies, including preventive and predictive maintenance techniques and technology surveys to identify and control risks, and recourse to inter- national best practices. 106 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSOutlook In order to compete effectively in the macroeconomic envi- include managing new smart distribution grids and expan- ronment of today and tomorrow and, at the same time, seize ding our range of value-added products and services in retail new business opportunities in the energy industry, the Enel markets. The active management of our portfolio will be tar- Group is shifting to a new industrial strategy based on four geted at the disposal of non-strategic assets and subsequent key pillars: i) achieving high levels of operating efficiency reinvestment of the proceeds in order to create value and through the optimal management of the costs and mainte- rationalize the Group structure. Finally, Enel has decided to nance capex of our assets; ii) reviving the Group’s “industrial” introduce a new dividend policy, which lends certainty to the growth with a sharp increase in growth capex; iii) actively ma- pay-out in the short term and creates scope for substantial naging our portfolio with a view to creating value; and iv) the growth in the medium to long term. Group’s new dividend policy. The Enel Group’s new business The Group has a unique presence in the world utilities mar- plan therefore sets out the priorities and action plans neces- ket, thanks both to its size in absolute terms and its highly sary to pursue these objectives. In order to boost operating diversified base of generation technologies. In addition, we efficiency, we will leverage our new global business lines in have established a well-balanced position along the entire order to share internal best practices for optimizing opera- value chain and are extremely well diversified geographically. ting expenses and managing assets efficiently. The new path Our new organizational structure will enable management to industrial growth will be sustained by major investment in to exploit these strengths effectively, expanding our sources promising growth markets and businesses, beginning with of value creation more rapidly and more incisively in the hi- renewables, by expanding our positioning in areas where we ghly turbulent and diversified evolution of the global envi- are already operating, such as in Latin America, and entering ronment in which we operate. new countries, partly with a view to subsequently positio- On the basis of the key factors outlined above, the targets set ning ourselves in other businesses. Other growth areas will out in the business plan are reported below. 2016 ~15.0 ~3.1 0.18 55 24 2017 ~15.6 ~3.4 60 27 CAGR 2015-2019 ~3% ~10% ~17% ~9% Recurring EBITDA Net ordinary income Minimum dividend Pay-out Operating cash flow/Net financial debt Billions of euro Billions of euro euro/share % % Gross capex Cash flow from operations Free cash flow Billions of euro Billions of euro Billions of euro Net free cash flow (after dividends) Billions of euro 2015 ~15.0 ~3.0 0.16 50 21 2015-2019 34.0 ~49.5 ~15.5 ~1.5 107 Other information Non-EU subsidiaries At the date of approval by the Board of Directors of the fi- Enersis SA (a Chilean company belonging to the Endesa nancial statements of Enel SpA for 2014 – March 18, 2015 Group); and 17) Enel Russia (a Russian subsidiary of Enel – the Enel Group meets the “conditions for the listing of sha- Investment Holding BV); res of companies with control over companies established > the balance sheet and income statement for the 2014 fi- and regulated under the law of non-EU countries” (herei- nancial statements of the above companies included in nafter “non-EU subsidiaries”) established by CONSOB with the reporting package used for the purpose of preparing Article 36 of the Market Rules (approved with Resolution the consolidated financial statements of the Enel Group 16530 of June 25, 2008, as amended). will be made available to the public by Enel SpA (pur- Specifically, we report that: suant to Article 36, paragraph 1a) of the CONSOB Market > in application of the materiality criteria for the purposes Rules) at least 15 days prior to the day scheduled for the of consolidation provided for in Article 36, paragraph 2, Ordinary Shareholders’ Meeting called to approve the of the CONSOB Market Rules, 17 non-EU subsidiaries of 2014 financial statements, together with the summary the Enel Group have been identified to which the rules in statements showing the essential data of the latest an- question apply on the basis of the consolidated accounts nual financial statements of subsidiaries and associated of the Enel Group at December 31, 2013. companies (pursuant to the applicable provisions of Ar- They are: 1) Ampla Energia e Serviços SA (a Brazilian com- ticle 77, paragraph 2-bis, of the CONSOB Issuers Regula- pany belonging to the Endesa Group); 2) Chilectra SA (a tion approved with Resolution 11971 of May 14, 1999, Chilean company belonging to the Endesa Group); 3) as amended); Compañía Distribuidora y Comercializadora de Energía > the articles of association and composition and powers - Condensa SA ESP (a Colombian company belonging of the control bodies from all the above subsidiaries have to the Endesa Group); 4) Companhia de Interconexão been obtained by Enel SpA and are available in updated Energética SA - CIEN (a Brazilian company belonging to form to CONSOB where the latter should request such in- the Endesa Group); 5) Compañía Eléctrica do Tarapacá formation for supervisory purposes (pursuant to Article SA - Celta (a Chilean company belonging to the Endesa 36, paragraph 1b) of the CONSOB Market Rules); Group); 6) Companhia Energética do Cearà - Coelce SA > Enel SpA has verified that the above subsidiaries: (a Brazilian company belonging to the Endesa Group); - provide the auditor of the Parent Company, Enel SpA, 7) Edegel SA (a Peruvian company belonging to the En- with information necessary to perform annual and in- desa Group); 8) Emgesa SA ESP (a Colombian company terim audits of Enel SpA (pursuant to Article 36, para- belonging to the Endesa Group); 9) Empresa de Distri- graph 1 c-i) of the CONSOB Market Rules); bución Eléctrica de Lima Norte - Edelnor SAA (a Peruvian - use an administrative and accounting system appro- company belonging to the Endesa Group); 10) Empresa priate for regular reporting to the management and Distribuidora Sur - Edesur SA (an Argentine company auditor of the Parent Company, Enel SpA, of income belonging to the Endesa Group); 11) Empresa Nacional statement, balance sheet and financial data necessa- de Electricidad - Endesa Chile SA (a Chilean company ry for preparation of the consolidated financial state- belonging to the Endesa Group); 12) Endesa Brasil SA (a ments (pursuant to Article 36, paragraph 1 c-ii) of the Brazilian company belonging to the Endesa Group); 13) CONSOB Market Rules). Enel Green Power Chile Limitada (a Chilean company be- longing to the Enel Green Power Group); 14) Enel Green Power North America Inc. (a US company belonging to the Enel Green Power Group); 15) Enel Kansas LLC (a US company belonging to the Enel Green Power Group); 16) 108 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSApproval of the financial statements The Shareholders’ Meeting to approve the financial state- mit of 120 days from the close of the financial year, permitted ments, as provided for by Article 9.2 of the bylaws of Enel under Article 2364, paragraph 2, of the Italian Civil Code, is SpA, shall be called within 180 days of the close of the finan- justified by the fact that the Company is required to prepare cial year. The use of that time limit rather than the ordinary li- consolidated financial statements. Disclosures on financial instruments The disclosures on financial instruments required by Article ment”, note 33 “Derivatives and hedge accounting” and note 2428, paragraph 2, no. 6-bis of the Civil Code are reported 34 “Fair value measurement” to the separate financial state- in note 31 “Financial instruments”, note 32 “Risk manage- ments of Enel SpA. Transactions with related parties For more information on transactions with related parties, please see note 35 to the separate financial statements of Enel SpA. Own shares The Company does not hold treasury shares nor did it engage in transactions involving own shares during the year. Atypical or unusual operations Pursuant to the CONSOB Notice of July 28, 2006, Enel did not the transfer price or timing could give rise to doubts concer- carry out any atypical or unusual operations in 2014. ning the propriety and/or completeness of disclosure, con- Such operations include transactions whose significance, size, flicts of interest, preservation of company assets or protection nature of the counterparties, object, method for calculating of minority shareholders. Subsequent events Significant events following the close of the year are discussed in note 50 to the consolidated financial statements. 109 110 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSSustainability 111 How we operate At Enel, sustainability is a strategic, integrated part of busi- ting and managing any socio-environmental impact. ness management, development and growth with a view Framing this entire process are the principles of ethics, to creating value over the medium to long term, both for transparency, anti-corruption, human rights and safety the Company and for all of our stakeholders. that have always been a distinctive feature of Enel’s ope- rations and which are a part of policies and standards of For the first time under Enel’s new organizational struc- conduct that are applicable throughout the Group. ture, a specific Innovation & Sustainability unit reports directly to the Chief Executive Officer so as to undersco- In 2012, in recognition of the latest international trends re the fact that these two areas of activity make an inte- and innovations, Enel began a process of identifying and gral contribution to creating a new model of business and assessing the interests and expectations of the various competitiveness for the Company. At the country level, we stakeholders and integrating them into business strategy have also appointed sustainability managers, who report in accordance with the procedures and processes throu- directly to the country manager in order to implement the gh which the Company is meeting their expectations (i.e. Group’s strategy guidelines and policies at the local level the materiality analyses). The union of these two points of and to develop the sustainability projects and other activi- view will make it possible to identify the issues that, due to ties specific to each area. their relevance and significance, are of central importance It is a model aimed at achieving an increasing level of in- to both Enel and our stakeholders and to then verify the tegration of sustainability within our business and related degree of alignment or misalignment between external strategies by defining true support mechanisms and ensu- expectations and internal relevance. Within such context, ring periodic disclosures as well as communications within stakeholder-engagement efforts are to be strengthened the Company. in 2015 in order to understand and monitor the needs and expectations of the various stakeholders. This model is fully in line with the indications of the Uni- ted Nations Global Compact, of which Enel has been an These efforts are the starting point from which to define active member since 2004, reiterating the importance of and develop the priorities that the Group intends to pur- an increasing integration of sustainability within a com- sue over the coming years and to set specific targets and pany’s strategic decision-making processes. A specific objectives. training program, the Global Compact Board Programme, The 2015-2019 sustainability plan focuses on the following involving a number of international experts as facilitators areas of commitment: of dialog with boards of directors, is currently under way. > creating economic and financial value; Enel was one of the first organizations in the world to have > governance and transparency; participated in the pilot phase of the program, and the > natural resources, climate and the environment; first training session with the Group’s Board of Directors > development of human resources; was held in November 2014. > access to energy; Integration of sustainability into business processes is ba- munities; sed on, and further extends, the experience gained within > programs and other initiatives for customers and suppliers; > shared value and responsible relationships with the com- the Group in developing models of operations (for Busi- > health and safety. ness Development, Engineering & Construction, and Ope- ration & Maintenance) aimed at creating shared, inclusive Enel undertakes to constantly manage and measure su- value over the medium to long term. stainability performance by using and developing mecha- Indeed, the efficiency and efficacy of business processes, nisms that allow for an integrated, standardized system during both development and operations, depend signifi- of projects and information that are kept constantly up to cantly on the creation of stable, constructive relationships date based on developments in the scope of operations with the various stakeholders as well as on the ability to and relevant standards, while promoting the sharing of become a synergistic part of the community while preven- best practices and experience. 112 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSWith a view towards increasing transparency towards our vestment funds, which continue to increase in number. As stakeholders, the Group monitors and actively participates of December 31, 2014, 134 socially responsible investors in the development of new frontiers in reporting towards held shares in Enel capital (vs. 117 in 2013) for a total inte- integrated communication of performance, both finan- rest held of 5.9% in Enel shares in circulation (vs. 5.5% in cially and in other areas. For example, we have contributed 2013), equal to 8.6% of the float (vs. 8% in 2013). to defining the G4 guidelines of the Global Reporting Ini- tiative (GRI) and have contributed to the pilot program of For the eleventh straight year, Enel’s commitment in this the International Integrated Reporting Council (IIRC), and regard has been recognized by being included in the Dow we will also be supporting the GRI in defining the project Jones Sustainability Index, a market benchmark which in- “Reporting 2025” in order to promote international dialog cludes the world’s leading companies that meet strict eco- on the future of sustainability reporting. nomic, social and environmental criteria. In 2014, we were also included in the selective Dow Jones The reporting process involves collecting and calculating Sustainability World index and earned the prestigious Gold specific key performance indicators of economic, envi- Class recognition for sustainability in the 2015 RobecoSAM ronmental and social sustainability, in accordance with the Sustainability Yearbook, a publication now in its twentieth GRI international standards and the Electric Utility Sector edition and which assesses the sustainability performance Supplement (EUSS), as well as with the principles of ac- of the world’s leading corporations. Enel is one of only th- countability of the United Nations Global Compact. ree Gold Class organizations in the Electric Utility segment and one of only four Italian Gold Class corporations. Projects, activities, performance and the other main results For the first time, Enel has also been included in the STOXX are presented in Enel’s Sustainability Report, which this Global ESG Leaders and is one of the utilities in the pre- year also includes the Environmental Report, the comple- stigious CDP Italy Climate Disclosure Leadership index for teness and reliability of which are verified by an accredited 2014 as a leader in terms of the quality, thoroughness and external auditing firm, by the Control and Risk Committee, transparency of our climate-change data. and by the Corporate Governance Committee. The docu- Finally, Enel was again included in the FTSE4Good index, ment is then approved by the Enel SpA Board of Directors which measures environmentally sustainable corporate before being presented to the shareholders. practices, relations with stakeholders, respect for human rights, the quality of working conditions and tools that The report is also analyzed by socially responsible in- companies employ to fight corruption. The four pillars of corporate ethics For over ten years, Enel has had a solid system of ethics that national best practices that everyone who works for and underlies our sustainability efforts. This system has beco- with Enel must respect and apply in their daily activities. me a dynamic set of rules constantly incorporating inter- Code of Ethics Adopted in 2002, the Code of Ethics is an expression of our social and economic diversity of the various countries in ethical responsibilities and commitments in doing business which we operate. All of the companies in which Enel has and in all company activities, while also guiding and stan- an equity interest and the Group’s major suppliers are also dardizing company conduct based on the utmost transpa- required to adhere to the general principles contained the- rency, respect and fairness towards all stakeholders. The rein. Any stakeholder can report a violation or suspected Code is binding for all Enel employees and collaborators violation of the Code of Ethics through dedicated channels. throughout the Group and takes account of the cultural, 113 Compliance Model (Legislative Decree 231/2001) - “Model 231” The Compliance Model pursuant to Legislative Decree mission of the crimes specified under the Decree, inclu- 231/2001 (which was revised in 2014 in response to the ding those of corruption in both the public and private introduction of new crimes envisaged under applicable sectors. The principles found in the model extend to all of law) supplements the rules of content found in the Code the Group’s foreign subsidiaries through the adoption of of Ethics and is aimed at preventing the risk of the com- specific guidelines. Zero-Tolerance-of-Corruption Plan The Zero-Tolerance-of-Corruption (ZTC) Plan supplements International. The plan was adopted in 2006 as a concrete both the Code of Ethics and the Compliance Model and move marking Enel’s participation in the Global Compact reinforces our commitment to combatting corruption whi- (a 2000 UN program of action) and the Partnering Against le promoting the implementation of the recommendations Corruption Initiative (PACI) promoted by the World Econo- regarding the related principles defined by Transparency mic Forum in Davos in 2005. Policy on Business and Human Rights In order to give effect to the guidelines of the UN Forum on ment, Enel explicitly becomes a promoter of the observan- Business and Human Rights, in 2013, the Board of Directors ce of such rights on the part of contractors, suppliers and of Enel SpA approved the Human Rights Policy, which was business partners as part of its business relationships. subsequently extended to all of the Group’s subsidiaries. Within the scope of the due diligence in respect of hu- In line with the Code of Ethics, this policy sets out the com- man rights, we also launched the risk-assessment process mitments and responsibilities in respect of human rights aimed at identifying the main risks in the area of human on the part of the employees of Enel SpA and its subsidiari- rights that the Company may encounter in the course of es, whether they be directors or employees in any manner operations in various countries and through relations with of those companies. Similarly, with this formal commit- third parties in general. Net efficient capacity by primary energy source 2014 2013 restated Change 17,048 16,112 21,018 54,178 5,132 29,653 5,774 833 100 442 36,802 96,112 17,277 16,071 22,592 55,940 5,132 29,836 5,163 795 120 258 36,172 97,244 (229) 41 (1,574) (1,762) - (183) 611 38 (20) 184 630 (1,132) -1.3% 0.3% -7.0% -3.1% - -0.6% 11.8% 4.8% -16.7% 71.3% 1.7% -1.2% MW Net efficient thermal capacity: - coal - CCGT - fuel oil/gas Total Net efficient nuclear capacity Net efficient renewable capacity: - hydroelectric - wind - geothermal - biomass and co-generation - other Total Total net efficient capacity 114 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSNet efficient capacity by geographical area MW Italy Iberian peninsula Latin America Russia Slovakia North America Romania Belgium Greece France South Africa Bulgaria 2014 36,823 23,549 18,300 9,107 4,968 2,083 534 406 290 - 10 42 2013 restated Change 39,277 23,556 16,764 9,107 5,399 1,683 534 406 290 186 - 42 (2,454) (7) 1,536 - (431) 400 - - - (186) 10 - -6.2% - 9.2% - -8.0% 23.8% - - - - - - Total net efficient capacity 96,112 97,244 (1,132) -1.2% Net electricity generation by primary energy source GWh Net thermal generation: - coal - CCGT - fuel oil/gas Total Net nuclear generation Net renewable generation: - hydroelectric - wind - geothermal - biomass and co-generation - other Total Total net electricity generation 2014 2013 restated Change 81,991 37,395 29,654 149,040 39,182 74,315 14,054 5,954 166 390 94,879 283,101 81,212 39,478 29,312 150,002 40,516 72,671 12,231 5,581 497 281 91,261 281,779 779 (2,083) 342 (962) (1,334) 1,644 1,823 373 (331) 109 3,618 1,322 1.0% -5.3% 1.2% -0.6% -3.3% 2.3% 14.9% 6.7% -66.6% 38.8% 4.0% 0.5% 115 Net electricity generation by geographical area GWh Italy Iberian peninsula Latin America Russia Slovakia North America Romania Belgium Greece France South Africa Bulgaria 2014 2013 restated Change 71,824 74,040 64,753 42,376 20,550 6,674 1,268 690 488 347 8 83 71,201 73,231 65,276 41,901 21,343 5,360 1,080 1,373 566 362 - 86 623 809 (523) 475 (793) 1,314 188 (683) (78) (15) 8 (3) Total net electricity generation 283,101 281,779 1,322 Other generation ratios Generation from renewable resources (% of total) “Zero-emission” generation (% of total) ISO 14001-certified net efficient capacity (% of total) Average efficiency of thermal plants (%) Specific emissions of CO2 from net generation (gCO2/ kWheq) (1) Specific water consumption (l/kWheq) 2014 2013 restated Change 33.5 47.4 94.3 40.3 395 0.64 32.4 46.8 93.9 39.8 396 0.64 1.1 0.6 0.4 0.5 (1) - 0.9% 1.1% -0.8% 1.1% -3.7% 24.5% 17.4% -49.7% -13.8% -4.1% - -3.5% 0.5% 3.5% 1.3% 0.4% 1.3% -0.3% - (1) Specific emissions are calculated as total emissions from simple thermal generation and co-generation of electricity and heat as a ratio of total renewables generation, nuclear generation, simple thermal generation and co-generation of electricity and heat (including the contribution of heat in MWh equiva- lent). Customers by geographical area Average no. Electricity: - Italy - Latin America - Iberian peninsula - Romania - other countries 2014 2013 restated Change 27,207,897 27,819,881 (611,984) 14,633,393 14,252,906 11,290,283 11,376,287 2,670,892 2,663,728 5,985 5,841 380,487 (86,004) 7,164 144 Total electricity customers 55,808,450 56,118,643 (310,193) Natural gas: - Italy - Spain Total natural gas customers 116 3,470,692 1,205,463 3,245,996 1,214,038 4,676,155 4,460,034 224,696 (8,575) 216,121 -2.2% 2.7% -0.8% 0.3% 2.5% -0.6% 6.9% -0.7% 4.8% ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSSafety rates No. Enel injury frequency rate Enel injury severity rate Enel serious and fatal injuries Serious injuries (1) Fatal injuries Total Serious and fatal injuries at contractors Serious injuries (1) Fatal injuries Total 2014 1.32 0.07 1 3 4 22 16 38 2013 restated 1.43 0.07 7 6 13 16 10 26 Change (0.11) - (6) (3) (9) 6 6 12 -7.8% - -85.7% -50.0% -69.2% 37.5% 60.0% 46.2% (1) Injuries with an initial prognosis, as reported on the medical certificate issued, of greater than 30 days, or with a confidential prognosis until the actual pro- gnosis is released, or with an unknown prognosis that, based on an initial assessment by the company/Division concerned, is expected to exceed 30 days. Once the official prognosis is released, the related injury is considered serious only if said prognosis exceeds 30 days. Should a confidential prognosis never be released or the prognosis remain unknown, within 30 days of the event, the injury is to be deemed serious. Other rates No. Average hours of training per employee Verified violations of the Code of Ethics (1) 2014 42.3 27 2013 restated Change 40 36 2.3 (9) 5.8% -25.0% (1) In 2014, an analysis was performed of violations reported in 2013. As a result, the number of verified violations for 2013 was reclassified from 27 to 36. Creating value for stakeholders Enel’s stakeholders are individuals, groups or institutions good indication of how the Group has created wealth for whose contribution is needed to achieve its mission or who the following stakeholders: shareholders, lenders, employe- have a stake in its pursuit. es and government. The economic value created and shared by Enel gives a Millions of euro Revenue Income/(expense) from commodity contracts measured at fair value External costs Gross global value added from continuing operations Gross value added from discontinued operations Gross global value added distributed to: shareholders lenders employees government enterprises (1) 2013 figures have been restated to reflect the amendment, with retrospective effect, of IFRS 11. 2014 75,791 (225) 53,390 22,176 - 22,176 1,222 3,007 4,864 654 12,429 2013 restated (1) 78,663 (378) 55,213 23,072 - 23,072 1,410 2,886 4,555 4,120 10,101 117 Towards sustainable innovation Innovation is a key part of Enel’s strategy and culture of en- In the area of solar energy, the technology partnership with terprise, and we have always been committed to adopting Innova Solar Energy, a company active in the solar and ther- cutting-edge models, methods and technologies in order modynamic segments and specialized in concentrator systems, to provide our customers with excellent service quality. This has reached maturity, and the Trinum machines – small-scale drive for innovation touches all areas of the value chain, concentrating cogeneration thermodynamic solar systems – from conventional power generation to renewable energy have been successfully installed in Italy, Chile and Brazil. and including smart grids and energy efficiency. In 2014, Enel’s know-how in geothermal technology was In 2014, the Enel Group invested €74 million in research and focused on developing diagnostics to improve reliability innovation across the various areas of business. and reduce the operating and maintenance costs of exi- In order to find, develop and take advantage of the best so- sting AMIS (Abbattimento Mercurio e Idrogeno Solforato lutions available, Enel has recently adopted an open-innova- - “Mercury and Hydrogen Sulfide Abatement”) systems for tion approach that enables us to get the best out of both our the treatment of non-condensable gases, of power gene- technological capabilities and other opportunities coming ration systems, and of systems for the treatment of steam from the innovation ecosystem as a whole, while involving prior to entering the plant. Work was also done to support multiple actors both inside and outside the organization. the start-up of the first hybrid solar-geothermal plant at the Various projects have been launched, such as the Eidos Mar- Stillwater site (Nevada, USA), including the development of ket crowdsourcing platform, which is open to all employees models and taking advantage of experience gained at the of the Group and has thus far collected over 4,000 ideas, as Archimede plant. well as the initiative “Join the Race to the Clean Energy Futu- re”, launched by Enel Green Power, and “Endesa 2244”, both aimed at the diverse world of innovators. Energy storage In 2014, Enel was named one of Europe’s top five firms in Energy storage is a key aspect in ensuring the high-quality, “Technology Intelligence” by the German Fraunhofer Insti- safe management of power grids that feature a high de- tute, which selected Enel out of 207 European companies gree of discontinuous, intermittent generation from rene- in recognition of our organization, methods and tools of wable resources. In Italy, we launched the project “Active technology intelligence and innovation. RES into the grid”, including partnerships with internatio- Renewable energy nal leaders in order to test their electrochemical storage technologies on their own systems. More specifically, three storage systems are to be installed at two wind farms and Renewable energy is one of Enel’s key strategies for re- one photovoltaic plant connected to the medium-voltage ducing CO2 emissions and, at the same time, for making our production portfolio more competitive. There is great grid, the latter of which was completed in 2014. The purpo- se of the project is to test advanced energy management growth potential in terms of installed capacity, and inten- functions in order to minimize intermittence and maximize sive efforts are under way to develop increasingly efficient, the use of existing connections. During the year, an energy effective technologies that can be used in a variety of con- storage system was also installed in the Chilean village of texts around the world. For this reason, Enel is active in all of Ollagüe at an off-grid hybrid wind-photovoltaic plant with the leading renewable generation technologies, and we are a diesel backup generator. In this case, the system will be identifying technologies that can help to take advantage able to provide the village with a constant supply of elec- of resources that are currently not being used, such as the tricity, while also covering around 85% of the needs of its energy of the sea. inhabitants by way of renewable energy. In October 2014, Enel Green Power, together with the French firm DCNS, was selected by the Chilean Organiza- tion for Economic Development (Corporación de fomento de la Producción - CORFO) to create an international center Smart grids and distributed generation of excellence for marine energy, known as the Marine Ener- gy Research and Innovation Center (MERIC). Enel is a leading player, both within Italy and international- ly, in numerous initiatives working towards innovations in 118 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSenergy distribution systems in order to continue increasing The Enel Group is also greatly committed to a number of grid efficiency. The most significant projects and initiatives projects in various countries to create an innovative, techno- currently under way concern “smart grids”, which add inno- logically advanced network of smart infrastructures to re- vative digital solutions to traditional technologies in order charge electric vehicles, so as to promote the use of these to make power grid management more flexible by increa- vehicles and favor more sustainable mobility. In Italy, we sing the efficacy of how information is gathered. completed work in 2014 regarding an alternating-current One of the most immediate applications of these smart charging solution, and we created the first multi-standard grids is their integration with renewable energies, which rapid charging station, which integrates three smart meters helps to achieve the environmental targets set by the Euro- and can thereby charge three vehicles at the same time. pean Community. Throughout Europe, Enel works to share best practices and participates in defining long-term strate- gies for the mass introduction of smart-grid technology into End uses and energy efficiency European power grids. In Italy, we have completed the demonstration called for under the Isernia-Carpinone project, aimed at applying in- In order to contribute to energy efficiency and the Europe- an long-term (2030-2050) targets for CO2 reduction, Enel is developing innovative technologies and new electricity novative solutions to improve both grid efficiency and the services for customers, in order to optimize and rationalize quality of service provided to our customers. Enel is also re- energy consumption. The customer becomes the protago- sponsible for technical directions for the European project nist with the use of electronic support tools that make con- Grid4EU, which encompasses six different projects in various sumption transparent, while incentivizing active involve- nations and has the goal of conducting wide-scale testing ment in the energy market and promoting a rational use of under real operating conditions of advanced smart grids energy, thereby bringing benefits for environmental sustai- aimed at promoting the use and management of distribu- nability and for the system as a whole, as it becomes more ted power generation, supporting energy efficiency, and accessible and more reliable. enabling and integrative active demand and new uses of In this regard, the Enel Info+ Isernia pilot project began in electricity. Various smart-grid projects are also under way in 2012 and came to a close in 2014. This project featured te- Spain and Latin America, including the ICONO project for sting of Enel smart info for the first time on a wide scale. This the development of functions for monitoring distributed device gives customers easy access to meter data regarding power generation, automating the network, and improving their energy consumption and generation, thereby promo- operating efficiency, reliability and safety. ting greater awareness of consumption habits and the adop- The innovative technologies and skills developed by the Enel tion of more efficient behavior. From 2012 to 2014, around Group have enabled us to promote the concept of “smart 6,000 kits were distributed to low-voltage users in the pro- cities” in various parts of the world, uniting environmental vince of Isernia. The experience demonstrated the efficacy protection, energy efficiency and economic sustainability of smart info in the pursuit of energy efficiency and made within a single urban model. it possible to identify new functions and improvements for In Italy, the first pilot projects are under way in Genoa, Bari, the technology, which were implemented in 2014. Cosenza and L’Aquila, where Enel is supporting the local Enel Energia is developing its own solution for the Con- town councils. Enel is also active in smart-city projects being nected Home, which will be able to analyze consumption. funded at the European level. In 2014, work continued on As a part of these efforts, Enel is turning to partners who are the creation and development of smart cities in Santiago, experts in non-intrusive load-monitoring (NILM) algorithms Chile, and Búzios, Brazil. in calculating the consumption of individual home applian- In Brazil, we completed the installation of a new prototype ces. In 2014, the first project to enable the monitoring of of the Triangle-based Omni-purpose Building (TOB), which home consumption, “Come Consumo” (How I Consume), is to be used as the front office for the development of mi- featured the start of testing with 80 electricity customers in cro-credit for the local population. Based on a design that order to determine the impact of the devices in monitoring Enel has patented internationally, the TOB uses both photo- consumption habits. voltaic modules and storage systems and is able to provide a Various projects are also under way in Spain and South variety of services to the local population depending on the America, including: method of use. > “Energrid”, for the development of low-cost sensor pro- 119 totypes for smart energy management based on analysis objectives, we focused on fine-tuning low-cost techniques and control, via the internet, of power generation and to reduce nitrogen oxide emissions, while also developing energy consumption; tools for the monitoring, diagnostics, and control of gas and > “Greenmomit”, for the development and testing of a coal-fueled thermal plants in order to optimize operations, thermostat and low-cost satellite devices to integrate reduce consumption and emissions, and optimize mainte- into the Endesa multi-service platform that can increase nance. home energy efficiency; We are also studying new technologies that can increase > “Multi-Service Platform”, with the goal of giving custo- plant reliability under more flexible operations and extend mers easy access to energy-consumption information, the range of fuels that can be used in existing power plants. specifying the various uses, and information as to how In terms of containing emissions, in 2014 we worked to cha- to optimize consumption, in addition to receiving other racterize the emission of macro- and micro-pollutants on services to help them in the day-to-day management of high-efficiency exhaust-treatment systems with the goal of the home or office. assessing the room for improvement and performance over Conventional power generation With regard to improving the operating versatility of our power plants, Enel is engaged in a number of projects ai- med at ensuring and constantly improving performance and conversion efficiency. In 2014, in order to achieve these 120 time. Over the last year, Enel consolidated the organization’s capabilities and focused on developing processes and technologies that are able to reduce and optimize water consumption at the Group’s thermal power plants, and we continued working on projects related to advanced auto- mation and diagnostics. ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSCustomers The leadership of a company such as Enel, which serves over and seeks to monitor and improve the quality of the respon- 60 million electricity and gas customers, necessarily involves ses sent to customers who write to our sales companies with great attention both to the customer and to service quality, complaints, requests for billing adjustments, or simply to re- aspects that concern more than just the provision of electri- quest information. In 2014, in order to improve the quality city and/or natural gas, extending, above all, to intangible of our response to complaints, we launched the project “Full aspects of our service that concern the perception and sa- Quality”, which involves phoning our customers to notify tisfaction of our customers. A great many initiatives to digi- them that their request is being handled, followed by a writ- talize our services are under way in various countries (new ten reply and a follow-up phone call to inform them that the web sites as well as apps, social networking, etc.). reply has been sent. With the satisfaction noted with these We have also launched programs and other initiatives for customers, we have seen an improvement in the perception people with disabilities in order to ensure the effective com- of quality, and the customers have expressed their apprecia- munication of important information to our customers. tion for the attention received. Enel was also the first energy company in Italy or in Europe In 2014 in Italy, we implemented offerings for the sale of to implement joint-conciliation procedures with consumer high-performance, energy-efficient turnkey products, whi- associations in order to resolve disputes of a commercial na- le promoting the development of more efficient technolo- ture. This process is entirely free of charge and takes place gies, which has had a positive impact on related areas and via an online platform, thereby making it possible to quic- has provided customers with significant savings compared kly resolve any issues out of court with the Enel companies with the previous generation of technology while also lea- that conduct sales in Italy, i.e. Enel Energia and Enel Servizio ding to a reduction in environmental impact. In particular, Elettrico. the offering of LED lighting launched in May 2014 by Enel Energia has contributed to disseminating new LED techno- In order to provide our customers with the best support pos- logy by promoting the replacement of existing light bulbs sible, since 2003, in Spain and Portugal, Endesa has adopted in the home and providing customers with savings on the a Plan de Excelencia en la Atención Comercial (the Excellence consumption of energy. in Customer Service Plan), which seeks to improve customer In 2014, various awareness campaigns were also carried out satisfaction indicators year after year. In 2014, efforts under in order to make information easier to understand related the plan focused on improving the quality of customer ser- to both sales and management. vice (both via phone and in person) and on operating pro- In addition, the launch of “bolletta zoom”, a dynamic version cedures, and we have developed a project aimed at getting of the online utility bill, has enabled us to present billing in- to know the customer better, so that we can adapt to their formation to our customers in a more intuitive, interactive needs both better and more quickly. manner. Use of the web site “www.endesaonline.com” saw signifi- The attention we have dedicated to issues related to service cant growth of around 30% over 2013, as did the online quality can also be seen in the numerous customer satisfac- billing service. tion surveys conducted for the free and enhanced protecion For many years, Endesa has also provided an ombudsman electricity markets and the gas market, both residential and service, which is independent from the company’s organiza- business, which, in 2014, involved over 90,000 interviews tion and provides customers with another channel for dia- conducted by specialized outsourcers. log concerning the services the company provides. The om- Our customer service channels are also subject to rigorous budsman interacts with both internal and external contacts evaluations each year by an external certifying body, and and recommends new ways for identifying the customers’ in 2014 Enel Energia and Enel Servizio Elettrico obtained needs and expectations, as well as ways for improving the confirmation of their ISO 9001 certification with no non- company’s customer services. compliance being reported for the “Punto Enel” offices, the contact centers or the online channels. In Latin America, in order to improve customer service qua- The 100% Compliance project also continued. This project lity and handle their various needs, we launched numerous involves a team of specialists in the field of service quality projects in 2014. 121 In Argentina, there is the project “Oficinas moviles” (mobile blish a lasting relationship with the communities in which offices), which makes it possible to reach customers even in we operate. Enel can make a concrete contribution to social very rugged areas or where there is no other service office. and economic development in these communities through We have also opened a new phone center to handle custo- various types of initiatives, such as the expansion of infra- mer calls and have developed a web site that makes it possi- structures, education and training programs, projects of ble to serve customers 24 hours a day, 365 days a year. social inclusion, and support for local cultural and econo- In Colombia in 2014, in order to further develop the service mic activities. Enel specifically develops projects and other culture, work continued on the program “A tu lado”, which initiatives of social responsibility, which are selected by way features various ways of contacting and managing custo- of analyses of materiality, detailed peer benchmarking, and mers and meeting their needs in various locations (in their studies of trends in sustainability, while also adapting to the neighborhood, in shopping centers, etc.), while promoting needs of the various countries in which we operate, whe- the efficient, safe use of energy. ther they have mature or emerging economies. In Chile, work continued on development of the program The areas of development that have been given the highest “Vínculo Emocional con el Cliente” (VEC), which seeks to priority concern: access to energy and eliminating the bar- strengthen the customer relationship through various loyal- riers to entry for low-income consumers; implementing the ty programs. In 2014 in particular, we launched the project program to support high-quality education and employabi- “Chilectra Contigo” in order to increase customer-service lity training, particularly in emerging nations; and projects of channels to include the use of mobile offices in high-traffic social inclusion and in support of economic development in areas. the areas in which the Enel Group operates. In Peru, we have developed “FONOEMPRESA”, a fast, effi- cient telephone support service that has made it possible to handle an average of 1,000 calls per month with large-scale customers while providing fast, personalized service. In Brazil, the project “Hora del cliente” has the goal of incre- asing the awareness and sensitivity of customer relationship managers as to their customers’ needs and desires. Two events, “Ampla Invita” and “Coelce Invita”, were also organi- zed for government and other large-scale accounts in order to share experiences and strengthen ties. In Romania, the “Enel Kiosk” initiative is enabling customers to access public digital kiosks in order to submit meter rea- dings, view invoices, and download forms. It is also a way of saving time and paper, protecting the environment and, above all, meeting the customers’ needs in terms of ease of use, while also increasing their level of satisfaction. We have also launched “Enel Assistance”, the first value-ad- ded service system in the Romanian energy market to provide residential customers the ability to easily manage system fai- lures in their homes by accessing a national network of pro- fessionals that can provide service and repairs 24 hours a day. Society Responsible relations with the communities Strengthening the Group’s leadership necessarily involves forging a responsible partnership with the local communi- ties and areas which host our power plants and other ac- tivities, credibility in relations with the governments and authorities in the countries in which Enel operates and a sta- ble, ongoing and integrated relationship with all stakehol- ders, based on trust and respect for shared values. This constant interaction with the local communities is at the heart of Enel’s relationship with them. In order to maintain constructive exchange and involvement in managing Enel’s impact on the local communities, it is necessary, first of all, for those communities to be more aware of the Group’s acti- vities. This is the reasoning behind all of our initiatives aimed at bringing the general public closer to the world of energy, such as publications about our projects, tours of our plants, speaking opportunities at cultural and scientific events, in- formational videos, the publication of information about our work sites, the Natura e Territorio (Nature and the Ter- ritory) programs to promote sports and recreation, cultural itineraries and nature walks around our plants, and all of the other initiatives to promote our industrial heritage. The intrinsic nature of the electricity business, in which po- For example, Enel introduces young people to the world of wer plants and distribution networks are built to last seve- energy, helping them understand the sources of energy, ge- ral decades and the service provided is an essential part of neration plants and the path electricity takes to get to their social and economic development, requires that we esta- home, and increasing their awareness of energy savings, 122 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSthereby nudging the younger generations towards more In 2014, thanks to the Company’s international commit- sustainable behavior. Energy, science, technology, envi- ment to the issue of access to energy, Enel’s CEO and Ge- ronment: these are the key works of the “PlayEnergy” initia- neral Manager, Francesco Starace, became a member of the tive, a free project combining entertainment and education Sustainable Energy for All advisory board. that Enel has been organizing for the last 12 years in schools in 10 different countries, all with the goal of disseminating Innovation is an essential means of promoting both social a responsible energy culture among young people, starting and energetic sustainability, making it possible to study new with knowledge to enable responsible decision-making. approaches to business and new technological solutions This commitment is renewed each year, involving thousan- where the traditional model has proven inadequate in mee- ds of students of all ages with the use of on- and off-line ting the needs of the community. materials and local initiatives. The various efforts under way include the programs we are developing in Latin America to provide communities with the tools and capabilities they need for their members to Our people be better able to enter the job market (especially in energy- related fields), including through partnerships with schools. Organization Enabling electricity In 2014, the Enel Group altered its organizational structure to a matrix, business-oriented model in order to achieve the following objectives: Currently, there are about 1.3 billion people in the world > the reduction of complexity; that have no access to electricity and over 2 billion are being > the centralized allocation of capital; served by inadequate infrastructures or are unable to pay > increased efficiency in investments and operating costs; for their utilities due to financial hardship. Given this con- > the implementation of best practices across geographic text, the fight against energy poverty is the focus of one of areas; the United Nations Millennium Development Goals, as reaf- > clear, shared responsibilities across global and regional firmed by the UN General Assembly, which unanimously de- lines of business. clared the period 2014-2024 as the Decade of Sustainable The structure is now organized into: Energy for All. > five Global Divisions, which are responsible in all of the Within this context, as a member of the United Nations Glo- Group’s geographic areas for operating, maintaining and bal Compact LEAD, at the end of 2011 Enel launched the developing assets and conducting trade; Enabling Electricity program with the goal of creating a new > two regions and two countries, which are responsible business model based on the access to energy, one which for managing relationships with customers, with the pu- targets both people living in isolated rural areas and tho- blic sector, and with regulators, for the sale of electricity se who live in the outskirts of major metropolitan areas. To and gas at the country level, and for providing services date, with projects under way in 12 countries, the program and corporate activities to the Global Divisions in the has provided access to electricity to over 2.5 million people country concerned, integrating the activities of the busi- around the world. ness lines in the various countries; > two global service functions, which are responsible for Specifically, the project is based on three areas of action: the integrated management of all of the Group’s ICT and > projects aimed at facilitating access to electricity through procurement activities; new distributed power generation technologies and grid > seven holding company functions, which focus on infrastructures; policy-making, coordination and strategic control for the > projects to eliminate the economic barriers to electricity Group as a whole. in territories such as Latin America; > projects with the local communities in order to develop Compared with the previous structure, the main changes and share capacity-building capabilities, which provide concerned the creation of three new Global Divisions (Glo- disadvantaged populations with the experience of the bal Infrastructure and Networks, Global Generation and Glo- Enel Group. bal Trading), the countries Italy and Iberia, and the Latin 123 America Region, which joins the Eastern Europe Region > optimizing the hedging strategy and the global portfo- (previously known as the International Division), as well as lio’s exposure to commodity risk; the assignment of responsibilities concerning the activities > optimizing production through power plant dispatching, of Risk Control and Insurance to the Administration, Finance the provision of gas and other fuels (coal, petcoke, pe- and Control holding company function. troleum products, biomass), and related operational and logistical activities, such as depot management; More specifically: > managing gas trading (including LNG) and electricity tra- the Global Infrastructure and Networks Division is respon- ding on the wholesale markets and the trading of other sible, at the Group level, for: energy commodities, energy derivatives, and structured > optimizing the allocation of investments while maximi- energy products, and managing related origination ac- zing service quality and return on investment; tivities. > managing the electricity infrastructures and distribution Within the scope of their specific geographic areas, the re- networks while maximizing operating efficiency, taking gions and countries are responsible for ensuring a context advantage of synergies, implementing advanced techno- that is suited to the business and to serving the customer whi- logies, and sharing responsibility with the individual le sharing responsibility with the Global Divisions for achie- countries for achieving the EBITDA, cash flow and reve- ving EBITDA, cash flow and revenue targets and managing nue targets; the following aspects within their respective areas: > developing the business portfolio of infrastructure and > relations with the public sector, with regulators, with the power grids through mergers and acquisitions and by media, and with all other stakeholders of the Group; participating in public tenders (e.g. for new licenses), > development of the local customer portfolio, including both in countries where Enel has a presence and where responsibility for the related financial performance; we do not. > services and corporate activities to support the business The Global Generation Division is responsible, at the Group lines at the country level while maximizing efficiency and level, for: quality and maintaining responsibility over costs; > optimizing the allocation of capital expenditure while > the overall financial and economic equilibrium of the maximizing return on investment and technical perfor- country, including responsibility for cash flows and debt. mance; > managing the operation and maintenance of the power As at December 31, 2013, the total workforce of the Enel plants in accordance with production plans and with Group numbered 68,961 employees, of which over half em- safety and environmental laws, regulations and policies ployed by Group companies abroad. while maximizing operating efficiency, taking advan- Applicability of IFRS 11 as of January 1, 2014 resulted in the tage of synergies across geographic areas, and sharing deconsolidation of over 1,000 employees from the Group. responsibility with the countries and with the Global Tra- During the year, the number of employees fell by around ding Division for reaching EBITDA, cash flow and revenue 1,400, mostly reflecting the net negative balance between targets; new hires and terminations. The main changes concerned > developing the power generation business, both in exi- Italy, where there were a great many terminations of em- sting countries and in new areas; ployment (52% of the total terminations for the Group) in ap- > managing engineering and construction activities in plication of the early-retirement mechanism allowed by Arti- line with the objectives of quality, cost and timeframes cle 4 of Law 92/2012, which were partially offset by new hires assigned to each project; managing research and deve- (51% of the total new hires for the Group). This move has also lopment projects aimed at improving operating perfor- resulted in generational change within our Italian firms. mance of our power plants. The Global Trading Division is responsible, at the Group level, for: > maximizing gross energy margins in our markets of inte- rest and in respect of the assigned risk limitations while sharing responsibility with the countries and with the Global Generation Division for EBITDA targets; Human resources hiring, management and development In 2014, the Enel Group confirmed its constant commitment to human resources management and to the development and motivation of our people, while promoting the creation 124 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSof a model that supports change and allows for the rapid needed for the job. Internal mobility programs also share dissemination of a corporate culture based on two key ele- this goal of career growth by promoting the development ments: accountability and merit. of cross-business skills. Our current organizational model promotes the internatio- nalization of the Company while allowing for the sharing of The Enel Group also has a single model of performance eva- experiences and best practices. luation in all of the countries in which we operate, which At Enel, we place a great deal of emphasis on excellence and includes a common calendar and supporting information on the need to rely on people who are able to work effec- system. The process calls for: tively in a global environment and take advantage of their > conduct assessment within the organization, which is talents. A key element is the creation of a pool of employees done in one of two ways, depending on the target con- of high potential (through the “Potential Observatory”) in cerned: the 360° Evaluation (for positions within senior which to invest, including through integrated training and management and other key positions) and the Behavior development programs based on their experience and the Performance Review; strategic responsibilities assigned. > the identification and measurement of the key perfor- mance indicators that each individual must achieve in The hiring process includes a verification of behavioral their jobs, which uses the following tools: the Objectives and motivational aspects and of technical/professional Performance Review (OPR) and Task Management (for knowledge related to the position to be held. This involves a employees without a variable salary component). range of tools that varies based on the target profile and on local practice, including: The reviewers will discuss and validate the evaluations of > an assessment center for junior positions, which includes their teams during the Calibration phase in order to impro- group testing and interviews; ve review quality by comparing and discussing the criteria > behavioral interviews, which focus on past experience, used. skills and motivation; At the same time as the supervisor’s evaluation, there is a > technical/professional interviews. self-assessment by the employee related to conduct establi- First, there is a verification within the Company to deter- shed under the Leadership Model. mine if there are people that can be promoted from within The final phase of the process is the feedback meeting before beginning any hiring process that may be necessary. between the employee and the supervisor in which the eva- Generally speaking, preference is given to local candidates luations are analyzed and development efforts for the fol- unless there is a specific need for hiring internationally. For lowing year are defined. technical and operational positions, the Company gives pre- ference, where possible, to candidates living in the areas In order to meet the various career needs of our employees, surrounding the place of work. Enel has a multitier training system based on the levels of The channels most used for recruiting are the organization’s training that can be provided: database (containing all applications submitted, divided > the Leadership Curriculum, which is a collection of by country), external databases, and the lists of graduates initiatives for performance improvement and the deve- provided by secondary schools and universities. In 2014, in lopment of potential from the early stages of an indivi- order to achieve global synergies in employer branding, we dual’s employment, accompanying them through all of also defined a partnership with a global professional net- the significant stages of their career; work that, in addition to presenting the company profile, > the technical and functional academies, which are de- enables the hiring managers in the various countries to pu- signed to develop technical and specialist skills within the blish job offers and requests for candidate submissions. various professional families; > campaign-based training, the purpose of which is to Hiring programs vary depending on the target concerned. disseminate best practices (e.g. safe driving) and the More specifically, the orientation of young talent is cente- cross-business knowledge that underlies the Company’s red around their personal and professional development by culture (e.g. corporate social responsibility, the Code of involving them in on-the-job training and other structured Ethics, the Compliance Model); training programs in order to provide them with the skills > Division-specific training, which seeks to meet specific 125 needs related to processes of organizational and/or spe- is based on the principles of human rights, of labor rights and cialist change; of the best, most advanced systems of transnational labor > safety training, aimed at promoting the culture of pre- relations for multinational corporations and organizations, vention and wellbeing and the sharing of best practices. including the ILO. In 2014, work continued on identifying and disseminating During the year, an initial meeting with the employee repre- best practices in the area of training while bringing together sentatives of the Group and with the national secretariats the most interesting initiatives contributing the greatest va- focused on the presentation of Enel’s new organizational lue within the Group. structure (July 31, 2014). Numerous meetings were also held with the Select Committee concerning implementation of In April 2014, a flash survey on Climate and Safety was laun- the Group’s new model of organization. The 2014 plenary ched throughout the Group with the goal of measuring the session of the Global Works Council was held, due merely impact of action plans and other developments within the to a technical postponement, on January 21-23, 2015, and main areas for improvement identified by the previous sur- concerned the new organization, the Group’s financial per- vey held in 2012. A sample population of employees in the formance as at September 30, 2014, and an update on the various countries in which Enel operates, selected using sta- Group’s health and safety indexes. tistical parameters (such as geography, organizational unit, age, professional category, etc.) were involved in the survey, which involved a questionnaire of 33 questions (23 on en- gagement and 10 on safety) available in 9 languages and in either electronic format or hard copy. Participation levels Workplace health and safety reached 64% throughout the Group. Enel has always placed the health, safety and overall well- being of employees and contractors at the center of our Based on our awareness of the fact that valuing diversity in corporate culture. gender, age, culture, and ability is key to innovation in pro- For Enel, 2014 was a year of profound organizational chan- cesses and ideas and in the creation of value, Enel has also ge, which also affected the organization and primary pro- launched “project diversity”. Indeed, diversity management cesses regarding health and safety with the goal of better within the Company is seen as an opportunity for employe- integrating safety into our business and of defining a sin- es to grow in their careers and as individuals. This initiative gle, standardized approach that also takes account of local joins the great many others that have been pursued over needs. the years, including projects and best practices that testify The operating companies of the Enel Group implement to our commitment to promoting and respecting human di- a certified system of health and safety management that gnity, while safeguarding diversity and rejecting any form of complies with the OHSAS 18001:2007 standard and which aggression or discrimination. is verified each year by external accredited bodies. This pro- Labor relations Enel complies with the labor laws of the various countries in which we operate and with the International Labor Organi- zation (ILO) conventions on labor rights (freedom of associa- tion and of collective bargaining, consultation, the right to strike, etc.), while systematically promoting dialog between the parties and seeking an adequate level of agreement on and participation in Company strategies by employees. Labor relations efforts at the Group level continue to be con- ducted in accordance with the model established under Enel’s Global Framework Agreement (GFA) signed in Rome in 2013 with the Italian federations and with the global federations IndustriAll and Public Services International. This agreement cess includes the periodic assessment and monitoring of the risks to which employees, contractors and the community at large are exposed. Workplace accident developments In 2014, Enel’s accident frequency and severity indexes came to 1.32 and 0.07, respectively, and the operational accident frequency rate declined by 3%. The operational accident frequency rate focuses on certain types of especially serious accidents that are the most related to the Company’s core business (e.g. electrocutions, falling from heights, blows- crushing-cuts, exposure to hazardous agents, and explo- sions). 126 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSIn 2014, there were three fatal accidents involving Enel per- Conduct sonnel, and there were 16 fatal accidents involving emplo- yees of contractors. For each serious or mortal accident in 2014, a group of ex- perts was appointed, in line with applicable procedures, in order to look into the causes, dynamics and circumstances and to determine any action to be taken in order to prevent similar situations from recurring. After the analysis process, targeted actions for improvement were defined, most of which have already been implemented. The work of the cross-functional working group has also continued, the purpose of which is to discuss accident ex- periences and working methods while placing particular emphasis on flue maintenance. In 2014, Enel and Endesa were also confirmed as best in class in occupational health and safety within the electrical utilities segment of the Dow Jones Sustainability Index. Project “One Safety” Launched in 2012, “One Safety” continues to be one of the primary means of promoting and furthering Enel’s culture of safety thanks to its two main lines of action, i.e. the Lea- dership area for the enhancement of leadership for safety and the Conduct area for the promotion of safe, responsible conduct, both of which actively involve all Enel employees as well as the various contractor firms. It has been nearly three years since the global launch, and “One Safety” has transformed from a project to a systema- tic process of observing conduct that is increasingly rooted in the Company’s culture. Since 2012, over 10 million be- haviors have been observed at the nearly 1,000 facilities selected throughout Enel. “One Safety” has also been imple- mented in 25 shared civil sites in a manner specific to office spaces. In 2014, three workshops were held in Italy, Russia and Spain in order to define measures for improvement to be implemented, based on the experience gained, in order to ensure that the process remains effective. Out of these mee- tings came the guidelines for carrying out the project in line with local needs, the introduction of new means of preven- ting human error, and a greater focus on the quality of the observations. Safety in tender processes When it comes to safety, Enel makes no distinction between our own employees and those of our contractors, and we confirmed our commitment to promoting and ensuring the safety of contractor employees again in 2014. Companies wanting to work for Enel must demonstrate, and then periodically verify, that they meet strict safety re- quirements. The vendor qualification and rating systems for contractors have become a consolidated part of our busi- Leadership ness processes. The leadership program began in 2012 within the scope of the GOAL Managerial Training Program and involved more than 1,000 managers around the world in 32 training ses- sions. Training then focused on 200 internal trainers, who began a cascade-training program in 2013. This program was completed in 2014 and centered around an analysis of the Enel film “The Heart of the Matter”. A total of 6,500 pe- ople were involved in 370 training sessions in all countries of the Group, including both the internal trainers and the cascade-training programs. These efforts were accompanied by “safety walks” of Enel facilities, which were conducted by heads of organizatio- nal units and company functions in order to demonstrate their focus and commitment to promoting a culture of sa- fety while ensuring the adoption of safe, responsible con- duct and verifying the condition of plant and equipment. In 2014, more than 3,000 safety walks were held throughout the Group. As part of the general contract conditions for the Group, there are specific clauses regarding health and safety, inclu- ding in reference to the minimum safety requirements that any subcontractors used must meet. In 2014, after an initial pilot phase, participation in the project “One Safety Contractors” was extended to contrac- tors throughout the Group. Over 240 companies joined the project in 2014 and observed the conduct of their employe- es. Many of these contractors have also established plans for improvement and received benefits, such as reductions in their security deposit, increases in their safety points under the vendor rating system, and the right to use an Enel logo designed specifically for the project. Throughout the Group, contractors have been involved in training and awareness efforts, and periodic Contractor Safety Days have been organized. These workshops are dedicated to contractors in order to share information on accident trends and to promote the main initiatives imple- mented for the purposes of constant improvement. 127 In concert with the activities aimed at increasing contractor campaigns and training initiatives. In November, we laun- awareness of health and safety issues, Enel has continued ched “Focus on Health and Safety” as an opportunity for re- with field inspections and monitoring of works done by flection and discussion in advance of “International Health contractors. In 2014, safety controls were also enhanced by and Safety Week” during the first half of 2015. For “Focus way of over 260,000 controls throughout the Group, for an on Health and Safety”, over 700 initiatives in every country increase of 24% over the previous year. in which we operate were organized, including “Cleaning Safety for the community and other third parties All electricity and gas production and distribution systems throughout our territory have been constructed in accor- dance with applicable laws, regulations and engineering standards in order to eliminate or minimize risks to the com- munity that could potentially arise in relation to these infra- structures. We also periodically update both the assessment of operating risks related to production processes and the consequent preventive and protective measures established to control these risks, thereby ensuring worker health and safety while also safeguarding third parties and all of the communities in the areas in which we operate. Structural safety and technological innovation Days” in Spain, “One Safety” workshops in Slovakia, first-aid courses in Romania and Costa Rica and course on the use of defibrillators in Italy, safety walks in Peru and Argentina, a safety quiz in Greece, emergency management simulations in Russia, and contractor meetings and other health semi- nars in many other countries in which the Group operates. In 2014, we provided nearly one million hours of safety trai- ning and awareness activities related to both hard and soft skills in order to both comply with legal obligations and in- crease the specific skills and knowledge of workers throu- ghout the Group. During the year in Italy, in order to enhance the perception of risk in office areas, the pilot phase of the project “Involve Yourself in Safety” was launched. This project is based on the experience gained with the project “Six Months of Safety” and is intended for young talents working in staff areas in order to increase their awareness of issues of health and sa- fety in the workplace, while also creating greater synergy between work and the various aspects of safety. In 2015, implementation will continue throughout the Group. In 2014, experimentation continued with a number of safe- ty innovation projects, including the “Zero Accidents Project” (ZAP), which seeks to improve safety management at large- Health scale work sites; the “Active Safety at Work” project, the goal The Enel Group is constantly committed to providing a safe of which is to promote the use and control of personal pro- and healthful workplace and to creating a culture of preven- tection devices when conducting distribution activities; and tion while promoting health in the workplace as an essen- the “BOA” project, aimed at supporting the management of tial component in improving working life and productivity interference during power plant maintenance. as a whole. For a number of years now, we have also been pursuing a The Global Health Plan launched in 2013 was further con- plan for infrastructure improvements to our fleet of Com- solidated in 2014 with the publication of two documents: pany vehicles, which included the adoption of new safety > the Health Policy, which applies to the entire Group and systems and support devices, which have been implemen- defines the basic principles of the culture of safety and ted progressively on all new vehicles in the fleet. wellbeing in the workplace; Development of the culture of safety: communication and training > the Policy of Stress Prevention and Promotion of Or- ganizational Wellbeing, which promotes wellbeing in the workplace and best practices for increasing aware- ness and preventing factors that lead to stress. Within the scope of the Health Plan and as concerns the is- sue of cardiovascular disease, in 2014 we launched a pro- So as to reiterate the strategic importance of health and sa- gram for the installation and use of defibrillators, which fety in the workplace as a social value and guide in conduc- involved the most populous facilities of the Group around ting business, Enel has designed a variety of promotional the world. 128 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSFinally, the Enel Group participated in the International Labor Organization (ILO) project “Safe Work Without Al- specific CO2 emissions for the Enel Group have declined by more than 36%, thanks to increased generation from rene- cohol and Drugs”, an initiative promoted and funded by wable resources (+4% in 2014) due to the expansion of in- the Office of the President of the Council of Ministers aimed stalled capacity and favorable water conditions. This perfor- at developing company plans for the prevention of drug mance is in line with the target set for 2020, equal to 395 g/ and alcohol use in the workplace. kWh. In addition, Enel reduced emissions by 15% compared Climate strategy and the environment with 2007, the year immediately preceding the first commit- ment period defined by the Kyoto Protocol. For a number of years now, Enel has also been active on the voluntary emissions reduction market, which is intended for Managing environmental issues, fighting climate change parties (i.e. companies, institutions, end users, etc.) who in- and fostering environmentally sustainable development are tend to monitor or neutralize the carbon footprint of their strategic factors in the operation and development of a bu- various internal and external activities (e.g. events, publica- siness and are decisive elements in establishing leadership tions, products and services, events, etc.). All of these initia- in energy markets. Enel recognizes the central importance of the fight against tives are associated with the “CO2 NEUTRAL” trademark that Enel registered in 2011. climate change within the scope of the responsibilities of a Alongside these mitigation policies, the Enel Group is also global player in the energy industry and has, for years now, working on adapting to the process of climate change. Ex- been taking steps to reduce greenhouse gas emissions in all treme weather can have a significant impact on the level of the countries in which we operate, both by observing the and quality of power generation, distribution and provision obligations of the ETS Directive and by implementing our over both the short term and the long term. For this reason, own long-term strategy. Enel, working through Endesa, has launched a pilot project In that regard, since 2009 Enel has taken action in this field, in Spain to determine the vulnerability of three hydroelec- signing on to the Eurelectric initiative under which 60 firms tric plant along the Guadalquivir reservoir to climate chan- have committed to transforming the European electricity ges over the span of a hundred years. sector into a CO2 “emissions-neutral” industry by 2050. In addition, in 2014 Enel joined two global platforms, the Ca- Enel has also set itself other targets to achieve by 2020 that regard the most significant environmental issues associated ring for Climate Initiative (adopting the Business Leadership with the Group’s operations: a reduction of 10% in total Criteria on Carbon Pricing) and the Put a Price on Carbon Statement. The two initiatives, launched by the United Na- tions and the World Bank, respectively, call on companies to specific emissions of sulfur dioxide (SO2), a decrease of 10% in total specific emissions of nitrogen oxides (NOx); a reduc- tion of 50% in total specific emissions of particulates; and a demonstrate their leadership in dealing with climate chan- reduction of 10% in total specific consumption of water. All ge through action to support a carbon emissions price and reductions are in relation to 2010 levels. the adoption of that price in their own investment decisions. Another key element of environmental policy is the gradual As of today, more than 47% of the power Enel generates application of our internationally recognized Environmental comes from zero-emission sources. More than 800 MW of Management System to all of the Enel Group’s operations. new capacity from renewable sources were installed by Enel Currently, ISO 14001- certified systems represent more than Green Power in 2014, confirming our commitment to the 94% of net efficient capacity, while the remainder is attri- development of carbon-free power generation, a commit- butable to the net capacity of the plants that are part of the ment which will continue in the years to come. medium/long-term disposal plan. Today, Enel has renewable resource power plants around the world, with some 36,800 MW of net efficient capacity, In addition the environmental management systems, oppor- representing 38.3% of the total capacity of the Group’s ge- tunities for improvement and priority areas for action are iden- neration assets. tified with the help of the MAPEC (Mapping of Environmental Compliance) methodology, which makes it possible to map Since 1990 (the benchmark year for the Kyoto Protocol), the main areas of development in environmental governance. 129 In the nuclear power field, Enel is publicly committed to en- suring that its plants adopt a clear nuclear safety policy and Preserving biodiversity that those facilities are operated so as to ensure absolute Preserving biodiversity is one of the strategic objectives of priority for safety and protection of employees, the gene- Enel’s environmental policy. ral public and the environment. Enel’s nuclear safety policy, The Group promotes a number of projects throughout the which was approved in 2010 and is published on the corpo- world with the aim of supporting the preservation of ecosy- rate website (http://www.enel.com/en-GB/sustainability/ stems and the natural habitats of the various territories in our_responsibility/enel_nuclear/), promotes excellence in which we operate, while playing an active role in the local all plant operations, adopting a rationale that goes beyond communities. mere regulatory compliance and seeks instead to ensure the In 2014, Enel continued its mapping and updating of the adoption of management approaches that incorporate the biodiversity protection efforts of the Group, an integral part principles of continuous improvement and safe manage- of the Group Biodiversity Plan. ment of risks. Water resource management The projects are in areas adjacent to production plants and other installations and involve projects of various types, including monitoring, safeguarding, research and deve- lopment, corrective or compensatory measures, and social Water is an essential part of electricity generation and Enel and environmental studies. is fully aware that the future availability of this resource is Enel plans any operations that might impact ecosystems threatened in energy scenarios owing to the interaction of using a “mitigation hierarchy” approach, which establishes factors such as the increase in the world’s population, the a scale of priorities in selecting actions: economic development of the emerging countries and cli- > avoid or prevent any potential adverse impact; mate change. > reduce the effects of actions; Enel has long sought to enhance the efficiency of its manage- > apply mitigation techniques; ment of the water it uses and conducts ongoing monitoring > offset the residual impact. of all power plants located in areas threatened by water scar- For each installation, Enel analyzes proximity with protected city at the following levels of analysis: areas, conservation values, the presence of valuable ecosy- > mapping of the production sites located in areas of po- stems, biotopes and endangered animal or plant species tential water scarcity, where the average value of renew- in accordance with international classifications such as the able water resources per capita is less than the target set “Red List” of the International Union for Conservation of Na- by the FAO and also identified by using special software ture and Natural Resources (IUCN). developed by the World Business Council for Sustainable As regards plant operations, in many areas, in agreement Development; with local authorities, independent experts perform biomo- > identification of “critical” production sites, i.e. those with nitoring studies of the land, rivers and sea in order to assess fresh water supplies; the impact of operations on biodiversity and the adequacy > more efficient management by making changes to plants of any compensatory or improvement measures taken. or processes to maximize use of waste water and sea wa- ter; > monitoring of climate and vegetation data for each site. Globally, Enel returns about 99% of the water used, and only about 5% of the Group’s total output uses and/or consumes fresh water in water-stressed areas. In 2014, overall water consumption amounted to 185.9 mil- lion cubic meters, a reduction on 2013 as a result of the decli- ne in thermal and nuclear generation. Specific consumption in 2014 came to 0.64 l/kWh, in line with 2013, confirming Enel’s goal of reducing water consumption by 10% from its 2010 level by 2020. Supplier management In conducting its business and managing relationships with its suppliers, Enel is inspired by the principles contained in the Code of Ethics, the Zero-Tolerance-of-Corruption Plan, the Compliance Model under Legislative Decree 231/2001, and its Policy on Human Rights. The Group provides clear disclosure on the specific prin- ciples and internal rules governing the operations of the Company and expects its suppliers be inspired by the same values in managing activities and relationships with their stakeholders. 130 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSEnel awards procurement contracts for works, services and men, equal treatment, non-discrimination, abuse and ha- supplies in accordance with the provisions of law and the rassment, freedom to unionize, freedom of association and principles of economy, fairness, competition and publicity, representation, prevention of forced labor, safety and en- using procurement procedures that ensure companies can vironmental protection requirements, health and sanitary participate with the utmost transparency, objectivity and conditions and conditions concerning work rules, pay, so- equality of treatment. cial security contributions, insurance and taxes. In order to In addition, specific sustainability criteria are adopted in the ensure compliance with these obligations, Enel reserves the qualification process, in procurement decisions, in contrac- right to carry out control and monitoring activities, and to tual language and in procedures for verification of the per- terminate contracts in the event of proven violations. formance of suppliers. Finally, Enel has established a single global registration Important requirements in the qualification process are pro- point for suppliers and for all Enel Group companies. This re- tecting the health and safety of workers and preserving the presents a single interface for the entire global procurement environment. In particular, for all product groups involved community (PortalOne). After a quick and easy registration in works to be contracted out, suppliers are assessed on the process, any supplier from around the world can fully its en- basis of the Safety Index, which considers the organizational tire relationship with any company of the Enel Group, re- arrangements of the supplier that are intended to ensure spond to invitations to tender, manage their qualification compliance with the relevant standards and monitoring (in- process, see their own vendor rating, etc. cluding OHSAS 18001 certification, which is becoming man- datory for all contractors, including small firms). For product groups with an environmental impact, suppliers must also implement an ISO 14001-compliant environmental mana- gement system. This requirement is being extended to all sectors that could raise potential issues in this area. The qualification process is completed by the vendor rating system, which has been implemented at all Enel units in Italy and abroad. It is designed to monitor the performance of suppliers and contractors with regard to both the propriety of their conduct during tender procedures and the safety, quality and punctuality of their performance during execu- tion. More specifically, the vendor rating is used to monitor respect for the environment and compliance with safety standards and human rights regulations. In all of its contracts for works, services and supplies, Enel uses specific contractual clauses requiring all of its suppliers/ partners to comply with the principles of the Code of Ethics, the Zero-Tolerance-of-Corruption Plan, the Compliance Mo- del, and the Policy on Human Rights. These general terms and conditions of contract are made up of a general part, which is applicable across all countri- es, plus a series of country annexes, containing the specific clauses applicable in individual countries. There are curren- tly nine annexes (one each for Italy, Spain, Portugal, Chile, Peru, Colombia, Brazil, Romania and Slovakia) and a further seven will be part of the next edition (Russia, Argentina, Guatemala, Panama, El Salvador, Mexico and Costa Rica). With these clauses, Enel requires its contractors and sub- contractors to respect ethical and social obligations, and obligations concerning child labor and protection of wo- 131 Related parties As an operator in the field of generation, distribution, tran- or indirectly controlled by the Italian State, the Group’s con- sport and sale of electricity and the sale of natural gas, Enel trolling shareholder. carries out transactions with a number of companies directly The table below summarizes the main types of transactions carried out with such counterparties. Related party Relationship Nature of main transactions Acquirente Unico - Single Buyer Fully controlled (indirectly) by the Ministry for the Economy and Finance Purchase of electricity for the enhanced protection market GME - Energy Markets Operator Fully controlled (indirectly) by the Ministry for the Economy and Finance Sale of electricity on the Power Exchange Purchase of electricity on the Power Exchange for pumping and plant planning GSE - Energy Services Operator Fully controlled (directly) by the Ministry for the Economy and Finance Sale of subsidized electricity Payment of A3 component for renewable resource incentives Terna Eni Group Finmeccanica Group Poste Italiane Group Indirectly controlled by the Ministry for the Economy and Finance Sale of electricity on the Ancillary Services Market Purchase of transport, dispatching and metering services Directly controlled by the Ministry for the Economy and Finance Sale of electricity transport services Purchase of fuels for generation plants, storage services and natural gas distribution Directly controlled by the Ministry for the Economy and Finance Purchase of IT services and supply of goods Fully controlled (directly) by the Ministry for the Economy and Finance Purchase of postal services Finally, Enel also maintains relationships with the pension are determined by the Authority for Electricity, Gas and funds FOPEN and FONDENEL, Fondazione Enel and Enel the Water System. Cuore, an Enel non-profit company devoted to providing social and healthcare assistance. For more details on transactions with related parties, ple- All transactions with related parties were carried out on ase see the discussion in note 47 to the consolidated fi- normal market terms and conditions, which in some cases nancial statements. 132 ENEL ANNUAL REPORT 2014REPORT ON OPERATIONSReconciliation of shareholders’ equity and net income of Enel SpA and the corresponding consolidated figures Pursuant to CONSOB Notice DEM/6064293 of July 28, 2006, sults for the year and shareholders’ equity with the corre- the following table provides a reconciliation of Group re- sponding figures for the Parent Company. Millions of euro Income statement Shareholders’ equity Income statement Shareholders’ equity at Dec. 31, 2014 at Dec. 31, 2013 restated Financial statements - Enel SpA 558 25,136 1,372 25,867 Carrying amount and impairment adjustments of consolidated equity investments and equity investments accounted for using the equity method Shareholders’ equity and net income (calculated using harmonized accounting policies) of the consolidated companies and groups and those accounted for using the equity method, net of non-controlling interests Consolidation differences at the Group consolidation level Intercompany dividends Elimination of unrealized intercompany profits, net of tax effects and other minor adjustments TOTAL SHAREHOLDERS OF THE PARENT COMPANY NON-CONTROLLING INTERESTS CONSOLIDATED FINANCIAL STATEMENTS (3,211) (82,169) 7 (77,828) 20,710 (890) (15,715) (935) 517 255 772 79,257 9,294 6,149 (745) - (3,540) (12) 31,506 19,639 51,145 (8) 3,235 1,545 4,780 74,861 12,235 - 806 35,941 16,891 52,832 133   134 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSConsolidated financial statements 135 Consolidated income statement Millions of euro Notes Revenue Revenue from sales and services Other revenue and income Costs Electricity, gas and fuel purchases Services and other materials Personnel Depreciation, amortization and impairment losses Other operating expenses Capitalized costs Net income/(expense) from commodity contracts measured at fair value Operating income Financial income from derivatives Other financial income Financial expense from derivatives Other financial expense Share of income/(losses) of equity investments accounted for using the equity method Income before taxes Income taxes Net income from continuing operations Net income from discontinued operations Net income for the year (shareholders of the Parent Company and non-controlling interests) Attributable to shareholders of the Parent Company Attributable to non-controlling interests Basic earnings/(loss) per share attributable to shareholders of the Parent Company (euro) Diluted earnings/(loss) per share attributable to shareholders of the Parent Company (euro) Basic earnings/(loss) per share from continuing operations attributable to shareholders of the Parent Company (euro) Diluted earnings/(loss) per share from continuing operations attributable to shareholders of the Parent Company (euro) 7.a 7.b [Subtotal] 8.a 8.b 8.c 8.d 8.e 8.f [Subtotal] 9 10 11 10 11 12 13 14 14 14 14 2014 2013 restated (1) of which with related of which with related parties 8,736 404 10,367 2,561 24 78 37 33 parties 5,751 367 7,595 2,440 53 46 23 28 75,427 3,236 78,663 38,954 16,698 4,555 6,951 2,821 (1,434) 68,545 (378) 9,740 756 1,693 1,210 4,043 217 7,153 2,373 4,780 - 4,780 3,235 1,545 0.34 0.34 0.34 0.34 73,328 2,463 75,791 36,928 17,179 4,864 12,670 2,362 (1,524) 72,479 (225) 3,087 2,078 1,248 916 5,540 (35) (78) (850) 772 - 772 517 255 0.05 0.05 0.05 0.05 (1) The consolidated income statement for 2013 has been restated to reflect the effects of the retrospective application of IFRS 11. For more details, please see note 4 below. In addition, the consolidated income statement has been modified to improve the presentation of costs for purchases of raw materials and electricity and the impact on profit or loss of derivatives. This entailed a number of reclassifications of the figures for 2013 in order to ensure compa- rability. 136 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS          Statement of consolidated comprehensive income Millions of euro Notes Net income for the year Other comprehensive income recyclable to profit or loss Effective portion of change in the fair value of cash flow hedges Share of the other comprehensive income of equity investments accounted for using the equity method Change in the fair value of financial assets available for sale Exchange rate differences Other comprehensive income not recyclable to profit or loss Remeasurements of net defined benefit liabilities/(assets) Total other comprehensive income/(loss) for the period 31 Total comprehensive income/(loss) for the period Attributable to: - shareholders of the Parent Company - non-controlling interests 2014 772 (347) (13) (23) (717) (307) (1,407) (635) (205) (430) 2013 restated (1) 4,780 (190) (18) (105) (3,192) (188) (3,693) 1,087 1,514 (427) (1) The consolidated income statement for 2013 has been restated to reflect the effects of the retrospective application of IFRS 11. For more details, please see note 4 below. 137       Consolidated balance sheet Millions of euro ASSETS Non-current assets Property, plant and equipment Investment property Intangible assets Goodwill Deferred tax assets Equity investments accounted for using the equity method Derivatives Other non-current financial assets Other non-current assets Notes 15 16 17 18 19 20 21 22 23 at Dec. 31, 2014 at Dec. 31, 2013 restated (1) at Jan. 1, 2013 restated of which with related parties of which with related parties of which with related parties 73,089 143 16,612 14,027 7,067 872 1,335 3,645 885 80,263 181 18,055 14,967 6,186 1,372 444 5,970 817 82,189 197 19,950 15,809 6,767 1,951 953 4,588 781 4 15 Current assets Inventories Trade receivables Tax receivables Derivatives Other current financial assets Other current assets Cash and cash equivalents Assets classified as held for sale TOTAL ASSETS [Total] 117,675 128,255 133,185 24 25 26 21 27 28 29 [Total] 30 3,334 12,022 1,220 1,547 5,500 3,984 2,706 13,088 42,181 6,778 166,634 142 3,555 11,378 1,709 2,690 5,607 2,557 7,873 35,369 241 163,865 1,278 2 161 3,290 11,555 1,603 2,224 7,650 2,281 9,726 38,329 317 171,831 74 55 904 37 70 (1) The consolidated balance sheet at December 31, 2013 has been restated to reflect the effects of the retrospective application of IFRS 11, of amendments of IAS 32 and of the completion of the allocation of the purchase price of a number of business combinations carried out by the Renewable Energy Division in 2013. For more details, please see note 4 below. In addition, the balance sheet has been modified to improve the presentation of receivables and payables in respect of construction contract and the balance sheet impact of derivatives. This entailed a number of reclassifications of the figures at December 31, 2013, in order to ensure comparability. 138 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS      Millions of euro Notes LIABILITIES AND SHAREHOLDERS’ EQUITY at Dec. 31, 2014 at Dec. 31, 2013 restated (1) at Jan. 1, 2013 restated of which with related parties of which with related parties of which with related parties Equity attributable to the shareholders of the Parent Company Share capital Reserves Retained earnings (loss carried forward) Non-controlling interests Total shareholders’ equity Non-current liabilities Long-term borrowings Post-employment and other employee benefits Provisions for risks and charges Deferred tax liabilities Derivatives Other non-current liabilities Current liabilities Short-term borrowings Current portion of long-term borrowings Provisions for risk and charges Trade payables Income tax payable Derivatives Other current financial liabilities Other current liabilities Liabilities included in disposal groups classified as held for sale Total liabilities TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 9,403 3,362 18,741 31,506 19,639 51,145 48,655 3,687 4,051 9,220 2,441 1,464 [Total] 31 32 33 34 19 21 35 [Total] 69,518 3,252 5,125 1,187 32 32 34 36 21 37 39 [Total] 30 9,403 7,084 19,454 35,941 16,891 52,832 50,905 3,677 6,504 10,795 2,216 1,259 75,356 2,484 4,658 1,467 24 2 9,403 8,747 17,625 35,775 16,303 52,078 55,733 4,521 7,256 11,658 2,487 1,143 82,798 3,968 4,023 1,291 2 2 13,419 3,159 12,363 3,708 13,089 3,551 253 5,441 1,177 10,827 40,681 5,290 115,489 166,634 3 286 2,940 1,100 10,359 35,657 20 111,033 163,865 4 24 354 2,534 1,105 10,584 36,948 7 119,753 171,831 1 39 (1) The consolidated balance sheet at December 31, 2013, has been restated to reflect the effects of the retrospective application of IFRS 11, of amendments of IAS 32 and of the completion of the allocation of the purchase price of a number of business combinations carried out by the Renewable Energy Divi- sion in 2013. For more details, please see note 4 below. 139       Statement of changes in consolidated shareholders’ equity Share capital and reserves attributable to the shareholders of the Parent Company At January 1, 2013 Effect of application of IFRS 11 Share capital 9,403 - Share premium reserve Legal reserve Other reserves 5,292 1,881 2,262 - - - At January 1, 2013 restated 9,403 5,292 1,881 2,262 Dividends and interim dividends Transactions with non-controlling interests Change in scope of consolidation Comprehensive income for the period of which: - other comprehensive income/(loss) for the period - net income/(loss) for the period - - - - - - - - - - - - - - - - - - - - - - - - Dividends and interim dividends Transactions with non-controlling interests Change in scope of consolidation Comprehensive income for the period of which: - other comprehensive income/(loss) for the period - net income/(loss) for the period - - - - - - - - - - - - - - - - - - - - - - - - Reserve from translation of financial statements in currencies other than euro Reserve from cash flow hedge Reserve from measurement of financial instruments AFS 92 11 103 - 98 (1,482) 42 (1,440) - - - 229 - 229 - - - (1,285) (152) (101) (13) (170) 3,235 1,514 (427) 1,087 Reserve from Reserve from Reserve from equity investments Equity attributable to disposal of equity transactions in accounted for Reserve for Retained earnings the shareholders interests without non-controlling using the equity employee and loss carried of the Parent Non-controlling shareholders’ loss of control interests method benefits Company interests 35,775 - 35,775 (1,410) (14) 76 (1,721) 3,235 35,941 (1,222) (3,086) 78 16,312 (9) 16,303 (829) 1,740 104 (1,972) 1,545 16,891 (1,541) 5,385 (666) Total equity 52,087 (9) 52,078 (2,239) 1,726 180 (3,693) 4,780 52,832 (2,763) 2,299 (588) 749 749 (28) - - - - - - - - - - 78 78 - - 6 (22) - - - - - - - - 8 (53) (45) (362) (362) - - 4 - - - - - 59 (202) - - - - - - 3 (19) - (74) forward 17,625 17,625 (1,410) - 4 - 3,235 19,454 (1,222) - (8) 517 - 517 (101) - 128 - - - (13) (170) 721 62 (58) (528) (2,831) (3) (255) (23) - 105 (2,113) (193) (671) 18,741 (722) 517 31,506 (685) 255 19,639 (1,407) 772 51,145 (243) (235) (23) (19) (202) (205) (430) (635) - - 6 - - 21 (1,285) - (152) - (243) - (235) - At December 31, 2013 restated 9,403 5,292 1,881 2,262 (1,084) (1,592) At December 31, 2014 9,403 5,292 1,881 2,262 (1,321) (1,806) 140 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS  Statement of changes in consolidated shareholders’ equity Share capital and reserves attributable to the shareholders of the Parent Company Reserve from translation of financial statements in currencies Share premium Share capital 9,403 5,292 1,881 2,262 reserve Legal reserve reserves euro cash flow hedge instruments AFS Other other than Reserve from Reserve from measurement of financial (1,482) 42 (1,440) 229 229 At January 1, 2013 restated 9,403 5,292 1,881 2,262 At January 1, 2013 Effect of application of IFRS 11 Dividends and interim dividends Transactions with non-controlling interests Change in scope of consolidation Comprehensive income for the period of which: - other comprehensive income/(loss) for the period - net income/(loss) for the period Dividends and interim dividends Transactions with non-controlling interests Change in scope of consolidation Comprehensive income for the period of which: - other comprehensive income/(loss) for the period - net income/(loss) for the period - - - - - - - - - - - - - - - - - - - - - - - - - - (1,285) (152) (101) (1,285) (152) (101) - - - - - - - - - - - - - 92 11 103 - 98 - - - 6 (243) - - - - - - - - - - - - - - - - - - - - - 21 (235) (243) (235) (23) - - - - - - - - (23) - 105 At December 31, 2013 restated 9,403 5,292 1,881 2,262 (1,084) (1,592) 128 Reserve from disposal of equity interests without loss of control Reserve from transactions in non-controlling interests Reserve from equity investments accounted for using the equity method Reserve for employee benefits Retained earnings and loss carried forward Equity attributable to the shareholders of the Parent Company Non-controlling interests Total shareholders’ equity 749 - 749 - (28) - - - - 721 - (2,831) (3) - - - 78 - 78 - 6 (22) - - - 62 - (255) - - - - At December 31, 2014 9,403 5,292 1,881 2,262 (1,321) (1,806) (2,113) (193) 8 (53) (45) - - - (362) - (362) - 4 - 17,625 35,775 - 17,625 (1,410) 4 - - 35,775 (1,410) (14) 76 16,312 (9) 16,303 (829) 1,740 104 52,087 (9) 52,078 (2,239) 1,726 180 (13) (170) 3,235 1,514 (427) 1,087 (13) - (58) - - 3 (170) - (528) - - 59 (19) (202) (19) - (74) (202) - (671) 3,235 19,454 (1,222) - (8) 517 - 517 18,741 (1,721) 3,235 35,941 (1,222) (3,086) 78 (1,972) 1,545 16,891 (1,541) 5,385 (666) (3,693) 4,780 52,832 (2,763) 2,299 (588) (205) (430) (635) (722) 517 31,506 (685) 255 19,639 (1,407) 772 51,145 141   Consolidated statement of cash flows Millions of euro Notes 2014 2013 restated (1) of which with related parties of which with related parties Income before taxes for the year Adjustments for: Amortization and impairment losses of intangible assets Depreciation and impairment losses of property, plant and equipment Exchange rate adjustments of foreign currency assets and liabilities (including cash and cash equivalents) Accruals to provisions Net financial (income)/expense (Gains)/Losses from disposals and other non-monetary items Cash flow from operating activities before changes in net current assets Increase/(Decrease) in provisions (Increase)/Decrease in inventories (Increase)/Decrease in trade receivables (Increase)/Decrease in financial and non-financial assets/liabilities Increase/(Decrease) in trade payables Interest income and other financial income collected Interest expense and other financial expense paid Income taxes paid Cash flows from operating activities (a) - of which discontinued operations Investments in property, plant and equipment Investments in intangible assets Investments in entities (or business units) less cash and cash equivalents acquired Disposals of entities (or business units) less cash and cash equivalents sold (Increase)/Decrease in other investing activities Cash flows from investing/disinvesting activities (b) - of which discontinued operations Financial debt (new long-term borrowing) Financial debt (repayments and other net changes) Collections/(Payments) for sale/(acquisition) of non-controlling interests Incidental expenses in disposal of equity interests without loss of control 32 Dividends and interim dividends paid Cash flows from financing activities (c) - of which discontinued operations Impact of exchange rate fluctuations on cash and cash equivalents (d) Increase/(Decrease) in cash and cash equivalents (a+b+c+d) Cash and cash equivalents at the beginning of the year (2) Cash and cash equivalents at the end of the year (3) (78) 1,709 10,212 1,285 911 2,580 (720) 15,899 (1,740) (62) (1,440) 212 1,315 1,300 (4,030) (1,396) 10,058 - (6,021) (680) (73) 312 325 (6,137) - 4,582 (2,400) 1,977 (50) (2,573) 1,536 - (102) 5,355 7,900 13,255 58 39 (549) 23 28 7,154 1,598 4,698 (264) 1,023 2,322 (92) 16,439 (1,889) (266) (531) (602) (871) 1,275 (3,695) (2,606) 7,254 - (5,311) (610) (206) 1,409 615 (4,103) - 5,336 (9,619) 1,814 (85) (2,044) (4,598) - (421) (1,868) 9,768 7,900 (374) 42 157 37 33 (1) The consolidated statement of cash flows has been restated to reflect the retrospective application of IFRS 11. For more details, please see note 4 below. (2) Of which cash and cash equivalents equal to €7,873 million at January 1, 2014 (€9,726 million at January 1, 2013), short-term securities equal to €17 million at January 1, 2014 (€42 million at January 1, 2013) and cash and cash equivalents pertaining to assets held for sale equal to €10 million at January 1, 2014 (none at January 1, 2013). (3) Of which cash and cash equivalents equal to €13,088 million at December 31, 2014 (€7,873 million at December 31, 2013), short-term securities equal to €140 million at December 31, 2014 (€17 million at December 31, 2013) and cash and cash equivalents pertaining to assets held for sale in the amount of €27 million at December 31, 2014 (€10 million at December 31, 2013). 