Enel S.p.A.
Annual Report 2017

Plain-text annual report

7 1 0 2 t r o p e R l a u n n A Annual Report 2017 enel.com Annual Report 2017 1 Report on operations2 Annual Report 2017Contents Report on operations > Enel organizational model | 8 > Corporate boards and powers | 10 > Letter to shareholders and other stakeholders | 12 > Summary of results | 18 > Overview of the Group’s operations, performance and financial position | 28 > Results by business area | 42 > Performance and financial position of Enel SpA | 85 > Significant events in 2017 | 91 > Reference scenario | 108 > Main risks and uncertainties | 143 > Outlook | 149 > Other information | 151 > Sustainability | 154 > Related parties | 172 > Reconciliation of shareholders’ equity and net income of Enel SpA and the corresponding consolidated figures | 173 Consolidated financial statements > Financial statements | 176 174 > Notes to the consolidated financial statements | 183 > Declaration of the Chief Executive Officer and the officer responsible for the preparation of the consolidated financial reports of the Enel Group | 322 Financial statements of Enel SpA > Financial statements | 326 324 > Notes to the separate financial statements | 333 > Declaration of the Chief Executive Officer and the officer responsible for the preparation of the financial reports of Enel SpA | 397 6 Reports 400 > Report of the Board of Auditors to the Shareholders' Meeting of Enel SpA | 402 > Report of the independent audit firm on the 2017 financial statements of Enel SpA | 410 > Report of the independent audit firm on the 2017 consolidated financial statements of the Enel Group | 416 > Summary of the resolutions of the Ordinary and Extraordinary Shareholders’ Meeting | 426 Attachments > Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, 2017 | 430 Corporate governance > Report on corporate governance and ownership structure | 478 428 476 3 Enel is Open Power Open to the world, to technology and, internally, among our people. This is the strategic concept of Open Power. But in order to transfer to our customers and stakeholders the essence of a new innovative and open Enel, it is essential to instill this approach to openness within the company. In order to create a shared culture among all of the Group’s parts, we have developed a “galaxy” composed of a Vision – for the first time in Enel – which represents our major long-term objective, a Mission 2025 expressed in five points, the values that represent Enel’s DNA and ten principles of conduct that must inspire everyone who works for the company. Let’s discover the Open Power galaxy. S E VALU ovation n In R e s p o n sibility W o r k f o r t h e i n t e g r a t i o n o f a l l , r e c o g n i z i n g a n d l e v e r a g i n g i n d A d o p t a n d p r o m o t e s a f e b e h a v i o r a n d m o v e W o r k f o c u s i n g o n s a t i s f y i n g c u s t o m e r s M a k e d e c i s i o n s i n d a i l y a c t i v i t i e s a n d t a k e r e s p o n s F o l l o w t h r o u g h w i t h c o m m i t m e n t s , M a k e d e c i s i o n s i n d a i l y P R I N C I P S h a r e i n f o r m a t i o n , b e i n g a c t i v i t i e s a n d L E S O F i b i l i t y p u r s u i f o r n g w i l l i n g R e c o g n i z e m e r i t i n c o - w o r k e r s P r o p o s e n e w s o l u t i o n a n d a n d / o r i v i d u a p r o - a c t c o - w o l i d i v e v e l y r k e r s r t s i o t i y m t h e m a n d g d o n o i t v e f e e d b a c g i v e u p w k h t h e n , ( p G a c t i n g c u l t r o v u e r e , c o a f t a e f f g n e d c a n c e e c d t i n d e i t i o i m w i t p h r v n e l y r , a s f a e r g o o o n , v b d d e s r i s t h e i r t a c l e s a a p b i d l y i l i t i e c o o r n t r i b f a i l u r e u t i o n a c t i v i t i e s t o c o l l a b o r t a k e C O r e s p o N D w i t a n t e s i b h a e t d n d e y i l i t U C T r e s t e o r p u l t s m i n e n f o r t h t e b y a i a o t i t o h n e m m i n g a n d c o n t ri b h e a l t h , s f o r e x c p a s s i o n a f e t y e ll e n c e s , p e r s o n a n d w a li t y e ll- b e i n g u ti o n o f o t h e r s e t c .) 4 Annual Report 2017 O p e n P c h o w alle e r t o n g e V I S I O N s f a s o l v c i n e g t h o e u r g r e w a o t r l d e s t T r u s t y g o l o n h c e t w e n o t y g r e n e f o d l r o w e h n t e p O y erg n e l p o e p r o f y g r e n e g n i g a n a m f s o y a w w e artn w p s hip ers P r o a ctivity N SIO MIS p to n O pen up to new uses of e O n u pe Open up to ne c c e s s to electricity for m ore people n a e p O Enel is Open Power Open to the world, to technology and, internally, among our for the first time in Enel – which represents our major people. This is the strategic concept of Open Power. But in long-term objective, a Mission 2025 expressed in five points, order to transfer to our customers and stakeholders the the values that represent Enel’s DNA and ten principles of essence of a new innovative and open Enel, it is essential to conduct that must inspire everyone who works for the instill this approach to openness within the company. company. Let’s discover the Open Power galaxy. In order to create a shared culture among all of the Group’s parts, we have developed a “galaxy” composed of a Vision – S E VALU ovation n In W o r k f o r t h e i n t e g r a t i o n o f a l l , r e c o g n i z i n g a n d l e v e r a g i n g A d o p t a n d p r o m o t e s a f e b e h a v i o r a n d m o v e W o r k f o c u s i n g o n s a t i s f y i n g c u s t o m e r s M a k e d e c i s i o n s i n d a i l y a c t i v i t i e s a n d t a k e F o l l o w t h r o u g h w i t h c o m m i t R e c o g n i z e m e r i t i n c o - w o r k e r s P r o p o s e n e w s o l u t i o n M a k e d e c i s i o n s i n d a i l y S h a r e i n f o r m a t i o n , P R I N C I r e s p o n s i b i l i t y m e n t s , p u r s u i f o r n g t h e m P L E S O F b e i n g a c t i v i t i e s w i l l i n g t o a n d t a k e a c t i v i t i e s c o l l a b o r t e w i t r e s p o C O N D U C T a n d / o r i n d i v i d u a p r o - a c t c o - w o l i d i v e v e l y r k e r s r t o s i y m a n d d o n o a n d g v e i t g i v e u p w f e e d b a c k h u e t h e n a f t a e f f c a n c e e c d t i t i a n , ( p G c u l t r o v a c t i n g h a e t d n d r e s t e o e y s i b i l i t r e , o g n e d c p u l t s r m i n e n f o r t h n d e r , a i t i o b y a i t e m a o t i t o h v n n e i m w i t p h r e l y s f a e r g o m i n g a n d o o n v b d d e s r , i s t h e i r t a c l e s c o o r a a p b i d l y i l i t i e h e a l t h , s f o r p a s e x c e ll e n c e c o n t ri b s i o n u ti o n n t r i b f a i l u r e u t i o n a f e t y s , p e r s o n a n d a li t y w e ll- b e t c .) e i n g o f o t h e r s R e s p o n sibility O p c h e n P alle n o w e r t o g e V I S I O N s f a s o l v e c i n g t h o e u r g r e w a o t r l d e s t T r u s t y g o l o n h c e t e l w e n o t y g r e n e f o d l r o w e h n t e p O p o e p r o f y g r e n e g n i g a n a m s o y a erg w w n p to n n u pe O hip ers artn w p y s f N SIO MIS e O pen up to new uses of e c c e s s to electricity for m ore people Open up to ne P r o a ctivity n a e p O 5 01Report on operations Enel organizational model On April 28, 2017, the Enel Group adopted a new organiza- tion to the best technologies available at the Group level; tional structure, introducing a new Global Business Line, > Regions and Countries (Italy, Iberia, South America, Eu- called “Enel X”. It is intended to foster greater customer rope and North Africa, North and Central America, Sub- focus and digitization as accelerators of value within the Saharan Africa and Asia), which are responsible for mana- 2017-2019 Strategic Plan: ging relationships with institutional bodies and regulatory authorities, as well as selling electricity and gas, in each More specifically, the new Enel Group structure is organized, of the countries in which the Group is present, while also like the previous one, into a matrix that comprises: providing staff and other service support to the Divisions. > Divisions (Global Thermal Generation and Trading, Global The following functions provide support to Enel’s business Infrastructure and Networks, Renewable Energy, Enel X), operations: which are responsible for managing and developing as- > Global service functions (Procurement and ICT), which are sets, optimizing their performance and the return on ca- responsible for managing information and communication pital employed in the various geographical areas in which technology activities and procurement at the Group level; the Group operates. The Divisions are also tasked with im- > Holding company functions (Administration, Finance and proving the efficiency of the processes they manage and Control, Human Resources and Organization, Commu- sharing best practices at the global level. The Group will nications, Legal and Corporate Affairs, Audit, European benefit from a centralized industrial vision of projects in Affairs, and Innovation and Sustainability), which are the various Business Lines. Each project will be assessed responsible for managing governance processes at the not only on the basis of its financial return but also in rela- Group level. 8 Annual Report 2017r m a n G r i e c o C h a i P. g c o m p a n y H o l d i n i o n s f u n c t F i n a n c e a n d C o n t r o l i o n s i o n , r t s t a o li c a t f e f A d m i n i A . D e P a o m m u n i C R . O ’ K a b i l i a a i n I n r E . C i o v t o n e S e u r s Chief Executive Officer F. Starace Human Resources and Organization F. Di Carlo Legal and Corporate Affairs G. Fazio ( I n n o v a t y ) t y b ili t a i o n a n d E u ropean Affairs S. Mori Audit S. Fiori G l o b a l P r o c urement S. Bernabei G l obal Business Lines Global ICT C. Bozzoli G l o bal Infrastructure and Networks | L. Gallo Global Thermal Generation | E. Viale Global Trading | C. M Global Ren n d R e g i o n s s a t ri e n u o C i a l y | C . T a m b u r G á l v e z s a g o It r o g i o e m a m b Ib eria | J. D . B e ric a | L . D ’A g n e s e South A orth Africa | R . D erica | A. C a m m i s sia | A. Ca m m al A e m is d N n e a p o r u E r a c r a c e A d n a a c r t n e C d n a h t r o N i r f A n a r a h a S - b u S achetti e w a ble E E n el X n e r g y | A . C | F. V e n t u ri n i a m m i s e c r a 9 Corporate boards and powers u e r g i o D a ir m a h C Romina Guglielmetti Auditor Roberto Mazzei Auditor Alfredo Antoniozzi Alberto Bianchi Director Director a c n Board of Auditors 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. Independent auditors Silvia Alessandra Fappani Secretary The Chief Executive Officer is 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 5, 2017 with all powers for managing the company, with the exception of those that are otherwise assigned by law or the bylaws or that the aforesaid resolution reserves for the Board of Directors. Cesare C Director alari F r C a n h i a n d e c f e E s G x e e c n c o e u r a l t i v S e t M a O r a n a f fi a c c g e e e r r C h a i r m a n P a t r i z i a G r i e c o Paola Girdinio Director The Chairman is vested by the bylaws with the powers to represent the company and to sign on its behalf, presides over Shareholders’ Meetings, Angelo Taraborrelli Anna Chiara Svelto Director Director e r a r t o P D ir e c t o r e A l b 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 5, 2017, the Chairman has been vested with a number of additional non-executive powers. E Y S p A S ela Barbiero Alternate auditor Mich o n o T o s n o f l r o t i d u a e t a n r e t l A A F r a n c o L A u l t c e i r a n a n t e o a u T u d i t o t i r n o 10 Annual Report 2017 ela Barbiero Alternate auditor Mich o n o T o s n o f l A r o t i d u a e t a n r e t l A F r a n c o L A u l t c e i r a n a n t e o a u T u d i t t i n o r o a c n u e r g i o D a ir m a h C S E Y S p A Romina Guglielmetti Roberto Mazzei Auditor Auditor Alfredo Antoniozzi Director Alberto Bianchi Director The Chief Executive Officer is 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 5, 2017 with all powers for managing the company, with the exception of those that are otherwise assigned by law or the bylaws or that the aforesaid resolution reserves for the Board of Directors. Cesare C Director alari F r C a a h i n n d e c f e E s G x e e c n c o e u r a l t i S v e t M a O r a n a f fi a c c g e e e r r Board of Auditors 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. Independent auditors Silvia Alessandra Fappani Secretary Angelo Taraborrelli Director Anna Chiara Svelto Director e r a r t o P c t o r D ir e e A l b C h a i r m a n P a t r i z i a G r i e c o Paola Girdinio Director 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 5, 2017, the Chairman has been vested with a number of additional non-executive powers. 11 Report on operations Letter to shareholders and other stakeholders Dear shareholders and stakeholders, in 2017 the Enel Group once again had to cope with strong and sudden changes in macroeconomic conditions: the strategic decisions taken in the recent past prepared the Group to tackle the emerging challenges and seize the opportunities that presented themselves in a highly volatile and increasingly complex environment. The effectiveness of our strategic approach and our capacity to implement it on the operational level enabled Enel to become the European utility with the largest market capitalization during the year, confirming the soundness of the choices made in recent years. 12 12 Annual Report 2017 Annual Report 2017The macroeconomic environment enabled the implementation of more target, prompting the Federal accommodative monetary policies. Reserve to undertake a monetary In 2017, global economic activity More specifically, growth in the tightening. expanded at an average rate of euro-area economies outpaced Last year was also one of economic 3.7%, the fastest pace since 2011. expectations, and inflationary growth in Latin America: Brazil and Economies in the advanced phase pressures, while mixed, gradually Argentina emerged from recession, of the expansion consolidated their increased. Although the exceptional while Peru and Mexico displayed positions, while those that in 2016 volume of liquidity in the system considerable resilience to external had begun the recovery process remains, driven by the expansionary shocks, and Colombia and Chile posted further gains. monetary stances of the main continued to post strong growth, Despite the persistence of a central banks, the improvement albeit at a slower pace compared number of sources of uncertainty, in the macroeconomic situation with previous years. such as the Brexit negotiations and prompted the ECB to reduce the On the commodity front, over the the renegotiation of NAFTA, the volume of its asset purchases under course of 2017 the price of oil went positive data on the state of the quantitative easing and to announce from initial broad stability (with a global economy helped to boost the possible termination of the low of about $45 a barrel at the the general level of confidence program, indicating its intention end of June) to a period of steady and reduce volatility in the financial to begin a gradual process of increases, ending the year above markets. In 2017, economies normalizing monetary policy. $65 a barrel following the OPEC benefited especially from the rise The United States continues to agreement to cut production. The in commodity prices, the recovery grow rapidly. Structural inflation, price of coal was much higher than in global trade and, in some cases, supported by an extremely strong in 2016, mainly due to the sharp a reduction in inflation, which labor market, is close to the 2% increase in demand in China, the Report on operations 13 high temperatures registered during Ordinary net income, on which the managed capacity. During the year, the summer in southern Europe and dividend is calculated, increased by Enel was also awarded contracts structural difficulties in Indonesia 14%, reaching €3.7 billion compared for the supply of renewable energy and Australia, which limited flows of with €3.2 billion the previous year. (through public tenders or private coal towards international markets. The 2017 dividend amounts to agreements) totaling about 5,000 The gas market was characterized 23.7 eurocents per share (with an MW in the Americas, Spain, Russia, by the growing role of LNG and by a implicit pay-out of 65%), an increase Australia and Ethiopia. Significant sharp increase in European demand, of 32% compared with the 18 transactions were also carried out, driven both by seasonal factors and eurocents registered the previous involving the termination of tax by the reduced availability of French year and well above the minimum partnerships in the United States and nuclear plants in the first part of dividend of 21 eurocents guaranteed the signing of disposal agreements the year, which exerted upward to shareholders. In line with the to implement the BSO business pressure on prices compared with dividend payment policy in effect model (“Build, Sell and Operate”) in the previous year. since 2016, an interim dividend of Mexico. In addition, 2017 saw a substantial 10.5 eurocents was distributed in Acquisitions also played a prominent and consistent recovery in electricity January 2018. The ratio of FFO to role in 2017. In particular, those demand in almost all the countries net debt, an indicator of financial carried out through the new Enel in which the Enel Group operates. strength, reached 27%, in line with X Global Business Line involved In particular, in Europe demand the target and an improvement on companies active in the fields of expanded by around 1% compared the 26% posted in 2016. Net debt demand response, energy storage with the previous year, thanks to remained broadly stable at €37.4 and the construction of infrastructure especially hot weather during the billion, an improvement on the for electric mobility. At the same summer and cold temperatures in guidance of €37.8 billion, despite the time, acquisitions in the distribution the latter part of the year. South continuation of Group investment for sector enabled the Group to become America (with the exception of growth (which in 2017 was around the second largest electricity Argentina) also registered an €8.1 billion, only slightly lower than distributor in Brazil. expansion in electricity consumption. the record level posted in 2016). One of the most important The year was also characterized These decidedly positive results challenges in 2017 concerned the by an exceptional wave of drought were reflected in the performance of mass installation of smart meters in and, consequently, poor availability the Enel stock, which in 2017 rose the countries in which the Group’s of water resources, which heavily by about 21.5%. This performance distribution companies operate. penalized hydroelectric generation was even more significant when In particular, in Italy – a country in a number of key markets such as compared with the benchmark index historically in the vanguard on this Italy, Spain and Chile. for the European utilities sector front – the plan to replace 32 million Performance rose by about 14.6%, and with the the new Open Meters (the second (Euro STOXX Utilities UEM), which first-generation digital meters with benchmark index for the Italian generation) was launched in June. Despite the adverse market market as a whole (FTSE-MIB), In 2017, the installation of 1.7 million conditions for gas and coal and which over the same period posted Open Meters in Italy made it possible the limited availability of hydro a gain of 11.7%. to activate previously unexplored resources, the Enel Group managed functions and make progress towards to surpass the financial targets set Main developments the world of smart grids. In addition, for 2017. in Spain more than 11 million digital In particular, the Group closed With regard to industrial growth, meters have already been installed, of the year with ordinary EBITDA of the development of renewable which about 2 million in 2017 alone, €15.6 billion, up from €15.2 billion energy also continued in 2017, with while in Romania about 290,000 are the previous year, outpacing the the installation of 2,600 MW of installed, of which more than half in guidance provided to the market. new capacity, of which 300 MW of 2017. 14 Annual Report 2017 In 2017, the Group’s efforts to three newly opened hubs in San Group to achieve its objectives, create an ultra-broadband fiber optic Francisco, Moscow and Madrid confirming a significant capacity network in Italy also continued. The – enables the Group to seize for generating value and the main transactions undertaken as part the opportunities generated by Group’s clear positioning in the of the active portfolio management the world’s leading innovation ongoing energy transition. Enel is program included the purchase of ecosystems and actively foster now recognized as a global leader minority interests in the Romanian collaboration with the best start- in renewable generation and in companies and the sale of the ups in the world. Today, the Group distribution through smart grids: two stake in the coal mine at Bayan in boasts a portfolio of 126 active key pillars in an energy context that Indonesia. collaborations, mainly in the fields of is evolving towards the electrification As part of its commitment to electric mobility and smart charging, of final consumption and the deep electric mobility, in November energy efficiency, advanced decarbonization of the energy mix. 2017 Enel presented a National automation of generation plants, Our industry is currently Plan for the installation of charging digitization of networks and the experiencing far-reaching change infrastructure for electric vehicles. Internet of Things. under the impetus of two The plan provides for comprehensive These results were also achieved fundamental drivers that mutually coverage of Italy, with the installation thanks to the continuing fuel and reinforce each other: of some 7,000 charging stations by rationalization of the organizational digitization, with technologies that 2020, rising to 14,000 by 2022. structure, which is now more enable the roll-out of innovative The year 2017 was also busy on the streamlined and efficient, thanks in processes and services at an financial front, with the issue of the part to the corporate reorganization increasingly rapid pace and at lower first Green Bond and the launch of in Chile. two bond issues on the US market. cost; and a focus on customers, who are ever more actively involved Our commitment to innovation Strategy and forecasts for 2018 and equipped to choose in a more also continued in 2017, where, knowledgeable and informed in implementation of the Open The strategy adopted in recent fashion. Innovation strategy, the network of years, together with its effective To lend further impetus to seven innovation hubs – including implementation, has enabled the the strategic journey we have Report on operations 15 undertaken, the 2018-2020 Strategic focusing on the delivery of value- particular reference to the 17 Plan was presented in November added services for domestic and Sustainable Development Goals 2017. It essentially confirms the industrial customers, and for cities, (SDGs) of the United Nations. For substance and medium-term as well as on electric mobility, with Enel, sustainability – in essential objectives of the Group’s strategy, the aim of generating €3.3 billion of combination with innovation – is incorporating 2020 within the EBITDA in 2020. central to the Group’s strategy plan horizon. The Enel Strategic After the major gains achieved and is fully integrated with its Plan is the outcome of the shared in recent years, the Group’s path industrial and financial dimension, efforts of management and the of industrial growth continues to fully aware that it is only possible Board of Directors, which is called strengthen. In 2018-2020, Enel plans to remain competitive in the upon to approve the strategy to allocate 70% of resources to long term and create value in a and to periodically monitor its investments for growth and 30% to changing environment by identifying implementation. maintenance activities, with a total sustainable business solutions In the Strategic Plan, digitization investment of €24.6 billion. This will that can reduce environmental and customer focus are again the consolidate growth and at the same impact and increase interaction and key enablers of the Enel Group’s time keep the level of debt in 2020 cooperation with all stakeholders. strategy. at current levels, thanks to solid The actions taken by the Group in More specifically, the digitization of cash generation. More specifically, line with this vision contributed to operations represents a fundamental 80% of the investment program the achievement in 2017 of some lever for the creation of long-term for growth is dedicated to mature of the SDG commitments that the value, thanks to the transformation markets, contributing to a further Group had set for 2020. In particular, of processes, the introduction reduction in risk and underscoring Enel has confirmed and increased of new systems, the continuous considerable flexibility in allocating its specific commitment to the dialogue with technology to enhance resources to the most attractive following SDGs: efficiency and effectiveness, and to growth opportunities. > 800,000 beneficiaries of quality be increasingly resilient and flexible The Group also plans to continue education by 2020, doubling in responding to sudden changes the rationalization of existing assets the previous target of 400,000 in the competitive environment. over the next few years, mainly beneficiaries (SDG 4); For precisely these reasons, in the by focusing on thermal generation > 3 million beneficiaries of access new Strategic Plan investments in plants and exiting non-strategic to clean and low-cost energy by digitization in the next three years countries. We also plan to invest 2020, mainly in Africa, Asia and have increased to €5.3 billion from up to €4.7 billion in strategic South America (SDG 7); the €4.7 billion envisaged in the acquisitions. > 3 million beneficiaries of previous plan. In particular, the People are a central element of employment and sustainable and investment plan focuses on digitizing Enel’s strategy, and for this reason inclusive economic growth by not only grid assets (smart meters, the Group aims to leverage skills 2020, doubling the previous target remote control and connectivity of to an ever greater extent, as they of 1.5 million (SDG 8); systems), but also the customer are the engine of development and > in the fight against climate change relationship, while at the same change in a vision inspired by the (SDG 13), Enel will continue the time promoting a stronger digital principles of ethics, transparency, process of decarbonizing its orientation among all of Enel’s inclusiveness, diversity, respect generation mix with the aim of people. for human rights and maximum Customer focus will receive a attention to safety. significant boost from the creation Continuing along the road of the new Enel X Global Business undertaken, the Strategic Plan reducing average CO2 emissions per kWh generated to 350 gCO2/kWheq by 2020, following the trajectory for complete Line, whose commercial offer promotes the implementation decarbonization by 2050. supplements the traditional business of a sustainable business model of selling electricity and gas, along the entire value chain, with The Enel Group is moving forward 16 Annual Report 2017 with the process of transformation to our shareholders and other shareholders an attractive return undertaken some years ago. This stakeholders of the actions that on their investment and generating journey is based on the transparency will be undertaken in the coming sustainable value over the long term and full visibility with respect years, with the aim of offering our for all stakeholders. Chairman of the Board of Directors Patrizia Grieco Chief Executive Officer and General Manager Francesco Starace Report on operations 17  e u r o a n d % ch a n ge on 2016) | ( m illi o n s o f 7 1 0 r 2 e f o c n e rf o r m a P r e s o u r c e | 2 4 9 .9 (TWh) i o n b y t a r e n e t g e o t a l n T 8 1. 7 (TWh) | r e s o u r c e s b l e a w e % R n e 3 3 b l e e w a n y r e n b Summary of results Italy Abroad Italy Abroad Italy Abroad Italy Abroad 227.3 217.9 4.8 6.9 103.2 181.6 53.5 196.4 Electricity transported (TWh) | 445.2 Gas sales (billions of m3) | 11.7 Electricity sales (TWh) | 284.8 Total net generation (TWh) | 249.9 Capital expenditure by Country/Region 8,130 (millions of euro) 1,812 1,105 3,002 307 1,802 30 Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia 72 Other, eliminations and adjustments 18 Annual Report 2017 9 (+5.7%) ue even 3 74,6 R argin g m %) eratin 2.5 p s o 3 (+ 5 s o r G 5,6 1 e m o c n i ) % 8 . 9 + ( 2 9 7 , 9 g n i t a r e p O ) % 7 . 0 4 + ( e m o c n i 9 2 t e N 3 , 5 E m p l o y e e s b y b u s i n e s s a r e a 6 2 , 9 0 0 al o C % 8 2 r a cle u N % 0 1 e l c y c d e n i b m o C s a g d n a % 8 1 e n i b r u t d n a s % l i a 1 O g 1 2 8 , 6 8 4 1 1 9 , 7 3 0 3 , 9 1 Total net ge n eratio ydroelectric 8% 6 H d Win % 2 2 l a m r e h t o e G % 7 r a l o s s s a m o i B d n a % 3 t a l y I e r i a I b a ri c h A m e o rt h A fri c a a e ric t u o S u r o d N m n p e n e a d C n tr al A u b-S a h ara n A fric a a n d A sia o rt h a E N O th er 3 3 5 , 7 0 5 2 , 0 S 1 9 8 2,6 2 1 Summary of results e u r o a n d % ch a n ge on 2016) | ( m illi o n s o f 7 1 0 r 2 e f o c n e rf o r m a P Italy Abroad Italy Abroad Italy Abroad Italy 227.3 217.9 4.8 6.9 103.2 181.6 Abroad 196.4 Electricity transported (TWh) | 445.2 Gas sales (billions of m3) | 11.7 Electricity sales (TWh) | 284.8 53.5 Total net generation (TWh) | 249.9 Capital expenditure by Country/Region 8,130 (millions of euro) 1,812 1,105 3,002 307 1,802 30 72 Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other, eliminations and adjustments 9 (+5.7%) ue even 3 74,6 R argin g m eratin %) 2.5 p 3 (+ s o s 5 o 5,6 r G 1 al % o C 8 2 r a cle % u N 0 1 e m o c n i g n i t a r e p O ) % 8 . 9 + ( 2 9 7 , 9 e l c y c d e n i b m o C s a g d n a % 8 1 ) % 7 . 0 4 + ( e m o c n i 9 2 3 , 5 t e N e n i b r u t d n a l i O % 1 1 s a g E m p l o y e e s b y b u s i n e s s a r e a 6 2 , 9 0 0 2 8 , 6 8 4 1 1 9 , 7 3 0 3 , 9 1 3 3 5 , 7 0 5 2 , 0 r e s o u r c e | 2 4 9 .9 (TWh) i o n b y t a r e n e t g e 8 1. 7 (TWh) | r e s o u r c e b l e e w a s b l e a w n y r e n b o t a l n T e % R n e 3 3 Total net ge n eratio ydroelectric H 8% 6 d Win % 2 2 l a m r e h t o e G % 7 r a l o s s s a m o i B d n a % 3 a t a l y I e r i a I b ri c h A m e a o rt h A fri c t e ric d N n tr al A e m a u o S e a p u r o o rt h a n d C u b-S a h ara n A fric a a n d A sia n E N O th er S 1 9 8 Report on operations 2,6 2 1 19 Performance data Revenue Revenue in 2017 amounted to €74,639 million, an increa- Millions of euro se of €4,047 million (5.7%) compared with 2016. The rise mainly reflected an increase in revenue from the sale and transport of electricity (especially in end-user markets in Italy and Spain) as a result of greater quantities sold in an 2017 environment of rising prices, for grid management and for the sale of fuels, especially natural gas. In addition revenue 2016 from trading on international electricity markets also incre- ased, essentially reflecting a rise in quantities handled in a 74,639 70,592 +5.7% context of rising prices. Positive exchange rate developments, which saw gains posted in all countries with the exception of Argentina and the United States, were essentially offset by the impact of the changes in the scope of consolidation following the disposal of Slovenské elektrárne, Marcinelle Energie and Enel France and the acquisitions of Enel Distribuição Goiás (formerly CELG-D) and EnerNOC. Revenue includes a number of extraordinary items asso- ciated with gains on the disposal of companies. In 2017 this mainly included the gain of €143 million on the dispo- sal of the investment in Electrogas in Chile. In 2016, it had mainly regarded the gain from the sale of GNL Quintero (an associate in which the Group held 20%) of €173 million and the gain of €124 million on the sale of Hydro Dolomiti Enel. The following table reports developments in revenue by geographical area. Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other, eliminations and adjustments Total 20 2017 38,781 19,994 13,154 2,411 1,187 96 (984) 74,639 2016 Change 37,045 18,953 10,768 3,798 1,125 29 (1,126) 70,592 1,736 1,041 2,386 (1,387) 62 67 142 4,047 4.7% 5.5% 22.2% -36.5% 5.5% - 12.6% 5.7% Annual Report 2017 Gross operating margin The gross operating margin in 2017 totaled €15,653 Millions of euro million, up €377 million (2.5%) compared with 2016, de- spite a negative impact of €225 million from the change in the scope of consolidation – mainly due to the deconso- lidation of Slovenské elektrárne and EGPNA REP and the acquisition of Enel Distribuição Goiás (formerly CELG-D) and EnerNOC – and an unfavorable context attributable to adverse weather and water conditions, which penalized Group performance. In addition to exchange rate gains, the increase in the gross operating margin reflected the implementation of the investment plan over the past few years and the efficiency plans pursued by the Group. The following table reports gross operating margin by geo- 2017 2016 15,653 15,276 +2.5% graphical area. Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other Total 2017 6,863 3,573 4,204 543 759 57 (346) 15,653 2016 6,618 3,562 3,556 762 833 14 (69) 15,276 Change 245 11 648 (219) (74) 43 (277) 377 3.7% 0.3% 18.2% -28.7% -8.9% - - 2.5% The ordinary gross operating margin amounted to > the gains on the sale of GNL Quintero and Hydro Dolo- €15,555 million, up €381 million on 2016 (+2.5%). Extraordi- miti Enel for €173 million and €124 million respectively; nary items for 2017, which are not reflected in the ordinary > the losses recognized following the definitive aban- gross operating margin, amounted to €98 million, including: donment of the development of a number of hydroelec- > the gain of €143 million on the sale of Electrogas; and tric projects in Chile and Peru (about €196 million). > the losses of €45 million posted in South America from the abandonment of hydroelectric projects in Chile and The following table reports developments in the ordinary Colombia. gross operating margin by segment. In addition, in 2016 extraordinary items amounted to €101 million and included: Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other Total 2017 6,863 3,573 4,106 543 759 57 (346) 15,555 2016 6,494 3,562 3,578 762 833 14 (69) 15,174 Change 369 11 528 (219) (74) 43 (277) 381 5.7% 0.3% 14.8% -28.7% -8.9% - - 2.5% 21 Report on operations Operating income Operating income in 2017 amounted to €9,792 million, an Millions of euro increase of €871 million compared with 2016 (€8,921 mil- lion), with a decrease in depreciation, amortization and impai- rment losses of €494 million. The latter was almost entirely attributable to the greater impairment recognized in 2016 2017 9,792 +9.8% than in 2017. In 2016, impairment regarded the writedown of the value of water usage rights for hydroelectric projects on 2016 8,921 the rivers Neltume and Choshuenco in Chile, which face pro- cedural difficulties (€273 million), upstream gas assets (€55 million), the writedown of Marcinelle Energie following the application of IFRS 5 (€51 million), as well as the writedowns recognized following impairment testing of the Enel Green Power Romania CGU (€130 million) and the Nuove Energie CGU (€92 million). In 2017, the only impairment recognized regarded the geothermal assets in Germany under deve- lopment through Erdwärme Oberland GmbH (€42 million). The following table reports developments in operating in- come by geographical area. Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other Total 2017 4,470 1,842 2,970 306 553 15 (364) 9,792 2016 4,270 1,766 2,163 286 565 (5) (124) 8,921 Change 200 76 807 20 (12) 20 (240) 871 4.7% 4.3% 37.3% 7.0% -2.1% - - 9.8% Ordinary operating income, which in addition to not in- The following table reports developments in ordinary ope- cluding the items excluded from ordinary gross operating rating income by geographical area. margin does not consider the effects of the impairment noted above, amounted to €9,736 million, an increase of €301 million (3.2%) on 2016. Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other Total 22 2017 4,470 1,842 2,872 348 553 15 (364) 9,736 2016 4,289 1,766 2,458 486 565 (5) (124) 9,435 Change 181 76 414 (138) (12) 20 (240) 301 4.2% 4.3% 16.8% -28.4% -2.1% - - 3.2% Annual Report 2017 Net income Net income attributable to shareholders of the Parent Millions of euro Net income per share attributable to shareholders of the Parent Company (euro) 0.40 Net income per share attributable to shareholders of the Parent Company (euro) 0.28 2017 3,779 1,550 5,329 2016 2,570 1,217 3,787 Non-controlling interests Parent Company Company amounted to €3,779 million in 2017, compared with €2,570 million in 2016. More specifically, the increase in operating income improved further with the reduction in financial expense on the debt, the gain from the disposal of Bayan Resources and the differences between the two years in the impact of the writedown of the investment in Slovak Power Holding and the financial receivable in re- spect of the disposal of an interest in that company. In addition, taxes decreased, mainly due to the reduction in the rate of corporate income tax (IRES) from 27.5% to 24% in Italy and the adjustment of the deferred taxation of companies resident in the United States following the tax reform approved in December 2017, which reduced the corporate income tax rate from 35% to 21%. Ordinary net income attributable to shareholders of the Parent Company in 2017 amounted to €3,709 million (€3,243 million in 2016), an increase of €466 million on 2016. The following table provides a reconciliation of net in- come and ordinary net income attributable to shareholders of the Parent Company, reporting the non-ordinary items and their respective impacts on net income, excluding the associated tax effects and non-controlling interests. Millions of euro Net income attributable to shareholders of the Parent Company Gain on disposal of Bayan Resources Impairment of Erdwärme geothermal assets Abandonment of hydroelectric projects in Chile and Colombia Gain on disposal of Electrogas Revaluation of investment in Slovenské elektrárne Ordinary net income attributable to shareholders of the Parent Company 2017 3,779 (52) 36 11 (37) (28) 3,709 23 Report on operationsFinancial data Net capital employed Net capital employed, including net assets held for sale Millions of euro of €241 million, amounted to €89,571 million at December 31, 2017 and was financed by equity pertaining to share- holders of the Parent Company and non-controlling inter- ests of €52,161 million and net financial debt of €37,410 million. At December 31, 2017, the debt/equity ratio came to 0.72% (0.71% at December 31, 2016). Net financial debt amounted to €37,410 million, a de- crease of €143 million on December 31, 2016, a slight change compared with the balance at the end of the previ- ous year. Cash flows from operations Group shareholders’ equity per share (euro) 3.42 2017 37,410 52,161 89,571 -0.6% Group shareholders’ equity per share (euro) 3.42 2016 37,553 52,575 90,128 Total shareholders’ equity Net financial debt Cash flows from operations amounted to €10,125 mil- Millions of euro lion in 2017, an increase of €278 million on the previous year, mainly reflecting the increase in the gross operating margin, a reduction in uses of provisions and a decline in taxes paid, which more than offset the deterioration in net working capital. 