142 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS      Notes to the consolidated financial statements 1 Form and content of the financial statements Enel SpA has its registered office in Viale Regina Margherita 137, Rome, Italy, and since 1999 has been listed on the Mi- lan stock exchange. Enel is an energy multinational and is one of the world’s leading integrated operators in the elec- tricity and gas industries, with a special focus on Europe and Latin America. The consolidated financial statements for the period ended December 31, 2014 comprise the financial statements of Enel SpA, its subsidiaries and Group holdings in associates and joint ventures, as well as the Group’s share of the as- sets, liabilities, costs and revenue of joint operations (“the Group”). A list of the subsidiaries, associates, joint opera- tions and joint ventures included in the scope of consolida- tion is attached. The consolidated financial statements were approved for publication by the Board on March 18, 2015. These financial statements have been audited by Reconta Ernst & Young SpA. Basis of presentation The consolidated financial statements for the year ended December 31, 2014 have been prepared in accordance with international accounting standards (International Accounting Standards - IAS and International Financial Reporting Stan- dards - IFRS) issued by the International Accounting Standards Board (IASB), the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC), recognized in the European Union pursuant to Regulation (EC) 1606/2002 and in effect as of the close of the year. All of these standards and interpreta- tions are hereinafter referred to as the “IFRS-EU”. The financial statements have also been prepared in confor- mity with measures issued in implementation of Article 9, paragraph 3, of Legislative Decree 38 of February 28, 2005. The consolidated financial statements consist of the conso- lidated income statement, the statement of consolidated comprehensive income, the consolidated balance sheet, the statement of changes in consolidated shareholders’ equity and the consolidated statement of cash flows and the rela- ted notes. The assets and liabilities reported in the consolidated balance sheet are classified on a “current/non-current basis”, with se- parate reporting of assets held for sale and liabilities included in disposal groups held for sale. Current assets, which inclu- de cash and cash equivalents, are assets that are intended to be realized, sold or consumed during the normal operating cycle of the Group or in the 12 months following the balance- sheet date; current liabilities are liabilities that are expected to be settled during the normal operating cycle of the Group or within the 12 months following the close of the financial year. The consolidated income statement is classified on the basis of the nature of costs, with separate reporting of net income/ (loss) from continuing operations and net income/(loss) from discontinued operations attributable to shareholders of the Parent Company and to non-controlling interests. The indirect method is used for the consolidated statement of cash flows, with separate reporting of any cash flows by operating, investing and financing activities associated with discontinued operations. The income statement, the balance sheet and the statement of cash flows report transactions with related parties, the de- finition of which is given in the next section below. The consolidated financial statements have been prepared on a going concern basis using the cost method, with the exception of items measured at fair value in accordance with IFRS-EU, as explained in the measurement bases applied to each individual item, and of non-current assets and disposal groups classified as held for sale, which are measured at the lower of their carrying amount and fair value less costs to sell. 143 The consolidated financial statements are presented in euro, judgments could have a substantial impact on future re- the functional currency of the Parent Company Enel SpA. All sults. figures are shown in millions of euro unless stated otherwise. The consolidated financial statements provide comparative Use of estimates information in respect of the previous period. In addition, the Group has presented balance sheet figures at January 1, 2013, owing to the retrospective application of IFRS 11 and the amendments of IAS 32, as discussed in note 4 “Restatement of comparative disclosures”. 2 Accounting policies and measurement criteria Use of estimates and management judgment Revenue recognition Revenue from sales to customers is recognized on an accruals basis. Revenue from sales of electricity and gas to retail custo- mers is recognized at the time the electricity or gas is supplied and includes, in addition to amounts invoiced on the basis of periodic meter readings (pertaining to the year), an estima- te of the value of electricity and gas distributed during the period but not yet invoiced, which is equal to the difference between the amount of electricity and gas delivered to the distribution network and that invoiced in the period, taking account of any network losses. Revenue between the date of the last meter reading and the end of the year is based on estimates of the daily consumption of individual customers calculated on the basis of their consumption record, adjusted to take account of weather conditions and other factors that may affect estimated consumption. Preparing the consolidated financial statements under Pension plans and other post-employment benefits IFRS-EU requires management to take decisions and make Some of the Group’s employees participate in pension plans estimates and assumptions that may impact the value of offering benefits based on their wage history and years of revenues, costs, assets and liabilities and the related disclo- service. sures concerning the items involved as well as contingent Certain employees are also eligible for other post-em- assets and liabilities at the balance sheet date. The estima- ployment benefit schemes. tes and management’s judgments are based on previous The expenses and liabilities of such plans are calculated on experience and other factors considered reasonable in the basis of estimates carried out by consulting actuaries, the circumstances. They are formulated when the carrying who use a combination of statistical and actuarial elements amount of assets and liabilities is not easily determined in their calculations, including statistical data on past years from other sources. The actual results may therefore dif- and forecasts of future costs. fer from these estimates. The estimates and assumptions Other components of the estimation that are considered in- are periodically revised and the effects of any changes are clude mortality and withdrawal rates as well as assumptions reflected through profit or loss if they only involve that pe- concerning future developments in discount rates, the rate riod. If the revision involves both the current and future pe- of wage increases, the inflation rate and trends in the cost riods, the change is recognized in the period in which the of medical care. revision is made and in the related future periods. These estimates can differ significantly from actual deve- In order to enhance understanding of the financial state- lopments owing to changes in economic and market con- ments, the following sections examine the main items af- ditions, increases or decreases in withdrawal rates and the fected by the use of estimates and the cases that reflect lifespan of participants, as well as changes in the effective management judgments to a significant degree, undersco- cost of medical care. ring the main assumptions used by managers in measuring Such differences can have a substantial impact on the quan- these items in compliance with the IFRS-EU. The critical tification of pension costs and other related expenses. element of such valuations is the use of assumptions and professional judgments concerning issues that are by their Recoverability of non-current assets very nature uncertain. The carrying amount of non-current assets is reviewed pe- Changes in the conditions underlying the assumptions and riodically and wherever circumstances or events suggest 144 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSthat a review is necessary. Goodwill is reviewed at least an- charge (Article 25 of Royal Decree 1775 of December 11, nually. Such assessments of the recoverable amount of as- 1933), the revalued cost less government capital grants, sets are carried out in accordance with the provisions of IAS also revalued, received by the concession holder for the 36, as described in greater detail in note 18 below. construction of such works, depreciated for ordinary In particular, the recoverable amount of non-current assets wear and tear; and goodwill is based on estimates and assumptions used > for other property, plant and equipment, the market va- in order to determine the amount of cash flow and the di- lue, meaning replacement value, reduced by estimated scount rates applied. Where the value of a group of non- depreciation for ordinary wear and tear. current assets is considered to be impaired, it is written While acknowledging that the new regulations introduce down to its recoverable value, as estimated on the basis important changes as to the transfer of ownership of the bu- of the use of the assets and their possible future disposal, siness unit with regard to the operation of the hydroelectric in accordance with the Company’s most recent approved concession, the practical application of these principles faces plan. difficulties, given the uncertainties that do not permit the for- The estimation of the factors used in the calculation of the mulation of a reliable estimate of the value that can be reco- recoverable amount is discussed in more detail in the section vered at the end of existing concessions (residual value). “Impairment of non-financial assets”. Nevertheless, possible Accordingly, management has decided to not attempt to for- changes in the estimation factors on which the calculation mulate an estimate of residual value. of such values is performed could generate different reco- The fact that the legislation requires the new concession hol- verable values. The analysis of each group of non-current der to make a payment to the departing concession holder assets is unique and requires management to use estimates prompted management to review the depreciation schedu- and assumptions considered prudent and reasonable in the les for assets classified as to be relinquished free of charge specific circumstances. prior to Law 134/2012 (until the year ended on December 31, 2011, given that the assets were to be relinquished free Depreciable value of certain elements of Italian hydroe- of charge, the depreciation period was equal to the closest lectric plants subsequent to enactment of Law 134/2012 date between the term of the concession and the end of the Law 134 of August 7, 2012 containing “urgent measures for useful life of the individual asset), calculating depreciation no growth” (published in the Gazzetta Ufficiale of August 11, longer over the term of the concession but, if longer, over the 2012), introduced a sweeping overhaul of the rules gover- economic and technical life of the individual assets. If additio- ning hydroelectric concessions. Among its various provisions, nal information becomes available to enable the calculation the law establishes that five years before the expiration of of residual value, the carrying amounts of the assets involved a major hydroelectric water diversion concession and in ca- will be adjusted prospectively. ses of lapse, relinquishment or revocation, where there is no prevailing public interest for a different use of the water, Determining the fair value of financial instruments incompatible with its use for hydroelectric generation, the The fair value of financial instruments is determined on the competent public entity shall organize a public call for tender basis of prices directly observable in the market, where avai- for the award for consideration of the concession for a period lable, or, for unlisted financial instruments, using specific ranging from 20 to a maximum of 30 years. valuation techniques (mainly based on present value) that In order to ensure operational continuity, the law also go- maximize the use of observable market inputs. In rare cir- verns the methods of transfer ownership of the business unit cumstances where this is not possible, the inputs are esti- necessary to operate the concession, including all legal rela- mated by management taking due account of the characte- tionships relating to the concession, from the outgoing con- ristics of the instruments being measured. cession holder to the new concession holder, in exchange for In accordance with IFRS 13, the Group includes a mea- payment of a price to be determined in negotiations betwe- surement of credit risk, both of the counterparty (Credit en the departing concession holder and the grantor agency, Valuation Adjustment or CVA) and its own (Debit Valua- taking due account of the following elements: tion Adjustment or DVA), in order to adjust the fair value > for intake and governing works, penstocks and outflow of financial instruments for the corresponding amount of channels, which under the consolidated law governing counterparty risk, using the method discussed in note 45. waters and electrical plants are to be relinquished free of Changes in the assumptions made in estimating the input 145 data could have an impact on the fair value recognized for the technology existing at the measurement date and is those instruments. reviewed each year, taking account of developments in de- commissioning and site restoration technology, as well as Recovery of deferred tax assets the ongoing evolution of the legislative framework gover- At December 31, 2014, the consolidated financial statements ning health and environmental protection. report deferred tax assets in respect of tax losses to be rever- Subsequently, the value of the obligation is adjusted to re- sed in subsequent years and income components whose de- flect the passage of time and any changes in estimates. ductibility is deferred in an amount whose recovery is consi- dered by management to be highly probable. Other The recoverability of such assets is subject to the achievement In addition to the items listed above, the use of estimates of future profits sufficient to absorb such tax losses and to use regarded share-based payment plans and the fair value the benefits of the other deferred tax assets. measurement of assets acquired and liabilities assumed in Significant management judgement is required to determi- business combinations. For these items, the estimates and ne the amount of deferred tax assets that can be recognized, assumptions are discussed in the notes on the accounting based upon the likely timing and the level of future taxable policies adopted. profits together with future tax planning strategies. However, where the Group should become aware that it is unable to Management judgments recover all or part of recognized tax assets in future years, the consequent adjustment would be taken to the income state- ment in the year in which this circumstance arises. Litigation The Enel Group is involved in various legal disputes regar- ding the generation, transport and distribution of electrici- ty. In view of the nature of such litigation, it is not always objectively possible to predict the outcome of such disputes, which in some cases could be unfavorable. Provisions have been recognized to cover all significant lia- bilities for cases in which legal counsel feels an adverse out- come is likely and a reasonable estimate of the amount of the loss can be made. Decommissioning and site restoration In calculating liabilities in respect of decommissioning and site restoration costs, especially for the decommissioning of nuclear power plants and the storage of waste fuel and other radioactive materials, the estimation of the future cost is a critical process, given that the costs will be incurred over a very long span of time, estimated at up to 100 years. The obligation, based on financial and engineering as- sumptions, is calculated by discounting the expected future cash flows that the Group considers it will have to pay for the decommissioning operation. The discount rate used to determine the present value of the liability is the pre-tax risk-free rate and is based on the economic parameters of the country in which the plant is located. That liability is quantified by management on the basis of Identification of cash generating units (CGUs) In application of IAS 36 “Impairment of assets”, the goodwill recognized in the consolidated financial statements of the Group as a result of business combinations has been allo- cated to individual or groups of CGUs that will benefit from the combination. A CGU is the smallest group of assets that generates largely independent cash inflows. In identifying such CGUs, management took account of the specific nature of its assets and the business in which it is involved (geographical area, business area, regulatory fra- mework, etc.), verifying that the cash flows of a given group of assets were closely independent and largely autonomous of those associated with other assets (or groups of assets). The assets of each CGU were also identified on the basis of the manner in which management manages and monitors those assets within the business model adopted, which until December 31, 2014, was consistent with the organizational model adopted in 2012, as discussed in the report on ope- rations. In particular, the CGUs identified in the Iberia and Latin America Division are represented by groups of electricity/ gas production, distribution and sales assets in the Iberian peninsula and certain countries in Latin America that are managed on a unified basis by the Group, including in fi- nancial matters. The CGUs identified in the Generation and Energy Management Division and the Sales Division are represented by assets resulting from business combina- tions involving gas regasification operations in Italy and the domestic retail gas market or by uniform groups of assets operating in the sale or generation of electricity. The CGUs identified in the Renewable Energy Division are represented 146 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS(with a number of minor exceptions made in Italy and Spain the then-applicable IAS 27, the Group consolidated certain to reflect the Group organizational model) by the group of companies (Emgesa and Codensa) on a line-by-line basis even assets exclusively associated with the generation of electri- though it did not hold more than half of the voting rights. That city from renewable energy resources located in geographi- approach was maintained in the assessment carried out in ap- cal areas considered uniform on the basis of regulatory and plication of IFRS 10 on the basis of the requirements discussed contractual aspects and characterized by a high degree of above, as detailed in the attachment “Subsidiaries, associates interdependence of business processes and substantial inte- and other significant equity investments of the Enel Group at gration in the same geographical area. The CGUs identified December 31, 2014” to these financial statements. in the International Division are represented by electricity The Group re-assesses whether or not it controls an investee generation and distribution/sales assets identified with bu- if facts and circumstances indicate that there are changes siness combinations and which constitute, by geographical to one or more of the elements considered in verifying the area and business, individual units generating independent existence of control. cash flows. The CGUs identified by management to which the goodwill recognized in these consolidated financial sta- Determination of the existence of joint control and of tements has been allocated are indicated in the section on the type of joint arrangement intangible assets, to which the reader is invited to refer. Under the provisions of the new IFRS 11, which the Group The number and scope of the CGUs are updated systema- has adopted as from January 1, 2014, with retrospective ap- tically to reflect the impact of new business combinations plication as from January 1, 2013, a joint arrangement is an and reorganizations carried out by the Group, and to take agreement where two, or more parties, have joint control. account of external factors that could impact the ability of Joint control exists when the decisions over the relevant ac- groups of assets to generate independent cash flows. tivities require the unanimous consent of at least two par- ties of a joint arrangement. Determination of the existence of control A joint arrangement can be configured as a joint venture Under the provisions of IFRS 10, which the Group has adop- or a joint operation. Joint ventures are joint arrangements ted since January 1, 2014, with retrospective application as whereby the parties that have joint control have rights to from January 1, 2013, control is achieved when the Group is the net assets of the arrangement. Conversely, joint opera- exposed, or has rights, to variable returns from its involve- tions are joint arrangements whereby the parties that have ment with the investee and has the ability to affect those re- joint control have rights to the assets and obligations for the turns through its power over the investee. Power is defined liabilities relating to the arrangement. as the current ability to direct the relevant activities of the In order to determine the existence of the joint control and investee based on existing substantive rights. the type of joint arrangement, management must apply The existence of control does not depend solely on owner- judgment and assess its rights and obligations arising from ship of a majority shareholding, but rather it arises from the arrangement. For this purpose, the management consi- substantive rights that each investor holds over the inve- ders the structure and legal form of the arrangement, the stee. Consequently, management must use its judgment in terms agreed by the parties in the contractual arrangement assessing whether specific situations determine substantive and, when relevant, other facts and circumstances. rights that give the Group the power to direct the relevant Following that analysis, on first-time application, the Group activities of the investee in order to affect its returns. has considered its interests in SF Energy and Asociación Nu- For the purpose of assessing control, management analyses clear Ascó-Vandellós II as joint arrangements. Subsequen- all facts and circumstances including any agreements with tly, as from January 1, 2014 and following changes in the other investors, rights arising from other contractual arran- shareholders’ agreements between the partners, which gements and potential voting rights (call options, warrants, gave rise to a change in the governance arrangements of put options granted to non-controlling shareholders, etc.). SE Hydropower, producing a situation of joint control, the These other facts and circumstances could be especially si- latter investee has also been treated as a joint arrangement. gnificant in such assessment when the Group holds less than For the sake of completeness, we report that all other com- a majority of voting rights, or similar rights, in the investee. panies classified as under joint control in accordance with Following such analysis of the existence of control, which had the earlier IAS 31 have been reclassified as joint ventures already been done in previous years under the provisions of under IFRS 11. 147 The Group re-assesses whether or not it has joint control if ling entity as Enel SpA, companies that directly or indirectly facts and circumstances indicate that changes have occurred through one or more intermediaries control, are controlled or in one or more of the elements considered in verifying the exi- are subject to the joint control of Enel SpA and in which the stence of joint control and the type of the joint arrangement. latter has a holding that enables it to exercise a significant influence. Related parties also include entities that operate Determination of the existence of significant influence post-employment benefit plans for employees of Enel SpA or over an associate its associates (specifically, the FOPEN and FONDENEL pension Associated companies are those in which the Group exerci- funds), as well as the members of the Boards of Auditors, and ses significant influence, i.e. the power to participate in the their immediate family, and the key management personnel, financial and operating policy decisions of the investee but and their immediate family, of Enel SpA and its subsidiaries. not exercise control or joint control over those policies. In Key management personnel comprises management person- general, it is presumed that the Group has a significant in- nel who have the power and direct or indirect responsibility fluence when it has an ownership interest of 20% or more. for the planning, management and control of the activities of In order to determine the existence of significant influence, the company. They include directors. management must apply judgment and consider all facts and circumstances. The Group re-assesses whether or not it has significant in- Subsidiaries fluence if facts and circumstances indicate that there are Subsidiaries are all entities over which the Group has con- changes to one or more of the elements considered in ve- trol. The Group controls an entity when it is exposed/has rifying the existence of significant influence. rights to variable returns deriving from its involvement and has the ability, through the exercise of its power over the Application of IFRIC 12 “Service concession arrange- investee, to affect its returns. Power is defined as when the ments” to concessions investor has existing rights that give it the current ability to IFRIC 12 “Service concession arrangements” applies to “pu- direct the relevant activities. blic-to-private” service concession arrangements, which can The figures of the subsidiaries are consolidated on a full line- be defined as contracts under which the grantor transfers by-line basis as from the date control is acquired until such to a concession holder the right to deliver public services control ceases. that give access to the main public facilities for a specified period of time in return for managing the infrastructure used to deliver those public services. Consolidation procedures More specifically, IFRIC 12 applies to public-to-private servi- The financial statements of subsidiaries used to prepare the ce concession arrangements if the grantor: consolidated financial statements were prepared at Decem- > controls or regulates what services the operator must ber 31, 2014 in accordance with the accounting policies provide with the infrastructure, to whom it must provide adopted by the Parent Company. them, and at what price; and If a subsidiary uses different accounting policies from those > controls – through ownership or otherwise – any signifi- adopted in preparing the consolidated financial statements cant residual interest in the infrastructure at the end of for similar transactions and facts in similar circumstances, the term of the arrangement. appropriate adjustments are made to ensure conformity In assessing the applicability of these provisions for the Group, with Group accounting policies. management carefully analyzed existing concessions. Assets, liabilities, revenue and expenses of a subsidiary ac- On the basis of that analysis, the provisions of IFRIC 12 quired or disposed of during the year are included in the are applicable to some of the infrastructure of a number consolidated financial statements, respectively, from the of companies in the Iberia and Latin America Division that date the Group gains control or until the date the Group ce- operate in Brazil (Ampla and Coelce). ases to control the subsidiary. Related parties Profit or loss and the other components of other com- prehensive income are attributed to the owners of the Pa- rent and non-controlling interests, even if this results in a Related parties are mainly parties that have the same control- loss for non-controlling interests. 148 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSAll intercompany assets and liabilities, equity, income, ex- Group and the associates or joint ventures are eliminated to penses and cash flows relating to transactions between en- the extent of the interest in the associate or joint venture. tities of the Group are eliminated in full. The financial statements of the associates or joint ventures Changes in ownership interest in subsidiaries that do not are prepared for the same reporting period as the Group. result in loss of control are accounted for as equity tran- When necessary, adjustments are made to bring the ac- sactions, with the carrying amounts of the controlling and counting policies in line with those of the Group. non-controlling interests adjusted to reflect changes in their After application of the equity method, the Group determi- interests in the subsidiary. Any difference between the fair nes whether it is necessary to recognize an impairment loss value of the consideration paid or received and the corre- on its investment in an associate or joint venture. If there is sponding fraction of equity acquired or sold is recognized in such evidence, the Group calculates the amount of impai- consolidated equity. rment as the difference between the recoverable amount of When the Group ceases to have control over a subsidiary, the associate or joint venture and its carrying amount. any interest retained in the entity is remeasured to its fair If the investment ceases to be an associate or a joint venture, value, recognized through profit or loss, at the date when the Group recognizes any retained investment at its fair va- control is lost. In addition, any amounts previously recogni- lue, through profit or loss. Any amounts previously recogni- zed in other comprehensive income in respect of the former zed in other comprehensive income in respect of the former subsidiary are accounted for as if the Group had directly di- associate or joint venture are accounted for as if the Group sposed of the related assets or liabilities. had directly disposed of the related assets or liabilities. Investments in joint arrangements and associates If the Group’s ownership interest in an associate or a joint venture is reduced, but the Group continues to exercise a significant influence or joint control, the Group continues to apply the equity method and the share of the gain or loss A joint venture is an entity over which the Group exercises that had previously been recognized in other comprehen- joint control and has rights to the net assets of the arrange- sive income relating to that reduction is accounted for as ment. Joint control is the sharing of control of an arrange- if the Group had directly disposed of the related assets or ment, whereby decisions about the relevant activities requi- liabilities. re unanimous consent of the parties sharing control. When a portion of an investment in an associate or joint An associate is an entity over which the Group has signifi- venture meets the criteria to be classified as held for sale, cant influence. Significant influence is the power to parti- any retained portion of an investment in the associate or cipate in the financial and operating policy decisions of the joint venture that has not been classified as held for sale is investee without having control or joint control over the accounted for using the equity method until disposal of the investee. portion classified as held for sale takes place. The Group’s investments in its joint ventures and associates Joint operations are joint arrangements whereby the parties are accounted for using the equity method. that have joint control have rights to the assets and obliga- Under the equity method, these investments are initially tions for the liabilities relating to the arrangement. For each recognized at cost and any goodwill arising from the diffe- joint operation, the Group recognized assets, liabilities, rence between the cost of the investment and the Group’s costs and revenue on the basis of the provisions of the ar- share of the net fair value of the investee’s identifiable as- rangement rather than the participating interest held. sets and liabilities at the acquisition date is included in the carrying amount of the investment. Goodwill is not indivi- dually tested for impairment. Translation of foreign currency items After the acquisition date, their carrying amount is adjusted Transactions in currencies other than the functional cur- to recognize changes in the Group’s share of profit or loss of rency are recognized in these financial statements at the the associate or joint venture. The OCI of such investees is exchange rate prevailing on the date of the transaction. presented as specific items of the Group’s OCI. Monetary assets and liabilities denominated in a foreign Distributions received from joint venture and associates re- currency other than the functional currency are later adju- duce the carrying amount of the investments. sted using the balance sheet exchange rate. Non-monetary Profits and losses resulting from transactions between the assets and liabilities in foreign currency stated at cost are 149 translated using the exchange rate prevailing on the date in the net assets. In the case of business combinations achie- of initial recognition of the transaction. Non-monetary as- ved in stages, at the date of acquisition any adjustment to sets and liabilities in foreign currency stated at fair value are the fair value of the net assets acquired previously was reco- translated using the exchange rate prevailing on the date gnized in equity; the amount of goodwill was determined that value was determined. Any exchange rate differences for each transaction separately based on the fair values of are recognized through profit or loss. the acquiree’s net assets at the date of each exchange tran- Translation of financial statements denominated in a foreign currency saction. Business combinations carried out as from January 1, 2010 are recognized on the basis of IFRS 3 (2008), which is refer- red to as IFRS 3 (Revised) hereafter. For the purposes of the consolidated financial statements, More specifically, business combinations are recognized all profits/losses, assets and liabilities are stated in euro, using the acquisition method, where the purchase cost (the which is the functional currency of the Parent Company, consideration transferred) is equal to the fair value at the Enel SpA. purchase date of the assets acquired and the liabilities in- In order to prepare the consolidated financial statements, curred or assumed, as well as any equity instruments issued the financial statements of consolidated companies in fun- by the purchaser. The consideration transferred includes the ctional currencies other than the presentation currency fair value of any asset or liability resulting from a contingent used in the consolidated financial statements are translated consideration arrangement. into euro by applying the relevant period-end exchange Costs directly attributable to the acquisition are recognized rate to the assets and liabilities, including goodwill and con- through profit or loss. solidation adjustments, and the average exchange rate for This cost is allocated by recognizing the assets, liabilities and the period, which approximates the exchange rates prevai- identifiable contingent liabilities of the acquired company ling at the date of the respective transactions, to the income at their fair values as at the acquisition date. Any positive statement items. difference between the price paid, measured at fair value as Any resulting exchange rate gains or losses are recognized at the acquisition date, plus the value of any non-controlling as a separate component of equity in a special reserve. The interests, and the net value of the identifiable assets and lia- gains and losses are recognized proportionately in the inco- bilities of the acquiree measured at fair value is recognized me statement on the disposal (partial or total) of the subsi- as goodwill. Any negative difference is recognized in profit diary. or loss. Business combinations The value of non-controlling interests is determined either in proportion to the interest held by minority shareholders in the net identifiable assets of the acquiree or at their fair Business combinations initiated before January 1, 2010 and value as at the acquisition date. completed within that financial year are recognized on the In the case of business combinations achieved in stages, at basis of IFRS 3 (2004). the date of acquisition of control the previously held equity Such business combinations were recognized using the interest in the acquiree is remeasured to fair value and any purchase method, where the purchase cost is equal to the positive or negative difference is recognized in profit or loss. fair value at the date of the exchange of the assets acquired Any contingent consideration is recognized at fair value at and the liabilities incurred or assumed, plus costs directly at- the acquisition date. Subsequent changes to the fair value tributable to the acquisition. This cost was allocated by re- of the contingent consideration classified as an asset or a cognizing the assets, liabilities and identifiable contingent liability that is a financial instrument within the scope of IAS liabilities of the acquired company at their fair values. Any 39 are recognized either in profit or loss or in other com- positive difference between the cost of the acquisition and prehensive income. If the contingent consideration is not the fair value of the net assets acquired pertaining to the within the scope of IAS 39, it is measured in accordance with shareholders of the Parent Company was recognized as go- the appropriate IFRS-EU. Contingent consideration that is odwill. Any negative difference was recognized in profit or classified as equity is not re-measured, and its subsequent loss. The value of non-controlling interests was determined settlement is accounted for within equity. in proportion to the interest held by minority shareholders If the fair values of the assets, liabilities and contingent lia- 150 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSbilities can only be calculated on a provisional basis, the bu- circumstances and for which sufficient data are available, siness combination is recognized using such provisional va- maximizing the use of relevant observable inputs and mini- lues. Any adjustments resulting from the completion of the mizing the use of unobservable inputs. measurement process are recognized within twelve months of the date of acquisition, restating comparative figures. Fair value measurement Property, plant and equipment Property, plant and equipment is stated at cost, net of accu- mulated depreciation and accumulated impairment losses, For all fair value measurements and disclosures of fair va- if any. Such cost includes expenses directly attributable to lue, that are either required or permitted by international bringing the asset to the location and condition necessary accounting standards, the Group applies IFRS 13. for its intended use. Fair value is defined as the price that would be received to The cost is also increased by the present value of the esti- sell an asset or paid to transfer a liability, in an orderly tran- mate of the costs of decommissioning and restoring the saction, between market participants, at the measurement site on which the asset is located where there is a legal or date (i.e. an exit price). constructive obligation to do so. The corresponding liabili- The fair value measurement assumes that the transaction to ty is recognized under provisions for risks and charges. The sell an asset or transfer a liability takes place in the principal accounting treatment of changes in the estimate of these market, i.e. the market with the greatest volume and level of costs, the passage of time and the discount rate is discussed activity for the asset or liability. In the absence of a principal under “Provisions for risks and charges”. market, it is assumed that the transaction takes place in the Property, plant and equipment transferred from customers most advantageous market to which the Group has access, to connect them to the electricity distribution network and/ i.e. the market that maximizes the amount that would be re- or to provide them with ongoing access to a supply of elec- ceived to sell the asset or minimizes the amount that would tricity is initially recognized at its fair value at the time of the be paid to transfer the liability. transfer. The fair value of an asset or a liability is measured using the Borrowing costs that are directly attributable to the acqui- assumptions that market participants would use when pri- sition, construction or production of a qualifying asset, i.e. cing the asset or liability, assuming that market participants an asset that takes a substantial period of time to get ready act in their economic best interest. Market participants are for its intended use or sale, are capitalized as part of the cost independent, knowledgeable sellers and buyers who are of the assets themselves. Borrowing costs associated with able to enter into a transaction for the asset or the liability the purchase/construction of assets that do not meet such and who are motivated but not forced or otherwise com- requirement are expensed in the period in which they are pelled to do so. incurred. When measuring fair value, the Group takes into account Certain assets that were revalued at the IFRS-EU transition the characteristics of the asset or liability, in particular: date or in previous periods are recognized at their fair value, > for a non-financial asset, a fair value measurement takes which is considered to be their deemed cost at the revalua- into account a market participant’s ability to generate tion date. economic benefits by using the asset in its highest and Where individual items of major components of property, best use or by selling it to another market participant that plant and equipment have different useful lives, the compo- would use the asset in its highest and best use; nents are recognized and depreciated separately. > for liabilities and own equity instruments, the fair value Subsequent costs are recognized as an increase in the reflects the effect of non-performance risk, i.e. the risk carrying amount of the asset when it is probable that futu- that an entity will not fulfill an obligation; re economic benefits associated with the cost incurred to > in the case of groups of financial assets and financial liabi- replace a part of the asset will flow to the Group and the lities with offsetting positions in market risk or credit risk, cost of the item can be measured reliably. All other costs are managed on the basis of an entity’s net exposure to such recognized in profit or loss as incurred. risks, it is permitted to measure fair value on a net basis. The cost of replacing part or all of an asset is recognized as In measuring the fair value of assets and liabilities, the an increase in the carrying amount of the asset and is de- Group uses valuation techniques that are appropriate in the preciated over its useful life; the net carrying amount of the 151 replaced unit is derecognized through profit or loss. Land is not depreciated as it has an undetermined useful Property, plant and equipment, net of its residual value, is life. depreciated on a straight-line basis over its estimated useful Assets recognized under property, plant and equipment are life, which is reviewed annually and, if appropriate, adjusted derecognized either at the time of their disposal or when prospectively. Depreciation begins when the asset is availa- no future economic benefit is expected from their use or di- ble for use. sposal. Any gain or loss, recognized through profit or loss, is The estimated useful life of the main items of property, calculated as the difference between the net consideration plant and equipment is as follows received in the disposal, where present, and the net carrying Civil buildings 20-70 years Buildings and civil works incorporated in plants 20-85 years amount of the derecognized assets. Assets to be relinquished free of charge The Group’s plants include assets to be relinquished free of charge at the end of the concessions. These mainly regard major water diversion works and the public lands used for the operation of the thermal power plants. For plants in Italy, the concessions terminate in 2020 and 2040 (respecti- vely, for plants located in the Autonomous Province of Tren- to and in the Autonomous Province of Bolzano) and 2029 (for all others). Within the regulatory framework in force un- til 2011, if the concessions are not renewed, at those dates all intake and governing works, penstocks, outflow chan- nels and other assets on public lands were to be relinqui- shed free of charge to the government in good operating condition. Accordingly, depreciation on assets to be relin- quished was calculated over the shorter of the term of the concession and the remaining useful life of the assets. 20-75 years 24-40 years 25-100 years 19-46 years 10-40 years 10-45 years 10-66 years 60 years 10-20 years 20-30 years 10-25 years 20-22 years Hydroelectric power plants: - penstock - mechanical and electrical machinery - other fixed hydraulic works Thermal power plants: - boilers and auxiliary components - gas turbine components - mechanical and electrical machinery - other fixed hydraulic works Nuclear power plants Geothermal power plants: - cooling towers - turbines and generators - turbine parts in contact with fluid - mechanical and electrical machinery Wind power plants: - towers - turbines and generators 20-25 years In the wake of the legislative changes introduced with Law 20-25 years 134 of August 7, 2012, the assets previously classified as as- - mechanical and electrical machinery 15-25 years sets “to be relinquished free of charge” connected with the Solar power plants: - mechanical and electrical machinery 15-40 years Public and artistic lighting: - public lighting installations - artistic lighting installations Transmission lines Transformer stations Distribution plant: - high-voltage lines - primary transformer stations - low- and medium-voltage lines Meters: - electromechanical meters - electricity balance measurement equipment - electronic meters 18-25 years 20-25 years 20-50 years 10-60 years 30-50 years 10-60 years 23-50 years 2-27 years 2-35 years 10-20 years The useful life of leasehold improvements is determined on the basis of the term of the lease or, if shorter, on the duration of the benefits produced by the improvements themselves. 152 hydroelectric water diversion concessions are now considered in the same manner as other categories of “property, plant and equipment” and are therefore depreciated over the eco- nomic and technical life of the asset (where this exceeds the term of the concession), as discussed in the section above on the “Depreciable value of certain elements of Italian hydroe- lectric plants subsequent to enactement of Law 134/2012”, which you are invited to consult for more details. In accordance with Spanish Laws 29/1985 and 46/1999, hydroelectric power stations in Spanish territory operate un- der administrative concessions at the end of which the plants will be returned to the government in good operating condi- tion. The terms of the concessions extend up to 2067. A number of generation companies that operate in Argen- tina, Brazil and Mexico hold administrative concessions with similar conditions to those applied under the Spanish con- cession system. These concessions will expire in the period between 2013 and 2088. ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSAs regards the distribution of electricity, the Group is a con- ceived from the users of the public service and specified cession holder in Italy for this service. The concession, gran- or determinable amounts (defined by the contract), and ted by the Ministry for Economic Development, was issued such payments are not dependent on the usage of the free of charge and terminates on December 31, 2030. If the infrastructure; and/or concession is not renewed upon expiry, the grantor is requi- > an intangible asset, if the operator receives the right (a red to pay an indemnity. The amount of the indemnity will license) to charge users of the public service provided. In be determined by agreement of the parties using appro- such a case, the operator does not have an unconditional priate valuation methods, based on both the balance sheet right to receive cash because the amounts are contingent value of the assets themselves and their profitability. on the extent that the public uses the service. In determining the indemnity, such profitability will be re- If the Group (as operator) has a contractual right to receive presented by the present value of future cash flows. The in- an intangible asset (the right to charge users of the public frastructure serving the concessions is owned and available service), borrowing costs are capitalized using the criteria to the concession holder. It is recognized under “Property, specified in the section “Property, plant and equipment”. plant and equipment” and is depreciated over the useful li- During the operating phase of concession arrangements, ves of the assets. the Group accounts for operating service payments in ac- The Enel Group also operates under administrative con- cordance with criteria specified in the section “Revenue”. cessions for the distribution of electricity in other countries (including Spain and Romania). These concessions give the right to build and operate distribution networks for an inde- Leases finite period of time. The Group holds property, plant and equipment and intangi- Infrastructure within the scope of IFRIC 12 “Service concession arrangements” ble assets for its various activities under lease contracts. These contracts are analyzed on the basis of the circumstan- ces and indicators set out in IAS 17 in order to determine whether they constitute operating leases or finance leases. A finance lease is defined as a lease that transfers substan- Under a “public-to-private” service concession arrangement tially all the risks and rewards incidental to ownership of within the scope of IFRIC 12 “Service concession arrange- the related asset to the lessee. All leases that do not meet ments”, the operator acts as a service provider and, in accor- the definition of a finance lease are classified as operating dance with the terms specified in the contract, it constructs/ leases. upgrades infrastructure used to provide a public service and On initial recognition assets held under finance leases are re- operates and maintains that infrastructure for the period of cognized as property, plant and equipment and the related the concession. liability is recognized under long-term borrowings. At incep- The Group, as operator, does not recognize the infrastruc- tion date finance leases are recognized at the lower of the ture within the scope of IFRIC 12 as property, plant and fair value of the leased asset and the present value of the mi- equipment and it accounts for revenue and costs relating nimum lease payments due, including the payment required to construction/upgrade services as discussed in the section to exercise any purchase option. “Construction contracts”. In particular, the Group measures The assets are depreciated on the basis of their useful lives. the consideration received or receivable for the construc- If it is not reasonably certain that the Group will acquire the tion/upgrading of infrastructure at its fair value and, depen- assets at the end of the lease, they are depreciated over the ding on the characteristics of the service concession arran- shorter of the lease term and the useful life of the assets. gement, it recognizes: Payment made under operating lease are recognized as a > a financial asset, if the operator has an unconditional cost on a straight-line basis over the lease term. contractual right to receive cash or another financial as- Although not formally designated as lease agreements, cer- set from the grantor (or from a third party at the direc- tain types of contract can be considered as such if the fulfil- tion of the grantor) and the grantor has little discretion ment of the arrangement is dependent on the use of a speci- to avoid payment. In this case, the grantor contractually fic asset (or assets) and if the arrangement conveys a right to guarantees to pay to the operator specified or determi- use such assets. nable amounts or the shortfall between the amounts re- 153 Investment property Investment property consists of the Group’s real estate held to earn rentals and/or for capital appreciation rather than for use in the production or supply of goods and services. Investment property is measured at acquisition cost less any accumulated depreciation and any accumulated impai- rment losses. Investment property, excluding land, is depreciated on a straight-line basis over the useful lives of the assets. Impairment losses are determined on the basis of criteria discussed below. The breakdown of the fair value of investment property is detailed in note 45 “Assets measured at fair value”. In- vestment property is derecognized either at the time of its disposal or when no future economic benefit is expected from its use or disposal. Any gain or loss, recognized throu- gh profit or loss, is calculated as the difference between the net consideration received in the disposal, where present, and the net book value of the derecognized assets. Intangible assets Intangible assets are identifiable assets without physical substance controlled by the entity and capable of genera- ting future economic benefits. They are measured at pur- chase or internal development cost when it is probable that Intangible assets with indefinite useful lives are not amorti- zed, but are tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is accounted for as a change in accounting estimate. Intangible assets are derecognized either at the time of their disposal or when no future economic benefit is ex- pected from their use or disposal. Any gain or loss, reco- gnized through profit or loss, is calculated as the difference between the net consideration received in the disposal, where present, and the net book value of the derecognized assets. The estimated useful life of the main intangible assets, di- stinguishing between internally generated and acquired assets, is as follows: Development costs: - internally generated - acquired Industrial patents and intellectual property rights: - internally generated - acquired Concessions, licenses, trademarks and similar rights: - internally generated - acquired Other: 3-5 years 3-5 years 5 years 3-25 years - 2-60 years 2-5 years 3-40 years the use of such assets will generate future economic bene- - internally generated fits and the related cost can be reliably determined. - acquired The cost includes any directly attributable expenses neces- sary to make the assets ready for their intended use. Internal development costs are recognized as an intangi- Goodwill ble asset when both the Group is reasonably assured of the Goodwill arises on the acquisition of subsidiaries and repre- technical feasibility of completing the intangible asset and sents the excess of the consideration transferred, as measu- that the asset will generate future economic benefits and red at fair value at the acquisition date, over the net fair va- it has intention and ability to complete the asset and use lue of the acquiree’s identifiable assets and liabilities. After or sell it. initial recognition, goodwill is not amortized, but is tested Research costs are recognized as expenses. for recoverability at least annually using the criteria discus- Intangible assets with a finite useful life are reported net of sed in the section “Impairment of non-financial assets”. For accumulated amortization and any impairment losses. the purpose of impairment testing, goodwill is allocated, Amortization is calculated on a straight-line basis over the from the acquisition date, to each of the identified cash ge- item’s estimated useful life, which is reassessed at least an- nerating units. nually; any changes in amortization policies are reflected Goodwill relating to equity investments in associates and on a prospective basis. Amortization commences when the joint ventures is included in their carrying amount. asset is ready for use. Consequently, intangible assets not yet available for use are not amortized, but are tested for impairment at least annually. Impairment of non-financial assets Intangible assets have a definite useful life, with the excep- At each reporting date, non-financial assets are reviewed to tion of a number of concessions and goodwill. determine whether there is evidence of impairment. If such 154 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSevidence exists, the recoverable amount of any involved as- cash flows, they can be isolated from the rest of the assets set is estimated. The recoverable amount is the higher of an of the CGU, undergo separate analysis of their recoverability asset’s fair value less costs of disposal and its value in use. and impaired where necessary. In order to determine the recoverable amount of property, plant and equipment, intangible assets and goodwill, the Group generally adopts the value-in-use criterion. Inventories The value in use is represented by the present value of the Inventories are measured at the lower of cost and net rea- estimated future cash flows generated by the asset in que- lizable value except for inventories involved in trading ac- stion. Value in use is determined by discounting estimated tivities, which are measured at fair value with recognition future cash flows using a pre-tax discount rate that reflects through profit or loss. the current market assessment of the time value of money Cost is determined on the basis of average weighted cost, and the specific risks of the asset. which includes related ancillary charges. Net estimated rea- The future cash flows used to determine value in use are ba- lizable value is the estimated normal selling price net of esti- sed on the most recent business plan, approved by the ma- mated costs to sell or, where applicable, replacement cost. nagement, containing forecasts for volumes, revenue, opera- For the portion of inventories held to discharge sales that ting costs and investments. have already been made, the net realizable value is determi- These projections cover the next five years. Consequently, ned on the basis of the amount established in the contract cash flows related to subsequent periods are determined on of sale. the basis of a long-term growth rate that does not exceed Inventories include environmental certificates (green cer- the average long-term growth rate for the particular sector and country. tificates, energy efficiency certificates and CO2 emissions allowances) that were not utilized for compliance in the re- The recoverable amount of assets that do not generate inde- pendent cash flows is determined based on the cash genera- porting period. As regards CO2 emissions allowances, inven- tories are allocated between the trading portfolio and the ting unit to which the asset belongs. compliance portfolio, i.e. those used for compliance with If the carrying amount of an asset or of a cash generating unit greenhouse gas emissions requirements. Within the latter, to which it is allocated is higher than its recoverable amount, an impairment loss is recognized in profit or loss under “De- CO2 emissions allowances are allocated to sub-portfolios on the basis of the compliance year to which they have been preciation, amortization and impairment losses”. assigned. Impairment losses of cash generating units are firstly char- Inventories also include nuclear fuel stocks, the use of which ged against the carrying amount of any goodwill attributed is determined on the basis of the electricity generated. to it and then against the other assets, in proportion to their Materials and other consumables (including energy com- carrying amount. modities) held for use in production are not written down If the reasons for a previously recognized impairment loss if it is expected that the final product in which they will be no longer obtain, the carrying amount of the asset is re- incorporated will be sold at a price sufficient to enable reco- stored through profit or loss, under “Depreciation, amorti- very of the cost incurred. zation and impairment losses”, in an amount that shall not exceed the net carrying amount that the asset would have had if the impairment loss had not been recognized and de- Construction contracts preciation or amortization had been performed. When the outcome of a construction contract can be estima- The recoverable amount of goodwill and intangible assets ted reliably and it is probable that the contract will be profi- with an indefinite useful life is tested for recoverability an- table, contract revenue and contract costs are recognized by nually or more frequently if there is evidence suggesting that reference to the stage of completion of the contract activity at the assets may be impaired. The original value of goodwill is the end of the reporting period. Under this criteria, revenue, not restored even if in subsequent years the reasons for the expenses and profit are attributed in proportion to the work impairment no longer obtain. completed. If certain specific identified assets owned by the Group are When it is probable that total contract costs will exceed impacted by adverse economic or operating conditions that total contract revenue, the expected loss on the construc- undermine their capacity to contribute to the generation of tion contract is recognized as an expense immediately, re- 155 gardless of the stage of completion of the contract. their fair value recognized through profit or loss. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be re- coverable. Held-to-maturity financial assets This category comprises non-derivative financial assets with fixed or determinable payments and fixed maturity, The stage of completion of the contract in progress is determi- quoted on an active market and not representing equity in- ned, using the cost-to-cost method, as a ratio between costs vestments, for which the Group has the positive intention incurred for work performed to the reporting date and the and ability to hold until maturity. They are initially recogni- estimated total contract costs. In addition to initial amount of zed at fair value, including any transaction costs, and subse- revenue agreed in the contract, contract revenue includes any quently measured at amortized cost using the effective in- payments in respect of variations, claims and incentives, to the terest method. extent that it is probable that they will result in revenue and can be reliably measured. The amount due from customers for construction contract is Loans and receivables This category mainly includes trade receivables and other presented as an asset; the amount due to customers for con- financial receivables. Loans and receivables are non-deriva- struction contract is presented as a liability. tive financial assets with fixed or determinable payments, Financial instruments that are not quoted on an active market, other than those the Group intends to sell immediately or in the short-term (which are classified as held for trading) and those that Financial instruments are recognized and measured in ac- the Group, on initial recognition, designates as either at cordance with IAS 32 and IAS 39. fair value through profit or loss or available for sale. Such A financial asset or liability is recognized in the consolidated assets are initially recognized at fair value, adjusted for any financial statements when, and only when, the Group be- transaction costs, and are subsequently measured at amor- comes party to the contractual provisions of the instrument tized cost using the effective interest method, without di- (the trade date). scounting unless material. Financial instruments are classified as follows under IAS 39: > financial assets and liabilities at fair value through profit or loss; Available-for-sale financial assets This category mainly includes listed debt securities not clas- > held-to-maturity financial assets; sified as held to maturity and equity investments in other > loans and receivables; entities (unless classified as “designated as at fair value > available-for-sale financial assets; through profit or loss”). Available-for-sale financial assets > financial liabilities measured at amortized cost. are non-derivative financial assets that are designated as Financial assets and liabilities at fair value through profit or loss This category includes: securities, equity investments in enti- available for sale or are not classified as loans and receiva- bles, held-to-maturity financial assets or financial assets at fair value through profit or loss. These financial instruments are measured at fair value with ties other than subsidiaries, associates and joint ventures and changes in fair value recognized in other comprehensive in- investment funds held for trading or designated as at fair va- come. lue through profit or loss at the time of initial recognition. At the time of sale, or when a financial asset available for sale Financial instruments at fair value through profit or loss are becomes an investment in a subsidiary as a result of succes- financial assets and liabilities: sive purchases, the cumulative gains and losses previously > classified as held for trading because acquired or incurred recognized in equity are reversed to the income statement. principally for the purpose of selling or repurchasing at When the fair value cannot be determined reliably, these short term; assets are recognized at cost adjusted for any impairment > designated as such upon initial recognition, under the losses. option allowed by IAS 39 (the fair value option). Such financial assets and liabilities are initially recognized at fair value with subsequent gains and losses from changes in Impairment of financial assets At each reporting date, all financial assets classified as loans 156 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSand receivables (including trade receivables), held to matu- flows, discounted at the current rate of interest for a similar rity or available for sale, are assessed in order to determine if financial asset. Reversal of impairment are not permitted in there is objective evidence that an asset or a group of finan- these cases either. cial assets is impaired. The amount of the impairment loss on a debt instrument An impairment loss is recognized if and only if such evidence classified as available for sale, to be reclassified from equi- exists as a result of one or more events that occurred after ty, is the cumulative fair value loss recognized in other initial recognition and that have an impact on the future comprehensive income. Such impairment loss is reversed cash flows of the asset and which can be estimated reliably. through profit or loss if the fair value of the debt instrument Objective evidence of an impairment loss includes observa- objectively increases as a result of an event that occurred ble data about, for example: after the impairment loss was recognized. > significant financial difficulty of the issuer or obligor; > a breach of contract, such as a default or delinquency in interest or principal payments; Cash and cash equivalents This category includes deposits that are available on de- > evidence that the borrower will enter bankruptcy or mand or at very short term, as well as highly liquid short- other form of financial reorganization; term financial investments that are readily convertible into > a measurable decrease in estimated future cash flows. a known amount of cash and which are subject to insignifi- Losses that are expected to arise as a result of future events cant risk of changes in value. are not recognized. In addition, for the purpose of the consolidated statement For financial assets classified as loans and receivables or held of cash flows, cash and cash equivalents do not include to maturity, once an impairment loss has been identified, its bank overdrafts at period-end. amount is measured as the difference between the carrying amount of the asset and the present value of expected fu- ture cash flows, discounted at the original effective interest Financial liabilities at amortized cost This category mainly includes borrowings, trade payables, rate. This amount is recognized in profit or loss. finance lease obligations and debt instruments. The carrying amount of trade receivable is reduced through Financial liabilities other than derivatives are recognized use of an allowance account. when the Group becomes a party to the contractual clau- If the amount of a past impairment loss decreases and the ses of the instrument and are initially measured at fair value decrease can be related objectively to an event occurring adjusted for directly attributable transaction costs. Finan- after the impairment was recognized, the impairment is re- cial liabilities are subsequently measured at amortized cost versed through profit or loss. using the effective interest rate method. Further factors are considered in case of impairment of avai- lable for sale equity investments, such as significant adverse changes in the technological, market, economic or legal en- Derivative financial instruments A derivative is a financial instrument or another contract: vironment. > whose value changes in response to the changes in an A significant or prolonged decline in fair value constitutes underlying variable such as an interest rate, commodity objective evidence of impairment and, therefore, the fair or security price, foreign exchange rate, a price or rate in- value loss previously recognized in other comprehensive in- dex, a credit rating or other variable; come is reclassified from equity to income. > that requires no initial net investment, or an initial net in- The amount of the cumulative loss is the difference betwe- vestment that is smaller than would be required for a con- en the acquisition cost and the current fair value, less any tract with a similar response to changes in market factors; impairment loss previously recognized in profit or loss. An > that is settled at a future date. impairment loss on an available for sale equity investment Derivative instruments are classified as financial assets or cannot be reversed. liabilities depending on whether their fair value is positive If there is objective evidence of impairment for unquoted or negative and they are classified as “held for trading” and equity instruments measured at cost because fair value can- measured at fair value through profit or loss, except for those not be reliably measured, the amount of the impairment designated as effective hedging instruments. loss is measured as the difference between the carrying For more details about hedge accounting, please see note 43 amount and the present value of estimated future cash “Derivatives and hedge accounting”. 157 All derivatives held for trading are classified as current assets Such contracts are recognized as derivatives and, as a conse- or liabilities. quence, at fair value through profit or loss only if: Derivatives not held for trading purposes but measured at fair > they can be settled net in cash; and value through profit or loss since they do not qualify for hed- > they are not entered into in accordance with the Group’s ge accounting and derivatives designated as effective hed- expected purchase, sale or usage requirements. ging instruments are classified as current or non-current on A contract to buy or sell non-financial items is classified as a the basis of their maturity date and the Group’s intention to “normal purchase or sale” if it is entered into: hold the financial instrument until maturity or not. > for the purpose of physical delivery; > in accordance with the Group’s expected purchase, sale Embedded derivatives An embedded derivative is a derivative included in a “com- or usage requirements. The Group analyzes all contracts to buy or sell non-financial bined” contract (the so-called “hybrid instrument”) that assets, with a specific focus on forward purchases and sales contains another non-derivative contract (the so-called host of electricity and energy commodities, in order to determine contract) and gives rise to some or all of the combined con- if they should be classified and treated in accordance with tract’s cash flows. IAS 39 or if they have been entered into for “own use”. The main Group contracts that may contain embedded de- rivatives are contracts to buy or sell non-financial items with clauses or options that affect the contract price, volume or Derecognition of financial assets and liabilities Financial assets are derecognized whenever one of the fol- maturity. lowing conditions is met: Such contracts, which are not financial instruments to be > the contractual right to receive the cash flows associated measured at fair value, are analyzed in order to identify any with the asset expires; embedded derivative, which are to be separated and me- > the Group has transferred substantially all the risks and asured at fair value. This analysis is performed when the rewards associated with the asset, transferring its rights Group becomes party to the contract or when the contract to receive the cash flows of the asset or assuming a con- is renegotiated in a manner that significantly changes the tractual obligation to pay such cash flows to one or more original associated cash flows. Embedded derivatives are beneficiaries under a contract that meets the require- separated from the host contract and accounted for as de- ments established by IAS 39 (the “pass through test”); rivatives when: > the Group has not transferred or retained substantially all > host contract is not a financial instrument measured at the risks and rewards associated with the asset but has fair value through profit or loss; transferred control over the asset. > the economic risks and characteristics of the embedded de- Financial liabilities are derecognized when they are extin- rivative are not closely related to those of the host contract; guished, i.e. when the contractual obligation has been di- > a separate contract with the same terms as the embed- scharged, cancelled or expired. ded derivative would meet the definition of a derivative. Embedded derivatives that are separated from the host contract are recognized in the consolidated financial state- Offsetting financial assets and liabilities The Group offsets financial assets and liabilities when: ments at fair value with changes recognized through profit > there is a legally enforceable right to set off the recogni- or loss (except when the embedded derivative is part of a zed amounts; and designated hedging relationship). > it has the intention of either settling on a net basis, or re- alizing the asset and settling the liability simultaneously. Contracts to buy or sell non-financial items In general, contracts to buy or sell non-financial items that are entered into and continue to be held for receipt or de- livery, in accordance with the Group’s normal expected Post-employment and other employee benefits purchase, sale or usage requirements, do not fall within the Liabilities related to employee benefits paid upon or after scope of IAS 39 and are then recognized in accordance with ceasing employment in connection with defined benefit the normal accounting treatment of such transactions (the plans or other long-term benefits accrued during the em- “own use exemption”). ployment period are determined separately for each plan, 158 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSusing actuarial assumptions to estimate the amount of the the employee benefits. More specifically, when the bene- future benefits that employees have accrued at the balance fits represent an enhancement of other post-employment sheet date (the projected unit credit method). More specifi- benefits, the associated liability is measured in accordance cally, the present value of the defined benefit obligation is with the rules governing that type of benefit. Otherwise, calculated by using a discount rate determined on the basis if the termination benefits due to employees are expected of market yields at the end of the reporting period on high- to be settled wholly before 12 months after the end of the quality corporate bonds. annual reporting period, the entity measures the liability in The liability is recognized on an accruals basis over the ve- accordance with the requirements for short-term employee sting period of the related rights. These appraisals are per- benefits; if they are not expected to be settled wholly before formed by independent actuaries. 12 months after the end of the annual reporting period, the If the value of plan assets exceeds the present value of the entity measures the liability in accordance with the require- related defined benefit obligation, the surplus (up to the li- ments for other long-term employee benefits. mit of any cap) is recognized as an asset. As regards the liabilities (assets) of defined benefit plans, the cumulative actuarial gains and losses from the actuarial Share-based payments measurement of the liabilities, the return on the plan assets Share-based payments made in consideration for services (net of the associated interest income) and the effect of the provided are recognized as personnel costs. These services asset ceiling (net of the associated interest income) are re- are measured at the fair value of the instruments awarded cognized in other comprehensive income when they occur. at the grant date. For other long-term benefits, the related actuarial gains and Share-based payments may involve equity-settled (stock op- losses are recognized through profit or loss. tions plans) or cash-settled (restricted share units incentive In the event of a change being made to an existing defined plans) instruments. benefit plan or the introduction of a new plan, any past ser- vice cost is recognized immediately in profit or loss. Employees are also enrolled in defined contribution plans Stock option plans The cost of services rendered by employees and remunera- under which the Group pays fixed contributions to a separa- ted through stock option plans is determined on the basis te entity (a fund) and has no legal or constructive obligation of the fair value of the options granted to employees at the to pay further contributions if the fund does not hold suffi- grant date, measured using the Cox-Rubinstein pricing mo- cient assets to pay all employee benefits relating to emplo- del. This model take into consideration all the characteristics yee service in the current and prior periods. Such plans are of the option (option term, price and exercise conditions, usually aimed to supplement pension benefits due to em- etc.), as well as the Enel share price at the grant date, the ployees post-employment. The related costs are recognized volatility of the stock and the yield curve at the grant date in income statement on the basis of the amount of contri- consistent with the expected life of the plan. butions paid in the period. The cost is recognized in the income statement, against an Termination benefits equity reserve, over the vesting period considering the best estimate possible of the number of options that will beco- me exercisable. Liabilities for benefits due to employees for the early termi- nation of the employment relationship, both as a result of a decision by the Group or an employee’s decision to accept Restricted share unit incentive plans The cost of services rendered by employees and remune- voluntary redundancy in exchange for these benefits, are re- rated through restricted share unit (RSU) incentive plans is cognized at the earlier of the following dates: determined based on the fair value of the RSU granted to > when the Group can no longer withdraw its offer of be- employees, in relation to the vesting of the right to receive nefits; and the benefit. The fair value of the RSU is measured using the > when the Group recognizes a cost for a restructuring that Monte Carlo pricing model. This model take into considera- is within the scope of IAS 37 and involves the payment of tion all the characteristics of the RSU (term, exercise condi- termination benefits. tions, etc.), as well as the price and volatility of Enel shares The liabilities are measured on the basis of the nature of over the vesting period. 159 The cost is recognized in the income statement, with re- the assets, it is also determined whether the new carrying cognition of a specific liability, over the vesting period, amount of the assets is fully recoverable. If this is not the adjusting the fair value periodically, considering the best case, a loss equal to the unrecoverable amount is recogni- estimate possible of the number of RSU that will become zed in the income statement. exercisable. Provisions for risks and charges Decreases in estimates are recognized up to the carrying amount of the assets. Any excess is recognized immediately in the income statement. For more information on the estimation criteria adopted in Provisions are recognized where there is a legal or construc- determining liabilities for plant dismantling and site restora- tive obligation as a result of a past event at the end of the re- tion, especially those associated with nuclear power plants porting period, the settlement of which is expected to result or the storage of waste fuel and other radioactive materials, in an outflow of resources whose amount can be reliably please see the section on the use of estimates. estimated. Where the impact is not immaterial, the accruals are determined by discounting expected future cash flows using a pre-tax discount rate that reflects the current market Government grants assessment of the time value of money and, if applicable, Government grants, including non-monetary grants at fair the risks specific to the liability. If the provision is discounted, value, are recognized where there is reasonable assurance the periodic adjustment of the present value for the time that they will be received and that the Group will comply factor is recognized as a financial expense. with all conditions attaching to them as set by the go- When the Group expects some or all of the expenditure re- vernment, government agencies and similar bodies whe- quired to extinguish a liability will be reimbursed by a third ther local, national or international. party, the reimbursement is recognized as a separate asset if When loans are provided by governments at a below-mar- such reimbursement is virtually certain. ket rate of interest, the benefit is regarded as a government Where the liability relates to plant decommissioning and/ grant. The loan is initially recognized and measured at fair or site restoration, the initial recognition of the provision is value and the government grant is measured as the diffe- made against the related asset and the expense is then re- rence between the initial carrying amount of the loan and cognized in profit or loss through the depreciation of the the funds received. The loan is subsequently measured in ac- asset involved. cordance with the requirements for financial liabilities. Where the liability regards the treatment and storage of nu- Government grants are recognized in profit or loss on a clear waste and other radioactive materials, the provision is systematic basis over the periods in which the Group reco- recognized against the related operating costs. gnizes as expenses the costs that the grants are intended to In the case of contracts in which the unavoidable costs of compensate. meeting the obligations under the contract exceed the eco- Where the Group receives government grants in the form of nomic benefits expected to be received under it (onerous a transfer of a non-monetary asset for the use of the Group, it contracts), the Group recognizes a provision as the lower accounts for both the grant and the asset at the fair value of of the costs of fulfilling the obligation that exceed the eco- the non-monetary asset received at the date of the transfer. nomic benefits expected to be received under the contract Grants related to long-lived assets, including non-monetary and any compensation or penalty arising from failure to grants at fair value, i.e. those received to purchase, build or fulfil it. otherwise acquire non-current assets (for example, an item Changes in estimates of accruals to the provision are reco- of property, plant and equipment or an intangible asset), gnized in the income statement in the period in which the are recognized on a deferred basis under other liabilities changes occur, with the exception of those in respect of the and are credited to profit or loss on a straight-line basis over costs of decommissioning, dismantling and/or restoration the useful life of the asset. resulting from changes in the timetable and costs necessa- ry to extinguish the obligation or from a change in the di- scount rate. These changes increase or decrease the value Environmental certificates of the related assets and are taken to the income statement Some Group companies are affected by national regulations through depreciation. Where they increase the value of governing green certificates and energy efficiency certifica- 160 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTStes (so-called white certificates), as well as the European a non-controlling interest in its former subsidiary after the “Emissions Trading System”. sale. Green certificates accrued in proportion to electricity ge- The Group applies these classification criteria as envisaged nerated by renewable energy plants and energy efficiency in IFRS 5 to an investment, or a portion of an investment, in certificates accrued in proportion to energy savings achie- an associate or a joint venture. Any retained portion of an ved that have been certified by the competent authority are investment in an associate or a joint venture that has not treated as non-monetary government operating grants and been classified as held for sale is accounted for using the are recognized at fair value, under other revenue and inco- equity method until disposal of the portion that is classified me, with recognition of an asset under other non-financial as held for sale takes place. assets, if the certificates are not yet credited to the owner- Non-current assets (or disposal groups) and liabilities of di- ship account, or under inventories, if the certificates have sposal groups classified as held for sale are presented sepa- already been credited to that account. At the time the cer- rately from other assets and liabilities in the balance sheet. tificates are credited to the ownership account, they are re- The amounts presented for non-current assets or for the as- classified from other assets to inventories. sets and liabilities of disposal groups classified as held for Revenue from the sale of such certificates are recognized sale are not reclassified or re-presented for prior periods under revenue from sales and services, with a correspon- presented. ding decrease in inventories. Immediately before the initial classification of non-current For the purposes of accounting for charges arising from re- assets (or disposal groups) as held for sale, the carrying gulatory requirements concerning green certificates, ener- amounts of such assets (or disposal groups) are measured gy efficiency certificates and CO2 emissions allowances, the Group uses the “net liability approach”. in accordance with the IFRS-EU applicable to the specific assets or liabilities. Non-current assets (or disposal groups) Under this accounting policy, environmental certificates classified as held for sale are measured at the lower of their received free of charge and those self-produced as a re- carrying amount and fair value less costs to sell. Impairment sult of Group’s operations that will be used for compliance losses for any initial or subsequent write-down of the assets purposes are recognized at nominal value (nil). In addition, (or disposal groups) to fair value less costs to sell and gains charges incurred for obtaining (in the market or in some for their reversals are included in profit or loss from continu- other transaction for consideration) any missing certificates ing operations. to fulfil compliance requirements for the reporting period Non-current assets are not depreciated (or amortized) while are recognized through profit or loss on an accruals basis they are classified as held for sale or while they are part of a under other operating expenses, as they represent “system disposal group classified as held for sale. charges” consequent upon compliance with a regulatory re- If the classification criteria are no longer met, the Group ce- quirement. Non-current assets (or disposal groups) classified as held for sale and discontinued operations ases to classify non-current assets (or disposal group) as held for sale. In that case they are measured at the lower of: > the carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any deprecia- tion, amortization or revaluations that would have been recognized if the asset (or disposal group) had not been Non-current assets (or disposal groups) are classified as held for classified as held for sale; and sale if their carrying amount will be recovered principally throu- > the recoverable amount, which is equal to the greater of gh a sale transaction, rather than through continuing use. its fair value net of costs of disposal and its value in use, This classification criteria is applicable only when non-cur- as calculated at the date of the subsequent decision not rent assets (or disposal groups) are available in their present to sell. condition for immediate sale and the sale is highly probable. Any adjustment to the carrying amount of a non-current as- If the Group is committed to a sale plan involving loss of set that ceases to be classified as held for sale is included in control of a subsidiary and the requirements provided for profit or loss from continuing operations. under IFRS 5 are met, all the assets and liabilities of that sub- A discontinued operation is a component of the Group that sidiary are classified as held for sale when the classification either has been disposed of, or is classified as held for sale, criteria are met, regardless of whether the Group will retain and: 161  > represents a separate major line of business or geo- > revenue from the sale of goods is recognized when the graphical area of operations; significant risks and rewards of ownership of the goods > is part of a single coordinated plan to dispose of a sepa- are transferred to the buyer and their amount can be re- rate major line of business or geographical area of ope- liably determined; rations; or > revenue from the sale and transport of electricity and gas > is a subsidiary acquired exclusively with a view to resale. is recognized when these commodities are supplied to The Group presents, in a separate line item of the income the customer and regard the quantities provided during statement, a single amount comprising the total of: the period, even if these have not yet been invoiced. It > the post-tax profit or loss of discontinued operations; and is determined using estimates as well as periodic meter > the post-tax gain or loss recognized on the measurement readings. Where applicable, this revenue is based on the to fair value less costs to sell or on the disposal of the rates and related restrictions established by law or the assets or disposal groups constituting the discontinued Italian authority for electricity and analogous foreign au- operation. thorities during the applicable period. In particular, the The corresponding amount is re-presented in the income authorities that regulate the electricity and gas markets statement for prior periods presented in the financial sta- can use mechanisms to reduce the impact of the tempo- tements, so that the disclosures relate to all operations that ral mismatching between the setting of prices for energy are discontinued by the end of the current reporting pe- for the regulated market as applied to distributors and riod. If the Group ceases to classify a component as held for the setting of prices by the latter for final consumers; sale, the results of the component previously presented in > revenue from the rendering of services is recognized by discontinued operations are reclassified and included in in- reference to the stage of completion of services at the come from continuing operations for all periods presented. end of the reporting periods in which the services are Revenue rendered. The stage of completion of the transaction is determined based on an assessment of the service rende- red as a percentage of the total services to be rendered Revenue is recognized to the extent that it is probable or as costs incurred as a proportion of the estimated total that the economic benefits will flow to the Group and the costs of the transaction. When it is not possible to relia- amount can be reliably measured. Revenue includes only bly determine the value of the revenue, it is recognized the gross inflows of economic benefits received and recei- only to the extent of the expenses recognized that are vable by the Group on its own account. Therefore, in an recoverable; agency relationship, the amount collected on behalf of the > revenue associated with construction contracts is re- principal are excluded from revenue. cognized as specified in the section “Construction con- Revenue is measured at the fair value of the consideration re- tracts”; ceived or receivable, taking into account the amount of any > revenue from monetary and in-kind fees for connection trade discounts and volume rebates allowed by the Group. to the electricity distribution network is recognized in When goods or services are exchanged or swapped for go- full upon completion of connection activities if the ser- ods or services which are of a similar nature and value, the vice supplied is identified. If more than one separately exchange is not regarded as a transaction which generates identifiable service is identified, the fair value of the total revenue. consideration received or receivable is allocated to each In arrangements under which the Group will perform multi- service and the revenue related to the service performed ple revenue-generating activities (a multiple-element arran- in the period is recognized; in particular, if any ongoing gement), the recognition criteria are applied to the separa- services (electricity distribution services) are identified, tely identifiable components of the transaction in order to the related revenue is generally determined by the terms reflect the substance of the transaction or to two or more of the agreement with the customer or, when such an transactions together when they are linked in such a way agreement does not specify a period, over a period no that the commercial effect cannot be understood without longer than the useful life of the transferred asset; reference to the series of transactions as a whole. > revenue from rentals and operating leases is recognized More specifically, the following criteria are used depending on an accruals basis in accordance with the substance of on the type of transaction: the relevant agreement. 