2017 2016 10,125 9,847 Capital expenditure Capital expenditure amounted to €8,130 million in 2017 Millions of euro (of which €6,857 million in respect of property, plant and equipment), a decrease of €422 million on 2016, mainly concentrated in renewable energy plants in Brazil, Chile and South Africa and in Italy due to the deconsolidation of OpEn Fiber. 2017 2016 8,130 8,552 +2.8% -4.9% 24 Annual Report 2017 The following table reports developments in capital expenditure by geographical area. Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other, eliminations and adjustments Total 2017 1,812 1,105 3,002 307 (1) 1,802 (2) 30 72 8,130 2016 1,894 (3) 1,147 3,069 265 (4) 1,832 304 41 8,552 Change -4.3% -3.7% -2.2% 15.8% -1.6% -90.1% 75.6% -4.9% (82) (42) (67) 42 (30) (274) 31 (422) (1) Does not include €44 million regarding units classified as “held for sale”. (2) Does not include €325 million regarding units classified as “held for sale”. (3) Does not include €7 million regarding units classified as “held for sale”. (4) Does not include €283 million regarding units classified as “held for sale”. Operations Net electricity generated by Enel (TWh) Electricity transported on the Enel distribution network (TWh) (1) Electricity sold by Enel (TWh) Gas sales to end users (billions of m3) Employees at period-end (no.) Italy Abroad Total Italy Abroad Total 2017 196.4 217.9 181.6 6.9 53.5 227.3 103.2 4.8 249.9 445.2 284.8 11.7 60.9 224.1 94.1 4.6 2016 200.9 202.6 168.9 6.0 261.8 426.7 263.0 10.6 31,114 31,786 62,900 31,956 30,124 62,080 (1) The figure for 2016 reflects a more accurate measurement of amounts transported. Net electricity generated by Enel in 2017 decreased by 11.9 TWh on 2016 (-4.5%), due to the decrease in amounts gene- rated in Italy (-7.4 TWh) and abroad (-4.5 TWh). The decline in generation in Italy is mainly attributable to the decrease in con- ventional thermal generation. Abroad, the reduction reflects the deconsolidation at the end of July of Slovenské elektrárne (-7.5 TWh), which more than offset the increase in generation in Spain and South America. As regards the technology mix, the change is mainly attribu- table to a decrease in nuclear generation (-7.0 TWh), coal- and oil-fired generation (-4.7 TWh) and hydroelectric generation (-4.7 TWh). These effects were only partly offset by an incre- ase in natural gas generation (+4.1 TWh) and solar generation (+1.4 TWh). Finally, 33% of the electricity generated by Enel in 2017 came from renewable sources. Net electricity generation by source (2017) 18% 10% 11% 33% 28% Renewables Oil and gas turbine Coal Nuclear Combined cycle and gas 25 Report on operations Electricity sold by geographical area (2017) 4% 26% 36% 34% Italy South America Iberia Other countries at Dec. 31, 2017 at Dec. 31, 2016 28,684 9,711 13,903 5,733 2,050 198 2,621 62,900 29,321 9,695 12,979 5,858 891 185 3,151 62,080 Electricity transported on the Enel distribution net- work in 2017 amounted to 445.2 TWh, up 18.5 TWh (+4.3%), essentially reflecting the acquisition of Enel Distri- buição Goiás (formerly CELG-D). Electricity sold by Enel in 2017 amounted to 284.8 TWh, up 21.8 TWh (+8.3%) on the previous year, reflecting the in- crease in amounts sold on markets in Italy (+9.1 TWh, with the largest increase coming in the business customer seg- ment), South America (+11.6 TWh) and Spain (+3.0 TWh), only partly offset by a decrease in amounts sold in Romania, France and Slovakia following the Group’s exit from those markets. At December 31, 2017, Enel Group employees numbe- red 62,900 (an increase of 820 on the end of 2016). The rise reflects the net balance of new hires and termina- tions (-2,111) and the change in the scope of consolidation (+2,931 overall), which included the acquisition of Demand Energy and EnerNOC in North America and Enel Distribu- ição Goiás (formerly CELG-D) in Brazil. The following table reports the employee workforce by geographical area. No. Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other Total 26 Annual Report 2017Environmental, social and governance indicators “Zero-emission” generation (% of total) Total specific emissions of CO2 from net generation (gCO2/kWheq) (1) Average efficiency of thermal plants (%) (2) Specific emissions of SO2 (g/kWheq) (1) Specific emissions of NOx (g/kWheq) (1) Specific emissions of particulates (g/kWheq) (1) ISO 14001-certified net efficient capacity (% of total) Enel injury frequency rate (3) Enel injury severity rate (4) Serious and fatal injuries at Enel (no.) Serious and fatal injuries at contractors (no.) Verified violations of the Code of Ethics (no.) (5) 2017 2016 Change 43.3 411 40.7 0.84 0.79 0.27 99.0 1.20 45.6 395 40.0 0.82 0.75 0.22 97.9 1.25 0.058 0.050 6 20 27 5 12 21 (2.3) 16 0.7 0.02 0.04 0.05 1.1 (0.05) 0.008 1 8 6 -5.0% 4.1% 1.8% 2.4% 5.3% 22.7% 1.1% -4.0% 16.0% 20.0% 66.7% 29.0% (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) Percentages calculated using new method that does not include oil and gas plants in Italy that are in the process of decommissioning or are marginal among thermal plants. The figures also do not consider consumption and generation for co-generation at Russian thermal plants. The average efficiency is calculated on the basis of the number of plants and weighted by output. (3) The indicator is calculated as the ratio between the total number of injuries and the number of hours worked, in millions. (4) The indicator is calculated as the ratio between the number of days lost for injuries and the number of hours worked, in thousands. (5) The analysis of reports received in 2016 was completed in 2017. For that reason, the number of verified violations for 2016 was restated from 18 to 21. In line with the decarbonization objective for 2050, new The Enel Group has an environmental management sy- renewables capacity totaling about 2.8 GW was installed, stem that covers almost 100% of all activities (generation mainly in Brazil, Peru and the United States. However, zero- plants, grids, services, properties, sales, etc.). The entire emissions generation in 2017 was equal to about 43% of scope of operations is certified except for new plants and total output, a decrease on the previous year that reflected newly acquired or constructed installations, which require the deconsolidation of the plants in Slovakia, Belgium and a certain amount of time for certification. North America. Emissions of CO2 diminished slightly in ab- solute terms compared with 2016, but with a reduction in the Group’s total net generation, specific emissions of CO2 increased by 4% on the previous year (411g/kWheq). The values for other specific atmospheric emissions rose Injury frequency and severity rates for employees of the Enel Group were equal to 1.20 (1.25 in 2016) and 0.058 (0.050 in 2016). In 2017 there were 2 fatal accidents and 4 serious acci- dents involving Enel personnel and 11 fatal accidents and slightly compared with 2016 as a result of the decline in 9 serious accidents involving the employees of contrac- output. Particulates increased by about 23%, however, tors working for Enel. reflecting the increase in coal-fired thermal generation in Reports of violations of the Code of Ethics numbered 123 Russia. Nevertheless, these figures were in line with the last year. Following analysis in 2017, 27 were classified as Group’s targets for 2020. violations. The average efficiency of thermal plants was virtually un- changed on 2016. 27 Report on operations Overview of the Group’s operations, performance and financial position Definition of performance indicators In order to present the results of the Group and the Parent nected with non-recurring transactions such as acquisitions Company and analyze its financial structure, Enel has pre- or disposals of entities (e.g. capital gains and losses), with pared separate reclassified schedules that differ from those the exception of those in the renewables development seg- envisaged under the IFRS-EU adopted by the Group and by ment, in line with the new “Build, Sell and Operate” busi- Enel SpA and presented in the consolidated and separate ness model launched in the 4th Quarter of 2016, in which financial reports. These reclassified schedules contain dif- the income from the disposal of projects in that sector is the ferent performance indicators from those obtained directly result of an ordinary activity for the Group. from the consolidated and separate financial statements, which management feels are useful in monitoring the perfor- Ordinary operating income: this is calculated by correcting mance of the Group and the Parent Company and represen- “Operating income” for the effects of the non-recurring tative of the financial performance of the business. transactions referred to with regard to the gross operating As regards those indicators, on December 3, 2015, CON- margin, as well as significant impairment losses on assets SOB issued Communication 92543/15, which gives force to following impairment testing or classification under “Assets the Guidelines issued on October 5, 2015, by the European held for sale”. Securities and Markets Authority (ESMA), concerning the presentation of alternative performance measures in regu- Group ordinary net income: this is defined as “Group net in- lated information disclosed or prospectuses published as come” generated by Enel’s core business and is equal to from July 3, 2016. These Guidelines, which update the pre- “Group net income” less the effects on net income (inclu- vious CESR Recommendation (CESR/05-178b), are intended ding the impact of any tax effects or non-controlling inte- to promote the usefulness and transparency of alternative rests) of the items referred to in the comments on “Ordinary performance indicators included in regulated information or operating income”. prospectuses within the scope of application of Directive 2003/71/EC in order to improve their comparability, reliability Gross global value added from continuing operations: this and comprehensibility. is defined as value created for stakeholders and is equal to Accordingly, in line with the regulations cited above, the cri- “Revenue”, including “Net income/(expense) from commo- teria used to construct these indicators are as follows. dity management” net of external costs defined as the alge- Gross operating margin: an operating performance indicator, “Costs of materials”, “Capitalized costs of internal projects”, calculated as “Operating income” plus “Depreciation, amor- “Other costs” and “Costs for services, rentals and leases”, tization and impairment losses”. with the latter net of “Costs for fixed water diversion fees” braic sum of “Cost of fuels”, “Cost of electricity purchases”, Ordinary gross operating margin: an indicator calculated by eliminating from the gross operating margin all items con- Net non-current assets: calculated as the difference betwe- and “Costs for public land usage fees”. 28 Annual Report 2017en “Non-current assets” and “Non-current liabilities” with Net capital employed: calculated as the algebraic sum of the exception of: > “Deferred tax assets”; “Net non-current assets” and “Net current assets”, “Provi- sions for risks and charges”, “Employee benefits”, “Defer- > “Securities held to maturity”, “Financial investments in red tax liabilities” and “Deferred tax assets”, as well as “Net funds or portfolio management products measured at assets held for sale”. fair value through profit or loss” and “Other financial receivables” included in “Other non-current financial as- Net financial debt: a financial structure indicator, calculated sets”; > “Long-term borrowings”; > “Employee benefits”; as: > “Long-term borrowings” and “Short-term borrowings and the current portion of long-term borrowings”, taking > “Provisions for risks and charges (non-current portion)”; account of “Short-term financial payables” included in > “Deferred tax liabilities”. “Other current liabilities”; > net of “Cash and cash equivalents”; Net current assets: calculated as the difference between > net of the “Current portion of long-term financial recei- “Current assets” and “Current liabilities” with the excep- vables”, “Factoring receivables”, “Cash collateral” and tion of: “Other financial receivables” included in “Other current > “Long-term financial receivables (short-term portion)”, financial assets”; “Factoring receivables”, “Securities held to maturity”, > net of “Securities held to maturity”, “Securities available “Cash collateral” and “Other financial receivables” inclu- for sale”, “Financial investments in funds or portfolio ma- ded in “Other current financial assets”; nagement products measured at fair value through pro- > “Cash and cash equivalents”; fit or loss” and “Other financial receivables” included in > “Short-term borrowings” and the “Current portion of “Other non-current financial assets”. long-term borrowings”; More generally, the net financial debt of the Enel Group > “Provisions for risks and charges (current portion)”; is calculated in conformity with paragraph 127 of Re- > “Other financial payables” included in “Other current lia- commendation CESR/05-054b implementing Regulation bilities”. 2004/809/EC and in line with the CONSOB instructions of July 26, 2007, net of financial receivables and long-term Net assets held for sale: calculated as the algebraic sum of securities. “Assets held for sale” and “Liabilities held for sale”. Main changes in the scope of consolidation In the two periods under review, the scope of consolidation information, please see note 5 in the notes to the consoli- changed as a result of a number of transactions. For more dated financial statements. 29 Report on operationsGroup performance Millions of euro Total revenue Total costs Net income/(expense) from commodity contracts measured at fair value Gross operating margin Depreciation, amortization and impairment losses Operating income Financial income Financial expense 2017 74,639 59,564 578 15,653 5,861 9,792 3,982 6,674 2016 70,592 55,183 (133) 15,276 6,355 8,921 4,173 7,160 Total financial income/(expense) (2,692) (2,987) 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 Parent Company Net income attributable to non-controlling interests 111 7,211 1,882 5,329 - 5,329 3,779 1,550 (154) 5,780 1,993 3,787 - 3,787 2,570 1,217 Change 4,047 4,381 711 377 (494) 871 (191) (486) 295 265 1,431 (111) 1,542 - 1,542 1,209 333 5.7% 7.9% - 2.5% -7.8% 9.8% -4.6% -6.8% 9.9% - 24.8% -5.6% 40.7% - 40.7% 47.0% 27.4% Revenue Millions of euro Revenue from the sale of electricity Revenue from the transport of electricity Fees from network operators Transfers from institutional market operators Revenue from the sale of gas Revenue from the transport of gas Gains on disposal and negative goodwill on acquisitions of subsidiaries, associates, joint ventures, joint operations and non-current assets held for sale Remeasurement at fair value after changes in control Gains on the disposal of property, plant and equipment and intangible assets Other sales, services and revenue Total 2017 43,433 9,973 900 1,635 3,964 570 159 - 43 13,962 74,639 2016 42,337 9,587 557 1,462 3,876 563 399 99 65 11,647 70,592 Change 1,096 386 343 173 88 7 2.6% 4.0% 61.6% 11.8% 2.3% 1.2% (240) -60.2% (99) (22) 2,315 4,047 - -33.8% 19.9% 5.7% In 2017 revenue from the sale of electricity amounted to pact for all countries with the exception of Argentina. The €43,433 million, an increase of €1,096 million on the pre- change in the scope of consolidation also had a significant vious year (+2.6%). The rise is mainly attributable to the impact: the acquisition of Enel Distribuição Goiás had an following factors: impact of €1,042 million on revenue in 2017, while the de- > an increase of €2,317 million in revenue from electricity consolidation of Slovenské elektrárne had an impact of sales to end users. The change reflects an increase in €345 million; quantities sold as well as a recovery in average prices and > a reduction of €2,189 million in revenue from wholesale developments in exchange rates, which had a positive im- electricity sales, mainly due to the contraction in volumes 30 Annual Report 2017   generated in Italy (€1,777 million) together with the con- in which the Group had held 20%) of €173 million; traction in revenue (€880 million) associated with the de- > the gain of €124 million from the sale of Hydro Dolomiti consolidation of Slovenské elektrárne at the end of July Enel; 2016. These factors were partly offset by exchange rate > the gain of €35 million recognized by Enel Green Power developments and an increase in revenue in Chile and Kansas from the disposal of its subsidiaries Cimarron and Brazil; Lindahl; > an increase of €968 million in revenue from electricity tra- > recognition of a price adjustment on the Portuguese as- ding, reflecting the increase in volumes handled on the sets sold in 2015 in the amount of €30 million. foreign market, which offset the decline in revenue from trading on the Italian market. There were no gains from remeasurement at fair value after changes in control in 2017, while in 2016 they to- Revenue from the transport of electricity amounted to taled €99 million, of which €95 million in respect of the €9,973 million in 2017, an increase of €386 million on 2016. adjustment to fair value of the assets and liabilities of the The rise was mainly concentrated in Spain, South America Group following the changes in governance arrangements and Italy. The increase in average rates on foreign markets and the consequent loss of control of EGPNA REP, which was associated with an increase in quantities transported, had prompted a remeasurement to fair value of its interest especially on the free market. in the company sold. Fees from network operators amounted to €900 million Gains on the disposal of property, plant and equipment in 2017, an increase of €343 million on the previous year. and intangible assets in 2017 amounted to €43 million The change mainly reflects the increase in revenue from (€65 million in 2016) and regarded ordinary disposals during the reimbursement of the costs of essential generation the period. units in Italy, due to the inclusion of the Brindisi Sud plant. Revenue under other sales, services and revenue Revenue from transfers from institutional market ope- amounted to €13,962 million in 2017 (€11,647 million rators totaled €1,635 million in 2017, up €173 million. More the previous year), an increase of €2,315 million on 2016 specifically, the increase in transfers mainly reflected an (+19.9%). increase in the costs of liquid fuels in the Spanish extra- The change on 2016 mainly reflects: peninsular area, for which the Group is entitled to reimbur- > an increase of €1,312 million in revenue from the sale of sement. fuels, especially natural gas; > an increase of €342 million in transfers associated with Revenue from the sale of gas in 2017 amounted to €3,964 environmental certificates, mainly due to an increase in million, an increase of €88 million (+2.3%) compared with quantities handled; the previous year. The change essentially reflected the in- > an increase of €262 million in revenue from construction crease in revenue in Iberia, primarily as a result of an incre- contracts, mainly reflecting works on infrastructure opera- ase in volumes sold and higher average unit prices than in ted under concession arrangements within the scope of 2016. IFRIC 12 by Enel Distribuição Goiás; > an increase of €139 million in revenue from reimburse- Revenue from the transport of gas in 2017 amounted to ments and indemnities, including €100 million in respect €570 million, an increase of €7 million (+1.2%), largely as a of the arbitration proceeding undertaken by the Group result of the increase in quantities transported in Italy. with regard to the Chucas wind farm, for which the Group received that amount from the Instituto Costarricense de The item gains on disposal of entities amounted to €159 Electricidad (ICE); million in 2017, a decrease of €240 million (-60.2%) on 2016, > an increase of €65 million in revenue from tax partner- mainly reflecting the gain of €143 million from the disposal ships. of the Chilean company Electrogas. In 2016, this item mainly consisted of: > the gain from the disposal of GNL Quintero (an associate 31 Report on operationsCosts Millions of euro 2017 2016 Change Electricity purchases 20,011 18,514 Consumption of fuel for electricity generation Fuel for trading and gas for sale to end users Materials Personnel Services, leases and rentals (1) Other operating expenses Capitalized costs Total 5,342 10,906 1,880 4,504 4,738 9,061 1,708 4,637 15,882 15,411 2,886 2,783 (1,847) (1,669) 59,564 55,183 1,497 604 1,845 172 (133) 471 103 (178) 4,381 8.1% 12.7% 20.4% 10.1% -2.9% 3.1% 3.7% -10.7% 7.9% (1) Of which costs for fixed water diversion fees of €169 million in 2017 (€166 million in 2016) and costs for public land usage fees of €24 million in 2017 (€24 million in 2016). Costs for electricity purchases increased in 2017 by Costs for materials in 2017 amounted to €1,880 million, €1,497 million compared with 2016, a rise of 8.1%. The in- an increase of €172 million on the previous year. The rise crease reflects a rise in volumes purchased on the market, was mainly attributable to purchases of materials and especially in Italy and Spain. More specifically, purchases equipment for works on infrastructure and networks ope- of electricity on electricity exchanges increased by €2,026 rated under concession arrangements in Brazil, mainly due million, notably in Italy, Iberia and South America, while to the consolidation of Enel Distribuição Goiás. This effect costs for purchases through bilateral contracts rose by was partly offset by a reduction in costs for purchases of €693 million. These factors were partly offset by a reduc- environmental certificates. tion in purchases on local and foreign markets and as part of ancillary and balancing services totaling about €1,222 Personnel costs in 2017 totaled €4,504 million, a decrea- million, essentially reflecting the reduction in volumes and se of €133 million (-2.9%) on 2016. The change essentially prices handled by Country Italy and the effect of the chan- reflects: ge in the scope of consolidation with the deconsolidation > a decrease in costs for early retirement incentives of of Slovenské elektrárne. €152 million, mainly attributable to the reduction of €205 million in costs compared with 2016 for incentive plans Costs for the consumption of fuel for electricity gene- in Spain (Plan de Salida), only partly offset by the intro- ration amounted to €5,342 million in 2017, an increase duction of a similar plan at the newly acquired Enel Di- of €604 million (+12.7%) on the previous year. The chan- stribuição Goiás in order to enhance the efficiency of the ge essentially reflected an increase in purchase costs to structure (€45 million); meet the requirements of the expansion in thermal gene- > the effect of the increase in average unit costs, espe- ration, especially in South America. These effects more cially in South America, which was almost entirely offset than offset the effect of the deconsolidation of Slovenské by the reduction in the average workforce reflecting the elektrárne. changes noted below. Costs for the purchase of fuel for trading and gas for The Enel Group workforce at December 31, 2017 numbe- sale to end users came to €10,906 million in 2017, an red 62,900, of whom 31,786 abroad. The Group workforce increase of €1,845 million on 2016. The change reflects an expanded by 820 in 2017. The negative balance between increase in quantities purchased and handled with rising new hires and terminations (-2,111 employees), mainly at- average prices, especially in Italy and Spain. tributable to the early retirement incentives noted earlier (44% of terminations took place in Italy), was more than of- 32 Annual Report 2017 fset by the changes in the scope of consolidation (+2,931) services (€44 million) and for the change in the scope attributable to the acquisitions in 2017, especially Enel Di- of consolidation associated with Enel Distribuição Goiás stribuição Goiás and EnerNOC. (€18 million); The overall change compared with December 31, 2016 reflected the writedowns recognized in 2016 in South > a decrease of €161 million in capital losses. The item breaks down as follows: Balance at December 31, 2016 Hirings Terminations Change in scope of consolidation Balance at December 31, 2017 62,080 2,302 (4,413) 2,931 62,900 Costs for services, leases and rentals in 2017 amounted to €15,882 million, an increase of €471 million on 2016. The change during the period essentially reflects: > an increase of €398 million in wheeling costs, mainly in South America and Brazil in particular, in part reflecting the consolidation of Enel Distribuição Goiás, and in Italy, essentially due to the increase in transmission rates; > an increase of €185 million in costs for IT services in Italy and Spain; > an increase in costs for maintenance and other activities performed under public service concession arrange- ments in Brazil in the amount of €134 million; > a decrease of €219 million in access fees for power transmission grids, mainly in Spain as a result of the eli- mination of charges provisioned in 2011-2016 in respect of fees paid by generation companies for self-consumption, as well as the effect of the deconsolidation of Slovenské elektrárne (€78 million). Other operating expenses in 2017 amounted to €2,886 million, an increase of €103 million on 2016, mainly reflec- ting: > an increase of €239 million in charges for environmental compliance, especially in Italy and Romania; > an increase of €137 million in costs for taxes and du- ties, largely reflecting the increase in thermal generation taxes in Spain and higher taxes on nuclear generation in Catalonia as a result of the introduction of the new Law 5/2017, which taxes nuclear waste. This effect was am- plified by the fact that in 2016 the Group had benefitted from the reversal of previous provisions for nuclear gene- ration taxes provided for under the previous law, which was declared unconstitutional; > an increase in costs for fines recorded in Argentina for failure to meeting quality standards in electricity supply America following the waiver of water usage rights for a number of development projects after an analysis of their profitability and socio-economic impact; > the reversal of the litigation provision in 2016 in respect of the SAPE dispute in the amount of €80 million fol- lowing the issue of the arbitration ruling; > the recognition of lower charges connected with the ru- ling that granted Endesa reimbursement of amounts paid to finance the “bono social” in 2016, 2015 and 2014, with a positive impact of €222 million. In 2017, capitalized costs amounted to €1,847 million, an increase of €178 million compared with the previous year, reflecting the increase in capital expenditure. Net income/(expense) from commodity contracts measured at fair value showed net income of €578 mil- lion in 2017 (net expense of €133 million the previous year). More specifically, the net income for 2017 was essential- ly attributable to net income from managing positions in cash flow hedge derivatives in the amount of €246 million (net expense of €610 million in 2016) and derivatives me- asured at fair value through profit or loss in the amount of €302 million (net income of €477 million in 2016). Depreciation, amortization and impairment losses in 2017 amounted to €5,861 million, a decrease of €494 million, almost entirely attributable to impairment. More specifically, the impairment losses recognized in 2016 mainly regarded the writedown of water usage rights for the development of projects involving the Neltume and Choshuenco rivers in Chile for which procedural difficul- ties have been identified (€273 million), as well as wri- tedowns recognized following impairment testing of the Enel Green Power Romania CGU (€130 million) and the Nuove Energie CGU (€92 million). In 2017, the adjustment mainly regards the impairment of the geothermal assets of the German investee Erdwärme (€42 million). In addition to the foregoing, another development was the increase in writedowns of trade receivables and other re- ceivables net of reversals in the amount of €70 million, due essentially to the increase in net adjustments in Ar- gentina and Brazil, due to the deterioration of economic 33 Report on operationsconditions, and in Italy as a result of the risk of default in rivatives (hedging both interest and exchange rates), al- respect of a number of traders. most entirely offset by an increase of €203 million in net exchange gains as a result of developments in exchange Operating income in 2017 amounted to €9,792 million, rates. an increase of €871 million. The share of income/(losses) of equity investments Net financial expense amounted to €2,692 million in accounted for using the equity method in 2017 show- 2017, a decrease of €295 million, mainly reflecting: ed net income of €111 million, compared with net losses > a decline of €255 million in impairment losses on fi- of €154 million in 2016. The change of €265 million is es- nancial receivables, almost entirely attributable to the sentially attributable to the writedown of the 50% stake adjustment to fair value of the financial receivable ari- in Slovak Power Holding (€246 million), which in 2016 had sing from the disposal of 50% of Slovak Power Holding, been written down by €219 million following changes of which in 2016 involved the recognition of charges of €220 the reference parameters used to determine the price for- million and a positive adjustment in 2017 of €34 million; mula included in the agreements with EPH and, conver- > a decrease of €199 million in net interest expense, sely, in 2017 increased by €27 million to take account of mainly due to the Group’s refinancing strategy, exploiting net income for the year. the maturing of more expensive bonds and refinancing at much lower market rates; Income taxes in 2017 amounted to €1,882 million, equal > a decrease of €96 million in charges for the accretion of to 26.1% of taxable income, while taxes in 2016 totaled other provisions, associated with the reduction of €58 €1,993 million, equal to 34.5% of taxable income. The de- million in charges in respect of the provision for early re- crease of €111 million in taxes compared with the previous tirement incentives, largely in Spain, and with the decre- year essentially reflected: ase of €48 million in charges for the decommissioning > a decrease in current taxes in Italy as a result of the provision following the deconsolidation of Slovenské reduction of the IRES (corporate income tax) rate from elektrárne; 27.5% to 24%; > an increase of €45 million in income on equity in- > the adjustment of the deferred taxation of companies vestments, due essentially to the gain on the disposal of resident in the United States following the tax reform ap- the interest in the Indonesian company Bayan Resources proved in December 2017, which reduced the corporate (€52 million). tax rate from 35% to 21% (€173 million); These factors were only partly offset by: > the recognition of deferred tax assets in Argentina as a > an increase in financial expense recognized by Enel Fi- result of the improvement in the profit outlook for com- nance International (€109 million) as a result of the early panies resident there (€60 million). redemption of bonds under the “make whole call option” option provided for in the original loan contract; These decrease in taxes were partly offset by the increa- > a decrease in capitalized interest (€75 million), mainly se in pre-tax income in 2017 compared with the previous due to the deconsolidation of Slovenské elektrárne; year and the change in the weight of operations subject to > an increase in financial expense of a regulatory nature different tax rates from the theoretical rates (in 2016 the connected with the acquisition of Enel Distribuição Goiás gains on Hydro Dolomiti Enel and GNL Quintero, as well (€55 million) and an increase in charges on revolving cre- as writedowns of assets associated with Slovak Power dit lines (€37 million); Holding; in 2017, the gain on the disposal of Electrogas). > an increase of €218 million in net charges on financial de- 34 Annual Report 2017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) at Dec. 31, 2017 at Dec. 31, 2016 Change 91,738 13,746 1,598 (1,677) 92,318 13,556 1,558 (802) (580) -0.6% 190 40 (875) 1.4% 2.6% - Total net non-current assets 105,405 106,630 (1,225) -1.1% Net current assets: - trade receivables - inventories - net receivables due from institutional market operators - other net current assets/(liabilities) - trade payables Total net current assets Gross capital employed Sundry provisions: - 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 14,529 2,722 (3,912) (6,311) (12,671) (5,643) 99,762 (2,407) (8,025) (10,432) 241 89,571 52,161 37,410 13,506 2,564 (3,592) 1,023 158 (320) 7.6% 6.2% -8.9% (5,201) (1,110) -21.3% (12,688) (5,411) 17 (232) 101,219 (1,457) (2,585) (8,517) (11,102) 11 90,128 52,575 37,553 178 492 670 230 (557) (414) (143) 0.1% -4.3% -1.4% 6.9% 5.8% 6.0% - -0.6% -0.8% -0.4% Property, plant and equipment and intangible assets (inclu- acquisition of Enel Distribuição Goiás (including the conces- ding investment property) amounted to €91,738 million at sion rights for the distribution of electricity in the region of December 31, 2017, a decrease of €580 million. The decline Goiás), EnerNOC and eMotorWerks. mainly reflects the negative impact of translating financial statements denominated in foreign currencies (€3,824 mil- Goodwill amounted to €13,746 million, an increase of €190 lion, with the largest losses coming in respect of the US million on December 31, 2016. dollar, the Colombian peso and the Chilean peso), depre- In addition to exchange losses, the net change mainly re- ciation, amortization and impairment losses totaling €5,021 flects: million and the reclassification to asset held for sale of the > the recognition of goodwill of €289 million in respect of: “Kino” renewables projects in Mexico in application of IFRS (i) the acquisition of EnerNOC, a US company that is le- 5 (€1,207 million). ader in demand response and energy services for indu- These factors were partly offset by investments in the pe- strial, commercial and government customers and (ii) the riod (€8,130 million) and the change in the scope of conso- subsequent acquisition of eMotorWerks by EnerNOC; lidation (a positive €1,758 million), mainly attributable to the > the reclassification of €38 million to assets held for sale 35 Report on operations of the goodwill of the Central America CGU associated as part of the Open Meter plan, the purchase of materials with the “Kino” wind farms in Mexico, for which the con- for the maintenance and operation of medium- and low- ditions established in IFRS 5 for recognition in that cate- gory were met during the year. voltage grids and an increase in CO2 emissions allowan- ces and stocks of gas and other fuels; > a decrease of €320 million in net receivables due from Equity investments accounted for using the equity method institutional market operators, mainly in Italy in respect amounted to €1,598 million, an increase of €40 million on of white certificates and electricity equalization on the December 31, 2016. regulated market, as well as the effects in South America This mainly reflects the recognition of net income pertai- of the consolidation of Enel Distribuição Goiás and the ning to the Group, net of dividends paid. In addition to this increase in system charges in Argentina as a result of factor and exchange differences, other factors included the rate increases; changes in the scope of consolidation due to the disposal > a decrease of €1,110 million in other current assets net of of the Chilean company Electrogas and the recognition of associated liabilities. The change reflected the following the residual portion attributable to the Group following the factors: disposal of 80% of the Caney River and Rocky Ridge wind - a decrease of €541 million in net current financial as- farms in the United States. sets, essentially reflecting the decrease in the fair va- lue of derivatives, mainly cash flow hedges on exchan- Other net non-current assets/(liabilities) showed net liabi- ge rates and commodity prices; lities of €1,677 million at December 31, 2017, an increase - a decrease of €227 million in net income tax receiva- of €875 million on December 31, 2016 (€802 million). The bles. This was largely attributable to payments of in- change is mainly attributable to: come tax in the amount of €1,579 million, down €380 > the decrease of €1,398 million in net assets in respect million on the previous year, partly offset by the reco- of cash flow hedge derivatives (especially those hedging gnition of the current tax liability (net of adjustments exchange risk); for prior years) in the amount of €1,867 million, an in- > the decrease of €138 million in other equity investments, crease of €171 million; mainly associated with the sale of the 10% interest in - a decrease of €94 million in other net current liabili- Bayan Resources; ties. More specifically, the reduction in liabilities for > an increase of €455 million in financial assets in respect the purchase of equity investments (attributable to the of service concession arrangements, mainly attributable payment of the put option that enabled the acquisition to the award of a 30-year concession for the Volta Grande of an additional 13.6% of Enel Distributie Muntenia hydroelectric facility in south-eastern Brazil; and Enel Energie Muntenia for €401 million) was only > an increase of €106 million from the consolidation of Enel partly offset by the increase in liabilities for dividends Distribuição Goiás; to be paid, which reflects the larger interim dividend > an increase of €94 million in long-term receivables from approved by Enel SpA for its shareholders and by the institutional market operators in Spain and Italy. increase in liabilities in respect of customers for reim- bursements to be paid, mainly in Italy; Net current assets were a negative €5,643 million at De- > a decrease of €17 million in trade payables. More speci- cember 31, 2017, an increase of €232 million on December fically, the decline in payables in Italy was almost entirely 31, 2016. The change reflects the following factors: offset by an increase in Spain and South America. > an increase of €1,023 million in trade receivables, mainly: (i) in South America, where unfavorable exchange effects Sundry provisions amounted to €10,432 million, a decre- were more than offset by the change in the scope of ase of €670 million compared with the previous year. The consolidation with Enel Distribuição Goiás (€336 million), change essentially reflects the following factors: the increase in quantities sold and transported and rate > a decrease of €178 million in provisions for employee be- increases, notably in Argentina and (ii) in Italy in respect nefits, mainly due to developments in exchange rates; of traders; > a reduction of €384 million in provisions for risks and > an increase of €158 million in inventories, mainly in Italy charges, mainly associated with the provision for early and reflecting the purchase of second-generation meters retirement incentives (largely in Italy and Spain); 36 Annual Report 2017 > a decrease of €159 million in net deferred tax liabilities, > project companies associated with the Kafireas wind mainly due to exchange differences on the net deferred project, for which Enel Green Power Hellas has signed a tax liabilities of companies with a currency other than the Joint Venture Agreement with a partner that governs the euro. terms and management of 100% of the projects linked to that wind farm. Net assets held for sale amounted to €241 million at De- cember 31, 2017 (€11 million at December 31, 2016). Net capital employed at December 31, 2017 amounted The change mainly reflects the reclassification to assets to €89,571 million and was funded by shareholders’ equity held for sale of: attributable to the shareholders of the Parent Company and > eight Mexican project companies, which own three non-controlling interests in the amount of €52,161 million plants in operation and five under construction, for which and net financial debt of €37,410 million. At December 31, Enel Green Power has signed agreements for the sale of 2017, the debt/equity ratio was 0.72 (0.71 at December 31, 80% of their share capital (the “Kino Project”); 2016). 37 Report on operationsAnalysis of the 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 on derivatives and other financing Other short-term financial payables (1) Other short-term debt Long-term financial receivables (short-term portion) Factoring receivables Financial receivables - cash collateral Other short-term financial receivables at Dec. 31, 2017 at Dec. 31, 2016 Change 8,310 32,285 1,844 42,439 (2,444) 39,995 1,346 249 1,595 5,429 225 889 449 307 7,299 (1,094) (42) (2,664) (589) (7,090) (11,479) (2,585) 37,410 1,364 7,446 32,401 1,489 41,336 (2,621) 38,715 749 909 1,658 3,446 189 3,059 1,286 414 8,394 (767) (128) 864 (116) 355 1,103 177 1,280 597 (660) (63) 1,983 36 (2,170) (837) (107) (1,095) (327) 86 (1,082) (1,582) (911) (8,326) (11,214) (1,162) 37,553 - 322 1,236 (265) (1,423) (143) 1,364 11.6% -0.4% 23.8% 2.7% 6.8% 3.3% 79.7% -72.6% -3.8% 57.5% 19.0% -70.9% -65.1% -25.8% -13.0% -42.6% 67.2% - -35.3% 14.8% -2.4% - -0.4% - 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” (1) Includes current financial payables included in ”Other current financial liabilities”. Net financial debt amounted to €37,410 million at Decem- of €864 million due mainly to drawings on bank financing ber 31, 2017, a decrease of €143 million on December 31, by Enel SpA and subsidized loans to Endesa, e-distribu- 2016. zione, and Enel Green Power Perú, partly offset by the re- More specifically, net long-term debt rose by €1,280 mil- classification to short-term of amounts falling due within lion, the joint effect of a decrease in long-term financial re- 12 months and the exchange gains of €287 million (the ceivables of €177 million and an increase in gross long-term amount includes exchange differences in respect of the debt of €1,103 million. short-term portion of borrowings); With regard to the latter aggregate: > bonds amounted to €32,285 million, a decrease of €116 > bank borrowings amounted to €8,310 million, an increase million on the end of 2016, mainly reflecting: 38 Annual Report 2017  - the repurchase by Enel Finance International of its within 12 months amounting to €5,429 million. own 10-year bonds issued in US dollars in October Finally, cash collateral paid to counterparties in over-the- 2009 amounting to €1,479 million; counter derivatives transactions on interest rates, exchange - the reclassification to short term of the current por- rates and commodities totaled €2,664 million, while cash tion of bonds maturing within the next 12 months, the collateral received from such counterparties amounted to residual amount of two retail bonds issued by Enel €449 million. SpA with a nominal value of €3,000 million falling due Cash and cash equivalents and short-term financial recei- in February 2018, €512 million and €543 million in re- vables came to €11,479 million, up €265 million compared spect of two fixed-rate bond issued by Enel Finance with the end of 2016, mainly reflecting the increase in cash International falling due in April 2018 and October 2018 collateral paid to counterparties of €1,582 million, partly of- respectively and €191 million in respect of issues in fset by a decrease in cash with banks and short-term secu- local currencies by the South America companies; rities of €1,236 million. - new issues in 2017, including: - €1,250 million in respect of a fixed-rate Green Bond The main transactions carried out in 2017 included: falling due in 2024, issued by Enel Finance Internatio- > the renegotiation with an extension until 2020 of the nal in January 2017; main credit lines of Endesa in the total amount of €1,985 - $5,000 million (the equivalent of €4,169 million) in million. As at December 31, 2017, the credit was drawn in respect of a multi-tranche bond falling due in 2022, the amount of €12 million; 2027 and 2047, issued by Enel Finance International > the agreement, on July 28, 2017, of the first tranche of a in May 2017; loan of €500 million from the European Investment Bank - $3,000 million (the equivalent of €2,501 million) in to e-distribuzione for the replacement of digital meters in respect of a multi-tranche bond, falling due in 2023, Italy. As at December 31, 2017, the credit was drawn in 2028 and 2047, issued by Enel Finance International the amount of €100 million; in October 2017; > the agreement, on December 18, 2017, between Enel - €484 million in respect of issues in local currencies SpA and Enel Finance International and a pool of banks by the South American companies; of a revolving credit line of €10 billion, which will fall due - exchange rate gains during the year in the amount of in December 2022 and as at December 31, 2017 was not about €1,850 million (the amount also includes the drawn. This credit facility replaces an existing €9.4 billion exchange difference on the short-term portion of the facility agreed in 2015 and falling due in February 2020; bonds). > the following bond repayments: - €908 million in respect of a fixed-rate bond, issued by Net short-term debt showed a creditor position of €2,585 Enel SpA in 2007, maturing in June 2017; million at December 31, 2017, an increase of €1,423 million - the equivalent of €1,254 million in respect of a fixed- on the end of 2016, the result of the decrease in other bor- rate bond in US dollars, issued by Enel Finance Inter- rowings and in short-term bank borrowings of €1,095 mil- national, maturing in September 2017. lion and €63 million, respectively, and an increase in cash and cash equivalents and short-term financial receivables in The net financial debt of assets and liabilities held for sale the amount of €265 million. at December 31, 2017 amounted to €1,364 million and mainly regarded the borrowing with which the Group finan- Other short-term debt, totaling €7,299 million, includes ced the construction of the plants of the Mexican project commercial paper issued by International Endesa BV companies (the “Kino Project”). amounting to €889 million, as well as bonds maturing 39 Report on operations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) 2017 8,326 10,125 (9,294) (1,646) (390) 7,121 2016 10,790 9,847 (8,087) (4,474) 250 8,326 Change (2,464) 278 (1,207) 2,828 (640) (1,205) (1) Of which cash and cash equivalents equal to €8,290 million at January 1, 2017 (€10,639 million at January 1, 2016), short-term securities equal to €36 million at January 1, 2017 (€1 million at January 1, 2016) and cash and cash equivalents pertaining to assets held for sale equal to €150 million at January 1, 2016. (2) Of which cash and cash equivalents equal to €7,021 million at December 31, 2017 (€8,290 million at December 31, 2016), short-term securities equal to €69 million at December 31, 2017 (€36 million at December 31, 2016) and cash and cash equivalents pertaining to assets held for sale equal to €31 million at December 31, 2017. Cash flows from operating activities in 2017 were a the hydroelectric generation sector in Italy, for €313 mil- positive €10,125 million, up €278 million compared with lion; 2016, mainly reflecting an increase in the gross operating > the disposal, in December 2016, of the Cimarron and Lin- margin, a decline in the use of provisions and a reduction dahl wind farms to EGPNA Renewable Energy Partners in taxes paid, which more than offset the deterioration in (for €216 million), a vehicle to which plants operating in net working capital. the United States for which a partnership agreement was reached with General Electric were transferred (and Cash flows from investing/disinvesting activities will continue to be transferred); in 2017 absorbed funds in the amount of €9,294 million, > the disposal of GNL Quintero, an associate in which the while in 2016 they had absorbed liquidity totaling €8,087 Group held 20%, for €177 million; million. > the sale of 50% of Slovak Power Holding, which in turn More specifically, cash requirements in respect of in- holds 66% of Slovenské elektrárne, for €139 million; vestments in property, plant and equipment and in intangi- > the disposal, in May 2016, of 65% of Drift Sand Wind ble assets amounted to €8,499 million in 2017, down €343 Project, a company operating in the wind generation sec- million on the previous year, mainly due to decreased in- tor in the United States, for €98 million; vestment in renewable technologies. > the sale of Marcinelle Energie, a company operating in the thermal generation sector in Belgium, for a total of Investments in entities or business units, net of cash and €36 million; cash equivalents acquired, amounted to €900 million in > price adjustments for disposals carried out in previous 2017 and primarily regarded the acquisition of Enel Distri- years totaling €60 million. buição Goiás (formerly CELG-D), a power distribution com- pany operating in the Brazilian state of Goiás, as well as Cash flows from financing activities absorbed liquidity EnerNOC, which operates in active demand response and in the amount of €1,646 million, while in 2016 they showed energy intelligence software services in North America, cash absorbed of €4,474 million. The flow in 2017 is es- Europe and Asia-Pacific. sentially associated with the increase in net financial debt In 2017, the disposal of entities and business units, net of (the net balance of repayments and new borrowing) in the cash and cash equivalents sold, generated cash flows of amount of €1,705 million and the payment of dividends to- €216 million and mainly regarded the disposal of the Caney taling €2,873 million. River and Rocky Ridge wind farms in North America. In These factors were accompanied by an increase in out- 2016, the item amounted to €1,032 million and included: lays for transactions involving non-controlling interests in > the disposal of Hydro Dolomiti Enel, which operates in the amount of €478 million, mainly regarding the outlay for 40 Annual Report 2017the put option that enabled the acquisition of an additional million and for investing activities totaling €9,294 million. 13.6% of e-distribut¸ie Muntenia and Enel Energie Munte- The difference is reflected in the decrease in cash and nia. cash equivalents, which at December 31, 2017 amounted to €7,121 million, compared with €8,326 million at the end Accordingly, in 2017, cash flows from operating activities of 2016. This decrease also reflects the effect of negative in the amount of €10,125 million only partly covered the developments in the exchange rates of the various local cash needs for financing activities in the amount of €1,646 currencies against the euro, equal to €390 million. 41 Report on operationsResults by business Risultati economici area per area di attività The representation of performance by business area pre- > “Thermal Generation” and “Trading and Upstream” are sented here is based on the approach used by management La rappresentazione dei risultati economici per area di at- in monitoring Group performance for the two periods under tività è effettuata in base all’approccio utilizzato dal mana- review, taking account of the operational model adopted by gement per monitorare le performance del Gruppo nei due the Group as described above. periodi messi a confronto, tenuto conto del modello opera- Taking account of the provisions of IFRS 8 regarding the tivo adottato descritto in precedenza. management approach, performance by business area re- In particolare, tenendo conto di quanto stabilito dal prin- ported in this Annual Report was determined by designa- cipio contabile internazionale IFRS 8 in termini di “mana- ting the Regions and Countries perspective as the primary gement approach”, i risultati per settore di attività inclusi reporting segment. In addition, account was also taken of nella presente Relazione finanziaria annuale sono costruiti the possibilities for the simplification of disclosures asso- identificando come “reporting segment primario” la vista ciated with the materiality thresholds also established un- per Regioni e Paesi. Si segnala, infine, che sulla base dei der IFRS 8 and, therefore: criteri determinati dall’IFRS 8, si è anche tenuto conto della presented together given the considerable interaction internazionale e, pertanto: and interdependence between them; > “Generazione Termoelettrica” e “Trading e Upstream” > the “Enel X” area is presented together with “End-user sono presentati unitariamente dato il forte grado di inte- markets” pending the full operation of the organization razione e interdipendenza tra le due filiere; and the corporate reorganization to separate the scope > il perimetro di attività di “Enel X” è per il momento pre- of activities of the new Business Line; sentato insieme ai “Mercati finali” nell’attesa che risulti > the item “Other, eliminations and adjustments” includes pienamente operativa l’organizzazione e il riassetto so- not only the effects from the elimination of intersegment cietario finalizzato alla separazione del perimetro di attivi- transactions, but also the figures for the Parent Com- tà della nuova Business line; pany, Enel SpA. > la voce “Altro, elisioni e rettifiche”, oltre a includere gli The following chart outlines these organizational arrange- effetti derivanti dalla elisione dei rapporti economici in- ments. tersettoriali, accoglie i dati relativi alla Holding Enel SpA. possibilità di semplificazione espositiva derivante dai limiti La seguente rappresentazione grafica schematizza quanto di significatività stabiliti dal medesimo principio contabile sopra riportato. Geographical areas Holding company Global Divisions Local businesses Infrastructure and Networks Thermal Generation Trading and Upstream Renewable Energy Enel X End-user markets Services Italy Iberia Europe and North Africa Sub-Saharan Africa and Asia North and Central America South America 42 42 Relazione finanziaria annuale 2017 Annual Report 2017Risultati economici per area di attività La rappresentazione dei risultati economici per area di at- internazionale e, pertanto: tività è effettuata in base all’approccio utilizzato dal mana- > “Generazione Termoelettrica” e “Trading e Upstream” gement per monitorare le performance del Gruppo nei due sono presentati unitariamente dato il forte grado di inte- periodi messi a confronto, tenuto conto del modello opera- razione e interdipendenza tra le due filiere; tivo adottato descritto in precedenza. > il perimetro di attività di “Enel X” è per il momento pre- In particolare, tenendo conto di quanto stabilito dal prin- sentato insieme ai “Mercati finali” nell’attesa che risulti cipio contabile internazionale IFRS 8 in termini di “mana- pienamente operativa l’organizzazione e il riassetto so- gement approach”, i risultati per settore di attività inclusi cietario finalizzato alla separazione del perimetro di attivi- nella presente Relazione finanziaria annuale sono costruiti tà della nuova Business line; identificando come “reporting segment primario” la vista > la voce “Altro, elisioni e rettifiche”, oltre a includere gli per Regioni e Paesi. Si segnala, infine, che sulla base dei effetti derivanti dalla elisione dei rapporti economici in- criteri determinati dall’IFRS 8, si è anche tenuto conto della tersettoriali, accoglie i dati relativi alla Holding Enel SpA. possibilità di semplificazione espositiva derivante dai limiti La seguente rappresentazione grafica schematizza quanto di significatività stabiliti dal medesimo principio contabile sopra riportato. Geographical areas Holding company Global Divisions Italy Iberia Europe and North Africa Sub-Saharan Africa and Asia North and Central America South America Results by business area for 2017 and 2016 Results for 2017 (1) Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Revenue from third parties 37,900 19,940 13,126 2,374 1,185 Revenue from transactions with other segments 881 54 28 37 2 Total revenue 38,781 19,994 13,154 2,411 1,187 Net income/(expense) from commodity contracts measured at fair value 537 13 26 Gross operating margin 6,863 3,573 4,204 Depreciation, amortization and impairment losses 2,393 1,731 1,234 Operating income 4,470 1,842 2,970 - 543 237 306 2 759 206 553 Capital expenditure 1,812 1,105 3,002 307 (2) 1,802 (3) 96 - 96 - 57 42 15 30 Other, eliminations and adjustments Total 18 74,639 (1,002) - (984) 74,639 - 578 (346) 15,653 18 (364) 72 5,861 9,792 8,130 (1) Segment revenue include both revenue from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the year. (2) Does not include €44 million regarding units classified as “held for sale”. (3) Does not include €325 million regarding units classified as “held for sale”. Local businesses Results for 2016 (1) Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Infrastructure Thermal Trading and Renewable Enel X Services and Networks Generation Upstream Energy End-user markets Revenue from third parties 36,091 18,831 10,739 3,618 1,122 Revenue from transactions with other segments 954 122 29 180 3 Total revenue 37,045 18,953 10,768 3,798 1,125 Other, eliminations and adjustments Total 162 70,592 (1,288) - (1,126) 70,592 - (133) (69) 15,276 55 6,355 (124) 8,921 29 - 29 - 14 19 (5) Net income/(expense) from commodity contracts measured at fair value (266) 131 9 Gross operating margin 6,618 3,562 3,556 Depreciation, amortization and impairment losses Operating income 2,348 1,796 4,270 1,766 Capital expenditure 1,894 (2) 1,147 1,393 2,163 3,069 (6) 762 476 286 (1) 833 268 565 265 (3) 1,832 304 41 8,552 (1) Segment revenue include both revenue from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the year. (2) Does not include €7 million regarding units classified as “held for sale”. (3) Does not include €283 million regarding units classified as “held for sale”. 42 Relazione finanziaria annuale 2017 43 Report on operationsIn addition to the foregoing, the Group monitors performan- margin for the two periods under review, offering visibility ce at the Global Division level, classifying results by Busi- of performance not only from a Region/Country perspecti- ness Line. The following table presents the gross operating ve but also by Division/Business Line. Millions of euro End-user markets Services Generation and Trading Infrastructure and Networks Renewable Energy Other Total Local businesses Global Divisions 2016 Change 2017 2016 Change 2017 2016 Change 2017 2016 Change 2017 2016 Change 2017 2016 Change 2017 2016 Change 2017 2,007 467 - - - - - - - (42) (42) - - - 8 8 - - - - - - - - 1,932 75 677 (210) - - - - - - - 25 30 - - (5) - - - - - - - - - - - - - - - - - (67) (72) - - 5 8 8 - - - - - - - - 96 38 (87) (1) (39) (47) 105 (95) (107) - (36) (71) - - - 1 1 - - - - - - - - - - - - - - - 5 2 3 - - - - - - - - - - - - (9) 133 20 (1) (3) 24 - - - 4 1 3 - - - - - - - - - - - 239 783 687 116 119 281 43 128 - 269 2 267 - - - - - - - - - - - (70) 812 737 98 73 389 51 126 - 373 (1) 186 191 (3) - - - - - - - - - 309 (29) (50) 18 46 (108) (8) 2 - (104) 3 81 (191) 3 - - - - - - - - - 3,620 (153) 1,054 1,031 23 1,817 199 351 (152) 1,687 1,429 1,917 1,497 420 3,467 2,086 140 644 237 461 205 166 166 - - - - - - - - - - - - - 269 258 (15) 211 (15) 63 14 - (59) (59) - - - - - - - - - - - - 155 433 252 398 191 225 225 - - - - - - - - - - - - - 32 284 888 557 147 9 145 104 - - 400 98 101 152 57 53 8 (4) 23 199 634 531 102 8 138 84 - - 95 93 58 14 4 10 - 9 85 254 26 45 1 7 - - 20 3 8 94 43 49 (2) (4) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6,863 6,618 3,573 3,562 4,204 3,556 287 1,008 1,061 1,359 1,204 - - - - - - - - - - - - - - - - - - - - - - - 480 9 543 232 270 - 41 408 98 101 152 57 53 8 (4) 245 11 648 11 339 155 81 61 1 (219) (107) 84 (191) (5) 3 8 94 43 49 (2) (4) 276 669 980 419 8 762 339 186 191 46 95 93 58 14 4 10 - 41 54 (13) 751 833 (82) 759 833 (74) 587 (187) 587 (179) 2,440 2,634 (194) 52 (1) (97) 1 149 (15) (2) 1,963 1,850 (13) 113 (28) (13) (76) (50) (224) (346) (69) (277) (15) 300 (26) 233 (227) (227) (3) (3) 7,378 7,078 4,047 3,814 (224) 15,653 15,276 377 Italy Iberia South America Argentina Brazil Chile Colombia Peru Other countries Europe and North Africa Romania Russia Slovakia Other countries North and Central America United States and Canada Mexico Panama Other countries Sub-Saharan Africa and Asia South Africa India Other countries Other Total 44 Annual Report 20172017 2,007 467 1,932 75 677 (210) 96 38 (87) (1) (39) (47) 105 (95) (107) (36) (71) (42) (42) (67) (72) - - - - - - - - - - - - - - - - - - 8 8 25 30 (5) - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5 8 8 - - - - - - - - - - - 5 2 3 - - - - - - - - - - - - (9) 133 20 (1) (3) 24 - - - 4 1 3 - - - - - - - - - - - 239 783 687 116 119 281 43 128 - 2 269 267 - - - - - - - - - - - (70) 812 737 98 73 389 51 126 - 373 (1) 186 191 (3) - - - - - - - - - 309 (29) (50) (108) 18 46 (8) 2 - 3 81 3 (104) (191) - - - - - - - - - 1 1 - - - - - - - - - - - - - - - - South America Italy Iberia Argentina Brazil Chile Colombia Peru Africa Romania Russia Slovakia Other countries Europe and North Other countries North and Central America United States and Canada Mexico Panama Other countries Sub-Saharan Africa and Asia South Africa Other countries India Other Total Millions of euro End-user markets Services Generation and Trading Infrastructure and Networks Renewable Energy Other Total 2016 Change 2017 2016 Change 2017 2016 Change 2017 2016 Change 2017 2016 Change 2017 2016 Change 2017 2016 Change Local businesses Global Divisions 3,620 (153) 1,054 1,031 23 3,467 2,086 1,817 1,687 1,429 140 644 237 461 205 - 166 166 - - - - - - - - - - - - 155 433 252 398 191 - 225 225 - - - - - - - - - - - - 269 258 (15) 211 (15) 63 14 - (59) (59) - - - - - - - - - - - - 199 351 (152) 1,917 1,497 420 32 284 888 557 147 9 145 104 - - 23 199 634 531 102 8 138 84 - - 9 85 254 26 45 1 7 20 - - 41 54 (13) 751 833 (82) 400 98 101 152 57 53 8 (4) 587 (187) 95 93 58 14 4 10 - 3 8 94 43 49 (2) (4) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6,863 6,618 3,573 3,562 4,204 3,556 287 1,008 276 669 1,359 1,204 1,061 480 9 543 232 270 - 41 980 419 8 762 339 186 191 46 245 11 648 11 339 155 81 61 1 (219) (107) 84 (191) (5) 759 833 (74) 408 98 101 152 57 53 8 (4) 587 (179) 95 93 58 14 4 10 - 3 8 94 43 49 (2) (4) 2,440 2,634 (194) 52 (1) (97) 1 149 (15) (2) 1,963 1,850 (13) 113 (28) (13) 7,378 7,078 (15) 300 (76) (50) 4,047 3,814 (26) 233 (227) (227) (3) (3) (224) (346) (69) (277) (224) 15,653 15,276 377 45 Report on operationsItaly 2016 13,752 2017 13,613 2016 12,423 2017 12,425 2016 2017 2016 2017 2016 2017 761 761 728 772 97 81 Thermal plants1 Hydroelectric plants Geothermal plants Wind farms Other Net efficient generation capacity (MW) 2016 27,761 2017 27,652 (1) 741 MW of which unavailable due to long-term technical issues (1,225 MW at December 31, 2016). Electricity distribution and transport networks (km) 2017 1,149,218 13 353,808 795,397 High-voltage lines at year end Medium-voltage lines at year end Low-voltage lines at year end 46 Annual Report 2017 Average number of customers 26,776,635 2016 2017 26,420,058 Free market 2016 6,732,570 2017 7,552,217 Business-to-consumer Business-to-business Safeguard market 5,266,409 2016 5,938,899 2017 1,420,466 2016 1,580,305 2017 45,695 2016 33,013 2017 Regulated market Enhanced-protection market 20,044,065 2016 18,867,841 2017 e u r o ) ( m i l l i o n s o f 0 1 7 e i n 2 c n r m a e r f o P e u 1 n 8 e v 8 , 7 R e 3 v e R e u n e ra tio g 1 e n Tra din e G d 9 1 n n a 9 , 9 t u r e a n d 7 , 5 8 4 s c r k u r t s t w o I n a f r N e r g i n g m a c r r u t s t w o I n a f r N e t i n d n t u r e a n d 3 , 4 6 7 s k d i t u r e I n d a f r n a s d N e 5 t 7 1 , 2 r u c t u r e t w o r k s n e p x p it a l e n 5 n a 1 g 1 e ra tio e n Tra din G a C G r o a r e p s s o n a 9 3 e r a ti o g 2 G n e Tra din R e n e w a b l e s 1 , 8 2 2 End-user markets 16,256 Services 1,314 R e n e w a b l e s 1 , 0 5 4 End-user markets 2,007 Services 96 R e n e w a b l es 2 2 7 End-user markets 139 Services 56 Gross operating margin 6,863 Eliminations and adjustments (8,114) Capital expenditure 1,812 Italy 2016 13,752 2017 13,613 2016 12,423 2017 12,425 2016 2017 2016 2017 2016 2017 761 761 728 772 97 81 Thermal plants1 Hydroelectric plants Geothermal plants Wind farms Other Net efficient generation capacity (MW) 2016 27,761 2017 27,652 (1) 741 MW of which unavailable due to long-term technical issues (1,225 MW at December 31, 2016). Electricity distribution and transport networks (km) 2017 1,149,218 13 353,808 795,397 High-voltage lines at year end Medium-voltage lines at year end Low-voltage lines at year end Average number of customers 2016 26,776,635 2017 26,420,058 Free market 2016 6,732,570 2017 7,552,217 Business-to-consumer Business-to-business Safeguard market 5,266,409 2016 5,938,899 2017 1,420,466 2016 1,580,305 2017 45,695 2016 33,013 2017 Regulated market Enhanced-protection market 20,044,065 2016 18,867,841 2017 e u r o ) ( m i l l i o n s o f 0 1 7 e i n 2 c n r m a e r f o P u e 1 n 8 v e 8 , 7 R e 3 v e R e G e u n n n a e ra tio 9 , 9 g 1 e n Tra din G r o d 1 9 s s o a r e p n a 3 9 n e r a ti o g 2 Tra din e G R e n e w a b l e s 1 , 8 2 2 End-user markets 16,256 Services 1,314 t u r e a n d 7 , 5 8 4 s c r k u r t s t w o I n a f r N e r g i n t u r e a n d 3 , 4 6 7 s k c r r u t s t w o g m a I n a f r N e t i n d n R e n e w a b l e s 1 , 0 5 4 End-user markets 2,007 Services 96 d i t u r e t u r e r u c t t w o r k s s f r d N e n 5 7 1 , 2 I n a a n e d n 5 R e n e w a b l es 2 2 7 End-user markets 139 Services 56 a C p x p it a l e n a e ra tio 1 g 1 e n Tra din G Gross operating margin 6,863 Eliminations and adjustments (8,114) Capital expenditure 1,812 Report on operations 47 Operations Net electricity generation Millions of kWh Thermal Hydroelectric Geothermal Wind Other sources 2017 32,421 14,025 5,758 1,188 126 2016 Change 37,609 (5,188) -13.8% 16,052 (2,027) -12.6% 5,832 1,298 122 (74) (110) 4 -1.3% -8.5% 3.3% Total net generation 53,518 60,913 (7,395) -12.1% In 2017 net electricity generation amounted to 53,518 mil- Imerese and Priolo Gargallo plants in Sicily, which were lion kWh, a decline of 12.1% or 7,395 million kWh com- placed at a disadvantage by the new interconnection with pared with 2016. Specifically, the decrease in thermal the mainland that entered into operation in 2016. generation (down 5,188 million kWh) is the result of the The decrease in hydroelectric generation (down 2,027 mil- reduced competitiveness of the coal plants and the lower lion kWh) was instead due to poorer water conditions com- output of the combined-cycle plants, including the Termini pared with the prior year. Contribution to gross thermal generation Millions of kWh Fuel oil Natural gas Coal Other fuels Total 2017 10 2016 Change - 88 0.2% (78) -88.6% 8,396 23.9% 9,601 23.6% (1,205) -12.6% 26,139 74.5% 30,286 74.7% (4,147) -13.7% 534 1.6% 592 1.5% (58) -9.8% 35,079 100.0% 40,567 100.0% (5,488) -13.5% Gross thermal production in 2017 totaled 35,079 million decline is due mainly to the reduced use of coal-fired and kWh, a decrease of 5,488 million kWh (-13.5%) compared combined-cycle plants as a result of developments noted with 2016. Looking at the mix of fuels used shows that the above. Net efficient generation capacity MW Thermal plants (1) Hydroelectric plants Geothermal plants Wind farms Other at Dec. 31, 2017 at Dec. 31, 2016 Change 13,613 12,425 761 772 81 13,752 12,423 761 728 97 (139) -1.0% 2 - 44 (16) - - 6.0% -16.5% Total net efficient capacity 27,652 27,761 (109) -0.4% (1) 741 MW of which unavailable due to long-term technical issues (1,225 MW at December 31, 2016). 48 Annual Report 2017 Net efficient capacity in 2017 totaled 27,652 MW, a decrease mainly reflects the closing of Section 6 of the Genoa coal of 109 MW compared with the previous year. The change plant. 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) 2017 13 2016 13 353,808 352,607 795,397 792,367 Total electricity distribution network (km) 1,149,218 1,144,987 Electricity transported on Enel’s distribution network (millions of kWh) (1) 227,322 224,100 (1) The figure for 2016 reflects a more accurate measurement of amounts transported. Change - 1,201 3,030 4,231 3,222 - 0.3% 0.4% 0.4% 1.4% Electricity transported on the Enel network in Italy for 2017 change is essentially in line with the increase in electricity increased by 3,222 million kWh (+1.4%), going from 224,100 demand in Italy. million kWh in 2016 to 227,322 million kWh in 2017. The Electricity sales Millions of kWh Free market: - business-to-consumer - business-to-business - safeguard-market customers Total free market Regulated market: - enhanced-protection-market customers TOTAL 2017 2016 Change 12,475 44,735 2,052 59,262 43,958 103,220 11,257 35,024 2,021 1,218 9,711 31 48,302 10,960 45,837 94,139 (1,879) 9,081 10.8% 27.7% 1.5% 22.7% -4.1% 9.6% Electricity sold in 2017 came to 103,220 million kWh for umes sold on the free market, focusing mainly on business an overall increase of 9,081 million kWh compared with customers, as a result of new commercial policies. the prior year. The trend essentially reflects the greater vol- Average number of customers Free market: - business-to-consumer - business-to-business 2017 2016 Change 5,938,899 5,266,409 672,490 1,580,305 1,420,466 159,839 12.8% 11.3% - safeguard-market customers 33,013 45,695 (12,682) -27.8% Total free market Regulated market: 7,552,217 6,732,570 819,647 12.2% - enhanced-protection-market customers 18,867,841 20,044,065 (1,176,224) TOTAL 26,420,058 26,776,635 (356,577) -5.9% -1.3% 49 Report on operationsNatural gas sales Millions of m3 Business-to-consumer Business-to-business Total 2017 2,910 1,901 4,811 2016 2,815 1,776 4,591 Change 95 125 220 3.4% 7.0% 4.8% Gas sales in 2017 totaled 4,811 million cubic meters, an previous year, essentially attributable to sales to business increase of 220 million cubic meters compared with the customers. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2017 38,781 6,863 4,470 1,812 2016 37,045 6,618 4,270 1,894 (1) Change 1,736 245 200 (82) 4.7% 3.7% 4.7% -4.3% (1) Does not include €7 million regarding units classified as “held for sale“. The following tables break down performance by type of business in 2017. Revenue Millions of euro Generation and Trading Infrastructure and Networks Renewables End-user markets Services Eliminations and adjustments Total 2017 19,919 7,584 1,822 16,256 1,314 (8,114) 38,781 2016 19,403 7,237 1,796 15,323 1,207 (7,921) 37,045 Change 516 347 26 933 107 (193) 1,736 2.7% 4.8% 1.4% 6.1% 8.9% -2.4% 4.7% Revenue in 2017 amounted to €38,781 million, an increase tary trading conducted on the European electricity ex- of €1,736 million compared with the same period of 2016 changes (particularly in France and Germany) against (+4.7%), the result of the following main factors: a background of rising prices; > an increase of €516 million in revenue from Generation - a €293 million increase in revenue from fees from the and Trading (+2.7%) compared with 2016. This develop- Regulatory Authority for Energy, Networks and the ment in primarily attributable to: Environment (ARERA) for transactions on the Power - an increase of €1,337 million in revenue from the sale Exchange, mainly attributable to the cost reimburse- of fuels on the domestic and international wholesale ment scheme for essential generation units; markets, essentially due to the increase in intermedia- tion business; - a €80 million increase in revenue from the sale of CO2 emissions allowances and green certificates, owing - an increase of €971 million in revenue from trading to rising prices for allowances; on international energy markets due essentially to a - a €1,982 million decline in revenue from the sale of growth in quantities handled (+33.9 TWh) of proprie- electricity, essentially related to the lower quantities 50 Annual Report 2017generated. More specifically, the change is mainly at- revenue from domestic customers. In addition, there tributable to the decrease in revenue from the sale was an increase in revenue relating to changes in the of electricity by way of bilateral agreements to other “regulatory lag” (ARERA Resolution 654/2015); national resellers (€1,989 million), only partly offset by > a €26 million increase (+1.4%) in revenue from Renewa- increased revenue from sales on the Power Exchange bles generation, the result of higher average sales prices, (€47 million); which more than offset the lower volumes generated; - a €124 million reduction in gains on extraordinary > an increase of €933 million (+6.1%) in revenue from transactions, which in 2016 included the gain on the End-user markets for electricity, essentially reflecting: sale of the equity investment in Hydro Dolomiti Enel; - an increase of €783 million in revenue on the free > an increase of €347 million (+4.8%) in revenue from In- market for electricity mainly as a result of higher vol- frastructure and Networks operations, largely reflect- umes sold (+11.0 TWh); ing: - an increase of €80 million in revenue on the regulated - an increase in contributions from the Energy & Envi- market for electricity attributable to the increase in ronmental Service Fund for white certificates (in the rate revenue and revenue from marketing, partly off- amount of €347 million) due to the increase in vol- set by the decrease in volumes sold (-1.9 TWh) and in umes purchased, but especially to the rise in the unit the number of customers served; contribution, which reached record highs in the 2nd - a €4 million increase in revenue from the sale of natu- Half of 2017; ral gas to end users due to increased volumes sold - an increase of €10 million in rate revenue, mainly re- and higher average sale prices. These effects were flecting the rise in transmission rates (ARERA Reso- only partly offset by the positive effect of prior-period lution 779/2016), only partly offset by the reduction items, which was €56 million lower than in 2016; in distribution rates, the negative effect of the equali- - the increases in connection fees and in revenue from zation mechanisms and the abolition, starting from the cost reimbursement system for safeguard-market January 1, 2017, of the equalization mechanism for service providers (totaling €40 million). Gross operating margin Millions of euro Generation and Trading Infrastructure and Networks Renewables End-user markets Services Total 2017 239 3,467 1,054 2,007 96 6,863 2016 (70) 3,620 1,031 1,932 105 6,618 Change - -4.2% 2.2% 3.9% -8.6% 3.7% 309 (153) 23 75 (9) 245 The gross operating margin in 2017 came to €6,863 negative impact of €279 million; million, an increase of €245 million compared with 2016 - the provisions during the previous year related to (+3.7%). More specifically, the change is essentially attrib- charges for reclamation work at the sites of the closed utable to: generation plants included in the Futur-E project (€160 > the €309 million increase in the margin from Genera- million); tion and Trading. Net of the difference in gains of €124 - a decrease of €250 million in the margin on the Ancil- million on the sale of the interest in Hydro Dolomiti Enel lary Services Market; recognized in 2016, the margin would have risen by €433 - a decrease in the volume of electricity generated; million due essentially to: > a reduction of €153 million in the margin from Infrastruc- - the improvement in the trading margin, which reflected ture and Networks operations (-4.2%), largely due to: the benefits of the price review agreements involving a - a decrease of €66 million in the margin on electricity number of gas supply contracts (€311 million); transport, primarily reflecting the aforementioned re- - the CO2 provisioning transaction in 2016, which had a duction in distribution rates and in equalization mecha- 51 Report on operationsnisms, only partly offset by the positive effect of high- bles generation as a result of the same factors affecting er transmission rates and the change in the regulatory revenue, only partly offset by the reversal of the provision lag. In addition there was the positive effect of prior- following the execution of the memorandum of under- period items (€20 million); standing with the Region of Sardinia for the disposal of - an increase of €60 million in allocations to the provi- the hydroelectric plants on the Tirso River (€54 million); sions for risks and charges, reflecting the reversal in > an increase of €75 million in the margin from End-user 2016 of provisions following the Antitrust Authority’s markets (+3.9%), mainly attributable to: decision to dismiss the proceedings (no. A486) it had - a €64 million rise in the margin on the free market for begun in 2015 (€47 million) and in part to the provi- electricity and gas (of which €83 million for the gas sion for a lump-sum payment of the energy discount component), owing to the increase in quantities sold benefit in 2015 (€44 million). In addition there was an for both commodities (electricity and gas); increase in provisions allocated during the period fol- - the increase in €23 million in the margin on the regu- lowing ARERA Decision 40/2017 and the increase in lated market for electricity, mainly as a result of an the provision for exceptional weather events; increase in revenue from marketing, only partly offset - higher operating costs; by lower volumes sold. > an increase of €23 million in the margin from Renewa- Operating income Millions of euro Generation and Trading Infrastructure and Networks Renewables End-user markets Services Total 2017 - 2,319 745 1,361 45 4,470 2016 (460) 2,596 751 1,333 50 4,270 Change - -10.7% -0.8% 2.1% -10.0% 460 (277) (6) 28 (5) 200 4.7% Operating income amounted to €4,470 million, up €200 for electricity sales to traders and regulated-market cus- million (including an increase of €45 million in deprecia- tomers; tion, amortization and impairment losses) compared with > higher depreciation, mainly for network infrastructure; €4,270 million in operating income recognized in 2016. > the recognition in 2016 of impairment on the goodwill More specifically, in addition to the increase in the gross and assets of Nuove Energie due to the change in a num- operating margin, it reflected: ber of measurement parameters in the midstream gas > the increase in net writedowns of trade receivables, ow- business. ing to a deterioration in the recoverability of receivables 52 Annual Report 2017Capital expenditure Millions of euro Generation and Trading Infrastructure and Networks Renewables End-user markets Services Total 2017 115 1,275 227 139 56 2016 119 (1) 1,278 304 133 60 1,812 1,894 Change -3.4% -0.2% -25.3% 4.5% -6.7% -4.3% (4) (3) (77) 6 (4) (82) (1) Does not include €7 million regarding units classified as “held for sale“. Capital expenditure in 2017 amounted to €1,812 million, ment in service quality, which had been brought forward down €82 million compared with the previous year. More in 2016; specifically, the change is attributable to: > an increase of €6 million in capital expenditure in End- > a decrease in investment in Infrastructure and Net- user markets; works operations equal to €3 million, mainly for digital > a €4 million decrease in investment in Generation and meter replacement work under the Open Meter plan Trading; approved by ARERA Resolution 222/2017/R/eel. This in- > a €77 million reduction in investment in Renewables, crease in activity was more than offset by lower invest- mainly on hydroelectric, biomass and wind plants. 