162 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSFinancial income and expense from derivatives Financial income and expense from derivatives includes: > income and expense from derivatives measured at fair value through profit or loss on interest rate and foreign exchange risks; > income and expense from fair value hedge derivatives on interest rate risk; > income and expense from cash flow hedge derivatives on interest rate and foreign exchange risks. sponding values recognized for tax purposes on the basis of tax rates in effect on the date the temporary difference will reverse, which is determined on the basis of tax rates that are enacted or substantively enacted as at end of the reporting period. Deferred tax liabilities are recognized for all taxable tempo- rary differences, except when the deferred tax liability arises from the initial recognition of goodwill or in respect of taxa- ble temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the Group can control the timing of the reversal of the temporary differences and it is probable that the temporary Other financial income and expense differences will not reverse in the foreseeable future. For all financial assets and liabilities measured at amortized cost and interest-bearing financial assets classified as availa- ble for sale, interest income and expense is recorded using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is recognized to the extent that it is proba- ble that the economic benefits will flow to the Group and the amount can be reliably measured. Other financial income and expense also includes changes in the fair value of financial instruments other than deriva- tives. Income taxes Deferred tax assets are recognized for all deductible tempo- rary differences, the carry forward of unused tax credits and any unused tax losses, when recovery is probable, i.e. when an entity expects to have sufficient future taxable income to recover the asset. The recoverability of deferred tax assets is reviewed at each period-end. Unrecognized deferred tax assets are re-assessed at each reporting date and they are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred taxes are recognized in profit or loss, with the exception of those in respect of items recognized outside profit or loss that are recognized in equity. Deferred tax assets and deferred tax liabilities related to in- come taxes levied by the same taxation authority are set off if an entity has a legally enforceable right to set off the cur- rent tax assets and current tax liabilities that will arise at the Current income taxes Current income taxes for the period, which are recognized time of their reversal. under “income tax payable” net of payments on account, or under “tax receivables” where there is a credit balance, are Dividends determined using an estimate of taxable income and in con- Dividends are recognized when the right to receive payment formity with the applicable regulations. is established. In particular, such payables and receivables are determined Dividends and interim dividends payable to Company’s sha- using the tax rates and tax laws that are enacted or substan- reholders are recognized as changes in equity in the period tively enacted as at the end of the reporting period. in which they are approved by the Shareholders’ Meeting Current income taxes are recognized in profit or loss with and the Board of Directors, respectively. the exception of current income taxes related to items re- cognized outside profit or loss that are recognized in equity. Deferred tax items Deferred tax liabilities and assets are calculated on the tem- porary differences between the carrying amounts of assets and liabilities in the financial statements and their corre- 163  3 Recently issued accounting standards New accounting standards applied in 2014 The Group adopted the following accounting standards and amendments to existing standards with effect as from January 1, 2014: > “IFRS 10 - Consolidated financial statements”. Replaces “SIC 12 - Consolidation - Special purpose entities” and, for the part concerning consolidated financial statements, “IAS 27 - Consolidated and separate financial statements”, the title of which was changed to “Separate financial statements”. The standard introduces a new approach to determining whether an entity controls another (the essential condition for consolidating an investee), wi- thout modifying the consolidation procedures envisaged in the previous IAS 27. This approach must be applied to all investees, including special purpose entities, which are called “structured entities” in the new standard. Whi- le previous accounting standards gave priority – where control did not derive from holding a majority of actual or potential voting rights – to an assessment of the risks/ benefits associated with the holding in the investee, IFRS 10 focuses on the determination on three elements to be considered in each assessment: the power to direct relevant activities of the investee; exposure to variable returns from the involvement in the investee; and the link between power and returns, i.e. the ability to use that decision-making power over the investee to affect the amount of returns. The accounting effects of a loss of control or a change in the ownership interest that does not result in a loss of control are unchanged with respect to the provisions of the previous IAS 27. The retroactive application of the standard did not have an impact on the consolidated financial statements. > “IAS 27 - Separate financial statements”. Together with the issue of IFRS 10 and IFRS 12, the previous IAS 27 was also amended, with changes to its title and its content. All provisions concerning the preparation of consolida- ted financial statements were eliminated, while the other provisions were not modified. Following the amendment, the standard therefore only specifies the recognition and 164 measurement criteria and the disclosure requirements for separate financial statements concerning subsidiari- es, joint ventures and associates. As the amendment does not regard the consolidated fi- nancial statements, the retrospective application of the amendments did not have an impact on Group. > “IFRS 11 - Joint arrangements”. Replaces “IAS 31 - Interests in joint ventures” and “SIC 13 - Jointly controlled entities - non-monetary contributions by venturers”. Unlike IAS 31, which assessed joint arrangements on the basis of the con- tractual form adopted, IFRS 11 assesses them on the basis of how the related rights and obligations are attributed to the parties. In particular, the new standard identifies two types of joint arrangement: joint operations, where the parties to the arrangement have pro-rata rights to the assets and pro-rata obligations for the liabilities relating to the arrangement; and joint ventures, where the parties have rights to a share of the net assets or profit/loss of the arrangement. In the consolidated financial statements and the separate financial statements, accounting for an interest in a joint operation involves the pro-rata re- cognition of the assets/liabilities and revenues/expenses related to the arrangement on the basis of the associated rights/obligations, without taking account of the interest held. Accounting for an interest in a joint venture involves the recognition of an investment accounted for using the equity method. Proportionate consolidation is therefore no longer permitted. The effects of the retrospective application of the stan- dard in the consolidated financial statements are discus- sed in note 4 “Restatement of comparative disclosures” below. > “IAS 28 - Investments in associates and joint ventures”. Together with the issue of IFRS 11 and IFRS 12, the pre- vious IAS 28 was amended, with changes to its title and its content. In particular, the new standard, which also in- cludes the provisions of “SIC 13 - Jointly controlled entities - non-monetary contributions by venturers”, describes the application of the equity method, which in consolidated financial statements is used to account for associates and joint ventures. The effects of the retrospective application of the stan- dard in the consolidated financial statements are discus- sed – together with those generated by the introduction of IFRS 11 – in note 4 “Restatement of comparative di- sclosures” below. > “IFRS 12 - Disclosure of interests in other entities”. IFRS 12 brings together in a single standard the required di- ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSsclosures concerning interests held in subsidiaries, joint amended to clarify that the date of initial application of operations and joint ventures, associates and structured the standard shall mean “the beginning of the annual entities. In particular, the standard replaces the disclo- reporting period in which IFRS 10 is applied for the first sures called for in the previous versions of IAS 27, IAS time” (i.e. January 1, 2013). In addition, the amendments 28 and IAS 31 in order to ensure the disclosure of more limited the comparative disclosures to be provided in the uniform and consistent information, introducing new re- first year of application. IFRS 11 and IFRS 12 were amen- quirements for disclosures concerning subsidiaries with ded analogously, limiting the effects, both in terms of re- significant non-controlling shareholders and individually statement of financial data and of disclosures, of initial material associates and joint ventures, as well as structu- application of IFRS 11. red entities. The retrospective application of the amendments did not The retrospective application of the measure did not have an impact on the consolidated financial statements. have an impact on the consolidated financial statements. > “Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment > “Amendments to IAS 32 - Financial instruments: presen- entities”. The amendments introduce an exception to tation - Offsetting financial assets and financial liabilities”. the requirement under IFRS 10 to consolidate all subsi- The new version of IAS 32 establishes that a financial as- diaries if the parent qualifies as an “investment entity”. set and a financial liability should be offset and the net More specifically, investment entities, as defined in the amount reported in the balance sheet when, and only amendments, shall not consolidate their subsidiaries when, an entity: unless the latter provide services associated with the in- a) has a legally enforceable right to set off the amounts; vestment activities of the parent. Non-consolidated sub- and sidiaries shall be measured in conformity with IFRS 9 or b) intends either to settle on a net basis or to realize the IAS 39. The parent of an investment entity shall, however, asset and settle the liability simultaneously. consolidate all of its subsidiaries (including those held The amendments to IAS 32 clarify that, in order to satisfy through the investment entity) unless it also qualifies as the first requirement, the right of set-off must not be con- an investment entity. ditioned upon the occurrence of a future event and must The retrospective application of the amendments did not be legally enforceable in the normal course of business have an impact on the consolidated financial statements. and in the event of breach, insolvency or bankruptcy. The > “Amendments to IAS 36 - Recoverable amount disclosures company’s intent to settle net items can be seen in the for non-financial assets”. The amendments of IAS 36 as a course of normal business practices, through the ope- consequence of the provisions of IFRS 13 did not reflect ration of financial markets and through the absence of the intentions of the IASB concerning the disclosures to restrictions on the ability to settle gross and net financial report about the recoverable amount of impaired assets. assets and liabilities simultaneously. With regard to this Consequently, the IASB amended the standard further, requirement, the amendments to IAS 32 state that, whe- eliminating the disclosure requirements originally intro- re the entity settles financial assets and liabilities sepa- duced by IFRS 13 and requiring specific disclosures con- rately, for the purpose of offsetting such in the financial cerning the measurement of fair value in cases in which statements, the gross settlement system must have spe- the recoverable amount of impaired assets is calcula- cific characteristics that eliminate or reduce the degree ted on the basis of fair value less costs of disposal. The of credit and liquidity risk to insignificant levels, as well amendments also require disclosures on the recoverable as processing receivables and payables in a single settle- amount of assets or cash generating units for which an ment process. impairment loss has been recognized or reversed during The effects of the retrospective application of the the period. amendments on these consolidated financial statements The retrospective application of the amendments did not are discussed in note 4 “Restatement of comparative di- have an impact on the consolidated financial statements. sclosures” below. > “Amendments to IAS 39 - Novation of derivatives and > “Amendments to IFRS 10, IFRS 11 and IFRS 12 - Transi- continuation of hedge accounting”. The amendments are tion guidance”. The amendments are intended to clarify intended to allow entities, under certain conditions, to a number of issues concerning the first-time adoption of continue hedge accounting in the case of novation of the IFRS 10, IFRS 11 and IFRS 12. In particular, IFRS 10 was hedging instrument with a central counterparty as a re- 165 sult of the introduction of a new law or regulation. an investment property represents the acquisition of The retrospective application of the amendments did not an asset or group of assets or is a business combination have an impact on the consolidated financial statements. under the provisions of IFRS 3. That judgment must be Accounting standards taking effect at a future date consistent with the guidance of IFRS 3. “Annual improvements to IFRSs 2011-2013 cycle” amen- ded the Basis for Conclusions of “IFRS 1 - First-time adop- tion of International Financial Reporting Standards” to cla- The following new standards, amendments and interpre- rify that a first-time adopter may adopt a new IFRS whose tations take effect after December 31, 2014: adoption is not yet mandatorily effective if the new IFRS > “IFRIC 21 - Levies”, issued in May 2013. The interpretation permits early application. defines when a liability in respect of the obligation to pay > “Annual improvements to IFRSs 2010-2012 cycle”, issued a levy (other than income taxes) due to the government, in December 2013; the document contains formal modi- whether local, national or international must be reco- fications and clarifications of existing standards that are gnized. More specifically, the interpretation established not expected to have a significant impact on the Group that the liability shall be recognized when the obligating and will apply for period beginning on or after February event giving rise to the liability to pay the levy (for exam- 1, 2015. More specifically, the following standards were ple, upon reaching a given threshold level of revenue), amended: as set out in the applicable law, occurs. If the obligating - “IFRS 2 - Share-based payment”; the amendment se- event occurs over a specified period of time, the liability parates the definitions of “performance conditions” shall be recognized gradually over that period. The inter- and “service conditions” from the definition of “vesting pretation will take effect for periods beginning on or af- conditions” in order to clarify the description of each ter June 17, 2014. The Group does not expect the future condition; application of the provisions to have an impact. - “IFRS 3 - Business combinations”; the amendment cla- > “Annual improvements to IFRSs 2011-2013 cycle”, issued rifies how to classify any contingent consideration in December 2013; the document contains formal modi- agreed in a business combination. Specifically, the fications and clarifications of existing standards that are amendment establishes that if the contingent consi- not expected to have a significant impact on the Group deration meets the definition of financial instrument it and will apply as from January 1, 2015. More specifically, shall be classified as a financial liability or equity. In the the following standards were amended: former case, the liability shall be measured at fair value - “IFRS 3 - Business combinations”; the amendment cla- and changes in fair value shall be recognized in profit rifies that IFRS 3 does not apply to the financial sta- or loss in accordance with IFRS 9. Contingent conside- tements of a joint arrangement in accounting for the ration that does not meet the definition of financial in- formation of the joint arrangement itself; strument shall be measured at fair value and changes - “IFRS 13 - Fair value measurement”; the amendment in fair value shall be recognized in profit or loss; clarifies that the exception provided for in that stan- - “IFRS 8 - Operating segments”; the amendments intro- dard of measuring financial assets and liabilities on the duce new disclosure requirements in order to enable basis of the net exposure of the portfolio (the “portfo- the users of financial statements to understand the lio exception”) shall apply to all contracts within the judgments adopted by management’s in aggregating scope of IAS 39 or IFRS 9 even if they do not meet the operating segments and the reasons for such aggre- definitions in IAS 32 of financial assets or liabilities; gation. The amendments also clarify that the reconci- - “IAS 40 - Investment property”; under IAS 40, a proper- liation of total segment assets and total assets of the ty interest held by a lessee under an operating lease entity is required only if provided periodically by ma- may be classified as an investment property if and only nagement; if the property would otherwise meet the definition - “IAS 16 - Property, plant and equipment”; the of an investment property and if the lessee uses the amendment clarifies that when an item of property, fair value model to measure such investments. The plant and equipment is revalued the gross carrying amendment also clarifies that management judgment amount of that asset shall be adjusted in a manner must be used to determine whether the acquisition of consistent with the revaluation of the carrying amount. 166 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS In addition, it also clarifies that the accumulated depre- > “IFRS 9 - Financial instruments”, the final version was is- ciation shall be calculated as the difference between sued on July 24, 2014, replacing the existing “IAS 39 - Fi- the gross carrying amount and the carrying amount of nancial instruments: recognition and measurement” and the asset after taking account of accumulated impai- supersedes all previous versions of the new standard. The rment losses; standard will take effect as from January 1, 2018 and early - “IAS 24 - Related party disclosures”; the amendment application will be permitted following endorsement. clarifies that a management entity, i.e. an entity provi- The final version of IFRS 9 incorporates the results of the ding key management personnel services to an entity, three phases of the project to replace IAS 39 concerning is a related party of that entity. Accordingly, in addi- classification and measurement, impairment and hedge tion to fees for services paid or payable to the mana- accounting. gement entity, the entity must report other transac- As regards the classification of financial instruments, IFRS tions with the management entity, such as loans. The 9 provides for a single approach for all types of financial amendment also clarifies that if an entity obtains key asset, including those containing embedded derivatives, management personnel services from a management under which financial assets are classified in their enti- entity, the entity is not required to disclose the com- rety, without the application of complex subdivision me- pensation paid or payable by the management entity thods. to those managers; In order to determine how financial assets should be clas- - “IAS 38 - Intangible assets”; the amendment clarifies sified and measured, consideration must be given to the that when an intangible asset is revalued, its gross business model used to manage its financial assets and carrying amount shall be adjusted in a manner consi- the characteristics of the contractual cash flows. Business stent with the revaluation of the carrying amount. In model is construed as the manner in which the entity ma- addition, it also clarifies that the accumulated amor- nages its financial assets to generate cash flows, i.e. col- tization shall be calculated as the difference between lecting contractual cash flows, selling the financial asset the gross carrying amount and the carrying amount of or both. the asset after taking account of accumulated impai- Financial assets at amortized cost are held in a business rment losses. model whose objective is to collect contractual cash “Annual improvements to IFRSs 2010-2012 cycle” amen- flows, while those held at fair value through other com- ded the Basis for Conclusions of “IFRS 13 - Fair value me- prehensive income (FVTOCI) are held with the objective asurement” to clarify that short-term receivables and pa- of collecting contractual cash flows or selling the instru- yables with no stated interest rate to apply to the invoice ment. This category enables the recognition of interest amount can still be measured without discounting, if the calculated using the amortized cost method through impact of discounting would not be material. profit or loss and the fair value of the financial asset > “Amendments to IAS 19 - Defined benefit plans: em- through OCI. ployees contributions”, issued in November 2013. The Financial assets at fair value through profit or loss (FVTPL) amendments are intended to clarify how to recognize is now a residual category that comprises financial instru- contributions from employees within a defined benefit ments that are not held under one of the two business plan. More specifically, contributions linked to service models indicated above, including those held for trading should be recognized as a reduction in service cost: and those managed on the basis of their fair value. - over the periods in which employees render their servi- As regards the classification and measurement of finan- ces, if the amount of the contributions is dependent on cial liabilities, IFRS 9 maintains the accounting treatment the number of years of service; or envisaged in IAS 39, making limited amendments, for - in the period in which the service is rendered, if the which most of such liabilities are measured at amortized amount of the contributions is independent of the cost. In addition, it is still possible to designate a financial number of years of service. liability as at fair value through profit or loss if certain re- The amendments will take effect for periods beginning quirements are met. on or after February 1, 2015. The Group is assessing The standard introduces new provisions for financial the potential impact of the future application of the liabilities designated as at fair value through profit or amendments. loss, under which in certain circumstances the portion of 167 changes in fair value due to own credit risk shall be reco- concerning portfolio fair value hedge accounting for in- gnized through OCI rather than profit or loss. This part terest rate risk (“macro hedge accounting”) as that phase of the standard may be applied early, without having to of the project for replacing IAS 39 has been separated apply the entire standard. and is currently at the discussion stage. In this regard, in In view of the fact that during the financial crisis the April 2014 the IASB published the Discussion Paper Ac- model of impairment based on “incurred credit losses” counting for Dynamic Risk Management: a Portfolio Reva- had shown clear limitations connected with the deferral luation Approach to Macro Hedging. of the recognition of credit losses to the time a trigger The potential impact of the future application of IFRS 9 is event occurred, the standard proposes a new model that still being assessed. gives users of financial statements more information on > “IFRS 14 - Regulatory deferral accounts”, issued in January “expected credit losses”. 2014. The standard allows first-time adopters to conti- Essentially, the model envisages: nue to recognize rate-regulated amounts recognized un- a) the application of a single approach for all financial der their previous GAAP at first-time adoption of the In- assets; ternational Financial Reporting Standards. The standard b) the recognition of expected credit losses on an on- may not be adopted by entities that already prepare their going basis and the updating of the amount of such financial statements in accordance with the IFRS/IAS. In losses at the end of each reporting period, with a view other words, an entity may not recognize rate-regulated to reflecting changes in the credit risk of the financial assets and liabilities under IFRS 14 if its current GAAP instrument; do not permit such recognition or if the entity has not c) the measurement of expected losses on the basis of re- adopted such accounting treatment as permitted under asonable information, obtainable without undue cost, its current GAAP. The standard shall take effect retrospec- about past events, current conditions and forecasts of tively, subject to endorsement, for periods beginning on future conditions; or after January 1, 2016. The application of the standard d) an improvement of disclosures on expected losses and will have no impact on the Group. credit risk. > “IFRS 15 - Revenue from contracts with customers”, is- IFRS 9 also introduces a new approach to hedge ac- sued in May 2014, introduces a general framework for counting, with the objective of aligning the representa- the recognition and measurement of revenue, accompa- tion in the accounts with risk management activities and nied by a set of notes. The new standard replaces “IAS of establishing a more principles-based approach. 11 - Construction contracts”, “IAS 18 - Revenue”, “IFRIC 13 The new approach to hedge accounting will enable en- - Customer loyalty programmes”, “IFRIC 15 - Agreements tities to reflect their risk management activities in the for the construction of real estate”, IFRIC 18 - Transfers financial statements, extending the criteria for eligibility of assets from customers” and “SIC 31 - Revenue - Barter as hedged items to the risk components of non-financial transactions involving advertising services”. The new stan- elements, to net positions, to layer components and to dard establishes that an entity must recognize revenue aggregate exposures (i.e. a combination of a non-deri- in a manner that faithfully depicts the transfer of goods vative exposure and a derivative). The most significant and services to customers in an amount that reflects the changes regarding hedging instruments compared with consideration to which the entity expects to be entitled the hedge accounting approach used in IAS 39 involve in exchange for those goods or services. The new reco- the possibility of deferring the time value of an option, gnition approach is based on a five-step model: the en- the forward element of forward contracts and currency tity must identify the contract(s) with the customer (step basis spreads (i.e. “hedging costs”) in OCI up until the 1); once the contract has been identified, it must iden- time in which the hedged element impacts profit or loss. tify the performance obligations in the contract, i.e. it IFRS 9 also eliminates the requirement for testing effec- must assess its terms and commercial practices in order tiveness under which the results of the retrospective test to identify which goods and services are promised in re- needed to fall with a range of 80%-125%, allowing enti- spect of the individual obligations in the contract (step 2); ties to rebalance the hedging relationship if risk manage- subsequently, the entity must determine the transaction ment objectives have not changed. price (step 3), which is represented by the consideration Finally, IFRS 9 does not replace the provisions of IAS 39 that it expects to obtain; the entity must then allocate the 168 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS transaction price to the individual obligations identified sued in June 2014. The amendments change the ac- in the contract (step 4) on the basis of the value of each counting treatment of biological assets that meet the performance obligation; revenue is recognized when the definition of “bearer plants”, such as fruit trees, that cur- entity satisfies the individual performance obligations rently fall within the scope of “IAS 16 - Property, plant and (step 5). The standard shall take effect, subject to en- equipment”. As a consequence, they will be subject to all dorsement, for periods beginning on or after January 1, of the provisions of that standard. Accordingly, for me- 2017. The Group is assessing the potential impact of the asurement subsequent to initial recognition, the entity future application of the standard. may choose between the cost model and the revaluation > “Amendments to IFRS 11 - Accounting for acquisitions model. The agricultural products produced by the bearer of interests in joint operations”, issued in May 2014. The plants (e.g. fruit) will remain within the scope of “IAS 41 - amendments clarify the accounting treatment of the ac- Agriculture”. The amendments will take effect, subject to quisition of an interests in a joint operation that is busi- endorsement, for periods beginning on or after January ness, pursuant to IFRS 3, requiring the application of all 1, 2016. The Group does not expect the future applica- the accounting rules for business combinations under tion of the amendments to have an impact. IFRS 3 and other applicable IFRS with the exception of > “Amendments to IAS 27 - Equity method in separate finan- those standards that conflict with the guidance on IFRS cial statements” issued in August 2014. The amendments 11. Under the amendments, a joint operator that acqui- reinstate the equity method as an accounting option res such interests must measure the identifiable assets for investments in subsidiaries, joint ventures and asso- and liabilities at fair value; expense acquisition-related ciates in an entity’s separate financial statements. The costs (with the exception of debt or equity issuance amendments also clarify a number of issues concerning costs); recognize deferred taxes; recognize any goodwill investment entities. Specifically, when an entity ceases to or bargain purchase gain; perform impairment tests for be an investment entity, it must recognize investments in the cash generating units to which goodwill has been subsidiaries in accordance with IAS 27. Conversely, when allocated; and disclose information required for relevant an entity becomes an investment entity, it must recogni- business combinations. The amendments will take effect, ze investments in subsidiaries at fair value through profit subject to endorsement, for periods beginning on or af- or loss in accordance with IFRS 9. The amendments will ter January 1, 2016. take effect, subject to endorsement, for periods begin- > “Amendments to IAS 16 and IAS 38 - Clarification of ac- ning on or after January 1, 2016. As the amendments re- ceptable methods of depreciation and amortization”, is- gard the separate financial statements only, they are not sued in May 2014. The amendments provide additional expected to have an impact on the consolidated financial guidance on how the depreciation or amortization of statements. property, plant and equipment and intangible assets > “Amendments to IFRS 10 and IAS 28 - Sale or contribu- should be calculated. The provisions of IAS 16 have been tion of assets between an investor and its associate or joint amended to clarify that a revenue-based depreciation venture”, issued in September 2014. The amendments method asset is not appropriate. The provisions of IAS established that in the case of the sale or contribution of 38 have been amended to introduce a presumption that assets to a joint venture or an associate, or the sale of an in- a revenue-based amortization method is inappropriate. terest that gives rise to a loss of control while maintaining That presumption can be overcome when: joint control or significant influence over the associate or - the intangible asset is expressed as a measure of reve- joint venture, the amount of the gain or loss recognized nue; shall depend on which the assets or interest constitute a - it can be demonstrated that revenue and the con- business in accordance with “IFRS 3 - Business combina- sumption of the economic benefit generated by an in- tions”. More specifically, if the assets/interest constitute a tangible asset are highly correlated. business, any gain (loss) shall be recognized in full; if the The amendments will take effect prospectively, subject to assets/interest does not constitute a business, any gain endorsement, for periods beginning on or after January (loss) shall only be recognized to the extent of the unre- 1, 2016. The Group is assessing the impact of the future lated investors’ interests in the associate or joint venture, application of the amendments. who represent the counterparties in the transaction. The > “Amendments to IAS 16 and IAS 41 - Bearer plants”, is- amendments will take effect prospectively, subject to en- 169 dorsement, for periods beginning on or after January 1, plify application of the equity method for an entity that 2016. The Group does not expect the future application is not an investment entity but holds an interest in an of the amendments to have an impact. associate or joint venture that is an investment entity. In > “Amendments to IAS 1 - Disclosure initiative”, issued in particular, when applying the equity method, the entity December 2014. The amendments, which form part of a may retain the fair value measurement applied by the broader initiative to improve presentation and disclosure associate or joint venture to its interests in subsidiaries. requirements, include changes in the following areas: The amendments will take effect, subject to endorse- - materiality: the amendments clarify that the concept ment, for periods beginning on or after January 1, 2016. of materiality applies to all parts of the financial state- The Group does not expect the future application of the ments and that the inclusion of immaterial information amendments to have an impact. could undermine the utility of financial disclosures; > “Annual improvements to IFRSs 2012-2014 cycle”, issued - disaggregation and subtotals: the amendments clarify in September 2014; the document contains formal modi- that the line items in the income statement, the state- fications and clarifications of existing standards that are ment of comprehensive income and the balance sheet not expected to have a significant impact on the Com- may be disaggregated. They also introduce new requi- pany. More specifically, the following standards were rements concerning the use of subtotals; amended: - the structure of the notes: the amendments clarify that - “IFRS 5 - Non-current assets held for sale and disconti- entities have a certain degree of flexibility in the order nued operations”; the amendments clarify that the re- in which the notes to the financial statements may be classification of an asset (or disposal group) from held presented. They also emphasize that in establishing for sale to held for distribution should not be conside- that order the entity must consider the requirements red as a new plan of sale but rather the continuation of of understandability and comparability of the financial the original plan. Accordingly, the reclassification does statements; not give rise to any interruption in the application of - investments accounted for using the equity method: the provisions of IFRS 5 or any change in the date of the entity’s share of OCI of investments in equity- classification. The amendments will take effect, subject accounted associates and joint ventures must be to endorsement, for periods beginning on or after Ja- presented as separate line items in the statement of nuary 1, 2016; comprehensive income depending whether they will - “IFRS 7 - Financial instruments: disclosures”; as regards subsequently be reclassified to profit or loss. disclosures to be provided on any continuing invol- The amendments will take effect, subject to endorse- vement in assets that have been transferred and de- ment, for periods beginning on or after January 1, 2016. recognized in their entirety, the amendments clarify The Group does not expect the future application of the that for disclosure purposes, a servicing contract that amendments to have an impact. provides for the payment of a fee can represent a con- > “Amendments to IFRS 10, IFRS 12 and IAS 28 - Investment tinuing involvement in the transferred asset. The enti- entities: applying the consolidation exception”, issued in ty must assess the nature of the fee and the servicing December 2014. The amendments clarify that if a parent contract to determine when disclosure is required. The entity (or intermediate parent) prepares its financial sta- amendments also clarify that disclosures concerning tements in conformity with IFRS 10 (including the case the offsetting of financial assets and liabilities are not of an investment entity that does not consolidate its in- required in condensed interim financial statements. vestments in subsidiaries but rather measures them at The amendments will take effect, subject to endor- fair value), the exemption from preparing consolidated sement, for periods beginning on or after January 1, financial statements is available to the subsidiaries of 2016; an investment entity that in turn qualify as investment - “IAS 19 - Employee benefits”; IAS 19 requires that the entities. In addition, the amendments also clarify that a discount rate used to discount post-employment be- parent entity that qualifies as an investment entity must nefit obligations shall be determined by reference to consolidate a subsidiary that provides services related to market yields on high quality corporate bonds or go- the parent’s investment activities if the subsidiary is not vernment bonds where there is not deep market in itself an investment entity. The amendments also sim- such high quality corporate bonds. The amendment 170 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSto IAS 19 clarifies that the depth of the market in high give rise to any significant differences with the proportio- quality corporate bonds must be assessed on the ba- nate consolidation method used previously; sis of the currency in which the bond is denominated > the application of the new provisions of IAS 32, applica- and not the currency of the country in which the bond ble since January 1, 2014 with retrospective effect, con- is issued. If there is no deep market in high quality cerning the offsetting of financial assets and liabilities corporate bonds in that currency, the corresponding under certain conditions, which only led to the restate- market yield on government bonds shall be used. The ment of several items in the consolidated balance sheet amendments will take effect, subject to endorsement, at December 31, 2013, with no impact on shareholders’ for periods beginning on or after January 1, 2016; equity. - “IAS 34 - Interim financial reporting”; the amendment In addition, the balance sheet figures at December 31, 2013 establishes that the required disclosures for interim fi- were restated as a result of the definitive allocation of the nancial reports shall be provided in the interim financial purchase prices for a number of companies in the Renew- statements or cross-referenced in the interim financial able Energy Division (including Parque Eólico Talinay Orien- statements by way of a reference to another statement te) in transactions that had been completed after that date. (e.g. a management risk report) that is available on the Here, too, there were no restatement effects on the items same terms and at the same time to users of the in- of the income statement, as the depreciation and amortiza- terim financial statements. The amendments will take tion of assets other than goodwill whose value was increa- effect, subject to endorsement, for periods beginning sed only began as from the current year. on or after January 1, 2016. 4 Restatement of comparative disclosures The newly applicable accounting standards or newly adop- ted accounting policies that gave rise to restatements of comparative figures at December 31, 2013 are as follows: > the retrospective application of the new IFRS 11, under which the only permissible method for accounting for joint ventures is the equity method, while joint arrange- ments are now accounted for by recognizing the entity’s share of the assets/liabilities and costs/revenue of the agreement on the basis of its rights/obligations in the arrangement, regardless of the interest held. In substan- ce, the change removed the possibility, as provided for under the previous IAS 31 and used by the Group, of con- solidating investments in joint ventures on a proportio- nate basis, leading to the restatement of all performance and financial items, although not changing the net inco- me or shareholders’ equity of the Group. The impact of the change in accounting treatment of joint operations was marginal, given that the characteristics of the agree- ments involved and the associated rights and obligations meant that the accounting treatment adopted did not Following changes in the approach used to classify costs for purchases of electricity, financial receivables in respect of subsidiaries and joint ventures and the financial impact of derivatives and their fair value, designed to implement best industry practice and to ensure clarity in financial reporting, reclassifications have been made to the income statement, the balance sheet and the statement of cash flows for 2013 in order to ensure greater comparability of the information reported. More specifically: with regard to the 2013 income statement, we have reclassified: (i) costs for materials and equipment in the amount of €1,577 million from “Raw materials and consumables” to “Services and other materials”; (ii) financial income from derivatives in the amount of €757 million from “Financial income” to “Net financial income/ (expense) from derivatives”; (iii) financial expense from derivatives in the amount of €1,218 million from “Financial expense” to “Net financial income/(expense) from derivatives”. With regard to the balance sheet at December 31, 2013 and at January 1, 2013, we have reclassified: (i) non-current derivative financial assets, equal – at the respective reference dates – to €444 million and €953 million, from “Non-current financial assets” to a separate “Derivatives” item under non-current assets; (ii) current derivative financial assets, equal – at the respecti- ve reference dates –to €2,285 million and €1,718 million, from “Current financial assets” to a separate “Derivatives” item under current assets; 171 (iii) non-current derivative financial liabilities, equal – at the energy, receivables and payables in respect of construction respective reference dates – to €2,257 million and €2,553 contracts and the impact of derivatives on performance and million, from “Non-current financial liabilities” to a sepa- the financial position. This made it necessary to restate cer- rate “Derivatives” item under non-current liabilities; tain figures for 2013 and at December 31, 2013, in order to (iv) current derivative financial liabilities, equal – at the re- ensure the comparability of the figures. spective reference dates – to €2,535 million and €2,028 million, from “Current financial liabilities” to a separate The following tables report the changes to the income sta- “Derivatives” item under current liabilities. tement, the statement of comprehensive income, the con- solidated balance sheet and the statement of cash flows as In addition, the income statement and the balance sheet a result of the above amendments, including the associated have been modified to improve the presentation of infor- tax effects. mation concerning costs for purchases of raw materials and Millions of euro Revenue Revenue from sales and services Other revenue and income Total revenue Costs Electricity, gas and fuel purchases Services and other materials Personnel Depreciation, amortization and impairment losses Other operating expenses Capitalized costs Total costs Net income/(expense) from commodity contracts measured at fair value Operating income Financial income from derivatives Other financial income Financial expense from derivatives Other financial expense Share of income/(losses) of equity investments accounted for using the equity method Income before taxes Income taxes Net income from continuing operations Net income from discontinued operations Net income for the year (shareholders of the Parent Company and non-controlling interests) Attributable to shareholders of the Parent Company Attributable to non-controlling interests 2013 IFRS 11 effect 2013 restated 77,258 3,277 80,535 40,035 17,128 4,596 7,067 2,837 (1,450) 70,213 (378) 9,944 757 1,696 1,218 4,048 86 7,217 2,437 4,780 - 4,780 3,235 1,545 (1,831) (41) (1,872) (1,081) (430) (41) (116) (16) 16 (1,668) - (204) (1) (3) (8) (5) 131 (64) (64) - - - - - 75,427 3,236 78,663 38,954 16,698 4,555 6,951 2,821 (1,434) 68,545 (378) 9,740 756 1,693 1,210 4,043 217 7,153 2,373 4,780 - 4,780 3,235 1,545 172 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSMillions of euro Net income for the year Other comprehensive income recyclable to profit or loss Effective portion of change in the fair value of cash flow hedges Share of the other comprehensive income of equity investments accounted for using the equity method Change in the fair value of financial assets available for sale Exchange rate differences Other comprehensive income not recyclable to profit or loss Remeasurements of net defined benefit liabilities/(assets) Share of the other comprehensive income of equity investments accounted for using the equity method Total other comprehensive income/(loss) for the period Total comprehensive income/(loss) for the period Attributable to: - shareholders of the Parent Company - non-controlling interests Millions of euro 2013 4,780 (174) (29) (105) (3,197) (188) - (3,693) 1,087 1,514 (427) IFRS 11 effect - (16) 11 - 5 - - - - - 2013 restated 4,780 (190) (18) (105) (3,192) (188) - (3,693) 1,087 1,514 (427) at Dec. 31, 2012 IFRS 11 effect IAS 32 effect at Jan. 1, 2013 restated at Dec. 31, 2013 IFRS 11 effect IAS 32 effect ASSETS Property, plant and equipment 83,115 (926) Investment property Intangible assets Goodwill Deferred tax assets Equity investments accounted for using the equity method Derivatives Other non-current financial assets Other non-current assets 197 20,087 15,910 6,816 1,115 953 4,565 800 - (137) (101) (49) 836 - 23 (19) Total non-current assets 133,558 (373) Inventories Trade receivables Tax receivables Derivatives Other current financial assets Other current assets Cash and cash equivalents 3,338 (48) 11,681 (126) 1,631 1,718 7,663 2,300 9,891 (28) (1) (13) (19) (165) (400) - - - - - - - - - - - - - 507 - - - 82,189 81,050 (773) 197 181 - 19,950 18,214 (174) 15,809 15,015 6,767 6,239 1,951 953 4,588 781 647 444 5,957 837 133,185 128,584 3,290 3,586 11,555 11,496 1,603 2,224 7,650 2,281 9,726 1,735 2,285 5,592 2,599 8,030 (51) (53) 725 - 13 (20) (333) (31) (118) (26) (1) 15 (42) (157) (360) Total current assets 38,222 507 38,329 35,323 Assets classified as held for sale 317 - - 317 241 - TOTAL ASSETS 172,097 (773) 507 171,831 164,148 (693) - - - - - - - - - - - - - 406 - - - 406 - 406 Renewable Energy Division PPA at Dec. 31, 2013 restated (14) 80,263 - 15 3 - - - - - 4 - - - - - - - 181 18,055 14,967 6,186 1,372 444 5,970 817 128,255 3,555 11,378 1,709 2,690 5,607 2,557 7,873 35,369 241 4 163,865 173 IFRS 11 effect IAS 32 effect at Jan. 1, 2013 restated at Dec. 31, 2013 IFRS 11 effect IAS 32 effect Renewable Energy Division PPA at Dec. 31, 2013 restated 9,403 7,084 19,454 35,941 16,891 52,832 50,905 3,677 6,504 10,795 2,216 1,259 75,356 2,484 4,658 1,467 12,363 286 2,940 1,100 10,359 35,657 20 111,033 163,865 - - - - - - - 4 - 4 - - - - - - - - 4 4 Millions of euro Share capital Reserves Retained earnings (loss carried forward) Total equity attributable to the shareholders of the Parent Company Non-controlling interests Total shareholders’ equity at Dec. 31, 2012 9,403 8,747 17,625 35,775 16,312 52,087 - - (9) (9) Long-term borrowings 55,959 (226) Post-employment and other employee benefits Provisions for risks and charges 4,542 7,336 (21) (80) Deferred tax liabilities 11,786 (128) Derivatives Other non-current liabilities 2,553 1,151 (66) (8) Total non-current liabilities 83,327 (529) Short-term borrowings 3,970 (2) Current portion of long-term borrowings Provisions for risk and charges 4,057 1,312 (34) (21) Trade payables 13,194 (105) Income tax payable Derivatives Other current financial liabilities Other current liabilities 364 2,028 1,110 10,641 (10) (1) (5) (57) - - - - - - - - - - - - - - - - - 9,403 8,747 9,403 7,084 17,625 19,454 35,775 35,941 16,303 16,898 52,078 52,839 - - - - (7) (7) 55,733 51,113 (208) 4,521 7,256 3,696 6,554 (19) (50) 11,658 10,905 (114) 2,487 1,143 2,257 1,266 (41) (7) 82,798 75,791 (439) 3,968 2,529 (45) 4,023 1,291 4,690 1,493 13,089 12,444 354 308 507 2,534 2,535 - - 1,105 1,105 10,584 10,394 (32) (26) (81) (22) (1) (5) (35) - - - - - - - - - - - - - - - - - - - 406 - - Total current liabilities 36,676 (235) 507 36,948 35,498 (247) 406 Liabilities classified as held for sale 7 - - 7 20 - - TOTAL LIABILITIES 120,010 (764) 507 119,753 111,309 (686) 406 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 172,097 (773) 507 171,831 164,148 (693) 406 174 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSMillions of euro Income before taxes for the year Adjustments for: Amortization and impairment losses of intangible assets Depreciation and impairment losses of property, plant and equipment Exchange rate adjustments of foreign currency assets and liabilities (including cash and cash equivalents) Accruals to provisions Financial (income)/expense (Gains)/Losses from disposals and other non-monetary items Cash flow from operating activities before changes in net current assets Increase/(Decrease) in provisions (Increase)/Decrease in inventories (Increase)/Decrease in trade receivables (Increase)/Decrease in financial and non-financial assets/liabilities Increase/(Decrease) in trade payables Interest income and other financial income collected Interest expense and other financial expense paid Income taxes paid Cash flows from operating activities (a) - of which discontinued operations Investments in property, plant and equipment Investments in intangible assets Investments in entities (or business units) less cash and cash equivalents acquired Disposals of entities (or business units) less cash and cash equivalents sold (Increase)/Decrease in other investing activities Cash flows from investing/disinvesting activities (b) - of which discontinued operations Financial debt (new long-term borrowing) Financial debt (repayments and other net changes) Collections/(Payments) for sale/(acquisition) of non-controlling interests Incidental expenses in disposal of equity interests without loss of control Dividends and interim dividends paid Cash flows from financing activities (c) - of which discontinued operations Impact of exchange rate fluctuations on cash and cash equivalents (d) Increase/(Decrease) in cash and cash equivalents (a+b+c+d) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 2013 7,217 1,622 4,790 (264) 1,023 2,319 48 16,755 (1,884) (249) (596) (681) (893) 1,110 (3,715) (2,606) 7,241 (5,350) (610) (210) 1,409 614 (4,147) - 5,336 (9,565) 1,814 (85) (2,044) (4,544) (426) (1,876) 9,933 8,057 IFRS 11 effect (63) (24) (92) - - 3 (140) (316) (5) (17) 65 79 22 165 20 - 13 - 39 - 4 - 1 44 - - (54) - - - (54) - 5 8 (165) (157) 2013 restated 7,154 1,598 4,698 (264) 1,023 2,322 (92) 16,439 (1,889) (266) (531) (602) (871) 1,275 (3,695) (2,606) 7,254 (5,311) (610) (206) 1,409 615 (4,103) - 5,336 (9,619) 1,814 (85) (2,044) (4,598) (421) (1,868) 9,768 7,900 175  5 Main changes in the scope of consolidation In the two periods under review, the scope of consolidation changed as a result of the following main transactions. 2013 2014 > Acquisition, on March 22, 2013, of 100% of Parque Eólico > Loss of control, as from January 1, 2014, of SE Hydro- Talinay Oriente, a company operating in the wind gene- power, under agreements signed in 2010 upon the ac- ration sector in Chile; quisition of the company, providing for the change in > acquisition, on March 26, 2013, of 50% of PowerCrop, governance structure as from that date. This resulted in a company operating in the biomass generation sector; the Enel Group no longer meeting the requirements for in view of the joint control exercised over the company control of the company, which has instead become an together with another operator, the company is now entity under joint control. With these new governance accounted for using the equity method under the provi- arrangements, the investment was reclassified as a joint sions of IFRS 11; operation under IFRS 11; > disposal, on April 8, 2013, of 51% di Buffalo Dunes Wind > acquisition, through a tender offer in effect between Project, a company operating in the wind generation sec- January 14, 2014 and May 16, 2014, of an additional tor in the United States; 15.18% stake in Coelce, an electricity distribution com- > acquisition, on May 22, 2013, of 26% of Chisholm View pany in Brazil, already under the Group’s control prior to Wind Project and Prairie Rose Wind, two companies ope- the tender offer; rating in the wind generation sector in the United States > acquisition, on April 22, 2014, of 50% of Inversiones Gas in which the Group held a stake of 49%; as a result of the Atacama, a company operating in the natural gas tran- purchase, as from that date the companies are no longer sport and electricity generation sector in Chile in which accounted for using the equity method but are now con- the Group already held 50%; therefore, the company solidated on a line-by-line basis; is now consolidated on a line-by-line basis rather than > acquisition, on August 9, 2013, of 70% of Domus Energia using equity method accounting; (now Enel Green Power Finale Emilia), a company opera- > acquisition, on May 12, 2014, of 26% of Buffalo Dunes ting in the biomass generation sector; Wind Project, a company operating in the wind gene- > acquisition, on October 31, 2013, of 100% of Compañía ration sector in the United States in which the Group Energética Veracruz, a company operating in the deve- already held 49%; therefore, the company is now con- lopment of hydroelectric plants in Peru; solidated on a line-by-line basis rather than using equity > disposal, on November 13, 2013, of 40% of Artic Russia, method accounting; with the consequent deconsolidation of the interest held > acquisition, on July 22, 2014, of the remaining 50% of by the latter in SeverEnergia; Enel Green Power Solar Energy, an Italian company ope- > acquisition, in November and December 2013, of nine rating in the development, design, construction and ope- companies (representing three business combinations) ration of photovoltaic plants, in which the Group had operating in the development of wind power projects in previously held 50%; therefore, the company is now con- the United States; solidated on a line-by-line basis rather than using equity > disposal, on December 20, 2013, of the remaining stake method accounting; in Enel Rete Gas, previously accounted for using the equi- > acquisition, on September 4, 2014, of the remaining 39% ty method. 176 of Generandes Perú (previously controlled through a sta- ke of 61%), a company that controls, with an interest of 54.20%, Edegel, a company operating in the power ge- neration sector in Peru; > acquisition, on September 17, 2014, of 100% of Osage ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Wind LLC, a company that owns a 150 MW wind deve- > disposal in December 2014 of 100% of Enel Green Power lopment project in the United States. In October 2014, France, a renewables generator in France. a stake of 50% in the company was sold. Consequently, the company, a joint venture, began to be accounted for In addition, following the internal reorganization of the using the equity method; Group designed to restructure the holdings of the Iberia > disposal, on November 21, 2014, of 21.92% of Endesa and Latin America Division, there were a number of chan- SA, in a public offering. The operation did not involve any ges in non-controlling interests in a number of subsidiaries. loss of control; More specifically, on October 23, 2014 Endesa (of which the > during 2014, agreements were completed for the ac- Group holds 92.06%) sold 100% of Endesa Latinoamérica quisition of wind and solar projects in Chile, in the total (an investment holding company that owned 40.32% of amount of about €7 million, and a wind project in Uru- Enersis) and 20.3% of Enersis, the parent company for ope- guay for €4 million; rations in Latin America, to Enel Energy Europe, now Enel > disposal in December 2014 of the entire stake (36.2%) Iberoamérica (a wholly-owned subsidiary). The operation held in LaGeo, a geothermal generation company in El increased the Group’s stake in Enersis by 4.81%. Salvador; Definitive allocation of the purchase price of a number of companies of the Renewable Energy Division perty, plant and equipment as a result of the completion of the determination of their fair value; > determined the tax effects associated with the above re- Following the acquisition of control in 2013 of Parque Eólico Talinay Oriente, a Chilean company operating in the wind generation sector, in the 1st Quarter of 2014 the Group completed the allocation of the associated purchase price to the assets acquired and the liabilities assumed. More spe- cifically, the Group: > adjusted the value of certain intangible assets and pro- Definitive allocation of the purchase price cognition. The following table summarizes the accounting effects as of the acquisition dates, along with the effects of certain other minor acquisitions by that Division in the 1st Quarter of 2013 for which the definitive recognition was carried out in the 1st Quarter of 2014. Millions of euro Parque Eólico Talinay Oriente Other minor acquisitions Net assets acquired before allocation Adjustments for measurement at fair value: - property, plant and equipment - intangible assets - deferred tax liabilities Net assets acquired after allocation Value of the transaction (1) Goodwill (1) Including incidental expenses. 126 (14) 8 (2) 118 126 8 - - 7 (2) 5 7 2 The following section details the main business combinations and other material acquisitions and reorganizations con- ducted by the Group in 2014. 177 Increase of the interest in Coelce Between January 14, 2014 and May 16, 2014, the Chilean subsidiary Enersis acquired, through a tender offer, another 15.16% of Coelce, a subsidiary that operates in the electri- city distribution sector in Brazil and was already consolida- ted on a line-by-line basis. Under IFRS 3 (Revised), in tran- sactions involving non-controlling interests, the difference between the price paid and the value of the assets acquired (previously assigned to non-controlling shareholders) is re- cognized in consolidated shareholders’ equity reserve. The effects of this transaction are as follows: Millions of euro Net assets acquired Cost of transaction Reserve from transactions in non-controlling interests 189 180 9 Acquisition of Inversiones Gas Atacama Group and is therefore consolidated on a line-by-line basis rather than using equity method accounting. In accordance On April 22, 2014, Endesa Chile completed the purchase of with IFRS 3, this transaction is treated as a business combina- an additional 50% stake in the share capital of Inversiones tion carried out in stages (a step acquisition) and therefore Gas Atacama, a company operating in the natural gas tran- the fair value adjustments pertaining to the net assets already sport and electricity generation sector in Chile, from Southern held were recognized in the income statement for the period. Cross. This acquisition marked the end of the shareholders’ The process of allocating the purchase price to the fair value agreement signed in August 2007 that gave the two compa- of the assets acquired and the liabilities and contingent liabi- nies joint control over Inversiones Gas Atacama. As a result lities assumed has essentially been completed with the excess of this transaction, the company is now fully owned by the amount (€25 million) definitively allocated to goodwill. Determination of goodwill Millions of euro Net assets acquired before allocation Adjustments for measurement at fair value: - property, plant and equipment - net deferred tax liabilities Net assets acquired after allocation Value of the business combination: - book value of interest previously held - remeasurement at fair value of interest previously held - cost of acquisition made in 2014 (cash) Total Goodwill 348 70 (38) 380 174 29 202 405 25 The value of the goodwill reflects the amount by which the the definitive fair value of the assets acquired and the lia- purchase price exceeds the fair value of the assets acquired bilities and contingent liabilities assumed at the acquisition and relates to the future economic benefits of the asset that date of April 22, 2014. cannot be separately identified. The following table shows 178 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSFinancial position of Inversiones Gas Atacama at the acquisition date Millions of euro Property, plant and equipment Inventories, trade and other receivables Cash and cash equivalents Other current and non-current assets Total assets Equity pertaining to the shareholders of the Parent Company Non-controlling interests Financial debt Trade payables Deferred tax liabilities and other liabilities Total liabilities and shareholders’ equity Increase in investments in Generandes Perú and Edegel Under the terms of the agreement reached in April 2014, on September 4, 2014, Enersis, the Chilean company that leads operations in Latin America, completed the acquisition of 39% of Generandes Perú, a company already controlled with a stake of 61%, which in turn owns 54.2% of Edegel, a Peru- vian company operating in the power generation sector. In accordance with the provisions of IFRS 3 (Revised) for transactions involving non-controlling interests, the diffe- rence between the price paid, equal to $421 million (equal to €321 million at the acquisition date) and the value of the assets acquired, previously allocated to non-controlling in- terests, was recognized directly in a specific consolidated equity reserve. The effects of the transaction were as follows: Millions of euro Net assets acquired Cost of transaction Reserve from transactions in non-controlling interests 233 321 (88) Acquisition of investments in Endesa Latinoamérica and Enersis by Enel Energy Europe Millions of euro Net assets acquired Cost of transaction On October 23, 2014, the transfer of the investments held by Endesa in Endesa Latinoamérica and Enersis (100% and 20.3%, respectively) to Enel Energy Europe (now Enel Ibero- américa) was completed. Enel Iberoamérica, which is wholly owned by Enel and is the majority shareholder of Endesa (with a stake of 92.06% at the transaction date), acquired the 60.62% interest held di- rectly and indirectly by Endesa in the Chilean company Ener- Carrying amount prior to April 22, 2014 Definitive fair value adjustments Restated values at April 22, 2014 185 62 165 32 444 348 1 41 38 16 444 70 - - - 70 32 - - - 38 70 255 62 165 32 514 380 1 41 38 54 514 sis, the holding company of Enel’s Latin American compa- nies. More specifically, the transaction involved (i) the 20.3% of Enersis shares held directly by Endesa and (ii) the 100% of Endesa Latinoamérica shares (which in turn holds 40.32% of Enersis) also held directly by Endesa. The total price was €8,253 million, which was determined using generally accepted international valuation techniques for this type of transaction. In these consolidated financial statements, the change in the scope of consolidation for the acquisition of 7.94% of the Endesa Latinoamérica Group (which indirectly involved the acquisition of 3.2% of the Enersis Group) and the 1.61% of the Enersis Group held directly by Endesa had a theoreti- cal value of €659 million (equal to the price paid attributable to non-controlling interests, including transaction costs of €4 million), generating a negative difference between the purchase price and the associated share of equity acquired equal to €177 million. In accordance with IFRS 3 (Revised) for transactions in non-controlling interests, that amount was recognized in an equity reserve. The effects of the tran- saction can be summarized as follows: 482 659 177 Reserve from transactions in non-controlling interests Sale of investment in Endesa by Enel Energy Europe in a public offer On November 21, 2014, the public offer of 21.92% of the shares of Endesa held by Enel Energy Europe, now Enel Ibe- roamérica, was completed successfully. Following the offer, the interest held by Enel Iberoamérica 179 in Endesa declined from 92.06% to 70.14%. The disposal step acquisition) and therefore the fair value adjustments generated proceeds of €3,133 million, which net of tran- pertaining to the net assets already held were recognized saction costs (€46 million) amounted to €3,087 million. The in the income statement for the period. The Group also result on the sale, determined as the difference between acquired 100% of Aurora Distributed Solar, a company the net sale price and the equity sold to non-controlling in- that develops solar power systems, for €15 million. Simi- terests, amounted to €2,831 million, which was recognized lar transactions were carried out in December 2014 with in an equity reserve as the Group retains control of the com- Geronimo Wind Energy and Trade Wind Energy; pany involved in the disposal. > following up on the commitment undertaken with the The impact of the transaction can be summarized as follows: agreement of July 11, 2014 with Sharp, on July 22, 2014, Millions of euro Net assets sold Net transaction price Reserve from transactions in non-controlling interests 5,918 3,087 2,831 Minor acquisitions of the Renewable Energy Division These include: > on May 12, 2014, the Group completed the acquisition of an additional 26% interest in Buffalo Dunes Wind Project. As a result of the transaction, the Group holds 75% of the company, which is consolidated on a line-by- line basis rather than using equity method accounting. In accordance with IFRS 3 (Revised), the transaction is tre- ated as a business combination carried out in stages (a Enel Green Power acquired Sharp’s interest in Enel Gre- en Power & Sharp Solar Energy (now named Enel Green Power Solar Energy Srl), an equally held joint venture cre- ated to develop, build and operate photovoltaic plants using the solar panels produced by the 3SUN factory. The agreement, with an overall value of €30 million, involved the acquisition of Sharp’s 50% holding and the waiver by Sharp of its claim in respect of Enel Green Power So- lar Energy in the amount of €25 million. Following the acquisition, the Group’s stake in Enel Green Power Solar Energy rose from 50% to 100%. In accordance with IFRS 3 (Revised), the transaction is treated as a business com- bination carried out in stages (a step acquisition); > the acquisition in December 2014 of Proyecto Talinay Po- niente. Summary of acquisitions of the Renewable Energy Division Millions of euro Property, plant and equipment Intangible assets Cash and cash equivalents Other current and non-current assets Non-controlling interests Gross financial debt Deferred tax liabilities and other liabilities Net assets acquired Goodwill Value of the transaction (1) Carrying amount of previously held interests Buffalo Dunes Wind Project and Aurora Distributed Solar Enel Green Power Solar Energy Geronimo Wind Energy and Trade Wind Energy Proyecto Talinay Poniente 334 15 6 (41) (181) (7) 126 7 133 76 102 12 11 (122) (1) 2 2 5 62 1 (21) 42 42 20 (4) 16 16 Remeasurement at fair value of previously held interests 3 (8) Cost of acquisition carried out in 2014 (cash) 54 5 Amount to be paid at December 31, 2014 42 16 (1) Including incidental expenses. For a number of business combinations, the purchase price was provisionally allocated to the net assets acquired. Goodwill was recognized provisionally. 180 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS  6 Segment information to customers in local markets. The new organization will The representation of performance and financial position modify the reporting structure, the analysis of the Group’s by business area presented here is based on the approach performance and financial position and, accordingly, the re- used by management in monitoring Group performance for presentation of consolidated results only from the start of the two periods being compared. 2015. Consequently, in these consolidated financial state- ments, in line with practice in previous periods, the results On July 31, 2014, the Enel Group adopted a new organi- by business area are discussed using the previous organiza- zational structure, based on a matrix of Divisions and geo- tional structure, taking account of the provisions of IFRS 8 graphical areas, focused on the industrial objectives of the concerning the “management approach”. Group, with clear specification of roles and responsibilities in order to pursue and maintain technological leadership in For more information on performance and financial deve- the sectors in which the Group operates, ensuring operatio- lopments during the year, please see the dedicated section nal excellence, and to maximize the level of service offered in the report on operations. Segment information for 2014 and 2013 Results for 2014 (1) Millions of euro Sales GEM Infra. & Networks Iberia and Latin America Revenue from third parties 15,116 18,908 3,618 30,412 Revenue from transactions with other segments 110 3,698 3,748 135 Total revenue 15,226 22,606 7,366 30,547 Total costs 14,111 21,297 3,387 24,138 Int’l 4,920 358 5,278 4,069 Other, eliminations and adjustments Renewable Energy Total 2,662 155 75,791 259 (8,308) - 2,921 (8,153) 75,791 1,059 (8,252) 59,809 Net income/(expense) from commodity contracts measured at fair value Depreciation and amortization Impairment losses Writebacks Operating income Capital expenditure (34) (146) (115) (5) 112 515 (1) 455 111 987 49 520 2,183 (1) (1,539) 2,943 285 996 2,517 1,214 (226) 2,789 2,602 383 3,540 (37) (2,682) 936 76 589 228 (3) 1,124 1,658 (1) 96 4 1 (3) 113 (225) 5,204 7,733 (267) 3,087 6,701 (1) Segment revenues include both revenues from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the period. 181 Results for 2013 restated (1) (2) Millions of euro Sales GEM Infra. & Networks Iberia and Latin America Revenue from third parties 16,704 18,758 3,669 30,563 Revenue from transactions with other segments 217 4,040 4,029 111 Total revenue 16,921 22,798 7,698 30,674 Total costs 15,973 21,549 3,690 23,887 Net income/(expense) from commodity contracts measured at fair value Depreciation and amortization Impairment losses Reversals of impairment losses Operating income Capital expenditure (82) (165) 101 403 362 99 485 105 1 493 313 977 3 3,028 1,046 (148) 2,661 420 (210) 3,767 2,160 Other, eliminations and adjustments Renewable Energy Total 2,281 1,026 78,663 488 (9,519) - 2,769 (8,493) 78,663 1,011 (9,515) 61,594 21 515 60 1,205 1,294 (3) (378) 5,326 1,851 (226) 9,740 5,920 105 10 (1) 908 84 Int’l 5,662 634 6,296 4,999 (4) 482 850 (16) (23) 924 (1) Segment revenues include both revenues from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the period. (2) Figures restated retrospectively to reflect the new IFRS 11. (3) Does not include €1 million regarding units classified as “held for sale”. Financial position by segment At December 31, 2014 Millions of euro Sales GEM Infra. & Networks Iberia and Latin America Renewable Energy Int’l Property, plant and equipment Intangible assets Trade receivables Other 34 779 3,897 222 7,048 15,079 254 3,300 2,094 122 2,224 1,488 35,816 26,389 3,837 2,286 6,702 11,765 912 406 497 2,248 440 599 Other, eliminations and adjustments 527 158 Total 76,971 30,862 (2,002) 12,102 (187) 6,999 Operating assets 4,932 12,696 (1) 18,913 68,328 (3) 8,517 (4) 15,052 (1,504) 126,934 Trade payables Sundry provisions Other 2,999 241 1,939 3,448 1,085 466 3,363 1,807 3,615 4,308 4,744 4,170 748 2,572 1,302 892 193 560 (2,048) 13,710 698 11,340 (541) 11,511 Operating liabilities 5,179 4,999 (2) 8,785 13,222 4,622 (5) 1,645 (1,891) 36,561 (1) Of which €347 million regarding units classified as “held for sale”. (2) Of which €22 million regarding units classified as “held for sale”. (3) Of which €14 million regarding units classified as “held for sale”. (4) Of which €4,255 million regarding units classified as “held for sale”. (5) Of which €2,790 million regarding units classified as “held for sale”. 182 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSAt December 31, 2013 restated (1) Millions of euro Sales GEM Infra. & Networks Iberia and Latin America Property, plant and equipment Intangible assets Trade receivables Other 39 775 4,015 250 9,438 15,096 550 3,061 2,482 117 1,696 1,251 35,474 27,208 3,582 1,973 Other, eliminations and adjustments Renewable Energy 10,075 2,205 364 404 506 281 (1,856) (182) Int’l 9,847 1,888 524 460 Total 80,475 33,024 11,386 6,638 Operating assets 5,079 15,531 (2) 18,160 68,237 12,719 (3) 13,048 (5) (1,251) 131,523 Trade payables Sundry provisions Other Operating liabilities 3,070 234 1,959 5,263 3,578 1,197 729 5,504 2,486 2,536 2,996 8,018 3,627 4,061 4,921 784 2,742 1,119 750 178 490 (1,926) 700 (1,556) 12,369 11,648 10,658 12,609 4,645 (4) 1,418 (6) (2,782) 34,675 (1) Figures restated retrospectively to reflect the new IFRS 11 and IFRS 32, as well as the impact of the completion of the purchase price allocation process for the assets acquired and liabilities assumed in the acquisitions of a number of companies of the Renewable Energy Division. For more details, please see note 4. (2) Of which €6 million regarding units classified as “held for sale”. (3) Of which €194 million regarding units classified as “held for sale”. (4) Of which €1 million regarding units classified as “held for sale”. (5) Of which €26 million regarding units classified as “held for sale”. (6) Of which €8 million regarding units classified as “held for sale”. The following table reconciles segment assets and liabilities and the consolidated figures. Millions of euro Total assets Equity investments accounted for using the equity method Non-current financial assets Long-term tax receivables included in “Other non-current assets” Current financial assets Derivatives Cash and cash equivalents Deferred tax assets Tax receivables Financial and tax assets of “Assets held for sale” Segment assets Total liabilities Long-term borrowings Short-term borrowings Current portion of long-term borrowings Current financial liabilities Derivatives Deferred tax liabilities Income tax payable Other tax payables Financial and tax liabilities of “Liabilities held for sale Segment liabilities at Dec. 31, 2014 at Dec. 31, 2013 restated 166,634 163,865 872 3,645 501 3,984 6,835 13,088 7,067 1,547 2,161 1,372 5,970 476 5,607 3,134 7,873 6,186 1,709 15 126,934 131,523 115,489 48,655 3,252 5,125 1,177 7,882 9,220 253 887 2,477 36,561 111,033 50,905 2,484 4,658 1,100 5,156 10,795 286 963 11 34,675 183 Revenue 7.a Revenue from sales and services - €73,328 million Millions of euro Revenue from the sale of electricity Revenue from the transport of electricity Fees from network operators Transfers from the Electricity Equalization Fund and similar bodies Revenue from the sale of natural gas Revenue from the transport of natural gas Revenue from fuel sales Connection fees to electricity and gas networks Revenue from the sale of environmental certificates Revenue from other sales and services Total 2014 2013 restated Change 48,062 9,142 783 1,857 3,628 459 5,659 843 1,238 1,657 73,328 53,417 (5,355) -10.0% 9,612 855 1,620 3,962 490 2,635 998 345 1,493 75,427 (470) (72) 237 (334) (31) 3,024 (155) 893 164 (2,099) -4.9% -8.4% 14.6% -8.4% -6.3% 114.8% -15.5% - 11.0% -2.8% Revenue from the sale of electricity amounted to €48,062 sfers of about €217 million, which were granted under the million (€53,417 million in 2013) and include sales of elec- new regulatory framework for the extra-peninsular areas of tricity to end users amounting to €29,933 million (€31,595 Spain. million in 2013), sales of electricity to wholesale buyers tota- Revenue from the sale of natural gas amounted to €3,628 ling €14,428 million (€17,314 million in 2013) and revenue million (€3,962 million in 2013), including sales to end users from electricity trading activities amounting to €3,701 mil- in Italy of €1,632 million and sales to end users abroad of lion (€4,508 million in 2013). The decrease is attributable to €1,996 million. the decline in quantities sold to end users and to wholesale “Revenue from fuel sales” amounted to €5,659 million, and buyers, owing to the contraction in electricity demand in the in 2014 comprised sales of natural gas of €5,536 million main countries in which the Group operates. (€2,161 million in 2013) and sales of other fuels amounting Revenue from the transport of electricity declined by €470 to €123 million (€474 million in 2013). The sharp rise with million, largely due to the same developments described respect to the previous year reflects market trends, which in above. Revenue from the transport of gas amounted to penalizing the use of fuels for power generation prompted €459 million, down €31 million compared with the previous an increase in sales of fuel. year. “Revenue from the sale of environmental certificates” incre- Transfers from the Electricity Equalization Fund and similar ased by €893 million largely due to a rise in sales of envi- bodies rose by €237 million, mainly due to a rise in tran- ronmental certificates and CO2 emissions allowances. 184 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe table below gives a breakdown of revenues from sales and services by geographical area. Millions of euro Italy Europe Iberian peninsula France Switzerland Germany Austria Slovenia Slovakia Romania Greece Bulgaria Russia Other European countries Americas United States Canada Mexico Brazil Chile Peru Colombia Argentina Other South American countries Other Africa Asia Total 2014 28,567 20,378 1,375 711 3,154 4 22 1,367 1,046 61 8 1,336 4,607 455 - 135 3,100 2,820 1,034 2,087 453 158 1 449 73,328 2013 restated 32,451 20,836 1,498 707 3,245 9 20 1,406 1,152 82 8 1,637 2,249 307 8 129 2,818 2,666 950 1,930 650 460 - 209 75,427 7.b Other revenue and income - €2,463 million Millions of euro Operating grants Grants for environmental certificates Capital grant (electricity and gas business) Sundry reimbursements Gains on disposal of interests in subsidiaries, associates, joint ventures, joint operations and non-current assets held for sale Gains on remeasurement at fair value after changes in control Gains on disposal of property, plant and equipment and intangible assets Service continuity bonuses Other revenue Total 2014 2013 restated Change 13 923 12 132 292 82 32 76 901 2,463 25 822 48 183 943 21 38 96 1,060 3,236 (12) 101 (36) (51) -48.0% 12.3% -75.0% -27.9% (651) -69.0% 61 (6) (20) (159) (773) - -15.8% -20.8% -15.0% -23.9% “Grants for environmental certificates” increased by €101 ses incentives granted to renewable generation plants or for million compared with the previous year. The item compri- energy efficiency initiatives. 185 “Sundry reimbursements” regard sundry reimbursements “Gains on remeasurement at fair value after changes in con- from customers and suppliers totaling €86 million (€76 mil- trol” amounted to €82 million. They include the remeasu- lion in 2013) and insurance indemnities in the amount of rement at fair value of the assets and liabilities pertaining €46 million (€107 million in 2013). to the Group: after the loss of control, as from January 1, Gains on disposal of interests in companies amounted to €292 2014, of SE Hydropower following changes in governance million in 2014, down €651 million on 2013, mainly due to the arrangements (€50 million); already held by Enel prior to the impact of the proceeds from the disposal of Artic Russia (€964 acquisition of full control of Inversiones Gas Atacama (€29 million) in 2013. Gains in 2014 were mainly accounted for by million) and Buffalo Dunes Wind Project (€3 million). the following: €123 million from the disposal of the interest in LaGeo (a company operating in the geothermal genera- The decrease in “Other revenue” is mainly due to the impact tion sector in El Salvador), €82 million from the adjustment of in 2013 of the government grant to the Argentine distribu- the price for Artic Russia under the earn-out clause in the sale tion company Edesur with Resolución 250/2013 under the agreement with the buyer prior to the closing and €31 million Mecanismo de Monitoreo de Costos. from the sale of 100% of Enel Green Power France. Costs 8.a Electricity, gas and fuel purchases - €36,928 million Millions of euro Electricity Gas Nuclear fuel Other fuels Total 2014 2013 restated Change 23,317 27,325 8,388 206 5,017 6,141 202 5,286 (4,008) 2,247 4 (269) 36,928 38,954 (2,026) -14.7% 36.6% 2.0% -5.1% -5.2% Purchases of electricity comprise those from the Acquirente Purchases of gas increased by €2,247 million, largely due to Unico (Single Buyer) in the amount of €4,395 million (€5,135 an increase in intermediation activities on the fuel market. million in 2013) and purchases from the Energy Markets Purchases of nuclear fuel were virtually unchanged from the Operator (GME) in the amount of €1,690 million (€4,451 previous year. million in 2013). The decrease in the aggregate mainly re- Purchases of other fuels diminished by €269 million to gards the reduction in costs for electricity purchases on elec- €5,017 million in 2014. tricity exchanges and on national and international markets, essentially due to the decline in demand. 186 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS8.b Services and other materials - €17,179 million Millions of euro Transmission and transport Maintenance and repairs Telephone and postal costs Communication services IT services Leases and rentals Other services Other materials Total 2014 8,979 1,301 221 115 305 609 3,374 2,275 17,179 2013 restated Change 9,274 1,331 252 118 264 585 3,324 1,550 16,698 (295) (30) (31) (3) 41 24 50 725 481 -3.2% -2.3% -12.3% -2.5% 15.5% 4.1% 1.5% 46.8% 2.9% Costs for services and other materials amounted to €17,179 This rise was only partly offset by a reduction in costs for million in 2014, an increase on 2013 due largely to a rise in transmission and transport associated with the decline in costs for the purchase of other materials, including, among electricity consumption in the main markets in which the other things, the change in stocks of CO2 emissions allowan- ces and environmental certificates. Group operates. 8.c Personnel - €4,864 million Millions of euro Wages and salaries Social security contributions Post-employment benefits Other long-term benefits Early retirement incentives Other costs Total 2014 3,329 931 111 70 313 110 4,864 2013 restated Change 3,368 913 117 (898) 955 100 4,555 (39) 18 (6) 968 (642) 10 309 -1.2% 2.0% -5.1% - -67.2% 10.0% 6.8% Personnel costs amounted to €4,864 million in 2014, an in- at the end of 2013, given that no employees had participa- crease of €309 million. ted and a significant number of those entitled to do so had The workforce contracted by 1,381, reflecting the balance subsequently opted to participate in the mechanism provi- between hirings and terminations (a decrease of 1,404), ded for under Article 4 of Law 92/2012. For more details on only partially offset by the increase associated with the employee benefit plans, please see note 33 below. change in the scope of consolidation (an increase of 23 em- “Early retirement incentives” amounted to €313 million in ployees). 2014, net of amounts reversed, and mainly regard the early retirement plan introduced in Spain and, to a lesser extent, The decrease in “Other long-term benefits” largely reflects an early retirement plan in Italy. In 2013, the aggregate had the termination of the transition-to-retirement plan in Italy mainly reported accruals recognized in Italy in respect of the 187 mechanism adopted in agreements with the unions to im- The table below shows the average number of employees plement the provisions of Article 4, paragraphs 1-7 ter, of by category compared with the previous year, and the ac- Law 92/2012 (the Fornero Act). tual number of employees at December 31, 2014. Senior managers Middle managers Office staff Blue collar Total Average number (1) Headcount (1) 2014 1,552 14,263 38,224 16,709 70,748 2013 1,374 14,552 39,833 17,224 72,983 Change at Dec. 31, 2014 (2) 178 (289) (1,609) (515) (2,235) 1,538 14,399 37,508 15,516 68,961 (1) For companies consolidated on a proportionate basis, the headcount corresponds to Enel percentage share of the total. (2) Of which 4,430 in units classified as “held for sale”. 8.d Depreciation, amortization and impairment losses - €12,670 million Millions of euro Depreciation Amortization Impairment losses Reversals of impairment losses Total 2014 4,433 771 7,733 (267) 12,670 2013 restated Change 4,520 806 1,851 (226) 6,951 (87) (35) 5,882 (41) 5,719 -1.9% -4.3% - -18.1% 82.3% “Depreciation and amortization” decreased by €122 million of nuclear power plants and conventional thermal plants in in 2014 (comprising property, plant and equipment and in- Spain and Slovakia. tangible assets), partly due to the extension of the useful life Millions of euro Impairment losses Property, plant and equipment Investment property Intangible assets Goodwill Trade receivables Assets classified as held for sale Other assets Total impairment losses Reversals of impairment losses Property, plant and equipment Trade receivables Other assets Total reversals of impairment losses 188 2014 2013 restated Change 2,886 18 744 194 997 2,878 16 7,733 3 250 14 267 159 12 46 745 862 14 13 1,851 6 216 4 226 2,727 6 698 (551) 135 2,864 3 5,882 (3) 34 10 41 - 50.0% - -74.0% 15.7% - 23.1% - -50.0% 15.7% - 18.1% ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS“Impairment losses” increased by €5,882 million on 2013. of the losses recognized on assets held for sale in their Impairment losses on property, plant and equipment mainly valuation under IFRS 5; regarded: > the property, plant and equipment of Enel Green Power > thermal power plants in Italy in the amount of €2,096 Hellas in the amount of €91 million. million, in view of the continuing economic crisis in Italy and the impact of that crisis on conventional power Impairment losses on intangible assets amounted to €744 generation. The model used in the impairment testing million. They mainly regarded: was a unlevered discounted cash flow (DCF) approach > the water rights held by Endesa Chile to use the water of applied to pre-tax amounts, with a time horizon based a number of rivers in the Aysén region of that country in on an explicit period of five years plus a terminal value the amount of €589 million. The loss was recognized in calculated as a perpetuity with stable growth. The as- reflection of the uncertainty concerning the continuation sumptions concerning the growth rate and the discount of the project owing to a number of legal and procedural rate were analogous to those adopted for other CGUs. restrictions; In particular, the growth rate, which was determined > concessions and similar rights of Enel Green Power Hellas on the basis of the average forecasts for medium/long- in the amount of €55 million; term electricity demand, was set at 1.1%, while the > a number of smaller concessions in Portugal (HidroMon- discount rate was determined as the pre-tax WACC of dego in the amount of €35 million) and Spain (Distribui- 8.8%. dora Eléctrica del Puerto de la Cruz in the amount of €31 > power plants in Russia in the amount of €205 million, in million). view of market forecasts for that country. The parameters used in the impairment test were the same as those used Impairment losses on goodwill were recognized following for the Enel Russia CGU discussed in note 18 below; the impairment tests. More details are provided in note 18. > leased assets in Slovakia, in particular the Gabčíkovo hydroelectric plant in the amount of €103 million, fol- Finally, impairment losses on assets classified as held for lowing the renegotiation that brought forward the ex- sale amounted to €2,878 million. They regard the property, piry of the contract to 2015, from its original expiration plant and equipment and goodwill of Slovenské elektrár- date of 2036. The impairment loss was recognized in ne. The impairment loss was determined on the basis of advance of the date on which the intention of manage- the non-binding offers received so far to align the carrying ment to continue the disposal of the Slovakian assets was amount of its assets with their estimated realizable value, definitively confirmed. Accordingly, it does not form part net of transaction costs. 189 8.e Other operating expenses - €2,362 million Millions of euro Provisions for risks and charges System charges - emissions allowances System charges - energy efficiency certificates System charges - green certificates Losses on disposal of property, plant and equipment and intangible assets Taxes and duties Other Total 2014 2013 restated Change 66 341 105 144 21 1,275 410 2,362 80 335 295 270 40 1,466 335 2,821 (14) 6 (190) (126) (19) (191) 75 (459) -17.5% 1.8% -64.4% -46.7% -47.5% -13.0% 22.4% -16.3% Other operating expenses amounted to €2,362 million, a duties, largely reflecting developments in taxes to support decrease of €459 million, mainly due to a reduction of €190 government social programs. These changes were partly million in charges on white certificates and a decline of €126 offset by the increase in other expenses, mainly associated million in costs for the purchase of green certificates. Ano- with the electricity business in Spain. ther factor was the decrease of €191 million in taxes and 8.f Capitalized costs - €(1,524) million Millions of euro Personnel Materials Other Total 2014 (719) (391) (414) 2013 restated Change (713) (365) (356) (6) (26) (58) (90) -0.8% -7.1% -16.3% -6.3% (1,524) (1,434) Capitalized costs consist of €719 million in personnel costs and €391 million in materials costs (compared with €713 million and €365 million, respectively, in 2013). 190 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS9. Net income/(expense) from commodity contracts measured at fair value - €(225) million Net expense on commodity contracts measured at fair va- 2014 in the amount of €268 million (€114 million in 2013) lue amounted to €225 million, the result of net unrealized and net realized gains on positions closed during the year expense on open positions in derivatives at December 31, of €43 million (€264 million in net expense in 2013). Millions of euro Income Unrealized on positions open at the end of the period Realized on positions closed during the period Total income Charges Unrealized on positions open at the end of the period Realized on positions closed during the period Total charges NET INCOME/(EXPENSE) FROM COMMODITY CONTRACTS MEASURED AT FAIR VALUE 2014 2013 restated Change 4,455 3,793 8,248 (4,723) (3,750) (8,473) 1,815 3,966 5,781 (1,929) (4,230) (6,159) 2,640 (173) 2,467 (2,794) 480 (2,314) - -4.4% 42.7% - -11.3% 37.6% (225) (378) 153 -40.5% 10. Net financial income/(expense) from derivatives - €1,162 million Millions of euro Income from derivatives: - income from cash flow hedge derivatives - income from derivatives at fair value through profit or loss - income from fair value hedge derivatives Total income from derivatives Expense on derivatives: - expense on cash flow hedge derivatives - expense on derivatives at fair value through profit or loss - expense on fair value hedge derivatives Total expense from derivatives TOTAL FINANCIAL INCOME/(EXPENSE) FROM DERIVATIVES 2014 2013 restated Change 1,532 468 78 2,078 434 476 6 916 232 454 70 756 803 397 10 1,300 14 8 1,322 (369) 79 (4) 1,210 (294) - 3.1% 11.4% - -46.0% 19.9% -40.0% -24.3% 1,162 (454) 1,616 - Net income from cash flow hedge derivatives amounted to For more details on derivatives, please see note 43 “Derivati- €1,098 million, while derivatives at fair value through profit ves and hedge accounting”. or loss posted net expense of €8 million. By contrast, the net performance of fair value hedge deriva- tives produced net income of €72 million. 191 11. Net other financial income/(expense) - €(4,292) million Other financial income Millions of euro Interest income from financial assets (current and non- current): - interest income at effective interest rate on non-current securities and receivables - interest income at effective interest rate on short-term financial investments Total interest income at the effective interest rate Financial income on non-current securities at fair value through profit or loss Positive exchange rate differences Income on equity investments Other income 2014 2013 restated Change 43 217 260 6 529 4 449 57 292 349 3 846 86 409 (14) (75) (89) 3 (317) (82) 40 (445) -24.6% -25.7% -25.5% - -37.5% -95.3% 9.8% -26.3% TOTAL OTHER FINANCIAL INCOME 1,248 1,693 “Other financial income” amounted to €1,248 million, a de- results posted in 2013 owing to the disposal of Medgaz crease of €445 million compared with the previous year. The (€64 million) and Endesa Gas T&D (€12 million); reduction reflects: > a decrease of €89 million in interest income at the effecti- > a decrease in positive exchange rate differences, mainly ve interest rate, mainly attributable to deposits. reflecting the impact of developments in exchange rates These factors were partly offset by an increase of €40 million on net financial debt denominated in currencies other in other income, which included the impact of the renego- than the euro; tiation of the finance lease for the Gabčíkovo hydroelectric > a decrease in income on equity investments to €4 million plant in Slovakia, which brought forward the expiration of (€86 million in 2013). The decline is due to the strong the lease to 2015, from the original 2036. Other financial expense Millions of euro Interest expense on financial debt (current and non-current): - interest expense on bank borrowings - interest expense on bonds - interest expense on other borrowings Total interest expense Expense on securities at fair value through profit or loss Negative exchange rate differences Accretion of post-employment and other employee benefits Accretion of other provisions Charges on equity investments Other charges 2014 2013 restated Change 360 2,476 116 2,952 - 1,814 197 200 3 374 543 2,170 107 2,820 - 580 161 202 7 273 (183) 306 9 132 - 1,234 36 (2) (4) 101 1,497 -33.7% 14.1% 8.4% 4.7% - - 22.4% -1.0% -57.1% 37.0% 37.0% TOTAL OTHER FINANCIAL EXPENSE 5,540 4,043 192 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS“Other financial expense” amounted to €5,540 million, an on cash flow hedge derivatives on exchange rates; increase of €1,497 million on 2013. The change reflects the > other charges, which amounted to €374 million in 2014 following factors: (€273 million in 2013), reflecting the effect of the rever- > an increase in interest expense, largely owing to an incre- sal in 2013 of the impairment loss on the receivable in ase in gross financial debt compared with 2013; respect of the National Nuclear Fund in Slovakia (€66 mil- > an increase of €1,234 million in negative exchange rate lion) and the impairment adjustment of financial assets differences, attributable to the depreciation of the euro (€92 million) associated with service concession arrange- against the other currencies in which bonds are issued. ments as a result of the rate revision affecting the Brazi- This factor was essentially offset by an increase in income lian companies Ampla and Coelce in 2014. 12. Share of income/(losses) of equity investments accounted for using the equity method - €(35) million Millions of euro Share of income of associates Share of losses of associates Impairment losses Total 2014 2013 restated Change 229 (87) (177) (35) 306 (89) - 217 (77) (177) (252) -25.2% -2.2% - - The share of income and losses of equity investments ac- tainty concerning the development of the project to build counted for using the equity method decreased by €252 a hydroelectric plant in Chile) and the effects of the impai- million compared with the previous year. The contraction rment testing of the Enel Green Power Hellas CGU with re- was largely attributable to the impairment loss on the in- gard to the “Elica 2” equity-accounted investments as a re- vestment in Centrales Hydroaysén (as a result of the uncer- sult of the persistent adverse economic climate. 13. Income taxes - €(850) million Millions of euro Current taxes Adjustments for income taxes related to prior years Total current taxes Deferred tax liabilities/(assets) Total 2014 1,968 (119) 1,849 (2,699) (850) 2013 restated Change 2,371 (177) 2,194 179 2,373 (403) 58 (345) (2,878) (3,223) -17.0% -32.8% -15.7% - - Income taxes for 2014 showed a credit position of €850 mil- with the extraordinary corporate transactions involving lion, compared with a liability of €2,373 million in 2013. Endesa in the last Quarter of 2014; Of the total change, €3,018 million is attributable to the de- > the deferred tax benefit in respect of the impairment cline in deferred taxation compared with the previous year, losses on property, plant and equipment and intangible mainly reflecting: assets other than goodwill, recognized following impai- > the recognition of deferred tax assets of €1,392 million rment testing at the end of the year; in respect of Enel Iberoamérica (formerly Enel Energy Eu- > the deferred tax impact of changes in tax rates, which gene- rope) following the distribution of dividends associated rated a net benefit of €138 million, broken down as follows: 193  - a reduction of €747 million in taxes in Spain as a result ther the conditions that prompted its introduction per- of the reduction in the tax rate enacted by the Spanish sist; government in December 2014 from the existing 30% c) it is a tax that is not designed to protect consumers, gi- to 28% in 2015 and 25% in 2016; ven that the prohibition on passing its cost on through - a reduction of €69 million in taxes in Peru following the consumer prices is difficult to enforce effectively. progressive reduction in the rate from the current 30% The Court also specified that the ruling would take effect to 26% in 2019; as from the day following publication of the decision in the - an increase of €288 million in taxes in Chile with the Gazzetta Ufficiale. Accordingly, in preparing these financial progressive rise in the tax rate from 20% to 27%; statements, deferred taxes were calculated on the basis of - an increase of €24 million in taxes in Colombia as a re- the rates that are expected to apply at the time of reversal sult of the temporary increase in the tax rate from 34% (excluding the Robin Hood Tax). to 43% until 2018; As regards current taxes, the main changes compared with - an increase of €366 million in taxes due to the the previous year were: adjustment of deferred taxation in Italy following a > the benefit of the reduction from 10.5% to 6.5% in the court ruling that the IRES surtax (the so-called Robin rate for the IRES surtax applicable in 2014 to a number of Hood Tax) was unconstitutional following a long-run- Italian companies; ning administrative proceeding. > the effect of losses on goodwill recognized in 2013 and With its decision 10 of February 11, 2015, the Constitutional 2014 with no corresponding tax benefit. Court ruled that the “Robin Hood Tax” was unconstitutional, because: The following table reconciles the theoretical tax rate with a) it is levied on all entrepreneurial income rather than the effective tax rate. Please note that the estimated taxes just “windfall profits”; of Group companies outside of Italy were a negative €1,885 b) it is a structural tax, as there is no temporal limit to its million (compared with €861 million in 2013). scope of application or mechanisms to determine whe- Millions of euro Income before taxes Theoretical taxes Theoretical tax effect on impairment losses on goodwill Tax credit from distribution of Endesa dividends Impact on deferred taxation of changes in tax rates IRES surtax (Decree Law 112/2008) IRAP Other differences, effect of different foreign tax rates, and minor items Total 2014 (78) (21) 245 (1,392) (146) 188 320 (44) (850) 2013 restated 7,153 1,967 205 - - 353 336 (488) 2,373 194 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS 14. Basic and diluted earnings per share Both metrics are calculated on the basis of the average num- shares, adjusted for the diluting effect of outstanding stock ber of ordinary shares in the period, equal to 9,403,357,795 options (none in both periods). Millions of euro 2014 2013 restated Change Net income from continuing operations attributable to shareholders of the Parent Company (millions of euro) Net income from discontinued operations attributable to shareholders of the Parent Company (millions of euro) Net income attributable to shareholders of the Parent Company (millions of euro) Number of ordinary shares Dilutive effect of stock options Basic and diluted earnings per share (euro) Basic and diluted earnings from continuing operations per share (euro) Basic and diluted earnings from discontinued operations per share (euro) 517 - 517 3,235 (2,718) -84.0% - - - 3,235 (2,718) -84.0% 9,403,357,795 9,403,357,795 - 0.05 0.05 - - 0.34 0.34 - - - (0.30) (0.30) - - - -87.2% -86.9% - Please note that existing stock option plans for top mana- tion of the financial statements, no events or transactions gement could dilute basic earnings per share in the future. took place that changed the number of ordinary shares or For more information on those plans, please see the appro- potential ordinary shares in circulation at the end of the priate section of these notes. year. Between the balance sheet date and the date of publica- 195 15. Property, plant and equipment - €73,089 million Changes in property, plant and equipment for 2014 are shown below. Buildings Plant and machinery Industrial and commercial equipment Other assets Leased assets Leasehold improvements Assets under construction and advances 11,084 5,685 5,399 109 299 (300) (10) (16) (191) (721) - 42 - (802) (1,590) 8,711 4,902 3,809 147,619 83,518 64,101 1,189 2,969 (333) 14 (26) (4,036) (1,636) 3 150 50 (1,525) (3,181) 144,890 83,970 60,920 442 352 90 18 2 - - (1) (19) (7) - - - (9) (16) 386 312 74 1,414 1,133 281 46 47 (1) 1 (4) (92) (4) 29 - - (13) 9 1,332 1,042 290 1,179 215 964 13 (1) 7 43 (54) (105) - - - - (2) (99) 1,092 227 865 284 181 103 38 7 - 4 (1) (23) - - 3 - - 28 332 201 131 8,764 8,764 4,631 (3,389) (202) 330 (12) (381) 208 (3,507) (2,322) 6,442 6,442 - - - - - Total 171,347 91,084 80,263 6,019 - (831) 392 (60) (4,415) (2,886) 3 427 50 (5,873) (7,174) 163,743 90,654 73,089 Millions of euro Cost Accumulated depreciation Balance at Dec. 31, 2013 restated Capital expenditure Assets entering service Exchange rate differences Change in scope of consolidation Disposals Depreciation Impairment losses Reversals of impairment losses Other changes Remeasurement at fair value after changes in control Reclassification from/to “Assets held for sale” Total changes Cost Accumulated depreciation Balance at Dec. 31, 2014 Land 561 - 561 6 35 (2) 10 - - (32) - (5) - (15) (3) 558 - 558 196 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS15. Property, plant and equipment - €73,089 million Changes in property, plant and equipment for 2014 are shown below. Millions of euro Cost Accumulated depreciation Balance at Dec. 31, 2013 restated Capital expenditure Assets entering service Exchange rate differences Change in scope of consolidation Disposals Depreciation Impairment losses Reversals of impairment losses Other changes Remeasurement at fair value after changes in control Reclassification from/to “Assets held for sale” Total changes Cost Accumulated depreciation Balance at Dec. 31, 2014 Land 561 - 561 6 35 (2) 10 - - - - - (32) (5) (15) (3) 558 558 11,084 5,685 5,399 109 299 (300) (10) (16) (191) (721) 42 - - (802) (1,590) 8,711 4,902 3,809 147,619 83,518 64,101 1,189 2,969 (333) 14 (26) (4,036) (1,636) 3 150 50 (1,525) (3,181) 144,890 83,970 60,920 442 352 90 18 (1) (19) (7) 2 - - - - - (9) (16) 386 312 74 Buildings Plant and machinery equipment Other assets Leased assets Leasehold improvements Industrial and commercial Assets under construction and advances 1,414 1,133 281 46 47 (1) 1 (4) (92) (4) - 29 - (13) 9 1,332 1,042 290 1,179 215 964 13 (1) 7 43 - (54) (105) - - - (2) (99) 1,092 227 865 284 181 103 7 38 - 4 (1) (23) - - 3 - - 28 332 201 131 8,764 - 8,764 4,631 (3,389) (202) 330 (12) - (381) - 208 - (3,507) (2,322) 6,442 - 6,442 Total 171,347 91,084 80,263 6,019 - (831) 392 (60) (4,415) (2,886) 3 427 50 (5,873) (7,174) 163,743 90,654 73,089 197 “Plant and machinery” includes assets to be relinquished For more information on “leased assets”, please see note 15.2 free of charge with a net carrying amount of €8,269 million below. (€9,864 million at December 31, 2013), largely regarding power plants in the Iberian peninsula and Latin America The table below summarizes capital expenditure in 2014 by amounting to €4,820 million (€5,120 million at December 31, category. These expenditures, totaling €6,019 million, increa- 2013) and the electricity distribution network in Latin Ame- sed by €712 million on 2013. rica totaling €3,027 million (€3,170 million at December 31, 2013). Millions of euro Power plants: - thermal - hydroelectric - geothermal - nuclear - alternative energy resources Total power plants Electricity distribution networks Land, buildings and other assets and equipment TOTAL 2014 2013 restated 884 656 169 787 1,256 3,752 2,115 152 6,019 732 553 226 722 928 3,161 2,012 134 5,307 Capital expenditure on power plants amounted to €3,752 Renewable Energy Division. These factors were partly offset million, an increase of €591 million compared with the pre- (€62 million) by the change in control of SE Hydropower, un- vious year, largely reflecting increased investment in hydro- der the sale agreements signed in 2010, which prompted a electric facilities and other renewable generation plants change in the method of accounting for the entity from full by the Renewable Energy Division, as well as greater in- line-by-line consolidation to equity accounting (as it quali- vestment in conventional thermal plants and nuclear power fied as a joint operation); and by the disposal, on December plants abroad. 18, 2014, of the subsidiary Enel Green Power France, a rene- Capital expenditure for the electricity distribution network wables generator in France (€230 million). amounted to €2,115 million, up €103 million compared with the previous year. The increase is essentially attributa- “Impairment losses” on property, plant and equipment ble to greater investment in the medium- and low-voltage amounted to €2,886 million. For a more detailed analysis, grids in Spain. please see note 8.d. The “Change in scope of consolidation” for the period “Remeasurement at fair value after changes in control” mainly concerned the acquisitions of control of the Chilean amounted to €50 million. It is entirely accounted for by the company Inversiones Gas Atacama, which operates in the hydroelectric plants of SE Hydropower, which were reva- natural gas transport and power generation sectors (€255 lued to the extent of the holding already held following the million), Buffalo Dunes Wind Project, a wind power com- Group’s loss of control over the company and before their pany (€334 million), and other smaller acquisitions of the reclassification to “Assets held for sale”. 198 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS“Other changes” include, among other items, the effect of expenditure in the amount of €196 million (€128 million in the capitalization of interest on specific loans for capital 2013), as detailed in the following table. Millions of euro Enel Green Power Latin America Eastern Europe Iberia Italy Total 2014 % rate 2013 restated 59 75 41 6 15 196 4.8% 14.8% 2.6% 3.0% 5.0% 36 45 31 3 13 128 % rate 4.7% 12.8% 2.7% 3.1% 5.5% Change 23 30 10 3 2 68 39.0% 40.0% 24.4% 50.0% 13.3% 34.7% “Reclassification from/to ‘Assets held for sale’” essential- At December 31, 2014, contractual commitments to pur- ly reports the property, plant and equipment of Slovenské chase property, plant and equipment amounted to €501 elektrárne, SE Hydropower and other smaller companies, million. which in view of the decisions taken by management meets the requirements of IFRS 5 for classification as assets held for sale. 15.1 Infrastructure within the scope of IFRIC 12 “Service concession arrangements” Service concession arrangements, which are recognized in ac- The following table summarizes the salient details of those cordance with IFRIC 12, regard certain infrastructure serving concessions. concessions for electricity distribution in Brazil. Millions of euro Grantor Activity Country Concession period Concession period remaining Renewal option Amount recognized among financial assets at Dec. 31, 2014 Amount recognized among intangible assets at Dec. 31, 2014 Ampla Energia e Serviços Brazilian government Electricity distribution Companhia Energética do Ceará Brazilian government Electricity distribution Brazil 1997-2026 12 years Brazil 1998-2028 13 years Total Yes Yes 425 244 669 1,033 905 1,938 The value of the assets at the end of the concessions classi- For more details, please see note 45 “Assets measured at fied under financial assets has been measured at fair value. fair value”. 199 15.2 Leases The Group, in the role of lessee, has entered into finance lease and a discount rate of between 4.95% and 5.5%. agreements. They include certain assets which the Group is In Latin America, the assets relate to leased power transmis- using in Spain, France, Greece, Italy and Latin America. More sion lines and plants (Ralco-Charrúa), with a residual term of specifically, in Spain the assets relate to a 25-year “tolling” nine years on the lease at a 6.5% rate, a lease of a combined- contract for which an analysis pursuant to IFRIC 4 identified cycle plant (Talara) with a term of nine years at a fixed rate of an embedded finance lease, under which Endesa has access 5.8%, as well as a number of combined-cycle plants in Peru to the generation capacity of a combined-cycle plant for (residual lease term of two years bearing a floating rate). which the toller, Elecgas, has undertaken to transform gas into electricity in exchange for a toll at a rate of 9.62%. The The carrying amount of assets held under finance leases is re- other lease agreements regard wind plants that the Group ported in the following table. uses in Italy (with a term of 18 years expiring in 2030-2031) Millions of euro Property, plant and equipment Intangible assets Total 2014 2013 restated Change 865 - 865 964 - 964 (99) - (99) -10.3% - -10.3% The following table reports total minimum lease payments and the related present value, broken down by maturity. Millions of euro Periods: 2015 2016-2019 beyond 2019 Total Finance charges Present value of minimum lease payments Future minimum payments Present value of future minimum payments Future minimum payments Present value of future minimum payments at Dec. 31, 2014 at Dec. 31, 2013 102 398 750 1,250 (412) 838 62 250 526 838 126 461 994 1,581 (511) 1,070 77 295 698 1,070 The Group, in the role of lessee, has entered also into opera- Costs for operating leases are broken down in the following ting lease agreements regarding the use of certain assets for table into minimum payments, contingent rents and suble- industrial purposes. The associated lease payments are ex- ase payments. pensed under “Services and other materials” and amounted to €274 million. Millions of euro Minimum lease payments Contingent rents Sublease payments Total 200 2014 2,323 - 27 2,350 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe future minimum lease payments due by the Group under such leases break down by maturity as follows. Millions of euro Periods: within 1 year beyond 1 year and within 5 years beyond 5 years Total 16. Investment property - €143 million Investment property at December 31, 2014 amounted to €143 million, a decrease of €38 million for the year. Millions of euro Cost Accumulated depreciation Balance at Dec. 31, 2013 restated Acquisitions Entry into service Exchange rate differences Change in scope of consolidation Depreciation Impairment losses Reversals of impairment losses Other changes Remeasurement at fair value after changes in control Reclassification from/to “Assets held for sale” Total changes Cost Accumulated depreciation Balance at Dec. 31, 2014 265 1,000 1,058 2,323 2014 209 28 181 2 - (2) 5 (8) (18) - (16) - (1) (38) 173 30 143 The Group’s investment property consists of properties in lop investment property or for repairs, maintenance or en- Italy, Spain and Chile, which are free of restrictions on the hancements. realizability of the investment property or the remittance of For more details on the valuation of investment property, income and proceeds of disposal. In addition, the Group has please see notes 45 “Assets measured at fair value” and 45.1 no contractual obligations to purchase, construct or deve- “Assets and associated fair value”. 201 17. Intangible assets - €16,612 million Changes in intangible assets for 2014 are shown below. Millions of euro Cost Accumulated amortization Balance at Dec. 31, 2013 restated Capital expenditure Assets entering service Exchange rate differences Change in scope of consolidation Disposals Amortization Impairment losses Other changes Reclassification from/to “Assets held for sale” Total changes Cost Accumulated amortization Balance at Dec. 31, 2014 Development costs 46 16 30 5 - - - - (6) - (20) - (21) 26 17 9 Industrial patents and intellectual property rights Concessions, licenses, trademarks and similar rights Service concession arrangements 2,515 15,871 3,671 Assets under development and advances 494 Other 1,626 Total 24,223 2,045 1,324 1,653 1,130 - 6,168 470 133 162 (3) - - (274) (1) 24 (7) 34 2,735 2,231 14,547 2,018 496 15 4 (140) (274) - (182) (624) (2) (221) (1,424) 14,515 244 - 27 - - (202) (20) (129) - (80) 3,774 28 26 18 5 (8) (101) (61) 13 - (80) 1,656 494 255 (192) 14 90 (1) - (38) 2 (2) 128 622 18,055 680 - (84) (179) (9) (765) (744) (112) (230) (1,443) 23,328 1,392 1,836 1,240 - 6,716 504 13,123 1,938 416 622 16,612 “Industrial patents and intellectual property rights” relate de costs incurred by the gas companies and the foreign elec- mainly to costs incurred in purchasing software and open- tricity distribution companies to acquire customers. Amorti- ended software licenses. The most important applications zation is calculated on a straight-line basis over the average relate to invoicing and customer management, the deve- duration of the relationships with the customers acquired or lopment of Internet portals and the management of com- the concessions. pany systems. Amortization is calculated on a straight-line basis over the asset’s residual useful life (on average betwe- The following table reports service concession arrange- en three and five years). ments that do not fall within the scope of IFRIC 12. “Concessions, licenses, trademarks and similar rights” inclu- Millions of euro Grantor Activity Country Concession period Concession period remaining Renewal option at Dec. 31, 2014 Initial fair value Endesa Distribución Eléctrica Codensa - Republic of Colombia Chilectra Republic of Chile Empresa de Distribución Eléctrica de Lima Norte Enel Distributie Muntenia Republic of Peru Romanian Ministry for the Economy Electricity distribution Electricity distribution Electricity distribution Electricity distribution Electricity distribution Spain Indefinite Indefinite 5,679 5,673 Colombia Indefinite Indefinite 1,874 1,839 Chile Indefinite Indefinite 1,641 1,667 Peru Indefinite Indefinite 654 548 Romania 2005-2054 39 years Yes 160 191 202 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe item includes assets with an indefinite useful life in the der the purchase agreements signed in 2010 (€276 million). amount of €9,848 million (€9,995 million at December 31, This factor was only partly offset by the expansion of the 2013), essentially accounted for by concessions for distribu- scope of consolidation due to a number of acquisitions of tion activities in Spain (€5,679 million), Colombia (€1,874 the Renewable Energy Division. million), Chile (€1,641 million) and Peru (€654 million), for “Impairment losses” amounted to €744 million in 2014; for which there is no statutory or currently predictable expi- more details, please see note 8.d. ration date. On the basis of the forecasts developed, cash flows for each of the electricity distribution concessions are “Reclassification from/to ‘Assets held for sale’” largely re- sufficient to recover the value of the intangible assets. For gards the concession held by SE Hydropower, which in view more information on “Service concession arrangements”, of the decisions taken by management meets the require- please see note 22. ments of IFRS 5 for classification as assets held for sale. The “Change in scope of consolidation” for the period At December 31, 2014, contractual commitments for the ac- mainly regards the change in control of SE Hydropower un- quisition of intangible assets amounted to €13 million. 203 18. Goodwill - €14,027 million “Goodwill” amounted to €14,027 million, a decrease of €940 million. Millions of euro at Dec. 31, 2013 restated Change in scope of consolidation Exchange rate differences Impairment losses “Assets held for sale” at Dec. 31, 2014 Reclassification from/to (160) (34) - - - - - - - - (697) - - - - - - - - - (194) (697) 17,555 Cost Accumulated impairment Net carrying amount 10,999 3,285 1,016 990 - 579 546 113 26 1 (2,392) (1,016) (119) - - - - - - (1) (3,528) 8,607 3,285 871 - - 579 546 113 26 - 14,027 Endesa Latin America Enel Russia Enel Green Power Group Slovenské elektrárne Enel Energia Enel Distributie Muntenia Enel Energie Muntenia Nuove Energie Enel Stoccaggi Total Cost 10,999 3,260 1,119 960 697 579 547 113 26 1 Accumulated impairment Net carrying amount (2,392) - (856) (85) - - - - - (1) 8,607 3,260 263 875 697 579 547 113 26 - 18,301 (3,334) 14,967 - 25 - (23) - - - - - - 2 - - (103) 53 - - (1) - - - (51) The “Change in scope of consolidation” mainly regards the mation available at the time of the estimate and drawn: acquisition of control of Buffalo Dunes Wind Project (€7 > for the explicit period, from the 5-year business plan ap- million) and Inversiones Gas Atacama (€25 million). These proved by the Board of Directors of the Parent Company factors were partly offset by the disposal of the subsidiary containing forecasts for volumes, revenues, operating Enel Green Power France (€29 million). costs, capital expenditure, industrial and commercial “Impairment losses” are recognized following impairment organization and developments in the main macroe- tests, as discussed below. conomic variables (inflation, nominal interest rates and exchange rates) and commodity prices. In the previous “Reclassification from/to ‘Assets held for sale’” reports the re- year, the time horizon considered in preparing the busi- classification of the goodwill of the Slovenské elektrárne CGU, ness plan was 10 years. The change was made to bring which in view of the decisions taken by management meets the policy in this area into line with international best practi- requirements of IFRS 5 for classification as assets held for sale. ce. More specifically the explicit period of cash flows con- The criteria used to identify the cash generating units sidered in impairment testing differs in accordance with (CGUs) were essentially based (in line with management’s the specific features and business cycles of the various strategic and operational vision) on the specific characte- CGUs being tested. These differences are generally asso- ristics of their business, on the operational rules and regu- ciated with the different average times needed to build lations of the markets in which Enel operates and on the and bring into service the plant and other works that cha- corporate organization, as well as on the level of reporting racterize the investments of the specific businesses that monitored by management. make up the CGU (conventional thermal generation, nu- The recoverable value of the goodwill recognized was esti- clear power, renewables, distribution, etc.); mated by calculating the value in use of the CGUs using > for subsequent years, from assumptions concerning long- discounted cash flow models, which involve estimating ex- term developments in the main variables that determine pected future cash flows and applying an appropriate di- cash flows, the average residual useful life of assets or the scount rate, selected on the basis of market inputs such as duration of the concessions. risk-free rates, betas and market risk premiums. More specifically, the terminal value was calculated as a Cash flows were determined on the basis of the best infor- perpetuity or annuity with a nominal growth rate equal to 204 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS18. Goodwill - €14,027 million “Goodwill” amounted to €14,027 million, a decrease of €940 million. Endesa Latin America Enel Russia Enel Green Power Group Slovenské elektrárne Enel Energia Enel Distributie Muntenia Enel Energie Muntenia Nuove Energie Enel Stoccaggi Total Cost 10,999 3,260 1,119 960 697 579 547 113 26 1 Accumulated impairment Net carrying amount (2,392) (856) (85) - - - - - - (1) 8,607 3,260 263 875 697 579 547 113 26 - 25 (23) - - - - - - - - 2 (103) 53 (1) - - - - - - - Millions of euro at Dec. 31, 2013 restated Change in scope of consolidation Exchange rate differences Impairment losses Reclassification from/to “Assets held for sale” at Dec. 31, 2014 Cost Accumulated impairment Net carrying amount - - (160) (34) - - - - - - - - - - (697) - - - - - 10,999 3,285 1,016 990 - 579 546 113 26 1 18,301 (3,334) 14,967 (51) (194) (697) 17,555 (2,392) - (1,016) (119) - - - - - (1) (3,528) 8,607 3,285 - 871 - 579 546 113 26 - 14,027 the long-term rate of growth in electricity and/or inflation scussed below. (depending on the country and business involved) and in In order to verify the robustness of the value in use of the any case no higher than the average long-term growth rate CGUs, sensitivity analyses were conducted for the main dri- of the reference market. The value in use calculated as de- vers of the values, in particular WACC and the long-term scribed above was found to be greater than the amount growth rate, the outcomes of which fully supported that recognized on the balance sheet, with the exceptions di- value. 205 The table below reports the composition of the main goodwill along with the discount rates applied and the time horizon values according to the company to which the CGU belongs, over which the expected cash flows have been discounted. Millions of euro Amount Growth rate (1) Discount rate pre-tax WACC (2) Explicit period of cash flows Terminal value (3) Amount Growth rate (1) WACC (2) cash flows Terminal value (3) Discount rate pre-tax Explicit period of at Dec. 31, 2013 8,607 3,260 263 697 660 579 403 262 103 33 26 24 29 13 5 1 1.80% - 1.20% 1.00% 2.40% 0.70% 2.00% 3.40% 2.10% 2.00% 0.70% 2.00% 1.90% 2.40% 3.00% 1.90% 8.40% 8.90% 12.20% 8.80% 9.90% 12.70% 7.90% 8.50% 7.70% 13.60% 9.90% 10.00% 7.60% 10.60% 8.20% 9.80% 10 years 10 years 10 years 10 years 10 years 10 years 5 years 5 years 5 years 10 years 10 years 10 years 5 years 10 years 10 years 5 years Perpetuity Perpetuity Perpetuity Perpetuity Perpetuity 10 years 14 years 23 years 19 years 18 years 17 years 18 years 19 years 13 years 11 years 23 years Endesa - Iberian peninsula (4) Endesa - Latin America Enel Russia Slovenské elektrárne Enel Romania (5) Enel Energia Enel Green Power España Enel Green Power Latin America Enel Green Power North America Enel Green Power Hellas Nuove Energie Enel Green Power Italia Enel Green Power France Enel Green Power Romania Enel Green Power Bulgaria Enel Green Power South Africa at Dec. 31, 2014 8,607 3,285 - - 659 579 404 308 117 - 26 24 - 13 5 - 1.92% 2.67% 0.97% 2.07% 0.13% 2.00% 3.45% 2.17% - 0.29% 2.00% 2.07% 2.50% - 7.92% 8.48% 14.99% 7.90% 11.98% 7.90% 8.53% 7.46% 18.69% 8.98% 8.15% 8.26% 8.27% - 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 10 years Perpetuity Perpetuity Perpetuity Perpetuity 15 years 13 years 22 years 20 years 21 years 16 years 5 years Perpetuity /14 years (6) 5 years 5 years - 15 years 17 years - (1) Perpetual growth rate of cash flows after explicit period. (2) Pre-tax WACC calculated using the iterative method: the discount rate that ensures that the value in use calculated with pre-tax cash flows is equal to that calculated with post-tax cash flows discounted with the post-tax WACC. (3) The terminal value has been estimated on the basis of a perpetuity or an annuity with a rising yield for the years indicated in the column. (4) Goodwill includes the portion referring to Enel Green Power España. (5) Includes all companies operating in Romania. (6) The terminal value for Enel Green Power Italia was estimated on the basis of a perpetuity for the hydroelectric and geothermal plants and an expected annuity with a rising yield for a period of 14 years for other renewables technologies (wind, solar, biomass). At December 31, 2014, impairment testing of the CGU to > €269 million on the Enel Green Power Hellas CGU, of which goodwill had been allocated found the following im- which €34 million attributed to goodwill and the remain- pairment losses: der to generation assets, the concessions and the deve- > €365 million on the Enel Russia CGU (formerly Enel OGK- lopment projects in the pipeline, originating in the conti- 5), of which €160 million attributed to goodwill and the nuing adverse economic conditions, which have led to a remainder to generation assets, originating in the ex- substantial reduction in rate subsidies. pected contraction in future income flows in view of the continuing signs of economic slowdown and the conse- At December 31, 2013, an impairment loss of €744 million quent expected decrease in price growth in the medium had been recognized on the Enel Russia CGU (formerly Enel term; OGK-5). 206 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSMillions of euro Amount Growth rate (1) WACC (2) cash flows Terminal value (3) Amount Growth rate (1) Discount rate pre-tax Explicit period of Discount rate pre-tax WACC (2) Explicit period of cash flows Terminal value (3) Endesa - Iberian peninsula (4) Endesa - Latin America Enel Russia Slovenské elektrárne Enel Romania (5) Enel Energia Enel Green Power España Enel Green Power Latin America Enel Green Power North America Enel Green Power Hellas Nuove Energie Enel Green Power Italia Enel Green Power France Enel Green Power Romania Enel Green Power Bulgaria Enel Green Power South Africa at Dec. 31, 2014 8,607 3,285 - - 659 579 404 308 117 26 24 - - 13 5 - 1.92% 2.67% 0.97% 2.07% 0.13% 2.00% 3.45% 2.17% 0.29% 2.00% 2.07% 2.50% - - 7.92% 8.48% 14.99% 7.90% 11.98% 7.90% 8.53% 7.46% 18.69% 8.98% 8.15% 8.26% 8.27% - 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 10 years 5 years 5 years - Perpetuity Perpetuity Perpetuity Perpetuity 15 years 13 years 22 years 20 years 21 years 16 years 15 years 17 years - 5 years Perpetuity /14 years (6) (1) Perpetual growth rate of cash flows after explicit period. (2) Pre-tax WACC calculated using the iterative method: the discount rate that ensures that the value in use calculated with pre-tax cash flows is equal to that calculated with post-tax cash flows discounted with the post-tax WACC. (3) The terminal value has been estimated on the basis of a perpetuity or an annuity with a rising yield for the years indicated in the column. (4) Goodwill includes the portion referring to Enel Green Power España. (5) Includes all companies operating in Romania. (6) The terminal value for Enel Green Power Italia was estimated on the basis of a perpetuity for the hydroelectric and geothermal plants and an expected annuity with a rising yield for a period of 14 years for other renewables technologies (wind, solar, biomass). at Dec. 31, 2013 8,607 3,260 263 697 660 579 403 262 103 33 26 24 29 13 5 1 1.80% - 1.20% 1.00% 2.40% 0.70% 2.00% 3.40% 2.10% 2.00% 0.70% 2.00% 1.90% 2.40% 3.00% 1.90% 8.40% 8.90% 12.20% 8.80% 9.90% 12.70% 7.90% 8.50% 7.70% 13.60% 9.90% 10.00% 7.60% 10.60% 8.20% 9.80% 10 years 10 years 10 years 10 years 10 years 10 years 5 years 5 years 5 years 10 years 10 years 10 years 5 years 10 years 10 years 5 years Perpetuity Perpetuity Perpetuity Perpetuity Perpetuity 10 years 14 years 23 years 19 years 18 years 17 years 18 years 19 years 13 years 11 years 23 years 207 19. Deferred tax assets and liabilities - €7,067 million and €9,220 million The following table details changes in deferred tax assets and ble also reports the amount of deferred tax assets that, where liabilities by type of timing difference and calculated based allowed, can be offset against deferred tax liabilities. on the tax rates established by applicable regulations. The ta- Increase/ (Decrease) taken to income statement at Dec. 31, 2013 restated Increase/ (Decrease) taken to equity Change in scope of consolidation Other changes Exchange rate differences Reclassification from/to “Assets held for sale” at Dec. 31, 2014 1,891 452 2,031 99 460 1,705 6,186 (307) 18 2 1,116 1,281 4 - - 291 28 323 (3) (85) (6) (14) 2,239 - (1) - (5) (9) (35) (16) (48) 93 (91) (5) 8 (2) (11) (16) (518) (3) (44) (28) (607) 1,166 105 659 2,898 7,067 8,005 (599) - (50) (26) (106) (459) 6,765 170 2,620 10,795 42 (403) (960) 298 (19) 279 - 8 (42) (36) 3 (59) (11) 5 (112) (10) (212) (681) 453 2,002 9,220 1,660 4,052 (239) Millions of euro Deferred tax assets: - differences in the value of intangible assets, and property, plant and equipment - accruals to provisions for risks and charges and impairment losses with deferred deductibility - tax loss carried forward - measurement of financial instruments - other items Total Deferred tax liabilities: - differences on non- current and financial assets - measurement of financial instruments - other items Total Non-offsettable deferred tax assets Non-offsettable deferred tax liabilities Excess net deferred tax liabilities after any offsetting At December 31, 2014, “Deferred tax assets” totaled €7,067 equipment considered non-deductible; million (€6,186 million at December 31, 2013). > the reclassification to assets held for sale of Slovenské The increase during the year amounted to €881 million, elektrárne; mainly reflecting: > uses and releases of the provisions for risks and charges; > the recognition of deferred tax assets by the subsidiary > the effects of the elimination of the Robin Hood Tax fol- Enel Iberoamérica (formerly Enel Energy Europe) totaling lowing a judicial ruling that the IRES surtax was uncon- €1,392 million in respect of the distribution of dividends stitutional. in extraordinary corporate transactions involving Endesa It should also be noted that no deferred tax assets were re- in the last Quarter of 2014; corded in relation to prior tax losses in the amount of €756 > the recognition of deferred tax assets in respect of million because, on the basis of current estimates of future certain impairment losses on property, plant and taxable income, it is not certain that such assets will be re- 208 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTScovered. More specifically, the losses include those attribu- rious years and the deferred taxation in respect of the dif- table to the holding companies located in the Netherlands ferences between depreciation charged for tax purposes, in the amount of €263 million and to the Renewable Energy including accelerated depreciation, and depreciation based Division in the amount of €247 million. on the estimated useful lives of assets. The difference com- “Deferred tax liabilities” amounted to €9,220 million at De- deferred tax assets, to the reclassification to assets held for cember 31, 2014 (€10,795 million at December 31, 2013). sale of the assets of Slovenské elektrárne, as well as to the They essentially include the determination of the tax effects change in tax rates in Spain and a number of countries in pared with the previous year is mainly attributable, as with of the value adjustments to assets acquired as part of the Latin America. final allocation of the cost of acquisitions made in the va- 209 20. Equity investments accounted for using the equity method - €872 million Investments in joint arrangements and associated companies accounted for using the equity method are as follows. Millions of euro % holding Income effect Change in scope of consolidation Dividends Reclassification from/to “Assets held for sale” Impairment losses Other changes % holding Joint arrangements Hydro Dolomiti Enel Tejo Energia Produção e Distribução de Energia Eléctrica Empresa de Energía Cundinamarca RusEnergoSbyt Energie Electrique de Tahaddart Centrales Hidroeléctricas de Aysén PowerCrop Nuclenor Inversiones Gas Atacama Associates Elica 2 ENEOP - Eólicas de Portugal CESI Tecnatom GNL Quinteros EEVM - Empreendimentos Eólicos do Vale do Minho Suministradora Eléctrica de Cádiz Terrae Compañía Eólica Tierras Altas LaGeo Buffalo Dunes Wind Project Tirme Other Total at Dec. 31, 2013 restated 210 49.0% 38.9% 40.4% 49.5% 32.0% 51.0% 50.0% 50.0% 50.0% 30.0% 36.0% 42.7% 45.0% 20.0% 50.0% 33.5% 20.0% 35.6% 36.2% 49.0% 40.0% 58 34 59 30 96 6 12 171 135 55 37 30 7 15 17 15 14 98 69 23 181 1,372 57 6 3 47 5 - (1) (56) 4 - 17 3 1 5 14 3 - - 28 4 - 2 - - - - - - - - (174) - - - - - - - - - (100) (76) (19) 23 142 (346) (48) (4) - (71) (6) - - - - - - (1) - (9) (10) (3) - (1) (30) - (3) (69) (255) The “Change in scope of consolidation” item includes the The application of the equity method to the investments impact of the acquisition of an additional stake in Inversio- in RusEnergoSbyt and PowerCrop incorporates implicit go- nes Gas Atacama in Chile and Buffalo Dunes Wind Project odwill of €25 million and €9 million, respectively. in the United States, which gave Enel control over those companies, enabling line-by-line consolidation, as well “Impairment losses” on equity methods accounted for as the impact of the disposal, in December 2014, of in- using the equity method amounted to €177 million; for vestments in LaGeo and Tirme. more details, please see note 12. 210 - - - - - - - - - - - - - - - - - - - - - (88) (89) - - - - - - - - - - - - - - - - - - - - (18) (18) (177) at Dec. 31, 2014 218 61 34 29 29 8 5 - - 50 60 39 30 21 18 17 15 13 - - - 225 872 (1) 1 (3) (6) - - - 44 (1) (12) 4 - (1) 18 (1) - - - 4 3 (1) 106 154 49.0% 38.9% 40.4% 49.5% 32.0% 51.0% 50.0% 50.0% 30.0% 36.0% 42.7% 45.0% 20.0% 50.0% 33.5% 20.0% 35.6% ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS20. Equity investments accounted for using the equity method - €872 million Investments in joint arrangements and associated companies accounted for using the equity method are as follows. Inversiones Gas Atacama (174) Joint arrangements Hydro Dolomiti Enel Tejo Energia Produção e Distribução de Energia Eléctrica Empresa de Energía Cundinamarca RusEnergoSbyt Energie Electrique de Tahaddart Centrales Hidroeléctricas de Aysén PowerCrop Nuclenor Associates Elica 2 CESI Tecnatom GNL Quinteros ENEOP - Eólicas de Portugal EEVM - Empreendimentos Eólicos do Vale do Minho Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas Buffalo Dunes Wind Project Terrae LaGeo Tirme Other Total at Dec. 31, 2013 restated 210 49.0% 38.9% 40.4% 49.5% 32.0% 51.0% 50.0% 50.0% 50.0% 30.0% 36.0% 42.7% 45.0% 20.0% 50.0% 33.5% 20.0% 35.6% 36.2% 49.0% 40.0% 171 135 58 34 59 30 96 6 12 55 37 30 7 15 17 15 14 98 69 23 181 1,372 - - - - - - - - - - - - - - - - - (1) (56) 57 47 6 3 5 - 4 3 1 5 3 - - 4 - 2 - 17 14 28 (100) (76) (19) 23 142 (346) (48) (4) (71) (6) - - - - - - - - - - (1) (9) (10) (3) (1) (30) (3) (69) (255) Millions of euro % holding Income effect of consolidation Dividends Change in scope Reclassification from/to “Assets held for sale” Impairment losses Other changes % holding - - - - - - - - - - - - - - - - - - - - - (18) (18) - - - - - (88) - - - (89) - - - - - - - - - - - - (177) at Dec. 31, 2014 218 61 34 29 29 8 5 - - 50 60 39 30 21 18 17 15 13 - - - 225 872 (1) 1 (3) (6) - - - 44 (1) 4 (12) - (1) 18 (1) - - - 4 3 (1) 106 154 49.0% 38.9% 40.4% 49.5% 32.0% 51.0% 50.0% 50.0% 30.0% 36.0% 42.7% 45.0% 20.0% 50.0% 33.5% 20.0% 35.6% “Reclassification from/to ‘Assets held for sale’” regard the ment meet the requirements of IFRS 5 for classification as investments held by Slovenské elektrárne in a number of assets held for sale at December 31, 2014. associates that in view of the decisions taken by manage- 211 261 315 101 155 150 at - - 53 59 1 49 - 18 33 22 6 147 166 - - - - 81 43 108 14 26 26 12 at 85 6 131 94 56 31 16 72 - 40 39 61 19 15 64 5 98 22 32 27 86 - 40 42 50 19 3 at 251 6 131 409 109 90 17 121 - 58 72 41 21 444 16 9 84 91 26 (21) 9 167 91 67 36 51 36 at 428 188 38 85 94 28 24 13 84 96 66 32 51 40 211 5 98 362 103 75 27 194 - 54 68 45 15 220 234 270 295 The following table provides a summary of financial information for each joint arrangement and associate of the Group not classified as held for sale in accordance with IFRS 5. Millions of euro Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Equity at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2013 at Dec. 31, 2013 at Dec. 31, 2013 at Dec. 31, 2013 Dec. 31, 2014 restated Dec. 31, 2014 restated Dec. 31, 2014 restated Dec. 31, 2014 restated 518 9 2 378 169 132 41 74 6 576 181 3 423 172 143 37 57 7 137 12 105 139 18 34 12 99 3 103 13 166 136 22 41 8 88 6 655 21 107 517 187 166 53 173 9 679 194 169 559 194 184 45 145 13 1,358 1,214 387 278 1,745 1,492 1,399 1,249 179 159 1,578 1,408 63 72 262 77 44 62 69 274 75 45 82 63 44 19 7 92 69 53 17 16 145 135 306 96 51 154 138 327 92 61 Joint arrangements Hydro Dolomiti Enel Centrales Hidroeléctricas de Aysén RusEnergoSbyt Tejo Energia Produção e Distribução de Energia Eléctrica Empresa de Energía Cundinamarca Energie Electrique de Tahaddart PowerCrop Nuclenor Associates Elica 2 ENEOP - Eólicas de Portugal CESI Tecnatom EEVM - Empreendimentos Eólicos do Vale do Minho Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 212 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe following table provides a summary of financial information for each joint arrangement and associate of the Group not classified as held for sale in accordance with IFRS 5. Joint arrangements Hydro Dolomiti Enel Centrales Hidroeléctricas de Aysén RusEnergoSbyt Tejo Energia Produção e Distribução de Energia Eléctrica Empresa de Energía Cundinamarca Energie Electrique de Tahaddart PowerCrop Nuclenor Associates Elica 2 Portugal CESI Tecnatom ENEOP - Eólicas de EEVM - Empreendimentos Eólicos do Vale do Minho Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 518 9 2 378 169 132 41 74 6 63 72 77 44 262 274 at 576 181 3 423 172 143 37 57 7 62 69 75 45 at 103 13 166 136 22 41 8 88 6 92 69 53 17 16 655 21 107 517 187 166 53 173 9 145 135 306 96 51 137 12 105 139 18 34 12 99 3 82 63 44 19 7 at 679 194 169 559 194 184 45 145 13 154 138 327 92 61 Millions of euro Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Equity at Dec. 31, 2013 at Dec. 31, 2013 at Dec. 31, 2013 Dec. 31, 2014 restated Dec. 31, 2014 restated Dec. 31, 2014 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated 147 166 - - - - 64 5 98 261 315 101 81 43 - 108 - 53 59 1 49 - 22 32 27 86 - 85 6 131 94 56 31 16 72 - 211 5 98 362 103 75 27 194 - 251 6 131 409 109 90 17 121 - 1,358 1,214 387 278 1,745 1,492 1,399 1,249 179 159 1,578 1,408 14 26 18 33 220 234 26 12 22 6 40 42 50 19 3 40 39 61 19 15 54 68 58 72 270 295 45 15 41 21 444 16 9 428 188 38 155 150 84 91 26 (21) 9 167 91 67 36 51 36 85 94 28 24 13 84 96 66 32 51 40 213 Millions of euro Total revenue Income before tax Net income from continuing operations 2014 2013 restated 2014 2013 restated 2014 2013 restated Joint arrangements Hydro Dolomiti Enel 365 311 - 1,834 - 2,693 195 108 52 3 25 - 213 62 97 80 16 10 202 110 57 4 7 - 195 91 100 89 16 20 Centrales Hidroeléctricas de Aysén RusEnergoSbyt Tejo Energia Produção e Distribução de Energia Eléctrica Empresa de Energía Cundinamarca Energie Electrique de Tahaddart PowerCrop Nuclenor Associates Elica 2 ENEOP - Eólicas de Portugal CESI Tecnatom EEVM - Empreendimentos Eólicos do Vale do Minho Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 21. Derivatives 235 (14) 87 22 13 23 (3) (113) - 52 (1) 3 37 8 - 174 (8) 203 36 7 27 (3) 1 (1) 25 15 2 45 9 6 147 (2) 68 16 8 16 (2) (112) - 43 (2) 3 28 8 - 98 (6) 162 27 3 20 (2) 22 (1) 40 10 2 32 9 4 Millions of euro Non-current Current Derivative financial assets Derivative financial liabilities at Dec. 31, 2014 1,335 2,441 at Dec. 31, 2013 restated 444 2,216 at Dec. 31, 2014 Dec. 31, 2013 at restated 5,500 5,441 2,690 2,940 For more information on derivatives classified as non-current financial assets, please see notes 43 and 44 for hedging deri- vatives and trading derivatives, respectively. 214 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS22. Other non-current financial assets - €3,645 million Millions of euro Equity investments in other companies measured at fair value Equity investments in other companies Receivables and securities included in net financial debt (see note 22.1) Service concession arrangements Non-current prepaid financial expense Total at Dec. 31, 2014 at Dec. 31, 2013 restated Change 157 56 2,701 669 62 3,645 183 102 4,965 618 102 5,970 (26) (46) (2,264) 51 (40) (2,325) -14.2% -45.1% -45.6% 8.3% -39.2% -38.9% “Other non-current financial assets” decreased by €2,325 of infrastructure used to provide public services on a conces- million on 2013. In particular, the decline reflected a reduc- sion basis and recognized in application of IFRIC 12. tion of receivables included in net financial debt, as discus- sed in note 22.1. Equity investments in other companies measured at fair va- “Service concession arrangements” regard amounts due lue and at cost break down as follows: from the grantor for the construction and/or improvement Millions of euro % holding % holding at Dec. 31, 2014 at Dec. 31, 2013 restated Change Bayan Resources 147 10.00% Echelon Galsi Other Total 7.07% 15.61% 4 15 47 213 10.00% 7.07% 15.61% 169 5 15 96 285 (22) (1) - (49) (72) The change with respect to 2013 is essentially attributable to “Equity investments in other companies” includes compa- both the disposal of a number of minor equity investments nies whose market value cannot be readily determined and in Spain and Brazil and a reduction in the fair value of Bayan so, in the absence of plans to sell them, are carried at cost Resources. adjusted for any impairment losses. 215 22.1 Other non-current financial assets included in net financial debt - € 2,701 million Millions of euro Securities held to maturity Financial investments in funds or portfolio management products at fair value through profit or loss Financial receivables in respect of Spanish electrical system deficit Other financial receivables Total at Dec. 31, 2014 at Dec. 31, 2013 restated Change 139 40 - 2,522 2,701 128 24 1,498 3,315 4,965 11 16 (1,498) (793) (2,264) 8.6% 66.7% - -23.9% -45.6% “Financial receivables in respect of Spanish electrical system > receivables in respect of the Electricity Equalization Fund deficit” comprise amounts due to Endesa in respect of the in the amount of €434 million (unchanged on December system rate deficit in Spain. The decrease is attributable 31, 2013), regarding the reimbursement of non-recurring to the receipt, in December 2014, of funds from the assi- charges connected with the early replacement of electro- gnment without recourse, as permitted by the provisions of mechanical meters; Decree Law of December 13, 2014, which permits the assi- > the receivable in respect of the reimbursement, provided gnment to private-sector entities of receivables in respect of for by the Authority for Electricity, Gas and the Water Sy- 2013, which under previous legislation had been recovera- stem in Italy with Resolution 157/2012, of costs incurred ble over a period of 15 years. with the termination of the Electrical Worker Pension Finally, in accordance with the new regulation of the defi- Fund in the amount of €393 million (€448 million at De- cit set out in Decree Law 24/2013, government forecasts cember 31, 2013); do not expect deficits to be generated in the future. In any > the receivable of the Argentine generation companies event, any deficit that should emerge shall be treated as in respect of the wholesale electricity market deposited temporary until November of the following year, at which with the FONINVEMEM (Fondo Nacional de Inversión time the receivable is settled. For this reason, the provisional Mercado Eléctrico Mayorista) in the amount of €218 mil- deficit for 2014 of €1,173 million is classified under “Current lion (€216 million at December 31, 2013). financial assets”. The change for the period reflects the reclassification under assets held for sale of the receivable in respect of the Slovakian At December 31, 2014, “Other financial receivables” included: decommissioning fund in the amount of €813 million. 23. Other non-current assets - €885 million Millions of euro Receivables due from Electricity Equalization Fund and similar bodies Net assets of employee benefit programs Other receivables Total at Dec. 31, 2014 at Dec. 31, 2013 restated 59 - 826 885 46 21 750 817 Change 13 (21) 76 68 28.3% - 10.1% 8.3% “Receivables due from Electricity Equalization Fund and si- vable in respect of the Electricity Equalization Fund claimed milar bodies” at December 31, 2014 include only the recei- by the Enel Distribuzione. 216 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSIn 2013, “Net assets of employee benefit programs” repor- At December 31, 2014, “Other receivables” mainly regard ted assets backing a number of employee benefit plans for tax receivables in the amount of €501 million (€476 million Endesa employees, net of actuarial liabilities. In 2014, the at December 31, 2013) and advances to suppliers in the item was reclassified to liabilities as liabilities were greater amount of €141 million (€154 million at the end of 2013). than actuarial assets. 24. Inventories - €3,334 million Millions of euro Raw materials, consumables and supplies: - fuel - materials, equipment and other inventories Total raw materials, consumables and supplies Environmental certificates: - green certificates - white certificates - CO2 emissions allowances Total Buildings available for sale Payments on account TOTAL at Dec. 31, 2014 at Dec. 31, 2013 restated Change 1,533 759 2,292 623 294 3 920 76 46 1,816 616 2,432 525 461 2 988 77 58 3,334 3,555 (283) 143 (140) 98 (167) 1 (68) (1) (12) (221) -15.6% 23.2% -5.8% 18.7% -36.2% 50.0% -6.9% -1.3% -20.7% -6.2% Raw materials, consumables and supplies consist of fuel nuclear fuel and white certificates. The contraction was only inventories to cover the requirements of the generation partly offset by an increase in inventories of green certifica- companies and trading activities, as well as materials and tes and other materials and equipment. The buildings avai- equipment for the operation, maintenance and construc- lable for sale are related to remaining units from the Group’s tion of plants and distribution networks. The decrease for real estate portfolio and are primarily civil buildings. the year is mainly attributable to the decline in stocks of gas, 25. Trade receivables - €12,022 million Millions of euro Customers: - sale and transport of electricity - distribution and sale of natural gas - other activities Total customer receivables Trade receivables due from associates and joint arrangements TOTAL at Dec. 31, 2014 at Dec. 31, 2013 restated Change 8,361 1,679 1,920 11,960 62 12,022 8,613 1,524 1,190 11,327 51 11,378 (252) 155 730 633 11 644 -2.9% 10.2% 61.3% 5.6% 21.6% 5.7% Trade receivables from customers are recognized net of allo- wances for doubtful accounts, which totaled €1,662 million 217 at the end of the year, compared with an opening balance For more details on trade receivables, please see note 40 “Fi- of €1,472 million. The increase in the period is mainly due to nancial instruments”. an increase in sales of fuel. 26. Tax receivables - €1,547 million Tax receivables at December 31, 2014 amounted to €1,547 million (€419 million at December 31, 2013) and receivables million and are essentially related to income tax credits in for other taxes and tax surcharges in the amount of €350 the amount of €788 million (€992 million at December 31, million (€298 million at December 31, 2013). 2013), receivables for indirect taxes in the amount of €409 27. Other current financial assets - €3,984 million Millions of euro Current financial assets included in net financial position Other Total at Dec. 31, 2014 at Dec. 31, 2013 restated 3,860 124 3,984 5,503 104 5,607 Change (1,643) 20 (1,623) -29.9% 19.2% -28.9% 27.1 Other current financial assets included in net financial debt - €3,860 million Millions of euro Short-term portion of long-term financial receivables Receivables for factoring Securities available for sale Financial receivables and cash collateral Other Total at Dec. 31, 2014 at Dec. 31, 2013 restated Change 1,566 177 140 1,654 323 3,860 2,976 263 17 1,720 527 5,503 (1,410) (86) 123 (66) (204) (1,643) -47.4% -32.7% - -3.8% -38.7% -29.9% The change in “Short-term portion of long-term financial re- receivables to a specially-established securitization fund, ceivables” is mainly accounted for by: formed by a pool of five Spanish banks, with the inten- > the change in financial receivables in respect of the de- tion of closing the system deficit for 2013; ficit of the Spanish electrical system as a result of the > a decrease of €905 million in the financial receivables of accrual of new receivables in 2014 in the amount of Enersis, which at December 31, 2013 had comprised li- €2,952 million (also including new receivables for extra- quidity temporarily invested in repurchase transactions peninsular generation), the reclassification of €1,498 with a maturity of more than 90 days, which were subse- million, discussed in note 22.1 and, with a negative sign, quently used to expand the Group’s presence in Latin collections (€4,948 million including payments in respect America, as happened in 2014 with the acquisition of lar- of extra-peninsular generation). Part of those collections ger stakes in Coelce, Gas Atacama and Edegel, with the (€1,469 million) was generated by the assignment of the latter channeled through Generandes Perú. 218 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS28. Other current assets - €2,706 million Millions of euro Receivables due from Electricity Equalization Fund and similar bodies Advances to suppliers Receivables due from employees Receivables due from others Accrued operating income and prepaid expenses Receivables for construction contracts Total at Dec. 31, 2014 at Dec. 31, 2013 restated Change 1,010 166 33 1,272 184 41 2,706 745 213 36 1,329 197 37 2,557 265 (47) (3) (57) (13) 4 149 35.6% -22.1% -8.3% -4.3% -6.6% 10.8% 5.8% “Receivables due from Electricity Equalization Fund and si- of €59 million (€46 million in 2013), operating receivables milar bodies” include receivables in respect of the Italian sy- due from the Electricity Equalization Fund and similar bo- stem in the amount of €896 million (€669 million at Decem- dies at December 31, 2014 totaled €1,069 million (€791 ber 31, 2013) and the Spanish system in the amount of €114 million at December 31, 2013), offset by payables of €4,005 million (€76 million at December 31, 2013). Including the million (€3,312 million at December 31, 2013). portion of receivables classified as long-term in the amount 29. Cash and cash equivalents - €13,088 million Cash and cash equivalents, detailed in the table below, are not restricted by any encumbrances, apart from €199 million (€195 million at December 31, 2013) primarily in respect of deposits pledged to secure transactions. Millions of euro Bank and post office deposits Cash and cash equivalents on hand Total at Dec. 31, 2014 at Dec. 31, 2013 restated 12,330 758 13,088 6,813 1,060 7,873 Change 5,517 (302) 5,215 81.0% -28.5% 66.2% The change for the period mainly reflects cash flows generated by the disposal of non-strategic assets and the proceeds of the disposal of 21.92% of Endesa. 219 30. Assets and liabilities held for sale - €6,778 million and €5,290 million Changes in assets held for sale during the year are reported in the following table. Millions of euro at Dec. 31, 2013 restated Reclassification from/to current and non-current assets Disposals and change in scope of consolidation Impairment losses Other changes at Dec. 31, 2014 Property, plant and equipment 211 5,873 Intangible assets Goodwill Deferred tax assets Equity investments accounted for using the equity method Non-current financial assets Other non-current assets Cash and cash equivalents Current financial assets Inventories, trade receivables and other current assets Total 1 - - 1 4 10 - 14 241 230 697 608 17 972 18 27 42 526 9,010 (16) (2) - - - - - (10) - (14) (42) (2,181) - (697) - - - - - - - (2,878) (5) (5) - 458 - - - - - (1) 447 3,882 224 - 1,066 18 976 18 27 42 525 6,778 “Assets held for sale” amounted to €6,778 million at Decem- more details, please see note 8.d. ber 31, 2014. They largely include the assets of Slovenské elektrárne (€6,389 million), SE Hydropower (€302 million) Liabilities held for sale at December 31, 2014 amounted to and other smaller companies, which in view of the decisions €5,290 million. They largely included the liabilities of Slo- taken by management meet the requirements of IFRS 5 for venské elektrárne (€5,163 million), SE Hydropower (€99 mil- classification as assets held for sale. lion) and other smaller companies. “Impairment losses” at December 31, 2014 amounted Changes in liabilities held for sale during the year are as follows: to €2,878 million and regarded Slovenské elektrárne; for Millions of euro Long-term borrowings Post-employment and other employee benefits Non-current portion of provisions for risks and charges Deferred tax liabilities Non-current financial liabilities Other non-current liabilities Short-term borrowings Other current financial liabilities Current portion of provisions for risks and charges Trade payables and other current liabilities Total at Dec. 31, 2013 restated Reclassification from/to current and non-current liabilities Disposals and change in scope of consolidation Other changes at Dec. 31, 2014 - - - 7 - - - - - 13 20 1,422 67 2,305 681 148 1 191 47 43 399 5,304 - - - - - - - - - (13) (13) - - - (19) - - - - - (2) (21) 1,422 67 2,305 669 148 1 191 47 43 397 5,290 The net increase in all items of assets and liabilities held for For a summary of the fair value balances, broken down by sale compared with December 31, 2013 largely reflects the measurement criteria, please see notes 45 and 46 on IFRS classifications under this item during 2014. 13 disclosures. 220 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS31. Shareholders’ equity - €51,145 million 31.1 Equity attributable to the shareholders of the Parent Company - €31,506 million Share capital - €9,403 million At December 31, 2014 (as at December 31, 2013), the sha- Pursuant to Article 47 of the Uniform Income Tax Code (Te- sto Unico Imposte sul Reddito), this amount does not consti- re capital of Enel SpA – considering that no options were tute taxable income when distributed. exercised as part of stock option plans in 2014 – amounted to €9,403,357,795 fully subscribed and paid up, represen- ted by 9,403,357,795 ordinary shares with a par value of €1.00 each. Reserve from translation of financial statements in currencies other than euro - €(1,321) million The decrease for the year is due to the net depreciation of At the same date, based on the shareholders register and the functional currency against the foreign currencies used the notices submitted to CONSOB and received by the Com- by subsidiaries. pany pursuant to Article 120 of Legislative Decree 58 of Fe- bruary 24, 1998, as well as other available information, no shareholders held more than 2% of the total share capital, Reserve from cash flow hedge - €(1,806) million This includes the net charges recognized in equity from the apart from the Ministry for the Economy and Finance, which measurement of cash flow hedge derivatives. holds 31.24%, CNP Assurances (which holds 3.67%, held as at June 26, 2014 for asset management purposes), and Peo- ple’s Bank of China, with 2.07%. On February 26, 2015, the Ministry for the Economy and Fi- Reserve from measurement of financial instru- ments available for sale - €105 million This includes net unrealized income from the measurement nance sold an interest of 5.74% in the Company. Accordin- at fair value of financial assets. gly, following that operation, the Ministry’s holding in the Company has decreased from 31.24% to 25.50%. Other reserves - €3,362 million Reserve from disposal of equity interests wi- thout loss of control - €(2,113) million This item reports the gain posted on the public offering of Enel Green Power shares, net of expenses associated with Share premium reserve - €5,292 million the disposal and the related taxation, and the sale of mi- Pursuant to Article 2431 of the Italian Civil Code, the share nority interests recognized as a result of the Enersis capital premium reserve contains, in the case of the issue of shares increase. The change for the period regards the capital loss, at a price above par, the difference between the issue price net of expenses associated with the disposal and the related of the shares and their par value, including those resulting taxation, from the public offering of 21.92% of Endesa. from conversion from bonds. The reserve, which is a capital reserve, may not be distributed until the legal reserve has reached the threshold established under Article 2430 of the Civil Code. Legal reserve - €1,881 million Reserve from transactions in non-controlling in- terests - €(193) million The reserve reports the amount by which the purchase price in purchases from third parties of additional stakes in com- panies already controlled in Latin America (generated in The legal reserve is formed of the part of net income that, previous years by the purchase of additional stakes in Ampla pursuant to Article 2430 of the Italian Civil Code, cannot be Energia e Serviços, Ampla Investimentos e Serviços and Eléc- distributed as dividends. trica Cabo Blanco) exceeds the value of the equity acquired. Other reserves - €2,262 million These include €2,215 million related to the remaining por- The change for the period regards the difference between the purchase price and the associated share of equity acqui- red from non-controlling shareholders of Coelce, Generandes tion of the value adjustments carried out when Enel was Perú (which controls Edegel with a stake of 54.20%), Enersis transformed from a public entity to a joint-stock company. and Endesa Latinoamérica. 221 Reserve from equity investments accounted for using the equity method - €(74) million The reserve reports the share of comprehensive income to Reserve for employee benefits - €(671) million The reserve includes all actuarial gains and losses, net of tax effects. The change is attributable to the increase in net ac- be recognized directly in income for companies accounted tuarial losses recognized during the period. for using the equity method. Retained earnings and loss carried forward - €18,741 million The reserve reports earnings from previous years that have The table below shows the changes in gains and losses re- cognized directly in other comprehensive income, including non-controlling interests, with specific reporting of the rela- not been distributed or allocated to other reserves. ted tax effects. at Dec. 31, 2013 restated Changes at Dec. 31, 2014 Of which sharehol- ders of the Parent Company Of which non-con- trolling interests Gains/ (Losses) recogni- zed in equity for the year Total Released to income statement Taxes Change in scope of consolida- tion Total Of which sharehol- ders of the Parent Company Of which non- controlling interests Of which sharehol- ders of the Parent Company Of which non-con- trolling interests Total (2,401) (1,084) (1,317) (717) - - 6 (711) (237) (474) (3,112) (1,321) (1,791) (1,730) (1,592) (138) (302) (65) 20 21 (326) (214) (112) (2,056) (1,806) (250) 127 128 (1) (23) - - - (23) (23) - 104 105 (1) (63) (58) (5) (36) 7 16 3 (10) (16) 6 (73) (74) 1 (624) (528) (96) (340) - 33 59 (248) (143) (105) (872) (671) (201) (4,691) (3,134) (1,557) (1,418) (58) 69 89 (1,318) (633) (685) (6,009) (3,767) (2,242) Millions of euro Reserve from translation of financial statements in currencies other than euro Reserve from change in the fair value of cash flow hedges Reserve from changes in the fair value of financial assets available for sale Share of OCI of equity investments accounted for using the equity method Remeasure- ments of the net defined benefit liabilities/ (assets) Total gains/ (losses) recognized in equity 222 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS31.2 Dividends Net dividends paid in 2013 Dividends for 2012 Interim dividends for 2013 Extraordinary dividends Total net dividend paid in 2013 Net dividends paid in 2014 Dividends for 2013 Interim dividends for 2014 Extraordinary dividends Total dividend paid in 2014 Amount distributed (millions of euro) Net dividend per share (euro) 1,410 - - 1,410 1,222 - - 1,222 0.15 - - 0.15 - 0.13 - - 0.13 The dividend for 2014, equal to €0.14 per share, for a total not take account of the effect of the distribution of the 2014 of €1,316 million, was proposed to the Shareholders’ Mee- dividends to shareholders. ting called for May 28, 2015. These financial statements do Capital management The Group’s objectives for managing capital comprise safe- In this context, the Group manages its capital structure and adjusts that structure when changes in economic conditions guarding the business as a going concern, creating value for so require. There were no substantive changes in objectives, stakeholders and supporting the development of the Group. policies or processes in 2014. In particular, the Group seeks to maintain an adequate capi- To this end, the Group constantly monitors developments in talization that enables it to achieve a satisfactory return for the level of its debt in relation to equity. The situation at De- shareholders and ensure access to external sources of finan- cember 31, 2014 and 2013 is summarized in the following cing, in part by maintaining an adequate rating. table: Millions of euro Non-current financial position Net current financial position Non-current financial receivables and long-term securities Net financial debt Equity attributable to the shareholders of the Parent Company Non-controlling interests Shareholders’ equity Debt/equity ratio at Dec. 31, 2014 at Dec. 31, 2013 restated 48,655 (8,571) (2,701) 37,383 31,506 19,639 51,145 0.73 50,905 (6,234) (4,965) 39,706 35,941 16,891 52,832 0.75 Change (2,250) (2,337) 2,264 (2,323) (4,435) 2,748 (1,687) (0.02) 223 31.3 Non-controlling interests - €19,639 million The following table reports the composition of non-controlling interests. Non-controlling interests at Dec. 31, 2014 6,648 8,690 1,134 385 2,782 - at Dec. 31, 2013 restated 1,996 10,014 1,438 923 2,306 214 19,639 16,891 Net income attributable to non-controlling interests at Dec. 31, 2014 116 464 31 (523) 167 - 255 at Dec. 31, 2013 restated 84 1,013 95 133 210 10 1,545 Millions of euro Endesa Group Enel Latinoamérica Group EIH Group Slovenske Group Enel Green Power Group Other and minor Total 32. Borrowings Millions of euro Non-current Current Long-term borrowings Short-term borrowings Total at Dec. 31, 2014 48,655 - 48,655 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated 50,905 - 50,905 5,125 3,252 8,377 4,658 2,484 7,142 For more details on the nature of borrowings, please see note 40 “Financial instruments”. 224 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS33. Post-employment and other employee benefits - €3,687 million The Group provides its employees with a variety of benefits, benefit entitling employees covered by the electricity including termination benefits, additional months’ pay for workers national collective bargaining agreement to having reached age limits or eligibility for old-age pension, a bonus for achievement of seniority milestones (25th loyalty bonuses for achievement of seniority milestones, and 35th year of service). It also includes other incentive supplemental retirement and healthcare plans, residential plans, which provide for the award to certain Company electricity discounts (which for companies in Italy only re- managers of a monetary bonus subject to specified con- gard certain retired employees) and similar benefits. More ditions. specifically: Outside of Italy, major pension plans include those of Ende- > for Italy, the item “Pension benefits” regards estimated sa, in Spain, which break down into three types that differ accruals made to cover benefits due under the supple- on the basis of employee seniority and company. In gene- mental retirement schemes of retired executives and the ral, under the framework agreement of October 25, 2000, benefits due to personnel under law or contract at the employees participate in a specific defined-contribution time the employment relationship is terminated. For the pension plan and, in cases of disability or death of emplo- foreign companies, the item reports post-employment yees in service, a defined benefit plan which is covered by benefits; appropriate insurance policies. In addition, the Group has > the item “Electricity discount” comprises, for the Italian two other limited-enrollment plans (i) for current and re- companies, a number of benefits regarding residential tired Endesa employees covered by the electricity industry electricity supply. Until 2011 the discount was granted to collective bargaining agreement prior to the changes intro- current and retired employees, but, following an agree- duced with the framework agreement noted earlier and ment with the unions, has now been replaced by other (ii) for employees of the former Catalan companies (Fecsa/ forms of remuneration for current employees and there- Enher/HidroEmpordà). Both are defined benefit plans and fore remains in effect only for retired employees; benefits are fully ensured, with the exception of the former > the item “Health insurance” reports benefits for current plan for benefits in the event of the death of a retired em- or retired employees covering medical expenses; ployee. > “Other benefits” mainly regard the loyalty bonus, which Finally, the Brazilian companies have also established defi- for Italy is represented by the estimated liability for the ned benefit plans. 225 The following table reports changes in the defined benefit gation with the actuarial liability. obligation for post-employment and other long-term em- The obligation at December 31, 2013 (€3,677 million) is re- ployee benefits at December 31, 2014 and December 31, ported net of plan assets (€21 million). 2013, respectively, as well as a reconciliation of that obli- Millions of euro 2014 2013 restated CHANGES IN ACTUARIAL OBLIGATION Actuarial obligation at January 1 2,366 1,848 Pension benefits Electricity discount Health insurance Other benefits 209 4 11 - 9 5 (2) - (1) - - (13) 1 - 223 - - - - 13 - (13) - - - - - - - - - 362 48 10 1 (7) (17) (24) - (18) - - (89) (2) (1) 263 - - - - 22 - (22) - - - - - - - - - Total 4,785 75 206 3 445 (75) (66) 8 (23) - 1 (427) 6 (67) 4,871 1,187 82 28 4 309 1 (360) - - 1,251 58 7 2 - - 67 3,687 Pension benefits Electricity discount Health insurance Other benefits 3,636 66 147 3 (104) (7) (35) (1,023) (131) (195) - 2 7 - 2 - - 2,366 1,320 82 (83) (96) 157 (195) 1,187 47 3 19 (11) - 58 1,674 6 57 (1) 177 29 (1) (96) 3 - 1,848 96 (96) - - - - - - - - - - - - - - - - - - 239 2 12 1 (13) (4) (13) (15) 209 15 (15) - - - - - - - - - - - - - - - - - - - - 249 99 10 29 (7) 43 (3) (11) - - - 1 - (48) 362 25 (25) - - - - - - - - - - - - - - 1,237 1,848 209 362 (38) (1,023) (156) Total 5,798 173 226 32 53 61 - 2 11 - (354) 4,785 1,320 82 (83) (96) 293 (331) 2 - - 1,187 47 3 19 - 58 (11) 3,656 6 60 1 173 (39) (36) - - - - (88) 2 - 1,927 - - - - 88 - (88) - - - - - - - - - 1,927 223 263 Current service cost Interest expense Actuarial (gains)/losses arising from changes in demographic assumptions Actuarial (gains)/losses arising from changes in financial assumptions Experience adjustments Past service cost (Gains)/Losses arising from settlements Exchange rate differences Employer contributions Employee contributions Benefits paid Other changes Liabilities classified as held for sale Actuarial obligation at December 31 (A) CHANGES IN PLAN ASSETS Fair value of plan assets at January 1 Interest income Return on plan assets excluding amounts included in interest income Exchange rate differences Employer contributions Employee contributions Benefits paid Other payments Changes in scope of consolidation Fair value of plan assets at December 31 (B) EFFECT OF ASSET CEILING Asset ceiling at January 1 Interest income Changes in asset ceiling Exchange rate differences Changes in scope of consolidation Asset ceiling at December 31 (C) Net liability in balance sheet (A-B+C) 17 125 1 270 (24) (4) 8 (4) - 1 (237) 5 (66) 2,458 1,187 82 28 4 186 1 (237) - - 1,251 58 7 2 - - 67 1,274 226 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS  Millions of euro 2013 restated 2014 Electricity Pension benefits discount Health insurance Other benefits Total Pension benefits Electricity discount Health insurance Other benefits (237) (88) (13) Actuarial obligation at December 31 (A) 1,927 223 CHANGES IN ACTUARIAL OBLIGATION Actuarial obligation at January 1 Current service cost Interest expense Actuarial (gains)/losses arising from changes in demographic assumptions Actuarial (gains)/losses arising from changes in financial (Gains)/Losses arising from settlements assumptions Experience adjustments Past service cost Exchange rate differences Employer contributions Employee contributions Benefits paid Other changes Liabilities classified as held for sale CHANGES IN PLAN ASSETS Fair value of plan assets at January 1 Interest income Return on plan assets excluding amounts included in interest income Exchange rate differences Employer contributions Employee contributions Benefits paid Other payments Changes in scope of consolidation Fair value of plan assets at December 31 (B) EFFECT OF ASSET CEILING Asset ceiling at January 1 Interest income Changes in asset ceiling Exchange rate differences Changes in scope of consolidation Asset ceiling at December 31 (C) Net liability in balance sheet (A-B+C) 2,366 17 125 270 (24) (4) (4) 1 8 - 1 5 (66) 2,458 1,187 82 28 4 186 (237) 1,251 58 1 - - 7 2 - - 67 1,274 1,848 6 60 1 173 (39) (36) - - - - 2 - - - - - - - - - - - - - - - 88 (88) 209 4 11 (2) (1) - 9 5 - - - 1 - - - - - - - - - - - - - - - 362 48 10 1 (7) (17) (24) (18) (89) (2) (1) 263 - - - - - - - - - - - - - - - - - 4,785 75 206 445 (75) (66) (23) 3 8 - 1 6 (427) (67) 4,871 1,187 82 28 4 309 1 - - 7 2 - - 1,251 58 67 3,687 13 22 (13) (22) (360) 3,636 66 147 3 (104) (7) (35) (1,023) (131) - 2 (195) 7 - 2,366 1,320 82 (83) (96) 157 2 (195) - - 1,187 47 3 19 (11) - 58 1,674 6 57 (1) 177 29 - - (1) - - (96) 3 - 1,848 - - - - 96 - (96) - - - - - - - - - 239 2 12 1 (13) (4) - - (13) - - (15) - - 209 - - - - 15 - (15) - - - - - - - - - 249 99 10 29 (7) 43 (3) - (11) - - (48) 1 - 362 - - - - 25 - (25) - - - - - - - - - 1,927 223 263 1,237 1,848 209 362 Total 5,798 173 226 32 53 61 (38) (1,023) (156) - 2 (354) 11 - 4,785 1,320 82 (83) (96) 293 2 (331) - - 1,187 47 3 19 (11) - 58 3,656 227   Millions of euro (Gains)/Losses charged to profit or loss Service cost and past service cost Net interest expense (Gains)/Losses arising from settlements Actuarial (gains)/losses on other long-term benefits Other changes Total Millions of euro Change in (gains)/losses in OCI Return on plan assets excluding amounts included in interest income Actuarial (gains)/losses on defined benefit plans Changes in asset ceiling excluding amounts included in interest income Total 2014 2013 restated (26) 131 8 35 7 155 50 147 (1,023) 85 (12) (753) 2014 2013 restated (28) 366 2 340 83 157 19 259 The change in cost recognized through profit or loss is the year is reported net of the fair value of plan assets, en- mainly attributable to the cancellation in 2013 of the transi- tirely accounted for by the Enersis Group, amounting to tion-to-retirement plan introduced in 2012 owing to lack of €1,251 million at December 31, 2014. The plan assets break participation, prompting derecognition of the liability. down as follows: The liability recognized in the balance sheet at the end of Investment quoted in active markets Equity instruments Fixed-income securities Unquoted investments Property Assets held by insurance undertakings Other Total 2014 2013 restated 5% 29% 5% - 61% 100% 6% 27% 3% 11% 53% 100% The main actuarial assumptions used to calculate the liabi- which are consistent with those used the previous year, are lities in respect of employee benefits and the plan assets, set out in the following table. Italy Iberian peninsula 2014 Latin America Other Italy Iberian peninsula Latin America Other 2013 restated Discount rate 0.50% -2.15% 0.87% - 2.11% 4.60% - 12.52% Inflation rate 1.60% 2.30% 3.00% - 6.00% Rate of wage increases 1.60% - 3.60% 2.30% 3.00% - 9.18% Rate of increase in healthcare costs Expected rate of return on plan assets 2.60% 3.50% 3.50% - 8.66% - 2.06% 12.52% 1.60% - 13.89% 1.75% - 5.00% 1.75% - 5.00% - - 0.75% - 3.00% 1.72% - 3.64% 2.00% 2.30% 5.40% - 12.43% 3.00% - 5.50% 2.00%- 4.00% 2.30% 0% - 7.61% 3.00% 3.50% 4.50% - 11.57% - 3.61% 0.00% 3.15% - 7.90% 2.00% - 6.00% 2.00% - 6.00% - - 228 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe following table reports the outcome of a sensitivity the year in the actuarial assumptions used in estimating the analysis that demonstrates the effects on the defined bene- obligation. fit obligation of changes reasonably possible at the end of A decrease of 0.5% in discount rate An increase of 0.5% in discount rate An increase of 0.5% in inflation rate An increase of 0.5% in remuneration An increase of 0.5% in pensions currently being paid An increase of 1% in healthcare costs An increase of 1 year in life expectancy of active and retired employees Pension benefits Electricity discount Health insurance Other benefits Pension benefits Electricity discount Health insurance Other benefits at Dec. 31, 2014 at Dec. 31, 2013 156 58 (134) (120) 31 27 52 - 17 137 - - - 81 11 (13) 8 - - 24 11 3 (6) 4 6 - - - 128 125 (130) (111) 30 10 3 3 62 - - - 41 87 11 (13) (4) 7 7 24 7 11 (9) 5 10 3 3 7 The sensitivity analysis used an approach that extrapolates The contributions expected to be paid into defined benefit the effect on the defined benefit obligation of reasonable plans in the subsequent year amount to €24 million. changes in an individual actuarial assumption, leaving the other assumptions unchanged. The following table reports expected benefit payments in the coming years for defined benefit plans: Millions of euro Within 1 year In 1-2 years In 2-5 years More than 5 years at Dec. 31, 2014 at Dec. 31, 2013 265 257 801 1,406 396 258 802 1,517 34. Provisions for risks and charges - €5,238 million Millions of euro Provision for litigation, risks and other charges: - nuclear decommissioning - non-nuclear plant retirement and site restoration - litigation - environmental certificates - taxes and duties - other Total Provision for early-retirement incentives TOTAL at Dec. 31, 2014 at Dec. 31, 2013 restated Non-current Current Non-current Current 566 594 810 - 309 693 2,972 1,079 4,051 1 5 40 43 7 581 677 510 1,187 2,612 589 1,036 133 371 605 5,346 1,158 6,504 33 3 46 164 7 626 879 588 1,467 229 Millions of euro Accrual Reversal Utilization at Dec. 31, 2013 restated Unwinding of interest Change in scope of consolidation Translation adjustment Other Reclassification from/to “Liabilities held for sale” at Dec. 31, 2014 Provision for litigation, risks and other charges: - nuclear decommissioning - non-nuclear plant retirement and site restoration - litigation - environmental certificates - taxes and duties - other Total Provision for early- retirement incentives TOTAL 2,645 26 (56) (19) 105 592 1,082 297 378 1,231 6,225 40 182 42 31 394 715 (84) (218) (18) (50) (139) (565) (12) (210) (276) (29) (299) (845) 1,746 7,971 478 1,193 (129) (694) (539) (1,384) 13 26 - - 53 197 58 255 - 5 - - (4) (2) (1) - (1) (3) 81 (2,212) 567 1 - - (19) (21) (3) (24) 150 (1) (1) (6) 62 285 (15) 270 (106) (11) (1) (4) (7) (2,341) (7) (2,348) 599 850 43 316 1,274 3,649 1,589 5,238 Nuclear decommissioning provision Litigation provision The “nuclear decommissioning” provision decreased compared The “litigation” provision covers contingent liabilities in re- with December 31, 2013, mainly due to the reclassification of spect of pending litigation and other disputes. It includes the subsidiary Slovenské elektrárne under assets held for sale. In an estimate of the potential liability relating to disputes that 2013 the latter had a provision of €2,175 million for the V1 and arose during the period, as well as revised estimates of the V2 plants at Jasklovske Bohunice and the EMO 1 and 2 plants potential costs associated with disputes initiated in prior pe- at Mochovce, which included the provision for nuclear waste di- riods. The estimates are based on the opinions of internal and sposal in the amount of €114 million, the provision for spent nu- external legal counsel. The change for the year reflects the clear fuel disposal in the amount of €1,296 million and the provi- closure of a number of disputes. sion for nuclear plant retirement in the amount of €765 million. Thus, at December 31, 2014, the provision reflected solely the costs that will be incurred at the time of decommissioning of nuclear plants by Enresa, a Spanish public enterprise responsible Provision for environmental certificates for such activities in accordance with Royal Decree 1349/2003 The provision for “environmental certificates” covers costs in and Law 24/2005. Quantification of the costs is based on the respect of shortfalls in the environmental certificates need standard contract between Enresa and the electricity companies for compliance with national or supranational environmen- approved by the Ministry for the Economy in September 2001, tal protection requirements. which regulates the retirement and closing of nuclear power plants. The time horizon envisaged, three years, corresponds to the period from the termination of power generation to the Other provisions transfer of plant management to Enresa (post-operational costs). “Other” provisions cover various risks and charges, mainly in Non-nuclear plant retirement and site restoration provision connection with regulatory disputes and disputes with local authorities regarding various duties and fees. In particular, as regard current and potential disputes concerning local proper- ty tax (whether the Imposta Comunale sugli Immobili (“ICI”) or The provision for “non-nuclear plant retirement and site the new Imposta Municipale Unica (“IMU”)) in Italy, the Group restoration” represents the present value of the estimated has taken due account of the criteria introduced with circular cost for the retirement and removal of non-nuclear plants 6/2012 of the Public Land Agency (which resolved interpretive where there is a legal or constructive obligation to do so. issues concerning the valuation methods for movable assets 230 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSconsidered relevant for property registry purposes, including and Italy in previous years, the latter largely associated with certain assets typical to generation plants, such as turbines) in the union-company agreements signed on September 6, estimating the liability for such taxes, both for the purposes of 2013, implementing, for a number of companies in Italy, the quantifying the probable risk associated with pending litiga- mechanism provided for under Article 4, paragraphs 1-7 ter, tion and generating a reasonable valuation of probable future of Law 92/2012 (the Fornero Act). In addition, a new incentive charges on positions that have not yet been assessed by Public mechanism was implemented in Spain in 2014, with a charge Land Agency offices and municipalities. of €349 million, in connection with Endesa’s restructuring and Provision for early-retirement incentives reorganization plan, which provides for the suspension of the employment contract with tacit annual renewal. With regard to that plan, on December 30, 2014, the Company signed an agreement with union representatives in which it undertook The “Provision for early-retirement incentives” includes the to not exercise the option to request a return to work at subse- estimated charges related to binding agreements for the vo- quent annual renewal dates for either the 222 employees who luntary termination of employment contracts in response to elected to participate in the mechanism in 2014 or for the ad- organizational needs. The change for the year reflects, among ditional 250 employees who have already been identified in other factors, uses for incentive provisions established in Spain the plan but will only sign the participation agreement in 2015. 35. Other non-current liabilities - €1,464 million Millions of euro Accrued operating expenses and deferred income Other items Total at Dec. 31, 2014 952 512 1,464 at Dec. 31, 2013 restated 956 303 1,259 Change (4) 209 205 -0.4% 69.0% 16.3% At December 31, 2014, this item essentially consisted of revenues for electricity and gas connections and grants received for specific assets. 36. Trade payables - €13,419 million The item amounted to €13,419 million (€12,363 million in More specifically, trade payables falling due in less than 12 2013) and includes payables in respect of electricity supplies, months amounted to €12,923 million (€11,904 million in fuel, materials, equipment associated with tenders and other 2013), while those with falling due in more than 12 months services. amounted to €496 million (€459 million in 2013). 37. Other current financial liabilities - €1,177 million Millions of euro Deferred financial liabilities Other items Total at Dec. 31, 2014 1,063 114 1,177 at Dec. 31, 2013 restated 974 126 1,100 Change 89 (12) 77 9.1% -9.5% 7.0% “Deferred financial liabilities” regard accrued expense on bonds. It is broadly unchanged on the previous year. 231 38. Net financial position and long-term financial receivables and securities - €37,383 million The following table shows the net financial position and long-term financial receivables and securities on the basis of the items on the consolidated balance sheet. Millions of euro Long-term borrowings Short-term borrowings Current portion of long-term borrowings Non-current financial assets included in debt Current financial assets included in debt Cash and cash equivalents Total Notes at Dec. 31, 2014 at Dec. 31, 2013 restated Change 40 40 40 22 27 29 48,655 3,252 5,125 (2,701) (3,860) (13,088) 37,383 50,905 2,484 4,658 (4,965) (5,503) (7,873) 39,706 (2,250) 768 467 2,264 1,643 (5,215) (2,323) -4.4% 30.9% 10.0% -45.6% -29.9% -66.2% -5.9% Net financial debt declined primarily as the result of non- Pursuant to the CONSOB instructions of July 28, 2006, the recurring disposals of certain assets and investments, as well following table reports the net financial position at Decem- as of a number of initiatives to optimize working capital, as ber 31, 2014, and December 31, 2013, reconciled with net detailed in the section on liquidity risk. financial debt as provided for in the presentation methods of the Enel Group. Millions of euro Cash and cash equivalents on hand Bank and post office deposits Securities Liquidity Short-term financial receivables Factoring receivables Short-term portion of long-term financial receivables Current financial receivables Short-term bank debt Commercial paper Short-term portion of long-term bank debt Bonds issued (short-term portion) Other borrowings (short-term portion) Other short-term financial payables Total short-term financial debt Net short-term financial position Debt to banks and financing entities Bonds Other borrowings Long-term financial position NET FINANCIAL POSITION as per CONSOB instructions Long-term financial receivables and securities NET FINANCIAL DEBT at Dec. 31, 2014 at Dec. 31, 2013 restated Change 758 12,330 140 13,228 1,977 177 1,566 3,720 (30) (2,599) (824) (4,056) (245) (623) (8,377) 8,571 (7,022) (39,749) (1,884) (48,655) (40,084) 2,701 (37,383) 1,060 6,813 17 7,890 2,247 263 2,976 5,486 (118) (2,202) (1,750) (2,648) (260) (164) (7,142) 6,234 (7,873) (41,483) (1,549) (50,905) (44,671) 4,965 (39,706) (302) 5,517 123 5,338 (270) (86) (1,410) (1,766) 88 (397) 926 (1,408) 15 (459) -28.5% 81.0% - 67.7% -12.0% -32.7% -47.4% -32.2% 74.6% -18.0% -52.9% -53.2% 5.8% - (1,235) -17.3% 2,337 851 1,734 (335) 2,250 4,587 (2,264) 2,323 37.5% 10.8% 4.2% -21.6% 4.4% 10.3% -45.6% 5.9% There are no transactions with related parties for these items. 232 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS39. Other current liabilities - €10,827 million Millions of euro Payables due to customers Payables due to Electricity Equalization Fund and similar bodies Payables due to employees Other tax payables Payables due to social security institutions Contingent consideration Payables for put options granted to minority shareholders Current accrued expenses and deferred income Payables for acquisition of equity investments Payables for construction contracts Other Total at Dec. 31, 2014 at Dec. 31, 2013 restated Change 1,599 4,005 496 887 216 46 789 285 33 317 2,154 10,827 1,563 3,312 449 963 216 37 790 300 - 560 2,169 10,359 36 693 47 (76) 2.3% 20.9% 10.5% -7.9% - - 9 (1) (15) 33 (243) (15) 468 24.3% -0.1% -5.0% - -43.4% -0.7% 4.5% “Payables due to customers” include €1,096 million (€1,090 to €1,556 million (€1,390 million at December 31, 2013). million at December 31, 2013) in security deposits related “Contingent consideration” regards a number of investees to amounts received from customers as part of electricity held by the Group in North America whose fair value was and gas supply contracts. Following the finalization of the determined on the basis of the terms and conditions of the contract, deposits for electricity sales, the use of which is not contractual agreements between the parties. restricted in any way, are classified as current liabilities given The item “Payables for put options granted to minority sha- that the Company does not have an unconditional right to reholders” at December 31, 2014 includes the liability in defer repayment beyond 12 months. respect of Enel Distributie Muntenia and Enel Energie Mun- “Payables due to Electricity Equalization Fund and similar bo- tenia in the total amount of €778 million (unchanged on dies” mainly include payables arising from the application of December 31, 2013). equalization mechanisms to electricity purchases on the Ita- “Payables for acquisition of equity investments” regard the lian market amounting to €2,449 million (€1,922 million at residual price to pay for purchase in 2014 of a number of December 31, 2013) and on the Spanish market amounting companies in North America in the amount of €33 million. 40. Financial instruments This note provides disclosures that enable users to assess the significance of financial instruments for the Company’s finan- cial position and performance. 233 40.1 Financial assets by category The following table reports the carrying amount for each ca- ing hedging derivatives and derivatives measured at fair va- tegory of financial asset provided for under IAS 39, broken lue through profit or loss separately. down into current and non-current financial assets, show- Millions of euro Non-current Current Loans and receivables Available for sale financial assets Financial assets held to maturity Financial assets at fair value through profit or loss Financial assets designated upon initial recognition (fair value option) Derivative financial assets at FVTPL Total financial assets at fair value through profit or loss Derivative financial assets designated as hedging instruments Fair value hedge derivatives Cash flow hedge derivatives Total derivative financial assets designated as hedging instruments TOTAL Notes 40.1.1 40.1.2 40.1.3 40.1.4 40.1.5 40.1.5 40.1.5 2014 2,522 882 139 40 5 45 55 1,275 1,330 4,918 2013 restated 2014 2013 restated 4,813 903 128 24 5 29 45 394 439 6,312 28,871 140 24,774 17 - - - - 4,930 2,579 4,930 2,579 - 570 570 34,511 4 107 111 27,481 For more information on fair value measurement, please see note 45 “Assets measured at fair value”. 40.1.1 Loans and receivables The following table shows loans and receivables by nature, broken down into current and non-current financial assets. Millions of euro Non-current Current Notes at Dec. 31, 2014 at Dec. 31, 2013 restated Notes at Dec. 31, 2014 at Dec. 31, 2013 restated Cash and cash equivalents Trade receivables Short-term portion of long-term financial receivables Receivables for factoring Cash collateral Receivables for construction contracts Other financial receivables Total 29 25 27 27 27 28 22 - - - - - - - - - - - - 2,522 2,522 4,813 4,813 29 25 27 27 27 28 27 13,088 12,022 1,566 177 1,654 41 323 7,873 11,378 2,976 263 1,720 37 527 28,871 24,774 Trade receivables from customers at December 31, 2014 of the year, up from the opening balance of €1,472 million. amounted to €12,022 million (€11,378 million at December 31, 2013) and are recognized net of allowances for impai- The table below shows impairment losses on trade receiva- rment losses, which amounted to €1,662 million at the end bles. Millions of euro Trade receivables Gross value Allowances and impairment Net value 234 at Dec. 31, 2014 at Dec. 31, 2013 restated 13,684 (1,662) 12,022 12,850 (1,472) 11,378 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe table below shows changes in these allowances during the year. Millions of euro Opening balance at Jan. 1, 2013 Charge for the year Utilized Unused amounts reversed Other changes Closing balance at Dec. 31, 2013 Opening balance at Jan. 1, 2014 Charge for the year Utilized Unused amounts reversed Other changes Closing balance at Dec. 31, 2014 1,410 829 (546) (176) (45) 1,472 1,472 864 (529) (120) (25) 1,662 Note 41 “Risk management” provides additional information on the ageing of receivables past due but not impaired. 40.1.2 Available for sale financial assets The following table shows available for sale financial assets by nature, broken down into current and non-current financial assets. Millions of euro Equity investments in other companies Available for sale securities Service concession arrangements Total Notes 22 27.1 22 Changes in financial assets available for sale Millions of euro Opening balance at Jan. 1, 2014 Increases Decreases Changes in fair value through OCI Reclassifications Other changes Closing balance at Dec. 31, 2014 Non-current Current 2014 2013 restated Notes 2014 2013 restated 213 - 669 882 285 22 - 27.1 618 903 - 140 - 140 Non-current 903 104 (221) (19) 105 10 882 - 17 - 17 Current 17 - - - - 123 140 235 40.1.3 Held to maturity financial assets At December 31, 2014 financial assets held to maturity the previous year. The item reports non-current securities amounted to €139 million, up €11 million compared with held by Enel.Re. 40.1.4 Financial assets at fair value through profit or loss The following table shows financial assets at fair value through profit or loss by nature, broken down into current and non- current financial assets. Millions of euro Non-current Current Notes 40.1.5 Derivatives at FVTPL Financial investments in funds Total financial assets designated upon initial recognition (fair value option) TOTAL at Dec. 31, 2014 at Dec. 31, 2013 restated Notes at Dec. 31, 2014 at Dec. 31, 2013 restated 5 40 40 45 5 40.1.5 4,930 2,579 24 24 29 - - - - 4,930 2,579 40.1.5 Derivative financial assets The following table shows the notional amount and the fair tionship and hedged risk, broken down into current and value of derivative financial assets, by type of hedge rela- non-current financial assets. Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated Fair value hedge derivatives: - on interest rates Total Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities Total Trading derivatives: - on interest rates - on exchange rates - on commodities Total TOTAL DERIVATIVE FINANCIAL ASSETS 883 883 1,045 1,045 106 9,078 702 9,886 50 121 3 174 1,236 3,973 137 5,346 30 - 58 88 55 55 5 1,163 107 1,275 3 2 - 5 45 45 35 347 12 394 2 - 3 5 21 21 76 76 400 2,662 2,755 5,817 15 2,094 14,827 16,936 22 1,506 149 1,677 - 1,807 13,990 15,797 - - - 244 326 570 1 157 4,772 4,930 4 4 5 92 10 107 - 46 2,533 2,579 10,943 6,479 1,335 444 22,774 17,550 5,500 2,690 For more details on derivative financial assets, please see note 43 “Derivatives and hedge accounting”. 236 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS40.2 Financial liabilities by category The following table shows the carrying amount for each ca- showing hedging derivatives and derivatives measured at tegory of financial liability provided for under IAS 39, bro- fair value through profit or loss separately. ken down into current and non-current financial liabilities, Millions of euro Financial liabilities measured at amortized cost Financial liabilities at fair value through profit or loss Derivative financial liabilities at FVTPL Total financial liabilities at fair value through profit or loss Derivative financial liabilities designated as hedging instruments Fair value hedge derivatives Cash flow hedge derivatives Total derivative financial liabilities designated as hedging instruments TOTAL Notes 40.2.1 40.4 40.4 40.4 Non-current Current 2014 2013 restated 2014 2013 restated 48,655 50,905 21,796 19,505 35 35 - 2,406 2,406 51,096 25 25 2 2,189 2,191 53,121 4,971 2,500 4,971 2,500 - 470 470 27,237 - 440 440 22,445 For more information on fair value measurement, please see note 46 “Liabilities measured at fair value”. 40.2.1 Financial liabilities measured at amortized cost The following table shows financial liabilities at amortized cost by nature, broken down into current and non-current finan- cial liabilities. Millions of euro Long-term borrowings Short-term borrowings Trade payables Payables for construction contracts Notes 40.3.1 40.3.2 36 39 Non-current Current 2014 2013 restated Notes 2014 2013 restated 48,655 50,905 40.3.1 - - - - - - 40.3.2 36 39 5,125 3,252 4,658 2,484 13,419 12,363 317 560 Total 48,655 50,905 21,796 19,505 237 40.3 Borrowings 40.3.1 Long-term borrowings (including the current portion due within 12 months) - €53,780 million The following table reports the carrying amount and fair the associated market data for the reporting date, including value for each category of debt, including the portion fal- the credit spreads of Enel SpA. ling due within 12 months. For listed debt instruments, the The table below reports the situation of long-term bor- fair value is given by official prices. For unlisted debt instru- rowings and repayment schedules at December 31, 2014, ments, fair value is determined using valuation techniques broken down by type of borrowing and interest rate. appropriate for each category of financial instrument and Millions of euro Nominal value Carrying amount Current portion Portion due in more than 12 months Fair value Nominal value Carrying amount Current portion Portion due in more than 12 months Changes in carrying amount Fair value at Dec. 31, 2014 at Dec. 31, 2013 restated Bonds: - listed, fixed rate 32,155 31,897 2,561 29,336 37,847 31,021 30,729 467 30,262 33,690 1,168 - listed, floating rate 5,722 5,692 1,432 4,260 5,982 6,545 6,506 1,134 5,372 6,832 (814) - unlisted, fixed rate 4,926 4,885 - 4,885 5,808 5,480 5,463 986 4,477 5,827 (578) - unlisted, floating rate 1,331 1,331 63 1,268 1,263 1,434 1,433 61 1,372 1,299 (102) Total bonds 44,134 43,805 4,056 39,749 50,900 44,480 44,131 2,648 41,483 47,648 (326) Bank borrowings: - fixed rate 945 926 47 879 1,170 952 940 33 907 952 (14) - floating rate 6,861 6,839 708 6,131 7,026 7,615 7,605 860 6,745 7,580 (766) - use of revolving credit lines Total bank borrowings Non-bank borrowings: 81 81 69 12 70 1,078 1,078 857 221 1,020 (997) 7,887 7,846 824 7,022 8,266 9,645 9,623 1,750 7,873 9,552 (1,777) - fixed rate 1,723 1,723 186 1,537 1,824 1,314 1,314 - floating rate 406 406 59 347 420 495 495 127 133 1,187 1,391 362 568 409 (89) Total non-bank borrowings Total fixed-rate borrowings Total floating-rate borrowings 2,129 2,129 245 1,884 2,244 1,809 1,809 260 1,549 1,959 320 39,749 39,431 2,794 36,637 46,649 38,767 38,446 1,613 36,833 41,860 985 14,401 14,349 2,331 12,018 14,761 17,167 17,117 3,045 14,072 17,299 (2,768) TOTAL 54,150 53,780 5,125 48,655 61,410 55,934 55,563 4,658 50,905 59,159 (1,783) The balance for bonds regards, net of €776 million, the portfolio, while Enel Insurance NV (formerly Enel.Re) holds unlisted floating-rate “Special series of bonds reserved for bonds issued by Enel SpA totaling €30 million. employees 1994-2019”, which the Parent Company holds in 238 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe table below reports long-term financial debt by currency and interest rate. Millions of euro Carrying amount Nominal value Carrying amount Current average nominal interest rate Current effective interest rate at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 35,221 35,424 38,267 Euro US dollar Pound sterling Colombian peso Brazilian real Swiss franc Chilean peso/UF Peruvian sol Russian ruble Japanese yen Other currencies 3.9% 6.4% 6.1% 8.1% 12.7% 2.9% 10.6% 6.5% 7.9% 2.3% 4.1% 6.7% 6.2% 8.1% 13.0% 2.9% 12.6% 6.5% 8.1% 2.4% 8,485 5,437 1,663 1,149 606 458 363 69 237 92 8,559 5,508 1,663 1,157 607 470 363 69 238 92 8,467 4,486 1,662 746 593 461 302 243 238 98 17,296 55,563 Total non-euro currencies TOTAL 18,559 53,780 18,726 54,150 Long-term financial debt denominated in currencies other Brazilian reais, partly offset by repayments of loans falling than the euro increased by €1,263 million. The change is lar- due denominated in Russian rubles. gely attributable to new borrowing in pounds sterling and 239 at Dec. 31, 2013 restated Impact of hedging Carrying amount Nominal value 38,267 38,525 3,1% 8,467 4,486 1,662 746 593 461 302 243 238 98 17,296 55,563 8,504 4,546 1,662 748 595 473 302 243 238 98 17,409 55,934 % 68.9% 15.2% 8.1% 3.0% 1.3% 1.1% 0.8% 0.5% 0.4% 0.4% 0.2% 31.1% 100.0% 11,243 (6,633) (4,546) - 5 (595) 435 (6) 335 (238) - - (11,243) 49,768 1,871 1,662 753 - - 908 296 578 - 98 89.0% 3.3% 3.0% 1.3% 1.6% 0.5% 1.0% - - - 0.2% 6,166 55,934 11.0% 100.0% The following table shows the effect of the hedges of foreign currency risk on the gross long-term debt structure. Long-term financial debt by currency after hedging Millions of euro at Dec. 31, 2014 Initial debt structure Carrying amount Nominal value 35,221 35,424 8,485 5,437 1,663 1,149 606 458 363 69 237 92 8,559 5,508 1,663 1,157 607 470 363 69 238 92 Impact of hedging instruments 11,787 (5,972) (5,508) - - (607) 206 - 332 (238) - % 65.4% 15.8% 10.2% 3.1% 2.1% 1.1% 0.9% 0.7% 0.1% 0.4% 0.2% Debt structure after hedging Initial debt structure instruments Debt structure after hedging 47,211 2,587 - 1,663 1,157 - 676 363 401 - 92 87.2% 4.8% - 3.1% 2.1% - 1.2% 0.7% 0.7% - 0.2% 18,559 53,780 18,726 54,150 34.6% (11,787) 100.0% - 6,939 54,150 12.8% 100.0% Euro US dollar Pound sterling Colombian peso Brazilian real Swiss franc Chilean peso/UF Peruvian sol Russian ruble Japanese yen Other currencies Total non-euro currencies TOTAL 240 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe following table shows the effect of the hedges of foreign currency risk on the gross long-term debt structure. Long-term financial debt by currency after hedging Carrying amount Nominal value 35,221 35,424 8,485 5,437 1,663 1,149 606 458 363 69 237 92 8,559 5,508 1,663 1,157 607 470 363 69 238 92 Euro US dollar Pound sterling Colombian peso Brazilian real Swiss franc Chilean peso/UF Peruvian sol Russian ruble Japanese yen Other currencies Total non-euro currencies TOTAL % 65.4% 15.8% 10.2% 3.1% 2.1% 1.1% 0.9% 0.7% 0.1% 0.4% 0.2% Impact of hedging 11,787 (5,972) (5,508) (607) 206 332 (238) - - - - - 47,211 2,587 1,663 1,157 - - 676 363 401 - 92 87.2% 4.8% 3.1% 2.1% 1.2% 0.7% 0.7% - - - 0.2% 18,559 53,780 18,726 54,150 34.6% (11,787) 100.0% 6,939 54,150 12.8% 100.0% Millions of euro at Dec. 31, 2014 at Dec. 31, 2013 restated Initial debt structure instruments Debt structure after hedging Initial debt structure Impact of hedging instruments Debt structure after hedging 3,1% Carrying amount Nominal value 38,267 38,525 8,467 4,486 1,662 746 593 461 302 243 238 98 17,296 55,563 8,504 4,546 1,662 748 595 473 302 243 238 98 17,409 55,934 % 68.9% 15.2% 8.1% 3.0% 1.3% 1.1% 0.8% 0.5% 0.4% 0.4% 0.2% 11,243 (6,633) (4,546) - 5 (595) 435 (6) 335 (238) - 49,768 1,871 - 1,662 753 - 908 296 578 - 98 89.0% 3.3% - 3.0% 1.3% - 1.6% 0.5% 1.0% - 0.2% 31.1% 100.0% (11,243) - 6,166 55,934 11.0% 100.0% 241 Change in the nominal value of long-term debt Millions of euro Nominal value Repayments at Dec. 31, 2013 restated Change in own bonds Change in scope of consolidation New financing Exchange rate differences Reclassification from/to assets/ (liabilities) held for sale Nominal value at Dec. 31, 2014 Bonds Bank borrowings Other borrowings Total financial debt 44,480 9,645 1,809 55,934 (3,873) (2,053) (287) (6,213) (42) - - (42) - - 169 169 2,407 1,851 324 4,582 1,162 1 115 1,278 - 44,134 (1,557) (1) 7,887 2,129 (1,558) 54,150 Compared with December 31, 2013, the nominal value of > 5,000 million Russian rubles (equal to €69 million) in re- long-term debt at December 31, 2014 decreased by €1,784 spect of a fixed-rate bond issued by Enel Russia maturing million, the net effect of €6,213 million in repayments, in June 2014; €4,582 million in new borrowings and €1,278 million in > 135 million Peruvian sols (equal to €37 million) in respect exchange rate losses, of which €169 million due to the of bonds issued by Edelnor and maturing in 2014. change in the scope of consolidation, mainly attributable to the acquisition of a number of companies in the renewable The main repayments of bank borrowings in the year inclu- generation sector in the United States that had previously ded the following: entered into tax partnership agreements, and €1,558 mil- > €817 million in respect of repayments of bank bor- lion due to reclassifications to assets/liabilities held for sale rowings and revolving credit lines of Endesa; (Slovenské elektrárne). > €321 million in respect of repayments of subsidized loans by Endesa; The main repayments in 2014 concerned bonds in the > €338 million in respect of repayments of subsidized loans amount of €3,873 million, bank borrowings totaling €2,053 by Enel Distribuzione and Enel Produzione; million and other borrowings for €287 million. > €450 million in respect of repayments of credit lines by Slovenské elektrárne. More specifically, the main bonds maturing in 2014 included: > $1,250 million (equal to €1,030 million) in respect of a The main financing operations in 2014 included the fol- fixed-rate bond issued by Enel Finance International, ma- lowing: turing in October 2014; > in January, Enel SpA issued hybrid financial instruments > €1,000 million in respect of a fixed-rate bond issued by with the following characteristics: Enel SpA, maturing in June 2014; - €1,000 million fixed-rate 5%, maturing on January 15, > €762 million in respect of the repurchase of bonds secu- 2075 with a call option at January 15, 2020; red by Enel by Enel Finance International NV, on October - £500 million (equal to €642 million) fixed-rate 6.625%, 28, 2014, as part of the optimization of finance opera- maturing on September 15, 2076 with a call option at tions and the active management of maturities and the September 15, 2021; cost of funds; > in April, Empresa Nacional de Electricidad SA issued a > $350 million (equal to €288 million) in respect of a fixed- $400 million (equal to €329 million) fixed-rate bond, ma- rate bond issued by Enersis, maturing in January 2014; turing on April 15, 2024; > 250,000 million Colombian pesos (equal to €86 million) > on May 9, IFC granted a 10-year $200 million loan (equal in respect of bond issued by Codensa, maturing in March to €165 million) to Enel Brasil Participações; 2014; > on December 3, BBVA granted a 7-year floating-rate loan > $105 million (equal to €86 million) in respect of a fixed- of about $150 million (equal to €124 million) to the Chi- rate bond issued by International Endesa BV, maturing in lean company Empresa Eléctrica Panguipulli SA; September 2014; > on July 16, the Brazilian company Ampla issued a 5-year > $105 million (equal to €86 million) in respect of a fixed- 300 million Brazilian reais floating-rate bond (equal to rate bond issued by International Endesa BV maturing in €93 million) on the local market; 2039 and repaid in advance in February 2014; > in May, Emgesa SA issued a floating-rate bond totaling 242 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS240,000 million Colombian pesos (equal to €83 million), 186,000 million Colombian pesos (equal to €64 million), maturing on May 16, 2020; maturing on May 16, 2024; > in April and June, Edelnor SA issued a number of fixed- > in May, Emgesa SA issued a floating-rate bond totaling rate bonds totaling 260 million Peruvian sols (equal to 163,000 million Colombian pesos (equal to €56 million), €72 million), maturing by June 12, 2023; maturing on May 16, 2030. > in May, Emgesa SA issued a floating-rate bond totaling The table below shows the main characteristics of financial transactions carried out in 2014: Bonds: - hybrid bond - hybrid bond - international bond Total bonds Bank borrowings: Total bank borrowings Non-bank borrowings: Total non-bank borrowings Issuer/grantor Issue/grant date Amount in millions of euro Currency Interest rate Interest rate type Maturity Enel SpA 1/15/2014 1,000 Enel SpA 1/15/2014 Endesa Chile 4/15/2014 Enel Green Power Brazil 12/18/2014 EGPI BV 3/27/2014 EGPI BV 8/14/2014 Slovenské elektrárne 5/30/2014 Slovenské elektrárne 1/29/2014 Slovenské elektrárne 5/30/2014 Slovenské elektrárne 7/1/2014 Enel Green Power North America Enel Green Power North America 11/26/2014 4/1/2014 602 290 1,892 131 153 150 183 151 170 137 1,075 129 179 308 EUR GBP USD BRL EUR EUR 5.00% 6.62% 4.25% Fixed-rate 1/15/2020 Fixed-rate 9/15/2021 Fixed-rate 4/15/2024 CDI Overnight + 204 bp Floating-rate 9/15/2024 Euribor 6M +210 bp Floating-rate 3/27/2026 Euribor 6M + 60 bp Floating-rate 2/14/2029 EUR/RUB 10.55% Fixed-rate 11/30/2021 Euribor + 180 bp Floating-rate 1/29/2019 Euribor + 275 bp Floating-rate 11/30/2021 Euribor + 134 bp Floating-rate 1/23/2021 7.57% Fixed-rate 11/26/2024 8.26% Fixed-rate 12/31/2023 EUR EUR EUR USD USD The main financing contracts finalized in 2014 include: - €150 million with Kutxabank maturing on February 18, > on April 24, 2014, Enel SpA and UniCredit SpA agreed a 2018; €550 million credit line, which replaced a credit line of - €100 million with Bankinter maturing on March 27, €400 million granted on July 18, 2013 and falling due in 2018; July 2015; - €100 million with Banco Popular maturing on March > on September 26, 2014, Endesa SA agreed a 12-year 29, 2018; €300 million loan with the European Investment Bank; - €50 million with Ibercaja maturing on January 15, > in December 2014 Endesa SA agreed the following bila- 2018. teral credit facilities: The Group’s main long-term financial liabilities are gover- - €500 million with Banco Santander maturing on March ned by covenants containing undertakings by the borro- 16, 2018; wers (Enel, Endesa and the other Group companies) and - €500 million with CaixaBank maturing on April 30, in some cases the Parent Company as guarantor that are 2018; commonly adopted in international business practice. The - €300 million with BBVA maturing on March 16, 2018; main covenants regard the bond issues carried out within - €200 million with Banco Sabadell maturing on Februa- the framework of the Global Medium-Term Notes program, ry 2, 2018; loans granted by the EIB and Cassa Depositi e Prestiti, the 243 €10 billion revolving line of credit agreed in April 2010, the > material changes clauses, under which the occurrence of Forward Start Facility Agreement entered into on February a specified event (mergers, spin-offs, disposal or transfer 8, 2013 in the amount of €9.44 billion and issues of subordi- of business units, changes in company control structure, nated unconvertible hybrid bonds. etc.) gives rise to the consequent adjustment of the con- To date none of the covenants have been triggered. tract, without which the loan shall become repayable im- The main commitments in respect of the bond issues in the mediately without payment of any commission; Global Medium-Term Notes program can be summarized as > requirements to report periodically to the EIB; follows: > requirement for insurance coverage and maintenance of > negative pledge clauses under which the issuer may not property, possession and use of the works, plant and ma- establish or maintain (except under statutory require- chinery financed by the loan over the entire term of the ment) mortgages, liens or other encumbrances on all or agreement; part of its assets to secure any listed bond or bond for > contract termination clauses, under which the occur- which listing is planned unless the same guarantee is rence of a specified event (serious inaccuracies in docu- extended equally or pro rata to the bonds in question; mentation presented in support of the contract, failure > pari passu clauses, under which the securities constitute to repay at maturity, suspension of payments, insolvency, a direct, unconditional and unsecured obligation of the special administration, disposal of assets to creditors, dis- issuer and are issued without preferential rights among solution, liquidation, total or partial disposal of assets, them and have at least the same seniority as other pre- declaration of bankruptcy or composition with creditors sent and future bonds of the issuer itself; or receivership, substantial decrease in equity, etc.) trig- > specification of default events, whose occurrence (e.g. in- gers immediate repayment. solvency, failure to pay principal or interest, initiation of liquidation proceedings, etc.) constitutes a default; In 2009 Cassa Depositi e Prestiti granted a loan to Enel Di- > under cross-default clauses, the occurrence of a default stribuzione that was amended in 2011. The main covenants event in respect of any financial liability (above a th- governing the loan and the guarantee issued by the Parent reshold level) issued by the issuer or “significant” subsi- Company can be summarized as follows: diaries (i.e. consolidated companies whose gross reve- > a termination and acceleration clause, under which the nues or total assets are at least 10% of gross consolidated occurrence of a specified event (such as failure to pay revenues or total consolidated assets) constitutes a de- principal or interest installments, breach of contract obli- fault in respect of the liability in question, which becomes gations or occurrence of a substantive prejudicial event, immediately repayable; etc.) entitles Cassa Depositi e Prestiti to terminate the > early redemption clauses in the event of new tax requi- loan; rements, which permit early redemption at par of all > a clause forbidding Enel or its significant subsidiaries outstanding bonds. (defined in the contract and the guarantee as subsidia- ries pursuant to Article 2359 of the Italian Civil Code or The main covenants governing the loans granted to a num- consolidated companies whose turnover or total gross ber of Group companies by the EIB can be summarized as assets are at least 10% of consolidated turnover or con- follows: solidated gross assets) from establishing additional liens, > negative pledge clauses, under which Enel undertakes guarantees or other encumbrances except for those ex- not to establish or grant to third parties additional gua- pressly permitted unless Cassa Depositi e Prestiti gives it rantees or privileges with respect to those already establi- prior consent; shed in the individual contracts by the company or other > clauses requiring Enel to report to Cassa Depositi e Presti- subsidiaries of the Group, unless an equivalent guarantee ti both periodically and upon the occurrence of specified is extended equally or pro rata to the loans in question; events (such as a change in Enel’s credit rating, or breach > clauses that require the guarantor (whether Enel SpA or in an amount above a specified threshold in respect of banks acceptable to the EIB) to maintain its rating above any financial debt contracted by Enel, Enel Distribuzione a specified grade; in the case of guarantees provided by or any of their significant subsidiaries). Violation of such Enel SpA, the Group’s equity may not fall below a speci- obligation entitles Cassa Depositi e Prestiti to exercise an fied level; acceleration clause. 