53 Report on operationsIberia 2016 13,030 2017 13,030 Thermal plants Net efficient generation capacity (MW) 2016 2017 2016 2017 2016 2017 2016 2017 3,318 3,318 4,764 4,752 1,618 1,618 14 14 Nuclear plants Hydroelectric plants Wind farms Other 2016 22,744 2017 22,732 Electricity distribution and transport networks (km) 2017 317,782 19,560 117,886 180,336 High-voltage lines at year end Medium-voltage lines at year end Low-voltage lines at year end 54 Annual Report 2017 G r o s s o p e r a t i n g m a r g i n 3 , 5 7 3 Capital expenditure 1,105 E l i m i n a t i o n s a n d a d j u s t m e n t s ( 5 , 7 9 5 ) v i c e s S e r 5 7 4 Performance in 2017 (millions of euro) ue ven 19,994 e R 8 9 5 , 7 e r e t s 1 n E s d - u a r k m R ene w a ble s 497 v i c e s S e r 8 3 v i c e s S e r 3 3 s e r e t s 5 5 d - u a r k E n m 7 6 e r e t s 4 n E s d - u a r k m R en e w a ble s 65 R en e w a ble s 199 Infrastructure and Networks 2,786 erating margin Infrastructure and Networks 2,086 e u n e v e R d n an 3 3 g 6,2 eratio n e G din Tra p s o s ro G d n an eratio 3 8 g 7 n e G din Tra Infrastructure and Networks 657 pital expenditure eration and g 295 n e G din Tra a C e r e ti Iberia Electricity distribution and transport networks (km) 2017 317,782 19,560 117,886 180,336 High-voltage lines at year end Medium-voltage lines at year end Low-voltage lines at year end 2016 13,030 2017 13,030 Thermal plants Net efficient generation capacity (MW) 2016 22,744 2017 22,732 2016 2017 2016 2017 2016 2017 2016 2017 3,318 3,318 4,764 4,752 1,618 1,618 14 14 Nuclear plants Hydroelectric plants Wind farms Other Performance in 2017 (millions of euro) ue ven 19,994 e R 3 3 d n an g 6,2 eratio din n e Tra G e u n e v e R Report on operations G r o s s o p e r a t i n g m a r g i n 3 , 5 7 3 Capital expenditure 1,105 i m i n a t i o n s a n d E l a d j u s t m e n t s ( 5 , 7 9 5 ) v i c e s 5 S e r 7 4 8 9 5 , 7 e r e t s 1 n E s d - u a r k m v i c e s S e r 8 3 7 6 e r e t s 4 n E s d - u a r k m R en e w a ble s 65 R ene w a ble s 497 199 R en e w a ble s Infrastructure and Networks 2,786 erating margin Infrastructure and Networks 2,086 pital expenditure Infrastructure and Networks eration and g 295 din n e Tra G n an 3 eratio 8 g 7 din n e Tra G p s o s ro G a C 657 d v i c e s S e r 3 3 s e r e t s 5 5 d - u a r k E n m e r e ti 55 Operations Net electricity generation Millions of kWh Thermal Nuclear Hydroelectric Wind Other sources 2017 43,754 26,448 5,038 3,351 27 2016 35,525 25,921 7,288 3,422 167 Total net generation 78,618 72,323 Change 8,229 23.2% 527 2.0% (2,250) -30.9% (71) (140) 6,295 -2.1% -83.8% 8.7% Net electricity generation in Iberia in 2017 amounted to higher thermal power generation, which benefitted from 78,618 million kWh, an increase of 6,295 million kWh the drought that affected Iberia in 2017, and greater elec- compared with 2016. This increase was mainly due to tricity demand. Contribution to gross thermal generation Millions of kWh Heavy fuel oil (S>0.25%) Natural gas Coal Nuclear fuel Other fuels Total 2017 2016 Change 6,319 9,750 8.6% 13.2% 6,254 5,008 9.7% 7.8% 65 1.0% 4,742 94.7% 26,156 35.5% 22,413 34.7% 3,743 16.7% 27,542 37.4% 26,993 41.9% 3,865 5.3% 3,810 5.9% 549 55 2.0% 1.4% 73,632 100.0% 64,478 100.0% 9,154 14.2% Gross thermal generation in 2017 came to 73,632 million previous year. As for the generation mix, there was an in- kWh, an increase of 9,154 million kWh compared with the crease across all types of fuels, especially natural gas. Net efficient generation capacity MW Thermal plants Nuclear plants Hydroelectric plants Wind farms Other at Dec. 31, 2017 at Dec. 31, 2016 Change 13,030 13,030 3,318 4,752 1,618 14 3,318 4,764 1,618 14 - - - - (12) -0.3% - - - - Total net efficient capacity 22,732 22,744 (12) -0.1% Net efficient capacity in 2017 totaled 22,732 MW, a decrease of 12 MW compared with the previous year. 56 Annual Report 2017 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) (1) (1) The figure for 2016 reflects a more accurate measurement of amounts transported. 2017 19,560 117,886 180,336 317,782 112,004 2016 19,539 117,632 179,391 316,562 109,201 Change 21 254 945 1,220 2,803 0.1% 0.2% 0.5% 0.4% 2.5% Electricity transported in 2017 totaled 112,004 million kWh, an increase of 2,803 million kWh, which is essentially in line with the development in demand. Electricity sales Millions of kWh Free market Regulated market Total 2017 83,036 13,478 96,514 2016 79,008 14,482 93,490 Change 4,028 (1,004) 3,024 5.1% -6.9% 3.1% Electricity sales to end users in 2017 totaled 96,514 million kWh, an increase of 3,024 million kWh over the same period of 2016. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure The following tables break down performance by type of business in 2017. Revenue Millions of euro Generation and Trading Infrastructure and Networks Renewables End-user markets Services Eliminations and adjustments Total 2017 19,994 3,573 1,842 1,105 2017 6,233 2,786 497 15,798 475 (5,795) 19,994 2016 18,953 3,562 1,766 1,147 2016 4,893 2,569 665 14,121 249 (3,544) 18,953 Change 1,041 11 76 (42) 5.5% 0.3% 4.3% -3.7% Change 1,340 217 (168) 1,677 226 27.4% 8.4% -25.3% 11.9% 90.8% (2,251) -63.5% 1,041 5.5% Revenue in 2017 increased by €1,041 million due to: increase in volumes in an environment of slightly rising > a €1,677 million increase in revenue from End-user mar- unit prices. The increase in electricity sales was instead kets, of which €405 million for gas sales reflecting the attributable to higher volumes sold in an environment of 57 Report on operations rising unit prices in the regulated market, while prices fell activities, mainly attributable to the drought conditions in the free market; mentioned above that penalized hydroelectric genera- > a €1,340 million increase in revenue from Generation tion, as well as the price adjustment relating to the sale and Trading, mainly associated with higher electricity of ENEOP recognized in 2016 in the amount of €30 mil- sales in an environment of rising prices. Much of this lion; revenue was generated with respect to domestic com- > an increase of €217 million in revenue from Infrastruc- panies that sell electricity and is therefore also reflected ture and Networks operations, primarily reflecting the in eliminations. In addition, there was the effect of the rate adjustments recognized in consideration of the draft greater reimbursement received for costs incurred to en- ministerial order currently being finalized by the Ministry sure electricity generation in the extra-peninsular market; of Energy, Tourism and Digital Agenda. > a €168 million decrease in revenue from Renewables Gross operating margin Millions of euro Generation and Trading Infrastructure and Networks Renewables End-user markets Services Total 2017 783 2,086 199 467 38 2016 812 1,817 351 677 (95) 3,573 3,562 Change -3.6% 14.8% -43.3% -31.0% - 0.3% (29) 269 (152) (210) 133 11 The gross operating margin amounted to €3,573 million, (totaling €63 million) of the ruling of the unconstitutional- up €11 million compared with 2016, reflecting: ity of the tax on nuclear power generation in Catalonia in > an increase of €269 million in the margin on Infrastruc- 2016 and the subsequent introduction in 2017 by the re- ture and Networks operations, which reflects the gional government of a new tax on nuclear power waste. abovementioned prices adjustments and the effect of These factors were only partly offset by the ruling under the recognition in 2016 of a number of charges relating to which Endesa is entitled to reimbursement of amounts the early-retirement plan. The second factor had a posi- paid for the “bono social” in 2016, 2015 and 2014, which tive impact on personnel costs in 2017 owing to the re- had a positive impact of €222 million: duction in the average size of the workforce; > a decrease of €152 million in the margin from Renewa- > a decline of €210 million in the gross operating margin bles generation, which reflected the decline in revenue on End-user markets, essentially owing to the sharp in- mentioned above and the reversal in 2016 (€28 million) in crease in electricity and gas procurement costs, which respect of the obligations for the construction and devel- was more than offset by efficiency gains, especially for opment of the Girabolhos hydroelectric plant in Portugal; personnel costs; > an increase of €133 million in the margin on Services, > a €29 million decline in the gross operating margin on mainly owing to the €94 million reduction in personnel Generation and Trading operations, reflecting the de- costs as a result of the combined effect of the recogni- terioration in the generation margin, primarily owing to tion in 2016 of a number of charges relating to the ear- higher taxes on generation as a result of greater volumes ly-retirement plan and the consequent reduction in the produced (€72 million), in addition to the combined effect workforce in 2017. 58 Annual Report 2017 Operating income Millions of euro Generation and Trading Infrastructure and Networks Renewables End-user markets Services Total 2017 191 1,367 12 286 (14) 2016 187 1,047 89 537 (94) 1,842 1,766 Change 2.1% 30.6% -86.5% -46.7% -85.1% 4.3% 4 320 (77) (251) 80 76 Operating income in 2017 totaled €1,842 million, includ- extension of the useful life of all the renewables genera- ing the effect of €1,731 million in depreciation, amortization tion plants, was partly offset by the greater impairment on and impairment losses (€1,796 million in 2016), an increase trade receivables recognized in 2017 compared with 2016, of €76 million compared with the previous year. The reduc- primarily in the retail sector. tion in depreciation (€115 million), essentially due to the Capital expenditure Millions of euro Generation and Trading Infrastructure and Networks Renewables End-user markets Services Total 2017 295 657 65 55 33 2016 355 644 78 53 17 1,105 1,147 Change -16.9% 2.0% -16.7% 3.8% 94.1% -3.7% 60 13 (13) 2 16 (42) Capital expenditure came to €1,105 million, down €42 provements in the quality of the service and the replace- million year on year. In particular, capital expenditure in ment of old meters with new generation smart meters, as 2017 primarily concerned work on the distribution network well as with generation plants, largely nuclear and thermo- (€657 million). This work was primarily associated with im- electric plants, amounting to €295 million. 59 Report on operationsSouth America of which Argentina 4,419 4,419 1,621 2,975 7,434 7,475 3,457 3,467 1,934 2,158 50 50 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 Brazil Chile Colombia Peru Other countries 2016 2017 2016 2017 2016 2017 2016 2017 7,729 7,773 9,590 9,980 1,092 1,362 504 1,429 Thermal plants Hydroelectric plants Wind farms Other Net efficient generation capacity (MW) 2016 18,915 2017 20,544 Electricity distribution and transport networks (km) 2017 566,010 18,308 350,376 197,326 High-voltage lines at year end Medium-voltage lines at year end Low-voltage lines at year end 60 Annual Report 2017 e u r o ) ( m i l l i o n s o f 0 1 7 e i n 2 c n r m a e r f o P Gross operating margin 4,204 Capital expenditure 3,002 e n u 4 5 e v 3 , 1 R e 1 n e v e R e u e a n tin 3 A r g 1,3 9 l e C h i 3 , 6 6 7 Colombia 2,116 Peru 1,202 l e C h i 1 , 3 5 9 Colombia 1,061 Peru 480 13 Other countries 9 Other countries C h i l e 5 4 3 Colombia 309 Peru 416 Other countries - G r o e a p s s o n tin e A r g 2 8 7 z il 3 6 a B r 4 , 7 t i n a r r g i n g m a z il 0 a B r 1 , 0 8 n e p x d i t u r e z il 7 5 a B r 1 , 4 a C p it a l e a n ti n A r g e 2 5 9 South America 2016 2017 2016 2017 2016 2017 2016 2017 7,729 7,773 9,590 9,980 1,092 1,362 504 1,429 Thermal plants Hydroelectric plants Wind farms Other Net efficient generation capacity (MW) 2016 18,915 2017 20,544 Electricity distribution and transport networks (km) 2017 566,010 18,308 350,376 197,326 High-voltage lines at year end Medium-voltage lines at year end Low-voltage lines at year end of which Argentina Brazil Chile Colombia Peru Other countries 4,419 4,419 1,621 2,975 7,434 7,475 3,457 3,467 1,934 2,158 50 50 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 e u r o ) ( m i l l i o n s o f 0 1 7 e i n 2 c n r m a e r f o P Gross operating margin 4,204 Capital expenditure 3,002 e n u 4 5 v e 3 , 1 R e 1 e R e u n e v a n tin e A r g 3 1,3 9 G r o e a p s s o n tin e A r g 2 8 7 z il a B r 6 4 , 7 3 t i n a r r g i n g m a z il a B r 0 1 , 0 a C p x a p it a l e n ti n e A r g 9 2 5 8 n e d i t u r e z il 7 5 a B r 1 , 4 l e C h i 3 , 6 6 7 Colombia 2,116 Peru 1,202 l e C h i 1 , 3 5 9 Colombia 1,061 Peru 480 13 Other countries 9 Other countries l e C h i 5 4 3 Colombia 309 Peru 416 Other countries - Report on operations 61 Operations Net electricity generation Millions of kWh Thermal Hydroelectric Wind Other sources Total net generation - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru - of which other countries 2017 25,727 33,597 3,661 1,642 64,627 14,825 7,161 20,231 14,766 7,493 151 2016 26,268 32,619 2,451 827 62,165 13,124 5,474 19,728 14,952 Change (541) 978 -2.1% 3.0% 1,210 49.4% 815 98.5% 2,462 1,701 1,687 503 (186) 4.0% 13.0% 30.8% 2.5% -1.2% 8,698 (1,205) -13.9% 189 (38) -20.1% Net electricity generation in 2017 totaled 64,627 million also reflected the increase in net efficient capacity. kWh, an increase of 2,462 million kWh compared with 2016. This increase was mainly attributable to: These factors were partially offset by a reduction in ther- > the increase in wind power generation in Brazil and Chile, mal generation owing to adverse weather conditions in especially after the entry of new plants into service; the area compared with the year-earlier period, especially > the increase in hydroelectric generation, concentrated in Peru, which in April 2017 suffered from flooding along mainly in Chile, Brazil and Colombia; the coast caused by El Niño, leading to the shutdown of a > greater solar power generation in Brazil and Chile, which number of plants. Contribution to gross thermal generation Millions of kWh Heavy fuel oil (S>0.25%) 723 2.7% 1,723 6.3% (1,000) -58.0% 2017 2016 Change Natural gas Coal Other fuels Total 21,669 81.2% 18,933 69.5% 2,736 14.5% 3,134 1,144 11.8% 4.3% 3,970 2,628 14.6% (836) -21.1% 9.6% (1,484) -56.5% 26,670 100.0% 27,254 100.0% (584) -2.1% Gross thermal production in 2017 totaled 26,670 million pages caused by the flooding mentioned above, only partly kWh, a decrease of 584 million kWh compared with the offset by increased use of natural gas, especially in Brazil previous year. This was essentially connected to the de- and Argentina. creased use of traditional fuels as a result of plant stop- 62 Annual Report 2017 Net efficient generation capacity MW Thermal plants Hydroelectric plants Wind farms Other at Dec. 31, 2017 at Dec. 31, 2016 Change 7,773 9,980 1,362 1,429 7,729 9,590 1,092 504 44 390 270 925 0.6% 4.1% 24.7% - Total net efficient capacity 20,544 18,915 1,629 8.6% - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru - of which other countries 4,419 2,975 7,475 3,467 2,158 50 4,419 1,621 7,434 3,457 1,934 50 - - 1,354 83.5% 41 10 224 - 0.6% 0.3% 11.6% - Net efficient capacity amounted to 20,544 MW in 2017, Volta Grande hydroelectric plant in Brazil (380 MW), other an increase of 1,629 MW compared with the previous plants entering service included the following: in Brazil, the year, essentially due to the expansion of installed capacity Delfina (180 MW) and Cristalândia (90 MW) wind farms, thanks to Group investments. the Ituverava (254 MW), Nova Olinda (292 MW), Bom More specifically, in addition to the increase in capacity Jesus da Lapa (80 MW) and Lapa (78 MW) photovoltaic associated with the acquisition of the concession for the plants and in Peru the Rubí photovoltaic plant (180 MW). 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) 2017 2016 Change 18,308 12,339 5,969 48.4% 350,376 159,961 190,415 - 197,326 149,846 47,480 31.7% Total electricity distribution network (km) 566,010 322,146 243,864 Electricity transported on Enel’s distribution network (millions of kWh) (1) - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru 90,655 17,737 34,876 16,318 13,790 7,934 75.7% 15.4% -4.1% 78,525 12,130 18,493 (756) 22,809 12,067 52.9% 15,809 13,632 7,782 509 158 152 3.2% 1.2% 2.0% (1) The figure for 2016 reflects a more accurate measurement of amounts transported. Energy transported in 2017 came to 90,655 million kWh, an Distribuição Goiás, a transaction that has also affected vol- increase of 12,130 million kWh compared with 2016. The umes transported in Brazil. expansion in the network reflects the acquisition of Enel 63 Report on operationsElectricity sales Millions of kWh Electricity sold by Enel - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru 2017 74,672 14,877 30,497 13,232 9,389 6,677 2016 Change 63,090 11,582 15,654 (777) 18.4% -5.0% 19,128 11,369 59.4% 13,067 8,505 6,736 165 884 (59) 1.3% 10.4% -0.9% Electricity sales in 2017 totaled 74,672 million kWh, increasing by 11,582 million kWh compared with the previous year. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure The following tables show a breakdown of performance by country in 2017. Revenue Millions of euro Argentina Brazil Chile Colombia Peru Other countries Total 2017 2016 Change 13,154 10,768 2,386 22.2% 4,204 2,970 3,002 3,556 2,163 3,069 648 807 (67) 18.2% 37.3% -2.2% 2017 1,393 4,763 3,667 2,116 1,202 13 2016 1,163 2,601 3,703 2,054 1,236 11 Change 230 19.8% 2,162 83.1% (36) 62 (34) 2 -1.0% 3.0% -2.8% 18.2% 13,154 10,768 2,386 22.2% Revenue for 2017 posted an increase of €2,386 million due of the strengthening of the Brazilian real against the euro mainly to: (€307 million); > an increase of €2,162 million in revenue in Brazil, main- > an increase of €230 million in revenue in Argentina, es- ly due to the change in the scope of consolidation as a sentially due to increased average sales prices as a result result of the acquisition of Enel Distribuição Goiás on of the rate reform introduced by the government in early February 14, 2017 (€1,359 million), the recognition of rev- 2017, only partly offset by the highly negative exchange enue arising from the sectoral assets and liabilities (CVA) rate effects of the depreciation of the Argentine peso of the distribution companies, higher revenue owing to against the euro (€204 million); greater volumes generated by the Cachoeira Dourada hy- > a €62 million increase in revenue in Colombia, owing droelectric plants and the increase in revenue as a result mainly to the increase in average prices and volumes 64 Annual Report 2017sold and to the positive trend in exchange rates due to Electrogas in the 1st Quarter of 2017 and the positive the appreciation of the Colombian peso against the euro trend in exchange rates (€71 million); (€25 million); > a €34 million decrease in revenue in Peru, due to the ef- > a €36 million decrease in revenue in Chile, essentially fect of the decline in average prices and volumes sold, owing to the gain on the sale of 20% of GNL Quintero in partly reflecting the impact of the floods that hit the 2016 (€173 million) and to the reduction in average prices country in 2017, only partly offset by the impact of ex- on distribution and generation. These effects were only change rates (€17 million). partly offset by the gain of €143 million on the sale of Gross operating margin Millions of euro Argentina Brazil Chile Colombia Peru Other countries Total 2017 287 1,008 1,359 1,061 480 9 2016 276 669 1,204 980 419 8 4,204 3,556 Change 4.0% 50.7% 12.9% 8.3% 14.6% 12.5% 18.2% 11 339 155 81 61 1 648 The gross operating margin amounted to €4,204 million, > an increase of €81 million in the margin in Colombia due an increase of €648 million (+18.2%) compared with 2016, essentially to the increase in prices and quantities sold reflecting: and the positive trend in exchange rates; > an increase of €339 million in the gross operating margin > a €61 million increase in the gross operating margin in in Brazil, which reflects the change in the scope of con- Peru, mainly associated with the recognition in 2016 of solidation with the entry of Enel Distribuição Goiás (€128 the loss from the abandonment of the Curibamba and million), the positive exchange rate effect (€65 million) and Marañon hydroelectric projects (€30 million) and provi- the greater margins posted by distribution companies; sions for charges connected with not having respected > an increase of €155 million in the gross operating mar- the terms of the contract to supply of electricity for Elec- gin in Chile as a result of the loss of €166 million on a troperu (€37 million); number of water use concessions recognized in 2016 > an €11 million increase in gross operating margin in Ar- following the abandonment of five hydroelectric projects gentina owing to differences in regulatory mechanisms (including Puelo and Futaleufú), positive exchange rate compared with the previous year, only partly offset by developments (€25 million) and a €27 million decrease the negative trend in exchange rates (€42 million). in capital gains from the disposal of equity investments between the two periods compared, as discussed under revenue; 65 Report on operationsOperating income Millions of euro Argentina Brazil Chile Colombia Peru Other countries Total 2017 231 483 1,027 890 333 6 2016 208 250 610 801 290 4 2,970 2,163 Change 11.1% 93.2% 68.4% 11.1% 14.8% 50.0% 37.3% 23 233 417 89 43 2 807 Operating income in 2017 came to €2,970 million, includ- in depreciation, amortization and impairment losses, the ing €1,234 million in depreciation, amortization and impair- change in the scope of consolidation with the acquisition ment losses (€1,393 million in 2016), an increase of €807 of Enel Distribuição Goiás and the positive change in ex- million. This change reflects the €159 million decrease change rates in all the area countries, except Argentina. Capital expenditure Millions of euro Argentina Brazil Chile Colombia Peru Other countries Total 2017 259 1,475 543 309 416 - 2016 232 1,434 878 266 258 1 3,002 3,069 Change 27 41 11.6% 2.9% (335) -38.2% 43 158 (1) (67) 16.2% 61.2% - -2.2% Capital expenditure came to €3,002 million, down €67 was a decline in capital expenditure in the renewable en- million compared with the previous year. In particular, capi- ergy in Chile to complete and begin operation of plants in tal expenditure in 2017 concerned wind and solar plants in 2016. Peru and work on the distribution network in Brazil. There 66 Annual Report 201767 Report on operationsEurope and North Africa of which Russia 8,944 8,878 866 883 2016 2017 2016 2017 Other countries 2016 2017 2016 2017 2016 2017 2016 2017 8,944 8,878 19 19 741 741 106 123 Thermal plants Hydroelectric plants Wind farms Other Net efficient generation capacity (MW) 2016 9,810 2017 9,761 Electricity distribution and transport networks (km) 2017 127,548 6,505 35,016 86,027 High-voltage lines at year end Medium-voltage lines at year end Low-voltage lines at year end 68 Annual Report 2017 e u r o ) ( m i l l i o n s o f 0 1 7 e i n 2 c n r m a e r f o P e u n 1 1 e R e v 2 , 4 v e R e u m n o e R a nia 0 1,1 8 s i a R u s 1 , 1 3 5 r g i n g m a s i a R u s 2 7 0 t i n a r e p d i t u r e n e p x R u s s i a 1 0 9 a C p it a l e n ia a 4 R o m 1 3 G r o s s o o R m 2 3 2 a nia Other countries 64 (1) Does not include €44 million regarding units classified as “held for sale”. Capital expenditure 3071 Gross operating margin 543 Other countries 96 Other countries 41 Slovakia – Slovakia – Europe and North Africa of which Russia Other countries 8,944 8,878 866 883 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 8,944 8,878 19 19 741 741 106 123 Thermal plants Hydroelectric plants Wind farms Other Net efficient generation capacity (MW) 2016 9,810 2017 9,761 Electricity distribution and transport networks (km) 2017 127,548 6,505 35,016 86,027 High-voltage lines at year end Medium-voltage lines at year end Low-voltage lines at year end e u r o ) ( m i l l i o n s o f 0 1 7 e i n 2 c n r m a e r f o P e u R n 1 1 e e v 2 , 4 v e R n o e R e u a nia m 0 1,1 8 G r o s i a R u s 1 , 1 3 5 g m a r g i n R u s 2 7 0 s i a t i n a r e p s s o Slovakia – Slovakia – a nia m 2 3 2 o R n e p x p it a l e n ia a 4 R o m 1 3 a C d i t u r e R u s s i a 1 0 9 Other countries 64 (1) Does not include €44 million regarding units classified as “held for sale”. Capital expenditure 3071 Gross operating margin 543 Other countries 96 Other countries 41 Report on operations 69 Operations Net electricity generation Millions of kWh Thermal Nuclear Hydroelectric Wind Other sources Total net generation - of which Russia - of which Slovakia - of which Belgium - of which other countries 2017 39,830 - 22 1,814 173 41,839 39,830 - - 2,009 2016 42,993 7,523 1,235 1,715 147 53,613 41,062 9,684 977 1,890 Change (3,163) (7,523) (1,213) 99 26 (11,774) (1,232) (9,684) (977) 119 -7.4% - -98.2% 5.8% 17.7% -22.0% -3.0% - - 6.3% Net electricity generation in 2017 came to 41,839 million consolidation owing to the sale of Slovenské elektrárne kWh, a decrease of 11,774 million kWh compared with (in July 2016) and Marcinelle Energie (in November 2016). 2016. In addition, generation declined in Russia due to a slight This result is mainly due to the change in the scope of decrease in plants’ load factor. Contribution to gross thermal generation Millions of kWh Natural gas Coal Nuclear fuel Total 2017 22,384 19,647 - 2016 Change 53.3% 46.7% - 25,000 20,483 8,102 46.7% 38.2% 15.1% (2,616) -10.5% (836) -4.1% (8,102) - 42,031 100.0% 53,585 100.0% (11,554) -21.6% Gross thermal generation in 2017 posted a decrease of and coal-fired plants in Russia at the expense of gas-fired 11,554 million kWh to 42,031 million kWh. In addition to plants (which were also affected in the 1st Half of 2016 by a the aforementioned changes in the scope of consolidation, temporary shutdown at the Nevinnomisskaya plant). this decrease reflects an increased used of combined-cycle Net efficient generation capacity MW Thermal plants Hydroelectric plants Wind farms Other Total net efficient capacity - of which Russia - of which other countries at Dec. 31, 2017 at Dec. 31, 2016 Change 8,878 19 741 123 9,761 8,878 883 8,944 (66) -0.7% 19 741 106 9,810 8,944 866 - - 17 (49) (66) 17 - - 16.0% -0.5% -0.7% 2.0% Net efficient capacity in 2017 totaled 9,761 MW, a de- tributable to the decommissioning of Block 2 of the Sred- crease of 49 MW compared with the previous year. The neuralskaya plant. change compared with December 31, 2016 is mainly at- 70 Annual Report 2017 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) 2017 6,505 35,016 86,027 2016 6,505 35,015 86,043 Total electricity distribution network (km) (1) 127,548 127,563 Electricity transported in the Enel distribution network (millions of kWh) 15,206 14,890 (1) The figure for 2016 reflects a more accurate calculation of the number of kilometres of distribution lines. Change - 1 (16) (15) 316 - - - - 2.1% Electricity transported, which was concentrated entirely in 2017. This increase was mainly the result of demand in Romania, posted an increase of 316 million kWh (+2.1%), the Romanian market, especially in regions served by Enel. going from 14,890 million kWh to 15,206 million kWh in Electricity sales Millions of kWh Free market Regulated market Total - of which Romania - of which France - of which Slovakia 2017 6,318 4,029 10,347 10,347 - - 2016 7,471 4,864 Change (1,153) -15.4% (835) -17.2% 12,335 (1,988) -16.1% 7,719 2,218 2,398 2,628 34.0% (2,218) (2,398) - - Electricity sales in 2017 decreased by 1,988 million kWh, consolidation, was partly offset by the sharp increase in going from 12,335 million kWh to 10,347 million kWh. electricity sales in Romania as a result of the progressive This decrease, attributable to the changes in the scope of liberalization of the market. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure (1) Does not include €44 million regarding units classified as “held for sale”. (2) Does not include €283 million regarding units classified as “held for sale”. The following tables show a breakdown of performance by country in 2017. 2017 2,411 543 306 2016 3,798 762 286 307 (1) 265 (2) Change (1,387) -36.5% (219) -28.7% 20 42 7.0% 15.8% 71 Report on operations Revenue Millions of euro Romania Russia Slovakia Other countries Total 2017 1,180 1,135 - 96 2,411 2016 1,058 986 1,360 394 3,798 Change 122 149 (1,360) (298) (1,387) 11.5% 15.1% - -75.6% -36.5% Revenue in 2017 totaled €2,411 million, a decrease of which more than offset the decrease in output; €1,387 million (-36.5%) compared with the previous year. > the increase of €122 million in revenue in Romania, es- This decline is related to: sentially owing to the increase in volumes transported > the decrease of €1,360 million in revenue in Slovakia due and sold, which more than offset the reduction in distri- to the deconsolidation following the sale at the end of bution rates; July 2016; > the €298 million decrease in revenue in other countries, > the increase of €149 million in revenue in Russia, mainly of which €295 million relating to the deconsolidation of related to the strengthening of the ruble against the euro Marcinelle Energie and Enel France. (€126 million) and the increase in the unit sales prices, Gross operating margin Millions of euro Romania Russia Slovakia Other countries Total 2017 2016 Change 232 270 - 41 543 339 186 191 46 762 (107) 84 (191) (5) (219) -31.6% 45.2% - -10.9% -28.7% The gross operating margin amounted to €543 million, a electricity, owing to a crisis on the supply market, which decrease of €219 million compared with 2016. This perfor- was not reflected in the prices charged to customers; mance was mainly due to: > the increase of €84 million in the gross operating margin > the change in the scope of consolidation relating to Slov- in Russia, due mainly to the strengthening of the ruble enské elektrárne (€191 million); against the euro and the improvement in the generation > the decrease of €107 million in the margin in Romania, margin. due to the increase in the costs for the provisioning of Operating income Millions of euro Romania Russia Slovakia Other countries Total 2017 2016 Change 114 210 - (18) 306 71 136 114 (35) 286 43 74 (114) 17 20 60.6% 54.4% - -48.6% 7.0% Operating income in 2017 totaled €306 million, an in- depreciation, amortization and impairment losses reflects crease of €20 million. Specifically, a €162 million decline in not only the effects of the sale of Slovenské elektrárne (€77 72 Annual Report 2017million), but also the effect of the impairment recognized in adjustment of the assets of Marcinelle Energie designated 2016 on Enel Green Power Romania (€130 million) and the for disposal to their estimated realizable value (€54 million). Capital expenditure Millions of euro Romania Russia Other countries Total 2017 2016 Change 134 109 64 136 105 24 307 (1) 265 (2) (2) 4 40 42 -1,5% 3,8% - 15,8% (1) Does not include €44 million regarding units classified as “held for sale”. (2) Does not include €283 million regarding units classified as “held for sale”. Capital expenditure came to €307 million, up €42 million year on year, mainly in respect of wind plants in Greece and geothermal plants in Germany. 73 Report on operationsNorth and Central America 2016 2017 2016 2017 2016 2017 630 623 2,018 2,566 144 344 Hydroelectric plants Wind farms Other Net efficient generation capacity (MW) 2016 2,792 2017 3,533 of which United States and Canada 1,495 2,092 Mexico Panama Other countries 728 843 325 354 244 244 2016 2017 2016 2017 2016 2017 2016 2017 Performance in 2017 (millions of euro) ue ven 1,187 e R e r d i t u n e p x a l e 1 2 a C p it 0 1 , 8 a m 9 a 4 P a n 1 a a m 1 P a n 1 0 g p e r a ti n G ro s s o m argin 7 5 9 M exico 142 i e s r c o u n t O t h e r 1 8 0 c o u n t r i e s O t h e r 1 5 2 c o u n t r i e s O t h e r 3 3 a m a P a n 0 1 e u n e v e R d State nite U 6 1 7 M exico 98 d Canada s an erating margin d States and Canada nite U 8 0 4 p s o s ro G M exico 4541 pital expenditure d States d Canada 1,305 nite U n a a C (1) Does not include €325 million regarding units classified as “held for sale”. e r e ti 74 Annual Report 2017 North and Central America 2016 2017 2016 2017 2016 2017 630 623 2,018 2,566 144 344 Hydroelectric plants Wind farms Other Net efficient generation capacity (MW) 2016 2,792 2017 3,533 of which United States and Canada 1,495 2,092 Mexico Panama Other countries 2016 2017 2016 2017 2016 2017 2016 2017 728 843 325 354 244 244 Performance in 2017 (millions of euro) ue ven 1,187 e R e u n e v e R Report on operations e r d i t u n e p x a l e 2 1 C a p it 1 , 8 0 a m 9 a 4 P a n 1 a a m 1 P a n 1 0 g p e r a ti n m argin 7 5 9 G ro s s o M exico 142 i e s r c o u n t O t h e r 1 8 0 c o u n t r i e s O t h e r 1 5 2 c o u n t r i e s O t h e r 3 3 M exico 98 a m a P a n 1 0 d Canada s an d State nite U 6 1 7 erating margin d States and Canada nite U 8 0 4 p s o s ro G pital expenditure M exico 4541 d Canada 1,305 d States nite U n a a C (1) Does not include €325 million regarding units classified as “held for sale”. e r e ti 75 Operations Net electricity generation Millions of kWh Hydroelectric Geothermal Wind Other sources Total net generation - of which United States and Canada - of which Mexico - of which Panama - of which other countries 2017 2,681 - 6,920 192 9,793 5,313 2,025 1,528 927 2016 2,837 362 Change (156) (362) -5.5% - 9,007 (2,087) -23.2% 62 130 - 12,268 (2,475) -20.2% 8,628 1,781 1,367 492 (3,315) -38.4% 244 161 435 13.7% 11.8% 88.4% In 2017, net electricity generation totaled 9,793 million kWh, factor was partly offset by an increase in output in Mexico a decrease of 2,475 million kWh from 2016. This decrease (+244 million kWh), thanks to the entry into service of the can be attributed to the decline in output in the United Vientos del Altiplano and Palo Alto wind plants, and greater States and Canada (-3,315 million kWh) as a result of a de- generation from hydroelectric plants in Panama (+120 mil- crease in wind generation (-2,240 million kWh), largely ow- lion kWh), Guatemala (+240 million kWh) and Costa Rica ing to the deconsolidation of the EGPNA REP plants. This (+200 million kWh). Net efficient generation capacity MW Hydroelectric plants Wind farms Other Total net efficient capacity - of which United States and Canada - of which Mexico - of which Panama - of which other countries at Dec. 31, 2017 at Dec. 31, 2016 Change 623 2,566 344 3,533 2,092 843 354 244 630 2,018 144 2,792 1,495 728 325 244 (7) 548 200 741 597 115 29 - -1.1% 27.2% - 26.5% 39.9% 15.8% 8.9% - Net efficient generation capacity in 2017 amounted to 3,533 Creek, Thunder Ranch and Red Dirt plants, partly offset by MW, an increase of 741 MW on the previous year, essen- the disposal of the Caney River and Rocky Ridge facilities. A tially reflecting the increase in net installed capacity of wind further increase in net efficient capacity was also registered plants in the United States and Canada (+600 MW) as a in Mexico, mainly attributable to the Villanueva photovoltaic result of the increased net capacity at the new Rattlesnake plant. 