244 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS > a clause, under which, at the end of each measurement The main covenants covering the hybrid bonds can be sum- period (half yearly), Enel’s consolidated net financial debt marized as follows: shall not exceed 4.5 times annual consolidated EBITDA. > specification of default events, whose occurrence (e.g. failure to pay principal or interest, insolvency, initiation The main covenants for the €10 billion revolving line of cre- of liquidation proceedings, etc.) constitutes a default in dit and the Forward Start Facility Agreement are substan- respect of the liability in question, which in some cases tially similar and can be summarized as follows: becomes immediately repayable; > negative pledge clauses under which the borrower (and > subordination clauses: each hybrid bond is subordinate its significant subsidiaries) may not establish or maintain to all other bonds issued by the company and ranks pari (with the exception of permitted guarantees) mortgages, passu with all other hybrid financial instruments issued, liens or other encumbrances on all or part of its assets to being senior only to equity instruments; secure any present or future financial liability; > prohibition on mergers with other companies, the sale or > pari passu clauses, under which the payment underta- leasing of all or a substantial part of the company’s assets kings constitute a direct, unconditional and unsecured to another company, unless the latter succeeds in all obli- obligation of the borrower and bear no preferential gations of the issuer. rights among them and have at least the same seniority The undertakings in respect of the bond issues carried out as other present and future loans; by Endesa Capital under the Global Medium-Term Notes > change of control clause, which is triggered in the event program can be summarized as follows: (i) control of Enel is acquired by one or more parties other > cross-default clauses under which debt repayment would than the Italian State or (ii) Enel or any of its subsidiaries be accelerated in the case of failure to make payment transfer a substantial portion of the Group’s assets to par- (above specified amounts) on any financial liability of En- ties outside the Group such that the financial reliability of desa or Endesa Capital that is listed or could be listed on the Group is significantly compromised. The occurrence a regulated market; of one of the two circumstances may give rise to (a) the > negative pledge clauses under which the issuer may not renegotiation of the terms and conditions of the finan- establish mortgages, liens or other encumbrances on all cing or (b) compulsory early repayment of the financing or part of its assets to secure any financial liability that is by the borrower; listed or could be listed on a regulated market, unless an > specification of default events, whose occurrence (e.g. equivalent guarantee is extended equally or pro rata to failure to make payment, breach of contract, false sta- the bonds in question; tements, insolvency or declaration of insolvency by the > pari passu clauses, under which the securities and gua- borrower or its significant subsidiaries, business closure, rantees have at least the same seniority as all other pre- government intervention or nationalization, administra- sent and future unsecured and unsubordinated securi- tive proceeding with potential negative impact, illegal ties issued by Endesa Capital or Endesa. conduct, nationalization and government expropriation Finally, the loans granted to Endesa, International Endesa or compulsory acquisition of the borrower or one of its BV and Endesa Capital do not contain cross-default clauses significant subsidiaries) constitutes a default. Unless re- regarding the debt of subsidiaries in Latin America. medied within a specified period of time, such default will trigger an obligation to make immediate repayment Undertakings in respect of project financing granted to of the loan under an acceleration clause; subsidiaries regarding renewables and other subsidiaries > under cross-default clauses, the occurrence of a default in Latin America contain covenants commonly adopted in event in respect of any financial liability (above a th- international business practice. The main commitments re- reshold level) of the issuer or “significant” subsidiaries gard clauses pledging all the assets assigned to the projects (i.e. consolidated companies whose gross revenues or in favor of the creditors. total assets are at least equal to a specified percentage A residual portion of the debt of Enersis and Endesa Chile (10% of gross consolidated revenues or total consolida- (both controlled indirectly by Endesa) is subject to cross-de- ted assets)) constitutes a default in respect of the liabili- fault clauses under which the occurrence of a default event ties in question, which become immediately repayable; (failure to make payment or breach of other obligations) in > periodic reporting requirements. respect of any financial liability of a subsidiary of Enersis or 245 Endesa Chile constitutes a default in respect of the liability In addition to the foregoing, a number of loans provide for in question, which becomes immediately repayable. early repayment in the case of a change of control over En- In addition, many of these agreements also contain cross-ac- desa or the subsidiaries. celeration clauses that are triggered by specific circumstan- ces, certain government actions, insolvency or judicial ex- propriation of assets. 40.3.2 Short-term borrowings - €3,252 million At December 31, 2014 short-term borrowings amounted to €3,252 million, an increase of €768 million on December 31, 2013. They break down as follows. Millions of euro Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value at Dec. 31, 2014 at Dec. 31, 2013 restated Change Short-term bank borrowings Commercial paper Cash collateral and other financing on derivatives Other short-term borrowings 30 2,599 457 166 30 2,599 457 166 118 2,202 119 45 118 2,202 119 45 Short-term borrowings 3,252 3,252 2,484 2,484 (88) 397 338 121 768 (88) 397 338 121 768 Short-term bank borrowings amounted to €30 million. The lion program of Endesa Latinoamérica (formerly Endesa In- payables represented by commercial paper relate to issues ternacional BV) and Enersis. outstanding at the end of December 2014 in the context At December 31, 2014 issues under these programs totaled of the €6,000 million program launched in November 2005 €2,599 million, of which €2,400 million pertaining to Enel by Enel Finance International and guaranteed by Enel SpA, Finance International and €199 million to International En- which was renewed in April 2010, as well as the €3,209 mil- desa BV. 246 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS40.4 Derivative financial liabilities The following table shows the notional amount and the fair lationship and hedged risk, broken down into current and value of derivative financial liabilities, by type of hedge re- non-current financial liabilities. Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated Fair value hedge derivatives: - on exchange rates Total Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities Total Trading derivatives - on interest rates - on exchange rates - on commodities Total TOTAL DERIVATIVE FINANCIAL LIABILITIES - - 5 5 - - 2 2 - - - - 3,635 6,415 742 4,056 8,825 391 10,792 13,272 107 240 20 367 216 14 66 296 554 1,627 225 2,406 21 10 4 35 361 1,821 7 2,189 22 - 3 25 922 341 2,075 3,338 123 2,716 15,307 18,146 1,345 2,943 4,100 8,388 600 2,219 10,582 13,401 - - 2 4 464 470 75 71 4,825 4,971 - - 24 260 156 440 51 34 2,415 2,500 11,159 13,573 2,441 2,216 21,484 21,789 5,441 2,940 For more details on derivative financial liabilities, please see note 43 “Derivatives and hedge accounting”. 40.5 Net gains and losses The following table shows net gains and losses by category of financial instruments, excluding derivatives: Millions of euro Available for sale financial assets measured at fair value Available for sale financial assets measured at amortized cost Held to maturity financial assets Loans and receivables Financial assets at FVTPL Financial assets held for trading Financial assets designated upon initial recognition (fair value option) Total financial assets at FVTPL Financial liabilities measured at amortized cost Financial liabilities at FVTPL Financial liabilities held for trading Financial liabilities designated upon initial recognition (fair value option) Total financial liabilities at FVTPL 2014 Net gains/(losses) Of which impairment/ reversal of impairment (94) 1 6 (249) - 6 6 (4,252) (4) (28) (32) - - - (807) - - - - - - - For more details on net gains and losses on derivatives, please see note 10 “Financial income/(expense) from derivatives”. 247 41. Risk management Financial risk management objectives and policies As part of its operations, the Enel Group is exposed to a > the establishment of specific policies set at both the variety of financial risks, notably market risks (including in- Group level and at the level of individual Divisions/ terest rate risk, foreign exchange risk and commodity risk), countries/business lines, which define the roles and re- credit risk and liquidity risk. sponsibilities for those involved in managing, monitoring and controlling risks, ensuring the organizational separa- The Group’s governance arrangements for financial risk en- tion of units involved in managing the Group’s business visage: and those responsible for managing risk; > specific internal committees, formed of members of the > the specification of operational limits at both the Group Group’s top management and chaired by the CEO, which level and at the level of individual Divisions/countries/ are responsible for strategic policy-making and oversight business lines for the various types of risk. These limits are of risk management; monitored periodically by the risk management units. Market risks Market risk is the risk that the expected cash flows or fair The Group is also exposed to the risk that changes in the value of a financial instrument could change owing to chan- exchange rates between the euro and the main foreign cur- ges in market prices. rencies could have an adverse impact on the value in euro of Market risks are essentially composed of interest rate risk, performance and financial aggregates denominated in fo- foreign exchange risk and commodity price risk. reign currencies, such as costs, revenue, assets and liabilities, Interest rate risk and foreign exchange risk are primarily ge- as well as the consolidation values of equity investments nerated by the presence of financial instruments. denominated in currencies other than the euro (translation The main financial liabilities, other than derivatives, held by risk). As with interest rates, changes in exchange rates can the Company include bonds, bank borrowings, other bor- cause variations in the value of financial assets and liabilities rowings, commercial paper, cash collateral for derivatives measured at fair value. transactions, liabilities for construction contracts and trade payables. The Group’s policies for managing market risks provide for The main purpose of those financial instruments is to finan- the mitigation of the effects on performance of changes in ce the operations of the Group. interest rates and exchange rates with the exclusion of tran- The main financial assets, other than derivatives, held by the slation risk. This objective is achieved both at the source of Group include financial receivables, factoring receivables, the risk, through the strategic diversification of the nature cash collateral for derivatives transactions, cash and cash of financial assets and liabilities, and by modifying the risk equivalents, receivables for construction contracts and tra- profile of specific exposures with derivatives entered into on de receivables. over-the-counter markets. For more details, please see note 40 “Financial instruments”. The sources of exposure to interest rate risk and foreign The risk of fluctuations in commodity prices is generated by exchange risk did not change with respect to the previous the volatility of those prices and existing structural correla- year. tions, which creates uncertainty about the margin on tran- sactions in fuels and energy. Price developments are obser- The nature of the financial risks to which the Group is expo- ved and analyzed in order to develop the Group’s industrial, sed is such that changes in interest rates can cause an incre- financial and commercial strategies and policies. ase in net financial expense or adverse changes in the value In order to contain the effects of such fluctuations and of assets/liabilities measured at fair value. stabilize margins, Enel develops, in accordance with the 248 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSGroup’s policies and risk governance limits, strategies that strengthening an integrated vision of our business and a impact the various stages of the industrial process associa- geographical awareness of sales and trading operations is ted with the production and sale of electricity and gas, such consistent with the global environment in which the Group as advance sourcing and hedging, and plans and techniques operates, creating opportunities for improvement in both for hedging financial risks with derivatives. The Group com- maximizing margins and governing risks. panies develop strategies for hedging the price risk arising from trading in commodities and, using financial instru- As part of its governance of market risks, the Company re- ments, reduce or eliminate market risk, sterilizing the varia- gularly monitors the size of the OTC derivatives portfolio ble components of price. If authorized, they can also engage in relation to the threshold values set by regulators for the in proprietary trading in the energy commodities used by activation of clearing obligations (EMIR - European Market the Group in order to monitor and enhance their understan- Infrastructure Regulation 648/2012 of the European Parlia- ding of the most relevant markets. ment). During 2014, no overshoot of those threshold values The organizational structure defined in 2014 provides for was detected. a single entity to operate on behalf of the entire Group in sourcing fuels and selling electricity and gas on wholesale As part of its measurement of financial risks, the Group markets, as well as centralizing trading with the direct con- assesses credit risk, both of the counterparty (Credit Va- trol of the units involved in that business, which as they also luation Adjustment or CVA) and its own (Debit Valuation operate at the local level can maintain effective relationships Adjustment or DVA), in order to adjust the fair value of with the markets. The global business line cooperates with financial instruments measured at fair value for the corre- units of the holding company designated to steer, monitor sponding amount of counterparty risk. and integrate global performance. In order to manage and For more information, please see note 45 “Assets measured control market risks associated with energy commodities, at fair value”. Interest rate risk Interest rate risk is the risk that the fair value or expected not exceed the maturity of the underlying financial liability, cash flows of a financial instrument will fluctuate because so that any change in the fair value and/or cash flows of of changes in market interest rates. such contracts is offset by a corresponding change in the fair The main source of interest rate risk for the Enel Group is value and/or cash flows of the hedged position. the presence of financial instruments. It manifests itself Proxy hedging techniques may be used in a number of resi- primarily as a change in the flows associated with interest dual circumstances, when the hedging instruments for the payments on floating-rate financial liabilities, a change in risk factors are not available on the market or are not suffi- financial terms and conditions in negotiating new debt in- ciently liquid. For the purpose of EMIR compliance, in order struments or as an adverse change in the value of financial to test the actual effectiveness of the hedging techniques assets/liabilities measured at fair value, which are typically adopted, the Group subjects its hedge portfolios to periodic fixed-rate debt instruments. statistical assessment. For more information, please see note 40 “Financial instru- ments”. Using interest rate swaps, the Enel Group agrees with the The exposure to interest rate risk did not change compared counterparty to periodically exchange floating-rate interest with the previous year. flows with fixed-rate flows, both calculated on the same no- tional principal amount. The Enel Group manages interest rate risk through the defi- Floating-to-fixed interest rate swaps transform floating-rate nition of an optimal financial structure, with the dual goal of financial liabilities into fixed rate liabilities, thereby neutrali- stabilizing borrowing costs and containing the cost of funds. zing the exposure of cash flows to changes in interest rates. This goal is pursued through the strategic diversification of Fixed-to-floating interest rate swaps transform fixed rate finan- the portfolio of financial liabilities by contract type, maturity cial liabilities into floating-rate liabilities, thereby neutralizing and interest rate, and modifying the risk profile of specific the exposure of their fair value to changes in interest rates. exposures using OTC derivatives, mainly interest rate swaps Floating-to-floating interest rate swaps permit the exchan- and interest rate options. The term of such contracts does ge of floating-rate interest flows based on different indexes. 249 Some structured borrowings have multi-stage interest flows premium is paid on the contract (zero cost collars). hedged by interest rate swaps that at the reporting date, Such contracts are normally used when the fixed interest rate and for a limited time, provide for the exchange of fixed- that can be obtained in an interest rate swap is considered rate interest flows. too high with respect to Enel’s expectations for future inte- rest rate developments. In addition, interest rate options are Interest rate options involve the exchange of interest diffe- also considered most appropriate in periods of uncertainty rences calculated on a notional principal amount once cer- about future interest rate developments because they make tain thresholds (strike prices) are reached. These thresholds it possible to benefit from any decrease in interest rates. specify the effective maximum rate (cap) or the minimum rate (floor) on the debt as a result of the hedge. Hedging stra- The following table reports the notional amount of interest tegies can also make use of combinations of options (collars) rate derivatives at December 31, 2014 and December 31, that establish the minimum and maximum rates at the same 2013 broken down by type of contract: time. In this case, the strike prices are normally set so that no Millions of euro Notional amount Floating-to-fixed interest rate swaps Fixed-to-floating interest rate swaps Fixed-to-fixed interest rate swaps Floating-to-floating interest rate swaps Interest rate options Total 2014 5,043 889 100 180 50 6,262 2013 restated 7,175 1,121 100 180 50 8,626 For more details on interest rate derivatives, please see note interest rate risk is the main risk factor that could impact the 43 “Derivatives and hedge accounting”. income statement (raising borrowing costs) in the event of The amount of floating-rate debt that is not hedged against an increase in market interest rates. Millions of euro 2014 2013 restated Floating rate Fixed rate Total Pre-hedge % Post-hedge % Pre-hedge % Post-hedge 17,656 30.8% 13,396 23.3% 19,651 33.6% 13,536 39,749 69.2% 44,009 76.7% 38,767 66.4% 44,882 57,405 57,405 58,418 58,418 % 23.2% 76.8% At December 31, 2014, 31% of financial debt was floating venské elektrárne and the normal amortization of the bor- rate (34% at December 31, 2013 restated). Taking account of rowings of Group companies led to a corresponding reduc- hedges of interest rates considered effective pursuant to the tion of €2,215 million in interest rate swaps. IFRS-EU, 23% of net financial debt (23% at December 31, 2013 restated) was exposed to interest rate risk. Including interest Interest rate risk sensitivity analysis rate derivatives treated as hedges for management purposes The Group analyses the sensitivity of its exposure by estima- but ineligible for hedge accounting, 77% of net financial debt ting the effects of a change in interest rates on the portfolio was hedged (77% hedged at December 31, 2013 restated). of financial instruments. More specifically, sensitivity analysis measures the potential These results are in line with the limits established in the risk impact on profit or loss and on equity of market scenarios management policy. that would cause a change in the fair value of derivatives In 2014 the main maturities of a bond issued by Enel SpA, or in the financial expense associated with unhedged gross prepayments by International Endesa BV, borrowings of Slo- debt. 250 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThese scenarios are represented by parallel increases and With all other variables held constant, the Group’s profit be- decreases in the yield curve as at the reporting date. fore tax would be affected by a change in the level of inte- There were no changes in the methods and assumptions rest rates as follows: used in the sensitivity analysis compared with the previous year. Millions of euro Change in financial expense on gross long-term floating-rate debt after hedging Change in fair value of derivatives classified as non-hedging instruments Change in fair value of derivatives designated as hedging instruments Cash flow hedges Fair value hedges 2014 Pre-tax impact on profit or loss Pre-tax impact on equity Basis points Increase Decrease Increase Decrease 25 25 25 25 34 7 - (11) (34) (7) - 11 - - 70 - - - (70) - Foreign exchange risk Foreign exchange risk is the risk that the fair value or future fair value and/or cash flows of such contracts offsets the cash flows of a financial instrument will fluctuate because of corresponding change in the fair value and/or cash flows of changes in exchange rates. the hedged position. For the companies of the Enel Group, the main source of fo- Cross currency interest rate swaps are used to transform a reign exchange risk is the presence of financial instruments long-term financial liability in foreign currency into an equi- and cash flows denominated in a currency other than its valent liability in the currency of account or functional cur- currency of account and/or functional currency. rency of the company holding the exposure. More specifically, foreign exchange risk is mainly generated Currency forwards are contracts in which the counterparties with the following transaction categories: agree to exchange principal amounts denominated in diffe- > debt denominated in currencies other than the currency rent currencies at a specified future date and exchange rate of account or the functional currency entered into by the (the strike). Such contracts may call for the actual exchan- holding company or the individual subsidiaries; ge of the two amounts (deliverable forwards) or payment > cash flows in respect of the purchase or sale of fuel or of the difference between the strike exchange rate and electricity on international markets; the prevailing exchange rate at maturity (non-deliverable > cash flows in respect of investments in foreign currency, forwards). In the latter case, the strike rate and/or the spot dividends from unconsolidated foreign companies or the rate may be determined as averages of the official fixings of purchase or sale of equity investments. the European Central Bank. The exposure to foreign exchange risk did not change with Currency swaps are contracts in which the counterparties respect to the previous year. enter into two transactions of the opposite sign at different For more details, please see note 40 “Financial instruments”. future dates (normally one spot, the other forward) that provide for the exchange of principal denominated in dif- In order to minimize this risk, the Group normally uses a varie- ferent currencies. ty of over-the-counter (OTC) derivatives such as cross currency interest rate swaps, currency forwards and currency swaps. The following table reports the notional amount of transac- The term of such contracts does not exceed the maturity of tions outstanding at December 31, 2014 and December 31, the underlying financial liability, so that any change in the 2013, broken down by type of hedged item: 251 Millions of euro Cross currency interest rate swaps (CCIRSs) hedging debt denominated in currencies other than the euro Currency forwards hedging foreign exchange risk on commodities Currency forwards hedging future cash flows in currencies other than euro Currency swaps hedging commercial paper Currency forwards hedging loans Other currency forwards Total Notional amount 2014 2013 restated 14,801 4,942 3,552 148 224 - 14,263 4,253 1,906 246 201 423 23,667 21,292 More specifically, these include: Taking account of hedges of foreign exchange risk, the per- > CCIRSs with a notional amount of €14,801 million to centage of debt not hedged against that risk amounted to hedge the foreign exchange risk on debt denominated 13% at December 31, 2014 (11% at December 31, 2013). in currencies other than the euro (€14,263 million at De- cember 31, 2013); Foreign exchange risk sensitivity analysis > currency forwards with a total notional amount of €8,494 The Group analyses the sensitivity of its exposure by estima- million used to hedge the foreign exchange risk associa- ting the effects of a change in exchange rates on the portfo- ted with purchases and sales of natural gas, purchases of lio of financial instruments. fuel and expected cash flows in currencies other than the More specifically, sensitivity analysis measures the potential euro (€6,159 million at December 31, 2013); impact on profit or loss and equity of market scenarios that > currency swaps with a total notional amount of €148 mil- would cause a change in the fair value of derivatives or in lion used to hedge the foreign exchange risk associated the financial expense associated with unhedged gross me- with redemptions of commercial paper issued in currencies dium/long-term debt. other than the euro (€246 million at December 31, 2013); These scenarios are represented by the appreciation/de- > currency forwards with a total notional amount of €224 preciation of the euro against all of the foreign currencies million used to hedge the foreign exchange risk associa- compared with the value observed as at the reporting date. ted with loans in currencies other than the euro (€201 There were no changes in the methods and assumptions million at December 31, 2013). used in the sensitivity analysis compared with the previous year. At December 31, 2014, 35% (31% at December 31, 2013) of With all other variables held constant, the profit before tax Group long-term debt was denominated in currencies other would be affected as follows: than the euro. Millions of euro Change in financial expense on gross debt denominated in foreign currency after hedging Change in fair value of derivatives classified as non-hedging instruments Change in fair value of derivatives designated as hedging instruments Cash flow hedges Fair value hedges 252 2014 Pre-tax impact on profit or loss Pre-tax impact on equity Exchange rate Increase Decrease Increase Decrease 10% 10% 10% 10% - 85 - - - (103) - - - - - - (1,900) 2,321 - - ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSCommodity risk The Group is exposed to the rsk of fluctuations in the price companies expressly authorized to do so under corporate of commodities mainly associated with the purchase of fuel policies, consist in taking on exposures in energy commo- for power plants and the purchase and sale of natural gas under indexed contracts, as well as the purchase and sale of dities (oil products, gas, coal, CO2 certificates and electricity in the main European countries) using financial derivatives electricity at variable prices (indexed bilateral contracts and and physical contracts traded on regulated and over-the- sales on the electricity spot market). counter markets, exploiting profit opportunities through The exposures on indexed contracts are quantified by bre- arbitrage transactions carried out on the basis of expected aking down the contracts that generate exposure into the market developments. underlying risk factors. The commodity risk management processes established at As regards electricity sold by the Group, Enel mainly uses fi- the Group level are designed to constantly monitor deve- xed-price contracts in the form of bilateral physical contracts lopments in risk over time and to determine whether the and financial contracts (e.g. contracts for differences, VPP risk levels, as observed for specific analytical dimensions (for contracts, etc.) in which differences are paid to the counter- example, geographical areas, organizational structures, bu- party if the market electricity price exceeds the strike price siness lines, etc.), comply with the thresholds consistent with and to Enel in the opposite case. The residual exposure in the risk appetite established by top management. These respect of the sale of energy on the spot market not hedged operations are conducted within the framework of formal with such contracts is quantified and managed on the basis governance rules that establish strict risk limits. Compliance of an estimation of developments in generation costs. Proxy with the limits is verified daily by units that are independent hedging techniques may be used for the industrial portfo- of those undertaking the transactions. Positions are moni- lios when the hedging instruments for the risk factors gene- tored monthly, assessing the Profit at Risk, in the case of in- rating the exposure are not available on the market or are dustrial portfolios, and daily, calculating Value at Risk, in the not sufficiently liquid, while portfolio hedging techniques case of the trading book. can be used to assess opportunities for netting intercom- The risk limits for Enel’s proprietary trading are set in terms pany flows. of Value at Risk over a 1-day time horizon and a confidence The Group mainly uses plain vanilla derivatives for hedging level of 95%; the sum of the limits for 2014 is equal to about (more specifically, forwards, swaps, options on commodi- €33 million. ties, futures, contracts for differences). Enel also engages in proprietary trading in order to maintain The following table reports the notional amount of outstan- a presence in the Group’s reference energy commodity mar- ding transactions at December 31, 2014 and December 31, kets. These operations, which are performed only by Group 2013, broken down by type of instrument: Millions of euro Notional amount Forward and futures contracts Swaps Options Embedded derivatives Total 2014 26,671 9,359 401 - 36,431 2013 restated 17,526 11,024 264 659 29,473 For more details, please see note 43 “Derivatives and hedge accounting”. Sensitivity analysis of commodity risk constant. The analysis assesses the impact of shifts in the The following table presents the results of the analysis commodity price curve of +10% and -10%. of sensitivity to a reasonably possible change in the com- The impact on pre-tax profit is mainly attributable to the modity prices underlying the valuation model used in the change in the prices of gas and oil commodities. The im- scenario at the same date, with all other variables held pact on equity is almost entirely due to changes in the pri- 253 ces of coal and gas. The Group’s exposure to changes in the prices of other commodities is not material. Millions of euro 2014 Pre-tax impact on profit or loss Pre-tax impact on equity Commodity price Increase Decrease Increase Decrease Change in fair value of trading derivatives on commodities Change in fair value of derivatives on commodities designated as hedging instruments 10% 10% (60) - (61) - - - (236) (276) Credit risk The Group’s commercial, commodity and financial opera- the portfolio, entering into margin agreements that call for tions expose it to credit risk, i.e. the possibility that an unex- the exchange of cash collateral and/or using netting arran- pected change in the creditworthiness of a counterparty gements. An internal assessment system was used again in could have an effect on the creditor position, in terms of in- 2014 to apply and monitor operational limits for credit risk, solvency (default risk) or changes in its market value (spread approved by the Group Financial Risk Committee in respect risk). of financial counterparties at the region/country/business In recent years, in view of the instability and uncertainty that line level and at the consolidated level. have affected the financial markets and an economic crisis of global proportions, average collection times have trended To manage credit risk even more effectively, for a number of upwards. In order to minimize credit risk, the general policy years the Group has carried out non-recourse assignments at the Group level provides to the use of uniform criteria in of receivables, which have mainly involved specific seg- all the main regions/countries/business lines in measuring ments of the commercial portfolio and, to a lesser extent, credit exposures in order to promptly identify any deterio- invoiced receivables and receivables to be invoiced of com- ration in the quality of outstanding receivables – identifying panies operating in other segments of the electricity indust- any mitigation actions to be taken – and to enable the con- ry than retail sales. solidation and monitoring of exposures at the Group level. All of the above transactions are considered non-recourse Credit exposures are managed at the region/country/busi- transactions for accounting purposes and therefore invol- ness line level by different units, thereby ensuring the neces- ved the full derecognition of the corresponding assigned sary segregation of risk management and control activities. assets from the balance sheet, as the risks and rewards asso- Monitoring the consolidated exposure is carried out by Enel ciated with them have been transferred. SpA. As regards the credit risk associated with commodity tran- Concentration of customer credit risk Trade receivables are generated by the Group’s operations sactions, a uniform counterparty assessment system is used in many regions and countries (Italy, Spain, Romania, Latin at the Group level, with local level implementation. Since America, Russia, France, North America, etc.) with a base of 2013, portfolio limits approved by the Group Credit Risk customers and counterparties that is highly diversified, whe- Committee have been applied and monitored at the region/ ther geographically, sectorally (industrial companies, energy country/business line level and at the consolidated level. companies, enterprises in retail trade, tourism, communica- tions, government entities, etc.) or by size (large corporate, For the credit risk generated by financial transactions, in- small and medium-sized enterprises, residential customers). cluding those in derivatives, risk is minimized by selecting Through its subsidiaries, Enel has more than 60 million cu- counterparties with high standing from among leading na- stomers or counterparties with whom it has generally gra- tional and international financial institutions, diversifying nular credit exposures. 254 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSFinancial assets past due but not impaired Millions of euro Impaired trade receivables Not past due and not impaired trade receivables Past due but not impaired trade receivables: - less than 3 months - from 3 months to 6 months - from 6 months to 12 months - from 12 months to 24 months - more than 24 months Total Liquidity risk 2014 1,662 8,380 3,642 1,416 282 399 489 1,056 13,684 Liquidity risk is the risk that the Group will encounter diffi- treasury functions (with the exception of the Endesa Group, culty in meeting obligations associated with financial liabi- where those functions are performed by Endesa SA and its lities that are settled by delivering cash or another financial subsidiaries Endesa Internacional BV and Endesa Capital asset. SA), guaranteeing access to the money and capital markets. The objectives of liquidity risk management policies are: The Group has undertaken a number of initiatives to opti- > ensuring an appropriate level of liquidity for the Group, mize working capital and the associated cash flows. More minimizing the associated opportunity cost; specifically, on the basis of the consultation document > maintaining a balanced debt structure in terms of the 618/2014/R/EEL of the Authority for Electricity, Gas and the maturity profile and funding sources. Water System of December 11, 2014 (finalized on January In the short term, liquidity risk is mitigated by maintaining 16, 2015) concerning the entry into force of the new Grid an appropriate level of unconditionally available resources, Code, which provides for the possibility of extending the including liquidity and short-term deposits, available com- deadlines for payments due from distribution companies mitted credit lines and a portfolio of highly liquid asset. to the Equalization Fund for the restitution of revenue in In the long term, liquidity risk is mitigated by maintaining a respect of general system costs, Enel Distribuzione settled balanced maturity profile for our debt, access to a range of system costs for October 2014, totaling €1.2 billion, in Ja- sources of funding on different markets, in different curren- nuary 2015. cies and with diverse counterparties. At the Group level, Enel SpA (directly and through its sub- The Group holds the following undrawn lines of credit: sidiary Enel Finance International NV) performs centralized Millions of euro Committed credit lines Uncommitted credit lines Commercial paper Total at Dec. 31, 2014 at Dec. 31, 2013 restated Expiring within one year Expiring beyond one year Expiring within one year Expiring beyond one year 671 425 6,727 7,823 13,456 - - 13,456 494 795 7,088 8,377 14,912 - - 14,912 Committed credit lines amounted to €14,127 million at the available resources came to €21,279 million, of which €6,727 Group level, with €13,456 million expiring after 2015. Total million in commercial paper. 255 Maturity analysis The table below summarizes the maturity profile of the Group’s long-term debt. Millions of euro Maturing in Bonds: - listed, fixed rate - listed, floating rate - unlisted, fixed rate - unlisted, floating rate Total bonds Bank borrowings: - fixed rate - floating rate - use of revolving credit lines Total bank borrowings Non-bank borrowings: - fixed rate - floating rate Total non-bank borrowings Less than 3 months From 3 months to 1 year 2016 2017 2018 2019 Beyond 1,012 1,387 - - 1,549 45 - 63 3,502 1,182 - 64 2,466 384 1,233 65 5,132 796 - 66 2,399 1,657 4,748 4,148 5,994 5 134 - 139 49 13 62 42 574 69 685 137 46 183 81 714 9 804 185 70 255 63 496 - 559 161 66 227 304 731 3 1,038 163 39 202 2,137 238 1,434 313 4,122 60 562 - 622 134 33 167 16,099 1,660 2,218 760 20,737 371 3,628 - 3,999 894 139 1,033 TOTAL 2,600 2,525 5,807 4,934 7,234 4,911 25,769 Commitments to purchase commodities In conducting its business, the Enel Group has entered into The following table reports the undiscounted cash flows as- contracts to purchase specified quantities of commodities sociated with outstanding commitments at December 31, at a certain future date for its own use, which qualify for the 2014. own use exemption provided for under IAS 39. Millions of euro at Dec. 31, 2014 2015-2019 2020-2024 2025-2029 Beyond Commitments to purchase commodities: - electricity - fuel Total 54,384 63,605 117,989 20,142 35,718 55,860 10,954 16,468 27,422 7,725 8,289 15,563 3,130 16,014 18,693 42. Offsetting financial assets and financial liabilities At December 31, 2014, the Group did not hold offset positions in assets and liabilities, as it is not the Enel Group’s policy to settle financial assets and liabilities on a net basis. 256 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS43. Derivatives and hedge accounting 43.1 Derivatives designated as hedging instruments Derivatives are initially recognized at fair value, at the trade from financial instruments to which the Company is expo- date of the contract, and are subsequently re-measured at sed, please see note 41 “Risk management”. fair value. The method for recognizing the resulting gain or loss de- pends on whether the derivative is designated as a hedging Cash flow hedges Cash flow hedges are used in order to hedge the Group’s instrument, and if so, the nature of the item being hedged. exposure to changes in future cash flows that are attributa- Hedge accounting is applied to derivatives entered into in ble to a particular risk associated with an asset, a liability or order to reduce risks such as interest rate risk, exchange rate a highly probable transaction that could affect profit or loss. risk, commodity risk, credit risk and equity risk when all the The effective portion of changes in the fair value of deriva- criteria provided for under IAS 39 are met. tives that are designated and qualify as cash flow hedges is At the inception of the transaction, the Group documents recognized in other comprehensive income. The gain or loss the relationship between hedging instruments and hedged relating to the ineffective portion is recognized immediately items, as well as its risk management objectives and stra- in the income statement. tegy. The Group also analyzes, both at hedge inception and Amounts accumulated in equity are reclassified to profit or on an ongoing systematic basis, the effectiveness of hedges loss in the period when the hedged item affects profit or loss. using prospective and retrospective tests in order to deter- When a hedging instrument expires or is sold, or when a mine whether hedging instruments are highly effective in hedge no longer meets the criteria for hedge accounting offsetting changes in the fair values or cash flows of hedged but the hedged item has not expired or been cancelled, items. any cumulative gain or loss existing in equity at that time Depending on the nature of the risks to which it is exposed, remains in equity and is recognized when the forecast tran- the Group designates derivatives as hedging instruments in saction is ultimately recognized in the income statement. one of the following hedge relationships. When a forecast transaction is no longer expected to occur, > cash flow hedge derivatives in respect of the risk of: i) the cumulative gain or loss that was reported in equity is changes in the cash flows associated with long-term immediately transferred to profit or loss. floating-rate debt; ii) changes in the exchange rates associated with long-term debt denominated in a cur- The Group currently uses these hedge relationships to mini- rency other than the currency of account or the functio- mize the volatility of profit or loss. nal currency in which the company holding the financial liability operates; iii) changes in the price of fuels deno- minated in a foreign currency; iv) changes in the price of Fair value hedges Fair value hedges are used to protect the Group against ex- forecast electricity sales at variable prices; and v) chan- posures to adverse changes in the fair value of assets, liabili- ges in the price of transactions in coal and petroleum ties or firm commitments attributable to a particular risk that commodities; could affect profit or loss. > fair value hedge derivatives involving the hedging of ex- Changes in the fair value of derivatives that qualify and are posures to changes in the fair value of an asset, a liability designated as hedging instruments are recognized in the in- or a firm commitment attributable to a specific risk; come statement, together with changes in the fair value of > derivatives hedging a net investment in a foreign ope- the hedged item that are attributable to the hedged risk. ration (NIFO), involving the hedging of exposures to If the hedge is ineffective or no longer meets the criteria for exchange rate volatility associated with investments in hedge accounting, the adjustment to the carrying amount of foreign entities. a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity. For more details on the nature and the extent of risks arising The Group currently makes marginal use of such hedge rela- 257 tionships to seize opportunities associated with general de- The Group does not currently hold any hedges of net in- velopments in the yield curve. vestments in a foreign operation. Hedge of a net investment in a foreign ope- ration (NIFO) Hedges of net investments in foreign operations, with a fun- The following table shows the notional amount and the fair value of hedging derivatives classified on the basis of the type of hedge relationship. ctional currency other than the euro, are hedges of the im- The notional amount of a derivative contract is the amount pact of changes in exchange rates in respect of investments on the basis of which cash flows are exchanged. This amount in foreign entities. The hedge instrument is a liability deno- can be expressed as a value or a quantity (for example tons, minated in the same currency as the investment. The foreign converted into euros by multiplying the notional amount exchange differences of the hedged item and the hedge are by the agreed price). Amounts denominated in currencies accumulated each year in equity until the disposal of the in- other than the euro are converted at the end-year exchange vestment, at which time the foreign exchange differences rates provided by the European Central Bank. are transferred to profit or loss. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated Fair value hedge derivatives: - on interest rates - on exchange rates Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities 904 1,121 - - 506 11,740 3,457 1,258 5,479 286 Total 16,607 8,144 55 - 5 1,407 433 1,900 49 - 40 439 22 550 - - - 5 - - - (2) 4,557 5,401 (556) (385) 6,756 11,768 (1,631) (2,081) 2,817 4,491 (689) (163) 14,130 21,665 (2,876) (2,631) For more on the fair value measurement of derivatives, ple- For more on the classification of hedging derivatives as ase see note 45 “Assets measured at fair value”. non-current and current assets and non-current and cur- rent liabilities, please see note 41 “Risk management”. 43.2 Hedge relationships by type of risk hedged Interest rate risk The following table shows the notional amount and the fair of transactions outstanding as at December 31, 2014 and value of the hedging instruments on the interest rate risk December 31, 2013, broken down by type of hedged item: Millions of euro Fair value Notional amount Fair value Notional amount Hedging instrument Hedged item at Dec. 31, 2014 at Dec. 31, 2013 restated Interest rate swaps Interest rate swaps Total 258 Fixed-rate borrowings Floating-rate borrowings 41 1,004 50 1,221 (537) (496) 4,963 5,967 (346) (296) 6,559 7,780 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe following table shows the notional amount and the fair cember 31, 2014 and December 31, 2013, broken down by value of hedging derivatives on interest rate risk as at De- type of hedge: Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated Fair value hedge derivatives: - interest rate swaps 904 1,121 55 49 - - - - Cash flow hedge derivatives: - interest rate swaps 506 1,258 Total interest rate derivatives 1,410 2,379 5 60 40 89 4,557 5,401 (556) (385) 4,557 5,401 (556) (385) The notional amount of derivatives classified as hedging year prompted a deterioration in the fair value of cash flow instruments at December 31, 2014 came to €5,967 million, hedge derivatives and an improvement in that of fair value with a corresponding negative fair value of €496 million. hedge derivatives. The general decline in the yield curve over the course of the Cash flow hedge derivatives The following table shows the cash flows expected in coming years from cash flow hedge derivatives on interest rate risk. Millions of euro Fair value Distribution of expected cash flows at Dec. 31, 2014 2015 2016 2017 2018 2019 Beyond Cash flow hedge derivatives on interest rates Positive fair value Negative fair value 5 (5) (556) (115) 2 (89) - (75) - (65) - - (55) (226) The following table shows the impact of cash flow hedge derivatives on interest rate risk on equity during the period, gross of tax effects: Millions of euro Opening balance at January 1, 2014 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2014 2014 (1,729) 958 130 (641) 2013 restated (1,638) (281) 228 (1,691) 259 Foreign exchange risk The following table shows the notional amount and the fair risk of transactions outstanding as at December 31, 2014 and value of the hedging instruments on the foreign exchange December 31, 2013, broken down by type of hedged item: Millions of euro Hedging instruments Cross currency interest rate swaps (CCIRSs) Cross currency interest rate swaps (CCIRSs) Cross currency interest rate swaps (CCIRSs) Currency forwards Currency forwards Total Hedged item Fixed-rate borrowings Floating-rate borrowings Future cash flows denominated in foreign currencies Future commodity purchases denominated in foreign currencies Future cash flows denominated in foreign currencies Fair value Notional amount Fair value Notional amount at Dec. 31, 2014 at Dec. 31, 2013 restated (508) 14,064 (1,580) 13,848 11 (38) 416 321 26 - 415 - 312 3,674 (90) 2,962 - (224) 21 - 18,496 (1,644) 27 17,252 Cash flow hedges and fair value hedges include: > currency forwards with a notional amount of €3,695 mil- > CCIRSs with a notional amount of €14,064 million used lion used to hedge the foreign exchange risk associated to hedge the foreign exchange risk on fixed-rate debt with purchases and sales of natural gas, purchases of fuel denominated in currencies other than the euro, with a and expected cash flows in currencies other than the negative fair value of €508 million; euro, with a fair value of €312 million. > CCIRSs with a notional amount of €737 million used to hedge the foreign exchange risk on floating-rate debt The following table reports the notional amount and fair denominated in currencies other than the euro, with a value of foreign exchange derivatives at December 31, 2014 negative fair value of €27 million; and December 31, 2013, broken down by type of hedge: Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated Fair value hedge derivatives: - CCIRSs Cash flow hedge derivatives: - currency forwards - CCIRSs Total foreign exchange derivatives - - - 3,520 8,220 218 5,261 315 1,092 - 4 435 - 5 - (2) 175 6,581 2,771 8,997 (3) (95) (1,628) (1,986) 11,740 5,479 1,407 439 6,756 11,773 (1,631) (2,083) The notional amount of CCIRSs at December 31, 2014 floating-rate borrowings in currencies other than the cur- amounted to €14,801 million (€14,263 million at Decem- rency of account with a total value of €1,398 million. The ber 31, 2013), an increase of €538 million. Cross currency value also reflects developments in the exchange rate of the interest rate swaps with a total value of €1,989 million ex- euro against the main other currencies, which cause their pired and were cancelled against new derivatives hedging notional amount to increase by €1,129 million. the hybrid bond issued by Enel SpA in pounds sterling and The notional value of currency forwards at December 31, 260 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS2014 amounted to €3,695 million (€2,989 million at Decem- dollar, is mainly due to purchases and sales of natural gas ber 31, 2013), an increase of €706 million. The exposure to and purchase of fuel. Changes in the notional amount are foreign exchange risk, especially that associated with the US connected with normal developments in operations. Cash flow hedge derivatives The following table shows the cash flows expected in coming years from cash flow hedge derivatives on foreign exchange risk: Millions of euro Fair value Distribution of expected cash flows at Dec. 31, 2014 2015 2016 2017 2018 2019 Beyond Cash flow hedge derivatives on exchange rates Positive fair value Negative fair value 1,407 (1,631) 185 (62) 137 (157) 274 (41) 103 (53) 409 (183) 829 485 The following table shows the impact of cash flow hedge derivatives on foreign exchange risk on equity during the period, gross of tax effects: Millions of euro Opening balance at January 1, 2014 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2014 Commodity risk 2014 (84) (1,089) 64 (1,109) 2013 restated (75) (61) 52 (84) Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated Cash flow hedge derivatives Derivatives on power: - swaps - forwards/futures Total derivatives on power Derivatives on coal: - swaps Total derivatives on coal Derivatives on gas and oil: - swaps - forwards/futures Total derivatives on gas and oil Derivatives on CO2: - forwards/futures Total derivatives on CO2 TOTAL DERIVATIVES ON COMMODITIES 545 1,149 1,694 - - 124 1,426 1,550 213 213 81 115 196 - - - - - 90 90 50 95 145 - - 41 197 238 50 50 12 4 16 - - - - - 6 6 152 348 500 718 718 326 1,502 1,828 1,250 1,250 13 17 1,586 1,396 (7) (18) (25) (183) (183) (3) (478) 1,599 1,413 (481) - - - - - - (9) (26) (35) (120) (120) (1) (7) (8) - - 3,457 286 433 22 2,817 4,491 (689) (163) 261 The table reports the notional amount and fair value of deri- in the price of natural gas, for both purchases and sales, car- vatives hedging the price risk on commodities at December ried out for oil commodities and gas products with physical 31, 2014 and at December 31, 2013, broken down by type delivery (all-in-one hedges). of hedge. Cash flow hedge derivatives on commodities with a negati- The positive fair value of cash flow hedge derivatives on com- ve fair value regard derivatives on gas and oil commodities modities mainly regards hedges of gas and oil amounting to amounting to €481 million, hedges of coal purchases for the €238 million, derivatives on power amounting to €145 mil- generation companies amounting to €183 million and deri- lion and transactions on CO2 with a fair value of €50 million. The first category primarily regards hedges of fluctuations vatives on power amounting to €25 million. Cash flow hedge derivatives The following table shows the cash flows expected in coming years from cash flow hedge derivatives on commodity risk: Millions of euro Fair value Distribution of expected cash flows at Dec. 31, 2014 2015 2016 2017 2018 2019 Beyond Cash flow hedge derivatives on commodities Positive fair value Negative fair value 433 327 (689) (464) 104 (225) 2 - - - - - - - The following table shows the impact of cash flow hedge derivatives on commodity risk on equity during the period, gross of tax effects: Millions of euro Opening balance at January 1, 2014 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2014 2014 (52) (318) 122 (248) 2013 restated (75) (228) 251 (52) 262 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS44. Derivatives at fair value through profit or loss The following table shows the notional amount and the fair value of derivatives at FVTPL as at December 31, 2014 and December 31, 2013: Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated at Dec. 31, 2014 at Dec. 31, 2013 restated Derivatives at FVTPL Derivatives on interest rates: - interest rate swaps - interest rate options Derivatives on exchange rates: 65 - 30 - 4 - 2 - 180 50 766 50 (88) (8) (69) (4) - currency forwards 2,215 1,807 159 46 2,956 2,233 (81) (34) Derivatives on commodities Derivatives on power: - swaps - forwards/futures - options 1,207 5,391 104 2,356 6,128 52 Total derivatives on power 6,702 8,536 Derivatives on coal: - swaps - forwards/futures - options 1,527 73 3 Total derivatives on coal 1,603 Derivatives on gas and oil: 928 35 2 965 1,844 2,535 82 645 5,677 99 155 480 2 637 187 7 3 197 131 133 4 268 57 5 2 64 1,611 5,456 80 1,775 3,469 32 (183) (417) (6) (94) (44) (3) 7,147 5,276 (606) (141) 1,742 51 10 422 13 7 (218) (15) (23) 1,803 442 (256) (58) (2) (5) (65) 2,686 1,988 944 278 130 61 902 5,170 102 1,714 2,079 89 (2,747) (1,998) (824) (331) (95) (59) - swaps - forwards/futures - options Total derivatives on gas and oil Derivatives on CO2: - forwards/futures Total derivatives on CO2 Derivatives on other commodities: - swaps - options Total derivatives on other commodities Embedded derivatives TOTAL DERIVATIVES ON COMMODITIES 6,421 4,461 3,908 2,179 6,174 3,882 (3,902) (2,152) 68 68 35 1 36 65 65 21 - 21 - 19 19 10 1 11 - 18 18 7 - 7 - 63 63 138 2 140 - 257 257 132 - 132 659 (10) (10) (53) (2) (55) - (19) (19) (39) (1) (40) (1) 17,110 15,885 4,935 2,584 18,513 13,697 (5,006) (2,525) 263 At December 31, 2014 the notional amount of trading deri- At December 31, 2014, the notional amount of derivatives vatives on interest rates came to €295 million. The change in on commodities came to €30,157 million. the notional compared with December 31, 2013 is attribu- The positive fair value of trading derivatives on commodi- table to a natural decline in amortization of existing interest ties includes, among other elements, hedges of gas and rate swaps and the expiry of €500 million in derivatives du- oil amounting to €3,908 million and derivatives on power ring 2014 that, although established for hedging purposes, amounting to €637 million. did not meet the requirements for hedge accounting. The The negative fair value of trading derivatives on commo- fair value of €92 million deteriorated by €21 million, mainly dities mainly regards hedges of gas and oil amounting to due to the general decline in the yield curve. €3,902 million and derivatives on power amounting to €606 At December 31, 2014, the notional amount of derivatives million. on exchange rates was €5,171 million. The increase in their These values include transactions that, although established notional value and the associated fair value mainly reflected for hedging purposes, did not meet the requirements for normal operations and developments in exchange rates. hedge accounting. 45. Asset measured at fair value The Group determines fair value in accordance with IFRS 13 > Level 2, where the fair value is determined on the basis of whenever such measurement is required by the internatio- inputs other than quoted prices included within Level 1 nal accounting standards as a recognition or measurement that are observable for the asset or liability, either directly criterion. (such as prices) or indirectly (derived from prices); Fair value is defined as the price that would be received to > Level 3, where the fair value is determined on the basis of sell an asset or paid to transfer a liability, in an orderly tran- unobservable inputs. saction, between market participants, at the measurement This note also provides detailed disclosures concerning the date (i.e. an exit price). valuation techniques and inputs used to perform these me- The best proxy of fair value is market price, i.e. the current asurements. publically available price actually used on a liquid and active To that end: market. > recurring fair value measurements of assets or liabilities The fair value of assets and liabilities is classified in accor- are those required or permitted by the IFRS in the balan- dance with the three-level hierarchy described below, de- ce sheet at the close of each period; pending on the inputs and valuation techniques used in > non-recurring fair value measurements are those requi- determining their fair value: red or permitted by the IFRS in the balance sheet in parti- > Level 1, where the fair value is determined on the basis of cular circumstances. quoted prices (unadjusted) in active markets for identical For general information or specific disclosures on the ac- assets or liabilities that the entity can access at the mea- counting treatment of these circumstances, please see note surement date; 2 “Accounting policies and measurement criteria”. 264 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSThe following table shows, for each class of assets measu- of the reporting period and the level in the fair value hierar- red at fair value on a recurring or non-recurring basis in the chy into which the fair value measurements of those assets financial statements, the fair value measurement at the end are classified. Millions of euro Non-current assets Current assets Notes Fair value Level 1 Level 2 Level 3 Fair value Level 1 Level 2 Level 3 Equity investments in other companies measured at fair value Service concession arrangements 22 22 Securities held to maturity 22.1 157 157 - 669 139 - 139 Financial investments in funds 22.1 40 40 Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities Fair value hedge derivatives: - on interest rates Trading derivatives: - on interest rates - on exchange rates - on commodities Inventories measured at fair value Assets held for sale 43 43 43 43 43 43 43 24 30 5 1,163 107 55 3 2 - - - - - 89 - - - - - - 669 - - 5 1,163 18 55 3 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 326 148 178 - 1 157 - - - - 1 157 4,772 2,590 2,182 267 6,778 267 - - - - - - - - - - - - - - - 6,778 The fair value of equity investments in other companies is close of the period (such as interest rates, exchange rates, determined for listed companies on the basis of the quo- volatility), discounting expected future cash flows on the ted price set on the closing date of the year, while that for basis of the market yield curve and translating amounts in unlisted companies is based on a reliable valuation of the currencies other than the euro using exchange rates provi- relevant assets and liabilities. ded by the European Central Bank. For contracts involving “Service concession arrangements” concern electricity di- where available, for the same instruments on both regula- commodities, the measurement is conducted using prices, stribution operations in Brazil by Ampla and Coelce and are ted and unregulated markets. accounted for in accordance with IFRIC 12. Fair value was estimated as the net replacement cost based on the most In accordance with the new international accounting stan- recent rate information available and on the general price dards, in 2013 the Group included a measurement of credit index for the Brazilian market. risk, both of the counterparty (Credit Valuation Adjustment or CVA) and its own (Debit Valuation Adjustment or DVA), in The fair value of derivative contracts is determined using the order to adjust the fair value of financial instruments for the official prices for instruments traded on regulated markets. corresponding amount of counterparty risk. More specifically, The fair value of instruments not listed on a regulated mar- the Group measures CVA/DVA using a Potential Future Expo- ket is determined using valuation methods appropriate for sure valuation technique for the net exposure of the position each type of financial instrument and market data as of the and subsequently allocating the adjustment to the individual 265 financial instruments that make up the overall portfolio. All of risk exposure. For listed debt instruments, the fair value is the inputs used in this technique are observable on the market. given by official prices. For unlisted instruments the fair va- The notional amount of a derivative contract is the amount lue is determined using appropriate valuation techniques on which cash flows are exchanged. This amount can be ex- for each category of financial instrument and market data pressed as a value or a quantity (for example tons, conver- at the closing date of the year, including the credit spreads ted into euros by multiplying the notional amount by the of Enel SpA. agreed price). Amounts denominated in currencies other than the euro Finally, “Assets held for sale” primarily regard Slovenské are converted into euros at the year-end exchange rates elektrárne. The associated fair value is the estimated realiza- provided by the European Central Bank. ble value, net of disposal prices, as determined on the basis The notional amounts of derivatives reported here do not of the documentation currently available on the sale of the necessarily represent amounts exchanged between the par- company. ties and therefore are not a measure of the Group’s credit 45.1 Fair value of other assets For each class of assets not measured at fair value in the ba- and the level in the fair value hierarchy into which the fair lance sheet but whose fair value must be reported, the fol- value measurements of those assets are classified. lowing table reports the fair value at the end of the period Millions of euro Non-current assets Current assets Notes Fair value Level 1 Level 2 Level 3 Fair value Level 1 Level 2 Level 3 Property investments Equity investments in other companies Inventories 16 22 24 171 13 - - - - 17 154 - - 13 - - - 76 - - - - - - - - 76 The table reports property investments, equity investments The value of equity investments classified in Level 3 increa- in other companies and inventories measured at cost, who- sed by €7 million compared with 2013 and regards a num- se fair value has been estimated at €171 million, €13 million ber of equity investments of Endesa. and €76 million respectively. The amounts were calculated The value of inventories largely regards environmental cer- with the assistance of appraisals conducted by independent tificates. experts, who used different methods depending on the spe- cific assets involved. 266 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS46. Liabilities measured at fair value The following table reports for each class of liabilities me- end of the reporting period and the level in the fair value asured at fair value on a recurring or non-recurring basis in hierarchy into which the fair value measurements are cate- the financial statements the fair value measurement at the gorized. Millions of euro Non-current liabilities Current liabilities Notes Fair value Level 1 Level 2 Level 3 Fair value Level 1 Level 2 Level 3 Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities Trading derivatives: - on interest rates - on exchange rates - on commodities Contingent consideration Payables for put options granted to minority shareholders Deferred income Liabilities held for sale 43 43 43 43 43 43 39 39 39 30 554 1,627 225 - - 554 1,627 104 121 21 10 4 - 13 - - - - - - - - - 21 10 4 - - - - - - - - - - - 13 - - 2 4 - - 2 4 464 144 320 75 71 - - 75 71 4,825 3,277 1,548 - - - - - - 46 789 34 5,290 - - - - - - 34 - 46 789 - 5,290 Contingent consideration regards a number of equity in- the exercise conditions in the associated contracts, and €24 vestments held by the Group in North America, whose fair million for the liability associated with the options on Reno- value was determined on the basis of the contractual terms vables de Guatemala (€13 million) and Maicor Wind (€11 and conditions between the parties. million). The item “Payables for put options granted to minority The “Liabilities held for sale” main regard Slovenské elektrár- shareholders” includes the liability for the options on Enel ne. The fair value is the estimated realizable value, net of Distributie Muntenia and Enel Energie Muntenia in the disposal prices, as determined on the basis of the documen- total amount of €778 million, determined on the basis of tation currently available on the sale of the company. 267 46.1 Fair value of other liabilities For each class of liabilities not measured at fair value in the riod and the level in the fair value hierarchy into which the balance sheet but whose fair value must be reported, the fair value measurements of those liabilities are classified. following table reports the fair value at the end of the pe- Millions of euro Bonds: - fixed rate - floating rate Bank borrowings: - fixed rate - floating rate Non-bank borrowings: - fixed rate - floating rate Short-term payables to banks Commercial paper Notes Fair value Level 1 Level 2 Level 3 40.3.1 40.3.1 40.3.1 40.3.1 40.3.1 40.3.1 40.3.2 40.3.2 43,655 7,245 35,981 3,435 1,170 7,096 1,824 420 30 2,599 457 166 - - - - - - - - 7,674 3,810 1,170 7,096 1,824 420 30 2,599 457 166 - - - - - - - - - - - Cash collateral and other financing on derivatives 40.3.2 Other short-term financial payables 40.3.2 Total 64,662 39,416 25,246 268 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS47. Related parties As an operator in the field of generation, distribution, tran- or indirectly controlled by the Italian State, the Group’s con- sport and sale of electricity and the sale of natural gas, Enel trolling shareholder. carries out transactions with a number of companies directly The table below summarizes the main types of transactions carried out with such counterparties. Related party Relationship Nature of main transactions Acquirente Unico - Single Buyer Fully controlled (indirectly) by the Ministry for the Economy and Finance Purchase of electricity for the enhanced protection market GME - Energy Markets Operator Fully controlled (indirectly) by the Ministry for the Economy and Finance Sale of electricity on the Power Exchange Purchase of electricity on the Power Exchange for pumping and plant planning GSE - Energy Services Operator Fully controlled (directly) by the Ministry for the Economy and Finance Indirectly controlled by the Ministry for the Economy and Finance Sale of subsidized electricity Payment of A3 component for renewable resource incentives Sale of electricity on the Ancillary Services Market Purchase of transport, dispatching and metering services Directly controlled by the Ministry for the Economy and Finance Sale of electricity transport services Purchase of fuels for generation plants, storage services and natural gas distribution Directly controlled by the Ministry for the Economy and Finance Purchase of IT services and supply of goods Fully controlled (directly) by the Ministry for the Economy and Finance Purchase of postal services Terna Eni Group Finmeccanica Group Poste Italiane Group Finally, Enel also maintains relationships with the pension All transactions with related parties were carried out on funds FOPEN and FONDENEL, as well as Fondazione Enel normal market terms and conditions, which in some cases and Enel Cuore, an Enel non-profit company devoted to are determined by the Authority for Electricity, Gas and the providing social and healthcare assistance. Water System. 269 The following tables summarize transactions with rela- outstanding at December 31, 2014 and carried out during ted parties, associated companies and joint arrangements the period. GME Terna Eni GSE Poste Italiane Other Key management personnel Associates and joint Total in financial Total arrangements Overall total statements % of total 3,087 1,150 1,124 Millions of euro Income statement Revenue from sales and services Other revenue Other financial income Electricity, gas and fuel purchases Services and other materials Other operating expenses Net income /(expense) from commodity contracts measured at fair value Other financial expense Millions of euro Balance sheet Trade receivables Other current assets Other non-current liabilities Trade payables Other current liabilities Non-current derivative financial liabilities Other information Guarantees received Commitments Acquirente Unico - - - - - 4,395 1,690 - 3 17 - 163 - - - 4 - 64 1,886 4 29 - Acquirente Unico GME Terna - 1 - 444 7 - 762 382 - - - - - - - - 544 13 - 406 1 24 - 1 1 - 1,229 77 46 - - Eni 127 1 - 443 - - 150 19 256 353 - 1 4 - - - 25 - - - 119 - - - 63 5 - 2 46 - - - GSE Poste Italiane Other Key management personnel Associates and joint Total in financial Total arrangements Overall total statements % of total 24 102 - 1,006 - - - - 5 5 - 45 1 - 4 18 14 5 2 29 - - 24 11 - - - - - - - - - - - - - - - - 5,705 363 7,381 2,295 53 46 - 1,158 134 3,073 2 2 24 178 49 46 4 23 214 145 - - 28 62 8 - 86 1 - - - 7,595 36,928 73,328 2,463 1,248 17,179 2,362 (225) 5,540 12,022 2,706 1,464 13,419 10,827 2,441 5,751 367 23 2,440 53 46 28 1,220 142 3,159 2 3 24 178 49 7.8% 14.9% 1.8% 20.6% 14.2% 2.2% -20.4% 0.5% 10.1% 5.2% 0.1% 23.5% - 1.0% In November 2010, the Board of Directors of Enel SpA ap- tion of the provisions of Article 2391-bis of the Italian Civil proved a procedure governing the approval and execution Code and the implementing regulations issued by CONSOB. of transactions with related parties carried out by Enel SpA In 2014, no transactions were carried out for which it was directly or through subsidiaries. The procedure (available necessary to make the disclosures required in the rules on at http://www.enel.com/en-GB/group/governance/rules/ transactions with related parties adopted with CONSOB Re- related_parties/) sets out rules designed to ensure the tran- solution 17221 of March 12, 2010, as amended with Reso- sparency and procedural and substantive propriety of tran- lution 17389 of June 23, 2010. sactions with related parties. It was adopted in implementa- 270 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSMillions of euro Income statement Revenue from sales and services Other revenue Other financial income Electricity, gas and fuel purchases Services and other materials Other operating expenses Net income /(expense) from commodity contracts measured at fair value Other financial expense Millions of euro Balance sheet Trade receivables Other current assets Other non-current liabilities Trade payables Other current liabilities Non-current derivative financial liabilities Other information Guarantees received Commitments 3,087 1,150 1,124 25 63 4,395 1,690 1,229 163 1,886 4 119 46 17 - - - - - 3 - 1 - - - - - - - - - - - - - - - 444 7 4 - 64 29 - 544 13 - 1 - 1 24 1 - 77 46 - - - - - Eni 127 1 150 19 256 353 24 102 - 1 4 - - - - - - - - 762 382 406 443 1,006 - - - - - - 5 5 - 1 - 45 4 18 5 - 2 - - - 14 29 5 2 - - 24 11 Acquirente Unico GME Terna Eni GSE Poste Italiane Other Key management personnel Total Associates and joint arrangements Overall total Total in financial statements % of total - - - - - - - - Acquirente Unico GME Terna GSE Poste Italiane Other Key management personnel - - - - - - - - 5,705 363 7,381 2,295 53 46 - Total 1,158 134 2 3,073 2 24 178 49 46 4 23 214 145 - - 28 5,751 367 23 73,328 2,463 1,248 7,595 36,928 2,440 53 46 28 17,179 2,362 (225) 5,540 7.8% 14.9% 1.8% 20.6% 14.2% 2.2% -20.4% 0.5% Associates and joint arrangements Overall total Total in financial statements % of total 12,022 2,706 1,464 13,419 10,827 2,441 10.1% 5.2% 0.1% 23.5% - 1.0% 62 8 - 86 1 - - - 1,220 142 2 3,159 3 24 178 49 271 48. Contractual commitments and guarantees The commitments entered into by the Enel Group and the guarantees given to third parties are shown below. Millions of euro Guarantees given: - sureties and other guarantees granted to third parties Commitments to suppliers for: - electricity purchases - fuel purchases - various supplies - tenders - other Total TOTAL at Dec. 31, 2014 at Dec. 31, 2013 Change 4,304 54,384 63,605 1,782 1,785 2,345 123,901 128,205 5,685 (1,381) 42,181 55,788 2,176 2,001 2,696 104,842 110,527 12,203 7,817 (394) (216) (351) 19,059 17,678 For more details on the expiry of commitments and guarantees, please see the section “Commitments to purchase commo- dities” in note 41. 272 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS49. Contingent liabilities and assets Porto Tolle thermal plant - Air pollution - Criminal proceedings against Enel directors and employees Emilia Romagna to express social solidarity in line with the general sustainability policies of the Group. The suits with the Ministry and private parties (environmental associations and a number of resident individuals, who have received no payments from Enel during the proceedings) remain open. On July 10, 2014, the decision of the Venice Court of Appe- al was filed ordering the defendants, jointly with Enel/Enel The Court of Adria, in a ruling issued on March 31, 2006, con- Produzione, to pay damages in the amount of €312,500, victed former directors and employees of Enel for a number of plus more than €55,000 in legal expenses. The Ministry’s re- incidents of air pollution caused by emissions from the Porto quest for calculation of the amount of damages it claimed it Tolle thermoelectric plant. The decision held the defendants was owed was deemed inadmissible, as grounds for barring and Enel (as a civilly liable party) jointly liable for the payment such action arose in the course of the criminal proceedings. of damages for harm to multiple parties, both natural per- In the meantime the Court issued a general conviction with sons and public authorities. Damages for a number of mainly damages to be awarded in a separate decision and ordered private parties (individuals and environmental associations) payment of legal costs. were set at the amount of €367,000. The calculation of the amount of damages owed to certain public entities (Ministry In August 2011, the Public Prosecutor’s Office of Rovigo for the Environment, a number of public entities of Veneto asked that a number of directors, former directors, officers, and Emilia Romagna, including the area’s park agencies) was former officers and employees of Enel and Enel Produzione postponed to a later civil trial, although a “provisional award” be remanded for trial on the charge of willful omission to of about €2.5 million was immediately due. take precautionary actions to prevent a disaster in respect An appeal was lodged against the ruling of the Court of of the alleged emissions from the Porto Tolle plant. Subse- Adria and, on March 12, 2009, the Court of Appeal of Venice quently, the public prosecutor filed charges of willfully cau- partially reversed the lower court decision. It found that the sing a disaster. During 2012, the pre-trial hearing judge of former directors had not committed a crime and that there Rovigo, granting the request of the Public Prosecutor’s Offi- was no environmental damage and therefore ordered reco- ce of Rovigo, ordered the committal for trial of all of the ac- very of the provisional award already paid. The prosecutors cused for both offences. The Ministry for the Environment, and the civil claimants lodged an appeal against the ruling the Ministry of Health and other actors, mainly local authori- with the Court of Cassation. In a ruling on January 11, 2011, ties in Emilia Romagna and Veneto, as well as the park agen- the Court of Cassation granted the appeal, overturning the cies of the area, joined the case as injured parties, seeking decision of the Venice Court of Appeal, and referred the unspecified damages from the above individuals, without case to the civil section of the Venice Court of Appeal to rule citing Enel or Enel Produzione as liable parties. Evidence as regards payment of damages and the division of such da- was submitted during 2013. During the year, as part of the mages among the accused. As regards amounts paid to a agreement mentioned earlier, most of the public entities number of public entities in Veneto, Enel has already made withdrew their suits. payment under a settlement agreement reached in 2008. At the hearing of March 31, 2014, the Court sitting en banc With a suit lodged in 2011, the Ministry for the Environment, issued its ruling of first instance, acquitting all of the accu- the public entities of Emilia and the private actors who had sed of the charge of willful omission to take precautionary already participated as injuried parties in the criminal case safety measures. The Court also acquitted all of the accused asked the Venice Court of Appeal to order Enel SpA and Enel of the charge of willfully causing a disaster, with the excep- Produzione to pay civil damages for harm caused by the tion of the two former Chief Executive Officers of Enel SpA emissions from the Porto Tolle power station. The amount (although the Court did not grant the request for recogni- of damages requested for economic and environmental los- tion of aggravating circumstances as provided for when the ses was about €100 million, which Enel contested. During disaster actually occurs). The former Chief Executive Officers 2013, an agreement was reached – with no admission of were then ordered to pay unspecified damages in a sepa- liability by Enel/Enel Produzione – with the public entities of rate civil action, with a total provisional ruling of €410,000 273 and payment of court costs for the remaining civil parties to 2003, numerous claims were filed against Enel Distribuzione the action. The Court’s full ruling was filed at the end of Sep- for automatic and other indemnities for losses. These claims tember 2014. The decision was appealed by the two former gave rise to substantial litigation before justices of the pea- Chief Executive Officers and by the public prosecutor at the ce, mainly in the regions of Calabria, Campania and Basili- start of November 2014. Further appeals were later filed by cata, with a total of some 120,000 proceedings. Charges in (i) the acquitted Chief Executive Officer, in order to obtain respect of such indemnities could be recovered in part un- the denial of the grounds for appeal of the prosecutor and a der existing insurance policies. Most of the initial rulings by broader acquittal than that obtained in the first trial; (ii) two these judges found in favor of the plaintiffs, while appellate local authorities that had not initially participated; and (iii) courts have nearly all found in favor of Enel Distribuzione. the two Ministries (Environment and Health). The Court of Cassation has also consistently ruled in favor Brindisi Sud thermal generation plant - Criminal proceedings against Enel employees A criminal proceeding is under way before the Court of Brin- disi concerning the Brindisi Sud thermal plant. A number of employees of Enel Produzione – cited as a liable party in civil litigation during 2013 – have been accused of causing cri- minal damage and dumping of hazardous substances with regard to the alleged contamination of land adjacent to the plant with coal dust as a result of actions between 1999 and 2011. At the end of 2013, the accusations were extended to cover 2012 and 2013. As part of the proceeding, injured parties, including the Province and City of Brindisi, have submitted claims for total damages of about €1.4 billion. The argument phase is under way and hearings of witnesses and technical experts are under way. Criminal proceedings are also under way before the Courts of Reggio Calabria and Vibo Valentia against a number of employees of Enel Produzione for the offense of illegal waste disposal in connection with alleged violations con- cerning the disposal of waste from the Brindisi plant. Enel Produzione has not been cited as a liable party for civil da- mages. Out-of-court disputes and litigation connected with the blackout of September 28, 2003 of Enel Distribuzione. At December 30, 2014 pending cases numbered about 23,700 as a result of additional appeals fi- led despite the abandonment of suits by the plaintiffs and/ or joinder of proceedings. In addition, in view of the rulings in Enel’s favor by both the courts of appeal and the Court of Cassation, the flow of new claims has come to a halt. Beginning in 2012, a number of actions for recovery were initiated, which continue, to obtain repayment of amounts paid by Enel in execution of the rulings in the courts of first instance. In May 2008, Enel served its insurance company (Cattoli- ca) a summons to ascertain its right to reimbursement of amounts paid in settlement of unfavorable rulings. The case also involved a number of reinsurance companies in the proceedings, which have challenged Enel’s claim. In a ru- ling of October 21, 2013, the Court of Rome granted Enel’s petition, finding the insurance coverage to be valid and or- dering Cattolica, and consequently the reinsurance compa- nies, to hold Enel harmless in respect of amounts paid or to be paid to users and their legal counsel as well as, within the limits established by the policies, to pay defense costs. On the basis of that ruling, in October 2014, Enel filed suit against Cattolica with the Court of Rome to obtain a quan- tification of the amounts due to Enel and payment of those amounts by Cattolica. The first hearing has been set for March 30, 2015. Subsequently, Cattolica appealed the ruling of the court of first instance of October 21, 2013, before the Rome Court of Appeal, asking that it be overturned. The first hearing has been set for April 27, 2015. BEG litigation Following an arbitration proceeding initiated by BEG SpA in Italy, Enelpower obtained a ruling in its favor in 2002, which was upheld by the Court of Cassation in 2010, which enti- In the wake of the blackout that occurred on September 28, rely rejected the complaint with regard to alleged breach by 274 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSEnelpower of an agreement concerning the construction of ber of entities and the establishment of a lien on the shares a hydroelectric power station in Albania. of two subsidiaries of Enel SpA in that country. Enel SpA and Subsequently, BEG, acting through its subsidiary Albania Enelpower SpA challenged that ruling and on July 1, 2014, BEG Ambient Shpk, filed suit against Enelpower and Enel the Dutch court, in granting the petition of Enel and Enel- SpA in Albania concerning the matter, obtaining a ruling, power, provisionally determined the value of the suit at €25 upheld by the Albanian Supreme Court of Appeal, ordering million and ordered the removal of the preliminary injun- Enelpower and Enel to pay tortious damages of about €25 ction subject to the issue of a bank guarantee in the amount million for 2004 as well as an unspecified amount of tor- of €25 million by Enel and Enelpower. Enel and Enelpower tious damages for subsequent years. Following the ruling, have appealed this ruling and, at present, no bank guaran- Albania BEG Ambient Shpk demanded payment of more tee has been issued. than €430 million. On July 3, 2014, Albania BEG Ambient Shpk sought to The European Court of Human Rights, with which Enelpo- obtain a second order to freeze assets. Following the hea- wer SpA and Enel SpA had filed an appeal for violation of ring of August 28, 2014, the court in the Hague granted a the right to a fair trial and the rule of law by the Republic preliminary injunction for the amount of €425 million on of Albania, rejected the petition as inadmissible. The ruling September 18, 2014. Enel and Enelpower have appealed was purely procedural and did not address the substance of this injunction and no final ruling has been issued. the suit. At the end of July 2014, Albania BEG Ambient Shpk filed suit in the Netherlands to render the ruling of the Albanian In February 2012, Albania BEG Ambient Shpk filed suit court enforceable in that country. against Enel SpA and Enelpower SpA with the Tribunal de Grande Instance in Paris in order to render the ruling of the Albania BEG Ambient Shpk also filed suits in Ireland and Lu- Albanian court enforceable in France. Enel SpA and Enelpo- xembourg to render the ruling of the Court of Tirana enfor- wer SpA challenged the suit. The proceeding is still under ceable in those two countries. Both of these suits are at a way and the Court has issued no preliminary or definitive preliminary stage and no rulings have been issued. Enel SpA rulings so far. and Enelpower SpA are preparing their defense challenging Subsequently, again at the initiative of Albania BEG Ambient, the claims put forth by Albania BEG Ambient Shpk. Enel France was served with two “Saise Conservatoire de Créances” (orders for the precautionary attachment of receiva- Proceedings continue in the suit lodged by Enelpower SpA bles) to conserve any receivables of Enel SpA in respect of Enel and Enel SpA with the Court of Rome asking the Court to France. J.P. Morgan Bank Luxembourg SA was also served with ascertain the liability of BEG SpA for having evaded com- an analogous order in respect of any receivables of Enel SpA. pliance with the arbitration ruling issued in Italy in favor of Enelpower SpA through the legal action taken by Albania In March 2014, Albania BEG Ambient Shpk filed suit against BEG Ambient Shpk. With this action, Enelpower SpA and Enel SpA and Enelpower SpA in New York to render the ru- Enel SpA are asking the Court to find BEG liable and order ling of the Albanian court enforceable in the State of New it to pay damages in the amount that the other could be York. Enel SpA and Enelpower, in presenting their defense, required to pay to Albania BEG Ambient Shpk in the event contested all aspects of the foundation of the plaintiff’s of the enforcement of the sentence issued by the Albanian case and took all steps available to them to defend their courts. At the most recent hearing of March 12, 2015, the interests. Court took up the case for a ruling, granting the parties the On April 22, 2014, in response to a motion filed by Enel and statutory period for the filing of final arguments and rejoin- Enelpower, the court revoked the previous ruling issued ders. against the companies freezing assets of around $600 mil- lion. The suit is pending and no measures, preliminary or otherwise, have been taken by the court. On June 2, 2014 Albania BEG Ambient Shpk obtained an or- der from the court in the Hague, based upon the prelimina- ry injunction, freezing up to €440 million held with a num- Violations of Legislative Decree 231/2001 The following four cases for alleged violation of Legislative Decree 231/2001 concerning the administrative liability of 275 legal persons are pending. Three involve Enel Produzione and one involves Enel Distribuzione, for omission of acci- dent prevention measures: > for a fatal accident involving an employee of a subcon- Basilus litigation (formerly Meridional) - Brazil tractor at the Enel Federico II plant at Brindisi in 2008, The Brazilian construction company Basilus S/A Serviço, Enel Produzione has been charged with administrative Emprendimiento y Participações (formerly Meridional) held liability for manslaughter; a contract for civil works with the Brazilian company CELF > for an accident involving an employee of a subcontractor (owned by the State of Rio de Janeiro), which withdrew from at the Enel Federico II plant at Brindisi in 2009, Enel Pro- the contract. As part of its privatization, CELF transferred its duzione has been charged with administrative liability assets to Ampla Energia e Serviços SA (Ampla). In 1998, Ba- for negligent personal injury; silus filed suit against Ampla, arguing that the transfer had > for a fatal accident involving an employee of a subcon- infringed its rights and that it had been defrauded. tractor at the Enel plant at Termini Imerese in 2008, Enel Ampla obtained favorable judgments in the courts of first Produzione has been charged with administrative liabili- and second instance. Although the second-level decision ty for manslaughter; was adjudicated, Basilus lodged a special appeal (mandado > for a fatal accident involving an employee of a subcon- de segurança) in September 2010 asking for the adverse ru- tractor in Palermo in 2008, Enel Distribuzione has been ling to be overturned. That request was denied. charged with administrative liability for manslaughter. Subsequently Basilus lodged a new appeal with the Tribunal The above proceedings are still in the argument phase, whi- Superior de Justiça, which is still pending. le the first has reached the discussion phase. The amount involved in the dispute is about 1,096 million Brazilian reais (about €336 million). Red Eléctrica de España arbitration - Spain On July 1, 2010, in compliance with legal requirements, En- desa Distribución Eléctrica (“EDE”) signed a contract with Red Eléctrica de España (“REE”) for the sale of assets consi- sting of the transmission network owned by EDE. The price was set at about €1,400 million. The contract provided for a price adjustment if remuneration decreased or increased following the liquidation carried out by the Comisión Nacio- nal de los Mercados y la Competencia (CNMC) by December 31, 2013. REE’s interpretation of Ministerial Order IET/2443/2013, published in December 2013, would produce a lower remu- neration than that provided for in the contract and, on that basis, the company undertook an arbitration proceeding before the Corte Civil y Mercantil de Arbitraje (CIMA), asking for an adjustment of the sale price. The value of the claim was subsequently quantified at €94 million. The proceeding is in the initial stage and EDE is conducting its defense. CIEN litigation - Brazil In 1998 the Brazilian company CIEN signed an agreement with Tractebel for the delivery of electricity from Argenti- na through its Argentina-Brazil interconnection line. As a result of Argentine regulatory changes introduced as a con- sequence of the economic crisis in 2002, CIEN was unable to make the electricity available to Tractebel. In October 2009, Tractebel sued CIEN, which submitted its defense. CIEN cited force majeure as a result of the Argentine crisis as the main argument in its defense. Out of court, Tractebel has indicated that it plans to acquire 30% of the intercon- nection line involved in the dispute. In March 2014, the court granted CIEN’s motion to suspend the proceedings in view of the existence of other litigation pending between the parties. The amount involved in the dispute is estimated at about 118 million Brazilian reais (about €40 million), plus unspeci- fied damages. For analogous reasons, in May 2010 Furnas also filed suit against CIEN for failure to deliver electricity, requesting payment of about 520 million Brazilian reais (about €175 million), in addition to unspecified damages. In alleging non-performance by CIEN, Furnas is also seeking to acquire ownership (in this case 70%) of the interconnection line. 276 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSCIEN’s defense is similar to the earlier case. The claims put forth by Furnas were rejected by the trial court in August 2014. Furnas lodged an appeal (not yet notified to CIEN) against the latter decision. SAPE (formerly Electrica) arbitration proceedings - Romania Cibran litigation - Brazil Companhia Brasileira de Antibióticos (Cibran) has filed a number of suits against Ampla Energia e Serviços SA (Am- pla) to obtain damages for alleged losses incurred as a result of the interruption of service by the Brazilian distri- bution company. The Court ordered a unified technical ap- praisal for those cases, the findings of which were partly unfavorable to Ampla. The latter challenged the findings, asking for a new study. The proceedings concerning that petition are pending. In September 2014, the court of first instance issued a ruling against Ampla in one of the various suits noted above, levying a penalty of about 200,000 Brazilian reais (about €60,000) as well as other damages to be quantified at a later stage. Am- pla has appealed the ruling and the appeal is under way. A decision by the court of first instance on the other suits is still pending. The value of all of the disputes is estimated at about 166 million Brazilian reais (about €50 million). Coperva litigation - Brazil As part of the project to expand the grid in rural areas of Brazil, in 1982 Companhia Energética do Ceará SA (“Coel- ce”), then owned by the Brazilian government and now an Enel Group company, had entered into contracts for the use of the grids of a number of cooperatives established specifically to pursue the expansion project. The contracts provided for the payment of a monthly fee by Coelce, which was also required to maintain the networks. Those contracts, between cooperatives established in spe- cial circumstances and the then public-sector company, do not specifically identify the grids governed by the agree- On June 11, 2007, Enel SpA entered into a Privatization Agreement with SC Electrica SA for the privatization of Electrica Muntenia Sud (“EMS”). The accord provided for the sale to Enel of 67.5% of the Romanian company. In ac- cordance with the unbundling rules, in September 2008 the distribution and electricity sales operations were tran- sferred to two new companies, Enel Distributie Muntenia (“EDM”) and Enel Energie Muntenia (“EEM”). In December 2009, Enel transferred the entire capital of the two compa- nies to Enel Investment Holding BV (“EIH”). On July 5, 2013, Electrica notified Enel SpA, EIH, EDM and EEM (limited to a number of claims) of a request for arbi- tration before the International Chamber of Commerce in Paris, claiming damages for alleged violations of specific clauses of the Privatization Agreement. More specifically, the plaintiff claimed payment of penal- ties of about €800 million, plus interest and additional un- specified damages. The proceeding is under way and Enel is conducting its de- fense. On September 29, 2014, SAPE notified Enel and Enel In- vestment Holding that it had submitted a further arbitra- tion request to the International Court of Arbitration in Paris seeking around €500 million (plus interest) in con- nection with the put option contained in the Privatization Agreement. The put option gives SAPE the right to sell a 13.57% stake in Enel Distributie Muntenia and Enel Energie Muntenia. The suit is at a preliminary stage. Gabčíkovo dispute - Slovakia ments, which has prompted a number of the cooperatives Slovenské elektrárne (SE) is involved in a number of cases be- to sue Coelce asking for, among other things, a revision of fore the national courts concerning the 720 MW Gabčíkovo the fees agreed in the contracts. These actions include the hydroelectric plant, which is administered by Vodoho- suit filed by Cooperativa de Eletrificação Rural do V do Aca- spodárska Výsatavba Štátny Podnik (“VV“) and whose ope- rau Ltda (Coperva) with a value of about 161 million Brazilian ration and maintenance, as part of the privatization of SE in reais (about €49 million). The court of first instance ruled in 2006, had been entrusted to SE for a period of 30 years under favor of Coelce but Coperva has appealed the decision. a management agreement (the VEG Operation Agreement). 277 Immediately after the closing of the privatization, the Pu- ceeding, EGP and the Republic of El Salvador signed a fra- blic Procurement Office (PPO) filed suit with the Court of mework agreement to settle the multiple disputes concer- Bratislava seeking to void the VEG Operation Agreement ning EGP’s investments in LaGeo. on the basis of alleged violations of the regulations gover- Under the provisions of the accord, in December 2014, fol- ning public tenders, qualifying the contract as a service lowing the revocation of the seizure of EGP’s assets in El contract and as such governed by those regulations. In No- Salvador, EGP sold its entire stake in LaGeo (equal to 36.2%) vember 2011 the court of first instance ruled in favor of SE, to INE for about $280 million. whereupon the PPO appealed the decision. The full effectiveness of the final settlement of the dispu- In parallel with the PPO action, VV also filed a number of te with the Republic of El Salvador and the termination of suits, asking in particular for the voidance of the VEG Ope- the ICSID arbitration proceeding are subject to a number ration Agreement and for SE to pay VV the revenue from of specific conditions (termination of the pending local li- the sale of electricity generated by the plant since 2006. tigation against EGP and its representatives) to be verified SE considers the claims of VV to be unfounded and is con- in the next six months. Pending final resolution, the ICSID testing the various suits, which have been suspended pen- proceeding has been suspended. ding a decision in the proceeding launched by the PPO. On March 9, 2015, the decision of the appeals court over- turned the ruling of the court of first instance and voided the contract. The ruling will be appealed once the decision is officially notified. LaGeo arbitration The case regards a complex dispute that began in Octo- ber 2008, when Enel Produzione (succeeded by Enel Gre- en Power - “EGP”) undertook arbitration action before the International Chamber of Commerce in Paris against Comisión Ejecutiva Hidroeléctrica (“CEL”, wholly owned by the government of El Salvador) and its subsidiary In- versiones Energéticas (“INE”). Enel claimed breach of the shareholders’ agreement regarding the Salvadoran com- pany LaGeo, which operated in the geothermal industry. Enel’s claims were upheld in the initial ruling, the second ruling and before the Court of Cassation in France, but in the meantime a number of actions were undertaken in El Salvador against EGP to void the shareholders’ agreement and involve the company as a civilly liable party in a crimi- nal enquiry into alleged “peculado” in the acquisition of La- Geo. In addition, in July 2013 the Parliament of El Salvador passed a measure approving the withdrawal of El Salvador from the Washington Convention of 1965, which allowed foreign investors to bring claims against a state before the International Center for Settlement of Investment Disputes (ICSID). Before that law was enacted, however, Enel had ini- tiated a proceeding before the ICSID to preserve its rights against the interference of the Salvadoran government in EGP’s relations with CEL. On December 7, 2014, within the ICSID arbitration pro- 278 Dispute between Energia XXI Energias Renováveis e Consultoria Limitada and Enel Green Power España In 1999 Energia XXI filed for arbitration against MADE (now Enel Green Power España) for alleged losses incurred due to the early termination of an agency contract for the sale of wind generators and wind farms of Enel Green Power España in Portugal and Brazil. With its ruling of November 21, 2000, the arbitration board found that the termination of the contract by MADE was illegitimate and ordered it to pay: (i) legal costs; (ii) the fixed portion of the monthly fee for the period from July 21, 1999 (date of termination of contract) to October 9, 2000 (expiration date of the con- tract), equal to about €50,000; (iii) as well as lost profits to be determined in respect of contracts for at least 15 MW of capacity. Following the arbitration ruling, two civil court cases began: > the first appeal was lodged by MADE with the Tribunal Judicial de Primera Instancia asking for the arbitration ruling to be voided. The case is still pending with the court of first instance following referral by the Court of Appeal (subsequently confirmed by the Supreme Court of Appeal on September 26, 2013), which granted Enel Green Power España’s appeal of the admission of briefs; > the second appeal was lodged by Energia XXI on May 9, 2006, with the Civil Court of Lisbon, with which Energia XXI asked for Enel Green Power España to be ordered to pay the amount determined in the arbitration ruling (the losses for which Energia XXI now puts at €546 mil- ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSlion). Enel Green Power España considers the claim to be Construcción Tecnimont Chile Compañía Limitada, Tecni- unfounded. Acting on a petition by Enel Green Power mont SpA, Tecnimont do Brasil Construção and Admini- España, the court has so far suspended the case pen- stração de Projetos Ltda (together, “Tecnimont”), Slovens- ding resolution of the first suit. ke Energeticke Strojarne AS and Ingeniería y Construcción CIS and Interporto Campano On December 4, 2009 and August 4, 2010 Enel Green Power SpA signed, with Interporto Campano and Centro Ingrosso Sviluppo Campania Gianni Nappi SpA (“CIS”), respectively, a leasehold agreement with a term of more than nine years and a leasehold estate for the rooftops of the industrial sheds of CIS and Interporto Campano in order to build and operate a photovoltaic plant. Two fires subsequently broke out at those sheds: the first occurred on April 22, 2011, during the construction of the plant, while the second broke out on March 26, 2012. Following the fires, CIS undertook two arbitration procee- dings, on November 3, 2012 and May 23, 2014, respecti- vely, with the latter undertaken together with Interporto Campano. In the arbitration ruling filed on January 31, 2015, the ru- ling of the arbitration board in the first proceeding found against the contractor as well as contributory negligence on the part of both CIS and Enel Green Power (“EGP”), ordering EGP to pay CIS about €2.5 million, equal to half of the damages originally admitted for indemnification. In the second arbitration proceeding, CIS and Interporto Campano sought the termination of the leasehold estate and the more-than-9-year lease as well as damages for al- leged losses following breaches by EGP quantified in the amount of about €65 million, of which about €35 million for costs incurred in dismantling the photovoltaic plants. EGP asked for the suits to be dismissed and filed a counter- claim for damages of about €40 million. The proceeding is at an early stage. Bocamina II arbitration - Chile SES Chile Limitada (together “SES”). On October 17, 2012 Endesa Chile submitted a request for arbitration before the International Chamber of Commerce in Paris, citing the non-performance of the consortium and claiming dama- ges (subsequently quantified in the amount of about $373 million, or about €270 million). During the arbitration proceedings, the consortium filed a counterclaim against Endesa Chile in the amount of about $1,300 million – about €940 million (most of which in the form of damages for the alleged harm to the image of Tec- nimont following the execution of the bank guarantees by Endesa Chile). In January 2015, Endesa Chile and the consortium signed a settlement agreement to close the arbitration proceeding (and forestall any other possible litigation) concerning the EPC contract for the construction of the Bocamina II project. Tax litigation in Brazil > In 1998, Ampla Energia e Serviços SA financed the acqui- sition of Coelce with the issue of bonds in the amount of $350 million (“Fixed Rate Notes” - FRN) subscribed by its Panamanian subsidiary, which had been established to raise funds abroad. Under the special rules then in for- ce, subject to maintaining the bond until 2008, the in- terest paid by Ampla to its subsidiary was not subject to withholding tax in Brazil. However, the financial crisis of 1998 forced the Panama- nian company to refinance itself with its Brazilian parent, which for that purpose obtained loans from local banks. The tax authorities considered this financing to be the equivalent of the early extinguishment of the bond, with the consequent loss of entitlement to the exemption from withholding tax. In December 2005, Ampla Energia e Serviços SA carried out a spin-off in favor of Ampla Investimentos e Serviços SA that involved the transfer of the residual FRN debt and the associated rights and obligations. Litigation is under way concerning the contract for the On November 6, 2012, the Camara Superior de Recursos construction of the second unit of the Bocamina thermal Fiscales (the highest level of administrative courts) issued plant (“Bocamina II”). The contract was agreed in 2007 by a ruling against Ampla, for which the company promptly Endesa Chile with a consortium made up of Ingeniería y asked that body for clarifications. On October 15, 2013, 279 Ampla was notified of the denial of the request for clari- Energética do Ceará (for the years 2003, 2004 and 2006- fication (“Embargo de Declaración”), thereby upholding 2009), challenging the deduction of ICMS in relation to the previous adverse decision. The company provided the purchase of certain assets. The companies challenged security for the debt and on June 27, 2014 continued liti- the assessments, arguing that they correctly deducted gation before the ordinary courts (“Tribunal Superior de the tax and asserting that the assets, the purchase of Justiça”). which generated the ICMS, are intended for use in their The amount involved in the dispute at December 31, electricity distribution activities. 2014 was about €332 million. The amount involved in the disputes totaled approxima- tely €58 million at December 31, 2014. > In 2002, the State of Rio de Janeiro changed the deadli- nes for payment of the ICMS (Imposto sobre Circulação > On November 4, 2014, the Brazilian tax authorities is- de Mercadorias e Serviços) by withholding agents (to sued an assessment against Endesa Brasil SA (now Enel the 10th, 20th and 30th of each month - Ley Benedicta). Brasil SA) alleging the failure to apply withholding tax to Owing to liquidity problems, between September 2002 payments of allegedly higher dividends to non-resident and February 2005, Ampla Energia e Serviços continued recipients. to pay the ICMS in compliance with the previous system More specifically, in 2009, Endesa Brasil, as a result of the (the 5th day of the subsequent month). Despite an infor- first-time application of the IFRS-IAS, had cancelled go- mal agreement, the Brazilian tax authorities issued an odwill, recognizing the effects in equity, on the basis of assessment for late payment of the ICMS (“multa de de- the correct application of the accounting standards it had mora”). Ampla appealed the measure (the highest level adopted. The Brazilian tax authorities, however, asser- of administrative courts), arguing that the penalties im- ted – during a tax assessment – that the accounting tre- posed were not due owing to the application of a num- atment was incorrect and that the effects of the cancella- ber of amnesties granted between 2004 and 2006. In the tion should have been recognized through profit or loss. event of an adverse ruling, the company will continue As a result, the corresponding value (about €202 million) litigation before the ordinary courts. was reclassified as a payment of income to non-residents While the outcome of the final administrative procee- and, therefore, subject to withholding tax of 15%. dings is not yet known, following the registration of the On December 2, 2014, the company appealed the initial claim in the Public Registry of the State of Rio de Janeiro, ruling, arguing that its accounting treatment was correct. Ampla was required to provide security. It should be noted that the accounting treatment adop- The amount involved in the dispute at December 31, ted by the company was agreed with the external auditor 2014 was about €83 million. and also confirmed by a specific legal opinion issued by a > The States of Rio de Janeiro and Ceará issued a number local firm specializing in corporate law. of tax assessments against Ampla Energia e Serviços (for The overall amount involved in the dispute at December the years 1996-1999 and 2007-2012) and Companhia 31, 2014 was about €66 million. 50. Events after the reporting period Enel Green Power extends framework accord with Vestas to develop additional wind capacity in the United States On January 12, 2015 Enel Green Power, acting through its subsidiary Enel Green Power North America Inc. (“EGP NA”), extended the framework agreement signed at the end of 2013 with Vestas for the development of wind farms in the United States. The 2013 agreement, which provided for the supply of Ve- stas wind turbines, has supported EGP NA’s recent successful growth in the United States. The capacity yet to be developed under the 2013 agreement, together with the current extension, will enable EGP NA to qualify up to approximately 1 GW of future wind capacity in the United States for Federal Production Tax Credits (PTCs). 280 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTS Exchange of bonds and issue of new bonds atesina (the counterparty in the agreement), while the remai- ning 50% was sold to Dolomiti Energia following exercise of its pre-emption rights. The disposal is part of the agreements between Enel Produzione and SEL. On January 27, 2015, Enel Finance International NV (“EFI”), a The agreements also provide for the sale of the 40% stake wholly-owned subsidiary of Enel SpA, following a non-binding held by Enel Produzione in SE Hydropower for €345 million. public exchange offer that ran from January 14 to January 21, The latter transaction will be finalized only upon meeting the purchased bonds issued by EFI and guaranteed by Enel in the final condition provided for under the terms of the agreement, total amount of €1,429,313,000. The consideration for the namely for SEL to obtain a bank commitment to provide the purchase was represented by (i) senior fixed-rate notes with a funding for the purchase of the equity stake. The condition minimum lot size of €100,000 (and multiples of €1,000) issued is expected to be met by the end of the 1st Quarter of 2015. by EFI (under the Global Medium-Term Notes program of EFI and Enel) and guaranteed by Enel, in the principal amount of €1,462,603,000 and (ii) cash in the amount of €194,365,920. The transaction was carried out as part of the optimization of EFI’s financial management. It is intended to pursue acti- ve management of the Group’s maturity structure and the cost of funds. The new notes, which EFI issued as part of the Renegotiation of revolving credit line of about €9.4 billion exchange offer under the Global Medium-Term Notes pro- On February 12, 2015, Enel SpA and its Dutch subsidiary Enel gram with an Enel guarantee, bear an interest rate of 1.966% Finance International NV renegotiated the revolving credit fa- and mature on January 27, 2025. cility of about €9.4 billion agreed on February 8, 2013, redu- New bond issue of up to €1 billion to back exchange offers for existing bonds is authorized cing its cost and extending the facility’s maturity to 2020 from the original expiry date of April 2018. The credit facility, which can be used by Enel and/or by Enel Fi- nance International with a Parent Company guarantee, is not connected with the Group’s debt refinancing program. It is in- tended to provide the Group’s treasury with an extremely fle- xible and practical instrument for managing working capital. The cost of the credit facility varies in relation to Enel’s credit rating and bears a spread on Euribor that, based upon Enel’s current rating, falls to 80 basis points from the previous 190 On January 26, 2015, the Board of Directors authorized one or basis points, while the commitment fee has been reduced to more new bond issues, to be carried out by December 31, 2015, 35% of the spread from the previous 40%, i.e. from 76 basis with a total maximum principal amount of up to €1 billion. points to 28 basis points. The authorization is intended to allow Enel to make new A number of Italian and foreign banks were involved in the tran- bond issues to serve any exchange offers for bonds previously saction, with Mediobanca serving as the Documentation Agent. issued by the Company under the Global Medium-Term No- tes program, in order to optimize the Enel Group’s capital and financial structure and to permit it to seize any opportunities that may arise in international financial markets. Disposal of SF Energy Updates of disposal plan On February 25, 2015, the Enel Board of Directors examined the updates of the plan for disposals of the Group’s equity investments in Eastern Europe, announced to the market on July 10, 2014. Under the strategic guidelines set out in the On January 29, 2015, the agreement signed on November 7, new business plan to be presented to the financial communi- 2014 by Enel Produzione, a subsidiary of Enel, for the sale of ty, it decided to suspend the process of disposing of the distri- its stake in SF Energy was finalized at a price of €55 million. Of bution and sales assets in Romania and to continue with the the entire stake, 50% was sold to SEL - Società Elettrica Alto- disposal of the generation assets held in Slovakia. 281 51. Share-based incentive plans Between 2000 and 2008, Enel implemented stock incentive condition that the executives concerned remain employed plans (stock option plans and restricted share units plans) within the Group, with a few exceptions (such as, for exam- each year in order to give the Enel Group – in line with inter- ple, termination of employment because of retirement or national business practice and the leading Italian listed com- permanent invalidity, exit from the Group of the company panies – a means for fostering management motivation and at which the executive is employed, and succession mortis loyalty, strengthening a sense of corporate team spirit in our causa) specifically governed by the Regulations. key personnel, and ensuring their enduring and constant ef- The vesting of the options is subject to achievement of two fort to create value, thus creating a convergence of interests operational objectives, both calculated on a consolidated, between shareholders and management. three-year basis: (i) earnings per share (EPS, equal to Group The remainder of this section describes the features of the net income divided by the number of Enel shares in circula- stock incentive plans adopted by Enel and still in place in 2014. tion) for the 2008-2010 period, determined on the basis of 2008 stock option plan the amounts specified in the budgets for those years and (ii) the return on average capital employed (ROACE, equal to the ratio between operating income and average net capital employed) for the 2008-2010 period, also determined on the The 2008 plan provides for the grant of personal, non-transfe- basis of the amounts specified in the budgets for those years. rable inter vivos options to subscribe a corresponding num- Depending on the degree to which the objectives are achie- ber of newly issued ordinary Enel shares to senior managers ved, the number of options that can actually be exercised by selected by the Board of Directors. The main features of the each beneficiary is determined on the basis of a performance 2008 plan are discussed below. scale established by the Enel Board of Directors and may vary Beneficiaries up or down with respect to the basic option grant by a per- centage amount of between 0% and 120%. The beneficiaries of the plan – who include the person who at the time of the grant of the options is CEO of Enel in his or Exercise procedures her capacity as General Manager – comprise the small num- Once achievement of the operational objectives has been ber of managers who represent the first reporting line of top verified, the options can be exercised as from the third year management. The head of the Infrastructure and Networks after the grant year and up to the sixth year as from the Division does not participate but has received other incentives grant year. The options can be exercised at any time, with linked to specific objectives regarding the Division’s business the exception of two blocking periods lasting about one area. The exclusion was motivated by the obligation for Enel month before the approval of the draft annual financial sta- – connected with the full liberalization of the electricity sector tements of Enel SpA and the half-year report by the Board as from July 1, 2007 – to implement administrative and ac- of Directors. counting unbundling so as to separate the activities included in the Infrastructure and Networks Division from those of the Group’s other business areas. The beneficiaries have been di- Strike price vided into two brackets (the first includes only the CEO of Enel The strike price was originally set at €8.075, equal to the in his capacity as General Manager) and the basic number of reference price for Enel shares observed on the electronic options granted to each has been determined on the basis of stock exchange of Borsa Italiana on January 2, 2008. The their gross annual compensation and the strategic importan- strike price was modified by the Board of Directors on July ce of their positions, as well as the price of Enel shares at the 9, 2009 – which set it at €7.118 – in order to take account of start of the period covered by the plan (January 2, 2008). the capital increase completed by Enel that month and the Exercise conditions impact that it had on the market price of Enel shares. Subscription of the shares is charged entirely to the benefi- ciaries, as the plan does not provide for any facilitated terms The right to subscribe the shares was subordinate to the to be granted in this respect. 282 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSShares serving the plan In June 2008, the Extraordinary Shareholders’ Meeting granted the Board of Directors a five-year authorization to carry out a paid capital increase in the maximum amount of €9,623,735. The Board of Directors has not implemented the capital in- crease in the light of developments in the Enel stock price. Developments in the 2008 stock option plan The Board of Directors has determined that in the 2008- 2010 period both EPS and ROACE exceeded the levels set out in the budgets for those years, thereby enabling the options to vest in an amount equal to 120% of those origi- nally granted to the beneficiaries, in application of the per- formance scale established by the Enel Board of Directors. The following table reports developments in the 2008 stock option plan: Total options granted 8,019,779 (1) Number of beneficiaries 16 Group executives Verification of plan conditions Options exercised at Dec. 31, 2013 Options lapsed at Dec. 31, 2013 Options lapsed in 2014 Options outstanding at Dec. 31, 2014 Strike price €8.075 (2) Rights vested None None 9,623,735 None (1) Following the review conducted by the Enel Board of Directors on the occasion of the approval of the Enel Group’s consolidated financial statements for 2010 to determine the degree to which the two operational targets (EPS and ROACE) had been achieved, a total of 9,623,735 options have vested. (2) The strike price was changed to €7.118 as from July 9, 2009 in order to take account of the impact of the capital increase completed by Enel that month on the market price of Enel shares. It should be noted that the overall dilution of share capital The following table summarizes developments over the as at December 31, 2014 attributable to the exercise of the course of 2012, 2013 and 2014 in the Enel stock option stock options granted under the various plans amounts to plans, detailing the main assumptions used in calculating 1.31%. their fair value. Developments in stock option plans Number of options Options granted at December 31, 2012 Options exercised at December 31, 2012 Options lapsed at December 31, 2012 Options outstanding at December 31, 2012 Options lapsed in 2013 Options outstanding at December 31, 2013 Options lapsed in 2014 Options outstanding at December 31, 2014 Fair value at grant date (euro) Volatility Option expiry 2008 plan 9,623,735 (1) 9,623,735 (1) - 9,623,735 (1) 9,623,735 (1) - 0.17 21% December 2014 (1) Following the review conducted by the Enel SpA Board of Directors on the occasion of the approval of the Enel Group’s consolidated financial statements for 2010 to determine the degree to which the two operational targets (EPS and ROACE) set for the 2008 plan had been achieved, a total of 9,623,735 options have vested (120% of the 8,019,779 options originally granted). Restricted share units plan 2008 ved an additional incentive mechanism, a restricted share units plan. The plan – which is also linked to the performan- ce of Enel shares – differs from the stock option plans in that it does not involve the issue of new shares and therefore has In June 2008 Enel’s Ordinary Shareholders’ Meeting appro- no diluting effect on share capital. It grants the beneficiaries 283 rights to receive the payment of a sum equal to the product analogous substitution by Borsa Italiana in 2009 – and of the number of units exercised and the average value of the Bloomberg World Electric Index (weight: 50%); and Enel shares in the month preceding the exercise of the units. > for the remaining 50% of the basic number of units gran- Beneficiaries ted, a comparison on a total shareholders’ return basis – for the period from January 1, 2008 to December 31, 2010 – between the performance of ordinary Enel shares The plan covers the management of the Enel Group (inclu- on the electronic stock exchange of Borsa Italiana SpA ding the managers already participating in the 2008 stock and the benchmark index calculated as the average of option plan, which includes the person who at the time of the performance of the MIBTEL index (weight: 50%) – re- the grant of the units is CEO of Enel in his or her capacity placed in 2009 with the FTSE Italia All Share index as in- as General Manager), with the exception of the managers dicated above – and the Bloomberg World Electric Index of the Infrastructure and Networks Division for the reasons (weight: 50%). discussed with the 2008 stock option plan. The beneficiaries The number that can be exercised may vary up or down have been divided into brackets and the basic number of with respect to the basic unit grant by a percentage units granted to each has been determined on the basis of amount of between 0% and 120% as determined on the the average gross annual compensation of the bracket, as basis of a specific performance scale. well as the price of Enel shares at the start of the period co- If the hurdle target is not achieved in the first two-year pe- vered by the plan (January 2, 2008). riod, the first tranche of 50% of the units granted may be Exercise conditions recovered if the same hurdle target is achieved over the longer three-year period indicated above. It is also possible to extend the validity of the performance level registered Exercise of the units – and the consequent receipt of the in the 2008-2010 period to the 2008-2009 period, whe- payment – is subordinate to the condition that the execu- re performance was higher in the longer period, with the tives concerned remain employed within the Group, with consequent recovery of units that did not actually vest in a few exceptions (such as, for example, termination of em- the first two-year period because of the lower performan- ployment because of retirement or permanent invalidity, ce level and on the condition that the first 50% of the basic exit of the company at which the beneficiary is employed unit grant has not yet been exercised. from the Group or succession mortis causa) specifically go- verned by the Regulations. As regards other exercise con- ditions, the plan first establishes a suspensory operational Exercise procedures objective (a “hurdle target”): (i) for the first 50% of the Once achievement of the hurdle target and the perfor- basic number of units granted, Group EBITDA for 2008- mance objectives has been verified, of the total number of 2009, calculated on the basis of the amounts specified in units granted, 50% may be exercised as from the second the budgets for those years; and (ii) for the remaining 50% year subsequent to the grant year and the remaining 50% of the basic number of units granted, Group EBITDA for as from the third year subsequent to the grant year, with 2008-2010, calculated on the basis of the amounts speci- the deadline for exercising all the units being the sixth year fied in the budgets for those years. subsequent to the grant year. In any event, each year the If the hurdle target is achieved, the actual number of units units can only be exercised during four time windows of that can be exercised by each beneficiary is determined on ten business days each (to be announced by Enel over the the basis of a performance objective represented by: course of the plan) in the months of January, April, July and > for the first 50% of the basic number of units granted, October. a comparison on a total shareholders’ return basis – for the period from January 1, 2008 to December 31, 2009 – between the performance of ordinary Enel shares on the electronic stock exchange of Borsa Italiana SpA and that of a specific benchmark index calculated as the average of the performance of the MIBTEL index (weight: 50%) – replaced with the FTSE Italia All Share index after an Developments in the 2008 restricted share units plan The review conducted by the Board of Directors to verify satisfaction of the exercise conditions found the following. For the first 50% of the basic units granted, in 2008-2009 284 ENEL ANNUAL REPORT 2014CONSOLIDATED FINANCIAL STATEMENTSthe hurdle target for Group EBITDA had been achieved vested. In view of the fact that the level of achievement of and Enel shares had slightly outperformed the benchmark the performance targets over the 2008-2010 period was index, meaning that according to the performance scale higher than that achieved in 2008-2009, it is therefore 100% of the units originally granted had vested. For the re- possible to recover the units that did not vest in 2008-2009 maining 50% of the basic grant awarded, in 2008-2010 the as a result of the lower level of achievement of the perfor- hurdle target for Group EBITDA had been achieved and mance targets for beneficiaries who had not yet exercised Enel shares significantly outperformed the benchmark in- the first 50% of the basic units granted before achieve- dex, meaning that according to the performance scale an ment of the targets for 2008-2010 had been ascertained. amount equal to 120% of the units originally granted had The following table reports developments in the 2008 restricted share units plan. Number of RSU RSU outstanding at December 31, 2012 of which vested at December 31, 2012 RSU lapsed in 2013 RSU exercised in 2013 RSU outstanding at December 31, 2013 of which vested at December 31, 2013 RSU lapsed in 2014 RSU exercised in 2014 RSU outstanding at December 31, 2014 of which vested at December 31, 2014 Fair value at the grant date (euro) Expiry of the restricted share units 2008 plan 254,314 254,314 - 24,540 229,774 229,774 3,421 226,353 - - 3.16 December 2014 285 Declaration of the Chief Executive Officer and the officer responsible for the preparation of corporate financial reports 286 DECLARATION OF THE CHIEF EXECUTIVE OFFICER AND THE OFFICER RESPONSIBLE ENEL ANNUAL REPORT 2014Declaration of the Chief Executive Officer and the officer responsible for the preparation of the consolidated financial report of the Enel Group at December 31, 2014, pursuant to the provisions of Article 154-bis, paragraph 5, of Legislative Decree 58 of February 24, 1998 and Article 81-ter of CONSOB Regulation 11971 of May 14, 1999 1. The undersigned Francesco Starace and Alberto De Paoli, in their respective capacities as Chief Executive Officer and officer responsible for the preparation of the financial reports of Enel SpA, hereby certify, taking account of the provisions of Article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of February 24, 1998: a. the appropriateness with respect to the characteristics of the Enel Group and b. the effective adoption of the administrative and accounting procedures for the preparation of the consolidated financial statements of the Enel Group in the period between January 1, 2014 and December 31, 2014. 2. In this regard, we report that: a. the appropriateness of the administrative and accounting procedures used in the preparation of the consolidated financial statements of the Enel Group has been verified in an assessment of the internal control system for financial reporting. The assessment was carried out on the basis of the guidelines set out in the “Internal Controls - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO); b. the assessment of the internal control system for financial reporting did not identify any material issues. 3. In addition, we certify that the consolidated financial statements of the Enel Group at December 31, 2014: a. have been prepared in compliance with the international accounting standards recognized in the European Union pursuant to Regulation (EC) 1606/2002 of the European Parliament and of the Council of July 19, 2002; b. correspond to the information in the books and other accounting records; c. provide a true and fair representation of the performance and financial position of the issuer and the companies included in the scope of consolidation. 4. Finally, we certify that the report on operations, included in the Annual Report 2014 and accompanied by the consolidated financial statements of the Enel Group at December 31, 2014, contains a reliable analysis of operations and performance, as well as the situation of the issuer and the companies included in the scope of consolidation, together with a description of the main risks and uncertainties to which they are exposed. Rome, March 18, 2015 Francesco Starace Alberto De Paoli Chief Executive Officer of Enel SpA Officer responsible for the preparation of the financial reports of Enel SpA 287 288 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSSeparate financial statements of Enel SpA 289 Income statement Euro Notes 2014 2013 of which with related parties of which with related parties Revenue Revenue from services Other revenue and income Costs Electricity purchases and consumables Services, leases and rentals Personnel Depreciation, amortization and impairment losses Other operating expenses 4.a 4.b 244,732,151 244,663,410 268,845,478 268,636,586 920,520 92,914 6,653,586 4,473,336 [Subtotal] 245,652,671 275,499,064 5.a 5.b 5.c 5.d 5.e 1,426,297 6,410,639 184,864,554 57,699,240 230,244,862 78,671,891 119,589,202 (32,288) 90,030,892 543,329,226 8,823,887 (487) - 19,256,153 (317,979) 14,056,103 115,042 Operating income (622,812,761) [Subtotal] 868,465,432 349,566,383 (74,067,319) Income from equity investments Financial income from derivatives Other financial income Financial expense from derivatives Other financial expense Income before taxes Income taxes 6 7 8 7 8 1,818,272,847 1,818,272,847 2,028,038,570 2,028,038,570 2,190,314,832 459,596,620 1,491,687,360 938,294,046 221,643,785 194,191,141 320,518,912 226,716,064 1,954,373,400 1,169,367,271 1,601,052,005 185,192,393 1,377,093,325 3,142,675 1,001,287,461 124,529,446 [Subtotal] 898,764,739 275,951,978 9 (282,250,536) 1,237,905,376 1,163,838,057 (208,522,895) 1,372,360,952 NET INCOME FOR THE YEAR 558,202,514 290 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSStatement of comprehensive income Euro Notes 2014 2013 Net income for the year 558,202,514 1,372,360,952 Other comprehensive income recyclable to profit or loss Effective portion of change in the fair value of cash flow hedges (73,365,668) 91,792,576 Income/(Loss) recognized directly in equity recyclable to profit or loss (73,365,668) 91,792,576 Other comprehensive income not recyclable to profit or loss Remeasurements of net defined benefit liabilities/(assets) 7,140,604 (3,811,101) Income/(Loss) recognized directly in equity not recyclable to profit or loss 7,140,604 (3,811,101) Income/(Loss) recognized directly in equity 22 (66,225,064) 87,981,475 TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE PERIOD 491,977,450 1,460,342,427 291 Balance sheet Euro ASSETS Notes at Dec. 31, 2014 at Dec. 31, 2013 Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Equity investments Derivatives Other non-current financial assets Other non-current assets Current assets Trade receivables Tax receivables Derivatives Other current financial assets Cash and cash equivalents Other current assets of which with related parties of which with related parties 10 11 12 13 14 15 16 7,795,187 11,405,854 382,572,824 8,632,640 11,331,906 278,678,021 38,754,068,086 39,289,052,513 1,979,171,296 818,817,602 1,355,401,642 971,785,658 146,490,819 116,989,366 164,581,474 116,989,366 466,782,285 176,864,784 483,128,702 198,690,947 [Subtotal] 41,748,286,351 41,590,806,898 17 18 14 19 20 21 131,944,125 126,901,064 216,133,599 208,963,697 624,614,245 253,623,738 280,273,785 50,482,464 176,685,848 104,059,774 5,040,376,082 4,222,947,341 5,280,776,020 4,169,321,515 6,972,042,465 3,122,891,795 243,507,371 208,144,734 319,387,652 196,029,881 TOTAL ASSETS 55,041,044,424 50,960,305,550 [Subtotal] 13,292,758,073 9,369,498,652 292 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSEuro Notes LIABILITIES AND SHAREHOLDERS’ EQUITY at Dec. 31, 2014 at Dec. 31, 2013 of which with related parties of which with related parties Shareholders’ equity Share capital Reserves Retained earnings (loss carried forward) Profit for the period TOTAL SHAREHOLDERS’ EQUITY Non-current liabilities Long-term borrowings Post-employment and other employee benefits Provisions for risks and charges Deferred tax liabilities Derivatives Other non-current liabilities Current liabilities Short-term borrowings Current portion of long-term borrowings Trade payables Derivatives Other current financial liabilities Other current liabilities 9,403,357,795 9,113,576,853 6,061,293,373 558,202,514 9,403,357,795 9,179,799,975 5,911,368,935 1,372,360,952 25,136,430,535 25,866,887,657 17,287,754,222 17,764,398,155 301,792,836 16,242,515 251,979,935 335,802,956 22,914,882 130,417,074 2,483,607,608 469,314,078 2,097,671,557 69,551,426 286,974,494 286,925,885 283,108,323 281,355,187 22 23 24 25 12 14 26 [Subtotal] 20,628,351,610 20,634,312,947 23 23 27 14 28 30 4,745,815,106 4,319,403,537 1,653,452,736 1,531,015,176 2,362,593,688 1,060,916,047 138,773,087 54,531,005 212,116,969 82,427,757 359,151,436 233,714,323 237,438,726 71,724,967 694,402,099 54,139,432 586,528,715 30,211,789 975,526,863 396,492,507 708,651,753 643,231,699 TOTAL LIABILITIES 29,904,613,889 [Subtotal] 9,276,262,279 4,459,104,946 25,093,417,893 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 55,041,044,424 50,960,305,550 293 Statement of changes in shareholders’ equity Share capital and reserves (Note 22) Euro Share capital Share premium reserve Legal reserve Reserve pursuant to Law 292/1993 of defined benefit measurement of financial Retained earnings/(loss Total shareholders’ obligation instruments carried forward) Net income for the year equity At January 1, 2013 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 (351,618,268) 3,899,806,022 3,420,002,506 25,827,978,649 Adjustment for adoption of IAS 19/R (Employee benefits) - - - - (12,997,883) (6,337,719) 8,401,795 (10,933,807) At January 1, 2013 restated 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 68,237,877 (12,997,883) (351,618,268) 3,893,468,303 3,428,404,301 25,817,044,842 Reserve from remeasurement Reserve from Other sundry reserves 68,237,877 Reclassification of retained earnings/ (losses carried forward) as a result of adoption of IAS 19/R (Employee benefits) Other changes Exercise of stock options Stock option plans - changes for the year Allocation of 2012 net income: - Dividends - Legal reserve - Retained earnings Comprehensive income for the year: Income/(Loss) recognized directly in equity Net income for the year At December 31, 2013 At January 1, 2014 Other changes Exercise of stock options Stock option plans - changes for the year Allocation of 2013 net income: - Dividends - Legal reserve - Retained earnings Comprehensive income for the year: Income/(Loss) recognized directly in equity Net income for the year - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 (16,808,984) (259,825,692) 5,911,368,935 1,372,360,952 25,866,887,657 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 (16,808,984) (259,825,692) 5,911,368,935 1,372,360,952 25,866,887,657 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total at December 31, 2014 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 68,243,876 (9,668,380) (333,191,360) 6,061,293,373 558,202,514 25,136,430,535 - - - - - - - - - - - - - - - - 68,241,934 68,241,934 1,942 4,057 4,057 8,401,795 (8,401,795) (1,410,503,669) (1,410,503,669) 2,009,498,837 (2,009,498,837) (3,811,101) 91,792,576 1.372.360.952 1.372.360.952 87,981,475 - - - - - - - - - - - - - - - - - - - - - - - 1,942 - - - - - - - - - - (1,222,436,514) (1,222,436,514) 149,924,438 (149,924,438) 7,140,604 (73,365,668) 558,202,514 (66,225,064) 558,202,514 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 294 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSAdjustment for adoption of IAS 19/R (Employee benefits) Reclassification of retained earnings/ (losses carried forward) as a result of adoption of IAS 19/R (Employee benefits) Other changes Exercise of stock options Stock option plans - changes for the year Allocation of 2012 net income: - Dividends - Legal reserve - Retained earnings Comprehensive income for the year: Income/(Loss) recognized directly in equity Net income for the year At December 31, 2013 At January 1, 2014 Other changes Exercise of stock options Stock option plans - changes for the year Allocation of 2013 net income: - Dividends - Legal reserve - Retained earnings Comprehensive income for the year: Income/(Loss) recognized directly in equity Net income for the year - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 Share capital and reserves (Note 22) Euro Share capital Share premium reserve Legal reserve 292/1993 At January 1, 2013 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 Reserve pursuant to Law Other sundry reserves 68,237,877 Reserve from remeasurement of defined benefit obligation Reserve from measurement of financial instruments Retained earnings/(loss carried forward) Net income for the year Total shareholders’ equity - (351,618,268) 3,899,806,022 3,420,002,506 25,827,978,649 - (12,997,883) - (6,337,719) 8,401,795 (10,933,807) At January 1, 2013 restated 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 68,237,877 (12,997,883) (351,618,268) 3,893,468,303 3,428,404,301 25,817,044,842 - 4,057 - - - - - - - 68,241,934 68,241,934 1,942 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8,401,795 (8,401,795) (1,410,503,669) (1,410,503,669) 2,009,498,837 (2,009,498,837) - - - 1,942 - - (1,222,436,514) (1,222,436,514) 149,924,438 (149,924,438) - 4,057 - - - - - - - - - - - - - - - - - - - - - (3,811,101) 91,792,576 - - - - - 87,981,475 1.372.360.952 1.372.360.952 (16,808,984) (259,825,692) 5,911,368,935 1,372,360,952 25,866,887,657 (16,808,984) (259,825,692) 5,911,368,935 1,372,360,952 25,866,887,657 7,140,604 (73,365,668) - - - - - 558,202,514 (66,225,064) 558,202,514 Total at December 31, 2014 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 68,243,876 (9,668,380) (333,191,360) 6,061,293,373 558,202,514 25,136,430,535 295 Statement of cash flows Euro Notes Net income for the year Adjustments for: Depreciation, amortization and impairment losses of intangible assets and property, plant and equipment Exchange rate adjustments of foreign currency assets and liabilities Accruals to provisions Dividends from subsidiaries, associates and other companies Net financial (income)/expense Income taxes (Gains)/Losses from disposals and other non- monetary items Cash flows from operating activities before changes in net current assets Increase/(Decrease) in provisions (Increase)/Decrease in trade receivables (Increase)/Decrease in financial and non-financial assets/liabilities Increase/(Decrease) in trade payables 2014 2013 of which with related parties of which with related parties 558,202,514 1,372,360,952 5.d 11,703,869 8,823,887 287,123,443 24,534,294 (44,451,090) 5,351,239 6 9 17 27 (1,818,272,847) (1,818,272,847) (2,028,038,570) (2,028,038,570) 623,640,479 524,292,099 821,498,632 (855,288,272) (282,250,536) (208,522,895) 535,184,427 199,541 (60,134,357) (55,266,390) (72,778,304) (45,341,313) 84,189,474 82,062,633 261,670,783 261,374,143 54,102,343 (233,456,295) 1,039,665,816 385,631,611 (73,343,882) (27,896,752) 18,740,838 14,716,332 Interest income and other financial income collected 774,010,519 470,312,293 884,976,129 536,801,979 Interest expense and other financial expense paid (1,369,270,987) (148,092,677) (1,558,640,462) (315,924,208) Dividends from subsidiaries, associates and other companies Income taxes paid (consolidated taxation mechanism) Cash flows from operating activities (a) Investments in property, plant and equipment and intangible assets Equity investments Cash flows from investing/disinvesting activities (b) Financial debt (new long-term borrowing) Financial debt (repayments and other net changes) Net change in long-term financial payables/ (receivables) Net change in short-term financial payables/ (receivables) Dividends paid Increase in capital and reserves due to exercise of stock options Cash flows from financing activities (c) Increase/(Decrease) in cash and cash equivalents (a+b+c) Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 6 1,818,272,847 1,818,272,847 2,028,038,570 2,028,038,570 (246,793,145) 925,766,422 (887,496,996) 1,668,835,061 10-11 13 (10,940,364) (10,406,565) (12,862,854) (12,765,252) (200,000) (200,000) (100,000,000) (100,000,000) 23 23 22 22 20 20 (11,140,364) 1,602,264,514 (1,103,409,596) (112,862,854) 2,651,827,471 (3,908,963,730) (2,500,000,000) (974,482,447) 138,110,953 27,332,965 4,632,587,974 2,682,474,947 (2,364,107,212) (1,278,001,143) (1,222,435,833) (1,410,503,669) - - 2,934,524,612 (4,893,636,187) 3,849,150,670 (3,337,663,980) 3,122,891,795 6,972,042,465 6,460,555,775 3,122,891,795 296 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSNotes to the financial statements 1 Form and content of the financial statements Basis of presentation The separate financial statements for the year ended De- cember 31, 2014 have been prepared in accordance with in- ternational accounting standards (International Accounting Standards - IAS and International Financial Reporting Stan- dards - IFRS) issued by the International Accounting Standards Board (IASB), the interpretations of the International Financial Enel SpA is a corporation (società per azioni) that operates in Reporting Interpretations Committee (IFRIC) and the Stan- the electricity and gas sector and has its registered office in ding Interpretations Committee (SIC), recognized in the Eu- Viale Regina Margherita 137, Rome, Italy. ropean Union pursuant to Regulation (EC) 1606/2002 and in In its capacity as holding company, Enel SpA sets the strategic effect as of the close of the year. All of these standards and objectives for the Group and its subsidiaries and coordinates interpretations are hereinafter referred to as the “IFRS-EU”. their activities. In providing management and coordination, The financial statements have also been prepared in confor- Enel SpA’s activities on behalf of the other Group companies mity with measures issued in implementation of Article 9, can be summarized as follows: > corporate governance; paragraph 3, of Legislative Decree 38 of February 28, 2005. The financial statements consist of the income statement, > extraordinary financing and financial planning; the statement of comprehensive income, the balance she- > tax planning and strategy; > risk assessment management; > legal policies; et, the statement of changes in shareholders’ equity and the statement of cash flows and the related notes. The assets and liabilities reported in the balance sheet are > guidelines on management training and compensation classified on a “current/non-current basis”, with separate policies; > government relations; > accounting guidelines; > strategic marketing. reporting of assets held for sale and liabilities included in disposal groups held for sale, if any. Current assets, which include cash and cash equivalents, are assets that are in- tended to be realized, sold or consumed during the normal Enel SpA performs, both directly and through the subsidiary operating cycle of the Company or in the 12 months fol- Enel Finance International NV, a centralized treasury function lowing the close of the financial year; current liabilities are for the Group (with the exception of the Endesa Group), the- liabilities that are expected to be settled during the normal reby ensuring that the companies have access to the money operating cycle of the Company or within the 12 months and capital markets. Furthermore, the Company, directly and following the close of the financial year. through Enel Insurance NV, provides insurance coverage. The income statement is classified on the basis of the na- As the Parent Company, Enel SpA has prepared the consoli- ture of costs, with separate reporting of net income/(loss) dated financial statements of the Enel Group for the year en- from continuing operations and net income/(loss) from any ding December 31, 2014, which form an integral part of this discontinued operations. Annual Report pursuant to Article 154-ter, paragraph 1, of the The indirect method is used for the statement of cash Consolidate Law on Financial Intermediation (Legislative De- flows, with separate reporting of any cash flows by ope- cree 58 of February 24, 1998). rating, investing and financing activities associated with On March 18, 2015, the Board authorized the publication of The income statement, the balance sheet and the state- these financial statements at December 31, 2014. ment of cash flows report transactions with related parties, These financial statements have undergone statutory audi- the definition of which is given in the section “Accounting ting by Reconta Ernst & Young SpA. policies and measurement criteria” for the consolidated fi- discontinued operations, if any. nancial statements. 297 The financial statements have been prepared on a going The financial statements provide comparative information concern basis using the cost method, with the exception of in respect of the previous period. items measured at fair value in accordance with IFRS-EU, as In addition, the income statement and the balance sheet explained in the measurement bases applied to each indivi- have been modified to improve the presentation of the im- dual item in the consolidated financial statements. pact of derivatives on performance and the financial po- The financial statements are presented in euro, the fun- sition. This involved the insertion of new accounts in the ctional currency of the Company, and the figures shown income statement and the balance sheet as well as the re- in the notes are reported in millions of euro unless stated classification of the figures for 2013 and at December 31, otherwise. 2013, in order to ensure comparability. 2 Accounting policies and measurement criteria The accounting policies and measurement criteria are the same as those adopted in the preparation of the consoli- dated financial statements, to which the reader should refer for more information, with the exception of those re- garding equity investments in subsidiaries and associated companies. Subsidiaries are all entities over which Enel SpA has control. The Company controls an entity when it is exposed to or has rights to variable returns deriving from its involvement and has the ability, through the exercise of its power over the investee, to affect its returns. Power is defined as ha- ving the concrete ability to direct the significant activities of the entity by virtue of the existence of substantive rights. Associates comprise those entities in which Enel SpA has a si- gnificant influence. Significant influence is the power to partici- pate in the financial and operating policy decisions of investees but not exercise control or joint control over those entities. Equity investments in subsidiaries and associates are me- asured at cost. Cost is adjusted for any impairment losses, which are reversed where the reasons for their recognition no longer obtain. The carrying amount resulting from the reversal may not exceed the original cost. Where the loss pertaining to Enel SpA exceeds the carrying amount of the investment and the Company is obligated to perform the legal or constructive obligations of the in- vestee or in any event to cover its losses, the excess with respect to the carrying amount is recognized in liabilities in the provisions for risks and charges. In the case of a disposal, without economic substance, of an investment to an entity under common control, any diffe- rence between the consideration received and the carrying amount of the investment is recognized in equity. Dividends from equity investments are recognized in pro- fit or loss when the shareholder’s right to receive them is established. Dividends and interim dividends payable to third parties are recognized as changes in equity at the date they are approved by the Shareholders’ Meeting and the Board of Directors, respectively. 3 Recent accounting standards For information on recent accounting standards, please refer to the corresponding section of the notes to the consolidated financial statements. 298 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSInformation on the income statement Revenue 4.a Revenue from services - €245 million “Revenue from services” is comprised of: Millions of euro Services Group companies Non-Group counterparties Total revenue from sales and services 2014 245 - 245 2013 268 1 269 Change (23) (1) (24) Revenue from services amounted to €245 million and es- combinations and reorganizations and to the reduction in sentially regard services provided by the Company to sub- revenues for management fees and service activities. sidiaries as part of its management and coordination fun- “Revenues from sales and services” break down by geo- ction and the rebilling of sundry expenses incurred by it but graphical area as follows: pertaining to the subsidiaries. > €206 million in Italy; The decrease of €24 million with respect to the previous > €34 million in the European Union; year is mainly due to the decline in rebilling to a number of > €5 million in non-EU Europe. Group companies for services associated with the business 4.b Other revenue and income - €1 million “Other revenue and income” came to €1 million in 2014, with regard to a reduction in rebillings for services of per- down from the previous year (€6 million in 2013), mainly sonnel seconded to other Group companies. Costs 5.a Electricity purchases and consumables - €2 million “Electricity purchases and consumables” came to €2 mil- lion), which, even though it expired on December 31, 2011, lion, down €4 million from the previous year, essentially provided for the revision within 3 years of the last invoice due to the recognition in 2013 of the price revision contai- date. ned in the long-term import contract with Alpiq (€4 mil- 5.b Services, leases and rentals - €185 million Costs for “Services, leases and rentals” break down as follows. Millions of euro Services Leases and rentals Total services, leases and rentals 2014 170 15 185 2013 212 18 230 Change (42) (3) (45) 299 Costs for services, totaling €170 million, concerned costs for by €19 million, mainly due to lower costs incurred in respect services provided by third parties in the amount of €126 mil- of IT services and training provided by Enel Italia Srl (€9 mil- lion (€149 million in 2013) and services provided by Group lion) and the decline in costs for personnel of Enel Distribu- companies totaling €44 million (€63 million in 2013). More zione SpA (€4 million) and Endesa (€2 million) seconded to specifically, the decrease in costs for services provided by Enel SpA. third parties, equal to €23 million, is mainly attributable to Costs for “Leases and rentals” mainly comprise costs for lea- the decline in advertising, communication and print cam- sing assets from the subsidiary Enel Italia Srl. They fell by €3 paign expenses (€12 million) and costs associated with the million compared with the previous year, essentially due to acquisition and disposal of companies (€8 million). lower property rental and leasing costs. Costs for services rendered by Group companies decreased 5.c Personnel - €120 million Personnel costs break down as follows. Millions of euro Wages and salaries Social security costs Post-employment benefits Other long-term benefits Other costs and other incentive plans Total Notes 24 24 25 2014 71 24 5 9 11 120 2013 Change 64 19 (1) 5 3 90 7 5 6 4 8 30 “Personnel” costs amounted to €120 million, an increase of The item “Post-employment benefits” includes cost for de- €30 million compared with 2013, essentially the result of fined benefit plans and for defined contribution plans. In the rise in “Wages and salaries” and the related social se- more detail, costs for defined contribution plans amounted curity costs (totaling €12 million), the increase in post-em- to €4 million for 2014, unchanged from 2013. ployment benefits (€6 million) and in the costs associated with the Long-Term Incentive Plan (€4 million), as well as The table below shows the average number of employees the recognition in 2013 of a non-current item pertaining to by category compared with the previous year, and the ac- the reversal of the provision for the transition-to-retirement tual number of employees at December 31, 2014. Average number Headcount 2013 Change at Dec. 31, 2014 123 338 332 - 793 20 (26) (8) - (14) 159 322 310 - 791 2014 143 312 324 - 779 plan (€6 million). Senior managers Middle managers Office staff Blue collar Total 300 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS5.d Depreciation, amortization and impairment losses - €543 million Millions of euro Depreciation Amortization Impairment losses Total 2014 3 9 531 543 2013 Change 1 8 - 9 2 1 531 534 “Depreciation, amortization and impairment losses”, Enel Produzione SpA (€512 million) and Enel Ingegneria e amounting to €543 million (€9 million in 2013), rose by Ricerca SpA (€19 million), as well as higher amortization and €534 million compared with the previous year, essentially depreciation. due to the impairment loss reported on the investments in 5.e Other operating expenses - €19 million “Other operating expenses” amounted to €19 million, up €5 Operating income amounted to a negative €623 million, million on the previous year, mainly due to a decline in rever- a deterioration of €549 million compared with the previous sals from the provision for litigation as compared with 2013. year. 6. Income from equity investments - €1,818 million Income from equity investments, amounting to €1,818 meetings of the subsidiaries and associates that were fully million, regards dividends approved by the shareholders’ distributed in 2014. Millions of euro Dividends from subsidiaries and associates Enel Produzione SpA Enel Distribuzione SpA Enelpower SpA Enel.Factor SpA Enel Italia Srl Enel Energia SpA Enel Servizio Elettrico SpA Enel Green Power SpA CESI SpA Dividends from other entities Emittenti Titoli SpA Income from equity investments 2014 1,818 223 1,373 1 3 7 16 85 109 1 - - 2013 2,028 222 1,625 3 4 40 44 - 89 1 - - Change (210) 1 (252) (2) (1) (33) (28) 85 20 - - - 1,818 2,028 (210) 301 7. Net financial income/(expense) from derivatives - €236 million This item breaks down as follows. Millions of euro Financial income from derivatives - on behalf of Group companies: income from derivatives at fair value through profit or loss - on behalf of Enel SpA: income from fair value hedge derivatives income from cash flow hedge derivatives income from derivatives at fair value through profit or loss Total financial income from derivatives Financial expense on derivatives - on behalf of Group companies: expense on derivatives at fair value through profit or loss - on behalf of Enel SpA: expense on cash flow hedge derivatives expense on derivatives at fair value through profit or loss Total financial expense from derivatives TOTAL NET FINANCIAL INCOME/(EXPENSE) FROM DERIVATIVES 2014 1,726 1,726 464 39 415 10 2,190 1,737 1,737 217 167 50 1,954 236 2013 Change 1,342 1,342 150 14 98 38 1,492 1,335 1,335 266 239 27 1,601 (109) 384 384 314 25 317 (28) 698 402 402 (49) (72) 23 353 345 Net income from derivatives amounted to €236 million (net net financial expense on derivatives at fair value through financial expense of €109 million in 2013) and essentially profit or loss (€51 million), entered into on behalf of Enel reflects the net financial income from derivatives entered SpA and to hedge interest rates and exchange rates. into on behalf of Enel SpA. The increase of €345 million over 2013 was mainly caused by the increase in net income from For more details on derivatives, please see note 31 “Finan- cash flow hedge and fair value hedge derivatives (respecti- cial instruments” and note 33 “Derivatives and hedge ac- vely, €389 million and €25 million), partly offset by higher counting”. 302 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS8. Other net financial income/(expense) - €(1,155) million This item breaks down as follows. Millions of euro Other financial income Interest income at the effective interest rate Interest income at effective interest rate on long-term financial assets Interest income at effective interest rate on short-term financial assets Total Positive exchange rate differences Other income Total other financial income Other financial expense Interest expense at the effective interest rate Interest expense on bank borrowings Interest expense on bonds Interest expense on other borrowings Total Negative exchange rate differences Interest expense on post-employment and other employee benefits Fair value hedge charges - adjustment of hedged items Other financial expense Total other financial expense TOTAL OTHER NET FINANCIAL INCOME/(EXPENSE) 2014 2013 Change 6 206 212 10 - 222 67 968 3 1,038 293 9 26 11 1,377 (1,155) 20 232 252 60 8 320 96 746 125 967 8 13 14 (1) 1,001 (681) (14) (26) (40) (50) (8) (98) (29) 222 (122) 71 285 (4) 12 12 376 (474) Net other financial expense amounted to €1,155 mil- net exchange rate differences (a negative €335 million), hi- lion, mainly reflecting the interest expense on borrowings gher interest expense on borrowings (€71 million), as well (€1,038 million) and negative exchange rate differences as lower interest income on financial assets (totaling €40 (€293 million), partly offset by short and long-term interest million). income (totaling €212 million). The increase in net financial These changes reflect movements in interest and exchange expense of €474 million over 2013 was primarily caused by rates, as well as changes in debt during the year. 303 9. Income taxes - €282 million Millions of euro Current taxes Deferred tax income Deferred tax expense Total 2014 (299) 8 9 (282) 2013 (216) 10 (2) (208) Change (83) (2) 11 (74) Income taxes for 2014 showed a creditor position of €282 two years in the amount of dividends received from subsi- million, mainly due to the reduction in taxable income for diaries and the non-deductibility of the impairment losses IRES purpose as a result of the exclusion of 95% of the divi- on equity investments recognized in 2014 and meeting the dends received from the subsidiaries and the deductibility requirements of Article 87 of the Uniform Income Tax Code. of Enel SpA’s interest expense for the Group’s consolidated taxation mechanism in accordance with corporate income The following table reconciles the theoretical tax rate with tax law (Article 96 of the Uniform Income Tax Code). the effective tax rate. This essentially reflected both the difference between the Millions of euro Income before taxes Theoretical corporate income taxes (IRES) (27.5%) Tax decreases: - dividends from equity investments - prior-year writedowns - uses of provisions - other Tax increases: - writedowns for the year - accruals to provisions - prior-year expense - other Total current income taxes (IRES) IRAP Difference on estimated income taxes from prior years Total deferred tax items - of which changes for the year - of which changes in estimates for previous years 2014 276 % rate 76 27.5% -172.1% - -5.1% -8.0% 55.1% 3.6% 1.1% 1.1% -96.7% - -11.6% 6.2% (475) - (14) (22) 152 10 3 3 (267) - (32) 17 9 8 2013 1,164 320 (530) (1) (17) - - 9 3 9 % rate 27.5% -45.5% -0.1% -1.5% - - 0.8% 0.3% 0.8% (207) -17.8% - -0.8% 0.7% - (9) 8 7 1 TOTAL INCOME TAXES (282) -102.2% (208) -17.9% 304 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS Information on the balance sheet Assets 10. Property, plant and equipment - €8 million Developments in property, plant and equipment for 2013 and 2014 are set out in the table below. Millions of euro Land Buildings Plant and machinery Industrial and commercial equipment Other assets Leasehold improvements Cost Accumulated depreciation Balance at Dec. 31, 2012 Capital expenditure Depreciation Total changes Cost Accumulated depreciation Balance at Dec. 31, 2013 Capital expenditure Depreciation Total changes Cost Accumulated depreciation Balance at Dec. 31, 2014 1 - 1 - - - 1 - 1 - - - 1 - 1 3 (2) 1 - - - 3 (2) 1 - - - 3 (2) 1 3 (3) - - - - 3 (3) - - - - 3 (3) - 5 (5) - - - - 5 (5) - - - - 5 (5) - 19 (18) 1 - - - 19 (18) 1 - - - 19 (18) 1 Total 57 (52) 5 5 (1) 4 62 26 (24) 2 5 (1) 4 31 (25) (53) 6 2 (3) (1) 33 (28) 5 9 2 (3) (1) 64 (56) 8 “Property, plant and equipment” totaled €8 million, a de- preciation for the period (€3 million). “Leasehold improve- crease of €1 million compared with the previous year, es- ments” mainly regard the renovation work on an number of sentially attributable to the negative net balance between buildings housing Enel SpA’s headquarters. capital expenditure during the year (€2 million) and de- 305 11. Intangible assets - €11 million “Intangible assets”, all of which have a finite useful life, break down as follows. Millions of euro Balance at Dec. 31, 2012 Capital expenditure Assets entering service Amortization Total changes Balance at Dec. 31, 2013 Capital expenditure Assets entering service Amortization Total changes Balance at Dec. 31, 2014 Industrial patents and intellectual property rights Assets under development and advances 11 6 1 (8) (1) 10 - 9 (9) - 10 1 1 (1) - - 1 9 (9) - - 1 Total 12 7 - (8) (1) 11 9 - (9) - 11 “Industrial patents and intellectual property rights” relate ly in respect of software systems to manage consolidated mainly to costs incurred in purchasing software as well as reporting, risk and centralized finance systems. related evolutionary maintenance. Amortization is calcula- “Assets under development and advances”, amounting to ted on a straight-line basis over the item’s residual useful life €1 million, also remained the same as in 2013 and essen- (three years on average). tially regard expenditure on centralized finance systems, the The amount of the item remained stable as compared with implementation of risk measurement models and improve- the previous year since the amortization for the year (€9 mil- ments in the Parent Company’s reporting management and lion) was entirely offset by assets entering service, essential- accounting systems. 306 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS12. Deferred tax assets and liabilities - €383 million and €252 million Changes in “Deferred tax assets” and “Deferred tax liabilities”, grouped by type of timing difference, are shown below. Millions of euro Deferred tax assets Nature of temporary differences: - accruals to provisions for risks and charges and impairment losses - derivatives - other items Total deferred tax assets Deferred tax liabilities Nature of temporary differences: - measurement of financial instruments - other items Total deferred tax liabilities Excess net deferred IRES tax assets after any offsetting Excess net deferred IRAP tax liabilities after any offsetting at Dec. 31, 2013 Total 36 199 44 279 130 - 130 171 (22) Increase/ (Decrease) taken to income statement Increase/ (Decrease) taken to equity at Dec. 31, 2014 (5) - (3) (8) - 9 9 (3) 115 - 112 113 - 113 Total 28 314 41 383 243 9 252 172 (41) “Deferred tax assets” totaled €383 million (€279 million at largely to deferred taxes in respect of the fair value measu- December 31, 2013), an increase of €104 million compared rement of cash flow hedges (€113 million). with the previous year, mainly attributable to deferred tax The amount of deferred tax liabilities was determined by assets in respect of the fair value measurement of cash flow applying the rates of 27.5% for IRES and 5.57% for IRAP hedges (€115 million) and the reversal of a number of items (taking account of regional surtaxes). The amount of defer- associated with accruals to provisions for risks and charges red tax assets was determined by applying the IRES rate of and impairment losses (€5 million). 27.5% only, as in the coming years we do not expect to earn “Deferred tax liabilities” totaled €252 million, an increase income subject to IRAP sufficient to reverse the temporary of €122 million (€130 million at December 31, 2013), due deductible differences. 307 13. Equity investments - €38,754 million The table below shows the changes during the year for each investment, with the corresponding values at the beginning and end of the year, as well as the list of investments held in subsidiaries, associates and other companies. Millions of euro Original cost (Writedowns)/ evaluations Other changes - IFRIC 11 and IFRS 2 at Dec. 31, 2013 Carrying amount % holding Value adjustments Original cost Revaluations 11 and IFRS 2 Carrying amount % holding (Writedowns)/ Other changes - IFRIC Changes in 2014 at Dec. 31, 2014 A) Subsidiaries Enel Produzione SpA Enel Ingegneria e Ricerca SpA Enel Distribuzione SpA Enel Servizio Elettrico SpA Enel Trade SpA Enel Green Power SpA Enel Investment Holding BV Enelpower SpA Enel Energia SpA 4,892 46 4,054 110 901 3,640 8,498 189 1,321 Enel Iberoamérica SL 18,300 - - - - - - (4,473) (159) (8) - - - (41) (54) - - 4 1 2 - 1 2 - - - - - - 3 - - - (4,735) 13 - - (1) - - (1) - - - - - - 4,896 47 4,056 110 902 3,642 4,025 30 1,313 18,300 18 5 487 16 1,414 - 39,261 23 23 4 1 - 5 100.0 100.0 100.0 100.0 100.0 68.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 42.7 4.3 10.0 1.0 18 5 525 70 1,414 - 43,983 23 23 5 1 - 6 Enel.Factor SpA Enel Sole Srl Enel Italia Srl Enel.Newhydro Srl Enel Finance International NV Enel Oil & Gas SpA Total C) Associates CESI SpA Total D) Other companies Elcogas SA Emittenti Titoli SpA Idrosicilia SpA Total TOTAL 308 44,012 (4,736) 13 39,289 44,012 13 38,754 (512) (19) - - - - - - - - - - - - - - - - - - (4) (4) (535) 4,892 46 4,054 110 901 3,640 8,498 189 1,321 18,300 18 5 525 70 1,414 - 43,983 23 23 5 1 - 6 (512) (19) (4,473) (159) (8) (41) (54) - - - - - - - - - - - - - (5) (5) (5,271) (531) (5,266) 13 4 1 2 - 1 2 3 - - - - - - - - - - - - - - - 4,384 28 4,056 110 902 3,642 4,025 30 1,313 18,300 18 5 487 16 1,414 - 38,730 23 23 - 1 - 1 100.0 100.0 100.0 100.0 100.0 68.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 42.7 4.3 10.0 1.0 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS 13. Equity investments - €38,754 million The table below shows the changes during the year for each investment, with the corresponding values at the beginning and end of the year, as well as the list of investments held in subsidiaries, associates and other companies. Enel Iberoamérica SL 18,300 A) Subsidiaries Enel Produzione SpA Enel Ingegneria e Ricerca SpA Enel Distribuzione SpA Enel Servizio Elettrico SpA Enel Trade SpA Enel Green Power SpA Enel Investment Holding BV Enelpower SpA Enel Energia SpA Enel.Factor SpA Enel Sole Srl Enel Italia Srl Enel.Newhydro Srl Enel Finance International NV Enel Oil & Gas SpA Total C) Associates CESI SpA Total D) Other companies Elcogas SA Emittenti Titoli SpA Idrosicilia SpA Total TOTAL 4,892 46 4,054 110 901 3,640 8,498 189 1,321 18 5 525 70 1,414 - 43,983 23 23 5 1 - 6 - - - - - - - - - - - - - - - (4,473) (159) (8) (41) (54) (1) (1) (4,736) (4,735) 13 4 1 2 - 1 2 3 - - - - - - - - - - - - - - - 4,896 47 4,056 110 902 3,642 4,025 30 1,313 18,300 18 5 487 16 1,414 - 39,261 23 23 4 1 - 5 100.0 100.0 100.0 100.0 100.0 68.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 42.7 4.3 10.0 1.0 44,012 13 39,289 Millions of euro Original cost evaluations 11 and IFRS 2 Carrying amount % holding Value adjustments Original cost (Writedowns)/ Other changes - IFRIC (Writedowns)/ Revaluations Other changes - IFRIC 11 and IFRS 2 Carrying amount % holding at Dec. 31, 2013 Changes in 2014 at Dec. 31, 2014 (512) (19) - - - - - - - - - - - - - - (531) - - (4) - - (4) (535) 4,892 46 4,054 110 901 3,640 8,498 189 1,321 18,300 18 5 525 70 1,414 - 43,983 23 23 5 1 - 6 (512) (19) - - - - (4,473) (159) (8) - - - (41) (54) - - 4 1 2 - 1 2 - - - - - - 3 - - - (5,266) 13 - - (5) - - (5) - - - - - - 4,384 28 4,056 110 902 3,642 4,025 30 1,313 18,300 18 5 487 16 1,414 - 38,730 23 23 - 1 - 1 44,012 (5,271) 13 38,754 100.0 100.0 100.0 100.0 100.0 68.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 42.7 4.3 10.0 1.0 309 The table below reports changes in equity investments in 2014. Millions of euro Increases: Incorporation of Enel Oil & Gas SpA Total increases Decreases: Writedown of equity investment in Enel Produzione SpA Writedown of equity investment in Enel Ingegneria e Ricerca SpA Writedown of equity investment in Elcogas SA Total decreases NET CHANGE - - (512) (19) (4) (535) (535) The net decrease in the value of equity investments in sub- gas SA, which has been in liquidation since January 1, sidiaries, associates and other companies is attributable to: 2015, for €4 million; > the writedown of the equity investment in Enel Produzio- > the incorporation of Enel Oil & Gas SpA on November 26, ne SpA in the amount of €512 million, to take account of 2014, through the contribution of €200,000 towards the the ongoing impact of the economic crisis in Italy and in share capital. consideration of the negative impact of such crisis on the traditional electricity generation sector; The share certificates for Enel SpA’s investments in Italian > the writedown of the equity investment in Enel Ingegne- subsidiaries are held in custody at Monte dei Paschi di Siena. ria e Ricerca SpA in the amount of €19 million, to take The following table reports the share capital and sharehol- account of the losses posted by the company and the ders’ equity of the investments in subsidiaries, associates presumable recovery of the recognized cost; and other companies at December 31, 2014. > to the total writedown of the equity investment in Elco- 310 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSRegistered office Currency Share capital (euro) Shareholders’ equity (millions of euro) Prior year income/ (loss) (millions of euro) Carrying amount (millions of euro) % holding A) Subsidiaries Enel Produzione SpA Rome Euro 1,800,000,000 4,039 (1,793) 100.0 4,384 Enel Ingegneria e Ricerca SpA Enel Distribuzione SpA Enel Servizio Elettrico SpA Enel Trade SpA Enel Green Power SpA (1) Enel Investment Holding BV (1) Enelpower SpA Enel Energia SpA Enel Iberoamérica SL Enel.Factor SpA Enel Sole Srl Enel Italia Srl Enel.Newhydro Srl Enel Finance International NV Enel Oil & Gas SpA C) Associates CESI SpA D) Other companies Rome Rome Rome Rome Rome Amsterdam Milan Rome Madrid Rome Rome Rome Rome Amsterdam Rome Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro 30,000,000 2,600,000,000 10,000,000 90,885,000 1,000,000,000 1,593,050,000 2,000,000 302,039 500,000,000 12,500,000 4,600,000 50,000,000 1,000,000 1,478,810,370 200,000 Milan Euro 8,550,000 Elcogas SA (2) Puertollano Emittenti Titoli SpA Idrosicilia SpA (3) Milan Milan Euro Euro Euro 20,242,260 4,264,000 22,520,000 26 4,365 98 357 8,929 3,673 30 1,214 23,546 48 56 420 18 722 - 95 (8) 16 40 (1) 1,278 5 (235) 440 61 - 160 21 4 7 9 1 32 - 2 (18) 10 2 100.0 100.0 100.0 100.0 68.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 42.7 4.3 10.0 1.0 28 4,056 110 902 3,642 4,025 30 1,313 18,300 18 5 487 16 1,414 - 23 - 1 - (1) The figures for shareholders’ equity and the results for the period refer to the Group. (2) The figures for share capital, shareholders’ equity and net income refer to the financial statements at December 31, 2013. (3) The figures for share capital, shareholders’ equity and net income refer to the financial statements at December 31, 2012. The carrying amounts of the equity investments in Enel Fi- of net actuarial losses and that necessarily had an impact nance International NV, Enel Italia Srl, Enel Servizio Elettri- on the companies’ shareholders’ equity. As these losses co SpA, Enel Trade SpA, Enel Investment Holding BV, Enel are not monetary in nature, they will be recovered in fu- Produzione SpA and Enel Energia SpA are considered to ture years with no cash outflow for the subsidiaries; be recoverable even though they individually exceed the > in the cases of Enel Trade SpA and Enel Investment Hol- respective shareholders’ equity at December 31, 2014. This ding BV, given that the expected future cash flows sug- circumstance is not felt to represent an impairment loss gest a higher value than that reflected in the carrying in respect of the investment but rather a temporary mi- amount of shareholders’ equity (which in certain cases smatch between the two amounts. More specifically: reflects unfavorable exchange rates), the value of the > in the case of Enel Finance International NV, it is due investment will be fully recovered and the mismatch essentially to a decline in the fair value of a number of between the two amounts is only temporary. balance sheet items that are reflected in shareholders’ equity; “Equity investments in other companies” at December 31, > as to Enel Italia Srl and Enel Servizio Elettrico SpA, it is at- 2014 all regard unlisted companies and are measured at tributable to the retroactive application of “IAS 19 - Em- cost, as the fair value cannot be reliably determined. ployee benefits” in 2013, which involved the recognition 311 Millions of euro Equity investments in unlisted companies measured at cost Elcogas SA Emittenti Titoli SpA Idrosicilia SpA at Dec. 31, 2014 at Dec. 31, 2013 1 - 1 - 5 4 1 - 14. Derivatives - €1,979 million, €280 million, €2,484 million, €359 million Millions of euro Non-current Current at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Derivative financial assets Derivative financial liabilities 1,979 2,484 1,355 2,098 280 359 177 237 For more details about the nature of derivative financial assets and liabilities, please see notes 31 “Financial instruments” and 33 “Derivative and hedge accounting”. 15. Other non-current financial assets - €146 million The aggregate is composed of the following: Millions of euro Prepaid expenses Other non-current financial assets included in net financial debt 15.1 Total Notes at Dec. 31, 2014 at Dec. 31, 2013 Change 25 121 146 43 122 165 (18) (1) (19) “Prepaid expenses” are essentially accounted for by residual 2013 by the same companies with a pool of banks in the transaction costs on the €10 billion revolving credit facility amount of €9 billion. The item reports the non-current por- agreed on April 19, 2010 between Enel, Enel Finance In- tion of those costs and their reversal through profit or loss ternational and Mediobanca, as well as those in respect of depends on the type of fee involved and the maturity of the the Forward Start Facility Agreement signed on February 8, credit line. 312 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS15.1 Other non-current financial assets included in net financial debt - €121 million Millions of euro Financial receivables Due from subsidiaries Due from others Other financial receivables Total Notes 31.1.1 at Dec. 31, 2014 at Dec. 31, 2013 Change 117 - 4 121 117 2 3 122 - (2) 1 (1) Financial receivables due from subsidiaries, amounting the related finance costs and the income and expenses ac- to €117 million, refer to receivables in respect of the as- crued on the interest-rate risk hedging contracts, as well as sumption by Group companies of their share of financial the repayment of the principal upon maturity of each loan. debt. The terms of the agreements call for the rebilling of 16. Other non-current assets - €467 million This item can be broken down as follows. Millions of euro Receivable from subsidiaries for assumption of supplementary pension plan liabilities Tax receivables Other long-term receivables: - other receivables Total TOTAL OTHER NON-CURRENT ASSETS at Dec. 31, 2014 at Dec. 31, 2013 173 290 4 4 467 195 284 4 4 483 Change (22) 6 - - (16) The item “Receivable from subsidiaries for assumption “Tax receivables” regard the tax credit in respect of the claim of supplementary pension plan liabilities” in the amount for reimbursement submitted by Enel SpA on its own be- of €173 million refers to receivables in respect of the as- half for 2003 and on its own behalf and as the consolida- sumption by Group companies of their share of the supple- ting company for 2004-2011 for excess income tax paid as a mentary pension plan. The terms of the agreement state result of not partially deducting IRAP in calculating taxable that the Group companies concerned are to reimburse the income for IRES purposes. This item increased by €6 million costs of extinguishing defined benefit obligations of the over the previous year due to the recognition of accrued in- Parent Company, which are recognized under “Post-em- terest for the period. ployment and other employee benefits”. On the basis of actuarial forecasts made using current as- “Other receivables” amounted to €4 million and essential- sumptions, the portion due beyond five years of the “Recei- ly regard the receivable due from Enel Ingegneria e Ricerca vables from subsidiaries for assumption of supplementary SpA for the sale in 2011 of the interest held in Sviluppo Nu- pension plan liabilities” came to €111 million (€130 million cleare Italia Srl. at December 31, 2013). 313 17. Trade receivables - €132 million The aggregate is composed of the following. Millions of euro Customers: - other receivables Total Trade receivables due from subsidiaries TOTAL at Dec. 31, 2014 at Dec. 31, 2013 Change 6 6 126 132 8 8 208 216 (2) (2) (82) (84) “Trade receivables due from subsidiaries” primarily regard the revenues associated with those services, as well as an the management and coordination services and other acti- improvement in collection times. vities performed by Enel SpA on behalf of Group companies. Trade receivables due from subsidiaries break down as fol- The decrease of €82 million is linked with developments in lows. at Dec. 31, 2014 at Dec. 31, 2013 Change 1 18 7 7 - (1) 3 21 - 17 6 - 1 2 16 16 (2) 4 - 10 126 1 6 20 4 1 2 2 34 21 11 18 2 1 2 14 15 5 9 8 32 208 - 12 (13) 3 (1) (3) 1 (13) (21) 6 (12) (2) - - 2 1 (7) (5) (8) (22) (82) Millions of euro Subsidiaries Enel Iberoamérica SL Enel Produzione SpA Enel Distribuzione SpA Enel Green Power SpA Endesa SA Enel Servizio Elettrico SpA Enel Trade SpA Enel Energia SpA Enel Italia Srl Slovenské elektrárne AS Enel.si Srl Enel Investment Holding BV Enel Green Power North America Inc. Enel Sole Srl Enel Russia OJSC Endesa Distribución Eléctrica SL Endesa Generación SA Enel Romania Srl Unión Eléctrica de Canarias Generación SAU Other Total 314 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSTrade receivables by geographical area are shown below. Millions of euro Italy EU Non-EU Europe Other Total at Dec. 31, 2014 at Dec. 31, 2013 Change 66 47 18 1 132 109 75 26 6 216 (43) (28) (8) (5) (84) 18. Tax receivables - €625 million Income tax receivables at December 31, 2014 amounted to dit for current 2014 taxes (€267 million) and the receivable €625 million and essentially regard the Company’s IRES cre- with respect to consolidated IRES for 2014 (€354 million). 19. Other current financial assets - €5,040 million This item can be broken down as follows. Millions of euro Notes at Dec. 31, 2014 at Dec. 31, 2013 Change Other current financial assets included in net financial debt Other sundry current financial assets 19.1 Total 4,693 347 5,040 4,930 350 5,280 (237) (3) (240) 19.1 Other current financial assets included in net financial debt - €4,693 million Notes at Dec. 31, 2014 at Dec. 31, 2013 Change Millions of euro Financial receivables due from Group companies: - short-term financial receivables (intercompany accounts) - short-term loan to Enel Finance International NV - current portion of receivables for assumption of loans Financial receivables due from others: - other financial receivables 32.1.1 32.1.1 32.1.1 - cash collateral for margin agreements on OTC derivatives 32.1.1 Total 4,018 - - 3 672 4,693 3,391 500 21 - 1,018 4,930 627 (500) (21) 3 (346) (237) “Other current financial assets included in net financial nies” (€4,018 million) and “Financial receivables due from debt”, amounting to €4,693 million at December 31, 2014, others” (€675 million). refer to “Financial receivables due from Group compa- “Financial receivables due from Group companies” increa- 315 sed by €106 million over December 31, 2013, due to the rise “Financial receivables due from others”, amounting to in short-term financial receivables due from Group compa- €675 million, decreased by €343 million compared with nies on the intercompany current account (€627 million), December 31, 2013, essentially as a result of the reduction partly offset by the repayment by Enel Finance Internatio- in cash collateral paid to counterparties for OTC derivatives nal NV under the Intercompany Revolving Facility Agree- on interest rates and exchange rates. ment granted to it in 2013 (€500 million). 20. Cash and cash equivalents - €6,972 million Cash and cash equivalents are detailed in the following table. Millions of euro Bank and post office deposits Cash and cash equivalents on hand Total at Dec. 31, 2014 at Dec. 31, 2013 6,972 - 6,972 3,123 - 3,123 Change 3,849 - 3,849 Cash and cash equivalents amounted to €6,972 million, an tions relating to the optimization of the Group’s organiza- increase of €3,849 million compared with December 31, tional structure on the centralized treasury functions, as well 2013, mainly due to the impact of extraordinary transac- as lower tax payments for 2014. 21. Other current assets - €244 million At December 31, 2014, the item broke down as follows. Millions of euro Tax receivables Other receivables due from Group companies Receivables due from others Total at Dec. 31, 2014 at Dec. 31, 2013 Change 33 208 3 244 122 196 1 319 (89) 12 2 (75) “Other current assets” fell by €75 million as compared with vables for previous years (€24 million) and the net creditor December 31, 2013. position with respect to tax authority, in 2013, with regard to IRES receivables for the companies that participate in the “Tax receivables” amounted to €33 million, primarily ac- consolidated taxation mechanism (€20 million). counted for by the VAT credit for the Group (€25 million) “Other receivables due from Group companies” mainly com- and other receivables with respect to prior-year income prise the VAT credit in respect of the companies participa- taxes (€7 million). The decrease of €89 million on the pre- ting in the Group VAT mechanism (€51 million) and IRES re- vious year is essentially due to the decline in the VAT credit ceivables due from the Group companies that participate in for the Group (€39 million), the collection of the IRAP recei- the consolidated taxation mechanism (€116 million). 316 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS Liabilities 22. Shareholders’ equity - €25,136 million Shareholders’ equity amounted to €25,136 million, down total of €1,223 million), as approved by the Shareholders’ €731 million compared with December 31, 2013. The de- Meeting on May 22, 2014, offset in part by net income for crease is essentially attributable to the distribution of the the year (€492 million). dividend for 2013 in the amount of €0.13 per share (for a Share capital - €9,403 million At December 31, 2014 (as at December 31, 2013), the share shareholders held more than 2% of the total share capital, capital of Enel SpA – considering that no options were exer- apart from the Ministry for the Economy and Finance, which cised as part of stock option plans in 2014 – amounted to holds 31.24%, CNP Assurances (which holds a 3.67% stake, €9,403,357,795 fully subscribed and paid up, represented held as at June 26, 2014 for asset management purposes) by 9,403,357,795 ordinary shares with a par value of €1.00 and the People’s Bank of China (2.07%). each. On February 26, 2015, the Ministry for the Economy and Fi- At the same date, based on the shareholders register and nance sold an interest of 5.74% in the Company. Accordin- the notices submitted to CONSOB and received by the Com- gly, following that operation, the Ministry’s holding in the pany pursuant to Article 120 of Legislative Decree 58 of Fe- Company has decreased from 31.24% to 25.50%. bruary 24, 1998, as well as other available information, no Other reserves - €9,114 million Share premium reserve - €5,292 million The share premium reserve did not change compared with laws for new works (pursuant to Article 55 of Presidential De- cree 917/1986), which is recognized in equity in order to take the previous year. advantage of tax deferment benefits. It also includes €29 mil- lion in respect of the stock option reserve and €20 million for Legal reserve - €1,881 million The legal reserve, equal to 20.0% of share capital, did not other reserves. change compared with the previous year. Reserve pursuant to Law 292/1993 - €2,215 million The reserve shows the remaining portion of the value Reserve from measurement of financial in- struments - €(332) million At December 31, 2014, the item was entirely represented by the reserve from measurement of cash flow hedge de- rivatives, a negative value of €332 million (net of the posi- adjustments carried out when Enel was transformed from a tive tax effect of €70 million). public entity to a joint-stock company. In the case of a distribution of this reserve, the tax treatment for capital reserves as defined by Article 47 of the Uniform Income Tax Code shall apply. Reserve from remeasurement of defined benefit obligation - €(10) million At December 31, 2014, the defined benefit plan reserve amounted to €10 million (net of the positive tax effect of €4 Other sundry reserves - €68 million Other reserves include €19 million related to the reserve for million). The reserve includes all actuarial gains and losses re- cognized directly in equity, as the corridor approach is no lon- capital grants, which reflects 50% of the grants received from ger permitted under the revised version of “IAS 19 - Employee Italian public entities and EU bodies in application of related benefits”. 317 The table below provides a breakdown of changes in the the reserve from measurement of defined benefit plan lia- reserve from measurement of financial instruments and bilities/assets in 2013 and 2014. Gains/ (Losses) recognized in equity for the year Gross released to income statement at Jan. 1, 2013 Taxes at Dec. 31, 2013 Gains/ (Losses) recognized in equity for the year Gross released to income statement Taxes at Dec. 31, 2014 (351) (28) 141 (21) (259) 173 (248) 2 (332) (13) (5) - 1 (17) 10 - (3) (10) (364) (33) 141 (20) (276) 183 (248) (1) (342) Millions of euro Reserve from measurement of cash flow hedge instruments Gains/(Losses) from the remeasurement of net liabilities/ (assets) for defined benefit plans Gains/(Losses) recognized directly in equity Retained earnings - €6,061 million For 2014, the item shows an increase of €149 million, essentially attributable to retained net income for the previous year, as approved by the Shareholders’ Meeting of May 22, 2014. Net income - €558 million Net income for 2014 amounted to €558 million. The table below shows the availability of shareholders’ equity for distribution. Millions of euro Share capital Capital reserves: - share premium reserve Income reserves: - legal reserve - reserve pursuant to Law 292/1993 - reserve from measurement of financial instruments - reserve for capital grants - stock option reserve - reserve from remeasurement of defined benefit plan liabilities - other Retained earnings/(loss carried forward) Total amount available for distribution at Dec. 31, 2014 Possible uses Amount available 9,403 5,292 1,881 2,215 (332) 19 29 (10) 20 6,061 24,578 ABC B ABC ABC ABC ABC ABC 5,292 2,215 19 29 (1) (2) 20 6,061 13,636 13,633 A: for capital increases. B: to cover losses. C: for distribution to shareholders. (1) Regards lapsed options. (2) Not distributable in the amount of €3 million regarding options granted by the Parent Company to employees of subsidiaries that have lapsed. 318 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSThere are no restrictions on the distribution of the reserves Enel’s goals in capital management are focused on the cre- pursuant to Article 2426, paragraph 1(5) of the Italian Civil ation of value for shareholders, safeguarding the interests Code since there are no unamortized start-up and expan- of stakeholders and ensuring business continuity, as well sion costs or research and development costs, or departu- as on maintaining sufficient capitalization to ensure cost- res pursuant to Article 2423, paragraph 4, of the Civil Code. effective access to outside sources of financing, so as to adequately support growth in the Group’s business. 22.1 Dividends The table below shows the dividends paid by the Company in 2013 and 2014. Amount distributed (millions of euro) Net dividend per share (euro) Dividends paid in 2013 Dividends for 2012 Interim dividend for 2013 Special dividends Total dividends paid in 2013 Dividends paid in 2014 Dividends for 2013 Interim dividend for 2014 Special dividends Total dividends paid in 2014 1,410 - - 1,410 1,223 - - 1,223 0.15 - - 0.15 0.13 - - 0.13 The dividend for 2014, equal to €0.14 per share, for a total take account of the effect of the distribution of the 2014 of €1,316 million, was proposed at the Shareholders’ Me- dividend to shareholders. eting of May 28, 2015. These financial statements do not 22.2 Capital management The Company’s objectives for managing capital compri- In this context, the Company manages its capital structure se safeguarding the business as a going concern, creating and adjusts that structure when changes in economic con- value for stakeholders and supporting the development of ditions so require. There were no substantive changes in the Group. In particular, the Company seeks to maintain an objectives, policies or processes in 2014. adequate capitalization that enables it to achieve a satisfac- To this end, the Company constantly monitors deve- tory return for shareholders and ensure access to external lopments in the level of its debt in relation to equity. The sources of financing, in part by maintaining an adequate situation at December 31, 2014 and 2013 is summarized in rating. Millions of euro the following table. at Dec. 31, 2014 at Dec. 31, 2013 Change Non-current financial position Net current financial position Non-current financial receivables and long-term securities Net financial debt Shareholders’ equity Debt/equity ratio (17,288) 4,556 121 (12,611) 25,136 (0.50) (17,764) 5,339 122 (12,303) 25,867 (0.48) 476 (783) (1) (308) (731) (0.02) 319 23. Borrowings - €17,288 million, €2,363 million, €4,746 million Millions of euro Non-current Current at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Long-term borrowings Short-term borrowings 17,288 - 17,764 - 2,363 4,746 1,061 1,653 For more details about the nature of borrowings, please see note 31 “Financial instruments”. 24. Post-employment and other employee benefits - €302 million The Company provides its employees with a variety of be- benefits under defined benefit plans and other long-term nefits, including termination benefits, additional months’ benefits to which employees are entitled under statute, pay, indemnities in lieu of notice, loyalty bonuses for achie- contract or other form of employee incentive scheme. vement of seniority milestones, supplementary pension These obligations, in accordance with IAS 19, were determi- plans, supplementary healthcare plans, residential electrici- ned using the projected unit credit method. ty discounts (limited to retired personnel only), additional The following table reports the change during the year in indemnity for FOPEN pension contributions, FOPEN pension the defined benefit obligation, as well as a reconciliation of contributions in excess of deductible amount and personnel the defined benefit obligation with the obligation recogni- incentive plans. zed in the balance sheet at December 31, 2014 and at De- The item includes accruals made to cover post-employment cember 31, 2013. Millions of euro 2014 2013 Pension benefits Electricity discount Health insurance Other benefits Total Pension benefits Electricity discount Health insurance Other benefits Total 273 11 - 8 (7) (3) - (29) - 242 - - - 1 - (1) - 11 37 - 1 (2) 1 - (2) - 35 15 10 - - - - (11) - 336 10 9 (9) (1) - (43) - 14 302 296 - 9 4 - (6) (29) (1) 273 9 - - 2 1 - (1) - 11 39 - 1 (1) - - (2) - 37 14 358 5 - - - - (4) - 5 10 5 1 (6) (36) (1) 15 336 CHANGES IN ACTUARIAL OBLIGATION Actuarial obligation at January 1 Current service cost Interest expense Actuarial (gains)/losses arising from changes in financial assumptions Experience adjustments (Gains)/Losses arising from settlements Other payments Other changes Actuarial obligation at December 31 320 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSMillions of euro (Gains)/Losses charged to profit or loss Service cost Interest expense (Gains)/Losses arising from settlements Total Millions of euro Remeasurement (gains)/losses in OCI Actuarial (gains)/losses on defined benefit plans Total 2014 10 9 - 19 2014 (10) (10) 2013 5 10 (6) 9 2013 6 6 The current service cost for employee benefits in 2014 The main actuarial assumptions used to calculate the liabilities amounted to €10 million, recognized under personnel costs (€6 arising from employee benefits, which are consistent with tho- million in 2013), while the interest cost from the accretion of the se used the previous year, are set out below. liability amounted to €9 million (€10 million in 2013). Discount rate Rate of wage increases Rate of increase in healthcare costs 2014 0.50% - 2.15% 1.6% - 3.6% 2.6% 2013 0.75% - 3.0% 2.0% - 4.0% 3.0% The following table reports the outcome of a sensitivity at the end of the year in the actuarial assumptions used in analysis that demonstrates the effects on the liability for estimating the obligation. healthcare plans as a result of changes reasonably possible Millions of euro Healthcare plans: ASEM An increase of 0.5% in discount rate A decrease of 0.5% in discount rate An increase of 0.5% in inflation rate An increase of 0.5% in remuneration An increase of 0.5% in pensions currently being paid An increase of 1% in healthcare costs An increase of 1 year in life expectancy of active and retired employees (2) 2 2 2 2 4 1 321 25. Provisions for risks and charges - €16 million The “Provisions for risks and charges” cover potential liabi- court judgments and other dispute settlements for the year lities that could arise from legal proceedings and other di- and an update of the estimates for positions arising in pre- sputes, without considering the effects of rulings that are vious years not related to the transferred business units. expected to be in the Company’s favor and those for which any charge cannot be quantified with reasonable certainty. The following table shows changes in provisions for risks In determining the balance of the provision, we have taken and charges. account of both the charges that are expected to result from Taken to income statement Millions of euro Accruals Reversals Utilization Total at Dec. 31, 2013 at Dec. 31, 2014 of which current portion Provision for litigation, risks and other charges: - litigation - other Total Provision for early-retirement incentives TOTAL 19 3 22 1 23 - - - - - (6) - (6) - (6) (1) - (1) - (1) 12 3 15 1 16 12 - 12 1 13 The net reduction in the litigation provision amounted to €7 million, essentially reflecting the revision of estimates for a number of outstanding disputes (€6 million). 26. Other non-current liabilities - €287 million “Other non-current liabilities” amounted to €287 million ting part of IRAP in computing taxable income for IRES pur- (€283 million at December 31, 2013). They essentially re- poses. The liability in respect of the subsidiaries is balanced gard the debt towards Group companies that arose fol- by the recognition of non-current tax receivables (note 16). lowing Enel SpA’s request (submitted in its capacity as the The change for the year of €4 million was essentially attri- consolidating company) for reimbursement for 2004-2011 butable to the increase in the liability as a result of interest of the additional income taxes paid as a result of not deduc- accrued during the period. 27. Trade payables - €139 million Millions of euro Trade payables: - due to third parties - due to Group companies Total at Dec. 31, 2014 at Dec. 31, 2013 Change 85 54 139 130 82 212 (45) (28) (73) “Trade payables” include payables due to third parties of bles due to Group companies of €54 million (€82 million at €85 million (€130 million at December 31, 2013) and paya- December 31, 2013). 322 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSTrade payables due to subsidiaries at December 31, 2014 break down as follows. Millions of euro Subsidiaries Enel Produzione SpA Enel Distribuzione SpA Enel Ingegneria e Ricerca SpA Enel Servizio Elettrico SpA Enel Trade SpA Enel Italia Srl Enel.Factor SpA Endesa SA Enel Russia OJSC Sviluppo Nucleare Italia Srl Other Total at Dec. 31, 2014 at Dec. 31, 2013 Change 1 - - - 1 25 12 4 4 3 4 54 1 18 4 2 1 32 4 13 3 1 3 82 - (18) (4) (2) - (7) 8 (9) 1 2 1 (28) Trade payables break down by geographical area as follows. Millions of euro Suppliers Italy EU Non-EU Other Total at Dec. 31, 2014 at Dec. 31, 2013 Change 123 9 5 2 139 183 18 8 3 212 (60) (9) (3) (1) (73) 28. Other current financial liabilities - €694 million “Other current financial liabilities” mainly regard interest expense accrued on debt outstanding at end-year. Millions of euro Deferred financial liabilities Other items Total Notes 31.2.1 31.2.1 at Dec. 31, 2014 at Dec. 31, 2013 Change 649 45 694 527 60 587 122 (15) 107 “Deferred financial liabilities” consist of interest expense terest expense on current accounts held with Group com- accrued on financial debt, while “Other items” include in- panies. 323 29. Net financial position and long-term financial receivables and securities - €12,611 million The following table shows the net financial position and long-term financial receivables and securities on the basis of the items on the balance sheet. Millions of euro Notes at Dec. 31, 2014 at Dec. 31, 2013 Change Long-term borrowings Short-term borrowings Current portion of long-term borrowings Non-current financial assets included in debt Current financial assets included in debt Cash and cash equivalents Total 23 23 23 15.1 19.1 20 17,288 4,746 2,363 121 4,693 6,972 12,611 17,764 1,653 1,061 122 4,930 3,123 12,303 (476) 3,093 1,302 (1) (237) 3,849 308 Pursuant to the CONSOB instructions of July 28, 2006, the ber 31, 2014, reconciled with net financial debt as reported following table reports the net financial position at Decem- in the report on operations. Millions of euro Bank and post office deposits Liquidity Current financial receivables Short-term bank debt Short-term portion of long-term bank debt Other short-term financial payables Short-term financial debt Net short-term financial position Bonds Long-term borrowings Long-term financial position NET FINANCIAL POSITION as per CONSOB instructions at Dec. 31, 2014 at Dec. 31, 2013 Change of which with related parties of which with related parties 3,912 (1,531) 6,972 6,972 4,693 (3) (2,363) (4,743) (7,109) 4,556 (17,288) (17,288) (17,288) (12,732) 4,018 (4,320) 3,123 3,123 4,930 (4) (1,061) (1,649) (2,714) 5,339 (17,764) (17,764) (17,764) (12,425) 3,849 3,849 (237) 1 (1,302) (3,094) (4,395) (783) 476 476 476 (307) (1) (308) Long-term financial receivables 121 117 122 117 NET FINANCIAL DEBT (12,611) (12,303) 324 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS30. Other current liabilities - €975 million “Other current liabilities” mainly concern payables due to ting in the consolidated IRES taxation mechanism, as well the tax authorities and to the Group companies participa- as the Group VAT system. Millions of euro Tax payables Payables due to Group companies Payables due to employees, recreational/assistance associations Payables due to social security institutions Payables due to customers for security deposits and reimbursements Other Total at Dec. 31, 2014 at Dec. 31, 2013 540 396 20 8 1 10 975 31 643 18 8 1 8 709 Change 509 (247) 2 - - 2 266 “Tax payables” amounted to €540 million and essential- “Payables due to Group companies” amounted to €396 ly regard amounts due to tax authorities for consolidated million and are composed of €316 million in liabilities ge- IRES (€533 million). The increase as compared with the nerated by the IRES consolidated taxation mechanism and previous year amounted to €509 million and essentially re- €77 million in liabilities from the Group consolidated VAT sy- gards amounts due to tax authorities for consolidated IRES stem. The decrease of €247 million reflected developments in 2014 (tax receivable in 2013), partly offset by the change in the debtor positions generated by these consolidated from a debtor position in 2014 to a creditor position in 2014 taxation mechanisms. with respect to Group VAT (€24 million). 325 31. Financial instruments 31.1 Financial assets by category The following table shows the carrying amount for each ca- rately hedging derivatives and derivatives measured at fair tegory of financial assets provided by IAS 39, broken down value through profit or loss. into current and non-current financial assets, showing sepa- Millions of euro Non-current Current Loans and receivables Financial assets at fair value through profit or loss Notes 31.1.1 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 146 165 12,144 8,619 Derivative financial assets at FVTPL 31.1.2 Total Derivative financial assets designated as hedging instruments Cash flow hedge derivative financial assets Fair value hedge derivative financial assets 31.1.2 31.1.2 Total TOTAL 1,283 1,283 1,041 1,041 656 40 696 304 10 314 280 280 - - - 177 177 - - - 2,125 1,520 12,424 8,796 31.1.1 Loans and receivables The following table shows loans and receivables by nature, broken down into current and non-current financial assets. Millions of euro Non-current Current Notes at Dec. 31, 2014 at Dec. 31, 2013 Notes at Dec. 31, 2014 at Dec. 31, 2013 Cash and cash equivalents Trade receivables Financial receivables due from Group companies - - - - 20 17 Current portion of receivables for assumption of loans 15.1 117 117 6,972 132 - 4,018 - 205 3,123 216 21 3,391 500 257 - - - 19.1 19.1 - - - 117 117 4,223 4,169 - 29 29 146 19.1 - 48 48 165 672 145 817 12,144 1,018 93 1,111 8,619 Receivables on intercompany accounts Short-term loan granted to Enel Finance International NV Other financial receivables Total financial receivables due from Group companies Financial receivables due from others Cash collateral for margin agreements on OTC derivatives Other financial receivables Total financial receivables due from others TOTAL 326 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSThe primary change related to an increase in “Cash and sactions relating to the optimization of the Group’s orga- cash equivalents” of €3,849 million compared with De- nizational structure on the centralized treasury functions. cember 31, 2013 due to the impact of extraordinary tran- 31.1.2 Derivative financial assets The following table shows the notional amount and the fair tionship and hedged risk, broken down into current and value of derivative financial assets, by type of hedge rela- non-current financial assets. Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Change at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Change Derivative financial assets designated as hedging instruments Cash flow hedges: - on interest rate risk - - - - - 400 - on foreign exchange risk Total cash flow hedges Fair value hedges: 3,649 1,319 656 304 352 - 3,649 1,319 656 304 352 400 - on interest rate risk 800 800 Total fair value hedges Derivatives at FVTPL: 800 800 40 40 10 10 30 30 - - - on interest rate risk 3,112 3,413 376 225 151 45 - - - - - - - on foreign exchange risk 9,582 7,865 907 816 Total FVTPL 12,694 11,278 1,283 1,041 TOTAL 17,143 13,397 1,979 1,355 91 242 624 4,476 4,603 4,521 4,603 4,921 4,603 - - - - - 2 278 280 280 - - - - - - 177 177 177 - - - - - 2 101 103 103 For more details about derivative financial assets please, please see note 33 “Derivatives and hedge accounting”. 327 31.2 Financial liabilities by category The following table shows the carrying amount for each showing separately hedging derivatives and derivatives me- category of financial liabilities provided by IAS 39, broken asured at fair value through profit or loss. down into current and non-current financial liabilities, Millions of euro Non-current Current Notes at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Financial liabilities measured at amortized cost Financial liabilities at fair value through profit or loss 31.2.1 17,288 17,764 7,942 3,513 Derivative financial liabilities at FVTPL 31.2.2 Total Derivative financial liabilities designated as hedging instruments Cash flow hedge derivatives 31.2.3 Total TOTAL 1,295 1,295 1,189 1,189 19,772 1,045 1,045 1,053 1,053 19,862 358 358 1 1 8,301 226 226 11 11 3,750 For more details about fair value measurement, please see note 34 “Fair value measurement”. 