76 Annual Report 2017 Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure (1) Does not include €325 million regarding units classified as “held for sale”. The tables below show financial performance by geographic area in 2017. Revenue Millions of euro United States and Canada Mexico Panama Other countries Total 2017 1,187 759 553 2016 1,125 833 565 1,802 (1) 1,832 Change 62 (74) (12) (30) 5.5% -8.9% -2.1% -1.6% 2017 2016 Change 716 142 149 180 774 125 143 83 1,187 1,125 (58) -7.5% 17 6 97 62 13.6% 4.2% - 5.5% Revenue in 2017 amounted to €1,187 million, an increase > an increase of €17 million in revenue in Mexico, mainly of €62 million (+5.5%) on 2016. This reflected: reflecting the increase in wind output, as discussed in > a decrease of €58 million in revenue in the United States the section on operations (€37 million), partly offset by and Canada, essentially due to a decline in revenue from the effect of the recognition in 2016 of revenue from the the sale of electricity (-€137 million) and lower revenue successful outcome of VAT recovery procedures (€14 from the electric business (-€8 million) as a result of the million); decline in output (mainly reflecting the deconsolidation of > an increase of €6 million in revenue in Panama, mainly the EGPNA REP plants), and the effect of the recognition due to an increase in hydroelectric generation, as noted in 2016 of the remeasurement at fair value (€95 million) in the section on operations; of the interests held by the EGPNA REP group follow- > an increase of €119 million in revenue in Costa Rica, ing the loss of control and the gains on the disposal of largely reflecting the indemnities in respect of the Chu- Cimarron and Lindahl (€35 million). These developments cas wind farm (€100 million) paid to the Group by the In- were partly offset by an increase in revenue from the change stituto Costarricense de Electricidad (ICE), partly offset in the scope of consolidation following the acquisition of by a decline in revenue in Guatemala (-€23 million). EnerNOC on August 7, 2017 (€146 million) and the in- crease in revenue from tax partnerships (€68 million); 77 Report on operationsGross operating margin Millions of euro United States and Canada Mexico Panama Other countries Total 2017 408 98 101 152 759 2016 587 95 93 58 833 Change (179) -30.5% 3 8 94 (74) 3.2% 8.6% - -8.9% The gross operating margin amounted to €759 million in ing the increase in output noted above; 2017, down €74 million (-8.9%) on 2016. This reflected: > an increase of €8 million in the margin in Panama, attrib- > a decrease of €179 million in the margin in the United utable to the expansion of output; States and Canada, attributable to the decline in revenue > an increase in the margin in other countries, essentially discussed earlier and an increase in personnel and oper- attributable to the greater revenue registered by PH ating costs associated with the acquisition of EnerNOC; Chucas, as noted earlier. > an increase of €3 million in the margin in Mexico, reflect- Operating income Millions of euro United States and Canada Mexico Panama Other countries Total 2017 293 52 87 121 553 2016 398 42 80 45 565 Change (105) -26.4% 10 7 76 23.8% 8.8% - (12) -2.1% Operating income in 2017 amounted to €553 million, a that was essentially associated with the deconsolidation decrease of €12 million, taking account of a decrease of of the EGPNA REP plants, partly offset by an increase in €62 million in depreciation, amortization and impairment depreciation due to the entry into service of new plants. Capital expenditure Millions of euro United States and Canada Mexico Panama Other countries Total 2017 1,305 454 (1) 10 33 2016 1,467 248 42 75 1,802 1,832 Change (162) -11.0% 206 (32) (42) (30) 83.1% -76.2% -56.0% -1.6% (1) Does not include €325 million regarding units classified as “held for sale”. Capital expenditure in 2017 amounted to €1,802 million, million) in the United States and the photovoltaic plants a decrease of €30 million on the previous year. Investment of Villanueva (€272 million) and Don José (€104 million) in mainly regarded the wind plants of Rock Creek (€364 mil- Mexico. lion), Red Dirt (€325 million) and Thunder Ranch (€359 78 Annual Report 201779 Report on operationsSub-Saharan Africa and Asia 2016 2017 2016 2017 335 371 323 323 Wind farms Other Net efficient generation capacity (MW) 2016 658 2017 694 g i n r g m a t i n a r e p s o s G r o 7 5 e x p e n d i t u re C a p i t a l 3 0 i e s r c o u n t O t h e r ) 4 ( Performance in 2017 (millions of euro) ue ven e R 6 9 India 16 erating margin p s o s ro G uth Africa o S 3 5 India 8 pital expenditure uth Africa o S 7 2 a C India 3 e u n e v e R a uth Afric o S 0 8 of which South Africa India 486 522 172 172 2016 2017 2016 2017 e r e ti 80 Annual Report 2017 Sub-Saharan Africa and Asia 2016 2017 2016 2017 335 371 323 323 Wind farms Other Net efficient generation capacity (MW) 2016 658 2017 694 of which South Africa 486 522 172 172 2016 2017 2016 2017 India Performance in 2017 (millions of euro) ue ven e R 6 9 a uth Afric o S 0 8 e u n e v e R Report on operations e x p e n d i t u re C a p i t a l 3 0 i e s r c o u n t O t h e r ) 4 ( g i n r g m a t i n a r e p s o s G r o 5 7 India 16 erating margin uth Africa o S 3 5 p s o s ro G India 8 pital expenditure uth Africa o S 7 2 a C India 3 e r e ti 81 Operations Net electricity generation Millions of kWh Wind Other sources Total net generation - of which South Africa - of which India 2017 892 589 1,481 1,156 325 2016 Change 401 129 530 203 327 491 460 951 953 (2) - - - - -0.6% Net generation in 2017 amounted to 1,481 million kWh, lion kWh) in South Africa following the entry of new plants an increase compared with 2016 of 951 million kWh. The into service, mainly in the 2nd Half of 2016. By contrast, increase is mainly attributable to the increase in wind gen- output declined slightly in India. eration (+491 million kWh) and solar generation (+589 mil- Net efficient generation capacity MW Wind farms Other Total net efficient capacity - of which South Africa - of which India at Dec. 31, 2017 at Dec. 31, 2016 Change 371 323 694 522 172 335 323 658 486 172 36 - 36 36 - 10.7% - 5.5% 7.4% - Net efficient generation capacity in 2017 totaled 694 MW crease in installed generation capacity associated with the for an increase of 36 MW compared with the previous year. Gibson Bay plant. The change on December 31, 2016 mainly reflects the in- Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2017 2016 Change 96 57 15 30 29 14 (5) 67 43 20 - - - 304 (274) -90.1% The following tables show a breakdown of performance by geographic area in 2017. 82 Annual Report 2017 Revenue Millions of euro South Africa India Total 2017 2016 Change 80 16 96 12 17 29 68 (1) 67 - -5.9% - Revenue in 2017 amounted to €96 million, an increase of mainly due to the higher output and sale of electricity gen- €67 million compared with the prior year. The increase is erated by the Pulida, Adam Solar and Gibson Bay plants. Gross operating margin Millions of euro South Africa India Other countries Total 2017 2016 Change 53 8 (4) 57 4 10 - 14 49 (2) (4) 43 - -20.0% - - The gross operating margin in 2017 amounted to €57 mil- change reflects the aforementioned increase in revenue, lion, an increase of €43 million compared with 2016. The partly offset by the decreases reported in Australia and Kenya. Operating income Millions of euro South Africa India Other countries Total 2017 18 - (3) 15 2016 (10) 5 - (5) Change 28 (5) (3) 20 - - - - Operating income in 2017 came to €15 million, an in- mainly to the start of operations at plants in South Africa crease of €20 million, which includes an increase of €23 in 2016. million in depreciation, amortization and impairment, due Capital expenditure Millions of euro South Africa India Total 2017 27 3 30 2016 301 3 304 Change (274) -91.0% - - (274) -90.1% Capital expenditure came to €30 million in 2017, down ly refers to photovoltaic plants in South Africa on which €274 million compared with the prior year. The figure main- construction work was completed, as noted earlier. 83 Report on operationsOther, eliminations and adjustments Performance Millions of euro Revenue (net of eliminations) Gross operating margin Operating income Capital expenditure 2017 389 (346) (364) 72 2016 855 (69) (124) 41 Change -54.5% - - (466) (277) (240) 31 75.6% Revenue net of eliminations for 2017 amounted to €389 The gross operating margin in 2017, a negative €346 million, a decrease of €466 million compared with the prior million, showed a decrease of €277 million compared with year (-54.5%). The change can essentially be attributed to: the figure for 2016. This change reflected the elimination > a decrease of €162 million in engineering revenue follow- of the margins on the assets that were transferred, the ef- ing the incorporation of Enel Ingegneria e Ricerca into fect of the capital gain on Compostilla Re and the reversal Enel Produzione, with the transfer of the related flows to of the SAPE litigation provision, recognized in 2016 in the the Italy segment; amount of €80 million. > a decrease of €147 million in revenue for IT services fol- lowing the transfer of the Information Technology unit The operating loss in 2017 amounted to €364 million, a de- from Enel Iberoamérica to Endesa, and the consequent terioration of €240 million compared with the previous year, inclusion of the figures in Iberia segment; taking account of a decrease in depreciation, amortization > a €49 million reduction in management fees on services and impairment of €37 million, reflecting writedowns recog- provided to other Divisions of the Group; nized in 2016 on upstream gas exploration assets owing to a > the capital gain of €19 million on the disposal of Compos- number of difficulties in executing the projects and changes tilla Re in 2016. in price conditions in the global fuel market. Capital expenditure Capital expenditure in 2017 amounted to €72 million, an increase of €31 million on 2016, mainly on information techno- logy activities. 84 Annual Report 2017Performance and financial position of Enel SpA Performance The following table summarizes the performance of Enel SpA in 2017 and 2016. Millions of euro Revenue Revenue from services Other revenue and income Total Costs 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 2017 2016 Change 120 13 133 1 165 174 20 360 (227) 15 (242) 3,033 3,093 3,774 2,352 2,110 (160) 2,270 197 10 207 1 152 166 17 336 (129) 448 (577) 2,882 3,343 4,106 2,119 1,542 (178) 1,720 (77) 3 (74) - 13 8 3 24 (98) (433) 335 151 (250) (332) 233 568 18 550 Revenue from services amounted to €120 million (€197 €3 million compared with the previous year. In both years, million in 2016) and essentially regards services provided to the item is essentially composed of the rebilling of costs for subsidiaries as part of Enel SpA’s management and coordi- the personnel of Enel SpA seconded to other Group com- nation functions and the rebilling of costs incurred by Enel panies. SpA but pertaining to the subsidiaries. The overall decrease of €77 million is primarily attribut- Costs for consumables amounted to €1 million in 2017, un- able to the decline in revenue from management fees and changed on the previous year. technical fees, which reflects the negative adjustments for years 2015 and 2016, and the application of the new remu- Costs for services, leases and rentals amounted to €165 neration model adopted by the Parent Company during the million in 2017 (€152 million in 2016), of which charges from year. third parties in the amount of €82 million and from Group companies in the amount of €83 million. The former mainly Other revenue and income amounted to €13 million, up regarded communication services, technical and profes- 85 Report on operationssional services as well as strategic, management and cor- Income from equity investments amounted to €3,033 porate organization consulting and IT services. Those in million (2,882 million in 2016). The item regards dividends respect of services provided by Group companies regard and interim dividends approved in 2017 by subsidiaries and IT and administrative services and purchasing, as well as associates in the amount of €3,032 million and by other rentals and personnel training received from Enel Italia, and companies in the amount of €1 million and shows an in- costs for the personnel of a number of Group companies crease of €151 million on the previous year, partly reflect- seconded to Enel SpA. ing dividends received from the subsidiaries Enel Américas and Enel Chile following the corporate restructuring of the Personnel costs totaled €174 million in 2017, an increase Group’s operations in South America. of €8 million compared with the previous year. The change is mainly attributable to higher costs connected Net financial expense amounted to €681 million and es- with the Long-Term Incentive Plans (€5 million) and to sentially reflects interest expense on financial debt (€860 post-employment benefits relating to defined benefit million), partly offset by interest and other income on cur- plans (€2 million). rent and non-current financial assets (totaling €158 million). The decrease in net financial expense on the previous year, Other operating expenses amounted to €20 million in equal to €82 million, was essentially the result of lower in- 2017, up €3 million compared with 2016, mainly as a result terest expense on financial payables, which benefited from of higher representation expenses. favorable interest rate developments and a decline in the average stock of net financial debt (€66 million), and the In the light of the foregoing, the gross operating margin increase in other financial income on guarantees pledged was a negative €227 million, a deterioration of €98 million in favor of Group companies (€30 million). compared with the previous year, mainly attributable to the combined effect of the reduction in management fees and Income taxes showed a tax receivable of €160 million, technical fees, and the concomitant increase in labor costs mainly due to the reduction in taxable income for IRES and services and leases and rentals. purposes compared with statutory taxable income as a re- sult of the exclusion of 95% of dividends received from Depreciation, amortization and impairment losses subsidiaries and the deductibility of Enel SpA interest ex- amounted to €15 million in 2017, attributable solely to de- pense for the Group’s consolidated taxation mechanism in preciation and amortization. In 2016, the item also included accordance with corporate income tax law (Article 96 of the writedown of the interest in Enel Produzione SpA (€474 the Uniform Income Tax Code). Compared with 2016 (a tax million) and the writeback of the interest in Enel Trade SpA receivable of €178 million), the decrease of €18 million is (€42 million), which were recognized following impairment attributable to the increase in estimated taxable income for testing of the investments. IRES purposes. Accordingly, the operating result showed a loss of €242 Net income for the year totaled €2,270 million, compared million, an improvement of €335 million compared with with €1,720 million the previous year. 2016. 86 Annual Report 2017Analysis of the 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: - employee benefits - provisions for risks and charges and net deferred taxes Total Net capital employed Shareholders’ equity NET FINANCIAL DEBT at Dec. 31, 2017 at Dec. 31, 2016 Change 41 42,811 (667) 42,185 237 (1,612) (137) (1,512) 40,673 (273) 87 (186) 40,487 27,236 13,251 27 42,793 (440) 42,380 255 (1,500) (150) (1,395) 40,985 (286) 56 (230) 40,755 26,916 13,839 14 18 (227) (195) (18) (112) 13 (117) (312) 13 31 44 (268) 320 (588) Net non-current assets amounted to €42,185, a decrease Net current assets came to a negative €1,512 million, an of €195 million. This was attributable to: increase of €117 million on December 31, 2016. The change > an increase of €227 million in “net other non-current as- is attributable to: sets/(liabilities)”, which at December 31, 2017 showed a > an increase of €112 million in net other current liabilities, net liability of €667 million (net other non-current liabili- mainly reflecting the liability to shareholders for the in- ties of €440 million at December 31, 2016). The change terim dividend on 2017 earnings approved by the Board is essentially attributable to the decrease in the value of Directors on November 8, 2017 and to be paid as from of non-current derivative assets (€1,014 million) and the January 24, 2018 (equal to €1,068 million in 2017 and decrease in the value of non-current derivative liabilities €915 million in 2016); (€812 million); > a decrease of €18 million in trade receivables, mainly in > an increase of €18 million in the value of equity invest- respect of Group companies for management and coor- ments in subsidiaries, which reflected the following op- dination services from Enel SpA; erations: the acquisition of Tynemouth Energy Storage > a decrease of €13 million in trade payables. Limited (€5 million) and Enel M@p (€12 million), and the formation of Enel Global Thermal Generation Srl with the Net capital employed at December 31, 2017 came to subscription and payment of its entire share capital (€1 €40,487 million, funded by shareholders’ equity of €27,236 million); million and net financial debt of €13,251 million. > a change of €14 million in property, plant and equipment and intangible assets as a result of investments (totaling Shareholders’ equity came to €27,236 million at Decem- €29 million) and depreciation and amortization (totaling ber 31, 2017, an increase of €320 million on the previous €15 million) for the year. year. More specifically, the change is attributable to the rec- 87 Report on operationsognition of net income for 2017 (€2,303 million), the distri- Net financial debt amounted to €13,251 million at the end bution of the balance of the dividend for 2016 (totaling €915 of 2017, with a debt/equity ratio of 48.7% (51.4% at the end million) and the interim dividend for 2017 (€1,068 million). of 2016). 88 Annual Report 2017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: - bank borrowings - bonds - debt assumed and loans from subsidiaries 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 - cash collateral received Short-term debt - short-term portion of long-term financial receivables - short-term portion of loans assumed/granted - 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, 2017 at Dec. 31, 2016 Change 1,039 8,541 1,200 10,780 (6) - 50 12,414 1,200 13,664 (5) (27) 989 (3,873) - (2,884) (1) 27 10,774 13,632 (2,858) 3,654 245 256 4,155 (1) (27) 1 (2,074) 2,912 (2,489) 2,477 13,251 973 810 1,107 2,890 (1) (45) (6) (1,012) 1,419 (3,038) 207 13,839 2,681 (565) (851) 1,265 - 18 7 (1,062) 1,493 549 2,270 (588) Net financial debt at December 31, 2017 amounted to 2016 the facility had been drawn in the amount of €50 €13,251 million, a decrease of €588 million, the result of million); an improvement in the net long-term debtor position of > the agreement of new loans from UniCredit SpA and UBI €2,858 million, partly offset by an increase of €2,270 mil- Banca SpA in the respective amounts of €200 million and lion in net short-term financial debt. €150 million; The main transactions in 2017 impacting debt can be sum- > the agreement of a dollar-denominated loan from Bank of marized as follows: America in the amount of €199 million at the exchange > the repayment of the residual €909 million of a bond is- rate prevailing at issue ($227 million). sued in 2007 in the amount of €1,500 million, which was partially redeemed in 2016; Cash and cash equivalents amounted to €2,489 million, a > the redemption of four tranches of INA and ANIA bonds decrease of €549 million on December 31, 2016, reflect- totaling €65 million; ing the effects of the above financial transactions, the pay- > the repurchase of own unlisted floating-rate bonds from ment of dividends for 2016 and the normal operation of the “Serie speciale riservata al personale 1994-2019” in the centralized treasury function performed by Enel SpA. the amount of €19 million; > an additional drawing of €450 million on the loan granted by UniCredit SpA the previous year (at December 31, 89 Report on operations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 2017 3,038 2,465 (48) (2,966) 2,489 2016 5,925 2,511 (409) (4,989) 3,038 Change (2,887) (46) 361 2,023 (549) Cash flows from financing activities came to a negative Limited (€5 million) and Enel M@p (€12 million), and the €2,966 million (€4,989 million in 2016). They were largely formation of Enel Global Thermal Generation Srl with the generated by the repayment of bonds and the payment of subscription and payment of its entire share capital (€1 dividends for 2016 totaling €1,830 million. million). Cash flows from investing activities were a negative €48 The cash requirements generated by financing and invest- million (€409 million in 2016), and were essentially gener- ing activities were funded by liquidity generated by oper- ated by: ating activities (a positive €2,465 million, compared with > €30 million in changes in property, plant and equipment €2,511 million in 2016), essentially reflecting dividends re- and intangible assets as a result of capital expenditure; ceived from subsidiaries (€2,977 million) and the use of > €18 million from the increase in the value of equity in- cash and cash equivalents, which at December 31, 2017 vestments in subsidiaries, reflecting the following trans- consequently amounted to €2,489 million (€3,038 million actions: the acquisition of Tynemouth Energy Storage at the start of the year). 90 Annual Report 2017Significant events in 2017 Business 11 JANUARY 14 FEBRUARY Acquisition of Brazilian distributor CELG-D finalized On February 14, 2017, the Enel subsidiary Enel Brasil fi- nalized the acquisition of about 94.8% of the share capi- Acquisition of Demand Energy On January 11, 2017, Enel Green Power North America tal of CELG Distribuição (“CELG-D”), a power distribution company that operates in the Brazilian state of Goiás, for acquired a 100% stake in Demand Energy Networks a total of R$2.187 billion. The original agreement provided (“Demand Energy”), a US-based company specialized in for the remaining shares of CELG-D to be offered to the intelligent software and energy storage systems. Enel will company’s current and retired employees through a pro- work with Demand Energy, which has established itself as cess that in May enabled Enel to purchase the shares not a leader in the New York City storage market, delivering bought by those employees. value to commercial and industrial customers, to expand The acquisition of CELG-D expanded Enel’s presence in deployment of the company’s Distributed Energy Network the Brazilian distribution sector, increasing Enel’s Brazilian Optimization System (DEN.OSTM), an intelligent software customer base from 7 million to 10 million, making Enel controls platform that enables real-time optimization of en- Brasil the second largest power distributor in the country, ergy management and revolutionizes the way electricity is generated, stored and consumed. 4 APRIL 10 FEBRUARY Enel Green Power participates in construction of hospital in Uganda On February 10, 2017, Enel Green Power participated in Power purchase agreement in Zambia On April 4, 2017, Enel Green Power signed a 25-year power purchase agreement with Zambia’s state-owned utility ZESCO for the 34 MW Ngonye photovoltaic plant the project of Emergency and the architect Renzo Piano for won in June following the first round tender of the Scal- the construction of a pediatric surgery hospital in Entebbe, ing Solar program, which was launched by state-owned Uganda, which will become the new center of pediatric ex- investment holding company Industrial Development Cor- cellence in Africa. The hospital will also be a training center poration Limited (“IDC”). Ngonye is located in the Lusaka for young doctors and nurses from Uganda and neighbor- South Multi-Facility Economic Zone in southern Zambia, ing countries, making a significant contribution to improv- and the award of the capacity to Enel marked the Group’s ing health standards in the area. entry into Zambia’s renewable energy market. Enel will Enel Green Power will provide 2,600 thin-film photovoltaic be investing approximately $40 million in the construc- modules manufactured at the 3Sun factory in Catania, for a tion of the new photovoltaic plant, which is expected to total of 289.24 kWp (kilowatt peak), giving the new facility generate around 70 GWh per year. Ngonye will be owned energy autonomy and sustainability. by a special purpose vehicle in which Enel Green Power will hold 80% and IDC will have a 20% minority stake. 91 Report on operations10 APRIL Acquisition of a photovoltaic project in Australia On April 10, 2017, Enel, acting through a joint venture between the subsidiary Enel Green Power and Dutch In- frastructure Fund, closed an agreement to acquire Bun- gala Solar One, the first 137.5 MW phase of the 275 MW Bungala Solar photovoltaic project, which is currently the largest ready-to-build solar PV project in Australia, from an Australian developer. The acquisition of Bungala Solar Two, the second phase of the project, closed at the end of July. The Bungala So- lar project is located near Port Augusta in South Australia. The joint venture’s total investment in the 275 MW pro- ject is around $315 million, including project construction, with Enel contributing around $157 million. The total in- vestment will be financed through a mix of equity and project finance with a consortium of local and interna- tional banks. The project already holds a long-term power purchase agreement with Origin Energy, a major Australi- an utility. Construction at Bungala Solar One began in July and will be completed in the 3rd Quarter of 2018, while Bungala Solar Two began construction in December and will be completed in the 1st Quarter of 2019. in interest. In its ruling of February 3, 2017, the Arbitral Tribunal set the purchase price for the equity interests involved in the put option at about €400 million, reducing the amount requested by SAPE by more than €100 mil- lion and dismissing the claim for interest. 16 MAY Acquisition of Tynemouth Energy Storage On May 16, 2017, Enel purchased the Tynemouth stand- alone battery energy storage system project located in Newcastle in the United Kingdom by acquiring 100% of Tynemouth Energy Storage Limited from the European energy project developer and operator Element Power. The ready-to-build project, which is expected to be com- pleted by the 1st Half of 2018, will use lithium-ion batter- ies with a capacity of 25 MW (12.5 MWh). Enel’s overall investment in the project, including construction, is ex- pected to total about €20 million. Tynemouth is supported by a four-year Enhanced Frequen- cy Response (EFR) contract with National Grid awarded to the project in last year’s EFR tender to provide grid balanc- ing services. After four years, the project will participate in ancillary services and capacity market tenders. 10 APRIL 17 MAY Acquisition of an additional stake in e-distribut¸ie Muntenia and Enel Energie Muntenia On April 10, 2017, Enel Investment Holding (“EIH”) fi- Award of wind capacity in Spain On May 17, 2017, Enel Green Power España was awarded 540 MW of wind power capacity in a tender for 3,000 MW of renewable energy launched by the Spanish government nalized the acquisition from SAPE (the Romanian state- to help the country achieve its target of supplying 20% of owned holding company that owns state shareholdings) energy consumption from renewables by 2020. The Enel of around 13.6% of the share capital of e-distribut¸ie Group will invest about €600 million in the construction of Muntenia and Enel Energie Muntenia for a total of about the wind capacity, which is part of the investment envis- €400 million. Following the transaction, EIH had increased aged in its current Strategic Plan. The plants, which are its interest in the two companies to about 78% of their expected to enter service by 2019, will sell their power in share capital, from the 64.4% held previously. The ac- the Spanish wholesale market, while the Spanish govern- quisition was a consequence of SAPE exercising a put ment will provide incentives, in terms of yearly capacity option in November 2012. With the exercise of the put payments, to guarantee a constant return over the 25-year option, SAPE had asked for a price of about €520 million, lifetimes of the plants. The wind farms will be located in an amount which was contested by EIH. After failing to the regions of Aragona, Andalusia, Castile and León, and reach an agreement on the price for the equity interests, Galicia, areas which enjoy high levels of wind resources. in 2014 SAPE began an arbitration proceeding before the Once up and running, the wind facilities will generate International Chamber of Commerce in Paris, in which it about 1,750 GWh per year. lodged a claim for the above price and about €60 million 92 Annual Report 201729 MAY 14 JUNE Tax partnership agreement for Rock Creek wind farm in the United States On May 29, 2017, Enel Green Power North America (“EGPNA”), the Enel Group renewable energy company operating in the United States, signed a tax equity agree- ment worth about $365 million with Bank of America Mer- rill Lynch and JP Morgan for the 300 MW Rock Creek wind farm located in Missouri. Under the agreement, the inves- tors will contribute the agreed amount to the wind farm’s owner in exchange for 100% of the “Class B” equity inter- est in the project. This interest will allow the two inves- tors to obtain, under certain conditions set by US tax laws, a percentage of the tax benefits that will be attributed to the Rock Creek wind project. In turn, EGPNA, through Rock Creek Holding, will retain 100% ownership of the “Class A” interests and therefore management control of Award of wind capacity in Russia On June 14, 2017, Enel Russia was awarded two wind projects with a total capacity of 291 MW within the framework of the 2017 Russian government tender for the construction of 1.9 GW of wind capacity in the coun- try. The two projects will be developed and built by Enel Green Power with an overall investment of about €405 million. The two plants will sell their energy in the Rus- sian wholesale market and will be supported by capacity payment agreements with the Russian government. The Azov wind farm, which is expected to enter service by 2020, is located in the Rostov region, in southern Russia, and will have an installed capacity of 90 MW, generating around 300 GWh. The Murmansk wind farm, located in the northwestern Russian region of the same name, is expected to enter service by 2021 and will boast an in- stalled capacity of 201 MW, generating around 730 GWh the project. The agreement secures the funding commit- per year. ment by the two investors, and the closing of the funding is expected to occur upon completion of construction and start of commercial operation of the farm. The tax equity accord will be supported by a parent company guarantee from Enel SpA. 5 JUNE Acquisition of Amec Foster Wheeler Power On June 5, 2017, Enel Green Power has completed the acquisition of 100% of Amec Foster Wheeler Power from Amec Foster Wheeler Italiana, owner of two wind farms in Campania with a total installed capacity of 54.5 MW. The two plants, in operation since 2006 and 2008, are located in the municipalities of Vallesaccarda (22.5 MW) 26 JUNE Implementation of the smart meter One of the most important challenges facing Enel is the implementation of the new-generation meter in the coun- tries where the Group is present with distribution com- panies. On June 26, 2017, Enel kicked off Open Meter in Italy, the plan to replace 32 million first-generation meters installed beginning in 2001. In Spain, more than 11 mil- lion devices will have been installed by the end of 2017. In Romania, 290,000 will be installed on the three Enel networks by the end of the year. The new smart meter offers considerable benefits to customers and distribu- tors alike, representing the first essential step towards a and Scampitella (32 MW), in the province of Avellino, and smart digital grid. generate about 90 GWh per year. With the transaction, Enel Green Power and Amec Fos- ter Wheeler Italiana closed a preliminary sale agreement signed in December 2016. Enel Green Power paid about €21 million. One of the largest challenges facing this innovative tool is the regulatory framework in the various countries, which will require ongoing dialogue to overcome. 26 JULY Award of renewables capacity in Spain On July 26, 2017, Enel Green Power España was awarded 93 Report on operations339 MW of solar power capacity in Spain in a renewable Energy Partners of America (“Allianz”) for the Red Dirt energy tender. The plants, whose construction will re- wind project located in Oklahoma, which has a total in- quire an investment of about €270 million, will sell their stalled capacity of around 300 MW. electricity on the Spanish pool market, with incentives Under the agreement, which is commonly used for the from the Spanish government in the form of annual ca- development of renewable energy projects in the United pacity payments to guarantee a steady return over the States, MUFG and Allianz will pay the above amount to 25-year lives of the facilities. The photovoltaic plants are the wind farm owner, Red Dirt Wind Holdings, purchas- expected to enter service by 2019 and will be located in ing 100% of the “Class B” equity interests in the project. the regions of Murcia and Badajoz. Once up and running, This investment will enable the two investors to obtain, the plants will generate approximately 640 GWh per year. under certain conditions set under US tax law, a percent- age of the tax benefits of the Red Dirt wind project. In turn, EGPNA, through Red Dirt Wind Holdings, will retain 100% ownership of the “Class A” interests and therefore management control of the project. The agreement se- cures the funding commitment by the two investors, with the closing of the funding expected to occur upon start of commercial operation of the Red Dirt wind farm. The tax equity partnership will be supported by a parent company guarantee from Enel SpA. The Red Dirt wind project, construction of which started in April, began operations in December. The investment in Red Dirt amounts to about $420 million, which is part of the investment outlined in Enel’s current Strategic Plan. 13 SEPTEMBER Long-term power purchase agreements reached in the United States On September 13, 2017, Anheuser-Busch and Enel Green Power (“EGP”) signed a Power Purchase Agreement (“PPA”), whereby Anheuser-Busch will purchase the en- ergy delivered to the grid and the associated renewable electricity credits from a portion of Enel Green Power’s Thunder Ranch wind project, in the amount of 152.5 MW. The wind energy partnership between EGP and Anheuser- Busch is the beer company’s first contracted utility-scale project to start operations in the world, with the Thun- der Ranch wind farm becoming operational in December. More specifically, under a Virtual Power Purchase Agree- ment (“VPPA”), EGP will sell Anheuser-Busch the elec- tricity output delivered to the grid by a 152.5 MW portion of the Thunder Ranch wind farm, substantially boosting the beer company’s purchases of renewable energy. 7 AUGUST Acquisition of EnerNOC On August 7, 2017, Enel Green Power North America (“EGPNA”) completed a tender offer for all of the out- standing shares of EnerNOC for a total price of about $250 million. EnerNOC has active demand response networks in North America, Europe and Asia-Pacific. Additionally, EnerNOC energy intelligence software enables businesses to boost facility efficiency, simplify utility bill management and ease reporting burdens. The company’s energy procure- ment tools and services help customers buy energy more strategically, manage risk and optimize pricing. The completion of the acquisition came as a result of EGPNA’s successful tender offer to EnerNOC’s share- holders for no less than a majority of its shares. A total of 22,447,759 shares were validly tendered into and not withdrawn from the offer, representing about 71.61% of EnerNOC’s outstanding shares at a price of $7.67 per share in cash, representing a premium of about 42% to the company’s closing stock price on June 21, 2017 and a 38% premium to the 30-day weighted average price. Following its acceptance of the tendered shares, EGPNA completed the acquisition by acquiring a 100% owner- ship interest in the company. EnerNOC will be delisted following the merger. 17 AUGUST Tax partnership agreement for Red Dirt wind farm in the United States On August 17, 2017, Enel Green Power North America (“EGPNA”), acting through its subsidiary Red Dirt Wind Holdings, signed a tax equity agreement worth approxi- mately $340 million with MUFG and Allianz Renewable 94 Annual Report 201728 SEPTEMBER Enel wins renewable energy tender in Brazil On September 28, 2017, Enel Brasil was awarded a 30-year concession for the operational 380 MW Volta Grande hydro power plant located in south-eastern Brazil following the “Leilão de Concessões não Prorrogadas” company’s executives/employees are accused. Follow- ing the charges, as provided for by law, the investigating magistrate of Lecce also ordered the seizure of approxi- mately €523 million, equivalent to the profit that the Lec- ce Public Prosecutor conducting the investigation alleges was generated through the illegal handling of the ash. The seizure order appointed two custodians in order to monitor compliance with the technical measures men- public auction organized by the Brazilian federal govern- tioned earlier. ment via the Brazilian electricity regulatory agency - AN- EEL. Enel invested a total of around R$1.4 billion, equal to about $445 million, for the hydro concession, in line with the investment outlined in the Group’s current Strategic Plan. The hydro power plant is supported by the 30-year concession awarded with guaranteed annual generation revenue. After the signing of the concession in November, Enel’s hydro capacity in the country increased to 1,270 MW from the current 890 MW. 28 SEPTEMBER Seizure of Brindisi plant On September 28, 2017, Enel Produzione was notified of the decision issued by the investigating magistrate of Lecce ordering the seizure of the thermoelectric power plant of Brindisi-Cerano. The measure is part of a criminal investigation initiated by the Public Prosecutor’s Office of the Court of Lecce concerning the use of fly ash, i.e. that produced by the combustion of coal and captured by the smoke abate- ment systems of the plant, in the cement industry. The investigation also involves Cementir, a cement company to which the ash was sent for cement production, and ILVA, which provided Cementir with other residues for cement production. Within the scope of the enquiry, a number of executives/ employees of the company are being investigated for il- legal waste disposal and unauthorized blending of waste. In order to enable plant operations to continue, the sei- zure order authorizes the Brindisi power station to con- tinue generation for 60 days (subsequently extended until February 24, 2018), subject to certain technical require- ments intended, according to the accusations, to remove the alleged ash management deficiencies. Enel Produzio- ne has been charged under the provisions of Legislative Decree 231/2001 with the same offenses of which the Enel Produzione has informed the investigating magis- trate that the plant is operated in accordance with indus- try regulations and the highest international technology standards, as well as with a cycle for the production and reuse of residues that is identical to that adopted in the most efficient power plants in Europe and the world, in compliance with the most modern environmental require- ments intended to promote a circular economy. Analyses of the ash prior to seizure and those conducted after- wards have consistently confirmed the non-hazardous nature of the material and therefore the legitimacy of the manner in which they have been handled. Enel Pro- duzione, although not agreeing with the allegations, has nevertheless expressed its full willingness, in agreement with the investigating magistrate and the custodians, to rapidly implement technical solutions for the execution of the requirements imposed with the seizure order that take account of the operational and logistical complexities associated with their implementation and the associated risks to the national electricity system. In this regard, with the request for an extension of the use of the power station on November 15, 2017, Enel Pro- duzione asked for authorization to test a management ap- proach that would separate the ash by operational stage, thereby enabling the implementation of the provision of the order. Subsequently, following the testing, the com- pany obtained an extension of another 90 days until Feb- ruary 24, 2018. In the meantime, the Public Prosecutor, in view of the need to proceed with evidence gathering with a technical enquiry into the facts of the case, asked the investigating magistrate to move ahead with this stage. At the hearing of February 2, 2018, the magistrate assigned the engage- ment to the technical experts, giving them 150 days to file their report. 95 Report on operations6 OCTOBER Tax partnership agreement for Thunder Ranch wind farm in the United States On October 6, 2017, Enel Green Power North America (“EGPNA”), acting through its subsidiary Thunder Ranch Wind Holdings (“Thunder Ranch Holdings”), signed a tax equity agreement worth approximately $330 million with the Alternative Energy Investing Group of Goldman Sachs and GE Energy Financial Services, a unit of General Elec- tric, for the 298 MW Thunder Ranch wind project located in Oklahoma. Under the agreement, which is a common transaction structure for the development of renewable energy pro- jects in the United States, the two passive investors will purchase 100% of “Class B” and “Class C” equity inter- ests in the project, respectively, in exchange for their pay- ment of the above purchase price. This interest will allow the investors to obtain, under certain conditions set by Under the agreements, EGP will continue to operate the plants owned by the SPVs after the disposal and will complete those still under construction, maintaining a significant influence. In addition, as from January 1, 2020, EGP may transfer ad- ditional projects to the Holding company. As a result of these possible transfers, it could therefore increase its interest in the Holding company until it becomes the majority shareholder. The transaction is worth $2.6 billion, of which a price of about $340 million for the sale of 80% of the Holding company’s share capital and about $2.2 billion for financ- ing (in part through related-party loans and in part through project financing arrangements) granted to the SPVs. The closing of the transaction was originally subject to a number of ordinary conditions and receipt of the neces- sary authorization from the Mexican antitrust authorities. The price will be paid at the closing, bearing in mind that the amount will be subject to a subsequent price adjust- ment normal for this type of transaction, based on varia- tions in the net working capital of the Holding company. US tax laws, a percentage of the tax benefits of the Thun- der Ranch wind project. In turn, EGPNA, through Thun- 10 OCTOBER der Ranch Holdings, will retain 100% ownership of the “Class A” interests and therefore management control of Disposal of Bayan Resources On October 10, 2017, Enel closed a deal for the sale of its the project. The agreement secures the funding commit- 10% stake in Indonesian coal producer PT Bayan Resourc- ment by the two investors, and the closing of the funding es (“Bayan”), currently owned by Enel Investment Hold- is expected to occur upon achievement of commercial ing, to Bayan’s controlling shareholder Mr. Dato’ Low Tuck operation of the 298 MW wind farm. 3RD QUARTER Agreement for the disposal of renewables plants in Mexico In the 3rd Quarter of 2017, Enel Green Power (“EGP”) final- ized agreements with the Canadian institutional investor CDPQ and the investment vehicle CKD IM for the sale of a total of 80% of the share capital of eight special purpose Kwong, for $85 million, fully paid in cash. Enel purchased the 10% stake in Bayan in August 2008 during the Initial Public Offering (IPO) that led to the listing of the Indone- sian coal company on the Jakarta Stock Exchange. 23 OCTOBER Award of renewables capacity in Ethiopia On October 23, 2017, Enel, acting through a consortium vehicles (“SPVs”). The SPVs, which are owned by EGP led by the Enel Green Power (“EGP”) renewables division through a Mexican company, own three plants in opera- and including leading Ethiopian infrastructure company Or- tion and five under construction for a total capacity of 1.7 chid Business Group, was selected as the preferred bidder GW. The finalization of the disposal involved a corporate for a 100 MW photovoltaic project following a solar tender restructuring of Enel Green Power México, the sole share- launched by local utility Ethiopian Electric Power (“EEP”) holder of the eight SPVs being sold. The restructuring was within the framework of the country’s Growth and Trans- completed with the demerger of 60.8% of the eight SPVs formation Plan (“GTP 2”), with which the Ethiopian govern- to a newly formed company – Tenedora de Energía Renov- ment hopes to achieve about 12,000 MW of hydroelectric, able Sol y Viento SAPI de Cv – and the remaining 39.2% to wind, geothermal and solar capacity in partnership with the eight new companies (the mini-holding). private sector in order to meet the country’s demand for 96 Annual Report 2017electrification while at the same time diversifying the gen- country’s National Energy Commission (Comisión Nacional eration mix in line with the 2020 national energy plan. The de Energía) aimed at meeting the energy demand of regu- consortium has the right to develop, build and operate the lated market customers over the 2024-2043 period. 100 MW of photovoltaic capacity in Metehara, in the Oro- Thanks to the synergies between Enel Generación Chile and mia region, about 200 km east of Addis Ababa, an area with Enel Green Power, the Group won 54% of the 2.2 TWh per a high level of solar radiation. year offered in the tender, more than any other participant. The consortium headed by EGP will be investing about The energy awarded to Enel will be generated with a mix of $120 million in the construction of the photovoltaic plant. new renewable projects comprising 116 MWp of solar, 93 The Metehara plant is expected to enter service in 2019. MW of wind and 33 MW of geothermal for a total capacity of Once up and running, the facility will be able to gener- 242 MW in the Antofagasta region, in northern Chile, as well ate approximately 280 GWh per year, while avoiding the as a wind farm in the Araucanía region, in southern Chile. emission of around 296,000 metric tons of CO2 into the atmosphere. The project is supported by a 20-year power The facilities are expected to enter into service by 2024, gen- erating around 1.180 TWh per year and avoiding the annual purchase agreement with EEP for all of the energy gener- ated by the plant. 25 OCTOBER Acquisition of eMotorWerks On October 25, 2017, Enel, acting through its US subsidi- ary EnerNOC, announced the acquisition of the California- based eMotorWerks, a leading North American supplier of electric vehicle (EV) charging stations, called JuiceBox, emission of around 500,000 metric tons of CO2 into the at- mosphere. The tender was launched within the scope of Chile’s Gen- eral Power Service Law (Ley General de Servicios Eléctricos) 4/2006 shaping the regulatory framework for public tenders in order to provide distribution system operators with long- term power supply contracts with generators that would ena- ble them to meet the power consumption needs of regulated market customers in their concession areas. and owner and operator of JuiceNet, an Internet of Things 9 NOVEMBER (IoT) platform for the smart management of EV charging and other distributed energy storage facilities. Through the JuiceNet platform, these facilities can be remotely National e-mobility plan On November 9, 2017, Enel presented the company’s Na- controlled and aggregated for grid balancing purposes re- tional Plan for the installation of electric vehicle charging lying on unidirectional and bidirectional (Vehicle-to-Grid, infrastructure, which provides for the installation of around V2G) electricity flows. The acquisition of eMotorWerks 7,000 charging stations by 2020 and a total of 14,000 by marks Enel’s entrance into the US electric mobility mar- 2022. The program envisages the comprehensive cover- ket, one of the largest EV markets at global level. age of all Italian regions and will contribute to increasing The acquisition consolidates Enel’s strategic commit- the number of electric and hybrid vehicles in circulation. ment to provide the market with innovative customer-fo- Enel will invest between €100 million and €300 million cused products and services, including smart recharging to develop an extensive charging infrastructure network and integration between electric vehicles and distributed comprising Quick (22 kW) charging stations in urban ar- generation, grid balancing services and V2G. eas and Fast (50 kW) and Ultra Fast (150 kW) charging Enel is planning to use JuiceNet platform’s functions in all stations in extra-urban areas. Approximately 80% of the of its EV charging stations globally. charging points will be installed in urban areas, of which 2 NOVEMBER Award of renewables capacity in Chile On November 2, 2017, Enel Generación Chile was awarded the supply of 1.180 TWh per year to a number of Chilean distribution companies through the tender launched by the 21% in major metropolitan areas, 57% in other cities and the remaining 20% in other areas around the country to enable medium and long-range travel in extra-urban ar- eas and on motorways. The latter category includes the charging stations of the EVA+ (Electric Vehicles Arteries) project, co-financed by the European Commission, which provides for the installation of 180 charging stations along Italian roads in extra-urban areas over three years. In 97 Report on operations2018, more than 2,500 charging stations will be installed throughout the country. 23 NOVEMBER The infrastructure developed by Enel, which currently boasts about 900 charging stations throughout Italy, has been designed to meet the various charging needs of customers. These features are possible thanks to the Electro Mobility Management System (EMM) cloud plat- form, which enables the remote monitoring and manage- ment of the entire network. The integration between Enel’s charging stations and the EMM platform also ena- bles smart charging services, which allow customers to manage their charging activities more effectively. Thanks to the recent acquisition of the California-based eMotor- Werks, Enel will be able to offer solutions using Vehicle- to-Grid (V2G) technology that can generate economic benefits for customers who make their vehicle’s batteries available to help stabilize the grid. The National Plan will be developed in collaboration with the municipalities and regions involved, where Enel will invest directly in the charging infrastructure, and together with private-sector players that want to participate in the project, with a contribution from Enel of up to 65% of the investment. More specifically, this will involve the installation of charging stations on private property ac- cessible to the public owned by small and medium-sized enterprises (SMEs), independent professionals and the self-employed (SOHOs) as well as commercial establish- ments and large retailers, such as gyms, supermarkets, shopping malls, holiday farms and hotels. Moreover, Vallelunga will host Enel’s first technology center for R&D in e-mobility solutions in Italy, which will aggregate research institutes and start-ups operating in the sector. To date, more than 20 charging infrastructures using Enel technology have been installed and are operational, which will enable: > the development and testing of charging infrastructure in a real-world environment, involving the various automo- tive companies active at the racetrack; Award of renewables capacity in Mexico On November 23, 2017, Enel Rinnovabile was awarded the right to sign a number of contracts in Mexico to sup- ply energy and green certificates from four wind projects with a total capacity of 593 MW in the country’s third long-term public tender since its energy reform. The Enel Group will be investing around $700 million in the construction of the new facilities, in line with the in- vestments outlined in the company’s current Strategic Plan. Each project will be supported by a contract provid- ing for the sale to Mexico’s Cámara de Compensación of specified volumes of energy over a 15-year period and of the related green certificates over a 20-year period. The new plants are due to enter into operation in the 1st Half of 2020. Once fully operational, the facilities are ex- pected to produce 2.09 TWh/year of renewable energy, therefore avoiding the annual emission of nearly 960,000 metric tons of CO2 into the atmosphere. Three plants, Amistad II and Amistad III with a total in- stalled capacity of 100 MW each, and Amistad IV with an installed capacity of 149 MW, will be built in Acuña, in the northern state of Coahuila. Amistad II and III are expected to generate annually over 350 GWh each, while avoiding the emission into the atmosphere of around 170,000 met- ric tons of CO2 each. Amistad IV is expected to generate more than 510 GWh per year, while avoiding the annual emission of around 234,000 metric tons of CO2 into the atmosphere. The 244 MW Dolores facility will be built in China, a mu- nicipality in the north-eastern state of Nuevo León. The plant is expected to generate nearly 850 GWh each year, while avoiding the annual emission of about 390,000 metric tons of CO2 into the atmosphere. > the creation of a motor sport specialized center for the 30 NOVEMBER development and testing of new solutions for electric ve- hicles and charging stations; > the testing of sustainable mobility services such as pay- ment and access control systems for charging infrastruc- ture and e-car sharing; Disposal of Caney River and Rocky Ridge wind farms in the United States On November 30, 2017, Enel Green Power North America > the leveraging of ACI Vallelunga’s competencies in road (“EGPNA”) signed a cash equity agreement with invest- safety with safe driving courses specific for electric ve- ment fund Gulf Pacific Power, whereby EGPNA will sell hicle drivers. 98 to the fund 80% of the “Class A” shares in EGPNA’s subsidiary Rocky Caney Wind LLC, the owner of the 200 Annual Report 2017MW Caney River wind farm in Kansas and the 150 MW Rocky Ridge wind farm in Oklahoma. The total price for the transaction is approximately $233 million, which was paid upon the closing of the deal in December 2017. EGPNA will continue to manage, operate and perform maintenance activities at both wind farms while retaining 20% of the “Class A” interest in Rocky Caney Wind LLC. Furthermore, Enel was able to deconsolidate Caney Riv- er and Rocky Ridge’s debt, amounting to approximately $140 million. The Caney River wind farm, which is located in Elk Coun- ty, Kansas, and began operations in 2011, is able to gen- erate around 765 GWh each year, avoiding the annual emission of over 580,000 metric tons of CO2. The Rocky Ridge facility, located in Kiowa and Washita Counties, Oklahoma, began operations in 2012. The plant is able to generate around 600 GWh each year, while avoiding the annual emission of over 450,000 metric tons of CO2 into the atmosphere. 4 DECEMBER Capacity Storage Agreements in California On December 4, 2017, Enel Green Power North America signed three Capacity Storage Agreements (“CSA”) with California utility Pacific Gas and Electric (“PG&E”) for a to- tal capacity of 85 MW/340 MWh. Under the agreements, Enel will build the Kingston, Cascade, and Sierra stand- alone lithium-ion energy storage projects, which will all be located in California. The energy storage systems will connect directly to PG&E’s grid and will charge the lithi- um-ion batteries when there is an abundance of renewa- ble energy. The energy stored in the batteries will then be delivered back to the grid during times of peak demand, increasing grid reliability, while also easing congestion. The projects have been developed with Sovereign Energy Storage, an independent developer of large-scale utility battery energy storage projects, and are expected to be operational by 2023, pending review and approval by the California Public Utility Commission as well as local and regulatory agencies. 14 DECEMBER Award of renewables capacity in Canada On December 14, 2017, Enel Green Power North America (“EGPNA”) was awarded two 20-year Renewable Energy Support Agreements (“RESAs”) for 146 MW of new wind capacity in Alberta, Canada, in a tender launched by the Alberta Electric System Operator (“AESO”). Under the two agreements, Enel will build two new wind facilities, the 115 MW Riverview Wind project and the 30.6 MW Phase 2 of Castle Rock Ridge wind farm, to supply their power output and renewable energy credits to AESO. The overall investment in the construction of the two wind farms amounts to approximately $170 million. Riverview Wind and Phase 2 of Castle Rock Ridge, which is an expansion of EGPNA’s existing 76.2 MW Castle Rock Ridge wind farm, are both located in Pincher Creek, Alberta, and are due to enter service by 2019. Once oper- ational, the two facilities are expected to generate around 555 GWh per year. 18 DECEMBER Award of renewables capacity in Brazil On December 18, 2017, Enel Green Power Brasil Partici- pações was awarded the right to sign 20-year power sup- ply contracts in the country with a new solar PV project of 388 MW following the A-4 public tender organized by the Brazilian federal government via the country’s energy regulator ANEEL. The Enel Group is expected to invest nearly $355 million in the construction of the plant, in line with the investment outlined in its current Strategic Plan. The award, equal to 49% of the 791 MW of PV capacity offered in the tender, was greater than any other awards to the other solar energy bidders. The São Gonçalo so- lar plant will be supported by 20-year power supply con- tracts, which provide for the sale of specified volumes of energy generated by the facility to a pool of distribution companies operating in the Brazilian regulated market. The plant will be built in the São Gonçalo do Gurguéia municipality, in the state of Piauí. The plant is expected to start operations in early 2021 and will generate more than 850 GWh of renewable energy each year once fully up and running. Subsequently, on December 20, 2017, Enel Green Power 99 Report on operationsBrasil Participações was awarded the right to sign 20- within the framework of RenovAr, the clean energy devel- year power supply contracts in the country with three opment plan launched by Argentina’s Energy Ministry, fol- wind projects for 618 MW of new capacity following the lowing the extension of the capacity awarded in the ten- A-6 public tender organized by the Brazilian federal gov- der to over 1,800 MW from the initial 1,200 MW. Pampa, ernment via the country’s energy regulator ANEEL. The located in the wind resource-rich Chubut province, will be Enel Group is expected to invest approximately $750 mil- the Group’s first wind project in the country. lion in the construction of the three plants, in line with the Enel is investing nearly $130 million in the construction investment set out in its current Strategic Plan. of the wind farm. The project, which is expected to enter Each wind farm is supported by 20-year power supply into operation by the 1st Half of 2020, will be supported contracts, which provide for the sale of specified volumes by a 20-year power purchase agreement (PPA) for the of energy generated by the plant to a pool of distribution sale of all the renewable energy generated by the plant to companies operating in the Brazilian regulated market. Argentina’s wholesale electric market management com- The wind farms, which will be built in the north-eastern pany CAMMESA. Once up and running, Pampa will be Brazilian states of Piauí and Bahia, are expected to start able to generate approximately 500 GWh per year. operation in early 2023. The projects, once fully up and running, will be able to generate approximately 3 TWh of renewable energy each year. 20 DECEMBER Award of renewables capacity in Argentina On December 20, 2017, Enel Green Power Argentina was awarded the right to build the 100 MW Pampa wind farm in round 2 of the renewable energy tender launched Finance 4 JANUARY Renewable energy loan in Brazil On January 4, 2017, the Enel Group and the Brazilian De- velopment Bank (“BNDES”), the main financing agency for development in Brazil, signed a 20-year loan agree- ment worth around R$373 million (about €109 million) that will cover part of the investment required to build the 102 MW Apiacás hydropower plant, located in the state of Mato Grosso in Brazil’s central-west region. Un- der the provisions of the loan agreement, the first instal- ment of R$293 million (about €85 million) was disbursed loan bears an interest rate based on the TJLP (Taxa de Ju- ros de Longo Prazo), the long-term interest rate reviewed quarterly by the Brazilian central bank. The TJLP currently stands at 7.5%, below the current interbank rate in Bra- zil of 13.63%. The TJLP is used as base rate for loans granted by BNDES to private companies whose projects are deemed eligible for federal funding. 9 JANUARY Issue of first Green Bond On January 9, 2017, Enel Finance International (“EFI”) at signing, and will be followed by a second instalment of successfully placed on the European market its first R$80 million (about €24 million), subject to the fulfilment Green Bond for institutional investors (with settlement on of conditions customary for this type of transaction. The January 16), backed by a guarantee issued by Enel. The 100 Annual Report 2017issue totals €1,250 million and provides for repayment in be offered to institutional investors within or outside the one instalment at maturity on September 16, 2024, as European Union, including through private placements. well as the payment of a fixed-rate coupon of 1%, pay- able annually in arrears in September, as from September 2017. The issue price was set at 99.001% and the ef- 23 MAY fective yield to maturity is equal to 1.137%. The Green Bond is listed on the regulated markets of the Irish and Luxembourg Stock Exchanges. The transaction received subscriptions of about €3 billion, with considerable in- terest from socially responsible investors (“SRI”), ena- bling Enel to further diversify its investor base. The net proceeds raised from the issue – carried out under the medium-term note program of Enel and EFI (the Euro Medium-Term Notes - EMTN) – will be used to finance the Enel Group’s eligible green projects identified and/or to be identified in accordance with the Green Bond Prin- Enel Finance International issues $5 billion bond As part of the refinancing program approved by the Board in April, on May 23, 2017, Enel Finance International, an Enel Group finance subsidiary, launched a multi-tranche bond issue offered on the US and international markets for institutional investors for a total of $5 billion, the equiv- alent of about €4.5 billion. The issue was oversubscribed around 3.5 times, attracting orders exceeding $17 billion. ciples 2016 published by the International Capital Market Association (ICMA). More specifically, the categories of 28 JULY projects that qualify as eligible green projects include, for example, the development, construction and repowering EIB loan for smart meters On July 28,2017, the European Investment Bank (EIB) of renewable power plants, the development of transmis- agreed the first tranche of €500 million of a loan to sup- sion and distribution grids, and the implementation of port e-distribuzione’s plan for the replacement of smart smart grids and smart meters in the geographical areas in meters in Italy. The EIB will finance part of the investment which the Group operates. envisaged for 2017-2021 in the smart meter installation The operation was led by a syndicate of banks comprising plan, which provides for the installation of around 41 mil- Banca IMI, BofA Merrill Lynch, Crédit Agricole CIB, Citi, lion new generation smart meters (generation 2.0) over a Deutsche Bank, HSBC, JP Morgan, Mizuho Securities, 15 year-period. Of the total number of meters, about 32 Natixis, SMBC Nikko and UniCredit as joint-bookrunners. million will replace the existing first generation meters, 12 APRIL Board approves bond issue On April 12, 2017, the Board of Directors of Enel authorized the issue by December 31, 2018 of one or more bonds to be placed with institutional investors up to a maximum value of €7 billion as part of the strategy to refinance the Group’s maturing consolidated debt. The issues may be carried out by the Dutch subsidiary Enel Finance Interna- tional (backed by a parent company guarantee) or directly by Enel depending on the existing market opportunities. The Board also charged the Chief Executive Officer with establishing the amounts, currencies, timing and charac- teristics of the individual issues, taking account of develop- ments in market conditions, with the power to apply for a listing of the issues on one or more regulated markets in the European Union or on multilateral trading facilities. With a view to increasing diversification, the issues may while the remainder will be used for new connections and customer requests. The replacement of existing meters with the next generation of devices has been prompted by the requirement for electricity distribution companies to deploy intelligent metering systems that meet the energy-efficiency standards set by the European Union (European Directive 2012/27/EU, transposed into Italian law with Legislative Decree 102/2014). The energy scenario of recent years has underscored the importance of timely management of more comprehen- sive and detailed information to support the operations of electric companies and their customers. The Open Meter technology will make it possible to promote energy ef- ficiency, increase awareness of consumption behavior, foster competition in post-meter services and develop the home automation market. e-distribuzione’s plan has been designated an EU project of common interest (PCI) and is part of the EIB’s activities in the energy sector, fighting climate change and provid- ing support for convergence regions (i.e. economically 101 Report on operationsunderdeveloped regions), since 40% of meters are locat- Energy Storage (ACES) program run by the Massachusetts ed in southern Italy, Sicily and Sardinia. Clean Energy Centre (“MassCEC”). These will be Enel’s 2 AUGUST Repurchase of dollar-denominated bonds On August 2, 2017, Enel Finance International (“EFI”) pur- chased in cash the entire $1,750,000,000 bond issued by EFI and guaranteed by Enel. The operation was conducted on the basis of the “make whole call option” provided for in the original contract, under which it is possible to re- deem the bond early at a price calculated on the basis of the present value of the payments of principal and inter- est, discounted at a rate increased by a spread of 30 basis points. The repurchase was carried out as part of the strategy to optimize the structure of the Enel Group’s liabilities through active management of maturities and of cost of debt. 3 OCTOBER New issue of bonds denominated in US dollars On October 3, 2017, Enel Finance International placed a multi-tranche bond for institutional investors on the US and international markets totaling $3 billion, the equivalent of approximately €2.5 billion. The issue, which is guaranteed by Enel, was oversubscribed by about three times, with to- tal orders of approximately $9 billion. The second offering on the US market of the Enel Group in 2017 is part of the Group’s financing strategy, including the refinancing of its maturing consolidated debt. The transaction is structured in the following tranches: > $1,250 million at 2.75% fixed rate maturing in 2023; > $1,250 million at 3.5% fixed rate maturing in 2028; > an additional $500 million of EFI’s existing 4.750% fixed-rate notes issued in May 2017 maturing in 2047. 8 DECEMBER Subsidized financing in the United States On December 8, 2017, Enel announced that two of its distrib- uted energy projects had been selected to receive financing totaling $2.1 million under the Advancing Commonwealth 102 first distributed energy projects in Massachusetts, the state that hosts the Group’s headquarters in North America, and involve a “behind-the-meter” microgrid and a battery stor- age system. More specifically, the initiatives consist in: > a project proposal for a “behind-the-meter” microgrid, which received funding of $850,000. The project, in a collaboration between Enel Green Power North America and the University of Massachusetts Boston (“UMass Boston”), involves a lithium-ion storage system of 0.5 MW/1.82 MWh integrated with a 0.5 MW photovoltaic system to be installed on the university campus in Boston; > the development of a lithium-ion power storage system of 2 MW/4 MWh proposed by EnerNOC to the Acton Boxborough Regional School District (ABRSD), which was awarded $1.25 million, the largest financing granted under the ACES program. Both projects are combining behind-the-meter demand charge management and in-front-of-the-meter, demand response applications, creating multiple revenue streams for all the parties involved and generating benefits for the grid in terms of balancing and reliability. 18 DECEMBER New revolving credit line On December 18, 2017, Enel and its Dutch subsidiary Enel Finance International agreed a new €10 billion revolving credit line replacing the previous €9.44 billion line renegoti- ated in February 2015. The new facility has a lower cost and matures in December 2022 rather than February 2020 as envisaged for the previous credit line. The cost of the new credit facility varies on the basis of the rating assigned to Enel. Based on the current rating, it has a spread which changes to 45 basis points above Euribor from the previ- ous 72.5, while the commitment fees remain at 35% of the spread. Accordingly, following the decline in the spread, the latter decrease to 15.75 basis points from 25.38. The new credit line, which can be used by Enel itself and/ or Enel Finance International with a parent company guar- antee, is not connected with the debt refinancing program and is intended to give the Group an extremely flexible and practical instrument for the management of working capital. The transaction involved various Italian and international banks, including Mediobanca in the role of Documenta- tion Agent. Annual Report 2017Partnership 11 JANUARY Collaboration agreement with Saudi Electricity Company On January 11, 2017, Enel SpA and Saudi Arabian util- ity Saudi Electricity Company (“SEC”) signed a frame- tion opportunities in network technologies for Expo 2020 Dubai, given Enel’s experience in building a fully-electric smart city for Expo Milano 2015 and DEWA’s contribution to the development of network infrastructure and related technologies for Expo 2020. work agreement for cooperation in the power distribution sector which will involve the two companies in working 7 FEBRUARY together to develop long-term strategic knowledge shar- ing regarding the latest network technologies. Under the Agreement with Aton Storage On February 7, 2017, Enel SpA and Aton Storage, one agreement, Enel and SEC will enhance the exchange of of the leading Italian companies in the development and information, best practices and experiences in the distri- manufacture of innovative storage systems, signed an bution sector. More specifically, the two companies will agreement to collaborate on initiatives in renewable elec- share best practices and benchmarks to take distribution tricity storage services. The aim of the accord is to enrich networks’ performance in areas like operations, efficien- and strengthen the range of products offered to end us- cy and security to best-in-class levels, while also intro- ers with innovative, high performance solutions that con- ducing a technology roadmap aimed at digitizing distribu- tribute to energy efficiency. Storage solutions play a key tion grids and improving energy efficiency at customer role in the development of renewable energy and electric premises. Enel and SEC will also jointly evaluate further mobility, sectors in which Enel is a world leader. areas of collaboration in the power distribution sector. The battery developed by Aton was included among the 14 JANUARY Agreement with Dubai Electricity and Water Authority On January 14, 2017, Enel SpA and Dubai Electricity and Water Authority (“DEWA”), Dubai’s public service infra- structure company, signed a memorandum of understand- ing (MoU) for cooperation in smart grids and network digi- tization. The MoU, which has a duration of three years and new technologies that Enel presented during the For- mula-E event held in Marrakech on November 12, 2016, and the Capital Markets Day in London on November 22, 2016. 28 FEBRUARY Enel invests in green start-ups in Hawaii On February 28, 2017, Enel, acting through its US renew- could be extended by mutual agreement, seeks to build able energy subsidiary Enel Green Power North America partnership relations between Enel and DEWA to facilitate (“EGPNA”), became a global partner and strategic advi- the achievement of common strategic objectives and the sor of Energy Excelerator, a leading American incubator exchange of information, experience and studies in the for clean energy start-ups based in Hawaii. areas outlined by the MoU, including the analysis of key By joining Energy Excelerator, a non-profit organization performance indicators in smart grid management as well whose mission is to solve the challenges of world energy as network digitization and security. Enel and DEWA will systems through innovation, Enel will access its portfolio cooperate in research activities in the areas covered by the of start-ups advise in the selection of projects to be sup- MoU and will share Enel’s experience in distribution auto- ported by the incubator. mation, renewable energy integration, smart meters and Hawaii, which has a high penetration of renewable en- smart cities, with special reference to the role played by ergy sources, will enable Enel to expand its network of Enel in Expo Milano 2015, as well as DEWA’s efforts in the innovators to open energy up to new uses, new technolo- field of smart grids. The parties will also evaluate coopera- gies and new people. 103 Report on operations1 JUNE 10 JULY Memorandum of understanding with Rosseti for the development of smart grids On June 1, 2017, Enel and Rosseti, the national operator Agreement to identify energy access start-ups in Africa On July 10, 2017, Enel Green Power and the Swiss com- pany Seedstars World signed a cooperation agreement of power grids in Russia, signed a memorandum of un- establishing the Africa Energy Track challenge, a competi- derstanding for cooperation in innovative smart grid solu- tion aimed at identifying innovative start-ups in the field tions. The two-year agreement seeks to build a partnership of electricity access in Africa within the framework of the between Enel and Rosseti by promoting the exchange of Seedstars World start-up competition. The project’s goal information and the sharing of best practices and techno- is to promote technology and entrepreneurship in Sub-Sa- logical solutions in the areas of work outlined in the memo- haran rural areas by bringing innovative energy solutions randum such as smart metering and grid digitization. Enel focused on electric mobility, storage, distributed genera- and Rosseti will exchange know-how in the construction, tion and energy efficiency, thereby helping to tackle the modernization, and maintenance of grid infrastructure to UN Sustainable Development Goals (SDGs), especially improve and enhance its efficiency, reliability and safety, SDG7 – ensuring affordable and clean energy for all. including the possible implementation of a joint pilot pro- ject for the creation of a smart cluster using Enel’s cutting- edge smart grid platform. 12 JULY 6 JULY Electricity storage agreement with Amber Kinetics On July 6, 2017, Enel signed a two-year agreement with Agreement with Cisco for digitization and innovative services On July 12, 2017, Enel and Cisco signed a memorandum of understanding for developing innovative digital solu- tions in the energy sector. The aim is to fully leverage the Amber Kinetics, the US-based start-up born out of an ini- potential of telecommunications technology, IT security tiative of professors and researchers from UC Berkeley, and the Internet of Things to create new services and a with the aim of assessing the start-up’s innovative fly- smart grid that is even more secure, intelligent and reli- wheel storage technology, which is an electro-mechan- able to serve Italy’s needs. This goal can also be achieved ical system consisting of a large rotating mass able to thanks to a specialist training program enabling not only store energy. Under the terms of the agreement, Enel will Enel employees but also numerous students and industry study and test the technology and identify mass business professionals to update their skills and acquire the neces- applications for the integration of the technology with sary knowledge for managing, monitoring and protecting the grid. Upon completion of a three-month test phase a grid in which digital technology and traditional electrical involving two synchronized flywheel units at one of Am- technology are ever more interconnected. ber Kinetics’ test sites in California, Enel will evaluate the possibility of utilizing the 40 kW/160 kWh model of the technology in a pilot project at one of its thermal power 17 OCTOBER plants. The 5,000 lb. (approximately 2,267 kg) steel flywheel system is charged by converting the electricity from the power plant to which is coupled or from a power grid into the kinetic energy of the spinning wheel, which can rotate for up to four hours on a single charge. At times of peak power demand, the flywheel turns a generator – automat- ically or through a control system – converting its kinetic energy back into electricity that is delivered to the grid. Opening of Innovation Hub in Moscow On October 17, 2017, at the Open Innovation Forum in Skolkovo, near Moscow, Enel launched its Innovation Hub in Russia. Enel’s Russian Innovation Hub was established within the Skolkovo technology ecosystem and is aimed at identify- ing and developing partnerships with Russian start-ups, 104 Annual Report 2017SMEs and other companies on a wide range of projects in different fields such as energy efficiency solutions, smart 28 DECEMBER grids, renewables, Internet of Things (IoT) and big data analytics. 7 NOVEMBER Memorandum of understanding with Italian State Railways On November 7, 2017 Enel and the Italian State Railways signed a three-year memorandum of understanding to jointly develop innovative projects in the transportation and energy fields. The areas of interest include 3D print- ing, the efficient use of electricity, the sharing of inno- vation spaces and co-working and joint participation in national and international project financed by the Italian government and the European Union. The skills held by the two companies are perfectly complementary in the capacity for analysis and application of innovative solu- tions in the transportation and energy sectors, in line with market developments and opening the way to the genera- tion of considerable synergies, including in the infrastruc- ture area. 7 DECEMBER E-VIA FLEX-E mobility project On December 28, 2017, the “E-VIA FLEX-E mobility in Italy, France and Spain” project was launched for the installation of 14 ultra-fast charging stations in Europe, coordinated by Enel and co-financed by the European Commission. The aim is to test a network that enables new electric vehicles with a range of more than 300 km to travel long distances and to contribute to the develop- ment and spread of e-cars in Europe. The project, presented by Enel as coordinator, in collabo- ration with the utilities EDF, Enedis and Verbund, the car manufacturers Nissan and Groupe Renault as well as Ibil, a Spanish company specialized in charging services for electric vehicles, was selected by the European Com- mission in the Connecting Europe Facility Transport 2016 call, obtaining funding that will cover half of the invest- ment required. The overall budget co-financed by the Eu- ropean Commission is about €6.9 million. Enel will invest €3.4 million in the project, which will also be co-financed by the Commission. The installation of the ultra-fast charging stations (High Power Charging - HPC) will start by the end of 2018 at 14 sites: 8 in Italy, 4 in Spain and 2 in France. The charging stations will all be high power, ranging from 150 kW to 350 kW. Agreement with Volkswagen Italy On December 7, 2017, Enel and Volkswagen Group Italia, The network of ultra-fast charging stations of the E-VIA FLEX-E project will join that envisaged in the EVA+ (Elec- distributor of the Audi brand, signed a memorandum of tric Vehicles Arteries) project, also co-financed by the Eu- understanding for the integration of charging services in ropean Commission, which provides for the installation the offer for the new Audi e-tron, the brand’s first 100% of 180 fast charging points (Fast Recharge Plus) in three electric car, and to promote and develop electric mobility years along Italian extra-urban corridors. The first 40 Fast in the country. stations have already been installed, making it possible Thanks to this agreement, product offers will be designed to travel with an electric car along the Rome-Milan route, to make life easier for individuals and companies who are among others. considering the switch to electric. Individuals, profes- sionals and small businesses will have the opportunity to combine one or more packages for the charging service, products and other services offered by Enel included in the purchase of the Audi e-tron directly from dealers and the sales network of Audi Italia. 