31.2.1 Financial liabilities measured at amortized cost The following table shows financial liabilities at amortized cost by nature, broken down into current and non-current finan- cial liabilities. Millions of euro Non-current Current Notes at Dec. 31, 2014 at Dec. 31, 2013 Notes at Dec. 31, 2014 at Dec. 31, 2013 Long-term borrowings Short-term borrowings Trade payables Other current financial liabilities Total 23 17,288 17,764 - - - - - - 23 27 28 17,288 17,764 2,363 4,746 139 694 7,942 1,061 1,653 212 587 3,513 328 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSBorrowings Long-term borrowings (including the current portion due within 12 months) - €19,651 million Long-term borrowings, which refers exclusively to bonds, denominated in euros and other currencies, including the current portion due within 12 months (equal to €2,363 mil- lion), amounted to €19,651 million at December 31, 2014. The following table shows the nominal values, carrying grouped by type of borrowing and type of interest rate. For li- sted debt instruments, the fair value is given by official prices. For unlisted debt instruments, the fair value is determined using valuation techniques appropriate for each category of financial instrument and the associated market data for the amounts and fair values of long-term borrowings at Decem- reporting date, including the credit spreads of the Group. ber 31, 2014, including the portion due within 12 months, Millions of euro Nominal value Carrying amount Current portion Portion due in more than 12 months Fair value Nominal value Carrying amount Current portion Portion due in more than 12 months Fair value at Dec. 31, 2014 at Dec. 31, 2013 Carrying amount Change Bonds: - fixed rate 15,414 15,284 1,000 14,284 18,166 13,519 13,364 - 13,364 14,974 1,920 - floating rate 4,380 4,367 1,363 3,004 4,311 5,483 5,461 1,061 4,400 5,320 (1,094) Total 19,794 19,651 2,363 17,288 22,477 19,002 18,825 1,061 17,764 20,294 826 Total fixed-rate borrowings Total floating- rate borrowings 15,414 15,284 1,000 14,284 18,166 13,519 13,364 - 13,364 14,974 1,920 4,380 4,367 1,363 3,004 4,311 5,483 5,461 1,061 4,400 5,320 (1,094) TOTAL 19,794 19,651 2,363 17,288 22,477 19,002 18,825 1,061 17,764 20,294 826 The balance for bonds regards, net of €777 million, the unli- level of fair value measurements, please, refer to note 34 sted floating-rate “Special series of bonds reserved for em- “Fair value measurement”. ployees 1994-2019”, which Enel SpA holds in its portfolio. The table below shows long-term borrowings by currency For more details about the maturity analysis of borrowings, and interest rate. please, refer to note 32 “Risk management” and about the Long-term borrowings by currency and interest rate Millions of euro Carrying amount Nominal value Current average nominal interest rate Current effective interest rate at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2014 Euro US dollar Pound sterling Total non-euro currencies TOTAL 16,115 890 1,820 2,710 18,825 16,056 1,012 2,583 3,595 19,651 16,145 1,030 2,619 3,649 19,794 4.2% 8.8% 6.5% 4.5% 9.2% 6.7% 329 The table below reports changes in the nominal value of long-term debt. Millions of euro Nominal value Repayments New borrowing at Dec. 31, 2013 Own bonds repurchased Exchange rate differences Nominal value at Dec. 31, 2014 Bonds Total 19,002 19,002 (1,061) (1,061) 1,602 1,602 (42) (42) 293 293 19,794 19,794 Compared with December 31, 2013, the nominal value rate losses, €1,061 million in repayments and €42 million in of long-term debt rose by €792 million, the net result of repurchases of own bonds. €1,602 million in new borrowing, €293 million in exchange The table below shows the characteristics of the main borrowings finalized in 2014. New borrowings Type of borrowing Bonds: - 2014-2020 Hybrid Bond - 2014-2021 Hybrid Bond Total Issuer Issue date Issue amount (millions of euro) Currency Interest rate (%) Interest rate type Maturity Enel SpA 01/15/2014 Enel SpA 09/15/2014 1,000 602 1,602 EUR GBP 5.000% Fixed rate 01/15/2020 6.625% Fixed rate 09/15/2021 The main transactions carried out in 2014 for a total value sting is planned unless the same guarantee is extended of €1,602 million, related to the issue of hybrid instruments equally or pro rata to the bonds in question; structured in the following tranches: > pari passu clauses, under which the securities constitute > €1,000 million fixed-rate 5%, maturing January 15, 2020; a direct, unconditional and unsecured obligation of the > £500 million fixed-rate 6.625%, maturing September 15, issuer and are issued without preferential rights among 2021 (equal to €602 million at the issue date). them and have at least the same seniority as other present and future bonds of the issuer itself; The main long-term borrowings are governed by covenants > specification of default events, whose occurrence (e.g. in- containing undertakings that are commonly adopted in in- solvency, failure to pay principal or interest, initiation of ternational business practice. liquidation proceedings, etc.) constitutes a default; The main covenants governing the debt regard the bond > under cross-default clauses, the occurrence of a default issues carried out within the framework of the Global Me- event in respect of any financial liability (above a threshold dium-Term Notes program, issues of subordinated uncon- level) issued by the issuer or “significant” subsidiaries (i.e. vertible hybrid bonds, the €9.4 billion Forward Start Facility consolidated companies whose gross revenues or total Agreement agreed on February 8, 2013 by Enel SpA and assets are at least 10% of gross consolidated revenues or Enel Finance International NV with a pool of banks and the total consolidated assets) constitutes a default in respect loans granted by UniCredit SpA in July 2013 and April 2014. of the liability in question, which becomes immediately To date none of the covenants have been triggered. repayable; The main commitments in respect of the bond issues in the > early redemption clauses in the event of new tax requi- Global Medium-Term Notes program can be summarized as rements, which permit early redemption at par of all follows: outstanding bonds. > negative pledge clauses under which the issuer may not The main covenants covering the hybrid bonds can be sum- establish or maintain (except under statutory requirement) marized as follows: mortgages, liens or other encumbrances on all or part of > specification of default events, whose occurrence (e.g. its assets to secure any listed bond or bond for which li- failure to pay principal or interest, insolvency, initiation of 330 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSliquidation proceedings, etc.) constitutes a default in re- the Group is significantly compromised. The occurrence of spect of the liability in question, which in some cases beco- one of the two circumstances may give rise to (a) the re- mes immediately repayable; negotiation of the terms and conditions of the financing > subordination clauses: each hybrid bond is subordinate to or (b) compulsory early repayment of the financing by the all other bonds issued by the company and ranks pari pas- borrower; su with all other hybrid financial instruments issued, being > specification of default events, whose occurrence (e.g. senior only to equity instruments; failure to make payment, breach of contract, false sta- > prohibition on mergers with other companies, the sale or tements, insolvency or declaration of insolvency by the leasing of all or a substantial part of the company’s assets borrower or its significant subsidiaries, business closure, to another company, unless the latter succeeds in all obli- government intervention or nationalization, administrati- gations of the issuer. ve proceeding with potential negative impact, illegal con- The main covenants for the Forward Start Facility Agree- duct, nationalization and government expropriation or ment and the loan agreements between Enel SpA and Uni- compulsory acquisition of the borrower or one of its signi- Credit SpA are substantially similar and can be summarized ficant subsidiaries) constitutes a default. Unless remedied as follows: within a specified period of time, such default will trigger > negative pledge clauses under which the borrower (and an obligation to make immediate repayment of the loan its significant subsidiaries) may not establish or maintain under an acceleration clause; (with the exception of permitted guarantees) mortgages, > under cross-default clauses, the occurrence of a default liens or other encumbrances on all or part of its assets to event in respect of any financial liability (above a threshold secure certain financial liabilities; level) of the borrower or “significant” subsidiaries (i.e. con- > pari passu clauses, under which the payment underta- solidated companies whose gross revenues or total assets kings constitute a direct, unconditional and unsecured are at least equal to a specified percentage (10% of gross obligation of the borrower and bear no preferential rights consolidated revenues or total consolidated assets)) con- among them and have at least the same seniority as other stitutes a default in respect of the liabilities in question, present and future loans; which become immediately repayable; > change of control clause, which is triggered in the event > clause on the disposal of assets under which the borrower (i) control of Enel is acquired by one or more parties other is barred from disposing of certain assets or business acti- than the Italian State or (ii) Enel or any of its subsidiaries vities, unless expressly agreed otherwise; transfer a substantial portion of the Group’s assets to par- > periodic reporting requirements. ties outside the Group such that the financial reliability of 331 Short-term borrowings - €4,746 million The following table shows short-term borrowings at December 31, 2014, by nature. Millions of euro Short-term bank borrowings (ordinary current account) Cash collateral for CSAs on OTC derivatives received Short-term borrowings from Group companies (on intercompany current account) Other short-term borrowings from Group companies Total at Dec. 31, 2014 at Dec. 31, 2013 Change 3 423 3,820 500 4,746 4 118 1,531 - 1,653 (1) 305 2,289 500 3,093 Short-term borrowings amounted to €4,746 million > the €500 million increase in “Other short-term bor- (€1,653 million in 2013), up €3,093 over the previous year, rowings from Group companies” as a result of drawings mainly due to: made on the Intercompany Short Term Deposit Agree- > the €305 million increase in cash collateral received from ment, the short-term credit line with Enel Finance Inter- counterparties for transactions in OTC derivatives on in- national NV. terest rates and exchange rates; > the €2,289 million increase in “Short-term borrowings It should be specified that the fair value of current bor- from Group companies” attributable to a deterioration in rowings equals their carrying amount as the impact of di- the debtor position on the intercompany current account scounting is not significant. held with subsidiaries; Debt structure after hedging The following table shows the effect of the hedges of foreign currency risk on the gross long-term debt structure (including portions maturing in the next 12 months). Millions of euro at Dec. 31, 2014 at Dec. 31, 2013 Initial debt structure Carrying amount Notional amount % Impact of hedging instruments Debt structure after hedging Impact of hedging instruments Debt structure after hedging Initial debt structure Carrying amount Notional amount % Euro US dollar Pound sterling 16,056 16,145 82.0% 3,649 19,794 16,115 16,249 85.5% 2,753 19,002 1,012 2,583 1,030 5.0% 2,619 13.0% (1,030) (2,619) - - 890 906 1,820 1,847 4.8% 9.7% (906) (1,847) - - Total 19,651 19,794 100.0% - 19,794 18,825 19,002 100.0% - 19,002 The following table shows the effect of the hedges of interest rate risk on the gross long-term debt outstanding at the re- porting date. Outstanding gross debt at Dec. 31, 2014 at Dec. 31, 2013 Before hedging After hedging Before hedging After hedging % Floating rate Fixed rate Total 332 22.1% 77.9% 100.0% 19.2% 80.8% 100.0% 28.9% 71.1% 100.0% 20.2% 79.8% 100.0% ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS31.2.2 Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss, broken million) financial liabilities, refer solely to derivative financial down into current (€358 million) and non-current (€1,295 liabilities. 31.2.3 Derivative financial liabilities The following table shows the notional amount and the fair lationship and hedged risk, broken down into current and value of derivative financial liabilities, by type of hedge re- non-current financial liabilities. Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Change at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Change Derivative financial assets designated as hedging instruments Cash flow hedge: - on interest rate risk 390 1,690 159 153 6 900 500 - on foreign exchange risk Total cash flow hedge Derivatives on FVTPL: 1,470 2,811 1,030 900 130 - - 1,860 4,501 1,189 1,053 136 900 500 - on interest rate risk 3,150 3,464 - on foreign exchange risk Total derivatives on FVTPL 9,582 7,865 12,732 11,329 TOTAL 14,592 15,830 384 911 1,295 2,484 233 151 146 600 812 99 4,476 4,603 1,045 2,098 250 386 4,622 5,522 5,203 5,703 1 - 1 75 283 358 359 11 (10) - - 11 (10) 50 25 176 107 226 237 132 122 For more details about derivative financial liabilities, please see note 33 “Derivatives and hedge accounting”. 31.2.4 Net gains/(losses) The following table shows net gains and losses by category of financial instruments, excluding derivatives. Millions of euro Net gains/(losses) of which: impairment/reversal of impairment Available for sale financial assets Loans and receivables Financial assets at FVTPL at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 - 7 - 34 (8) Financial liabilities measured at amortized cost (1,319) (791) Financial liabilities at FVTPL Financial liabilities held for trading Financial liabilities designated upon initial recognition (fair value option) - - - - For more details on net gains and losses on derivatives, please see note 7 “Net financial income/(expense) from derivatives”. 333 32. Risk management 32.1 Financial risk management objectives and policies As part of its operations, the Company is exposed to a varie- > the establishment of specific policies set at both the ty of financial risks, notably market risks (including interest Company level and at the level of individual Divisions/ rate risk and foreign exchange risk), credit risk and liquidity countries/business lines, which define the roles and re- risk. sponsibilities for those involved in managing, monitoring and controlling risks, ensuring the organizational separa- The Company’s governance arrangements for financial risk tion of units involved in managing the Group’s business envisage: and those responsible for managing risk; > specific internal committees, formed of members of the > the specification of operational limits at both the Com- Company’s top management and chaired by the CEO, pany level and at the level of individual Divisions/countri- which are responsible for strategic policy-making and es/business lines for the various types of risk. These limits oversight of risk management; are monitored periodically by the risk management units. 32.2 Market risks Market risk is the risk that the expected cash flows or fair rencies have an impact on the value of the cash flows deno- value of a financial instrument could change owing to chan- minated in those currencies. ges in market prices. The Group’s policies for managing financial risks provide for As part of its operations as an industrial holding company, the stabilization of the effects of changes in interest rates Enel SpA is exposed to different market risks, notably the and exchange rates. This objective is achieved both at the risk of changes in interest rates and exchange rates. source of the risk, through the strategic diversification of the Interest rate risk and foreign exchange risk are primarily ge- the risk profile of the exposure with derivatives entered into nature of financial assets and liabilities, and by modifying nerated by the presence of financial instruments. on over-the-counter markets. The main financial liabilities, other than derivatives, held by the Company include bonds, bank borrowings (including As the Parent Company, Enel SpA centralizes some treasu- revolving credit facilities and loans from EU bodies), other ry management functions and access to financial markets borrowings, cash collateral for derivatives transactions and with regard to derivatives contracts that do not have ener- trade payables. gy commodities as underlyings. As part of this activity, the The main purpose of those financial instruments is to finan- Company acts as an intermediary for Group companies with ce the operations of the Company. the market, taking positions that, while they can be substan- The main financial assets, other than derivatives, held by the tial, do not however represent an exposure to markets risks Company include financial receivables, cash collateral for for Enel SpA. derivatives transactions, cash and cash equivalents, short- term deposits and trade receivables. During 2013, EMIR (European Market Infrastructure Regula- For more details, please see note 32 “Financial instruments”. tion) 648/2012 of the European Parliament came into force. The source of exposure to interest rate risk and foreign It is intended to regulate the OTC derivatives market in or- exchange risk did not change with respect to the previous der to contain the systemic and counterparty risk typical of year. the market within sustainable limits, increasing the transpa- rency of trading and reducing the scope for market abuse. The nature of the financial risks to which the Company is exposed is such that changes in interest rates cause changes To this end, the EMIR framework introduces an operational in cash flows associated with interest payments on long- model for the management of the entire life cycle of OTC deri- term floating-rate debt instruments, while changes in the vatives, involving both financial and non-financial counterpar- exchange rate between the euro and the main foreign cur- ties. Among the main innovations, it provides for the standar- 334 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSdization of contracts, the obligation to use a clearing system Adjustment or CVA) and its own (Debit Valuation Adjustment involving a central or bilateral counterparty, and requirements or DVA), in order to adjust the fair value of financial instru- to report to authorized entities at the European level (trade ments for the corresponding amount of counterparty risk. repositories). More specifically, the Company measures CVA/DVA using In 2013, the Enel Group, as non-financial counterparty, un- a Potential Future Exposure valuation technique for the net dertook a number of initiatives to ensure compliance with the exposure of the position and subsequently allocating the EMIR regulatory framework. adjustment to the individual financial instruments that make In particular, in the more specific area of risk management go- up the overall portfolio. All of the inputs used in this technique vernance, the Company has begun monitoring the size of the are observable on the market. OTC derivatives portfolio in relation to the threshold values set by regulators for the activation of the clearing obligations. During 2014, no overshoot of those threshold values was de- tected. The volume of transactions in financial derivatives outstan- Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of chan- ges in market interest rates. ding at December 31, 2014 is reported below, with specifi- Interest rate risk for the Company manifests itself as a change cation of the notional amount of each class of instrument as in the flows associated with interest payments on floating- calculated at the year-end exchange rates provided by the Eu- rate financial liabilities, a change in financial terms and con- ropean Central Bank, where denominated in currencies other ditions in negotiating new debt instruments or as an adverse than the euro. change in the value of financial assets/liabilities measured at fair value, which are typically fixed-rate debt instruments. The notional amount of a derivative contract is the amount on Interest rate risk is managed with the dual goals of reducing which cash flows are exchanged. This amount can be expres- the amount of debt exposed to interest rate fluctuations and sed as a value or a quantity (for example tons, converted into containing the cost of funds, limiting the volatility of results. euro by multiplying the notional amount by the agreed price). This goal is pursued through the strategic diversification of The notional amounts of derivatives reported here do not re- the portfolio of financial liabilities by contract type, maturi- present amounts exchanged between the parties and there- ty and interest rate, and modifying the risk profile of specific fore are not a measure of the Company’s credit risk exposure. exposures using OTC derivatives, mainly interest rate swaps. Starting from 2013, the Company now includes a measure- The notional amount of outstanding contracts is reported ment of credit risk, both of the counterparty (Credit Valuation below: Millions of euro Notional amount Interest rate derivatives Interest rate swaps Total at Dec. 31, 2014 at Dec. 31, 2013 8,943 8,943 10,467 10,467 The term of such contracts does not exceed the maturity of The notional amount of open interest rate swaps at the end the underlying financial liability, so that any change in the of the year was €8,943 million (€10,467 million at Decem- fair value and/or cash flows of such contracts is offset by a ber 31, 2013), of which €2,629 million (€3,640 million at corresponding change in the fair value and/or cash flows of December 31, 2013) in respect of hedges of the Company’s the underlying position. share of debt, and €3,157 million (€3,413 million at Decem- Interest rate swaps normally provide for the periodic ber 31, 2013) in respect of hedges of the debt of Group exchange of floating-rate interest flows for fixed-rate inte- companies with the market intermediated in the same no- rest flows, both of which are calculated on the basis of the tional amount with those companies. notional principal amount. 335 For more details on interest rate derivatives, please see Interest rate risk sensitivity analysis note 33 “Derivatives and hedge accounting”. The Company analyses the sensitivity of its exposure by estimating the effects of a change in interest rates on the The amount of floating-rate debt that is not hedged portfolio of financial instruments. against interest rate risk is the main risk factor that could More specifically, sensitivity analysis measures the poten- impact the income statement (raising borrowing costs) in tial impact of market scenarios on equity, for the cash flow the event of an increase in market interest rates. hedge component, and on profit or loss, for the fair value At December 31, 2014, 22% of gross long-term financial hedge component, for derivatives that are not eligible for debt was floating rate (29% at December 31, 2013). Taking hedge accounting and for the portion of gross long-term account of hedges of interest rates considered effective debt not hedged using derivative financial instruments. pursuant to IAS 39, 79% of gross long-term financial debt These scenarios are represented by parallel increases and was hedged at December 31, 2014 (79% hedged at Decem- decreases in the yield curve as at the reporting date. ber 31, 2013). Including interest rate derivatives treated as There were no changes in the methods and assumptions hedges for management purposes but ineligible for hed- used in the sensitivity analysis compared with the previous ge accounting, 79% of gross long-term financial debt was year. hedged (79% hedged at December 31, 2013). With all other variables held constant, the Company’s profit before tax would be affected as follows: Millions of euro Pre-tax impact on profit or loss Pre-tax impact on equity Basis points Increase Decrease Increase Decrease at Dec. 31, 2014 Change in financial expense on gross long-term floating-rate debt after hedging Change in fair value of derivatives classified as non- hedging instruments Change in fair value of derivatives designated as hedging instruments Cash flow hedges Fair value hedges 25 25 25 25 9 8 - (9) (9) (8) - 9 - - 17 - - - (17) - Foreign exchange rate risk Foreign exchange rate risk is the risk that the fair value or the maturity of the underlying exposure. future cash flows of a financial instrument will fluctuate be- Currency forwards are contracts in which the counterpar- cause of changes in exchange rates. ties agree to exchange principal amounts denominated in different currencies at a specified future date and exchan- For Enel SpA, the main source of foreign exchange risk is ge rate (the strike). Such contracts may call for the actual the presence of monetary financial instruments denomina- exchange of the two amounts (deliverable forwards) or ted in a currency other than the euro, mainly bonds deno- payment of the difference between the strike exchange minated in foreign currency. rate and the prevailing exchange rate at maturity (non-de- The exposure to foreign exchange risk did not change with liverable forwards). In the latter case, the strike rate and/or respect to the previous year. the spot rate may be determined as averages of the official For more details, please see note 31 “Financial instruments”. fixings of the European Central Bank. In order to minimize exposure to changes in exchange ra- Cross currency interest rate swaps are used to transform tes, the Company normally uses a variety of OTC derivati- a long-term fixed- or floating-rate liability in foreign cur- ves such as currency forwards and cross currency interest rency into an equivalent floating- or fixed-rate liability rate swaps. The term of such contracts does not exceed in euros. In addition to having notionals denominated in 336 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSdifferent currencies, these instruments differ from inte- The following table reports the notional amount of tran- rest rate swaps in that they provide both for the periodic sactions outstanding at December 31, 2014 and Decem- exchange of cash flows and the final exchange of principal. ber 31, 2013, broken down by type of hedged item. Millions of euro Foreign exchange derivatives Currency forwards: - hedging foreign exchange risk on commodities - hedging future cash flows - other currency forwards Cross currency interest rate swaps Total Notional amount at Dec. 31, 2014 at Dec. 31, 2013 11,218 8,378 2,840 - 22,017 33,235 7,762 6,819 520 423 21,304 29,066 More specifically, these include: Considering exchange rate hedges and the portion of debt > currency forward contracts with a total notional amount in foreign currency that is denominated in the currency of of €8,378 million (€6,819 million at December 31, 2013), account or the functional currency of the Company, the of which €4,189 million to hedge the exchange rate risk as- debt is fully hedged using cross currency interest rate swaps. sociated with purchases of energy commodities by Group companies, with matching transactions with the market; Foreign exchange risk sensitivity analysis > currency forward contracts with a notional amount of The Company analyses the sensitivity of its exposure by €2,840 million (€520 million at December 31, 2013) to estimating the effects of a change in exchange rates on the hedge the exchange rate risk associated with other ex- portfolio of financial instruments. pected cash flows in currencies other than the euro, of More specifically, sensitivity analysis measures the potential which €1,420 million in market transactions; impact of market scenarios on equity, for the cash flow hed- > cross currency interest rate swaps with a notional ge component, and on profit or loss, for the fair value hedge amount of €22,017 million (€21,304 million at December component, for derivatives that are not eligible for hedge 31, 2013) to hedge the exchange rate risk on the debt accounting and for the portion of gross long-term debt not of Enel SpA or other Group companies denominated in hedged using derivative financial instruments. currencies other than the euro. These scenarios are represented by the appreciation/de- preciation of the euro against all of the foreign currencies For more details, please see note 33 “Derivatives and hedge compared with the value observed as at the reporting date. accounting”. There were no changes in the methods and assumptions used in the sensitivity analysis compared with the previous year. An analysis of the Group’s debt shows that 18% of gross With all other variables held constant, the profit before tax medium and long-term debt (15% at December 31,2013) is would be affected as follows: denominated in currencies other than the euro. Millions of euro Change in financial expense on gross debt denominated in foreign currency after hedging Change in fair value of derivatives classified as non-hedging instruments Change in fair value of derivatives designated as hedging instruments Cash flow hedges Fair value hedges Exchange rate 10% 10% 10% 10% Pre-tax impact on profit or loss Pre-tax impact on equity at Dec. 31, 2014 Increase Decrease Increase Decrease - - - - - - - - - - (485) - - - 592 - 337 32.3 Credit risk Credit risk is the risk that a counterparty will not meet its diversifying the exposure among different institutions and obligations under a financial instrument or customer con- constantly monitoring their credit ratings. In addition, Enel tract, leading to a financial loss. The Company is exposed to entered into margin agreements with the leading financial credit risk from its operating activities and from its financing institutions with which it operates that call for the exchange activities, including derivatives, deposits with banks and of cash collateral, which significantly mitigates the exposure financial institutions, foreign exchange transactions and to counterparty risk. other financial instruments. The exposure to credit risk is regularly monitored by the de- Unexpected changes in the creditworthiness of a counter- partment responsible for monitoring risks under the policies party have an effect on the creditor position, in terms of in- and procedures outlined in the governance rules for mana- solvency (default risk) or changes in its market value (spread ging the Group’s financial risks. risk). The sources of exposure to credit risk did not change with At December 31, 2014, the exposure to credit risk, represen- respect to the previous year. ted by the carrying amount of financial assets net of related The Company manages credit risk by operating solely with provisions for impairment as well as derivatives with a po- counterparties considered solvent by the market, i.e. those sitive fair value, net of any cash collateral held, amounted with high credit standing, and does not have any significant to €14,101 million (€10,154 million at December 31, 2013). concentration of credit risk. Of the total, €5,335 million regard receivables in respect of The credit risk in respect of the derivatives portfolio is con- Group companies and €6,972 million regard cash and cash sidered negligible since transactions are conducted solely equivalents. with leading Italian and international financial institutions, Millions of euro Non-current financial receivables Other non-current financial assets Trade receivables Current financial receivables Other current financial assets Financial derivatives Cash and cash equivalents at Dec. 31, 2014 at Dec. 31, 2013 Change of which Group of which Group 117 4 132 4,018 1,022 1,836 6,972 117 - 126 4,018 205 869 - 117 5 216 3,911 1,368 1,414 3,123 117 - 208 3,911 257 1,076 - 5,569 - (1) (84) 107 (346) 422 3,849 3,947 Total 14,101 5,335 10,154 32.4 Liquidity risk Liquidity risk is the risk that the Company will encounter including cash and short-term deposits, available commit- difficulty in meeting obligations associated with financial ted credit lines and a portfolio of highly liquid asset. liabilities that are settled by delivering cash or another fi- In the long term, liquidity risk is mitigated by maintaining nancial asset. a balanced debt maturity profile, diversification of funding The objectives of liquidity risk management policies are: sources in terms of instruments, markets/currencies and > ensuring an appropriate level of liquidity for the Group, counterparties. minimizing the associated opportunity cost; At the Group level, Enel SpA (directly and through its sub- > maintaining a balanced debt structure in terms of the sidiary Enel Finance International NV) manages the centra- maturity profile and funding sources. lized treasury function (with the exception of the Endesa In the short term, liquidity risk is mitigated by maintaining Group, where those functions are performed by Endesa SA an appropriate level of unconditionally available resources, and its subsidiaries Endesa Internacional BV and Endesa Ca- 338 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSpital SA), ensuring access to the money and capital markets. amounting to €5,670 (of which none had been drawn) Enel SpA meets liquidity requirements primarily through maturing in more than one year (€5,900 million at Decem- cash flows generated by ordinary operations and drawing ber 31, 2013). on a range of sources of financing. In addition, it manages any excess liquidity. At December 31, 2014, Enel SpA had a total of about Maturity analysis The table below summarizes the maturity profile of the €6,972 million in cash or cash equivalents (€3,123 mil- Company’s financial liabilities based on contractual undi- lion at December 31, 2013) and committed lines of credit scounted payments. Millions of euro Maturing in Less than 3 months Between 3 months and 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Bonds: - fixed rate - floating rate Total 1,000 1,300 2,300 - 63 63 1,990 1,059 3,049 6,665 935 7,600 5,629 1,010 6,639 339 32.5 Offsetting financial assets and financial liabilities The following table reports the net financial assets and lia- guarantee transactions involving derivatives, Enel SpA has bilities. More specifically, it shows that there are no netting entered into margin agreements with leading financial in- arrangements for derivatives in the financial statements stitutions that call for the exchange of cash collateral, bro- since the Company does not plan to set-off assets and lia- ken down as shown in the table. bilities. As envisaged by current market regulations and to Millions of euro at Dec. 31, 2014 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d) Related amounts not set off in the balance sheet (d)(i),(d)(ii) (d)(iii) Gross amounts of recognized financial assets/ (liabilities) set off in the balance sheet Net amounts of financial assets/ (liabilities) presented in the balance sheet Gross amounts of recognized financial assets/ (liabilities) Net portion of financial assets/ (liabilities) guaranteed with cash collateral Net amount of financial assets/ (liabilities) Financial instruments FINANCIAL ASSETS Derivative financial assets: - on interest rate risk - on foreign exchange risk Total financial assets FINANCIAL LIABILITIES Derivative financial liabilities: - on interest rate risk - on foreign exchange risk Total financial liabilities TOTAL FINANCIAL ASSETS/ (LIABILITIES) 418 1,842 2,260 (620) (2,223) (2,843) (583) - - - - - - - 418 1,842 2,260 (620) (2,223) (2,843) (583) - - - - - - - (57) (973) 362 869 (1,029) 1,231 476 802 1,278 (144) (1,421) (1,565) 249 (334) 33. Derivatives and hedge accounting 33.1 Hedge accounting Derivatives are initially recognized at fair value, on the trade Hedge accounting is applied to derivatives entered into in date of the contract, and are subsequently re-measured at order to reduce risks such as interest rate risk, exchange rate their fair value. risk, commodity risk, credit risk and equity risk when all the The method of recognizing the resulting gain or loss de- criteria provided for under IAS 39 are met. pends on whether the derivative is designated as a hed- At the inception of the transaction, the Company docu- ging instrument, and if so, the nature of the item being ments the relationship between hedging instruments and hedged. hedged items, as well as its risk management objectives and Hedge accounting is applied to derivatives entered into in strategy. The Company also analyzes, both at hedge incep- order to reduce risks such as interest rate risk, exchange rate tion and on an ongoing systematic basis, the effectiveness risk, commodity risk, credit risk and equity risk when all the of hedges using prospective and retrospective tests in order criteria provided for under IAS 39 are met. to determine whether hedging instruments are highly ef- 340 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSfective in offsetting changes in the fair values or cash flows the cumulative gain or loss that was reported in equity is of hedged items. immediately transferred to profit or loss. Depending on the nature of the risks to which it is expo- sed, the Company designates derivatives as hedging instru- The Company currently uses these hedge relationships to ments in one of the following hedge relationships. minimize the volatility of profit or loss. > cash flow hedge derivatives in respect of the risk of: i) changes in the cash flows associated with long-term floating-rate debt; ii) changes in the exchange rates Fair value hedges Fair value hedges are used to protect the Company against associated with long-term debt denominated in a cur- exposures to adverse changes in the fair value of assets, lia- rency other than the currency of account or the functio- bilities or firm commitments attributable to a particular risk nal currency in which the company holding the financial that could affect profit or loss. liability operates; iii) changes in the price of fuels deno- Changes in the fair value of derivatives that qualify and minated in a foreign currency; iv) changes in the price of are designated as hedging instruments are recognized in forecast electricity sales at variable prices; and v) chan- the income statement, together with changes in the fair ges in the price of transactions in coal and petroleum value of the hedged item that are attributable to the hed- commodities; ged risk. > fair value hedge derivatives involving the hedging of ex- If the hedge is ineffective or no longer meets the criteria for posures to changes in the fair value of an asset, a liability hedge accounting, the adjustment to the carrying amount or a firm commitment attributable to a specific risk; of a hedged item for which the effective interest method > derivatives hedging a net investment in a foreign ope- is used is amortized to profit or loss over the period to ma- ration (NIFO), involving the hedging of exposures to turity. exchange rate volatility associated with investments in The Company currently makes use of such hedge rela- foreign entities. tionships to seize opportunities associated with general developments in the yield curve. For more details on the nature and the extent of risks arising from financial instruments to which the Company is expo- sed, please see note 32 “Risk management”. Cash flow hedges Cash flow hedges are used in order to hedge the Company’s Hedge of a net investment in a foreign ope- ration (NIFO) Hedges of net investments in foreign operations, with a fun- ctional currency other than the euro, are hedges of the im- pact of changes in exchange rates in respect of investments exposure to changes in future cash flows that are attributa- in foreign entities. The hedge instrument is a liability deno- ble to a particular risk associated with an asset, a liability or minated in the same currency as the investment. The foreign a highly probable transaction that could affect profit or loss. exchange differences of the hedged item and the hedge are The effective portion of changes in the fair value of deriva- accumulated each year in equity until the disposal of the in- tives that are designated and qualify as cash flow hedges is vestment, at which time the foreign exchange differences recognized in other comprehensive income. The gain or loss are transferred to profit or loss. relating to the ineffective portion is recognized immediately in the income statement. The Company does not currently hold any hedges of net in- Amounts accumulated in equity are reclassified to profit or vestments in a foreign operation. loss in the period when the hedged item affects profit or loss. The following table shows the notional amount and the fair When a hedging instrument expires or is sold, or when a value of hedging derivatives classified on the basis of the hedge no longer meets the criteria for hedge accounting type of hedge relationship. but the hedged item has not expired or been cancelled, The notional amount of a derivative contract is the amount any cumulative gain or loss existing in equity at that time on the basis of which cash flows are exchanged. This amount remains in equity and is recognized when the forecast tran- can be expressed as a value or a quantity (for example tons, saction is ultimately recognized in the income statement. converted into euros by multiplying the notional amount When a forecast transaction is no longer expected to occur, by the agreed price). Amounts denominated in currencies 341 other than the euro are converted at the end-year exchange rates provided by the European Central Bank. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Derivatives Cash flow hedges: - on interest rate risk - on foreign exchange risk Total cash flow hedges Fair value hedges: - on interest rate risk Total fair value hedges 400 3,649 4,049 800 800 - 1,319 1,319 800 800 TOTAL 4,849 2,119 - 656 656 40 40 696 - 304 304 10 10 314 1,290 1,470 2,760 - - 2,190 2,811 5,001 - - 160 1,030 1,190 - - 164 900 1,064 - - 2,760 5,001 1,190 1,064 For more on the fair value measurement of derivatives, please see note 34 “Fair value measurement”. Hedge relationships by type of risk hedged 33.1.1 Interest rate risk The following table shows the notional amount and the fair transactions outstanding as at December 31, 2014 and De- value of the hedging instruments on the interest rate risk of cember 31, 2013, broken down by type of hedged item: Millions of euro Hedged instrument Interest rate swaps Interest rate swaps Total Hedged item Floating-rate borrowings Fixed-rate borrowings Fair value Notional amount Fair value Notional amount at Dec. 31, 2014 at Dec. 31, 2013 (160) 40 (120) 1,690 800 2,490 (164) 10 (154) 2,190 800 2,990 The interest rate swaps outstanding at the end of the year flow hedge derivatives refer to the hedging of certain floa- and designated as hedging instruments function as a cash ting-rate bonds issued since 2001. flow hedge and fair value hedge for the hedged item. More The following table shows the notional amount and the fair specifically, fair value hedge derivatives relate to the issue value of hedging derivatives on interest rate risk as at De- of an unconvertible hybrid bond denominated in euros in cember 31, 2014 and December 31, 2013, broken down by 2013, hedged in the amount of €800 million, while the cash type of hedge: Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 400 400 800 800 1,200 - - 800 800 800 - - 40 40 40 - - 10 10 10 1,290 1,290 2,190 2,190 - - - - (160) (160) - - (164) (164) - - 1,290 2,190 (160) (164) Cash flow hedge derivatives Interest rate swaps Fair value hedge derivatives Interest rate swaps TOTAL INTEREST RATE DERIVATIVES 342 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSThe notional amount of the interest rate swaps at December The general decline in the yield curve over the course of the 31, 2014 came to €2,490 million (€2,990 million at Decem- year prompted an improvement in the fair value of the fair ber 31, 2013), with a corresponding negative fair value of value hedge derivatives. €120 million (negative €154 million at December 31, 2013). The decline of €500 million in the notional amount is attri- Cash flow hedge derivatives butable to the maturing, and consequent closure, of cash The following table shows the cash flows expected in co- flow hedge positions for the same amount in 2014. ming years from cash flow hedge derivatives: Millions of euro Fair value Distribution of expected cash flows Cash flow hedge derivatives on interest rates at Dec. 31, 2014 Positive fair value Negative fair value - (160) 2015 (9) (33) 2016 - (14) 2017 - (13) 2018 - (13) 2019 Beyond - (13) - (115) The following table shows the impact of cash flow hedge derivatives on interest rate risk on equity during the period, gross of tax effects: Millions of euro Opening balance at January 1 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss - recycling Changes in fair value recognized in profit or loss – ineffective portion Closing balance at December 31 2014 (86) - (7) - (93) 2013 (186) - 100 - (86) Fair value hedge derivatives The following table shows the cash flows expected in coming years from fair value hedge derivatives: Millions of euro Fair value Distribution of expected cash flows Fair value hedge derivatives Positive fair value Negative fair value at Dec. 31, 2014 40 - 2015 2016 2017 2018 2019 Beyond 10 - 11 - 10 - 9 - 30 - - - 343 33.1.2 Foreign exchange risk The following table shows the notional amount and the fair of transactions outstanding as at December 31, 2014 and value of the hedging instruments on foreign exchange risk December 31, 2013, broken down by type of hedged item: Millions of euro Fair value Notional amount Fair value Notional amount Hedging instruments Hedged item at Dec. 31, 2014 at Dec. 31, 2013 Cross currency interest rate swaps (CCIRSs) Fixed-rate borrowings Total (374) (374) 5,119 5,119 (596) (596) 4,130 4,130 The cross currency interest rate swaps outstanding at the equal to €642 million at the exchange rate prevailing at the end of the year and designated as hedging instruments end of the period. function as a cash flow hedge for the hedged item. More specifically, these derivatives hedge fixed-rate bonds deno- The following table shows the notional amount and the fair minated in foreign currencies. value of derivatives on foreign exchange risk as at Decem- In 2014, cross currency interest rate swaps were entered ber 31, 2014 and December 31, 2013, broken down by type into with respect to a fixed-rate borrowing of £500 million, of hedge: Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Cash flow hedge derivatives Cross currency interest rate swaps 3,649 1,319 3,649 1,319 TOTAL FOREIGN EXCHANGE DERIVATIVES 3,649 1,319 656 656 656 304 1,470 2,811 (1,030) (900) 304 1,470 2,811 (1,030) (900) 304 1,470 2,811 (1,030) (900) The notional amount of the cross current interest rate swaps lopments in the exchange rate of the euro against the main at December 31, 2014 came to €5,119 million (€4,130 mil- other currencies. lion at December 31, 2013), with a corresponding negative fair value of €374 million (negative €596 million at Decem- Cash flow hedge derivatives ber 31, 2013). The following table shows the cash flows expected in co- The notional amount and the relative fair value essential- ming years from cash flow hedge derivatives on foreign ly changed as a result of both new derivatives and deve- exchange risk: Millions of euro Fair value Distribution of expected cash flows Cash flow hedge derivatives on exchange rates at Dec. 31, 2014 Positive fair value Negative fair value 656 (1,030) 2015 106 (75) 2016 101 (70) 2017 94 (64) 2018 90 (59) 2019 Beyond 96 (152) 639 (560) 344 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSThe following table shows the impact of cash flow hedge derivatives on foreign exchange risk on equity during the period, gross of tax effects: Millions of euro Opening balance at January 1 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss - recycling Changes in fair value recognized in profit or loss – ineffective portion Closing balance at December 31 2014 (242) - (68) - (310) 2013 (254) - 12 - (242) 33.2 Derivatives at fair value through profit or loss The following table shows the notional amount and the fair value of derivatives at FVTPL as at December 31, 2014 and De- cember 31, 2013, broken down by type of risk: Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 at Dec. 31, 2014 at Dec. 31, 2013 Derivatives at FVTPL on interest rates Interest rate swaps Derivatives at FVTPL on exchange rates Forwards Cross currency interest rate swaps TOTAL DERIVATIVES AT FVTPL 3,157 3,157 3,413 3,413 14,058 12,468 5,609 3,881 378 378 1,186 364 225 225 993 129 3,296 3,296 4,064 4,064 (460) (460) 14,058 12,468 (1,194) 5,609 3,881 (369) (284) (284) (988) (128) 8,449 8,587 822 864 8,449 8,587 (825) (860) 17,215 15,881 1,564 1,218 17,354 16,532 (1,654) (1,272) At December 31, 2014 the notional amount of derivatives at gate the foreign exchange risk associated with the prices of fair value through profit or loss on interest rates and foreign energy commodities within the context of the procurement exchange rates came to €34,569 million (€32,413 million at process undertaken by Group companies and intermedia- December 31, 2013), corresponding to a negative fair value ted in a way that tracks the market. of €90 million (negative €54 million at December 31, 2013). The change in the notional amount and the fair value as Interest rate swaps at the end of the year refer primarily to compared with the previous year is associated with normal hedges of the debt of the Group companies with the market operations. and intermediated in the same notional amount with those Cross currency interest rate swaps, for a notional amount of companies in the amount of €3,157 million. €8,449 million, relate to foreign exchange hedges for the The overall change in the notional amount and the fair va- debt of the Group companies denominated in currencies lue of interest rate swaps (respectively, a negative €1,024 other than the euro and intermediated in a way that tracks million and a negative €23 million) compared with the pre- the market. vious year is attributable to the maturity and closure of a The change in the notional amount and the fair value of the number of derivative positions in 2014 and to the general cross currency interest rate swaps is mainly due to the na- decline in the interest rate yield curve over the course of the tural maturity of a number of derivatives in 2014 and deve- year. lopments in the exchange rate of the euro with other major Forward contracts, with a notional amount of €5,609 mil- currencies. lion, relate mainly to OTC derivatives entered into to miti- 345 34. Fair value measurement The Company measures fair value in accordance with IFRS propriate for each type of financial instrument and market 13 whenever required by international accounting stan- data as of the close of the period (such as interest rates, dards. exchange rates, volatility), discounting expected future Fair value is defined as the price that would be received to cash flows on the basis of the market yield curve and tran- sell an asset or paid to transfer a liability. The best estimate slating amounts in currencies other than the euro using is the market price, i.e. its current price, publicly available exchange rates provided by the European Central Bank. and effectively traded on an active, liquid market. For contracts involving commodities, the measurement is The fair value of assets and liabilities is categorized into a conducted using prices, where available, for the same in- fair value hierarchy that provides three levels defined as struments on both regulated and unregulated markets. follows on the basis of the inputs and valuation techniques In accordance with the new international accounting stan- used to measure fair value: dards, in 2013 the Group included a measurement of credit > Level 1: quoted prices (unadjusted) in active markets for risk, both of the counterparty (Credit Valuation Adjustment identical assets or liabilities to which the Company has or CVA) and its own (Debit Valuation Adjustment or DVA), access at the measurement date; in order to adjust the fair value of financial instruments for > Level 2: inputs other than quoted prices included within the corresponding amount of counterparty risk. Level 1 that are observable for the asset or liability, either More specifically, the Group measures CVA/DVA using a directly (that is, as prices) or indirectly (that is, derived Potential Future Exposure valuation technique for the net from prices); exposure of the position and subsequently allocating the > Level 3: inputs for the asset or liability that are not based adjustment to the individual financial instruments that on observable market data (that is, unobservable inputs). make up the overall portfolio. All of the inputs used in this In this note, the relevant information are provided in order technique are observable on the market. Changes in the to assess the following: assumptions underlying the estimated inputs could have > for assets and liabilities that are measured at fair value an effect on the fair value reported for such instruments. on a recurring or non-recurring basis in the balance sheet The notional amount of a derivative contract is the amount after initial recognition, the valuation techniques and in- on which cash flows are exchanged. This amount can be puts used to develop those measurements; and expressed as a value or a quantity (for example tons, con- > for recurring fair value measurements using significant verted into euros by multiplying the notional amount by unobservable inputs (Level 3), the effect of the measu- the agreed price). rements on profit or loss or other comprehensive income Amounts denominated in currencies other than the euro for the period. For this purpose: are converted into euros at the exchange rate provided by the European Central Bank. > recurring fair value measurements are those that IFRSs The notional amounts of derivatives reported here do not require or permit in the balance sheet at the end of each necessarily represent amounts exchanged between the reporting period; parties and therefore are not a measure of the Company’s > non-recurring fair value measurements are those that credit risk exposure. IFRSs require or permit in the balance sheet in particular For listed debt instruments, the fair value is given by of- circumstances. ficial prices. For unlisted instruments the fair value is de- termined using appropriate valuation techniques for each The fair value of derivative contracts is determined using category of financial instrument and market data at the the official prices for instruments traded on regulated closing date of the year, including the credit spreads of markets. The fair value of instruments not listed on a regu- Enel SpA. lated market is determined using valuation methods ap- 346 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS34.1 Assets measured at fair value in the balance sheet The following table shows, for each class of assets measu- reporting period and the level in the fair value hierarchy into red at fair value on a recurring or non-recurring basis in the which the fair value measurements are categorized. balance sheet, the fair value measurement at the end of the Millions of euro Non-current assets Current assets Fair value at Dec. 31, 2014 Notes Level 1 Level 2 Level 3 Fair value at Dec. 31, 2014 Level 1 Level 2 Level 3 Derivatives Cash flow hedge derivatives: - on foreign exchange risk 31.1.2 Total Fair value hedge derivatives: - on interest rate risk 31.1.2 Total Fair value through profit or loss: - on interest rate risk 31.1.2 - on foreign exchange risk 31.1.2 Total TOTAL 656 656 40 40 376 907 1,283 1,979 - - - - - - - - 656 656 40 40 376 907 1,283 1,979 - - - - - - - - - - - - 2 278 280 280 - - - - - - - - - - - - 2 278 280 280 - - - - - - - - 34.2 Liabilities measured at fair value in the balance sheet The following table reports, for each class of liabilities me- end of the reporting period and the level in the fair value asured at fair value on a recurring or non-recurring basis hierarchy into which the fair value measurements are ca- in the balance sheet, the fair value measurement at the tegorized. Millions of euro Non-current liabilities Current liabilities Fair value at Dec. 31, 2014 Notes Level 1 Level 2 Level 3 Fair value at Dec. 31, 2014 Level 1 Level 2 Level 3 Derivatives Cash flow hedge derivatives: - on interest rate risk 31.2.3 - on foreign exchange risk 31.2.3 Total Fair value through profit or loss: - on interest rate risk 31.2.3 - on foreign exchange risk 31.2.3 Total TOTAL 159 1,030 1,189 384 911 1,295 2,484 - - - - - - - 159 1,030 1,189 384 911 1,295 2,484 - - - - - - - 1 - 1 75 283 358 359 - - - - - - - 1 - 1 75 283 358 359 - - - - - - - 347 34.3 Liabilities not measured at fair value in the balance sheet The following table shows, for each class of liabilities not the reporting period and the level in the fair value hierarchy measured at fair value in the balance sheet but for which into which the fair value measurements are categorized. the fair value shall be disclosed, the fair value at the end of Millions of euro LIABILITIES Fair value at Dec. 31, 2014 Notes Level 1 Level 2 Level 3 Bonds: - fixed rate - floating rate Total TOTAL 31.2.1 31.2.1 18,166 4,311 22,477 22,477 18,166 3,048 21,214 21,214 - 1,263 1,263 1,263 - - - - 35. Related parties Related parties have been identified on the basis of the performed in accordance with procedural and substantive provisions of international accounting standards and the propriety. applicable CONSOB measures. In November 2010, the Board of Directors of Enel SpA The transactions Enel SpA entered into with its subsidiaries approved a procedure governing the approval and exe- mainly involved the provision of services, the sourcing and cution of transactions with related parties carried out by employment of financial resources, insurance coverage, Enel SpA directly or through subsidiaries. The procedure human resource management and organization, legal and (available at http://www.enel.com/en-GB/governance/ corporate services, and the planning and coordination of rules/related_parties/) sets out rules designed to ensure tax and administrative activities. the transparency and procedural and substantive proprie- All the transactions are part of routine operations, are implementation of the provisions of Article 2391-bis of the carried out in the interest of the Company and are settled Italian Civil Code and the implementing regulations issued on an arm’s length basis, i.e. on the same market terms as by CONSOB. In 2014, no transactions were carried out for agreements entered into between two independent par- which it was necessary to make the disclosures required in ty of transactions with related parties. It was adopted in ties. the rules on transactions with related parties adopted with CONSOB Resolution 17221 of March 12, 2010, as amended Finally, the Enel Group’s corporate governance rules, with Resolution 17389 of June 23, 2010. which are discussed in greater detail in the Report on Cor- porate Governance and Ownership Structure available on The following tables summarize commercial, financial and the Company’s website (www.enel.com), establish condi- other relationships between the Company and related par- tions for ensuring that transactions with related parties are ties. 348 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSCommercial and other relationships 2014 Millions of euro Receivables Payables Goods Services Goods Services at Dec. 31, 2014 at Dec. 31, 2014 2014 2014 Costs Revenue Subsidiaries Endesa Distribución Eléctrica SL Endesa Generación SA Endesa Latinoamérica SA Endesa SA Enel Distributie Banat SA Enel Distributie Dobrogea SA Enel Distributie Muntenia SA Enel Distribuzione SpA Enel Energia SpA Enel Iberoamérica SL Enel France Sas Enel Green Power Partecipazioni Speciali Srl Enel Green Power SpA Enel Green Power España SL Enel Green Power North America Inc. Enel Ingegneria e Ricerca SpA Enel Longanesi Developments Srl Enel Russia OJSC Enel Produzione SpA Enel Romania Srl Enel Italia Srl Enel Servizio Elettrico SpA Enel Sole Srl Enel Trade SpA Enel.Factor SpA Enel Insurance NV Enel.si Srl Enelpower SpA Endesa Energía SA Gas y Electricidad Generación SAU Nuove Energie Srl Slovenské elektrárne AS Sviluppo Nucleare Italia Srl Unión Eléctrica de Canarias Generación SAU Total Other related parties GSE Total TOTAL 16 (2) - - - - 1 146 109 1 2 - 41 - 1 8 - 16 88 4 22 6 3 18 - 1 7 - 6 - - 17 - - 511 1 1 512 - - 1 4 - - - 289 4 - 1 2 10 - 1 3 1 4 169 - 47 74 - 105 13 - 2 3 - - 1 - 3 - 737 1 1 738 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 5 - - - - - - - - - - - (1) - 1 - - 49 - - - - - - - - - - - 3 - 58 - - 58 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 16 3 (3) 1 1 1 1 73 59 1 - - 21 (2) - 2 - 4 33 - 1 8 4 3 - 1 1 - 6 1 1 6 - 2 245 - - 245 349 2013 Millions of euro Receivables Payables Goods Services Goods Services at Dec. 31, 2013 at Dec. 31, 2013 2013 2013 Costs Revenue Subsidiaries Endesa Distribución Eléctrica SL Endesa Generación SA Endesa Latinoamérica SA Endesa SA Enel Distributie Banat SA Enel Distributie Dobrogea SA Enel Distributie Muntenia SA Enel Distribuzione SpA Enel Energia SpA Enel Iberoamérica SL Enel France Sas Enel Green Power International BV Enel Green Power Partecipazioni Speciali Srl Enel Green Power SpA Enel Green Power Latin America BV Enel Green Power North America Inc. Enel Ingegneria e Ricerca SpA Enel Investment Holding BV Enel Longanesi Developments Srl Enel M@P Srl Enel Russia OJSC Enel Produzione SpA Enel Romania Srl Enel Servicii Comune SA Enel Italia Srl Enel Servizio Elettrico SpA Enel Sole Srl Enel Trade SpA Enel Unión Fenosa Renovables SA Enel.Factor SpA Enel Insurance NV Enel.si Srl Enelpower SpA Endesa Energía SA Gas y Electricidad Generación SAU Nuove Energie Srl Slovenské elektrárne AS Sviluppo Nucleare Italia Srl Unión Eléctrica de Canarias Generación SAU Total Other related parties GSE Fondazione Centro Studi Enel Total TOTAL 350 15 5 10 1 2 1 3 209 59 - 2 1 - 43 4 1 12 3 - - 14 71 10 3 29 18 2 42 2 - - 19 - - - 3 11 - 8 - - 1 13 - - - 442 4 1 - - 1 3 - 1 8 - 1 1 3 175 1 - 55 160 5 120 - 4 - 4 3 - - - - 1 - 603 1,007 1 - 1 - - - 604 1,007 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 6 - - - 4 - - - - - - - 1 1 - - - 1 1 1 - 59 - - - - - - - - - - - - 4 - 79 - - - 79 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 15 4 9 1 1 1 2 81 52 - 1 - - 21 - - 3 1 - - 5 25 1 - 11 11 3 6 - - 1 1 - 5 1 1 7 - 2 272 - 1 1 273 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSFinancial relationships 2014 Millions of euro Receivables Payables Guarantees Costs Revenue Dividends at Dec. 31, 2014 2014 Subsidiaries Concert Srl Enel Distribuzione SpA Enel Energia SpA Enel Iberoamérica SL - 218 11 2 2 1,258 - 2 - 4,005 1,009 - - 1 - - Enel Finance International NV 1,714 3,105 25,522 750 Enel France Sas Enel Green Power International BV Enel Green Power México S de RL de Cv Enel Green Power North America Inc. Enel Green Power Romania Srl Enel Green Power SpA Enel Ingegneria e Ricerca SpA Enel Investment Holding BV Enel Longanesi Developments Srl Enel M@P Srl Enel Produzione SpA Enel Italia Srl Enel Servizio Elettrico SpA Enel Sole Srl Enel Trade Romania Srl Enel Trade SpA Enel.Factor SpA Enel.Newhydro Srl Enel.si Srl Enelpower SpA Marcinelle Energie SA Nuove Energie Srl PH Chucas SA Sviluppo Nucleare Italia Srl Total Other related parties CESI SpA Total TOTAL - 98 23 14 5 67 98 1 27 1 137 102 1,242 41 - 1,231 160 - 5 - - 5 7 - 5,209 - - - - - - - 9 - 88 - - 112 200 - - - 239 - 16 - 34 - - - 11 5,076 - - 26 - - 45 - 1,543 67 365 1 5 2,691 91 1,660 111 6 1,424 - 6 36 1 9 86 - 4 - 1 - 2 - 3 - - - - 129 - - - - 286 - - - - - - - - 38,713 1,172 654 1,817 - - - - - - 1 1 5,209 5,076 38,713 1,172 654 1,818 351 - 189 8 2 173 - 32 1 1 - 71 5 3 - - 35 6 8 3 - 115 2 - - - - - - - - 1,373 16 - - - - - - - 109 - - - - 223 7 85 - - - 3 - - 1 - - - - Enel Finance International NV 1,326 324 26,869 138 747 Receivables Payables Guarantees Costs Revenue Dividends at Dec. 31, 2013 2013 - 133 160 138 1 1,012 - - - 4,748 1,015 - - 33 - - - 56 18 12 - 3 - - 306 109 1 23 2 214 102 1,064 124 - 1,367 248 - 6 - - 1 - 35 - - 1 - - 6 - 5 - - 79 167 - - - 39 - 13 - 37 - 4 5 - 10 38 - - 40 1,475 81 300 - 6 2,806 86 1,399 119 19 1,522 - 6 32 1 11 86 - - 2 - 3 - 2 12 - - - - - 2 1 2 18 1 2 - - 31 106 - - - - 5 8 2 - 91 180 - - - - - - - - - 3 - - - - 1 - 1 - - 1,625 44 - - - - - - 89 - - - - 222 40 - - - - 4 - - 3 - - - - - 5,362 1,703 40,661 310 1,165 2,027 - - - - - - - 5 5 - - - - - - 1 - 1 5,362 1,703 40,666 310 1,165 2,028 2013 Millions of euro Subsidiaries Concert Srl Enel Distribuzione SpA Enel Energia SpA Enel Iberoamérica SL Enel France Sas Enel Green Power International BV Enel Green Power México S de RL de Cv Enel Green Power North America Inc. Enel Green Power SpA Enel Ingegneria e Ricerca SpA Enel Investment Holding BV Enel Longanesi Developments Srl Enel M@P Srl Enel Produzione SpA Enel Italia Srl Enel Servizio Elettrico SpA Enel Sole Srl Enel Trade Romania Srl Enel Trade SpA Enel.Factor SpA Enel.Newhydro Srl Enel.si Srl Enelpower SpA Marcinelle Energie SA Nuove Energie Srl Pragma Energy SA SE Hydropower Srl Sviluppo Nucleare Italia Srl Total Other related parties CESI SpA Elcogas SA Total TOTAL 352 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTSThe impact of transactions with related parties on the balance sheet, income statement and cash flows is reported in the following tables. Impact on balance sheet Millions of euro Total Related parties % of total Total Related parties % of total at Dec. 31, 2014 at Dec. 31, 2013 Assets Derivatives - non-current Other non-current financial assets Other non-current assets Trade receivables Derivatives - current Other current financial assets Other current assets Liabilities Long-term borrowings Derivatives - non-current Other non-current liabilities Short-term borrowings Current portion of long-term borrowings Trade payables Derivatives - current Other current financial liabilities Other current liabilities Impact on income statement 1,979 146 467 132 280 5,040 244 17,288 2,484 287 4,746 2,363 139 359 694 975 819 117 177 127 50 4,223 208 - 469 287 4,319 - 55 234 54 396 41.4% 80.1% 37.9% 96.2% 17.9% 83.8% 85.2% 1,355 165 483 216 177 5,280 319 - 17,764 18.9% 100.0% 91.0% - 39.6% 65.2% 7.8% 40.6% 2,098 283 1,653 1,061 212 237 587 709 972 117 199 209 104 4,169 196 - 70 281 1,531 - 83 72 30 643 71.7% 70.9% 41.2% 96.8% 58.8% 79.0% 61.4% - 3.3% 99.3% 92.6% - 39.2% 30.4% 5.1% 90.7% Millions of euro Total Related parties % of total Total Related parties % of total Revenue Electricity purchases and consumables Services and other operating expenses Income from equity investments Financial income on derivatives Other financial income Financial expense on derivatives Other financial expense Impact on cash flows 2014 2013 246 2 324 1,818 2,190 222 1,954 1,377 245 - 58 99.6% - 17.9% 1,818 100.0% 460 194 1,169 3 21.0% 87.4% 59.8% 0.2% 275 6 334 2,028 1,492 320 1,601 1,001 273 - 79 99.3% - 23.7% 2,028 100.0% 938 227 185 125 62.9% 70.9% 11.6% 12.5% Millions of euro Total Related parties % of total Total Related parties % of total 2014 2013 Cash flows from operating activities 926 667 72.0% 1,669 28 1.7% Cash flows from investing/disinvesting activities Cash flows from financing activities (11) 2,934 (10) 2,682 90.9% 91.4% (113) (4,894) (113) 100.0% (3,751) 76.6% 353 36. Contractual commitments and guarantees Millions of euro Sureties and guarantees given: - third parties - subsidiaries - associates and others Total at Dec. 31, 2014 at Dec. 31, 2013 Change 405 38,713 - 39,118 439 40,661 5 41,105 (34) (1,948) (5) (1,987) Sureties granted to third parties regard guarantees issued by for obligations under the electricity purchase contract; the Parent Company as part of the disposal to third parties > €720 million issued to INPS on behalf of various Group of assets owned by Enel SpA or in the interest of its subsidia- companies whose employees elected to participate in the ries and they essentially regard the sale of real estate assets structural staff reduction plan (Article 4 of Law 92/2012); (€404 million). The guarantee is meant to ensure the per- > €545 million issued as counter-guarantees in favor of formance of contractual obligations, specifically payments the banks that guaranteed the Energy Markets Operator due and the commitment to renew at least 50% of the long- (GME) on behalf of Enel Trade and Enel Produzione; term lease agreements for 6 years. > €458 million issued in favor of Terna on behalf of Enel Di- stribuzione, Enel Trade, Enel Produzione and Enel Energia Sureties issued on behalf of subsidiaries include: in respect of agreements for the electricity transmission > €23,135 million issued on behalf of Enel Finance Inter- service; national securing bonds denominated in dollars, pounds, > €365 million issued to financial counterparties on behalf euros and yen as part of the €35 billion Global Medium- of Enel Finance International securing bonds as part of Term Notes program; the €35 billion Global Medium-Term Notes program; > €3,374 million issued to the European Investment Bank > €337 million issued in favor of Snam Rete Gas on behalf (EIB) for loans granted to Enel Distribuzione, Enel Produ- of Enel Trade for gas transport capacity; zione and Enel Green Power SpA; > €50 million issued to E.ON on behalf of Enel Trade for tra- > €2,387 million issued on behalf of Enel Finance Interna- ding on the electricity market; tional securing a euro commercial paper program; > €50 million issued to RWE Supply & Trading Netherlands > €1,957 million issued to the tax authorities in respect of BV on behalf of Enel Trade for electricity purchases; participation in the Group VAT procedure on behalf of > €32 million issued to Wingas GmbH & CO.KG on behalf of Enel.Newhydro, Enel Produzione, Enelpower, Enel Servi- Enel Trade for the supply of gas; zio Elettrico, Nuove Energie, Enel Ingegneria e Ricerca, > €2,741 million issued to various beneficiaries as part of Enel M@p, Enel.si, Enel Green Power, Enel Sole, Enel Lon- financial support activities by the Parent Company on be- ganesi Developments, Enel Stoccaggi and Energy Hydro half of subsidiaries, as well as €5 million issued on behalf Piave; of Enel.Newhydro as part of the disposal of the Ismes bu- > €1,407 million in favor of Cassa Depositi e Prestiti issued siness unit. on behalf of Enel Distribuzione, which received the Enel Grid Efficiency II loan; In its capacity as the Parent Company, Enel SpA has also > €1,150 million issued by Enel SpA to the Acquirente Uni- granted letters of patronage to a number of Group compa- co (Single Buyer) on behalf of Enel Servizio Elettrico SpA nies, essentially for assignments of receivables. 354 ENEL ANNUAL REPORT 2014SEPARATE FINANCIAL STATEMENTS37. Contingent liabilities and assets Please see note 49 to the consolidated financial statements for information on contingent liabilities and assets. 38. Events after the reporting date Please see note 50 to the consolidated financial statements for information on events after the reporting date. 39. Share-based incentive plans Please see note 51 to the consolidated financial statements for information on share-based incentive plans. 40. Fees of audit firm pursuant to Article 149-duodecies of the CONSOB “Issuers Regulation” Fees paid in 2014 to the audit firm and entities belonging to its network for services are summarized in the following table, pursuant to the provisions of Article 149-duodecies of the CONSOB “Issuers Regulation”. Type of service Entity providing the service Fees (millions of euro) Enel SpA Auditing of which: - Reconta Ernst & Young SpA - Entities of Ernst & Young SpA network Certification services of which: - Reconta Ernst & Young SpA - Entities of Ernst & Young SpA network Total Subsidiaries of Enel SpA Auditing of which: Certification services of which: - Reconta Ernst & Young SpA - Entities of Ernst & Young SpA network - Reconta Ernst & Young SpA - Entities of Ernst & Young SpA network Total TOTAL 1.6 - 0.5 - 2.1 1.7 6.3 0.5 5.3 13.8 15.9 355 Declaration of the Chief Executive Officer and the officer responsible for the preparation of corporate financial reports 356 DECLARATION OF THE CHIEF EXECUTIVE OFFICER AND THE OFFICER RESPONSIBLE ENEL ANNUAL REPORT 2014Declaration of the Chief Executive Officer and the officer responsible for the preparation of the financial reports of Enel SpA at December 31, 2014, pur- suant to the provisions of Article 154-bis, paragraph 5, of Legislative Decree 58 of February 24, 1998 and Article 81-ter of CONSOB Regulation 11971 of May 14, 1999 1. The undersigned Francesco Starace and Alberto De Paoli, in their respective capacities as Chief Exe- cutive Officer and officer responsible for the preparation of the financial reports of Enel SpA, hereby certify, taking account of the provisions of Article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of February 24, 1998: a. the appropriateness with respect to the characteristics of the Company and b. the effective adoption of the administrative and accounting procedures for the preparation of the separate financial statements of Enel SpA in the period between January 1, 2014 and Decem- ber 31, 2014. 2. In this regard, we report that: a. the appropriateness of the administrative and accounting procedures used in the preparation of the separate financial statements of Enel SpA has been verified in an assessment of the internal control system for financial reporting. The assessment was carried out on the basis of the guide- lines set out in the “Internal Controls - Integrated Framework” issued by the Committee of Spon- soring Organizations of the Treadway Commission (COSO); b. the assessment of the internal control system for financial reporting did not identify any material issues. 3. In addition, we certify that separate financial statements of Enel SpA at December 31, 2014: a. have been prepared in the compliance with the international accounting standards recognized in the European Union pursuant to Regulation (EC) 1606/2002 of the European Parliament and of the Council of July 19, 2002; b. correspond to the information in the books and other accounting records; c. provide a true and fair representation of the performance and financial position of the issuer. 4. Finally, we certify that the report on operations, included in the Annual Report 2014 and accompa- nied by the financial statements of Enel SpA at December 31, 2014, contains a reliable analysis of operations and performance, as well as the situation of the issuer, together with a description of the main risks and uncertainties to which it is exposed. Rome, March 18, 2015 Francesco Starace Alberto De Paoli Chief Executive Officer of Enel SpA Officer responsible for the preparation of the financial reports of Enel SpA 357 358 ENEL ANNUAL REPORT 2014REPORTSReports 359 Report of the Board of Auditors to the Shareholders’ Meeting of Enel SpA 360 ENEL ANNUAL REPORT 2014REPORTSReport of the Board of Auditors to the Shareholders’ Meeting of Enel SpA (pursuant to Article 153 of Legislative Decree 58/1998) Shareholders, During the year ended December 31, 2014 we performed the oversight activities envisaged by law at Enel SpA (hereinafter also “Enel” or the “Company”). In particular, pursuant to the provisions of Article 149, pa- ragraph 1, of Legislative Decree 58 of February 24, 1998 (hereinafter the “Consolidated Law on Finance”) and Article 19, paragraph 1 of Legislative Decree 39 of January 27, 2010 (hereinafter “Decree 39/2010”) we monitored: > compliance with the law and the corporate bylaws as well as compliance with the principles of sound administration in the performance of the Company's business; > the Company's financial reporting process and the adequacy of the administrative and accounting sy- stem, as well as the reliability of the latter in representing operational events; > the statutory audit of the annual statutory and consolidated accounts and the independence of the audit firm; > the adequacy and effectiveness of the internal control and risk management system; > the adequacy of the organizational structure of the Company, within the scope of our responsibilities; > the implementation of the corporate governance rules as provided for by the Corporate Governance Code for Listed Companies (hereinafter, the “Corporate Governance Code”), which the Company has adopted; > the appropriateness of the instructions given by the Company to its subsidiaries to enable it to meet statutory market disclosure requirements. In performing our checks and assessments of the above issues, we did not find any particular issues to report. In compliance with the instructions issued by CONSOB with Communication DEM/1025564 of April 6, 2001, as amended, we report the following: > we monitored compliance with the law and the bylaws and we have no issues to report; > on a quarterly basis, we received adequate information from the Chief Executive Officer, as well as through our participation in the meetings of the Board of Directors of Enel, on activities performed, general developments in operations and the outlook, and on transactions with the most significant impact on performance or the financial position carried out by the Company and its subsidiaries. We re- port that the actions approved and implemented were in compliance with the law and the bylaws and were not manifestly imprudent, risky, in potential conflict of interest or in contrast with the resolutions of the Shareholders’ Meeting or otherwise prejudicial to the integrity of the Company’s assets. For a discussion of the features of the most significant transactions, please see the report on operations ac- companying the separate financial statements of the Company for 2014 and the consolidated financial statements of the Enel Group for 2014 (in the section “Significant events in 2014”); > we did not find any atypical or unusual transactions conducted with third parties, Group companies or other related parties; > in the section “Related parties” of the notes to the separate 2014 financial statements of the Company, the directors describe the main related-party transactions – identified on the basis of international ac- counting standards and the instructions of CONSOB – carried out by the Company, to which readers may refer for details on the transactions and their financial impact. They also detail the procedures adopted to ensure that related-party transactions are carried out in accordance with the principles of 361 transparency and procedural and substantive fairness. The transactions were carried out in compliance with the approval and execution processes set out in the related procedure – adopted in compliance with the provisions of Article 2391-bis of the Italian Civil Code and the implementing regulations issued by CONSOB – described in the Report on Corporate Governance and Ownership Structure for 2014. All transactions with related parties reported in the notes to the separate 2014 financial statements of the Company were executed as part of ordinary operations in the interest of the Company and settled on market terms and conditions; > the Company declares that it has prepared its statutory financial statements for 2014 on the basis of international accounting standards (IAS/IFRS) – and the interpretations issued by the IFRIC and the SIC – endorsed by the European Union pursuant to Regulation (EC) 1606/2002 and in force at the close of 2014, as well as the provisions of Legislative Decree 38 of February 28, 2005 and its related imple- menting measures, as it did the previous year. The Company’s separate financial statements for 2014 have been prepared on a going-concern basis using the cost method, with the exception of items that are measured at fair value under the IFRS-EU, as indicated in the accounting policies for the individual items of the consolidated financial statements. The notes to the Company’s separate financial state- ments also refer readers to the consolidated financial statements for information on the accounting standards and measurement criteria adopted, with the exception of equity investments in subsidiaries and associates, which are carried in the Company’s separate financial statements at purchase costs adjusted for any impairment losses. The notes to the Company’s separate financial statements also refer readers to the consolidated financial statements for information on recently issued accounting standards. The separate financial statements for 2014 of the Company were audited by the indepen- dent auditors Reconta Ernst & Young SpA, which issued an unqualified opinion, including with regard to the consistency of the report on operations with the financial statements, pursuant to Article 14 of Decree 39/2010; > the Company declares that it has also prepared the consolidated financial statements of the Enel Group for 2014 on the basis of international accounting standards (IAS/IFRS) – and the interpretations issued by the IFRIC and the SIC – endorsed by the European Union pursuant to Regulation (EC) 1606/2002 and in force at the close of 2014, as well as the provisions of Legislative Decree 38 of February 28, 2005 and its related implementing measures, as it did the previous year. The 2014 consolidated financial state- ments of the Enel Group are also prepared on a going-concern basis using the cost method, with the exception of items that are measured at fair value under the IFRS-EU (as indicated in the discussion of measurement criteria for the individual items) and non-current assets (or disposal groups) classified as held for sale, which are measured at the lower of carrying amount and fair value less costs to sell. The notes to the consolidated financial statements provide a detailed discussion of the accounting stan- dards and measurement criteria adopted. As regards recently issued accounting standards, the notes to the consolidated financial statements discuss (i) new standards applied in 2014, which according to the notes did not have a material impact in the year under review, with the exception of the amended standard “IFRS 11 - Joint arrangements”, “IAS 28 - Investments in associates and joint ventures” and “IAS 32 - Financial instruments: presentation - Offsetting financial assets and financial liabilities”, whose effects – including on the comparative figures for the previous year – were discussed in the notes to the finan- cial statements; and (ii) standards that will apply in the future. The consolidated financial statements for 2014 of the Enel Group were audited by the independent auditors Reconta Ernst & Young SpA, which issued an unqualified opinion, including with regard to the consistency of the report on operations with the consolidated financial statements, pursuant to Article 14 of Decree 39/2010. Under the terms of its engagement, Reconta Ernst & Young SpA also issued unqualified opinions on the financial statements for 2014 of the most significant Italian companies of the Enel Group. Moreover, du- ring periodic meetings with the representatives of the audit firm, Reconta Ernst & Young SpA, the latter did not raise any issues concerning the reporting packages of the main foreign companies of the Enel 362 ENEL ANNUAL REPORT 2014REPORTSGroup, selected by them on the basis of the work plan established for the auditing of the consolidated financial statements of the Enel Group, that would have a sufficiently material impact to be reported in the opinion on those financial statements; > taking due account of the recommendations of the European Securities and Markets Authority, on January 21, 2013, in order to ensure greater transparency concerning the methods used by listed com- panies in testing goodwill for impairment, in line with the recommendations contained in the joint Bank of Italy - CONSOB - ISVAP document 4 of March 3, 2010, and in the light of indications of CONSOB in its Communication 3907 of January 19, 2015, the compliance of the impairment testing procedure with the provisions of IAS 36 was expressly approved by the Board of Directors of the Company, having obtained a favorable opinion in this regard from the Control and Risk Committee in February 2015, i.e. prior to the date of approval of the financial statements for 2014; > we examined the Board of Directors’ proposal for the allocation of net income for 2014 and the distri- bution of available reserves and have no comments in this regard; > we note that the Board of Directors of the Company certified, following appropriate checks by the Control and Risk Committee, that as at the date on which the 2014 financial statements were appro- ved, the Enel Group continued to meet the conditions established by CONSOB (set out in Article 36 of the Market Rules, approved with Resolution 16191 of October 29, 2007 as amended) concerning the accounting transparency and adequacy of the organizational structures and internal control systems that subsidiaries established and regulated under the law of non-EU countries must comply with so that Enel shares can continue to be listed on regulated markets in Italy; > we monitored, within the scope of our responsibilities, the adequacy of the organizational structure of the Company (and the Enel Group as a whole), obtaining information from department heads and in meetings with the boards of auditors or equivalent bodies of a number of the main Enel Group compa- nies in Italy and abroad, for the purpose of the reciprocal exchange of material information. During the second Half of 2014, a new organizational structure based on a matrix of Divisions and geographical areas was implemented in the Enel Group. It is organized into: (i) Divisions, which are responsible for managing and developing assets, optimizing their performance and the return on capital employed in the various geographical areas in which the Group operates. The Divisions comprise: Global Infrastructure and Networks, Global Generation, Global Trading, Renewable Energy, and Upstream Gas; (ii) regions and countries, which are responsible for managing relationships with local institutional bodies and regulatory authorities, as well as selling electricity and gas, in each of the countries in which the Group is present, while also providing staff and other service support to the Divisions. Regions and countries comprise: Italy, Iberia, Latin America, Eastern Europe; (iii) Global service functions, which are responsible for managing information and communication technology activities and procurement at the Group level; and (iv) Hol- ding company functions, which are responsible for managing governance processes at the Group level. They include: Administration, Finance and Control, Human Resources and Organization, Communication, Legal and Corporate Affairs, Audit, European Union Affairs, and Innovation and Sustainability. The Board of Auditors feels that the organizational system described above is adequate to support the strategic de- velopment of the Company and the Enel Group and is consistent with control requirements; > during meetings with the boards of auditors or equivalent bodies of a number of the Group’s main companies in Italy and abroad, no material issues emerged that would require reporting here; > we monitored the independence of the audit firm Reconta Ernst & Young SpA, having received from them specific written confirmation that they met that requirement (pursuant to the provisions of Article 17, paragraph 9, letter a) of Decree 39/2010) and having discussed the substance of that declaration with the audit partner. In this regard, we also monitored – as provided for under Article 19, paragraph 1(d), of Decree 39/2010 – the nature and the scale of non-audit services provided to the Company and other Enel Group companies by Reconta Ernst & Young SpA and the entities belonging to its network, the fees for which are reported in the notes to the financial statements of the Company. Following our 363 examinations, the Board of Auditors feels that there are no critical issues concerning the independence of the audit firm Reconta Ernst & Young SpA. We held periodic meetings with the representatives of the audit firm, pursuant to Article 150, paragraph 3, of the Consolidated Law on Finance, and no material issues emerged that would require mention in this report. As regards the provisions of Article 19, paragraph 3, of Decree 39/2010, Reconta Ernst & Young SpA provided the Board of Auditors with the report for 2014 “on key issues emerging during the statuto- ry audit”, which did not find any significant shortcomings in the internal control system concerning financial reporting. The audit firm also reported that, as it performed its engagement, it provided sug- gestions concerning a number of issues that, after being agreed with the competent units of the Com- pany, enabled improvements to be implemented. The audit firm also reported that a management letter for 2014 is being prepared; > we monitored the financial reporting process, the appropriateness of the administrative and accounting system and its reliability in representing operational events, as well as compliance with the principles of sound administration in the performance of the Company's business and we have no comments in that regard. We conducted our checks by obtaining information from those who served in 2014 as head of the Administration, Finance and Control department (taking due account of their role as the officer responsible for the preparation of the Company’s financial reports), examining Company documenta- tion and analyzing the findings of the examination performed by Reconta Ernst & Young SpA. The Chief Executive Officer and the officer responsible for the preparation of the financial reports of Enel issued a statement (regarding the Company’s 2014 financial statements) certifying (i) the appropriateness with respect to the characteristics of the Company and the effective adoption of the administrative and accounting procedures used in the preparation of the financial statements; (ii) the compliance of the content of the financial reports with international accounting standards endorsed by the European Union pursuant to Regulation (EC) 1606/2002; (iii) the correspondence of the financial statements with the information in the books and other accounting records and their ability to provide a true and fair representation of the performance and financial position of the Company; and (iv) that the report on operations accompanying the financial statements contains a reliable analysis of operations and perfor- mance, as well as the situation of the issuer, together with a description of the main risks and uncertain- ties to which it is exposed. The statement also affirmed that the appropriateness of the administrative and accounting procedures used in the preparation of the financial statements of the Company had been verified in an assessment of the internal control system for financial reporting (supported by the findings of the independent monitoring performed by the Company’s Audit department) and that the assessment of the internal control system did not identify any material issues. An analogous statement was prepared for the consolidated financial statements for 2014 of the Enel Group; > we monitored the adequacy and effectiveness of the internal control system, primarily through periodic meetings with those who served in 2014 as head of the Audit department of the Company and through a number of joint meetings with the Control and Risk Committee as well as with the participation of the Chairman of the Board of Auditors in the other meetings of the Control and Risk Committee and the subsequent examination of the associated documentation during those meetings. In the light of our examination and in the absence of significant issues, the internal control and risk management system can be considered adequate and effective. In February 2015, the Board of Directors of the Company expressed an analogous assessment of the situation and also noted that the main risks associated with the strategic targets set out in the 2015-2019 business plan were compatible with the management of the Company in a manner consistent with those targets; > during the year, the Board of Auditors received one report of censurable facts pursuant to Article 2408 of the Italian Civil Code from a shareholder, who complained about restrictions on the procedures for submitting questions before the Shareholders’ Meeting of May 22, 2014. We responded appropriately to the shareholder, demonstrating the Company’s full compliance with the law and the specious nature 364 ENEL ANNUAL REPORT 2014REPORTSof the complaint. We also received two complaints from customers of Italian companies of the Enel Group containing allegations of service problems or breach of contract in the performance of electricity supply and distribution activities. The Board of Auditors asked the competent Company units to con- duct an appropriate investigation, which found no irregularities to report; > we monitored the effective implementation of the Corporate Governance Code, which the Company has adopted, verifying the compliance of Enel’s governance arrangements with the recommendations of the Code. Detailed information on the Company’s corporate governance system can be found in the report on corporate governance and ownership structure for 2014. In June 2014 and February 2015, the Board of Auditors verified that the Board of Directors, in evaluating the independence of non-exe- cutive directors, correctly applied the assessment criteria specified in the Corporate Governance Code and the principle of the priority of substance over form set out in that Code, adopting a transparent procedure, the details of which are discussed in the report on corporate governance and ownership structure for 2014. As regards the “self-assessment” of the independence of its members, the Board of Auditors verified compliance, most recently in February 2015, with the requirements set out in both the Consolidated Law on Finance and the Corporate Governance Code; > since the listing of its shares, the Company has adopted specific rules (most recently amended in De- cember 2012) for the internal management and processing of confidential information, which also set out the procedures for the disclosure of documentation and information concerning the Company and the Group, with specific regard to inside information. Those rules (which can be consulted at www. enel.com) contain appropriate provisions directed at subsidiaries to enable Enel to comply with statu- tory market disclosure requirements, pursuant to Article 114, paragraph 2, of the Consolidated Law on Finance; > in 2002 the Company also adopted (and has subsequently updated) a Code of Ethics (also available at www.enel.com) that expresses the commitments and ethical responsibilities involved in the conduct of business, regulating and harmonizing corporate conduct in accordance with standards of maximum transparency and fairness with respect to all stakeholders; > with regard to the provisions of Legislative Decree 231 of June 8, 2001, which introduced into Italian law a system of administrative (in fact criminal) liability for companies for certain types of offences committed by its directors, managers or employees on behalf of or to the benefit of the company, since July 2002 Enel has adopted a compliance program consisting of a “general part” and various “special parts” concerning the difference offences specified by Legislative Decree 231/2001 that the program is intended to prevent. For a description of the manner in which the model has been implemented by the various Group companies, please see the report on corporate governance and ownership structure for 2014. The structure that monitors the operation and compliance with the program and is responsible for updating it (hereinafter, “the Supervisory Body”) is a collegial body. In 2014 it was composed of two external members with expertise on corporate organization matters, one of whom acted as chairman of the body, and the head of the Audit department, the head of the Legal and Corporate Affairs de- partment and the Secretary of the Board of Directors of the Company, since they have specific profes- sional expertise regarding the application of the compliance program and are not directly involved in operating activities. The Board of Auditors received adequate information on the main activities carried out in 2014 by the Supervisory Body. Our examination of those activities found no facts or situations that would require mention in this report; > in 2014, the Board of Auditors issued the following opinions: - a favorable opinion at the meeting of January 29, 2014 concerning the 2014 Audit Plan in accordance with the provisions of Article 7.C.1, letter c) of the Corporate Governance Code, preliminary to the resolutions pertaining to the Board of Directors in that regard; - a favorable opinion at the meeting of May 7, 2014 on the findings of Reconta Ernst & Young in its report on the major issues that arose in the statutory audit in 2013, in accordance with the provisions 365 of Article 7.C.1, letter e) of the Corporate Governance Code, preliminary to the assessments pertaining to the Board of Directors in that regard; - a favorable opinion at the meeting of June 17, 2014 concerning the replacement of the head of the Company’s Audit department, Francesca Di Carlo, by Silvia Fiori, as well as the remuneration to be paid to the latter for that position, in accordance with the proposal of the Chief Executive Officer – acting as director responsible for the internal control and risk management system and in agreement with the Chairman of the Board of Directors – in accordance with the provisions of Article 7.C.1, pa- ragraph 2, of the Corporate Governance Code, preliminary to the resolutions pertaining to the Board of Directors in that regard; - a favorable opinion at the meeting of July 24, 2014, pursuant to Article 2389, paragraph 3, of the Italian Civil Code, concerning the remuneration to be paid to the members of the various committees established within the Board of Directors following the election of that Board by the Shareholders’ Meeting of May 22, 2014; - a favorable opinion at the meeting of July 24, 2014 concerning the attendance fee to be paid for participation in the meetings of the corporate boards to the magistrate of the State Audit Court dele- gated to control the financial management of the Company; - a favorable opinion at the meeting of September 18, 2014, pursuant to Article 2389, paragraph 3, of the Italian Civil Code, concerning the remuneration and job conditions of the Chairman of the Board and the Chief Executive Officer/General Manager during the 2014-2016 term; - a favorable opinion at the meeting of October 29, 2014, pursuant to Article 20.5, paragraph 1, of the Company bylaws, concerning the replacement of the officer responsible for the preparation of the fi- nancial reports, Luigi Ferraris, by Alberto De Paoli, in accordance with a proposal of the Chief Executive Officer, preliminary to the resolutions pertaining to the Board of Directors in that regard; > a report on the fixed and variable compensation accrued by those who served as Chairman of the Board of Directors, the Chief Executive Officer/General Manager and other directors in 2014 for their respective po- sitions and any compensation instruments awarded to them will be contained (as provided for in the draft version, which the Board of Auditors has seen) in the Remuneration Report referred to in Article 123-ter of the Consolidated Law on Finance. It will be submitted for approval by the Board of Directors, acting on a proposal of the Nomination and Compensation Committee, and published in compliance with the time limits established by law. The design of these compensation instruments is in line with best practices, com- plying with the principle of establishing a link with appropriate financial and non-financial performance targets and pursuing the creation of shareholder value over the medium and long term. The proposals to the Board of Directors concerning such forms of compensation and the determination of the associated parameters were prepared by the Nomination and Compensation Committee, which is made up of inde- pendent directors, drawing on the findings of benchmarking analyses at the national and international le- vel performed by an independent consulting firm. In addition, in determining the compensation package of the new directors with special duties, the resolution of the Shareholders’ Meeting of May 22, 2014 was implemented. That resolution, in application of Article 84-ter of Decree Law 69 of June 21, 2013 (ratified with amendments with Law 98 of August 9, 2013), established that for the election of the Board of Di- rectors by that Shareholders’ Meeting the remuneration of directors with special duties could not be set by the Board of Directors in an amount exceeding 75% of the total remuneration of any form, including under an employment relationships with the Company, established during the previous term. Finally, the Report on Remuneration referred to in Article 123-ter of the Consolidated Law on Finance will contain, in compliance with the applicable CONSOB regulations, specific disclosures on the remuneration earned in 2014 by key management personnel. The Board of Auditors’ oversight activity in 2014 was carried out in 17 meetings and with participation in the 18 meetings of the Board of Directors, and, through the Chairman, in the 13 meetings of the Control and Risk 366 ENEL ANNUAL REPORT 2014REPORTSCommittee (of which 9 joint meetings with the Board of Auditors), in the 9 meetings of the Nomination and Compensation Committee, in the 3 meetings of the Related Parties Committee and in the 6 meetings of the Corporate Governance Committee. The delegate of the State Audit Court participated in the meetings of the Board of Auditors and those of the Board of Directors. During the course of this activity and on the basis of information obtained from Reconta Ernst & Young SpA, no omissions, censurable facts, irregularities or other significant developments were found that would requi- re reporting to the regulatory authorities or mention in this report. Based on the oversight activity performed and the information exchanged with the independent auditors Reconta Ernst & Young SpA, we recommend that you approve the Company's financial statements for the year ended December 31, 2014 in conformity with the proposals of the Board of Directors Rome, April 8, 2015 The Board of Auditors Sergio Duca Chairman Lidia D’Alessio Auditor Gennaro Mariconda Auditor 367 Report of the independent audit firm on the 2014 financial statements of Enel SpA 368 ENEL ANNUAL REPORT 2014REPORTS 369 370 ENEL ANNUAL REPORT 2014REPORTS371 Report of the independent audit firm on the 2014 consolidated financial statements of the Enel Group 372 ENEL ANNUAL REPORT 2014REPORTS 373 374 ENEL ANNUAL REPORT 2014REPORTS375 Summary of the resolutions of the Ordinary and Extraordinary Shareholders’ Meeting The Ordinary and Extraordinary Shareholders’ Meeting of Enel SpA held in Rome in single call on May 28, 2015 at the Enel Conference Center at 125, Viale Regina Margherita, adopted the following resolutions du- ring the ordinary session: 1. approved the financial statements of Enel SpA for the year ended December 31, 2014, having acknowled- ged the results of the consolidated financial statements of the Enel Group for the year ended December 31, 2014, which closed with net income attributable to shareholders of the Parent Company of € 517 million; 2. resolved: (i) to earmark the net income for the year 2014 of Enel SpA, amounting to € 558,202,514.37, as fol- lows: a) for distribution to the Shareholders, as dividend, € 0.05 for each of the 9,403,357,795 ordinary shares in circulation on June 22, 2015, the scheduled ex-dividend date, for an overall amount of € 470,167,889.75; b) for “retained earnings” the remaining part equal to € 88,034,624.62; (ii) to earmark for distribution to the Shareholders also a part of the available reserve named “retained earnings” allocated in the financial statements of Enel SpA (amounting at the date of the Sharehol- ders’ Meeting to € 6,061,293,373.19 overall), for an amount of € 0.09 for each of the 9,403,357,795 ordinary shares in circulation on June 22, 2015, the scheduled ex-dividend date, for an overall amount of € 846,302,201.55 paying, before withholding tax, if any, an overall dividend of € 0.14 per ordinary share – of which € 0.05 as distribution of the 2014 net income and € 0.09 as partial distribution of the available reserve named “retained earnings” – as from June 24, 2015, with the ex-dividend date of coupon no. 23 falling on June 22, 2015 and the “record date” (i.e. the date of the legitimate payment of dividends) coinciding with June 23, 2015; 3. resolved, pursuant to Article 2386 of the Italian Civil Code, the appointment of Alfredo Antoniozzi as a member of the Board of Directors, who will stay in office until the expiry of the Board of Directors in office at the date of the Shareholders’ Meeting, i.e. until the approval of 2016 financial statements; 4. resolved to approve the Long Term Incentive Plan for 2015 reserved to the management of Enel SpA and/ or of its subsidiaries pursuant to Article 2359 of the Italian Civil Code, whose features are described in the relevant information document prepared pursuant to Article 84-bis, paragraph 1, of the Issuers Regulation adopted by CONSOB with Resolution 11971/1999, and to grant the Board of Directors, with the faculty to sub-delegate, all powers necessary for the actual implementation of the aforesaid Plan; 5. resolved in favor of the first section of the remuneration report drawn up pursuant to Article 123-ter of Legislative Decree 58 dated February 24, 1998, and Article 84-quater of the Issuers Regulation adopted by CONSOB with Resolution 11971/1999, containing the description of the policy for the remuneration of Directors, General Manager and Executives with strategic responsibilities adopted by the Company for the financial year 2015, as well as the procedures used for the adoption and implementation of such policy. In the extraordinary session, the Shareholders’ Meeting also resolved an amendment of the bylaws provisions concerning requirements of integrity and related causes of ineligibility and disqualification of members of the Board of Directors as set forth under Article 14-bis of the corporate bylaws. 