105 Report on operationsOrganization 16 JUNE Merger of Enel South America into Enel On June 16, 2017, the plan for the merger of Enel South America into Enel was filed with the Company Register of Rome. The transaction, which was completed on Novem- ber 16, 2017, is part of the Group’s corporate structure simplification process, one of the main pillars of Enel’s 2017-2019 Strategic Plan. In particular, the transaction will enable Enel to benefit from the direct management of the equity stakes in the two Latin-American sub-holdings Enel Américas and Enel Chile, thereby shortening the cor- porate chain of control. As the merger is subject to a simplified procedure with no share swap, Enel will not increase its share capital nor assign shares to replace the equity interest held in Enel South America. 25 AUGUST Corporate reorganization in Chile On August 25, 2017, the Board of Directors of the subsidi- tion of the latter into Enel Chile, with the Extraordinary Shareholders’ Meeting of Enel Chile having approved a capital increase to serve the merger. The shareholders of Enel Chile who expressed their disagreement with the merger will have the right to withdraw pursuant to applicable regulations. The merger is conditional on the withdrawal of shareholders holding no more than 5% of share capital of Enel Chile. The merger was also ap- proved by the Extraordinary Shareholders’ Meeting of EGP Latin America; > the launch by Enel Chile of a public tender offer (the “Of- fer”) for all of the shares of the subsidiary Enel Gener- ación Chile held by minority shareholders, whose effec- tiveness is subject to the acquisition of a total number of shares that would enable Enel Chile to increase its hold- ing in Enel Generación Chile to more than 75% of share capital from the current 60%. In accepting the Offer, Enel Generación Chile’s minority shareholders will com- mit to reinvest in newly issued Enel Chile shares part of the consideration they receive, as a capital increase of Enel Chile has been approved to serve the Offer; > the amendment of the bylaws of Enel Generación Chile with the aim to remove the limits on share ownership in the company, which currently do not allow any single ary Enel Chile began analyzing a possible reorganization of shareholder to own more than 65% of the company’s the Enel Group’s shareholdings in Chile based on a non- share capital. binding proposal formulated by Enel Chile and sent to Enel in July. The analysis began following examination by the Board of Directors of Enel Chile of a letter transmitted on the same date by Enel in which the latter expressed a fa- vorable preliminary opinion on the possible reorganization. This favorable assessment was based on the conclusion reached by Enel that the operation was consistent with a number of Enel’s strategic objectives, including the sim- plification of the ownership structure of the Group’s listed Chilean companies. Following the analysis, on December 20, 2017, the Share- holders’ Meetings of the two companies approved, within the scope of their respective authority, the following phas- es of the operation, each of which is conditional on imple- mentation of the other: > the integration in Enel Chile of the Chilean renewables assets held by Enel Green Power Latin America SA (“EGP Latin America”) through the merger by incorpora- 106 Annual Report 2017Acknowledgements On September 7, 2017, it was announced that Enel had On October 24, 2017, Enel was admitted for the second been ranked 20th in Fortune’s “Change the World” list, year in a row to the Climate A List of the non-profit a ranking of the top 50 businesses in the world that had global environmental disclosure platform CDP (for- a positive social impact through activities that are part of merly the Carbon Disclosure Project), which com- their business strategy and operations. The Group is the prises companies from around the world that have been only utility and the only Italian company to be included in the identified as global leaders in the fight against climate list. The list was created to promote the idea that capital- change. CDP, an international non-profit organization for ism should be celebrated for its power to do good. Fortune the promotion and dissemination of information on envi- begins the process with an open call for nominations from ronmental issues, recognized Enel’s actions to cut emis- business, academic, and non-profit organizations around the sions, mitigate climate risks and develop the low-carbon world in partnership with, among others, FSG, a non-profit economy. The 2017 Climate A List comprises 112 global social-impact consulting firm and the Shared Value Initiative, companies, selected out of more than 2,000 compa- a global platform for organizations seeking business solu- nies that participate in CDP’s climate change disclosure tions to social challenges. A team of journalists from For- program. Inclusion in the Climate A List is based on a tune investigates each of the candidates independently. score which assesses a company’s awareness of climate On the same date, Enel was admitted to the Dow Jones change issues, management methods and progress to- Sustainability World Index (DJSI World) for the fourteenth wards action taken on climate change. year in a row. Enel’s Spanish subsidiary Endesa was also On November 28, 2017, Enel was confirmed in the De- included. Enel and Endesa are two of the eight utilities cember 2017 edition of the Euronext Vigeo - World admitted to the index at the global level. 120 index, following its 2nd Half 2017 review. Twice a Enel stood out for its performance in the Environmental year the index lists the 120 most sustainable companies dimension, scoring 100/100 in the Climate Strategy, Wa- with the largest free-float market capitalization in Europe, ter-related Risks, Biodiversity and Environmental Report- North America and the Asia Pacific region. The company ing criteria. The Group also obtained the maximum score has also maintained is place in the regional Euronext Vi- in Policy Influence, which measures transparency and geo - Eurozone 120 and Europe 120 indices, which re- disclosure on advocacy activities, and Materiality, which spectively list the 120 most sustainable companies with refers to the company’s ability to match its strategy with the largest free-float in the euro area and Europe. Enel stakeholders’ expectations. has been included in all three of these indices since their On October 20, 2017, Enel was included in the top 20 of creation five years ago. Forbes World’s Best Employers List 2017, first among The Euronext Vigeo Eiris indices recognize the efforts utilities at the global level and highest-rated among Italian of prominent companies that make sustainable develop- companies. Every year Forbes compiles the list, which ment a focal point of their business strategy. Vigeo Eiris ranks the 500 best employers in the world, based on a compiles the indices by analyzing approximately 330 in- survey of 36,000 global opinion leaders. During the rank- dicators for each company based on 38 criteria, including ing process of the World’s Best Employers List 2017, em- respect for the environment; human rights engagement ployees from the companies involved were asked to as- and recognition of companies’ human capital; relations sess their own employer, by answering questions about with stakeholders; corporate governance and business whether they would recommend applying for a job with ethics; integrity in influencing policy and efforts to fight them to a friend, among other things. corruption; and the prevention of social and environmen- Enel provides employees access to a range of tools to tal dumping in the supply and subcontracting chain. Eu- help them establish a good work-life balance: flexible ronext Vigeo Eiris updates its criteria for the indices every hours, “banking” of working hours, part-time options and six months, ensuring that the sustainability credentials of smart working. The Group has also implemented numer- companies listed are in line with the most recent sector ous programs to leverage ideas. developments. 107 Report on operations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) (1) 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) (2) No. of shares outstanding at December 31 (millions) (1) Dividend proposed by the Board of Directors on March 22, 2018. (2) 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, 2018. 2017 1.54 0.96 0.37 0.29 0.237 3.42 5.58 3.84 5.39 54,761 10,167 2016 1.50 0.88 0.25 0.29 0.18 3.42 4.19 3.40 4.02 40,910 10,167 Current (1) at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2015 10.60% 3.96% 11.68% 3.92% 11.41% 3.26% 9.05% 3.04% Stable BBB+ A-2 Stable Baa2 P2 Stable BBB+ F2 Stable BBB+ A-2 Stable Baa2 P2 Stable BBB+ F2 Stable Positive BBB A-2 Stable Baa2 P2 Stable BBB+ F2 BBB A-2 Stable Baa2 P2 Stable BBB+ F2 Economic activity in the world’s major developed and in world trade, the recovery in commodity prices and the emerging economies continued to expand in 2017. Growth expansive monetary policies of central banks were some was driven by cyclical and structural factors: the increase of the key factors that enabled a stable and inclusive recov- 108 Annual Report 2017    ery. Among the advanced economies, the United States is and individual investors held the remaining 18.9% (com- experiencing the mature phase of its expansionary cycle, pared with 22.4% at December 31, 2016). while in the euro area the unexpected performance of 2017 The number of Environmental, Social and Governance prompted the main monetary and statistical institutions to (ESG) investors is increasing steadily and at December 31, review their growth forecasts for future years. For Italy in 2017 they represent over 8.6% of the share capital (against particular, 2017 was a positive year, with GDP expected to 8.0% at December 31, 2016). have grown at the fastest rate since 2010. In general, this increase reflects the greater attention being Although the macroeconomic environment has improved, paid by the financial market to the non-financial elements risks remain for the global economy. The main factors in- that play a role in the creation of long-term sustainable clude the economic and financial effects of a possible nor- value, an area in which Enel has taken the lead with a strat- malization of monetary policies and a possible intensifica- egy based on leveraging the business opportunities associ- tion of geopolitical tensions. Furthermore, the spread of ated with the trends of urbanization, the electrification of protectionist policies could slow global trade, while political demand and the resulting deep decarbonization, in order instability in a number of countries risks delaying the imple- to seize the opportunities deriving from the global energy mentation of the structural reforms necessary to increase transition now under way and to become a leader in this their economic potential. area. A tangible example of this commitment was the signing of In this economic environment, the main European equity the letter of support for the implementation of the volun- indices closed 2017 on a positive note. Spain’s Ibex35 tary guidelines of the Task Force on Climate-related Finan- posted gains of 7%, while France’s CAC40 rose 9% and cial Disclosures (TCFD) proposed by the Bank of England Germany’s DAX30 gained 13%. The FTSE Italia All Share and chaired by Michael Bloomberg. These guidelines are registered a gain of 16%. aimed at raising awareness among companies about the disclosure of the likely financial impacts deriving from non- The euro-area utilities segment closed the year with an in- financial factors related to climate change. crease of 16%. Enel’s leadership in the ESG field also includes a focus on human capital, which, together with purely industrial strate- As regards Enel shares, 2017 ended with the stock price at gic elements, contributes to the promotion of the econom- €5.13, up 22.5% on the previous year. The Enel stock was ic and social growth of the local communities with whom one of the best performers among its European peers, sig- Enel interacts and the strengthening of the roles and skills nificantly outperforming the sector index for the euro area. of its people. For further information we invite you to visit the Investor On January 25, 2017 Enel paid an interim dividend of €0.09 Relations section of our corporate website (http://www. per share from 2016 profits and, on July 26, 2017, it paid the enel.com/en/investors.html), which contains financial data, balance of the dividend for that year in the amount of €0.09. presentations, real-time updates of the share price, infor- Total dividends distributed in 2017 amounted to €0.18 per mation on corporate bodies and the rules of Shareholders’ share, about 13% higher than the 16 eurocents per share Meetings, as well as periodic updates on corporate govern- distributed in 2016. ance issues. With regard to 2017, on January 24, 2018 an interim divi- dend of €0.105 was paid, while the balance of the dividend We have also created contact centers for private investors is scheduled for payment on July 25, 2018. (which can be reached by phone at +39-0683054000 or by At December 31, 2017, the Ministry for the Economy and vestors (phone: +39-0683051; e-mail: investor.relations@ e-mail at azionisti.retail@enel.com) and for institutional in- Finance held 23.6% of Enel, while institutional investors enel.com). held 57.5% (compared with 54.0% at December 31, 2016) 109 Report on operationsPerformance of Enel share price and the Bloomberg World Electric, Euro STOXX Utilities and FTSE Italia All Share indices from January 1, 2017 to January 31, 2018. 6,0 EURO 5,5 5,0 4,5 4,0 3,5 3,0 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Enel Bloomberg World Electric Euro STOXX 600 Utilities FTSE Italia All Share Source: Bloomberg. 110 Annual Report 2017Consumer price indices (CPI) % Italy Spain Russia Romania Slovakia India South Africa Argentina Brazil Chile Colombia Mexico Peru Exchange rates Euro/US dollar Euro/British pound Euro/Swiss franc US dollar/Japanese yen US dollar/Canadian dollar US dollar/Australian dollar US dollar/Russian ruble US dollar/Argentine peso US dollar/Brazilian real US dollar/Chilean peso US dollar/Colombian peso US dollar/Peruvian nuevo sol US dollar/Mexican peso US dollar/Turkish lira US dollar/Indian rupee US dollar/South African rand 2017 1.2 2.0 3.7 1.3 1.3 3.3 5.3 25.6 3.5 2.2 4.4 5.9 2.8 2017 1.13 0.88 1.11 112.15 1.30 1.30 58.32 16.56 3.19 648.70 2,951.36 3.26 18.92 3.65 65.11 13.31 2016 -0.1 -0.2 7.1 -1.5 -0.5 5.0 6.3 37.3 8.8 3.8 7.5 2.8 3.6 2016 1.11 0.82 1.09 108.81 1.33 1.35 67.01 14.76 3.49 676.62 3,053.00 3.37 18.68 3.02 67.18 14.70 Change 1.3 2.2 -3.4 2.9 1.8 -1.7 -1.1 -11.7 -5.3 -1.6 -3.2 3.1 -0.8 Change 2.0% 6.5% 1.9% 3.0% -2.1% -3.1% -14.9% 10.8% -9.2% -4.3% -3.4% -3.5% 1.2% 17.1% -3.2% -10.5% 111 Report on operationsEconomic and energy conditions in 2017 Economic developments The year 2017 was marked by the strengthening of the months of 2017, prices rose by 2.1% on an annual basis, in global recovery and international trade. The growth pro- line with the central bank’s target. Inflation was sustained cess is increasingly continuous and inclusive, affecting by extremely positive labor market conditions. As a result, both the advanced and emerging economies, fostered by the Federal Reserve (Fed) further reduced the supply of cyclical and structural factors. Global demand has increa- liquidity to the financial system with three increases in its sed, driven by Chinese and US growth. The liquidity in the policy rate, bringing it to 1.25%. economic system remains exceptional, a consequence of the accommodative monetary policies of the major cen- The euro area has grown faster than market expectations. tral banks, leading players in the world economic scene. Pending structural reforms that would help raise produc- The banking system is more solid, confidence is gradually tivity, making growth sustainable, the expansion in 2017 increasing and market volatility is subsiding. Although the was supported by the accommodative monetary policy global macroeconomic picture has improved, political risks of the European Central Bank (ECB) and the dissipation persist, linked to separatist sentiments and international of anti-European tensions and sentiment (e.g. the Dutch, crises, as do economic risks, associated with the unresol- French and German elections), which had eroded the level ved fragilities of the system. of confidence in the economic system. Inflationary pres- The former include the tensions in Spain, the talks for the sure still differs among euro-area countries and remains renegotiation of NAFTA and those related to Brexit and distant from the optimal level of 2%. However, upward the deterioration in relations between the United States pressures during 2017 prompted the ECB to announce the and North Korea. Conversely, the results of elections in possible end of quantitative easing. various European countries have reduced political instabi- lity in Europe. Structural factors include the risk linked to Among European countries, the Italian economy – if expec- the sustainability of the public finances in the face of the tations are confirmed – is projected to have grown by 1.5%, investments necessary to increase the productivity of eco- close to the fastest pace since 2010. The expansion was nomies. In this context, the economies of the countries in fueled by the recovery in consumption, partially financed which the Group is present grew, displaying resilience to by a reduction in the precautionary saving of households. the adverse shocks that occurred during the year. These The labor market has shown signs of improvement: the included natural disaster such as the flood that hit Peru, unemployment rate, although very high, is decreasing and the hurricane season and the earthquake in Mexico. reached 10.8% in December, the lowest level since the The United States, now in the advanced phase of its eco- than in 2016, with inflation reaching a peak in April (1.9%), nomic cycle, continued to grow at the pace registered in re- before gradually slowing to an annual low in December end of 2012. Prices on an annual basis rose at a faster pace cent years. A tax reform was approved in December, which (0.9%). will lend new impetus to the economy, but uncertainty re- mains concerning the protectionist orientation of the new Spain continues to expand at a rate of more than 3%, buo- administration and, more generally, frictions in internatio- yed by favorable developments in consumption, which, as nal relations. In the United States the 4th Quarter saw an in Italy, has been sustained by reducing the savings rate. improvement in economic indicators, with GDP growing by Inflationary pressure was strong in the 1st Half, at an avera- 2.5% compared with 2.3% in the 3rd Quarter. The trend ge of 2.4% on an annual basis, before declining in the 2nd was mainly driven by consumption of goods and services, Half of the year, which brought the annual average to 2%. as well as by a good performance of investment and an in- The peak of the crisis in Catalonia appears to have passed crease in the trade balance. Despite a decline in the central and the risks associated with the possible independence 112 Annual Report 2017of the region now seem smaller than a few months ago. Brazil began a gradual recovery, expanding by 2.2% in the 4th Quarter. The decline in inflationary pressures allowed On the political level, the elections in the Netherlands and the central bank to increase liquidity, thereby supporting especially in France had a positive influence on stability, the recovery, but political instability could weigh on the which could have been further undermined by a strong rise country’s potential growth and delay the necessary reform in nationalist movements. In Great Britain the outcome of process. The Chilean economy in 2017 grew more slowly the elections heightened uncertainty. On March 29, 2017, than in recent years, penalized by major strikes in the mi- British Prime Minister Theresa May officially invoked Arti- ning sector. However, the growth rate in the 3rd Quarter, cle 50 of the Treaty on European Union, which establishes equal to 2.2% on an annual basis, represents an impro- the procedure for Member States to withdraw from the vement compared with the previous quarters, as do the European Union. However, the general election showed a monthly data at the end of the year. Here too, as in Brazil, Conservative party losing votes and strength, increasing inflation continued to subside, enabling the central bank to the uncertainty about the EU exit process, which will not stimulate the economic system by increasing liquidity. For be defined before the last quarter of 2018. Colombia, 2017 was a transition year. Growth, which was slower than in previous years, averaged 1.5% in the first Positive economic developments also prevailed in Russia, three quarters. Diversification remains one of the major is- confirming the signs of improvement seen at the end of sues facing the Colombian economy, which is still highly 2016 and in the first two quarters of 2017, with growth in dependent on the mining sector and therefore exposed to the 3rd Quarter at 2.5% year-on-year. Consumption and developments in cyclical rather than structural factors. In investment also made positive contributions, growing by Peru, 2017 was marked by the flooding caused by El Niño, 2.8% and 4.8% respectively compared with the same pe- which penalized growth in the early quarters of the year. riod in 2016. Annual inflation was 2.5%, well below the However, despite this adverse shock, the more recent target of the Russian central bank (4%), inducing the latter quarters were characterized by a recovery in the rate of to implement a further cut in its policy rate, bringing it to expansion (2.2% in the 4th Quarter) driven by household 7.8%. consumption, exports and public investment. Mexico con- tinued to grow at a pace in line with previous years in the In South America the macroeconomic context was mixed, first two quarters, thanks to the good performance of con- but characterized by a general improvement compared sumption despite rising inflationary pressure (6.8% on an with the previous year. After the three quarters of reces- annual basis). However, the figures for the 3rd Quarter and sion in 2016, Argentina returned to growth, recording an 4th Quarter show GDP growth of 1.7% and 1.5% respec- expansion of 3.1% in the 2nd Quarter and 3.9% in the 3rd tively, below 2% for the first time since the 1st Quarter Quarter. The Argentine national elections saw the streng- of 2014. The deceleration reflected the slowdown in con- thening of the coalition led by President Macri, fostering sumption and exports. The renegotiation of trade agree- political continuity and allowing the current coalition to pur- ments with the United States and Canada (NAFTA), which sue more forcefully the program of fiscal reforms needed began in 2017 and will continue in 2018, has been one of to increase economic potential and reduce the strong in- the greatest sources of currency volatility and potential risk flationary pressures. After 12 quarters of recession, even to the Mexican economy. 113 Report 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 United States 2017 2016 1.5 3.1 2.6 1.4 1.9 6.7 1.6 1.0 1.5 1.5 2.2 2.7 3.0 2.2 1.1 3.3 1.5 -0.3 1.1 4.8 -0.4 -3.5 1.5 2.0 2.7 4.1 1.4 1.5 Source: National statistical institutes and Enel based on data from ISTAT, INE, EUROSTAT, IMF, OECD and Global Insight. 114 Annual Report 2017International commodity prices Oil prices were characterized by two distinct phases in Despite the growing global attention paid to environmen- 2017: the first part of the year was marked by substantial tal issues, the price of coal rose sharply above the levels price stability, culminating in lows of around $45 a barrel at registered in 2016, due mainly to three factors: the strong the end of June, while the second phase began at the end growth in demand in China, excessive temperatures during of August and saw steady growth. From the point of view the summer and numerous structural problems in Indonesia of the fundamentals, the oil market in 2017 experienced a and Australia that limited their exports, reducing availability. reduction in the large supply surpluses recorded in 2014- 2016 thanks to a reduction in the level of inventories, On the other hand, the gas market was characterized strong world demand and a general agreement among by the expanding role of liquefied natural gas (LNG) and the OPEC and non-OPEC producer countries to comply strong European demand driven by both seasonal factors with previously agreed production cuts. All this generated and the decline in the supply of French nuclear power in growing pressure on the price level, with oil prices rising the first part of the year. All of this applied upwards pres- well above $65 a barrel at the end of the year. sure on prices compared with the previous year. 115 Report on operationsElectricity and natural gas markets Electricity demand Developments in electricity demand GWh Italy Spain Romania Russia (1) Slovakia Argentina Brazil (2) Chile (2) (3) Colombia (1) Europe/Urals. (2) Figure for the SIC - Sistema Interconectado Central. (3) Gross of grid losses. Source: Enel based on TSO figures. 2017 320,437 252,720 64,016 795,690 30,973 136,700 572,223 73,682 66,861 2016 314,261 250,099 62,707 781,110 30,103 137,278 567,585 72,958 66,150 Change 2.0% 1.0% 2.1% 1.9% 2.9% -0.4% 0.8% 1.0% 1.1% The year 2017 was characterized by a substantial and uni- and 1.0% respectively, mainly due to weather effects and a form recovery in electricity demand in almost all the coun- recovery in consumption in all sectors. Russia posted growth tries in which the Enel Group operates. in 2017 (+1.9%) compared with 2016, a positive sign in consid- In Europe, thanks to particularly hot weather during the sum- eration of the recessionary conditions affecting the country. mer and cold temperatures in the final part of the year, elec- Demand growth in the South American countries continued, tricity demand grew by 1% compared with the previous year. with the exception of Argentina, which registered a contrac- Economic recovery contributed to this positive result in some tion (-0.4%) due to price increases, with slightly larger gains sectors, such as industry, which performed well during the than those recorded the previous year: Brazil saw an increase 2nd Half of the year. In Italy and Spain demand grew by 2.0% of 0.8%, Colombia one of 1.1% and Chile one of 1.0%. Italy Electricity generation and demand in Italy 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 2017 2016 Change 199,500 37,530 17,492 5,785 24,811 285,118 37,760 322,878 (2,441) 320,437 190,771 43,785 17,523 5,867 21,757 279,703 37,026 316,729 (2,468) 314,261 8,729 (6,255) (31) (82) 3,054 5,415 734 6,149 27 6,176 4.6% -14.3% -0.2% -1.4% 14.0% 1.9% 2.0% 1.9% -1.1% 2.0% Source: Terna - Rete Elettrica Nazionale (monthly report - December 2017). 116 Annual Report 2017 In 2017, electricity demand in Italy increased by 2.0% (to Net electricity generation increased by 1.9% or 5,415 mil- 320,437 million kWh) compared with 2016. Of total elec- lion kWh in 2017, to 285,118 million kWh. More specifical- tricity demand, 88.2% was met by net domestic electricity ly, in an environment of increased electricity demand and generation for consumption (the same in 2016) with the less favorable water availability as a result of drought in remaining 11.8% being met by net electricity imports (un- Italy, thermal generation increased by 8,729 million kWh changed on 2016). and photovoltaic generation jumped by 3,054 million kWh, posting its largest ever output in 2017 as the number of In 2017, net electricity imports increased by 734 million plants continued to increase. kWh, essentially reflecting the increase in demand in the national market. Spain Electricity generation and demand in the peninsular market Millions of kWh Net electricity generation Consumption for pumping Net electricity imports (1) Electricity demand 2017 248,404 (3,676) 7,992 252,720 2016 248,502 (4,819) 6,416 250,099 Change (98) 1,143 1,576 2,621 - 23.7% 24.6% 1.0% (1) Includes the balance of trade with the extra-peninsular system. Source: Red Eléctrica de España (Estadística diaria del sistema eléctrico español peninsular - December 2017 report). Volumes for 2016 are updated to Febru- ary 3, 2018. Electricity demand in the peninsular market in 2017 rose by velopments in exports and imports, driven mainly the shut- 1.0% compared with 2016 reaching 252,720 million kWh. down of a number of French nuclear plants in the early part Demand was only partially met by net domestic generation. of the year. Net electricity imports in 2017 increased compared with Net electricity generation in 2017 decreased by 98 million the previous year. This growth essentially reflected net de- kWh to 248,404 million kWh. Electricity generation and demand in the extra-peninsular market Millions of kWh Net electricity generation Net electricity imports Electricity demand 2017 14,220 1,179 15,399 2016 13,778 1,251 15,029 Change 442 (72) 370 3.2% -5.8% 2.5% Source: Red Eléctrica de España (Estadística diaria del sistema eléctrico español extrapeninsular - December 2017 report). Volumes for 2016 are updated to January 29, 2018. Electricity demand in the extra-peninsular market in 2017 Net electricity generation in 2017 rose by 3.2% or 442 mil- increased by 2.5% compared with 2016, reaching 15,399 lion kWh as a result of higher demand for electricity in the million kWh. Of total electricity demand, 92.3% was met extra-peninsular market. by net electricity generation in the extra-peninsular area, with the remaining 7.7% being met by net electricity im- ports, all from the peninsular system. The latter totaled 1,179 million kWh in 2017. 117 Report on operations Electricity prices Electricity prices Italy Spain Russia Slovakia Brazil Chile Colombia Average baseload price 2017 (€/MWh) Change in baseload price Average peakload price 2017 (€/MWh) Change in peakload price 53.9 52.2 17.2 41.0 84.3 52.4 31.3 26.2% 31.8% 11.7% 29.8% - -4.7% -63.9% 61.8 57.1 20.0 56.1 151.4 126.2 60.1 28.2% 26.9% 12.4% 39.9% - -1.9% -75.5% 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 2017 2016 Change 0.21 0.17 0.23 0.12 0.23 0.14 0.10 0.06 0.10 0.07 0.09 0.11 0.24 0.17 0.23 0.12 0.22 0.15 0.10 0.06 0.09 0.07 0.08 0.10 -9.9% -0.5% -1.7% -3.9% 2.7% -3.0% -2.6% -4.5% 10.0% 1.4% 6.5% 5.6% (1) Annual price net of taxes - annual consumption of between 2,500 kWh and 5,000 kWh. (2) Annual price net of taxes - annual consumption of between 70,000 MWh and 150,000 MWh. Source: Eurostat. Electricity price developments in Italy 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2017 2016 Power Exchange - PUN IPEX (€/MWh) 57.4 44.9 51.6 61.8 39.6 34.5 40.9 56.0 Residential user with annual consumption of more than 1,800 kWh (€/kWh): price net of taxes (1) 0.1 0.1 0.2 0.1 0.2 0.2 0.2 0.2 (1) The figures for 2016 refer to residential homes with subscribed power availability of up to 3 kW and annual consumption of more than 2,640 kWh. Source: GME (Energy Markets Operator) and ARERA (Regulatory Authority for Energy, Networks and the Environment). In 2017, electricity sales prices in Italy rose by 26.2%, main- ers with annual consumption of more than 1,800 kWh set ly due to the contraction in renewables generation (hydro- by the Regulatory Authority for Energy, Networks and the electric), which characterized the entire year, the crisis in Environment was €0.15/kWh, which is not comparable with French nuclear generation and the gas emergency in De- the average price in 2016 as a result of a change in the defi- cember 2017. nition of the consumption brackets by the Authority. The average annual price (net of taxes) for residential us- 118 Annual Report 2017 Natural gas markets Natural gas demand Millions of m3 Italy Spain 2017 70,015 30,180 2016 66,249 27,651 Change 3,766 2,529 5.7% 9.1% Demand for natural gas increased in 2017 in both Italy (+5.7%) and Spain (+9.1%). Italy Gas demand Millions of m3 Distribution networks Industry Thermal generation Other (1) Total 2017 30,969 13,563 24,078 1,405 70,015 2016 29,998 12,693 22,156 1,402 66,249 Change 971 870 1,922 3 3,766 3.2% 6.8% 8.7% 0.2% 5.7% (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 2017 totaled 70,015 (+6.8%), thanks to the economic recovery in the sector, million cubic meters, an increase of 5.7% on the previous and thermal generation (+8.7%), due to the decline in the year. availability of renewables generation. Consumption recovered in all segments, led by industry Price developments 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2017 2016 Average residential user with annual consumption of between 481 and 1,560 m3 (€/Sm3): price net of taxes 0.45 0.44 0.42 0.44 0.47 0.41 0.42 0.43 Source: ARERA (Regulatory Authority for Energy, Networks and the Environment). The annual average sales price of natural gas in Italy increased by 1.4% in 2017. 119 Report on operations Regulatory and rate issues The European regulatory framework EMIR On May 4, 2017 the European Commission published a pro- the “Clean Energy for all Europeans” package of measures for posed revision of the European Market Infrastructure Regu- proposed legislation on European climate and energy policy. lation (EMIR). Essentially the proposal endorses monitoring In particular, the package includes the following regula- thresholds that, if exceeded, trigger the central clearing tions and directives, some of which are revised versions, obligation for OTC derivatives on the part of non-financial others newly issued: the Electricity Regulation, the ACER counterparties, and specifies that the clearing obligation Regulation, a Risk Preparedness Regulation, the Energy applies only for the asset classes for which the clearing Union Governance Regulation, the Electricity Directive, thresholds are exceeded. At the same time, the Commis- the Renewable Energy Directive, the Energy Efficiency Di- sion’s proposal also confirms the hedging exemption and rective and the Energy Performance of Buildings Directive. changes the method for calculating the position used in the They are expected to come into force as from 2019. annual comparison with the clearing threshold, basing it on In line with the sustainability and climate change mitigation the average month-end positions for March, April and May. objectives, new binding targets at the EU level for 2030 Furthermore, the Commission proposes an overall simplifi- will be introduced: 27% of gross final energy consumption cation of the reporting requirements imposed on financial from renewable sources, a 30% energy efficiency target and non-financial counterparties. and a 40% reduction in greenhouse gas emissions. On December 14, 2017 the EU Council published its gen- The Renewable Energy Directive introduces a stable regu- eral approach for the negotiations with the European Com- latory framework for investors. Member States will have to mission and the European Parliament during the trilogue adopt a market approach to support renewables. Incentive process that will be conducted throughout 2018. The Coun- mechanisms should follow harmonized principles such as cil supported the general substance of the Commission’s cross-border opening, the non-retroactivity of measures proposal, offering a few proposed amendments concern- and long-term visibility for support mechanisms (at least ing the annual calculation of the position and simplification three years). Administrative barriers for corporate long- of the reporting requirements. term PPAs to finance renewables must be removed where Entry into force of MIFID II/ MIFIR appropriate and authorization procedures simplified. The Commission proposal also requires Member States to in- crease the share of renewable resources in heating and cooling and sets more stringent criteria for the sustainabil- On July 1, 2016 Regulation 2016/1033/EU and Directive ity of bioenergy. 