376 ENEL ANNUAL REPORT 2014Summary of the resolutions of the Ordinary and Extraordinary Shareholders’ Meeting 377 378 ENEL ANNUAL REPORT 2014ATTACHMENTSAttachments 379 Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, 2014 In compliance with CONSOB Notice DEM/6064293 of July 28, 2006 and Article 126 of CONSOB Resolution 11971 of May 14, 1999, a list of subsidiaries and associates of Enel SpA at December 31, 2014, pursuant to Article 2359 of the Italian Civil Code, and of other significant equity investments is provided below. Enel has full title to all investments. The following information is included for each company: name, headquarters, share capital, currency in which share capital is denominated, activity, method of consolidation, Group companies that have a stake in the company and their respective ownership share, and the Group’s ownership share. 380 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Parent company Enel SpA Rome Italy 9,403,357,795.00 EUR Holding company Holding Group % holding 100.00% Subsidiaries (Cataldo) Hydro Power Associates New York (New York) USA - USD Electricity generation from renewable resources Line-by-line 50.00% 68.29% Chi Black River Inc. Hydro Development Group Inc. 3-101-665717 SA Costa Rica Costa Rica 10,000.00 CRC 3SUN Srl Catania Italy 35,205,984.00 EUR Adam Solar PV Project Three (Pty) Ltd Adam Solar PV Project Two (RF) Pty Ltd Mowbray South Africa 1.00 ZAR Johannesburg South Africa 10,000,000.00 ZAR Adria Link Srl Gorizia Italy 500,000.00 EUR Agassiz Beach LLC Minneapolis (Minnesota) USA - USD Rome Italy 10,000.00 EUR Agatos Green Power Trino Agrupación Acefhat AIE Electricity generation from renewable resources Development, design, construction and operation of solar panel manufacturing plants Electricity generation from renewable resources Electricity generation from renewable resources Design, construction and operation of merchant lines Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line PH Chucas SA 100.00% 42.67% Equity Enel Green Power SpA 33.33% 22.76% Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 68.29% Line-by-line Enel Green Power RSA (Pty) Ltd 60.00% 40.97% Equity Enel Produzione SpA 33.33% 33.33% Line-by-line Chi Minnesota Wind LLC 51.00% 34.83% Line-by-line Enel Green Power Solar Energy Srl 80.00% 54.63% Barcelona Spain 793,340.00 EUR Design and services - 16.67% 11.69% Endesa Distribución Eléctrica SL Aguilon 20 SA Zaragoza Spain 2,682,000.00 EUR Albany Solar LLC Minnesota USA - USD Almeyda Solar SpA Santiago Chile 1,736,965,000.00 CLP Almussafes Servicios Energéticos SL Alpe Adria Energia SpA Valencia Spain 3,010.00 EUR Udine Italy 450,000.00 EUR Altomonte Fv Srl Cosenza Italy 100,000.00 EUR Alvorada Energia SA Rio de Janeiro Brazil 17,117,415.92 BRL Ampla Energia e Serviços SA Rio de Janeiro Brazil 129,823.00 BRL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Management and maintenance of power plants Design, construction and operation of merchant lines Electricity generation from renewable resources Electricity generation and sale Electricity generation, transmission and distribution Line-by-line Enel Green Power España SL 51.00% 35.21% Line-by-line Line-by-line Aurora Distributed Solar LLC Enel Green Power Chile Ltda 100.00% 68.29% 100.00% 68.23% Line-by-line Enel Green Power España SL 100.00% 69.03% Equity Enel Produzione SpA 40.50% 40.50% Line-by-line Enel Green Power Solar Energy Srl 100.00% 68.29% Line-by-line Line-by-line Enel Brasil Participações Ltda Chilectra Inversud SA 100.00% 68.29% 21.02% 55.79% Andorra Desarrollo SA Teruel Spain 901,520.00 EUR Regional development Line-by-line Chilectra SA 10.34% Enersis SA 21.38% Endesa Brasil SA 46.89 Endesa Generación SA 100.00% 70.14% 381 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Annandale Solar LLC Minnesota USA - USD Electricity generation from renewable resources Line-by-line Aurora Distributed Solar LLC 100.00% 68.29% Apamea 2000 SL Madrid Spain 3,010.00 EUR Services Line-by-line Endesa SA 100.00% 70.14% Apiacás Energia SA Rio de Janeiro Brazil 21,216,846.33 BRL Electricity generation Line-by-line Aquenergy Systems Inc. Greenville (South Carolina) USA Aquilae Solar SL Las Palmas de Gran Canaria Spain 10,500.00 USD Electricity generation from renewable resources Line-by-line 3,008.00 EUR Photovoltaic plants Equity Aragonesa de Actividades Energéticas SA Teruel Spain 60,100.00 EUR Electricity generation Line-by-line Enel Brasil Participações Ltda Consolidated Hydro Southeast Inc. Endesa Ingeniería SLU Endesa Generación SA 100.00% 68.29% 100.00% 68.29% 50.00% 35.07% 100.00% 70.14% Asociación Nuclear Ascó-Vandellós II AIE Tarragona Spain 19,232,400.00 EUR Atea Srl La Spezia Italy 10,001.00 EUR Management and maintenance of power plants Installation of industrial machinery and equipment Joint operation Endesa Generación SA 85.41% 59.91% Equity Enel Italia Srl 0.01% 0.01% Athonet Smartgrid Srl Bolzano Italy 10,001.00 EUR Research, development and design Equity Enel Italia Srl 0.01% 0.01% Atwater Solar LLC Minnesota USA Aurora Distributed Solar LLC Wilmington (Delaware) USA Autumn Hills LLC Minneapolis (Minnesota) USA - USD - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Aurora Distributed Solar LLC 100.00% 68.29% Line-by-line Enel Kansas LLC 100.00% 68.29% Line-by-line Chi Minnesota Wind LLC 51.00% 34.83% Ayesa Advanced Technologies SA Seville Spain 663,520.00 EUR IT services Equity Aysén Energía SA Santiago Chile 4,900,100.00 CLP Electricity Equity Aysén Transmisiòn SA Santiago Chile 22,368,000.00 CLP Electricity generation and sale Equity Barnet Hydro Company Burlington (Vermont) USA - USD Electricity generation from renewable resources Line-by-line Endesa Servicios SL Empresa Nacional de Electricidad SA Centrales Hidroeléctricas de Aysén SA Empresa Nacional de Electricidad SA Centrales Hidroeléctricas de Aysén SA Sweetwater Hydroelectric Inc. 22.00% 15.43% 0.51% 18.54% 99.00% 0.51% 18.54% 99.00% 90.00% 68.29% 10.00% Enel Green Power North America Inc. Beaver Falls Water Power Company Philadelphia (Pennsylvania) USA Beaver Valley Holdings Ltd Philadelphia (Pennsylvania) USA Beaver Valley Power Company Philadelphia (Pennsylvania) USA - USD 2.00 USD 30.00 USD Biowatt - Recursos Energéticos Lda Porto Portugal 5,000.00 EUR Black River Hydro Associates New York (New York) USA - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Marketing of projects for electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Beaver Valley Holdings Ltd 67.50% 46.09% Line-by-line Line-by-line Line-by-line 100.00% 68.29% 100.00% 68.29% 51.00% 35.21% Hydro Development Group Inc. Hydro Development Group Inc. Finerge-Gestão de Projectos Energéticos SA Line-by-line (Cataldo) Hydro Power Associates 75.00% 51.22% 382 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity Boiro Energia SA Boiro Spain 601,010.00 EUR Electricity generation from renewable resources Consolidation method Equity Held by % holding Group % holding Enel Green Power España SL 40.00% 27.61% 3,008.00 EUR Real estate Line-by-line Endesa SA 100.00% 70.14% Bolonia Real Estate SL Madrid Boott Field LLC Wilmington (Delaware) Spain USA Boott Hydropower Inc. Boston USA (Massachusetts) Boott Sheldon Holdings LLC Wilmington (Delaware) USA Bp Hydro Associates Boise (Idaho) USA Bp Hydro Finance Partnership Salt Lake City (Utah) USA - USD - USD - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources - USD Electricity generation from renewable resources Line-by-line Boott Hydropower Inc. 100.00% 68.29% Line-by-line Boott Sheldon Holdings LLC 100.00% 68.29% Line-by-line Hydro Finance Holding Company Inc. 100.00% 68.29% Line-by-line Chi Idaho Inc. 68.00% 68.29% Enel Green Power North America Inc. 32.00% Line-by-line Fulcrum Inc. 24.08% 68.29% Braila Power SA Sat Chiscani, Comuna Chiscani Romania 1,900,000.00 RON Electricity generation Equity Brooten Solar LLC Minnesota USA Buffalo Dunes Wind Project LLC Topeka (Kansas) USA - USD - USD Business Venture Investments 1468 (Pty) Ltd Bypass Limited Lombardy East South Africa 1,000.00 ZAR Boise (Idaho) USA - USD Bypass Power Company Los Angeles (California) USA 1.00 USD Camposgen-Energia Lda Oeiras Portugal 5,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Canastota Wind Power LLC Wilmington (Delaware) Caney River Wind Project LLC Topeka (Kansas) USA USA - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Bp Hydro Associates Enel Investment Holding BV Aurora Distributed Solar LLC EGPNA Development Holdings LLC Enel Green Power RSA (Pty) Ltd 75.92% 29.93% 29.93% 100.00% 68.29% 75.00% 51.22% 100.00% 68.29% Line-by-line Line-by-line Line-by-line Line-by-line Northwest Hydro Inc. 69.35% 68.29% El Dorado Hydro 1.00% Chi West Inc. 29.65% Line-by-line Chi West Inc. 100.00% 68.29% Line-by-line TP - Sociedade Térmica Portuguesa SA 80.00% 69.03% Pp - Co-Geração SA 20.00% Line-by-line Essex Company 100.00% 68.29% Line-by-line Rocky Caney Wind LLC 100.00% 68.29% Carboex SA Madrid Spain 24,040,484.18 EUR Fuel supply Line-by-line Carbopego - Abastecimientos e Combustiveis SA Abrantes Portugal 50,000.00 EUR Fuel supply Equity 100.00% 70.14% 0.01% 35.07% Endesa Generación SA Endesa Generación Portugal SA Endesa Generación SA 49.99% Carocraft (Pty) Ltd Houghton South Africa 116.00 ZAR Electricity generation from renewable resources Line-by-line Enel Green Power RSA (Pty) Ltd 97.00% 66.24% 383 Central Eólica Canela SA Central Geradora Termelétrica Fortaleza SA Central Hidráulica Güejar-Sierra SL Central Térmica de Anllares AIE Central Vuelta de Obligado SA Centrales Hidroeléctricas de Aysén SA Centrales Nucleares Almaraz-Trillo AIE Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Carodex (Pty) Ltd Houghton South Africa 116.00 ZAR Castle Rock Ridge Limited Partnership Calgary (Alberta) Canada - CAD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power RSA (Pty) Ltd 98.49% 67.26% Line-by-line Enel Green Power Canada Inc. 99.90% 68.29% Cefeidas Desarrollo Solar SL Puerto del Rosario Spain 3,008.00 EUR Photovoltaic plants Equity Enel Alberta Wind Inc. 0.10% Endesa Ingeniería SLU 50.00% 35.07% Centrais Elétricas Cachoeira Dourada SA Goiania Brazil 289,340,000.00 BRL Central Dock Sud SA Buenos Aires Argentina 35,595,178,229.00 ARS Santiago Chile 12,284,740,000.00 CLP Caucaia Brazil 151,940,000.00 BRL Electricity generation and sale Electricity generation, transmission and distribution Electricity generation from renewable resources Thermal generation plants Line-by-line Endesa Brasil SA 99.75% 51.03% Line-by-line Inversora Dock Sud SA 69.99% 24.24% Line-by-line Compañía Eléctrica Tarapacá SA 75.00% 27.96% Line-by-line Endesa Brasil SA 100.00% 51.15% Seville Spain 364,210.00 EUR Madrid Spain 595,000.00 EUR Buenos Aires Argentina 500,000.00 ARS Operation of hydro- electric plants Equity Operation of thermal plants Equity Electrical facilities construction Equity Enel Green Power España SL Endesa Generación SA Hidroeléctrica El Chocón SA 33.30% 22.99% 33.33% 23.38% 33.20% 9.80% Santiago Chile 158,975,665,182.00 CLP Design Equity Endesa Costanera SA 1.30% Central Dock Sud SA 6.40% Empresa Nacional de Electricidad SA 51.00% 18.54% Madrid Spain - EUR Management of nuclear plants Equity Nuclenor SA 0.69% 16.77% Centrum Pre Vedu a Vyskum Sro Kalná nad Hronom Mochovce 6 Slovakia 6,639.00 EUR Milan Italy 8,550,000.00 EUR CESI - Centro Elettrotecnico Sperimentale Italiano Giacinto Motta SpA Held for sale Endesa Generación SA Slovenské elektrárne AS 23.57% 100.00% 66.00% Equity Enel SpA 42.70% 42.70% Research and development on natural sciences and engineering Research and testing services Chepei Desarollo Solar L Las Palmas de Gran Canaria Spain Chi Black River Inc. Chi Idaho Inc. Wilmington (Delaware) Wilmington (Delaware) Chi Minnesota Wind LLC Wilmington (Delaware) Chi Operations Inc. Chi Power Inc. Wilmington (Delaware) Wilmington (Delaware) Chi Power Marketing Inc. Wilmington (Delaware) USA USA USA USA USA USA 384 3,008.00 EUR Photovoltaic plants Equity 100.00 USD 100.00 USD - USD 100.00 USD 100.00 USD 100.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line 50.00% 35.07% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% Endesa Ingeniería SLU Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Chi West Inc. Wilmington (Delaware) USA Chilectra Inversud SA Santiago Chilectra SA Santiago Chile Chile 100.00 USD Electricity generation from renewable resources Line-by-line Enel Green Power North America Inc. 100.00% 68.29% 569,020,000.00 USD Holding company Line-by-line Chilectra SA 100.00% 36,792,868,194.00 CLP Holding company, electricity distribution Line-by-line Inmobiliaria Manso de Velasco Ltda 0.01% 60.07% 60.07% Chinango SAC Lima Peru 294,249,298.00 PEN Chisago Solar LLC Minnesota USA Chisholm View Wind Project LLC Oklahoma City USA - USD - USD Line-by-line Line-by-line Enersis SA Edegel SA 99.08% 80.00% 28.42% 100.00% 68.29% Aurora Distributed Solar LLC Line-by-line Enel Kansas LLC 75.00% 51.22% Electricity generation, sale and transmission Electricity generation from renewable resources Electricity generation from renewable resources Chladiace Veze Bohunice Spol Sro Bohunice Slovakia 16,598.00 EUR Codensa SA ESP Bogotá DC Colombia 13,209,330,000.00 COP Engineering and construction Equity Slovenské elektrárne AS 35.00% 23.10% Electricity distribution and sale Line-by-line Enersis SA 39.13% 29.34% Cogeneración El Salto SL (in liquidation) Zaragoza Spain 36,060.73 EUR Cogeneration of electricity and heat - Cogeneración Lipsa SL Barcelona Spain 720,000.00 EUR Rome Italy 21,372,000.00 EUR Fortaleza Brazil 442,950,000.00 BRL Line-by-line Endesa Brasil SA 58.87% 39.32% Equity Equity Cogeneration of electricity and heat Construction of port infrastructure Electricity generation, transmission and distribution Compagnia Porto Di Civitavecchia SpA Companhia Energética do Ceará SA Companhia Térmica Lusol ACE Barreiro Portugal - EUR Electricity generation Line-by-line Companhia Térmica Oliveira Ferreira ACE (in liquidation) Riba de Ave Portugal - EUR Electricity generation - Companhia Térmica Ribeira Velha ACE São Paio de Oleiros Portugal - EUR Electricity generation Line-by-line Chilectra SA Enel Green Power España SL Enel Green Power España SL Enel Produzione SpA 9.35% 20.00% 13.81% 20.00% 13.81% 25.00% 25.00% 15.18% 95.00% 65.58% 95.00% 65.58% 49.00% 69.03% 51.00% Enersis SA TP - Sociedade Térmica Portuguesa SA TP - Sociedade Térmica Portuguesa SA Pp - Co-Geração SA TP - Sociedade Térmica Portuguesa SA Compañía de Interconexión Energética SA Compañía de Transmisión del Mercosur SA Compañía Eléctrica Tarapacá SA Compañía Energética Veracruz SAC Compañía Eólica Tierras Altas SA Compañía Transportista de Gas de Canarias SA Rio de Janeiro Brazil 285,050,000.00 BRL Buenos Aires Argentina 14,175,999.00 ARS Santiago Chile 331,815,034,140.00 CLP Electricity generation, transmission and distribution Electricity generation, transmission and distribution Electricity generation, transmission and distribution Line-by-line Endesa Brasil SA 100.00% 51.15% Line-by-line Compañía de Interconexión Energética SA 100.00% 51.15% Line-by-line Enersis SA 3.78% 37.28% Empresa Nacional de Electricidad SA 96.21% Lima Peru 2,886,000.00 PEN Hydroelectric projects Line-by-line Generalima SA 100.00% 60.62% Soria Spain 13,222,000.00 EUR Wind plants Equity Las Palmas de Gran Canaria Spain 800,003.00 EUR Natural gas transport Equity 35.63% 24.60% 47.18% 33.09% Enel Green Power España SL Unión Eléctrica de Canarias Generación SAU Compostilla Re SA Luxembourg Luxembourg 12,000,000.00 EUR Reinsurance Line-by-line Enel Insurance NV 100.00% 85.07% Concert Srl Rome Italy 10,000.00 EUR Product, plant and equipment certification Line-by-line Enel Ingegneria e Ricerca SpA 49.00% 100.00% Coneross Power Corporation Inc. Greenville (South Carolina) USA 110,000.00 USD Electricity generation from renewable resources Line-by-line Aquenergy Systems Inc. 100.00% 68.29% Enel Produzione SpA 51.00% 385 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Consolidated Hydro New Hampshire Inc. Wilmington (Delaware) Consolidated Hydro New York Inc. Wilmington (Delaware) Consolidated Hydro Southeast Inc. Wilmington (Delaware) USA USA USA 130.00 USD 200.00 USD 100.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line 100.00% 68.29% 100.00% 68.29% 95.00% 68.29% Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. Consolidated Pumped Storage Inc. Wilmington (Delaware) USA 550,000.00 USD Electricity generation from renewable resources Line-by-line Consorcio Eólico Marino Cabo de Trafalgar SL Cadiz Spain 200,000.00 EUR Wind plants Equity Copenhagen Associates New York (New York) USA - USD Electricity generation from renewable resources Line-by-line Equity Corporación Eólica de Zaragoza SL Zaragoza Spain 1,021,600.00 EUR Courtenay Wind Farm LLC Bismarck (North Dakota) USA - USD De Rock’l Srl Bucharest Romania 5,629,000.00 RON Depuracion Destilacion Reciclaje SL Boiro Spain 600,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Desarollo Photosolar SLLas Palmas de Spain 3,008.00 EUR Photovoltaic plants Equity Gran Canaria Mexico City Mexico 5,313,807.00 MXN Electricity generation from renewable resources Line-by-line Gauley River Power Partners LP 5.00% Enel Green Power North America Inc. Enel Green Power España SL Enel Green Power North America Inc. Hydro Development Group Inc. Enel Green Power España SL 81.82% 55.87% 50.00% 34.52% 50.00% 68.29% 50.00% 25.00% 17.26% Line-by-line Enel Kansas LLC 100.00% 68.29% Line-by-line Enel Green Power Romania Srl 100.00% 68.29% Equity Enel Green Power España SL 40.00% 27.61% Endesa Ingeniería SLU Enel Green Power México Srl de Cv Energia Nueva Energia Limpia Mexico Srl de Cv Empresa Electrica Panguipulli SA 50.00% 35.07% 99.99% 68.29% 0.01% 100.00% 68.23% Santiago Chile 351,604,338.00 CLP Houghton South Africa 1,000.00 ZAR Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 68.29% Valencia Spain 578,000.00 EUR Photovoltaic plants - Endesa Servicios SL 14.39% 10.09% Barcelona Spain 108,240.00 EUR Bogotá DC Colombia 1,000,000.00 COP Tenerife Spain 12,621,210.00 EUR Electricity distribution and sale Electricity distribution and sale Electricity purchase, transmission and distribution Line-by-line Endesa Red SA 55.00% 70.14% Hidroeléctrica de Catalunya SL 45.00% Equity Codensa SA ESP 49.00% 14.38% Line-by-line Endesa Red SA 100.00% 70.14% Desarrollo de Fuerzas Renovables Srl de Cv Diego de Almagro Matriz SpA Dioflash (Proprietary) Limited Diseño de Sistemas en silicio SA (in liquidation) Distribuidora de Energía Eléctrica del Bages SA Distribuidora Eléctrica de Cundinamarca SA ESP Distribuidora Eléctrica del Puerto de La Cruz SA 386 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Buenos Aires Argentina 497,610,000.00 ARS Holding company Line-by-line Chilectra SA 23.42% 30.87% Distrilec Inversora SA Dodge Center Distributed Solar LLC Minnesota USA - USD Dominica Energía Limpia Srl de Cv Colonia Guadalupe Inn Mexico 279,282,225.00 MXN Eastwood Solar LLC Minnesota USA - USD Edegel SA Lima Peru 2,064,301,735.00 PEN Electricity generation from renewable resources Electricity generation, distribution and sale Line-by-line Line-by-line Aurora Distributed Solar LLC Empresa Nacional de Electricidad SA Porto Portugal 50,000.00 EUR Porto Portugal 200,000.00 EUR EED - Empreendimentos Eólicos do Douro SA EEVM - Empreendimentos Eólicos Vale do Minho SA EGP BioEnergy Srl Rome Italy 1,000,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources 1,000.00 USD Holding company Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Empresa Nacional de Electricidad SA 0.89% Enersis SA 27.19% Aurora Distributed Solar LLC Enel Green Power México Srl de Cv 100.00% 68.29% 99.96% 68.29% Enel Green Power Guatemala SA 0.04% 100.00% 68.29% 29.40% 35.53% 54.20% 100.00% 69.03% 50.00% 25.89% Line-by-line Equity Generandes Perú SA Finerge-Gestão de Projectos Energéticos SA Eolverde - SGPS SA Line-by-line Enel Green Power Puglia Srl 100.00% 68.29% Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line - USD - USD - USD - USD - USD - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% Enel Green Power North America Inc. Padoma Wind Power LLC Enel Green Power North America Inc. Enel Green Power North America Inc. Padoma Wind Power LLC Enel Green Power North America Development LLC Enel Green Power North America Inc. Northwest Hydro Inc. 17.50% Endesa Generación SA 40.99% 33.07% Line-by-line Chi West Inc. 82.50% 68.29% EGP Geronimo Holding Company Inc. Wilmington (Delaware) USA EGP Jewel Valley LLC Wilmington USA EGP Solar 1 LLC (Delaware) Wilmington (Delaware) EGP Stillwater Solar LLC Wilmington (Delaware) EGP Timber Hills Project LLC Los Angeles (California) EGPNA Development Holdings LLC Wilmington (Delaware) EGPNA Wind Holdings 1 LLC Wilmington (Delaware) El Dorado Hydro Los Angeles (California) USA USA USA USA USA USA Elcogas SA Puertollano Spain 809,690.40 EUR Electricity generation Equity Elcomex Solar Energy Srl Costanza Romania 4,590,000.00 RON Electricity generation from renewable resources Enel SpA 4.32% Line-by-line Enel Green Power Romania Srl 100.00% 68.29% Elecgas SA Santarem (Pego) Portugal 50,000.00 EUR Combined-cycle electricity generation Equity 50.00% 35.07% Endesa Generación Portugal SA Electra Capital (RF) Pty Ltd Johannesburg South Africa 10,000,000.00 ZAR Electricity generation from renewable resources Line-by-line Enel Green Power RSA (Pty) Ltd 60.00% 40.97% 387 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Eléctrica Cabo Blanco SA Lima Peru 46,508,170.00 PEN Holding company Line-by-line Generalima SA 20.00% 60.62% Eléctrica de Jafre SA Girona Spain 165,880.00 EUR Eléctrica de Lijar SL Cadiz Spain 1,081,820.00 EUR Enersis SA 80.00% Electricity distribution and sale Equity Hidroeléctrica de Catalunya SL 47.46% 33.29% Electricity transmission and distribution Equity Endesa Red SA 50.00% 35.07% Electricidad de Puerto Real SA Cadiz Spain 6,611,130.00 EUR Distribution and supply of electricity Equity Endesa Red SA 50.00% 35.07% Electrogas SA Santiago Chile 61,832,327.00 USD Holding company Equity Empresa Nacional de Electricidad SA 42.50% 15.45% Emgesa Panama SA Panama Panama 10,000.00 USD Electricity trading Line-by-line Emgesa SA ESP 100.00% 22.87% Emgesa SA ESP Bogotá DC Colombia 655,222,310,000.00 COP Electricity generation and sale Line-by-line Empresa Nacional de Electricidad SA 26.87% 22.87% Emittenti Titoli SpA Milan Italy 5,200,000.00 EUR - - Enel SpA 10.00% 10.00% Enersis SA 21.61% Empreendimento Eólico de Rego Lda Empreendimentos Eólicos Serra do Sicó SA Empreendimentos Eólicos de Viade Lda Empresa Carbonífera del Sur SA Empresa de Distribución Eléctrica de Lima Norte SAA Empresa de Energía Cundinamarca SA ESP Porto Portugal 5,000.00 EUR Porto Portugal 50,000.00 EUR Porto Portugal 5,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Madrid Spain 18,030,000.00 EUR Mining Line-by-line Finerge-Gestão de Projectos Energéticos SA TP - Sociedade Térmica Portuguesa SA Finerge-Gestão de Projectos Energéticos SA Endesa Generación SA 51.00% 35.21% 52.38% 36.16% 80.00% 55.22% 100.00% 70.14% Lima Peru 638,560,000.00 PEN Electricity distribution and sale Line-by-line Enersis SA 24.00% 45.79% Bogotá DC Colombia 39,699,630,000.00 COP Electricity distribution and sale Equity 51.68% 82.34% 11.84% Inversiones Distrilima SA Distribuidora Eléctrica de Cundinamarca SA ESP Empresa Distribuidora Sur SA Buenos Aires Argentina 898,590,000.00 ARS Electricity distribution and sale Line-by-line Chilectra SA 20.85% 43.41% Enersis SA 22.25% Distrilec Inversora SA 56.36% Santiago Chile 82,222,000.00 CLP Electricity generation, transmission and distribution Line-by-line Chilectra SA 100.00% 60.07% Lima Peru 73,982,594.00 PEN Electricity generation Line-by-line Generalima SA 36.50% 58.50% Santiago Chile 48,038,937.00 CLP Electricity generation from renewable resources Line-by-line Enel Green Power Latin America Ltda 0.01% 68.23% Electrica Cabo Blanco SA 60.00% Santiago Chile 200,319,020.73 CLP Santiago Chile 1,331,714,090,000.00 CLP Santiago Chile 12,647,752,517.00 CLP Enel Green Power Chile Ltda 99.99% Line-by-line Empresa Nacional de Electricidad SA 92.65% 33.69% Line-by-line Enersis SA 59.98% 36.36% Line-by-line Enel Green Power Chile Ltda 51.00% 34.80% Electricity generation, transmission and distribution Electricity generation, transmission and distribution Electricity generation from renewable resources Panama Panama 58,500,000.00 USD Electricity transmission and distribution - Endesa Latinoamérica SA 11.11% 11.11% Empresa Eléctrica de Colina Ltda Empresa Eléctrica de Piura SA Empresa Electrica Panguipulli SA Empresa Eléctrica Pehuenche SA Empresa Nacional de Electricidad SA Empresa Nacional de Geotermia SA Empresa Propietaria de La Red SA 388 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding En-Brasil Comercio e Serviços SA Rio de Janeiro Brazil 1,000,000.00 BRL Electricity Line-by-line Endesa Argentina SA Buenos Aires Argentina 514,530,000.00 ARS Holding company Line-by-line Central Geradora Termelétrica Fortaleza SA 0.01% 51.15% Endesa Brasil SA 99.99% Compañía Eléctrica Tarapacá SA 0.34% 36.36% Empresa Nacional de Electricidad SA 99.66% Endesa Brasil SA Rio de Janeiro Brazil 1,028,760,000.00 BRL Holding company Line-by-line Chilectra SA 5.33% 51.15% Edegel SA 4.00% Chilectra Inversud SA 5.94% Empresa Nacional de Electricidad SA 34.64% Enersis SA 50.09% Endesa Capital SA Madrid Spain 60,200.00 EUR Finance company Line-by-line Endesa SA 100.00% 70.14% Endesa Cemsa SA Buenos Aires Argentina 14,010,014.00 ARS Energy trading Line-by-line Endesa Argentina SA 45.00% 49.70% Enersis SA 55.00% Endesa Comercialização de Energia SA Porto Portugal 250,000.00 EUR Electricity generation and sale Line-by-line Endesa Energía SA 100.00% 70.14% Endesa Costanera SA Buenos Aires Argentina 701,988,378.00 ARS Electricity generation and sale Line-by-line Southern Cone Power Argentina SA 1.15% 27.52% Empresa Nacional de Electricidad SA 24.85% Endesa Argentina SA 49.68% Endesa Distribución Eléctrica SL Barcelona Spain 1,204,540,060.00 EUR Electricity distribution Line-by-line Endesa Red SA 100.00% 70.14% Endesa Energía SA Madrid Spain 12,981,860.00 EUR Endesa Energía XXI SL Madrid Spain 2,000,000.00 EUR Marketing of energy products Line-by-line Endesa SA 100.00% 70.14% Marketing and energy- related services Line-by-line Endesa Energía SA 100.00% 70.14% Endesa Financiación Filiales SA Madrid Spain 4,621,003,006.00 EUR Finance company Line-by-line Endesa SA 100.00% 70.14% Endesa Gas SAU Zaragoza Spain 45,261,350.00 EUR Gas production, transmission and distribution Line-by-line Endesa Red SA 100.00% 70.14% Endesa Generación II SA Endesa Generación Nuclear Endesa Generación Portugal SA Seville Spain 63,107.00 EUR Electricity generation Line-by-line Endesa SA 100.00% 70.14% Seville Spain 60,000.00 EUR Subholding company in the nuclear sector Line-by-line Paço de Arcos Portugal 50,000.00 EUR Electricity generation Line-by-line 100.00% 70.14% 0.20% 70.14% Endesa Generación SA Finerge-Gestão de Projectos Energéticos SA Endesa Energía SA 0.20% Enel Green Power España SL 0.20% Energías de Aragón II SL 0.20% Endesa Generación SA 99.20% 389 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Endesa Generación SA Seville Spain 1,945,329,830.00 EUR Endesa Ingeniería SLU Seville Spain 1,000,000.00 EUR Electricity generation and sale Consulting and engineering services Line-by-line Endesa SA 100.00% 70.14% Line-by-line Endesa Red SA 100.00% 70.14% Endesa Latinoamérica SA Endesa Operaciones y Servicios Comerciales SL Madrid Spain 796,683,058.00 EUR Holding company Line-by-line Barcelona Spain 10,138,580.00 EUR Services Line-by-line Enel Iberoamérica Srl Endesa Energía SA 100.00% 100.00% 100.00% 70.14% Endesa Power Trading Ltd London Endesa Red SA Barcelona Endesa SA Madrid Endesa Servicios SL Madrid Enel Alberta Wind Inc. Calgary (Alberta) United Kingdom Spain Spain Spain Canada Enel Atlantic Canada LP St. John (Newfoundland) Canada 2.00 GBP Trading Line-by-line Endesa SA 100.00% 70.14% 714,985,850.00 EUR Electricity distribution Line-by-line Endesa SA 100.00% 70.14% 1,270,502,540.40 EUR Holding company Line-by-line Enel Iberoamérica Srl 70.14% 70.14% 89,999,790.00 EUR Services Line-by-line Endesa SA 100.00% 70.14% 16,251,021.00 CAD Electricity generation from renewable resources Line-by-line Enel Green Power Canada Inc. 100.00% 68.29% - CAD Wind Line-by-line Enel Brasil Participações Ltda Rio de Janeiro Brazil 1,631,724,677.53 BRL Holding company Line-by-line Enel Cove Fort II LLC Wilmington USA (Delaware) Enel Cove Fort LLC Wilmington (Delaware) USA - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Distributie Banat SA Enel Distributie Dobrogea SA Enel Distributie Muntenia SA Timisoara Romania 382,158,580.00 RON Electricity distribution Line-by-line Costanza Romania 280,285,560.00 RON Electricity distribution Line-by-line Bucharest Romania 271,635,250.00 RON Electricity distribution Line-by-line Line-by-line Enel Geothermal LLC 100.00% 68.29% Newind Group Inc. 0.10% 68.29% Enel Green Power Canada Inc. 99.90% Enel Green Power Latin America Ltda 0.01% 68.29% Enel Green Power International BV 99.99% EGPNA Development Holdings LLC Enel Investment Holding BV Enel Investment Holding BV Enel Investment Holding BV 100.00% 68.29% 51.00% 51.00% 51.00% 51.00% 64.43% 64.43% Enel Distribuzione SpA Rome Enel Energia SpA Rome Italy Italy 2,600,000,000.00 EUR Electricity distribution Line-by-line Enel SpA 100.00% 100.00% 302,039.00 EUR Electricity and gas sales Line-by-line Enel SpA 100.00% 100.00% Enel Energie Muntenia SA Bucarest Romania 37,004,350.00 RON Electricity sale Line-by-line Enel Energie SA Bucharest Romania 140,000,000.00 RON Electricity sale Line-by-line Enel Investment Holding BV Enel Investment Holding BV 64.43% 64.43% 51.00% 51.00% Enel Iberoamérica Srl Madrid Spain 500,000,000.00 EUR Holding company Line-by-line Enel SpA 100.00% 100.00% Enel Esn Energo LLC (in liquidation) Saint Petersburg Russian 2,700,000.00 RUB Federation - Operation and maintenance of electricity generation plants Enel Esn Management BV 100.00% 75.00% Enel Esn Management BV Amsterdam Enel Finance International NV Amsterdam The Netherlands The Netherlands 18,000.00 EUR Holding company Line-by-line Enel Produzione SpA 75.00% 75.00% 1,478,810,370.00 EUR Holding company Line-by-line Enel SpA 100.00% 100.00% Enel Fortuna SA Panama Panama 100,000,000.00 USD Electricity generation from renewable resources Line-by-line Enel Green Power Panama SA 50.06% 34.18% Enel France Sas Paris France 34,937,000.00 EUR Holding company Line-by-line Enel Gas Rus LLC Moscow Russian Federation 350,000.00 RUB Energy services Line-by-line Enel Investment Holding BV Enel Investment Holding BV 100.00% 100.00% 100.00% 100.00% Enel Geothermal LLC Wilmington USA - USD (Delaware) Electricity generation from renewable resources Line-by-line Essex Company 100.00% 68.29% 390 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Enel Green Power Bulgaria EAD Enel Green Power Cabeça de Boi SA Enel Green Power CAI Agroenergy Srl Enel Green Power Calabria Srl Sofia Bulgaria 35,231,000.00 BGN Rio de Janeiro Brazil 19,017,956.00 BRL Rome Italy 100,000.00 EUR Rome Italy 10,000.00 EUR Enel Green Power Canada Inc. Montreal (Quebec) Canada 85,681,857.00 CAD Enel Green Power Chile Ltda Santiago Chile 15,649,360,000.00 CLP Enel Green Power Colombia Enel Green Power Costa Rica Enel Green Power Cristal Eólica SA Bogotá DC Colombia 300,000,000.00 COP San José Costa Rica 27,500,000.00 USD Rio de Janeiro Brazil 104,833,130.71 BRL Plant construction, operation and maintenance Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and sale from renewable resources Line-by-line Enel Green Power International BV 100.00% 68.29% Line-by-line Line-by-line Enel Brasil Participações Ltda Enel Green Power SpA 100.00% 68.29% 100.00% 68.29% Line-by-line Enel Green Power SpA 100.00% 68.29% Line-by-line Line-by-line Line-by-line Enel Green Power North America Inc. Hydromac Energy BV Enel Green Power Latin America Ltda Enel Green Power International BV 100.00% 68.29% 0.01% 68.23% 99.99% 100.00% 68.29% Line-by-line Enel Green Power International BV 100.00% 68.29% Line-by-line Enel Green Power Damascena Eólica SA Rio de Janeiro Brazil 1,000,000.00 BRL Electricity generation from renewable resources Line-by-line Enel Green Power Delfina A Eólica SA Enel Green Power Delfina B Eólica SA Enel Green Power Delfina C Eólica SA Enel Green Power Delfina D Eólica SA Enel Green Power Delfina E Eólica SA Rio de Janeiro Brazil 1,000,000.00 BRL Rio de Janeiro Brazil 1,000,000.00 BRL Rio de Janeiro Brazil 1,000,000.00 BRL Rio de Janeiro Brazil 1,000,000.00 BRL Rio de Janeiro Brazil 1,000,000.00 BRL Enel Green Power Desenvolvimento Ltda Rio de Janeiro Brazil 13,900,297.00 BRL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Enel Green Power Dois Riachos Eólica SA Enel Green Power Ecuador SA Rio de Janeiro Brazil 1,000.00 BRL Quito Ecuador 26,000.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line 99.00% 68.29% 1.00% 1.00% 68.29% 99.00% 99.00% 67.61% 99.00% 67.61% 99.00% 67.61% 99.00% 67.61% 99.00% 67.61% 99.99% 68.29% Enel Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Parque Eólico Serra Azul Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Green Power Latin America Ltda Enel Green Power Partecipazioni Speciali Srl Enel Green Power International BV 0.01% 100.00% 68.29% 99.00% 68.29% Enel Green Power Latin America Ltda 1.00% 391 Company name Headquarters Country Share capital Currency Activity method Held by Consolidation Enel Green Power El Salvador SA de Cv Enel Green Power Emiliana Eólica SA San Salvador El Salvador 3,071,090.00 SVC Rio de Janeiro Brazil 120,000,000.00 BRL Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power International BV Line-by-line Line-by-line Enel Green Power SpA 70.00% 47.80% Line-by-line Enel Green Power España SL 65.00% 44.87% % holding 99.00% Group % holding 67.61% 99.00% 68.29% 1.00% 40.00% 69.03% 60.00% 1.00% 68.29% 99.00% 100.00% 68.29% Enel Brasil Participações Ltda Parque Eólico Curva dos Ventos Ltda Endesa Generación SA Enel Green Power International BV Enel Green Power Desenvolvimento Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Green Power International BV Enel Green Power Latin America Ltda Enel Green Power International BV Enel Green Power SpA Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Enel Brasil Participações Ltda Parque Eólico Curva dos Ventos Ltda Hydromac Energy BV 98.00% 68.29% 2.00% 100.00% 68.29% 100.00% 68.29% 99.00% 67.61% 99.00% 67.61% 99.00% 67.61% 99.00% 68.29% 1.00% 99.90% 68.23% Enel Green Power International BV 0.01% 1.00% 68.29% 99.00% Parque Eólico Serra Azul Ltda Enel Brasil Participações Ltda Enel Green Power España SL Madrid Spain 11,152.74 EUR Enel Green Power Esperança Eólica SA Rio de Janeiro Brazil 1,000,000.00 BRL Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Enel Green Power Fazenda SA Enel Green Power Finale Emilia Srl Enel Green Power Granadilla SL Enel Green Power Guatemala SA Enel Green Power Hellas SA Enel Green Power International BV Enel Green Power Ituverava Norte Solar SA Enel Green Power Ituverava Solar SA Enel Green Power Ituverava Sul Solar SA Enel Green Power Joana Eólica SA Rio de Janeiro Brazil 12,834,623.00 BRL Rome Italy 10,000,000.00 EUR Tenerife Spain 3,012.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Guatemala Guatemala 5,000.00 GTQ Holding company Line-by-line Maroussi Greece 7,687,850.00 EUR Holding company, energy services Line-by-line Amsterdam The Netherlands 244,532,298.00 EUR Holding company Line-by-line Rio de Janeiro Brazil 1,000,000.00 BRL Rio de Janeiro Brazil 1,000,000.00 BRL Rio de Janeiro Brazil 1,000,000.00 BRL Rio de Janeiro Brazil 120,000,000.00 BRL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Line-by-line Enel Green Power Latin America Ltda Santiago Chile 30,728,470.00 CLP Holding company Line-by-line Enel Green Power Maniçoba Eólica SA Rio de Janeiro Brazil 1,000,000.00 BRL Electricity generation from renewable resources Line-by-line 392 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Enel Green Power México S de RL de Cv Mexico City Mexico 973,703,665.00 MXN Holding company Line-by-line Enel Green Power Latin America Ltda 0.01% Enel Green Power International BV 99.99% Group % holding 68.29% Enel Green Power Modelo I Eolica SA Rio de Janeiro Brazil 125,000,000.00 BRL Electricity generation from renewable resources Line-by-line Enel Brasil Participações Ltda 99.00% 68.12% Enel Green Power Modelo II Eolica SA Rio de Janeiro Brazil 1,250,000,000.00 BRL Endesa Brasil SA 1.00% Electricity generation from renewable resources Line-by-line Enel Brasil Participações Ltda 99.00% 68.12% Enel Green Power North America Development LLC Wilmington (Delaware) Enel Green Power North America Inc. Wilmington (Delaware) USA USA - USD 50.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Endesa Brasil SA 1.00% Line-by-line Enel Green Power International BV 100.00% 68.29% Line-by-line Enel Green Power International BV 100.00% 68.29% Enel Green Power Panama SA Enel Green Power Partecipazioni Speciali Srl Enel Green Power Pau Ferro Eólica SA Panama Panama 3,000.00 USD Holding company Line-by-line Rome Italy 10,000.00 EUR Rio de Janeiro Brazil 135,000,000.00 BRL Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Enel Green Power Pedra do Gerônimo Eólica SA Rio de Janeiro Brazil 135,000,000.00 BRL Electricity generation from renewable resources Line-by-line Enel Green Power International BV Enel Green Power SpA 100.00% 68.29% 100.00% 68.29% 99.00% 68.28% 1.00% 99.00% 68.28% 1.00% Enel Brasil Participações Ltda Parque Eólico Fontes dos Ventos Ltda Enel Brasil Participações Ltda Parque Eólico Fontes dos Ventos Ltda Enel Green Power Perù SA Lima Peru 1,000.00 PEN Electricity generation from renewable resources Line-by-line Enel Green Power International BV 99.90% 68.23% Enel Green Power Latin America Ltda 0.01% Enel Green Power Primavera Eolica SA Rio de Janeiro Brazil 140,000,000.00 BRL Electricity generation and sale from renewable resources Line-by-line Enel Brasil Participações Ltda 99.00% 68.29% Enel Green Power Puglia Srl Rome Italy 1,000,000.00 EUR Enel Green Power Romania Srl Sat Rusu de Sus Nuseni Romania 2,430,631,000.00 RON Enel Green Power RSA (Pty) Ltd Johannesburg South Africa 1,000.00 ZAR Enel Green Power Salto Apiacás SA Niterói (Rio de Janeiro) Brazil 14,412,120.00 BRL Enel Green Power Desenvolvimento Ltda Enel Green Power SpA 1.00% 100.00% 68.29% Line-by-line Line-by-line Enel Green Power International BV 100.00% 68.29% Line-by-line Enel Green Power South Africa 100.00% 68.29% Line-by-line Enel Brasil Participações Ltda 99.00% 68.29% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Parque Eólico Serra Azul Ltda 1.00% 393 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Enel Green Power San Gillio Srl Enel Green Power São Judas Eólica SA Rome Italy 10,000.00 EUR Rio de Janeiro Brazil 100,000,000.00 BRL Electricity generation from renewable resources Line-by-line Enel Green Power SpA 80.00% 54.63% Electricity generation and sale from renewable resources Line-by-line Enel Brasil Participações Ltda 99.00% 68.29% Enel Green Power Solar Energy Srl Rome Italy 10,000.00 EUR Enel Green Power South Africa Amsterdam The Netherlands 18,000.00 EUR Enel Green Power SpA Enel Green Power Strambino Solar Srl Enel Green Power Tacaicó Eólica SA Rome Italy 1,000,000,000.00 EUR Turin Italy 250,000.00 EUR Rio de Janeiro Brazil 80,000,000.00 BRL Enel Green Power Turkey Enerji Yatirimlari Anonim Şirketi Istanbul Turkey 10,154,658.00 TRY Enel Green Power Uruguay SA Enel Green Power Villoresi Srl Enel Ingegneria e Ricerca SpA Oficina 1508 Uruguay 400,000.00 UYU Rome Italy 200,000.00 EUR Rome Italy 30,000,000.00 EUR Enel Green Power Desenvolvimento Ltda Enel Green Power SpA 1.00% 100.00% 68.29% Line-by-line Line-by-line Enel Green Power International BV 100.00% 68.29% Line-by-line Enel SpA 68.29% 68.29% Line-by-line Enel Green Power SpA 60.00% 40.97% Line-by-line 99.00% 68.28% 1.00% Enel Brasil Participações Ltda Parque Eólico Fontes dos Ventos Ltda Line-by-line Enel Green Power International BV 100.00% 68.29% Line-by-line Enel Green Power International BV 100.00% 68.29% Equity Enel Green Power SpA 51.00% 34.83% Line-by-line Enel SpA 100.00% 100.00% Design, development, construction and operation of photovoltaic plants (holding company) Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Analysis, design, construction and maintenance of engineering works Enel Insurance NV Amsterdam The Netherlands 60,000.00 EUR Holding company Line-by-line Enel Investment Holding BV 50.00% 85.07% Endesa SA 50.00% Enel Investment Holding BV Amsterdam The Netherlands 1,593,050,000.00 EUR Holding company Line-by-line Enel SpA 100.00% 100.00% Enel Italia Srl Rome Italy 50,000,000.00 EUR Enel Kansas LLC Wilmington (Delaware) USA - USD Enel Lease Eurl Lyon France 500,000.00 EUR Enel Longanesi Developments Srl Rome Italy 10,000,000.00 EUR Enel M@P Srl Rome Italy 100,000.00 EUR Personnel administration activities, information technology and business services Electricity generation from renewable resources Electricity generation from renewable resources Prospecting and development of hydrocarbon fields Metering, remote control and connectivity services via power line communication Line-by-line Enel SpA 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 68.29% Line-by-line Enel France Sas 100.00% 100.00% Line-by-line Enel Trade SpA 100.00% 100.00% Line-by-line Enel Distribuzione SpA 100.00% 100.00% 394 ENEL ANNUAL REPORT 2014ATTACHMENTSEnel Servicii Comune SA Enel Servizio Elettrico SpA Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Enel Nevkan Inc. Wilmington (Delaware) USA Enel Oil & Gas SpA Rome Enel Oil & Gas España SL Madrid Italy Spain - USD Electricity generation from renewable resources Line-by-line Enel Green Power North America Inc. 100.00% 68.29% 200,000,000.00 EUR Upstream gas Line-by-line Enel SpA 100.00% 100.00% 33,000.00 EUR Hydrocarbon prospecting, development and production Line-by-line Enel Oil & Gas SpA 100.00% 100.00% Enel Productie Srl Bucharest Romania 20,210,200.00 RON Electricity generation Line-by-line Enel Investment Holding BV 100.00% 100.00% Enel Produzione SpA Rome Italy 1,800,000,000.00 EUR Electricity generation Line-by-line Enel SpA 100.00% 100.00% Enel Romania Srl Judetul Ilfov Romania 200,000.00 RON Business services Line-by-line Enel Russia OJSC Ekaterinburg Enel Salt Wells LLC Wilmington (Delaware) Russian Federation USA 35,371,898,370.00 RUB Electricity generation Line-by-line - USD Electricity generation from renewable resources Line-by-line Bucharest Romania 33,000,000.00 RON Energy services Line-by-line Enel Investment Holding BV Enel Investment Holding BV Enel Geothermal LLC 100.00% 100.00% 56.43% 56.43% 100.00% 68.29% Enel Distributie Dobrogea SA 50.00% 51.00% Enel Distributie Banat SA 50.00% Rome Italy 10,000,000.00 EUR Electricity sale Line-by-line Enel SpA 100.00% 100.00% Enel Sole Srl Rome Enel Soluções Energéticas Ltda Niterói (Rio de Janeiro) Italy Brazil 4,600,000.00 EUR Public lighting systems Line-by-line Enel SpA 100.00% 100.00% 5,000,000.00 BRL Electricity generation from renewable resources Line-by-line Enel Brasil Participações Ltda 99.99% 68.29% Enel Stillwater LLC Wilmington (Delaware) USA - USD Electricity generation from renewable resources Line-by-line Enel Stoccaggi Srl (in liquidation) Rome Italy 3,030,000.00 EUR - Construction and operation of storage fields. Storage of natural gas Parque Eólico Fontes dos Ventos Ltda Enel Geothermal LLC 0.01% 100.00% 68.29% Enel Trade SpA 100.00% 100.00% Enel Surprise Valley LLC Wilmington USA (Delaware) Enel Texkan Inc. Wilmington (Delaware) USA - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Geothermal LLC 100.00% 68.29% Line-by-line Chi Power Inc. 100.00% 68.29% Enel Trade d.o.o. Zagabria Croatia 2,240,000.00 HRK Electricity trading Line-by-line Enel Trade SpA 100.00% 100.00% Enel Trade Romania Srl Bucharest Romania 21,250,000.00 RON Electricity sourcing and trading Line-by-line Enel Trade SpA 100.00% 100.00% 300,000.00 EUR Electricity trading Line-by-line Enel Trade SpA 100.00% 100.00% Enel Trade Serbia d.o.o. Belgrade Enel Trade SpA Rome Serbia Italy Enel.Factor SpA Enel.Newhydro Srl Enel.si Srl Rome Rome Rome Italy Italy Italy Enelco SA Athens Greece 60,108.80 EUR Enelpower Contractor and Development Saudi Arabia Ltd Riyad Saudi Arabia 5,000,000.00 SAR 90,885,000.00 EUR Fuel trading and logistics - Electricity sales 12,500,000.00 EUR Factoring 1,000,000.00 EUR 5,000,000.00 EUR Engineering and water systems Plant engineering and energy services Plant construction, operation and maintenance Plant construction, operation and maintenance Line-by-line Enel SpA 100.00% 100.00% Line-by-line Line-by-line Enel SpA Enel SpA 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Energia SpA 100.00% 100.00% Line-by-line Enel Investment Holding BV 75.00% 75.00% Line-by-line Enelpower SpA 51.00% 51.00% 395 Company name Headquarters Country Share capital Currency Activity method Held by Consolidation Enelpower do Brasil Ltda Rio de Janeiro Brazil 1,242,000.00 BRL Electrical engineering Line-by-line Enel Green Power Latin America Ltda % holding 0.01% Group % holding 68.29% Enelpower SpA Milan Italy 2,000,000.00 EUR ENEOP-Eólicas de Portugal SA Paço de Arcos Portugal 50,000.00 EUR Engineering and construction Electricity generation from renewable resources Equity Enercor - Produção de Energia ACE Montijo Portugal - EUR Electricity generation Line-by-line Energética de Rosselló AIE Energía de La Loma SA Barcelona Spain 3,606,060.00 EUR Cogeneration of electricity and heat Equity Jean Spain 4,450,000.00 EUR Bio-mass Line-by-line Line-by-line Energia Eolica Srl Rome Italy 4,840,000.00 EUR Energia Global de México (Enermex) SA de Cv Energia Global Operaciones SA Mexico City Mexico 50,000.00 MXN San José Costa Rica 10,000.00 CRC Energia Marina SpA Santiago Chile 2,404,240,000,00 CLP Energia Nueva de Iggu S de RL de Cv Mexico City Mexico 3,139,737,500.00 MXN Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources 99.99% Enel Brasil Participações Ltda Line-by-line Enel SpA 100.00% 100.00% 17.98% 24.82% 17.98% 70.00% 69.03% TP - Sociedade Térmica Portuguesa SA Finerge-Gestão de Projectos Energéticos SA TP - Sociedade Térmica Portuguesa SA Pp - Co-Geração SA Enel Green Power España SL Enel Green Power España SL Enel Green Power SpA 30.00% 27.00% 18.64% 50.86% 35.11% 51.00% 34.83% Line-by-line Enel Green Power International BV 99.00% 67.61% Line-by-line Enel Green Power Costa Rica 100.00% 68.29% Line-by-line Enel Green Power Chile Ltda 25.00% 17.06% Line-by-line Energía Nueva Energía Limpia Mexico S de RL de Cv Enel Green PowerMéxico S de RL de Cv Enel Green Power International BV Enel Green Power Guatemala SA Enel Green Power España SL 0.01% 68.23% 99.90% 99.96% 68.29% 0.04% 50.00% 34.52% Enel Green Power España SL Enel Green Power España SL Enel Green Power España SL 100.00% 69.03% 66.67% 46.02% 68.42% 47.23% Energía Nueva Energía Limpia Mexico S de RL de Cv Mexico City Mexico 5,339,650.00 MXN Electricity generation from renewable resources Line-by-line Energías Alternativas del Sur SL Las Palmas de Gran Canaria Spain 601,000.00 EUR Electricity generation from renewable resources Equity Energías de Aragón I SL Energías de Aragón II SL Zaragoza Spain 3,200,000.00 EUR Electricity transmission, distribution and sale Line-by-line Endesa Generación SA 100.00% 70.14% Zaragoza Spain 18,500,000.00 EUR Electricity generation Line-by-line Energías de Graus SL Barcelona Spain 1,298,160.00 EUR Hydroelectric plants Line-by-line Energías de La Mancha SA Villarta de San Juan (Ciudad Real) Spain 279,500.00 EUR Bio-mass Line-by-line La Coruña Spain 270,450.00 EUR Madrid Spain 963,300.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power España SL 77.00% 53.15% Line-by-line Enel Green Power España SL 80.00% 55.22% Energías Especiales de Careon SA Energías Especiales de Pena Armada SA 396 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Energías Especiales del Alto Ulla SA Energías Especiales del Bierzo SA Energías Renovables La Mata SAPI de Cv Madrid Spain 1,722,600.00 EUR Torre del Bierzo Spain 1,635,000.00 EUR Mexico City Mexico 656,615,400.00 MXN Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power España SL 100.00% 69.03% Equity Enel Green Power España SL 50.00% 34.52% Line-by-line Energia Nueva de Iggu S de RL de Cv 0.01% 68.29% Energie Eléctrique de Tahaddart SA Energosluzby AS (in liquidation) Tangeri Morocco 750,400,000.00 MAD Combined-cycle generation plants Equity Trnava Slovakia 33,194.00 EUR Business services - Energotel AS Bratislava Slovakia 2,191,200.00 EUR Energy Hydro Piave Srl Enerlasa SA (in liquidation) Soverzene Italy 800,000.00 EUR Madrid Spain 1,021,700.58 EUR Enerlive Srl Rome Italy 6,520,000.00 EUR Enersis SA Santiago Chile 5,669,280.72 CLP Enexon Hellas SA Maroussi Greece 18,771,600.00 EUR Eolcinf - Produção de Energia Eólica Lda Eolflor - Produção de Energia Eólica Lda Porto Portugal 5,000.00 EUR Porto Portugal 5,000.00 EUR Eólica del Noroeste SL La Coruña Spain 36,100.00 EUR 99.99% Enel Green Power México S de RL de Cv Endesa Generación SA Slovenské elektrárne AS Slovenské elektrárne AS Enel Produzione SpA Enel Green Power España SL 32.00% 22.45% 100.00% 66.00% 20.00% 13.20% 51.00% 51.00% 45.00% 31.06% Operation of optical fiber network Equity Electricity purchases and sales Line-by-line Electricity generation from renewable resources - Electricity generation from renewable resources Electricity generation and distribution Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Wind plant development Line-by-line Maicor Wind Srl 100.00% 40.97% Line-by-line Enel Iberoamérica Srl 20.30% 60.62% Endesa Latinoamérica SA 40.32% Line-by-line Enel Green Power Hellas SA 100.00% 68.29% Line-by-line Line-by-line Line-by-line Finerge-Gestão de Projectos Energéticos SA Finerge-Gestão de Projectos Energéticos SA Enel Green Power España SL Enel Green Power España SL 51.00% 35.21% 51.00% 35.21% 51.00% 35.21% 40.00% 27.61% Oviedo Spain 90,000.00 EUR Electricity generation from renewable resources Equity Rio Grande do Norte Brazil 1,839,000.00 BRL Wind plants Line-by-line Endesa Brasil SA 99.95% 51.13% Eólica del Principado SAU Eólica Fazenda Nova - Generação e Comercialização de Energia SA Eólica Valle del Ebro SA Eólica Zopiloapan SAPI de Cv Zaragoza Spain 5,559,340.00 EUR Mexico City Mexico 1,877,201,540.00 MXN Electricity generation from renewable resources Electricity generation from renewable resources Eólicas de Agaete SL Las Palmas de Gran Canaria Spain Eólicas de Fuencaliente SA Las Palmas de Gran Canaria Spain 240,400.00 EUR 216,360.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power España SL 50.50% 34.86% Line-by-line Line-by-line Enel Green Power Partecipazioni Speciali Srl Enel Green Power México S de RL de Cv Enel Green Power España SL 39.50% 65.88% 56.98% 80.00% 55.22% Line-by-line Enel Green Power España SL 55.00% 37.97% 397 Company name Headquarters Country Share capital Currency Activity Eólicas de Fuerteventura AIE Fuerteventura (Las Palmas) Spain - EUR Eólicas de La Patagonia SA Buenos Aires Argentina 480,930.00 ARS Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Equity Held by % holding Group % holding Enel Green Power España SL 40.00% 27.61% Equity Enel Green Power España SL 50.00% 34.52% Eólicas de Lanzarote SL Las Palmas de Gran Canaria Eólicas de Tenerife AIE Santa Cruz de Tenerife Spain Spain Eólicas de Tirajana AIE Las Palmas de Gran Canaria Spain 1,758,000.00 EUR Electricity generation and distribution Equity 420,708.40 EUR - EUR Equity Electricity generation from renewable resources Electricity generation from renewable resources Water treatment and distribution Eolverde - SGPS SA Porto Portugal 50,000.00 EUR Line-by-line Erecosalz SL (in liquidation) Essex Company Zaragoza Spain 18,000.00 EUR Cogeneration of electricity and heat - Boston (Massachusetts) USA 100.00 USD Enel Green Power España SL Enel Green Power España SL 40.00% 27.61% 50.00% 34.52% Line-by-line Enel Green Power España SL 60.00% 41.42% Finerge-Gestão de Projectos Energéticos SA Enel Green Power España SL Enel Green Power North America Inc. Enel Green Power Uruguay SA 75.00% 51.77% 33.00% 22.78% 100.00% 68.29% 100.00% 68.29% Line-by-line Line-by-line Line-by-line Enel Green Power España SL 70.00% 48.32% Line-by-line Enel Green Power España SL 73.60% 50.81% Line-by-line Enel Green Power España SL 65.00% 44.87% Line-by-line Enel Green Power España SL 90.00% 62.13% Line-by-line Enel Green Power España SL 90.00% 62.13% Line-by-line Line-by-line Aurora Distributed Solar LLC Enel Green Power España SL 100.00% 68.29% 100.00% 69.03% Line-by-line Chi Minnesota Wind LLC 51.00% 34.83% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Cogeneration of electricity and heat and generation from renewable resources Electricity generation from renewable resources Estrellada SA Montevideo Uruguay 448,000.00 UYU Explotaciones Eólicas de Escucha SA Explotaciones Eólicas El Puerto SA Explotaciones Eólicas Saso Plano SA Explotaciones Eólicas Sierra Costera SA Explotaciones Eólicas Sierra La Virgen SA Zaragoza Spain 3,505,000.00 EUR Teruel Spain 3,230,000.00 EUR Zaragoza Spain 5,488,500.00 EUR Zaragoza Spain 8,046,800.00 EUR Zaragoza Spain 4,200,000.00 EUR Fiesta City Solar LLC Minnesota USA - USD Finerge-Gestão de Projectos Energéticos SA Porto Portugal 750,000.00 EUR Florence Hills LLC Minneapolis (Minnesota) USA - USD Fotovoltaica Insular SL Las Palmas de Gran Canaria Spain 3,008.00 EUR Photovoltaic plants Equity Fuentes Renovables de Guatemala SA Guatemala Guatemala 5,000.00 GTQ Fulcrum Inc. Boise (Idaho) USA 1,002.50 USD Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Gas Atacama Chile SA Santiago Chile 185,025,186.00 USD Electricity generation Equity Gas Atacama SA Santiago Chile 291,484,088.00 USD Holding company Line-by-line Endesa Ingeniería SLU Enel Green Power Guatemala SA 50.00% 35.07% 60.00% 66.61% Renovables de Guatemala SA 40.00% 100.00% 68.29% 0.05% 36.80% Enel Green Power North America Inc. Compañía Eléctrica Tarapacá SA Gas Atacama SA 99.90% 100.00% 36.82% Inversiones Gas Atacama Holding Ltda 398 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Gas y Electricidad Generación SAU Palma de Mallorca Gasificadora Regional Canaria SA Las Palmas de Gran Canaria Spain Spain 213,775,700.00 EUR Electricity generation Line-by-line Endesa Generación SA 100.00% 70.14% 240,000.00 EUR Gas distribution Line-by-line Endesa Gas SAU 72.00% 70.14% Gasoducto Atacama Argentina SA Santiago Chile 208,173,124.00 USD Natural gas transport Equity Gasoducto Atacama Argentina SA Sucursal Argentina Buenos Aires Argentina - ARS Natural gas transport Equity Gasoducto Taltal SA Santiago Chile 18,638.52 CLP Natural gas transport Equity 28.00% 0.03% 36.80% Endesa Generación Portugal SA Compañía Eléctrica Tarapacá SA Gas Atacama Chile SA 42.71% Gas Atacama SA 57.23% 100.00% 36.80% 99.88% 36.80% 0.12% Gasoducto Atacama Argentina SA Gas Atacama Chile SA Gasoducto Atacama Argentina SA Gauley Hydro LLC Gauley River Management Corporation Wilmington (Delaware) Willison (Vermont) Gauley River Power Partners LP Willison (Vermont) USA USA USA - USD 1.00 USD - USD Generadora de Occidente Ltda Generadora Montecristo SA Guatemala Guatemala 16,261,697.33 GTQ Guatemala Guatemala 3,820,000.00 GTQ Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Essex Company 100.00% 68.29% Line-by-line Line-by-line Line-by-line Enel Green Power North America Inc. Gauley River Management Corporation Enel Green Power International BV 100.00% 68.29% 100.00% 68.29% 99.00% 68.29% Enel Green Power Guatemala SA 1.00% Line-by-line Enel Green Power International BV 99.99% 68.29% Enel Green Power Guatemala SA 0.01% Generalima SA Lima Generandes Perú SA Lima Peru Peru 146,534,335.00 PEN Holding company Line-by-line Enersis SA 100.00% 60.62% 853,429,020.00 PEN Holding company Line-by-line Santiago Chile 64,779,811,451.00 CLP Line-by-line Geotérmica del Norte SA Geronimo Huron Wind Farm LLC Michigan USA Geronimo Wind Energy LLC Minneapolis (Minnesota) USA Southern Cone Power Perú SAA 39.00% 45.82% Empresa Nacional de Electricidad SA. Enel Green Power Chile Ltda 61.00% 51.00% 34.80% Line-by-line Enel Kansas LLC 100.00% 68.29% Equity Line-by-line EGP Geronimo Holding Company Inc. Enel Green Power RSA (Pty) Ltd 49.20% 33.60% 60.00% 40.97% - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Gibson Bay Wind Farm (RF) Proprietary Limited Johannesburg South Africa 1,000.00 ZAR Gnl Chile SA Santiago Chile 3,026,160.00 USD Design and LNG supply Equity Empresa Nacional de Electricidad SA 33.33% 12.12% 399 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Gnl Norte SA Santiago Chile 1,000,000.00 CLP Electricity generation Equity Gasoducto Taltal SA 50.00% 36.80% Gas Atacama Chile SA 50.00% Gnl Quintero SA Santiago Chile 114,057,353.00 USD Design and LNG supply Equity Empresa Nacional de Electricidad SA 20.00% 7.27% Goodwell Wind Project LLC Wilmington (Delaware) USA - USD Electricity generation from renewable resources Line-by-line Enel Kansas LLC 100.00% 68.29% Gorona del Viento El Hierro SA Valverde de El Hierro Spain 23,936,710.00 EUR Madrid Spain 1,717,049.55 EUR Seville Spain 3,006.00 EUR Bucharest Romania 675,400.00 RON Green Fuel Corporación SA (in liquidation) Guadarranque Solar 4 SL Unipersonal GV Energie Rigenerabili ITAL-RO Srl Hadley Ridge LLC Minneapolis (Minnesota) USA Hastings Solar LLC Minnesota USA - USD - USD Hidroeléctrica de Catalunya SL Hidroeléctrica de Ourol SL Hidroeléctrica DonRafael SA Hidroeléctrica El Chocón SA Barcelona Spain 126,210.00 EUR Lugo Spain 1,608,200.00 EUR Costa Rica Costa Rica 10,000.00 CRC Buenos Aires Argentina 298,584,050.00 ARS Development and maintenance of El Hierro generation plant Equity Electricity generation from renewable resources - Unión Eléctrica de Canarias Generación SAU Enel Green Power España SL 30.00% 21.04% 24.24% 16.73% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity transmission and distribution Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and sale Line-by-line Endesa Generación II SA 100.00% 70.14% Line-by-line Enel Green Power Romania Srl 100.00% 68.29% Line-by-line Chi Minnesota Wind LLC 51.00% 34.83% Line-by-line Aurora Distributed Solar LLC 100.00% 68.29% Line-by-line Endesa Red SA 100.00% 70.14% Equity Enel Green Power España SL 30.00% 20.71% Line-by-line Enel Green Power Costa Rica 65.00% 44.39% Line-by-line Empresa Nacional de Electricidad SA 2.48% 23.77% Hidroelectricidad del Pacifico S de RL de Cv Mexico City Mexico 30,890,736.00 MXN Hidroflamicell SL Barcelona Spain 78,120.00 EUR Electricity generation from renewable resources Electricity distribution and sale Line-by-line Line-by-line Hidroinvest SA Buenos Aires Argentina 55,312,093.00 ARS Holding company Line-by-line Hidromondego - Hidroelectrica do Mondego Lda Lisbon Portugal 3,000.00 EUR Hydroelectric power Line-by-line Highfalls Hydro Company Inc. Wilmington (Delaware) USA - USD Hipotecaria de Santa Ana Ltda de Cv Colonia Escalon El Salvador 404,930.00 SVC Hispano Gneración de Energía Solar SL Jerez de los Caballeros (Badajoz) Spain 3,500.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Equity Line-by-line 400 Endesa Argentina SA 6.19% Hidroinvest SA 59.00% Enel Green Power México S de RL de Cv Hidroeléctrica de Catalunya SL Empresa Nacional de Electricidad SA 99.99% 68.28% 75.00% 52.61% 41.94% 34.94% Endesa Argentina SA 54.15% Endesa Generación SA Endesa Generación Portugal SA Enel Green Power North America Inc. Enel Green Power El Salvador SA de Cv Enel Green Power España SL 90.00% 70.14% 10.00% 100.00% 68.29% 20.00% 13.52% 51.00% 35.21% ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by Consolidation Hope Creek LLC Minneapolis (Minnesota) Hydro Development Group Inc. Albany (New York) Hydro Dolomiti Enel Srl Hydro Energies Corporation Trento Willison (Vermont) Hydro Finance Holding Company Inc. Wilmington (Delaware) USA USA Italy USA USA - USD 12.25 USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Chi Minnesota Wind LLC Line-by-line 3,000,000.00 EUR Electricity generation, purchases and sales Equity 5,000.00 USD 100.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Development of studies and projects for the use of hydrogen Line-by-line % holding 51.00% Group % holding 34.83% Enel Green Power North America Inc. Enel Produzione SpA Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Produzione SpA 100.00% 68.29% 49.00% 49.00% 100.00% 68.29% 100.00% 68.29% 60.00% 60.00% Enel Green Power International BV 100.00% 68.29% Hydrogen Park- Marghera per l’idrogeno Scrl Venice Italy 245,000.00 EUR Hydromac Energy BV Amsterdam The Netherlands 18,000.00 EUR Holding company Line-by-line Ict Servicios Informáticos Ltda Santiago Chile 500,000,000.00 CLP ICT services Line-by-line Chilectra SA 1.00% 60.61% I-EM Srl Turin Italy 10,001.00 EUR Ingendesa do Brasil Ltda Rio de Janeiro Brazil 500,000.00 BRL Design and development Equity Design, engineering and consulting Line-by-line Enersis SA Enel Italia Srl 99.00% 0.01% 0.01% 99.00% 37.27% Compañía Eléctrica Tarapacá SA Empresa Nacional de Electricidad SA 1.00% Inkia Holdings (Acter) Ltd Lima Peru 6,055,300.00 USD Holding Line-by-line Enersis SA 100.00% 60.62% Inkolan Información y Coordinación de obras AIE Inmobiliaria Manso de Velasco Ltda International Endesa BV International Eolian of Grammatiko SA International Eolian of Korinthia SA International Eolian of Peloponnisos 1 SA International Eolian of Peloponnisos 2 SA International Eolian of Peloponnisos 3 SA International Eolian of Peloponnisos 4 SA International Eolianof Peloponnisos 5 SA International Eolian of Peloponnisos 6 SA International Eolian of Peloponnisos 7 SA International Eolian of Peloponnisos 8 SA Bilbao Spain 84,140.00 EUR Information on infrastructure of Inkolan associates Equity Endesa Distribución Eléctrica SL 14.29% 10.02% Santiago Chile 25,916,800,510.00 CLP Engineering and construction Line-by-line Enersis SA 100.00% 60.62% Amsterdam The Netherlands 15,428,520.00 EUR Holding company Line-by-line Endesa SA 100.00% 70.14% Maroussi Greece 436,000.00 EUR Maroussi Greece 6,471,798.00 EUR Maroussi Greece 418,000.00 EUR Maroussi Greece 514,000.00 EUR Maroussi Greece 423,000.00 EUR Maroussi Greece 465,000.00 EUR Maroussi Greece 509,500.00 EUR Maroussi Greece 447,000.00 EUR Maroussi Greece 418,000.00 EUR Maroussi Greece 418,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Equity Enel Green Power Hellas SA 30.00% 20.49% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Equity Equity Equity Equity Equity Equity Equity Equity Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% 401 Company name Headquarters Country Share capital Currency Activity Maroussi Greece 224,000.00 EUR Electricity generation from renewable resources Consolidation method Equity Held by % holding Group % holding Enel Green Power Hellas SA 30.00% 20.49% Rome Italy 24,000.00 EUR Long-distance learning - Enel Italia Srl 13.04% 13.04% Lima Peru 287,837,245.00 PEN Holding company Line-by-line Chilectra SA 30.15% 60.45% Santiago Chile 333,520,000.00 USD Natural gas transport Line-by-line 36.82% 69.85% 50.00% Enersis SA Compañía Eléctrica Tarapacá SA Empresa Nacional de Electricidad SA 50.00% Bogotá DC Colombia 5,000,000.00 COP Electricity transmission and distribution Line-by-line Codensa SA ESP 100.00% 29.34% Buenos Aires Argentina 241,490,000.00 ARS Holding company Line-by-line Enersis SA 57.14% 34.64% Rio de Janeiro Brazil 61,474,475.77 BRL Electricity generation and sale Line-by-line Johannesburg South Africa 1,000.00 ZAR International Eolian of Skopelos SA International Multimedia University Srl Inversiones Distrilima SA Inversiones Gas Atacama Holding Ltda Inversora Codensa Sas Inversora Dock Sud SA Isamu Ikeda Energia SA Italgest Energy (Pty) Ltd Line-by-line Enel Green Power Solar Energy Srl 100.00% 68.29% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Equity Equity Line-by-line Line-by-line Line-by-line Enel Brasil Participações Ltda Enel Green Power RSA (Pty) Ltd Chi Minnesota Wind LLC Chi Minnesota Wind LLC Chi Minnesota Wind LLC 100.00% 68.29% 100.00% 68.29% 51.00% 34.83% 51.00% 34.83% 51.00% 34.83% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power Turkey Enerji Yatirimlari Anonim ?irketi Endesa Gas SAU 29.26% Endesa Generación SA 33.33% 20.52% 23.38% 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% 100.00% 60.62% 100.00% 60.62% 100.00% 68.29% Enel Green Power North America Inc. Aurora Distributed Solar LLC Aurora Distributed Solar LLC Southern Cone Power Ltd Latin America Holding I Ltd Aurora Distributed Solar LLC Jack River LLC Minneapolis (Minnesota) USA Jessica Mills LLC Minneapolis (Minnesota) USA Julia Hills LLC Minneapolis (Minnesota) USA - USD - USD - USD Kalenta SA Maroussi Greece 4,359,000.00 EUR Kings River Hydro Company Inc. Wilmington (Delaware) Kinneytown Hydro Company Inc. Wilmington (Delaware) USA USA 100.00 USD 100.00 USD Kongul Energì Sanayi Ve Ticaret Anonim Irketi Istanbul Turkey 50,000.00 TRY Kromschroeder SA Barcelona La Pereda Co2 AIE Oviedo LaChute Hydro Company Inc. Wilmington (Delaware) Spain Spain USA Lake Emily Solar LLC Minnesota USA Lake Pulaski Solar LLC Minnesota USA 627,126.00 EUR Services 224,286.00 EUR Services 100.00 USD - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Latin America Holding I Ltd Latin America Holding II Ltd Lawrence Creek Solar LLC Lima Lima Peru Peru 13,701,000.00 USD Holding Line-by-line 74.00 USD Holding Line-by-line Minnesota USA - USD Electricity generation from renewable resources Line-by-line 402 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Lawrence Hydroelectric Associates LP Boston (Massachusetts) USA - USD Electricity generation from renewable resources Line-by-line Essex Company 92.50% 68.29% Enel Green Power North America Inc. Aurora Distributed Solar LLC RusEnergoSbyt LLC 7.50% 100.00% 68.29% 75.00% 18.93% Lester Prairie Solar LLC Minnesota USA - USD Electricity generation from renewable resources Line-by-line Lipetskenergosbyt LLC (in liquidation) Lipetskaya Oblast Russian Federation 7,500.00 RUB Electricity sale - Little Elk Wind Project LLC Oklahoma City USA - USD Littleville Power Company Inc. Boston (Massachusetts) USA Lower Saranac Corporation New York (New York) Lower Saranac Hydro Partners LP Wilmington (Delaware) USA USA 1.00 USD 1.00 USD - USD Luz Andes Ltda Santiago Chile 1,224,348.00 CLP Maicor Wind Srl Rome Italy 20,850,000.00 EUR Manlenox (Pty) Ltd Houghton South Africa 97.00 ZAR Marcinelle Energie SA Charleroi Belgium 110,061,500.00 EUR Mascoma Hydro Corporation Concord (New Hampshire) USA Mason Mountain Wind Project LLC Wilmington (Delaware) USA 1.00 USD - USD Matrigenix (Proprietary) Limited Mayhew Lake Solar LLC Houghton South Africa 1,000.00 ZAR Minnesota USA - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity and fuel transport, distribution and sale Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation, transport, sale and trading Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Kansas LLC 100.00% 68.29% Line-by-line Line-by-line Line-by-line Hydro Development Group Inc. Twin Saranac Holdings LLC Twin Saranac Holdings LLC 100.00% 68.29% 100.00% 68.29% 99.00% 68.29% Lower Saranac Corporation 1.00% Line-by-line Enersis SA 0.10% 60.07% Chilectra SA 99.90% Line-by-line Enel Green Power SpA 60.00% 40.97% Line-by-line Enel Green Power RSA (Pty) Ltd 98.87% 67.52% Line-by-line Enel Investment Holding BV 100.00% 100.00% Line-by-line Line-by-line Enel Green Power North America Inc. Padoma Wind Power LLC 100.00% 68.29% 100.00% 68.29% Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 68.29% Line-by-line Aurora Distributed Solar LLC 100.00% 68.29% 60,100.00 EUR Environmental studies Equity Nuclenor SA 50.00% 17.54% Medidas Ambientales SL Medina de Pomar (Burgos) Spain Metro Wind LLC Minneapolis (Minnesota) USA Mexicana de Hidroelectricidad Mexhidro S de RL de Cv Midway Farms Wind Project LLC Mexico City Mexico 181,728,701.00 MXN Dallas (Texas) USA - USD Mill Shoals Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Chi Minnesota Wind LLC 51.00% 34.83% Line-by-line Line-by-line Line-by-line Enel Green PowerMéxico S de RL de Cv Trade Wind Energy LLC 99.99% 68.28% 100.00% 68.29% 100.00% 68.29% Enel Green Power North America Inc. Minas de Estercuel SA Madrid Minas Gargallo SL Madrid Spain Spain 93,160.00 EUR Mineral deposits Line-by-line Minas Gargallo SL 99.65% 69.84% 150,000.00 EUR Mineral deposits Line-by-line Minicentrales del Canal de Las Bárdenas AIE Zaragoza Spain 1,202,000.00 EUR Hydroelectric plants - Endesa Generación SA Enel Green Power España SL 99.91% 70.08% 15.00% 10.35% 403 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Minicentrales del Canal Imperial-Gallur SL Zaragoza Spain 1,820,000.00 EUR Hydroelectric plants Equity Missisquoi Associates GP Los Angeles (California) USA - USD Electricity generation from renewable resources Line-by-line Molinos de Viento del Arenal SA San José Costa Rica 9,709,200.00 USD Montrose Solar LLC Minnesota USA Mustang Run Wind Project LLC Oklahoma City (Oklahoma) USA Nevkan Renewables LLC Wilmington (Delaware) Newbury Hydro Company Burlington (Vermont) USA USA - USD - USD - USD - USD Newind Group Inc. St. John (Newfoundland) Canada 578,192.00 CAD Nojoli Wind Farm (RF) Pty Ltd Johannesburg South Africa 10,000,000.00 ZAR Northwest Hydro Inc. Wilmington USA 100.00 USD (Delaware) Notch Butte Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Enel Green Power España SL 36.50% 25.20% 99.00% 68.29% 1.00% 49.00% 33.46% 100.00% 68.29% Sheldon Springs Hydro Associates LP Sheldon Vermont Hydro Company Inc. Enel Green Power Costa Rica Aurora Distributed Solar LLC Line-by-line Line-by-line Line-by-line Enel Kansas LLC 100.00% 68.29% Line-by-line Enel Nevkan Inc. 100.00% 68.29% Line-by-line Sweetwater Hydroelectric Inc. 1.00% 68.29% Enel Green Power North America Inc. Enel Green Power Canada Inc.. 99.00% 100.00% 68.29% Line-by-line Line-by-line Enel Green Power RSA (Pty) Ltd 60.00% 40.97% Line-by-line Chi West Inc. 100.00% 68.29% Line-by-line Enel Green Power North America Inc. Endesa Generación SA 100.00% 68.29% 50.00% 35.07% Nuclenor SA Burgos Spain 102,000,000.00 EUR Nuclear plant Equity Nueva Compañía de Distribución Eléctrica 4 SL Nueva Marina Real Estate SL Nuove Energie Srl Ochrana A Bezpecnost Se AS Madrid Spain 3,010.00 EUR Electricity generation Line-by-line Endesa SA 100.00% 70.14% Madrid Spain 3,200.00 EUR Real estate Line-by-line Endesa SA 60.00% 42.09% Porto Empedocle Italy 54,410,000.00 EUR Construction and management of LNG regasification infrastructure Line-by-line Enel Trade SpA 100.00% 100.00% Mochovce Slovakia 33,193.92 EUR Security services Held for sale Slovenské elektrárne AS 100.00% 66.00% Odell Wind Farm LLC Minneapolis (Minnesota) USA - USD Electricity generation from renewable resources Line-by-line Enel Kansas LLC 100.00% 68.29% Oficina de Cambios de Suministrador SA Madrid Spain 70,000.00 EUR Services associated with the marketing of energy products - Endesa Distribución Eléctrica SL 5.19% 14.03% Endesa Gas SAU 0.35% Endesa Energía XXI SL 2.96% Endesa Energía SA 11.50% 404 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding OGK-5 Finance LLC Moscow Russian Federation 10,000,000.00 RUB Finance company Line-by-line Enel Russia OJSC 100.00% 56.43% Operacion y Mantenimiento Tierras Morenas SA San José Costa Rica 30,000.00 CRC Origin Goodwell Holdings LLC Wilmington (Delaware) Origin Wind Energy LLC Wilmington (Delaware) USA USA Osage Wind LLC Delaware USA - USD - USD - USD Ottauquechee Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Oxagesa AIE Teruel Spain 6,010.00 EUR Cogeneration of electricity and heat Equity Oyster Bay Wind Farm (Pty) Ltd Cape Town South Africa 1,000.00 ZAR P.E. Cote SA Costa Rica Costa Rica 10,000.00 CRC P.V. Huacas SA Costa Rica Costa Rica 10,000.00 CRC Padoma Wind Power LLC Los Angeles (California) USA - USD Paravento SL Lugo Spain 3,006.00 EUR Parc Eolic Els Aligars SL Parc Eolic La Tossa-La Mola D’en Pascual SL Barcelona Spain 1,313,100.00 EUR Barcelona Spain 1,183,100.00 EUR Parque Eólico A Capelada AIE Santiago de Compostela Spain Las Palmas de Gran Canaria Spain Parque Eólico Carretera de Arinaga SA Parque Eólico Curva dos Ventos Ltda 5,857,586.40 EUR 1,603,000.00 EUR Bahia Brazil 420,000.00 BRL Parque Eólico de Aragón AIE Parque Eólico de Barbanza SA Parque Eólico de Belmonte SA Parque Eólico de Gevancas SA Parque Eólico de San Andrés SA Zaragoza Spain 601,000.00 EUR La Coruña Spain 3,606,000.00 EUR Madrid Spain 120,400.00 EUR Porto Portugal 50,000.00 EUR La Coruña Spain 552,920.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power Costa Rica 85.00% 58.05% Line-by-line EGPNA Wind Holdings 1 LLC 100.00% 68.29% Line-by-line Enel Green Power North America Inc. 100.00% 68.29% Equity Enel Kansas LLC 50.00% 34.14% Line-by-line Line-by-line Enel Green Power North America Inc. Enel Green Power España SL Enel Green Power RSA (Pty) Ltd 100.00% 68.29% 33.33% 23.01% 100.00% 68.29% Line-by-line Enel Green Power Costa Rica 65.00% 44.39% Line-by-line Enel Green Power Costa Rica 65.00% 44.39% Line-by-line Line-by-line Enel Green Power North America Inc. Enel Green Power España SL 100.00% 68.29% 90.00% 62.13% Equity Equity Enel Green Power España SL 30.00% 20.71% Enel Green Power España SL 30.00% 20.71% Line-by-line Enel Green Power España SL 100.00% 69.03% Line-by-line Enel Green Power España SL 80.00% 55.22% Line-by-line Line-by-line Enel Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power España SL 99.00% 68.29% 1.00% 80.00% 55.22% Line-by-line Enel Green Power España SL 75.00% 51.77% Line-by-line Enel Green Power España SL 50.16% 34.63% Line-by-line Line-by-line Finerge-Gestão de Projectos Energéticos SA Enel Green Power España SL 100.00% 69.03% 82.00% 56.61% 405 Finerge-Gestão de Projectos Energéticos SA Finerge-Gestão de Projectos Energéticos SA Enel Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power España SL Enel Green Power Desenvolvimento Ltda Enel Brasil Participações Ltda Enel Green Power España SL Enel Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power España SL 75.00% 51.77% 51.00% 35.21% 99.00% 68.29% 1.00% 90.00% 62.13% 0.04% 67.63% 99.00% 75.50% 52.12% 99.00% 68.29% 1.00% 52.00% 35.90% Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Line-by-line Enel Green Power España SL 65.67% 45.33% Parque Eólico de Santa Lucía SA Las Palmas de Gran Canaria Spain 901,500.00 EUR Parque Eólico do Alto sa Vaca Lda Parque Eólico do Vale do Abade Lda Parque Eólico Engenho Geradora de Energia Ltda Porto Portugal 125,000.00 EUR Porto Portugal 5,000.00 EUR Fortaleza Brazil 685,423.00 BRL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Parque Eólico Finca de Mogán SA Las Palmas de Gran Canaria Spain 3,810,340.00 EUR Parque Eólico Fontes dos Ventos Ltda Recife Brazil 5,091,945.30 BRL Construction and operation of wind plants Electricity generation from renewable resources Line-by-line Line-by-line Madrid Spain 6,540,000.00 EUR Bahia Brazil 566,347.00 BRL Construction and operation of wind plants Electricity generation from renewable resources Line-by-line Line-by-line Parque Eólico Montes de Las Navas SA Parque Eólico Ouroventos Ltda Parque Eólico Punta de Teno SA Parque Eólico Renaico SpA Parque Eólico Serra Azul Ltda Tenerife Spain 528,880.00 EUR Santiago Chile 1,000,000.00 CLP Bahia Brazil 940,567.00 BRL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Enel Green Power Chile Ltda 100.00% 68.23% Line-by-line Enel Brasil Participações Ltda 99.00% 68.29% Enel Green Power Desenvolvimento Ltda 1.00% Parque Eólico Serra da Capucha SA Porto Portugal 50,000.00 EUR Electricity generation from renewable resources Line-by-line TP - Sociedade Térmica Portuguesa SA 50.00% 69.03% Parque Eólico Sierra del Madero SA Parque Eólico Taltal SA Soria Spain 7,193,970.00 EUR Santiago Chile 20,878,010,000.00 CLP Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line 50.00% 58.00% 40.04% 0.01% 68.23% Finerge-Gestão de Projectos Energéticos SA Enel Green Power España SL Enel Green Power Latin America Ltda Enel Green Power Chile Ltda 99.99% 406 ENEL ANNUAL REPORT 2014ATTACHMENTSParque Eólico Ventania Geradora de Energia Ltda Parque Solar Carrera Pinto SA Parque Talinay Oriente SA Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Parque Eólico Valle de los Vientos SA Santiago Chile 566,096,564.00 CLP Electricity generation from renewable resources Line-by-line Fortaleza Brazil 440,267.00 BRL Electricity generation from renewable resources Line-by-line Enel Green Power Chile Ltda Enel Green Power Latin America Ltda Enel Green Power Desenvolvimento Ltda Enel Brasil Participações Ltda Enel Green Power Chile Ltda 99.99% 68.23% 0.01% 1.00% 68.29% 99.00% 99.00% 67.54% Santiago Chile 10,000,000.00 CLP Santiago Chile 66,092,165,171.00 CLP Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Enel Green Power Chile Ltda 60.92% 65.17% Paynesville Solar LLC Minnesota USA - USD Electricity generation from renewable resources Line-by-line Pegop - Energía Eléctrica SA Abrantes Portugal 50,000.00 EUR Electricity generation Equity Pelzer Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD Pereda Power SL La Pereda (Mieres) Spain 5,000.00 EUR PH Chucas SA San José Costa Rica 100,000.00 CRC Electricity generation from renewable resources Development of generation activities Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Enel Green Power SpA 34.57% Aurora Distributed Solar LLC Endesa Generación SA Endesa Generación Portugal SA Consolidated Hydro Southeast Inc. Endesa Generación II SA Enel Green Power Costa Rica 100.00% 68.29% 49.98% 35.07% 0.02% 100.00% 68.29% 70.00% 49.10% 40.31% 42.67% Enel Green Power SpA 22.17% PH Don Pedro SA San José Costa Rica 100,001.00 CRC PH Guacimo SA San José Costa Rica 50,000.00 CRC PH Rio Volcan SA San José Costa Rica 100,001.00 CRC Pine Island Distributed Solar LLC Minnesota USA Pipestone Solar LLC Minnesota USA - USD - USD Planta Eólica Europea SA PowerCrop Macchiareddu Srl PowerCrop Russi Srl Seville Spain 1,198,530.00 EUR Bologna Italy 100,000.00 EUR Bologna Italy 10,000.00 EUR PowerCrop Srl Bologna Italy 4,000,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power Costa Rica 33.44% 22.84% Line-by-line Enel Green Power Costa Rica 65.00% 44.39% Line-by-line Enel Green Power Costa Rica 34.32% 23.44% Line-by-line Line-by-line Line-by-line Aurora Distributed Solar LLC Aurora Distributed Solar LLC Enel Green Power España SL 100.00% 68.29% 100.00% 68.29% 56.12% 38.74% Equity PowerCrop Srl 100.00% 34.14% Equity PowerCrop Srl 100.00% 34.14% Equity Enel Green Power SpA 50.00% 34.14% 407 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Pp - Co-Geração SA São Paio de Oleiros Portugal 50,000.00 EUR Cogeneration of electricity and heat Line-by-line Prairie Rose Transmission LLC Minneapolis (Minnesota) USA Prairie Rose Wind LLC New York (New York) USA - USD - USD Primavera Energia SA Rio de Janeiro Brazil 36,965,444.64 BRL Valladolid Spain 88,398.00 EUR Valladolid Spain 710,500.00 EUR TP - Sociedade Térmica Portuguesa SA Prairie Rose Wind LLC 100.00% 69.03% 100.00% 51.22% Line-by-line Line-by-line Enel Kansas LLC 75.00% 51.22% Line-by-line Line-by-line Enel Brasil Participações Ltda Enel Green Power España SL 100.00% 68.29% 82.89% 57.22% Line-by-line Enel Green Power España SL 85.00% 58.68% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and sale Development and construction of wind plants Development and construction of wind plants Barcelona Spain 30,050.00 EUR Hydroelectric plants Equity Prof-Energo LLC Sredneuralsk Russian Federation 10,000.00 RUB Energy services Line-by-line Progas SA Santiago Chile 1,526,000.00 CLP Gas distribution Equity Enel Green Power España SL 30.00% 20.71% Sanatorium- Preventorium Energetik LLC Gas Atacama Chile SA 100.00% 56.43% 99.90% 36.80% Ponferrada Spain 12,020.00 EUR Mexico City Mexico 89,708,735.00 MXN Madrid Spain 601,000.00 EUR Costa Rica Costa Rica 10,000.00 CRC Alicante Spain 180,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Desalinization and water supply Electricity generation from renewable resources Electricity generation from renewable resources Gas Atacama SA 0.10% Line-by-line Enel Green Power España SL 100.00% 69.03% Line-by-line Enel Green Power México S de RL de Cv 99.99% 68.28% Equity Endesa SA 45.00% 31.56% Line-by-line Enel Green Power Costa Rica 65.00% 44.39% Equity Enel Green Power España SL 33.33% 23.01% Jakarta Indonesia 333,333,350,000.00 IDR Energy - Productor Regional de Energía Renovable III SA Productor Regional de Energia Renovable SA Productora de Energías SA Promociones Energéticas del Bierzo SL Proveedora de Electricidad de Occidente Srl de Cv Proyecto Almería Mediterraneo SA Proyecto Eólico El Pedregal SA Proyectos Universitarios de Energías Renovables SL PT Bayan Resources Tbk Pulida Energy (RF) Proprietary Limited Houghton South Africa 10,000,000.00 ZAR Pyrites Associates GP New York (New York) USA - USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line 10.00% 10.00% 52.70% 35.99% 50.00% 68.29% 50.00% 100.00% 68.29% Enel Investment Holding BV Enel Green Power RSA (Pty) Ltd Enel Green Power North America Inc. Hydro Development Group Inc. Enel Brasil Participações Ltda Quatiara Energia SA Rio de Janeiro Brazil 16,566,510.61 BRL Electricity generation Line-by-line Rattlesnake Creek Wind Project LLC Lincoln (Nebraska) USA - USD Electricity generation from renewable resources Line-by-line Enel Kansas LLC 100.00% 68.29% Reaktortest Sro Trnava Slovakia 66,389.00 EUR Nuclear power research Equity Red Centroamericana de Telecomunicaciones SA Panama Panama 2,700,000.00 USD Telecommunications - Slovenské elektrárne AS Endesa Latinoamérica SA 49.00% 32.34% 11.11% 11.11% 408 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Renovables de Guatemala SA Guatemala Guatemala 1,924,465,600.00 GTQ Electricity generation from renewable resources Line-by-line Enel Green Power International BV 42.83% 64.08% Enel Green Power Guatemala SA 0.01% Enel Green Power SpA 51.00% Enel Investment Holding BV Northwest Hydro Inc. 49.50% 49.50% 17.50% 68.29% Chi West Inc. 82.50% 18,000.00 EUR Holding company Equity Electricity generation from renewable resources Line-by-line - USD - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Kansas LLC 100.00% 68.29% Line-by-line Rocky Caney Wind LLC 100.00% 68.29% 2,760,000.00 RUB Electricity trading Equity Res Holdings BV 100.00% 49.50% Res Holdings BV Amsterdam The Netherlands Rock Creek Limited Partnership Los Angeles (California) USA Rocky Caney Wind LLC New York (New York) USA Rocky Ridge Wind Project LLC Oklahoma City (Oklahoma) USA RusEnergoSbyt LLC Moscow Russian Federation RusEnergoSbyt Siberia LLC RusEnergoSbyt Yaroslavl Ruthton Ridge LLC Krasnoyarskiy Kray Russian Federation Yaroslavl Russian Federation Minneapolis (Minnesota) USA 4,600,000.00 RUB Electricity sale Equity 100,000.00 RUB Electricity sale Equity - USD Electricity generation from renewable resources Line-by-line RusEnergoSbyt LLC RusEnergoSbyt LLC Chi Minnesota Wind LLC 50.00% 24.75% 50.00% 24.75% 51.00% 34.83% Empresa Distribuidora Sur SA Enel Green Power España SL Padoma Wind Power LLC 50.00% 21.71% 50.00% 34.52% 100.00% 68.29% OGK-5 Finance LLC 0.01% 56.43% Enel Russia OJSC 99.99% Sacme SA Buenos Aires Argentina 12,000.00 ARS Monitoring of electricity system - Salto de San Rafael SL Seville Spain 461,410.00 EUR Hydroelectric plants Equity San Juan Mesa Wind Project II LLC Wilmington (Delaware) USA - USD Electricity generation from renewable resources Line-by-line Nevinnomyssk Russian 10,571,300.00 RUB Energy services Line-by-line Federation Sanatorium- Preventorium Energetik LLC Santo Rostro Cogeneración SA (in liquidation) Seville Spain 207,000.00 EUR Cogeneration of electricity and heat - Enel Green Power España SL 45.00% 31.06% Scandia Solar LLC Minnesota USA Se Hazelton A LP Los Angeles (California) USA - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Aurora Distributed Solar LLC 100.00% 68.29% Line-by-line Chi West Inc. 99.00% 68.29% Se Hydropower Srl Bolzano Italy 30,000,000.00 EUR Generation, purchase and sale of hydroelectric power Held for sale Se Predaj Sro Bratislava Slovakia 4,505,000.00 EUR Electricity supply Held for sale Sealve - Sociedade Eléctrica de Alvaiázere SA Serra do Moncoso Cambas SL Servicio de Operación y Mantenimiento para Energías Renovables S de RL de Cv Porto Portugal 50,000.00 EUR La Coruña Spain 3,125.00 EUR Mexico City Mexico 3,000.00 MXN Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line 1.00% 40.00% 40.00% 100.00% 66.00% 100.00% 69.03% Bypass Power Company Enel Produzione SpA Slovenské elektrárne AS Finerge-Gestão de Projectos Energéticos SA Line-by-line Enel Green Power España SL 100.00% 69.03% Line-by-line Enel Green Power Guatemala SA 0.01% 0.01% 409 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding SF Energy Srl Rovereto Italy 7,500,000.00 EUR Electricity generation Held for sale Sheldon Springs Hydro Associates LP Wilmington (Delaware) USA Sheldon Vermont Hydro Company Inc. Wilmington (Delaware) USA - USD - USD Enel Produzione SpA Sheldon Vermont Hydro Company Inc. Boott Sheldon Holdings LLC 33.33% 33.33% 100.00% 68.29% 100.00% 68.29% Line-by-line Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Analysis, design and research in thermal technology SIET - Società Informazioni Esperienze Termoidrauliche SpA Sisconer - Exploração de Sistemas de Conversao de Energia Lda Sistema de Gestión Energètica en la Nube SL Sistema Eléctrico de Conexión Montes Orientales SL Sistema Eléctrico de Conexión Valcaire SL Sistemas Energéticos Mañón Ortigueira SA Piacenza Italy 697,820.00 EUR Equity Enel.Newhydro Srl 41.55% 41.55% Porto Portugal 5,000.00 EUR Electricity generation from renewable resources Line-by-line Finerge-Gestão de Projectos Energéticos SA 55.00% 37.97% Madrid Spain 4,943.00 EUR Research, design and development Equity Enel Italia Srl 30.00% 30.00% Granada Spain 44,900.00 EUR Electricity generation Equity Madrid Spain 175,200.00 EUR Electricity generation Equity La Coruña Spain 2,007,750.00 EUR Line-by-line Enel Green Power España SL 16.70% 11.53% Enel Green Power España SL Enel Green Power España SL 28.13% 19.42% 96.00% 66.27% Slate Creek Hydro Associates LP Los Angeles (California) USA Slate Creek Hydro Company Inc. Wilmington (Delaware) USA - USD 100.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Slovenské elektrárne AS Bratislava Slovakia 1,269,295,724.66 EUR Electricity generation Held for sale Smart P@Per SpA Potenza Italy 2,184,000.00 EUR Services - 14,571.43 EUR Research, development and design Equity Enel Italia Srl 30.00% 30.00% Line-by-line Slate Creek Hydro Company Inc. 100.00% 68.29% Enel Green Power North America Inc. Enel Produzione SpA Enel Servizio Elettrico SpA 100.00% 68.29% 66.00% 66.00% 10.00% 10.00% Line-by-line Texkan Wind LLC 100.00% 68.29% Line-by-line Nevkan Renewables LLC 100.00% 68.29% Line-by-line Texkan Wind LLC 100.00% 68.29% SMART-I Srl Rome Smoky Hills Wind Farm LLC Topeka (Kansas) Smoky Hills Wind Project II LLC Topeka (Kansas) Snyder Wind Farm LLC Dallas (Texas) Italy USA USA USA - USD - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and sale Socibe Energia SA Rio de Janeiro Brazil 19,969,032.25 BRL Line-by-line Santiago Chile 5,738,046,495.00 CLP Financial investment Line-by-line Santiago Chile 19,028,480,104.00 CLP Engineering Held for sale Seville Spain 4,507,590.78 EUR Electricity generation Line-by-line Seville Spain 1,643,000.00 EUR Electricity generation from renewable resources Equity Sociedad Agrícola de Cameros Ltda Sociedad Concesionaria Túnel El Melón SA Socieda Eólica de Andalucía SA Socieda Eólica El Puntal SL 410 100.00% 68.29% 57.50% 34.86% 0.01% 36.36% Enel Brasil Participações Ltda Inmobiliaria Manso de Velasco Ltda Compañía Eléctrica Tarapacá SA Empresa Nacional de Electricidad SA 99.99% Enel Green Power España SL Enel Green Power España SL 64.74% 44.69% 50.00% 34.52% ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Socieda Eólica Los Lances SA Sociedad Portuaria Central Cartagena SA Società Agricola Trino Srl Società di sviluppo, realizzazione e gestione del gasdotto Algeria-Italia via Sardegna SpA (“Galsi SpA”) Société Du Parc Eolien Grandes Terres Ouest Eurl Cadiz Spain 2,404,048.42 EUR Bogotá DC Colombia 5,800,000.00 COP Milan Italy 50,000.00 EUR Milan Italy 37,419,179.00 EUR Electricity generation from renewable resources Construction and management of port infrastructure Electricity generation from renewable resources Line-by-line Enel Green Power España SL 60.00% 41.42% Line-by-line Inversora Codensa Sas 4.90% 23.15% Emgesa SA ESP 94.95% Line-by-line Agatos Green Power Trino 100.00% 54.63% Engineering in energy and infrastructure sector - Enel Produzione SpA 15.62% 15.62% Lyon France 21,000.00 EUR Electricity generation from renewable resources Line-by-line Enel France Sas 100.00% 100.00% Sol de Media Noche Fotovoltaica SL Las Palmas de Gran Canaria Spain Soliloquoy Ridge LLC Minneapolis (Minnesota) USA Somersworth Hydro Company Inc. Wilmington (Delaware) USA Sotavento Galicia SA Santiago de Compostela Spain South Fork Wind LLC Minneapolis (Minnesota) USA 3,008.00 EUR Photovoltaic plants Equity Line-by-line Line-by-line Equity - USD 100.00 USD 601,000.00 EUR 100.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Southern Cone Power Argentina SA Buenos Aires Argentina 19,874,798.00 ARS Holding company Line-by-line Southern Cone Power Ltd Lima Southern Cone Power Perù SAA Lima Peru Peru 7,517,500.00 USD Holding company Line-by-line 159,183,286.00 PEN Holding company Line-by-line Line-by-line Enel Kansas LLC 100.00% 68.29% Endesa Ingeniería SLU Chi Minnesota Wind LLC Enel Green Power North America Inc. Enel Green Power España SL 50.00% 35.07% 51.00% 34.83% 100.00% 68.29% 36.00% 24.85% Compañía Eléctrica Tarapacá SA 1.97% 36.38% Empresa Nacional de Electricidad SA 98.03% Inkia Holdings (Acter) Ltd Latin America Holding II Ltd Latin America Holding I Ltd Chi Minnesota Wind LLC 100.00% 60.62% 0.01% 60.62% 99.99% 51.00% 34.83% Southwest Transmission LLC Minneapolis (Minnesota) USA Spartan Hills LLC Minneapolis (Minnesota) USA - USD - USD Stipa Nayaá SA de Cv Colonia Mexico 1,811,016,348.00 MXN Cuauhtémoc Johannesburg South Africa 8,757,214.00 ZAR Cadiz Spain 12,020,240.00 EUR Sublunary Trading (RF) Proprietary Limited Suministradora Eléctrica de Cádiz SA Suministro de Luz y Fuerza SL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity distribution and supply Line-by-line Line-by-line Chi Minnesota Wind LLC 51.00% 34.83% Line-by-line Line-by-line Enel Green PowerMéxico S de RL de Cv Enel Green Power Partecipazioni Speciali Srl Enel Green Power Solar Energy Srl 55.21% 65.13% 40.16% 57.00% 38.92% Equity Endesa Red SA 33.50% 23.50% Torroella de Montgri (Girona) Spain 2,800,000.00 EUR Electricity distribution Line-by-line Hidroeléctrica de Catalunya SL 60.00% 42.09% 411 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Summit Energy Storage Inc. Wilmington (Delaware) USA 2,050,000.00 USD Sun River LLC Minneapolis (Minnesota) USA - USD Sviluppo Nucleare Italia Srl Rome Italy 200,000.00 EUR Sweetwater Hydroelectric Inc. Concord (New Hampshire) USA 250.00 USD Taranto Solar Srl Rome Italy 100,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Development, construction and operation of EPRs Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Tecnatom SA Madrid Spain 4,025,700.00 EUR Tecnoguat SA Guatemala Guatemala 30,948,000.00 GTQ Tejo Energía Produçao E Distribuçao de Energia Electrica SA Paço de Arcos Portugal 5,025,000.00 EUR Electricity generation and services Equity Electricity generation from renewable resources Line-by-line Electricity generation, transmission and distribution Equity Teploprogress OJSC Sredneuralsk Russian Federation 128,000,000.00 RUB Electricity sale Line-by-line Termoeléctrica José de San Martín SA Buenos Aires Argentina 500,000.00 ARS Construction and management of a combined-cycle plant Equity Line-by-line Line-by-line Enel Green Power North America Inc. Chi Minnesota Wind LLC 75.00% 51.22% 51.00% 34.83% Line-by-line Enel Ingegneria e Ricerca SpA 100.00% 100.00% Enel Green Power North America Inc. Enel Green Power SpA Endesa Generación SA Enel Green Power International BV 100.00% 68.29% 51.00% 34.83% 45.00% 31.56% 75.00% 51.22% Endesa Generación SA 38.89% 27.28% OGK-5 Finance LLC Endesa Costanera SA 60.00% 33.86% 5.51% 7.29% Central Dock Sud SA 5.32% Hidroeléctrica El Chocón SA 18.85% Termotec Energía AIE (in liquidation) TERRAE Iniziative per lo sviluppo agroindustriale SpA Texkan Wind LLC Wilmington (Delaware) USA Tko Power Inc. Los Angeles (California) USA Termoeléctrica Manuel Belgrano SA Buenos Aires Argentina 500,000.00 ARS Construction and management of a combined-cycle plant Equity Central Dock Sud SA 5.32% 7.29% Valencia Spain 481,000.00 EUR Rome Italy 19,060,811.37 EUR Cogeneration of electricity and heat - Agro-industrial activities Equity Enel Green Power España SL Enel Green Power SpA 45.00% 31.06% 20.00% 13.66% Endesa Costanera SA 5.51% Hidroeléctrica El Chocón SA 18.85% - USD 1.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Texkan Inc. 100.00% 68.29% Line-by-line Chi West Inc. 100.00% 68.29% Line-by-line Enel Green Power RSA (Pty) Ltd 60.00% 40.97% TOBIVOX (RF) Pty Ltd Houghton South Africa 10,000,000.00 ZAR Toledo Pv AEIE Madrid Spain 26,890.00 EUR Photovoltaic plants Equity TP - Sociedade Térmica Portuguesa SA Lisbon Portugal 3,750,000.00 EUR Cogeneration of electricity and heat Line-by-line 33.33% 23.01% 100.00% 69.03% Enel Green Power España SL Finerge-Gestão de Projectos Energéticos SA Trade Wind Energy LLC New York USA - USD (New York) Tradewind Energy Inc. Wilmington USA 200,000.00 USD (Delaware) Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Chi Power Inc. 1.00% 68.29% Enel Kansas LLC 99.00% Equity Enel Kansas LLC 19.90% 13.59% 412 ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Transmisora de Energia Renovable SA Transmisora Eléctrica de Quillota Ltda Transportadora de Energía SA Transportes y Distribuciones Eléctricas SA Triton Power Company Guatemala Guatemala 237,341,200.00 GTQ Electricity generation from renewable resources Line-by-line Enel Green Power International BV 100.00% 68.29% Santiago Chile 440,644,600.00 CLP Electricity transmission and distribution Equity Buenos Aires Argentina 100,000.00 ARS Electricity generation, transmission and distribution Line-by-line Olot (Girona) Spain 72,120.00 EUR Electricity transmission Line-by-line 50.00% 18.64% 100.00% 51.15% 73.33% 51.44% Compañía Eléctrica Tarapacá SA Compañía de Interconexión Energética SA Endesa Distribución Eléctrica SL New York (New York) USA - USD Electricity generation from renewable resources Line-by-line Enel Green Power North America Inc. 2.00% 68.29% Tsar Nicholas LLC Minneapolis (Minnesota) USA Twin Falls Hydro Associates Seattle (Washington) USA Twin Falls Hydro Company Inc. Wilmington (Delaware) USA Twin Lake Hills LLC Minneapolis (Minnesota) USA Twin Saranac Holdings LLC Wilmington (Delaware) USA - USD - USD 10.00 USD - USD - USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Aranjuez Spain 304,150.00 EUR Electricity generation from renewable resources - Line-by-line Highfalls Hydro Company Inc. Chi Minnesota Wind LLC 98.00% 51.00% 34.83% Line-by-line Twin Falls Hydro Company Inc. 51.00% 34.83% Line-by-line Twin Saranac Holdings LLC 100.00% 68.29% Line-by-line Chi Minnesota Wind LLC 51.00% 34.83% Line-by-line Enel Green Power North America Inc. Enel Green Power España SL 100.00% 68.29% 40.00% 27.61% Johannesburg South Africa 1,000.00 ZAR Electricity generation from renewable resources Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 68.29% Las Palmas de Gran Canaria Spain 190,171,520.00 EUR Electricity generation Line-by-line Endesa Generación SA 100.00% 70.14% Ufefys SL (in liquidation) Ukuqala Solar Proprietary Limited Unión Eléctrica de Canarias Generación SAU Upington Solar (Pty) Ltd Johannesburg South Africa 1,000.00 ZAR Ustav Jaderného Výzkumu Rez AS Rez Czech Republic 524,139,000.00 CZK Vektör Enerji Üretim Anonim Şirketi Istanbul Turkey 740,000.00 TRY Vidigenix (Pty) Ltd Houghton South Africa 97.00 ZAR Viruleiros SL Santiago de Compostela Spain 160,000.00 EUR Waseca Solar LLC Minnesota USA West Faribault Solar LLC Minnesota USA West Waconia Solar LLC Minnesota USA - USD - USD - USD Electricity generation from renewable resources Nuclear power research and development Plant construction and electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 68.29% Equity Slovenské elektrárne AS 27.77% 18.33% Line-by-line Enel Green Power International BV 100.00% 68.29% Line-by-line Enel Green Power RSA (Pty) Ltd 97.75% 66.75% Equity Enel Green Power España SL 67.00% 46.25% Line-by-line Line-by-line Line-by-line 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% Aurora Distributed Solar LLC Aurora Distributed Solar LLC Aurora Distributed Solar LLC 413 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Western New York Wind Corporation Albany (New York) USA Willimantic Power Corporation Hartford (Connecticut) USA 300.00 USD 1,000.00 USD Maroussi Greece 60,000.00 EUR Maroussi Greece 1,110,400.00 EUR Maroussi Greece 551,500.00 EUR Maroussi Greece 556,500.00 EUR Maroussi Greece 736,500.00 EUR Maroussi Greece 424,000.00 EUR Maroussi Greece 389,000.00 EUR Maroussi Greece 551,500.00 EUR Maroussi Greece 555,000.00 EUR Maroussi Greece 551,500.00 EUR Maroussi Greece 296,500.00 EUR Maroussi Greece 252,000.00 EUR Maroussi Greece 3,504,500.00 EUR Maroussi Greece 614,000.00 EUR Maroussi Greece 399,000.00 EUR Maroussi Greece 225,000.00 EUR Maroussi Greece 255,500.00 EUR Maroussi Greece 200,000.00 EUR Maroussi Greece 653,500.00 EUR Maroussi Greece 575,000.00 EUR Wind Park of Koryfao SA Wind Parks of Anatoli-Prinia SA Wind Parks of Bolibas SA Wind Parks of Distomos SA Wind Parks of Drimonakia SA Wind Parks of Folia SA Wind Parks of Gagari SA Wind Parks of Goraki SA Wind Parks of Gourles SA Wind Parks of Kafoutsi SA Wind Parks of Kathara SA Wind Parks of Kerasia SA Wind Parks of Korinthia SA Wind Parks of Makrilakoma SA Wind Parks of Milia SA Wind Parks of Mirovigli SA Wind Parks of Mitika SA Wind Parks of Paliopirgos SA Wind Parks of Pelagia SA Wind Parks of Petalo SA 414 Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power Hellas SA 100.00% 68.29% 100.00% 68.29% 100.00% 68.29% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Equity Equity Equity Equity Equity Equity Equity Equity Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Equity Enel Green Power Hellas SA 30.00% 20.49% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Equity Enel Green Power Hellas SA 30.00% 20.49% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Equity Equity Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% ENEL ANNUAL REPORT 2014ATTACHMENTSCompany name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding Wind Parks of Platanos SA Wind Parks of Sagias SA Wind Parks of Skoubi SA Wind Parks of Spilia SA Wind Parks of Strouboulas SA Wind Parks of Trikorfo SA Wind Parks of Vitalio SA Wind Parks of Vourlas SA Maroussi Greece 179,000.00 EUR Maroussi Greece 601,000.00 EUR Maroussi Greece 472,000.00 EUR Maroussi Greece 496.100,00 EUR Maroussi Greece 576,500.00 EUR Maroussi Greece 260,000.00 EUR Maroussi Greece 361,000.00 EUR Maroussi Greece 554,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Equity Equity Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Line-by-line Enel Green Power Hellas SA 80.00% 54.63% Equity Equity Equity Equity Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 29.25% 19.97% Enel Green Power Hellas SA 30.00% 20.49% Enel Green Power Hellas SA 30.00% 20.49% Winter's Spawn LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 34.83% (Minnesota) from renewable resources Wind LLC WP Bulgaria 1 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 10 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 11 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 12 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 13 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 14 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 15 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 19 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 21 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 26 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 3 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 6 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD 415 Company name Headquarters Country Share capital Currency Activity method Held by % holding Consolidation Group % holding WP Bulgaria 8 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD WP Bulgaria 9 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green Power 100.00% 68.29% operation and maintenance Bulgaria EAD Wyoming Solar LLC Minnesota USA - USD Electricity generation Line-by-line Aurora 100.00% 68.29% from renewable resources Distributed Solar LLC Yacylec SA Buenos Aires Argentina 20,000.000.00 ARS Electricity transport Equity Enersis SA 22.22% 13.47% Yedesa-Cogeneración Almería Spagin 234,000.00 EUR Cogeneration of - Enel Green Power 40.00% 27.61% SA (in liquidation) electricity and heat España SL Zumbrota Solar LLC Minnesota USA - USD Electricity generation Line-by-line Aurora 100.00% 68.29% from renewable resources Distributed Solar LLC 416 ENEL ANNUAL REPORT 2014ATTACHMENTSCorporate governance Report on Corporate Governance and Ownership Structure The corporate governance structure of Enel SpA complies as the adequacy of the organizational structure, the in- with the principles set forth in the edition of the Corpo- ternal control system and the administrative-accounting rate Governance Code (1) for listed companies, which has system of the Company; (iii) the statutory auditing of the been adopted by the Company. Furthermore, the afore- annual accounts and the consolidated accounts, as well mentioned corporate governance structure is inspired by as the independence of the statutory audit firm; and (iv) CONSOB’s recommendations on this matter and, more ge- the manner in which the corporate governance rules set nerally, international best practice. out in the Corporate Governance Code are actually im- The corporate governance system adopted by Enel and the plemented; Group is essentially aimed at creating value for the sha- > a Shareholders’ Meeting, which is competent to take de- reholders over the medium/long term, taking into account cisions concerning, among other issues – in ordinary or ex- the social importance of the Group’s business operations traordinary session: (i) the appointment and termination and the consequent need, in conducting such operations, of members of the Board of Directors and the Board of to adequately consider all the interests involved. Auditors and their compensation and responsibilities; (ii) In compliance with the provisions of Italian law governing the approval of the financial statements and allocation of companies with listed shares, the Company’s organization net income; (iii) the purchase and sale of treasury shares; is characterized by: (iv) stock-based compensation plans; (v) amendments of > a Board of Directors charged with managing the Company; the bylaws; and (vi) the issue of convertible bonds. > a Board of Auditors charged with monitoring: (i) com- The statutory auditing of the accounts is performed by a pliance with the law and the bylaws, and with the princi- specialized firm entered in the appropriate official register. ples of sound administration in the performance of com- It was engaged by the Shareholders’ Meeting on the basis pany business; (ii) the financial reporting process, as well of a reasoned proposal of the Board of Auditors. (1) The various editions of the Code are available on the website of Borsa Italiana (http://www.borsaitaliana.it). Patrizia Grieco (P 3) Francesco Starace (AD/DG) Alessandro Banchi (2,4) Alberto Bianchi (3,4) Paola Girdinio (1,2) Alberto Pera (1,2) Anna Chiara Svelto (1,2) Angelo Taraborrelli (1,4) Shareholders’ Meeting Independent auditors Ernst & Young Board of Directors Board of Auditors Sergio Duca (C) Lidia D’Alessio Gennaro Mariconda Control & Risk Committee1 Compensation Committee2 Nomination & Corporate Governance Committee3 Related Parties Committee4 For more detailed information on the corporate governance system, please see the Report on Corporate Governance and Ow- nership Structure of Enel, which has been published on the Company’s website (www.enel.com, in the “Governance” section). 418 CORPORATE GOVERNANCE ENEL ANNUAL REPORT 2014Concept design Inarea - Rome Publishing service Newton 21 Rome Copy editing postScriptum - Rome Printing Primaprint - Viterbo 50 copies printed Printed in June 2015 INTERNAL PAGES Paper Fedrigoni Xper Gram weight 120 g/m2 Number of pages 420 COVER Paper Fedrigoni Xper Gram weight 320 g/m2 This publication is printed on FSC® certified paper Publication not for sale Edited by Communications Italy Disclaimer This Report issued in Italian has been translated into English solely for the convenience of international readers Enel Società per azioni Registered Office 137 Viale Regina Margherita, Rome Share capital €9,403,357,795 fully paid-up Tax I.D. and Companies Register of Rome: no. 00811720580 R.E.A. of Rome no. 756032 VAT Code no. 00934061003 Annual Report 2014 enel.com 

Continue reading text version or see original annual report in PDF format above