2016/1034/EU entered force, postponing the entry into The Electricity Regulation and Directive propose an inte- force of the rules governing the provision of investment grated revision of the design of the electricity market to services in Europe (the MIFIR Regulation and the MIFID II make the integration of renewable energy more efficient Directive, respectively) from January 3, 2017 to January 3, and the treatment of different generation technologies 2018. Accordingly, the deadline for transposing the legisla- (conventional and renewable) more equitable, introduce tion by the Member States has been postponed from July greater granularity in trade, move market close closer 3, 2016 to July 3, 2017. The “Clean Energy for all Europeans” package to real time, open the balancing market to all generation sources and demand (through aggregation), set non-dis- criminatory and market-based dispatching rules (elimina- tion of priority dispatch for new renewables plants above 500 kW). On November 30, 2016, the European Commission issued It also introduces an opening to long-term contracting and 120 Annual Report 2017remuneration of capacity mechanisms, subject to the re- the Commission’s proposals. In 2018 trilogue meetings sults of a study of European capacity adequacy and to limi- tations in the atmospheric emissions of CO2 to access the same. Conditions for the emergence of signs of scarcity between the European Parliament, European Council and European Commission will be held to prepare the final text of the directives and regulations that comprise the Clean are improved and price caps removed. Energy package. With regard to new technologies and new market players, the package envisages measures to support the integra- tion of storage technologies, aggregators and customer participation (demand-side response). Other provisions concern compulsory installation of charging points for electric vehicles in new public buildings and the promotion of smart grids and buildings. The Distribution System Operators (DSOs) are recognized as increasingly important actors in the electricity system and the proposals include the creation of a new European DSO entity, the introduction of harmonized principles at the European level for grid rates, the possibility of purchas- ing and providing flexibility services locally to solve con- gestion problems. There are no additional requirements on unbundling. Finally, the package establishes the centrality of consum- ers in the electricity market through their active participa- tion by way of demand aggregation and demand flexibility services (demand response), removal of price regulation, the introduction of mandatory dynamic pricing options, price comparison tools and basic information in electricity bills. The Energy Efficiency Directive establishes that Mem- ber States should contribute to the achievement of the European target with indicative national contributions. In addition, proposals include extending beyond 2020 the energy efficiency obligations of Member States for final consumption to be met through energy efficiency obliga- tion schemes or alternative measures. The European Commission proposes the introduction of a decarbonization target for 2050 in the building sector and changes aimed at encouraging the use of smart tools like automation and control systems and performance indica- tors, promoting charging infrastructure for electric vehicles and the correlation between the financing of measures with the results achieved in energy terms. The European Commission also proposes a new plan con- taining a list of energy products to be evaluated, reviewed and subjected anew to regulations containing minimum energy efficiency requirements (including new products: building automation and control systems, photovoltaic panels and ICT products). Between its presentation in 2016 and the end of 2017, the European Parliament and European Council worked on a number of dossiers to arrive at a common position on ”Clean Mobility” package In 2017 the European Commission unveiled its “Clean Mo- bility” package, containing a series of legislative propos- als and other initiatives to make traffic safer, encourage smart road charging, reduce CO2 emissions, air pollution and congestion. The package consists of two parts: a first part published in May 2017 and a second in November 2017. Additional proposals, including one on CO2 emission standards for heavy-duty vehicles, will be published in the 1st Half of 2018. The main initiatives in the first part of the package are designed to encourage the adoption of road charging sys- tems based on distance traveled to reflect more realistic use, and emissions and pollution produced by vehicles. More specifically, the proposal envisages the inclusion of the external costs of noise and air pollution in road charges in addition to advantages for zero-emission vehicles. The second part of the package contained three primary in- itiatives. The first initiative establishes CO2 emission stand- ards for new cars and light vehicles up until 2025 (a 15% reduction compared with the 2021 limits) and until 2030 (a 30% reduction). It also envisages a reward mechanism to accelerate the transition towards low and zero-emission vehicles. The second initiative, a proposed revision of the Clean Vehicles Directive (Directive 2009/33/EC), provides a clear definition of “clean vehicle” (based on combined CO2 and air pollutant emissions thresholds) and aims to promote clean mobility solutions in public tenders through a system of procurement targets for Member States, thereby offering strong demand-side stimulus and further deployment of clean mobility solutions. Finally, the third initiative involves an action plan and a series of investment solutions for trans-European deploy- ment of alternative fuels infrastructure, with the aim of in- creasing the level of ambition of national plans presented within the framework of the directive on the deployment of an alternative fuels infrastructure (Directive 2014/94/ EU), increasing investment and improving consumer ac- ceptance. 121 Report on operationsThe Italian regulatory framework The current structure of the Italian electricity market is the result of the liberalization process begun in 1992 with Di- rective 1992/96/EC, transposed into Law with Legislative Decree 79/1999. This decree provided for: the liberalization of electricity generation and sale; reserving transmission for the industry as a whole and for specific segments. Generation and the wholesale market Electricity Wholesale electricity generation and market Electricity generation was completely liberalized in 1999 and ancillary services to an independent network opera- with Legislative Decree 79/1999 and can be performed by tor; the granting of concessions for distribution to Enel and anyone possessing a specific permit. other companies run by local governments; the unbundling The electricity generated can be sold wholesale on the of network services from other activities. organized spot market (IPEX), managed by the Energy The introduction of Directives 2003/54/EC and 2009/72/ Markets Operator (GME), and through organized and over- EC (transposed with Law 125/2007 and Legislative Decree the-counter platforms for trading forward contracts. The 93/2011, respectively) in Italy lent further impetus to the organized platform includes the Forward Electricity Mar- process, particularly through the complete opening of the ket (MTE), managed by the GME, in which forward elec- retail market and the confirmation of the total independ- tricity contracts with physical delivery are traded. Trading ence of the national transmission network operator (already can also be conducted in derivatives with electricity as provided for in the decree of the Prime Minister of May 11, their underlying are traded. The organized market for such 2004) by separating its ownership from that of other elec- transactions is the forward market (IDEX), operated by tricity operators. Borsa Italiana, while financial derivatives can also be ne- The process of liberalizing the natural gas market began gotiated on OTC platforms. with Directive 1998/30/EC, transposed in Italy through Leg- Generators may also sell electricity to companies en- islative Decree 164/2000, calling for the liberalization of the gaged in energy trading, to wholesalers that buy electric- import, production and sale of gas and the separation of ity for resale at retail, and to the Acquirente Unico (Single network infrastructure management from other activities Buyer), whose duty is to ensure the supply of energy to through the establishment of distinct companies. As re- enhanced-protection-service customers. gards the model for unbundling transport from other non- In addition, for the purposes of the provision of dispatch- network activities, with Resolution 515/2013/R/gas, the ing services, which is the efficient management of the Authority for Electricity, Gas and Water System (AEEGSI) flow of electricity on the grid to ensure that deliveries and mandated the transition to ownership unbundling pursuant withdrawals are balanced, electricity generated may be to Directive 2009/73/EC. sold on a dedicated market, the Ancillary Services Market With the decree of November 10, 2017 the Ministers of the (MSD), where Terna procures the required resources from Environment and of Economic Development adopted the generators. 2017 National Energy Strategy. The document, in line with The AEEGSI and the Ministry for Economic Development the European Energy Union Plan and the Energy Roadmap are responsible for regulating the electricity market. 2050, establishes the development targets for the energy More specifically, with regard to dispatching services, the sector by 2030 in terms of competitiveness, sustainability, AEEGSI has adopted a number of measures regulating the environment and procurement security. plants essential to the security of the electrical system. Under the 2018 Budget Law (Law 205 of December 27, These plants are deemed essential based on their geo- 2017), the Authority for Electricity, Gas and Water System graphical location, their technical features and their impor- has become the Italian Regulatory Authority for Energy, tance to the solution of certain critical grid issues by Terna. Networks and Environment ( “ARERA”) and is responsible In exchange for being required to have electricity available for regulating the waste sector as well. and providing binding offers, these plants receive special The following sections discuss the general regulatory Resolutions 910/2017/R/eel, 928/2017/R/eel and 911/2017/R/ framework and the main regulatory measures taken in 2017 eel admitted Enel Produzione’s essential plants of Assemi- remuneration determined by the AEEGSI. 122 Annual Report 2017ni, Brindisi Sud and Portoferraio to the cost reimbursement the assigned products). Once fully implemented, explicit system for 2018. Enel Produzione’s Porto Empedocle plant participation would be open to foreign resources, the hori- has instead been included in the multi-year cost reimburse- zon would be four years, while the duration of the product ment system until 2025. The remaining capacity is subject would remain annual. to alternative contracts. The rules governing the capacity market must be approved by the Ministry for Economic Development subject to no- Since the launch of the market in 2004, the regulations tification and approval of the mechanism by the European have provided for a form of administered compensation Commission. for generation capacity. In particular, plants that make On February 7, 2018 the European Commission issued a their capacity available for certain periods of the year iden- favorable opinion on the Italian mechanism for the capac- tified in advance by the grid operator to ensure the secure ity market, providing a number of clarifications concerning operation of the national electrical system receive a spe- certain features of the market design. cial fee. With Resolution 398/2017/R/eel, the AEEGSI, within the In August 2011, the AEEGSI published Resolution ARG/ scope of the temporary system for the remuneration of elt 98/11, which establishes the criteria for introducing a generation capacity, defined the criteria for determining market mechanism for compensating generation capac- the “S” fee for the period from January 1, 2015 to De- ity that replaces the current administered reimbursement. cember 31, 2015, allocating €60 million for payment of This mechanism involves holding auctions through which that fee. Terna will purchase from generators the capacity required The AEEGSI provided for Terna SpA to recognize pay- to ensure that the electricity system is adequately sup- ments for 2015 by June 30, 2017. plied in the coming years. With Resolution 418/2017/R/eel, the AEEGSI, within the With a decree of the Minister for Economic Development scope of the temporary system for the remuneration of of June 30, 2014, the capacity market operational mecha- generation capacity, defined the criteria for determining nism previously issued for consultation by the AEEGSI the CAP1 fee for the period between January 1, 2016 and was approved. December 31, 2016. Under the provisions of that resolu- The mechanism is based on the allotment, by auction, of tion, the amount allocated to cover charges for payment option contracts (reliability options) that provide for pay- of that fee was €130 million. The AEEGSI provided for Ter- ment of a premium, established in the auction with the na SpA to recognize payments for 2016 by June 30, 2017. setting of a marginal price, against which a generator un- With Resolution 844/2017/R/eel, the AEEGSI also speci- dertakes to return any positive difference between the fied the criteria for determined the CAP1 fee for the pe- price formed on the spot electricity and auxiliary services riod between January 1, 2017 and December 31, 2017. market and a benchmark price set ex-ante in the option Under the provisions of that resolution, the amount allo- contract. cated to cover charges for payment of that fee was €117.4 The rules approved provide for a cap for the premium to million. The AEEGSI provided for Terna SpA to recognize be paid for existing capacity and for newly constructed payments for 2017 by December 31, 2017. capacity. With Resolution 95/2015/I/eel, the Authority proposed to On February 24, 2015, the market coupling model for the the Ministry for Economic Development that the opening Italian, Austrian, French and Slovenian day-ahead trading of the capacity market be moved forward, with an initial markets was launched. Market coupling is a mechanism phase of implementation beginning in 2018 and ending for integrating day-ahead markets that, in setting the elec- in 2021, with the launch of full operation of the mecha- tricity prices for the different segments of the European nism. Under the AEEGSI’s proposal, during the initial market involved, also allocates the transport capacity phase, there would be no direct resources permitted in available between those segments, thereby optimizing the market, but their contribution would be measured the use of interconnections. for statistical purposes. During the initial implementa- tion phase, Terna would assign annual products with an With Resolution 326/2016/R/eel, the AEEGSI charged Ter- increasing planning horizon of less than four years (the na with conducting the competitive tender for assigning period between the auction and the start of delivery of contracts for the supply of replacement tertiary reserves 123 Report on operationsin Sardinia for the period from July 1, 2016 to December able renewable resources and distributed generation) to 31, 2018. The contracts awarded by Terna establish a re- participate in the Ancillary Services Market (MSD) through quirement to supply the Ancillary Services Market (MSD) pilot projects. at the variable cost paid to the plant for a premium estab- lished in the competitive tender. Following the tender, all With Resolutions 444/2016/R/eel and 800/2016/R/eel, the of the capacity was contracted with Enel’s Sulcis plant. AEEGSI reformed the rules governing imbalancing prices for calculating actual imbalances, providing for the applica- With Resolution 342/2016/E/eel, the AEEGSI ordered the tion of a mixed single price/dual price system to consump- start of a proceeding to adopt measures (prescriptive tion units and production units not authorized to partici- measures or asymmetric regulations) to prevent certain pate in the Ancillary Services Market. The system provides conduct by users of dispatching services in the wholesale for the application of the single price for imbalancing in a electricity market that could constitute market abuse pur- bracket equal to 15% of the binding withdrawal/delivery suant to Regulation 2011/1227/EU (REMIT). program. For unscheduable production units, the single With the subsequent Resolution 477/2016/E/eel, the price system will apply. AEEGSI reported the conduct of a number of dispatching With Resolution 419/2017/R/eel, the AEEGSI activated as users delivering power operating on the Ancillary Services from September 1, 2017 the new method for calculating Market to the Competition Authority for an investigation aggregate zonal imbalancing – given the difference be- of possible violations of competition rules. One of these tween the programs of consumption units and those of users was Enel Produzione SpA with regard to the sup- generation units net of trade between zones in the Italian ply of power from the Brindisi Sud plant to the wholesale market and with foreign markets. market. Following the report filed by the AEEGSI, on Oc- The resolution also provided for the restoration of the tober 6, 2016 the Competition Authority began an enquiry single pricing mechanism for calculating the actual imbal- involving Enel SpA and Enel Produzione SpA to determine ances for dispatching points of all unauthorized generation the existence of a possible abuse of a dominant position and consumption units as well as the publication by Terna in the Ancillary Services Market by the Brindisi Sud plant. SpA of the preliminary sign of the aggregate zonal imbal- The proceedings were concluded in May 2017 with the ance more rapidly than provided for under EU regulations. acceptance of the commitments proposed by Enel SpA With the same resolution, the AEEGSI also introduced and Enel Produzione without the imposition of sanctions. with effect from July 1, 2017 the macro-zonal non-arbi- More specifically, the commitments consist of the intro- trage fee for unauthorized generation and consumption duction, for years 2017-2019, of a cap on total annual reve- units. nue that can be generated by the Brindisi Sud plant, net of variable costs paid under current regulations. The cap will also apply in the event the plant is included under the cost reimbursement system pursuant to Resolution 111/2006. The proceedings initiated by the AEEGSI through Resolu- tion 342/2016/E/eel were closed with the approval through Resolution 314/2017/R/eel of the application made by Enel Produzione for the admission of the Brindisi Sud plant to the cost reimbursement system for 2017. The approving resolution also provides, with regard to the commitments made by Enel Produzione as part of the proceedings be- fore the Competition Authority, that any amounts exceed- ing the caps for the plant for the 2018-2019 period will be transferred to Terna. AEEGSI Resolution 300/2017/R/eel established the crite- ria for permitting consumption units and production units not already authorized (including those using unschedu- 124 Gas Wholesale market The extraction, import (from EU countries) and export of natural gas have been liberalized. According to the provisions of Legislative Decree 130/2010, operators are permitted to hold market shares of up to 55% of domestic consumption. The spot trading platform (the “Gas Exchange”) began op- eration in 2010 and the AEEGSI established the balancing market in 2011. The forward market later completed the structure of the Italian wholesale market, joining the Gas Exchange. As for the balancing market, the AEEGSI, imple- menting Commission Regulation 2014/312/EU, redefined, starting 2016, the rules for its functioning, in order to boost the availability of flexible resources to balance the system Annual Report 2017and improve the set of information for users. In 2017 the components are revised each year to take account of new Ministry for Economic Development (MED) indicated that, investments, depreciation and the revaluation of existing starting 2018, the figure of market maker would be intro- assets using the deflator for gross fixed capital formation. duced in markets organized by the Energy Markets Opera- With Resolution 654/2015/R/eel the AEEGSI specified the tor (GME). Transport, storage and regasification Transport, storage and regasification (of LNG) are subject to regulation by the AEEGSI, which sets the rate criteria for engaging in these activities at the start of each regulatory period. Storage is carried out under a concession issued by the MED to applicants that satisfy the requirements of Legisla- tive Decree 164/2000. Each year, the MED issues a decree establishing the criteria for allocating capacity through an auction mechanism. LNG activities are subject to the grant of a special minis- terial permit to ensure third-party access (TPA). The MED may grant an exemption from the TPA rules. As for regasifi- cation, in 2017 the AEEGSI envisaged replacing the current rate-based method for allocating capacity with a system of auctions starting in 2018. Transport activities, defined by regulatory criteria for rate periods, continue to be subject to fees updated annually by the AEEGSI. In 2017 it extended, with a few correc- tive measures, the rate criteria for 2014-2017 to 2018-2019. These criteria were challenged by Enel Trade consistent with previous disputes; at this time, the dispute regard- ing the 2010-2013 period is pending before the Council of State and that for 2014-2017 before the Regional Adminis- trative Court. Distribution Electricity Distribution and metering e-distribuzione provides distribution and metering services under a 30-year concession set to expire in 2030. The distribution rates are set by the AEEGSI at the start of each regulatory period based on covering the total cost of providing the services, considering operating costs, depre- ciation and providing 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 criteria for the new rate period for electricity distribution and metering, in force for the next eight years (2016-2023). The rate period has been divided into two sub-periods of four years each (NPR1 for 2016-2019 and NPR2 for 2020- 2023), with an interim revision scheduled for 2020. For the first sub-period (NPR1), while the AEEGSI essen- tially confirmed the general regulatory framework, it intro- duced substantial amendments concerning the timing and procedures for remunerating new investments in rates. More specifically, the AEEGSI reduced the so-called “regu- latory lag”, shortening to a maximum one year (from the two years in the previous regulatory period) the period be- fore new investments are recognized in rates while at the same time eliminating the increase of one percentage point of WACC. The latter had been introduced by the AEEGSI in 2012 to offset the financial burden imposed by the delayed recognition of new investments. Operators are therefore required to notify the AEEGSI by the end of the year of their preliminary accounts of invest- ments made during the year, enabling the AEEGSI to insert the data in the calculation of the mandatory rate published by the end of the year for the subsequent year. These in- vestments are then inserted in the regulatory asset base as from January 1 of the year following their realization. Consequently, operators can match the revenue generated by the investments with their amortization. The AEEGSI also increased by five years the useful lives of low and medium-voltage power lines that entered service after December 31, 2007. Finally, the level of operating costs recognized and the procedures for returning any extra efficiency gains to cus- tomers were also specified. More specifically, the AEEGSI maintained the symmetric division of extra efficiency gains and the restitution until 2019 of gains achieved and tempo- rarily maintained to firms in the third and fourth regulatory periods. The X-factor used in updating eligible operating costs was set at 1.9% for distribution operations and 1% for metering activities. For the second sub-period (NPR2), the AEEGSI announced the transition to rate regulation based on total costs (the Totex method). With Resolution 583/2015/R/com the AEEGSI revised the method used to determine the rate of return on capital and set a rate of 5.6% for distribution and metering activities for 125 Report on operations2016-2018. In particular, the AEEGSI established a specific Specifically as to issues involving the improvement of the 6-year rate period for the WACC, with a mid-period update resilience of the electricity transmission and distribution of the main parameters in the formula on the basis of mac- networks, Resolution 127/2017/R/eel extended the auto- roeconomic conditions (interest and inflation rates) in 2018. matic indemnities for protracted service interruptions pay- With Resolutions 188/2017/R/eel and 199/2017/R/eel, the able to users by network operators and the methods for AEEGSI approved the definitive reference rates for 2016, sharing this liability among the operators once the 72 hour which represent the level of revenue recognized for each limit is reached. operator on the basis of actual balance sheet data for 2015. With Resolutions 286/2017/R/eel and 287/2017/R/eel, the The subsequent Resolution 861/2017/R/eel modified the AEEGSI published the provisional reference rates for elec- TIQE, clarifying certain aspect of distribution service qual- tricity distribution and metering for 2017 on the basis of ity regulation, such as access by network operators to the preliminary balance sheet data for 2016. fund for exceptional events, the communication of voltage According to the provisions of Resolution 654/2015/R/eel, quality data, and the computation of the timing for com- the definitive reference rates for 2017, which represent the mercial quality performance of the electricity service. level of revenue recognized for each operator, must be pub- lished by February 28, 2018 on the basis of actual balance With Resolution 377/2015/R/eel, the AEEGSI completed sheet data for 2016. the regulatory framework governing losses on the distri- bution grid, revising the conventional loss percentages as With regard to second-generation (2G) smart metering from January 1, 2016 and the equalization mechanism for systems, in its Resolution 222/2017/R/eel the AEEGSI ap- losses to apply to distributors as from 2015. More spe- proved e-distribuzione SpA’s plan for placing the meters in cifically, the equalization mechanism takes account of the service during the 2017-2031 period, designating January geographical diversification of losses on distribution grids. 1, 2017 as the start date, and established the standard cost based on which the efficiency incentives will be calculated. With Resolution 268/2015/R/eel, the AEEGSI established Resolution 646/2016/R/eel guarantees that the meter- the Model Grid Code for transport services, which governs ing service rates for end users will remain essentially un- the relationship between sellers and distributors concern- changed. ing the guarantees given by sellers to distributors, the Among the conditions for plan approval, the AEEGSI re- payment terms for the transport service and the terms of quired field monitoring of the quality of the communication payment of the system costs and other components by dis- between the 2G meters and users’ devices, along Chain 2, tributors to the Energy and Environmental Services Fund for a period of at least four months, subsequently extended and the Energy Services Operator (GSE). The resolution to April 30, 2018. also provided for the elimination starting from 2016 of the With Resolution 229/2017/R/eel, the AEEGSI provided uncollectible portion of turnover withheld by distributors as guidelines on the initial configuration of the 2G meters and a result of the strengthening of the system of guarantees. established some of the obligations of disclosure to end As regards the calculation of the transport service guaran- users. The subsequent Resolution 248/2017/R/eel estab- tees, a number of different administrative court decisions lished the procedure and timetable to make 2G metering handed down between May 2016 and November 2017 data available to the Integrated Information System (IIS) voided in part the AEEGSI’s provisions requiring the inclu- and to transport users. Finally, Resolution 700/2017/R/eel sion of guarantees to cover system charges in transport set out the rules for using hourly delivery and withdrawal contracts between distributors and sellers. In accordance points equipped with 26 smart metering systems for the with these decisions, AEEGSI Resolution 109/2017/R/eel purposes of settlement. established a temporary regime involving a 4.9% reduction As regards service quality, the AEEGSI, with Resolution in the amount of system charge guarantees (equal to an av- 646/2015/R/eel as amended, established output-based erage percentage of the amounts not collected by sellers) regulation for electricity distribution and metering services, and initiated the revision of the Grid Code with consultation including the principles for regulation for 2016-2023 (TIQE document 597/2017/R/eel. 2016-2023) and authorized the start of trials to test the ad- As regards the procedures and financial terms for the con- vanced management functions for the distribution grid. nection of generation plants to distribution and transmis- 126 Annual Report 2017sion grids, the AEEGSI, with Resolution 581/2017/R/eel, More specifically, the methods for determining the “refer- updated the Integrated Grid Connection Code in order to ence” rate subsidy (previously called “provisional”), set ex implement the simplification measures provided for in the ante as the average of the definitive rate subsidy levels in Ministerial Decree of March 16, 2017 for the connection the preceding two years, and the underlying parameters and operation of micro-generation plants powered by re- for calculating the “definitive” rate subsidy were revised. newables. The AEEGSI also envisaged an advance payment of the rate subsidy by the end of the November 30 session. As for the regulatory framework for private grids (specifi- With respect to the criteria for distributing the rate sub- cally, closed distribution systems and basic generation and sidy, the AEEGSI provided that starting in 2017 the accru- consumption systems), Resolution 276/2017/R/eel updated als principle would replace the cash principle so that the the relative Codes, adopting the provisions of Article 6(9) of definitive rate subsidy for the reference obligation year is Decree Law 244/2016 concerning general system charges. applied to residual quotas for the year that are discharged The AEEGSI, with Resolution 582/2017/R/eel, postponed in the subsequent year. application of the regulatory provisions on internal user Thereafter, with Resolution 634/2017/R/efr, the AEEGSI networks from October 1, 2017 to January 1, 2018. The delayed by one year the introduction of the accruals prin- subsequent Resolution 894/2017/R/eel updated the defini- ciple, making its roll-out more gradual so that it should be tion of consumption unit and postponed until June 30, 2018 fully in place in another four years. the deadline for “hidden end users” to declare themselves. AEEGSI Decision 10 of July 14, 2017 set the amount of the Competition Authority Resolution 162/17/CIR established subsidy for 2017 was instead set at €170.29/EEC and will the fees for telecommunications operators to access e- be revised based upon the final market price for the refer- distribuzione’s electricity infrastructure to lay fiber-optic ence period. rate subsidy for 2016 at €191.40/EEC. The reference rate cables, pursuant to Legislative Decree 33 of February 15, 2016. As a result e-distribuzione published the General Con- ditions for accessing its infrastructure, Technical Rules and Technical Standards, which incorporate the Competition Authority’s provisions. Reform of electricity rates for residential customers With Resolution 782/2016/R/eel the AEEGSI fully eliminat- ed, with effect from January 1, 2017, the progressivity of the distribution rate. The resolution provides for the first steps to be taken in Energy efficiency - White certificates The interministerial Decree of January 11, 2017 set the 2017 to reduce the effect of progressivity on general sys- tem charges. The system charges reform is expected to be new energy efficiency targets for 2017-2020 and the new completed by January 1, 2018, with complete elimination guidelines for the functioning of the Energy Efficiency Cer- of the progressive structure. In Report 733/2017/I/eel of tificate (EEC or white certificates) mechanism. November 2, 2017 to the Government and Parliament and As to the distributor’s performance of its obligation, it was with the Memorandum of November 30, 2017 (805/2017/I/ provided that the quota exceeding the minimum obligation eel) requested by the Chairman of the 10th Standing Com- of 60% must be covered by the end of the following year mittee of the Chamber of Deputies, the AEEGSI, however, (and not within the subsequent two years as previously reported on the effects, starting in 2018, on the annual allowed). spending on electricity by residential customers owing to Furthermore, the distributor was given the option of sat- the rate updates following the revision of the subsidies isfying the obligation over two sessions in the same year for energy-intensive companies and the final phase of the (May 31 and November 30) rather than just one, as was reform of the general system charges for residential cus- done previously. The decree required the AEEGSI to estab- tomers. Based on the instructions of the Government and lish the criteria and method for covering the distributors’ Parliament, the AEEGSI published Resolution 867/2017/R/ costs. eel, deferring implementation of the final phase of the re- With Resolution 435/2017/R/efr the AEEGSI approved the form of the general system charges for residential electric- revised rules for calculating the rate subsidy for electricity ity customer and maintaining the current rate structures and gas distributors starting 2017. until December 31, 2018. 127 Report on operationsReform of general system costs structure The AEEGSI, with Resolution 922/2017/R/eel, implemented Resolution 481/2017/R/eel, providing that, as from January basis of the provision of the applicable primary and sec- ondary legislation. 1, 2018, the rates for general system costs and other com- Enhanced-protection service is provided by sellers con- ponents applying to all the types of contracts covered by nected with distributors. Prices are set by the AEEGSI and Section 2.2 of the Integrated Transmission are divided into are updated periodically based on criteria designed to en- “General costs in support of renewable energy and CHP” sure that the operators’ costs are covered. More specifi- (ASOS), “Remaining general costs” (ARIM), UC3 and UC6. cally, the AEEGSI updates the component for covering the The resolution implements the reform of the general sys- operators’ costs in the enhanced-protection market (RCV) tem costs for non-residential customers provided by Law annually so as in ensure that their costs are covered (op- 21 of February 25, 2016. Reform of concessions for energy-intensive companies As part of the reform of the general system costs for non-residential customers, the AEEGSI, with Resolution 921/2017/R/eel, established the implementing provisions for the grant of concessions for energy-intensive compa- nies, as provided by the MED decree of December 21, 2017, with effect as of January 1, 2018. The resolution envisages ASOS component rates (based on the new grouping of general costs introduced by Reso- lution 481/2017/R/eel) differentiated between customers without concessions and those with, i.e. energy-intensive customers, based on concession category, as defined by the decree of December 21, 2017. These provisions also had an impact on private-network configurations. Sales Electricity erating costs, delinquency charges and amortization and depreciation) and that they receive a fair return on capi- tal. Resolutions 816/2016/R/eel and 927/2017/R/eel estab- lished rates for 2017 and 2018. In recent years, the AEEGSI has adopted measures aimed at containing operators’ credit risk, which has risen due in particular to the economic crisis. In 2016, the AEEGSI lent significant impetus to the devel- opment and implementation of the Integrated Informa- tion System (IIS). This system was established under Law 129/2010 and is designed to manage the flow of informa- tion between gas and electricity market operators, based upon a central database of withdrawal points. With a number of measures, the AEEGSI has governed various services, some of which are already active with others at the implementation stage. For example, the AEEGSI has sought to gradually centralize the manage- ment of the commercial processes for contract transfer and switching and of metering data for both sectors (elec- tricity and gas) and, for the electricity sector only, the ag- gregation of metering at hourly withdrawal points for the As provided for by Directive 2003/54/EC, starting from July purposes of monthly settlement. 1, 2007 all end users may freely choose their electricity Thanks to the development work carried out, the IIS is supplier on the free market or participate in regulated mar- increasingly operating as a central hub for the exchange kets. Law 125/2007 identified these regulated markets as of information among all system operators, thereby facili- the “enhanced-protection” market (for residential custom- tating the management of certain processes. In view of ers and small businesses with low-voltage connections) these characteristics, Ministerial Decree 94 of May 13, and the “safeguard services” market (for larger customers 2016 designated the IIS as the mechanism for managing not eligible for enhanced-protection services). the process of billing TV license fees through electricity Free-market operators are awarded contracts to provide bills. To cover the costs of managing this process, AEEGSI safeguard services on a geographical basis through three- Resolution 291/2017/R/eel established the distribution cri- year auctions. For the 2017-2018 period, following the com- teria to be used by the Italian Revenue Agency in calculat- petitive procedure governed by Resolution 538/2016/R/eel, ing the lump-sum grant payable to sellers for years 2016 Enel Energia was awarded the areas corresponding to the and 2017; it has paid the amount owed for 2016. regions of Liguria, Piedmont, Valle d’Aosta, Trentino-Alto The annual competition law (Law 124/2017) was approved Adige, Lombardy, Lazio, Puglia, Molise and Basilicata. The on August 4, 2017, providing that the price protection mar- financial terms applied to end users were defined on the ket (electricity and gas) would be eliminated as of July 1, 128 Annual Report 20172019. The AEEGSI was given the task of regulating the the supplier of last resort, through voluntary tenders for safeguard service for customers previously falling under geographically-based contracts. the enhanced-protection category through competitive With Resolution 465/2016/R/gas, the AEEGSI updated the procedures by geographical area and on conditions that rules governing public tenders for the award of last-resort encourage switching to the free market. services for October 1, 2016 - September 30, 2018. Fol- The law also provides for the creation within the MED of lowing the auctions held in September 2016, Enel Ener- a list of electricity sellers that are authorized to sell elec- gia was designated as supplier of last resort for 7 of the tricity on the retail market having met certain technical, 8 areas involved in the auction (Valle d’Aosta, Piedmont financial and reputational requirements proposed by the and Liguria; Lombardy; Trentino-Alto Adige and Veneto; AEEGSI. Tuscany, Umbria and Marche; Abruzzo, Molise, Basilicata The AEEGSI, in accordance with the law above, issued and Puglia; Lazio and Campania; Sicily and Calabria) and as Resolution 555/2017/R/com, requiring all sellers to include default supplier in 3 areas out of 8 (Abruzzo, Molise, Basili- in their portfolios offers at free market prices with condi- cata and Puglia; Lazio and Campania; Sicily and Calabria). tions equivalent those of the protected market (PLACET offers), targeted at households and small businesses start- Starting from October 1, 2013, the reform of the finan- ing in early 2018. This was done to make it easier for end cial terms and conditions applied to safeguard customers users to understand and compare offers and participate in entered force. In this situation, the AEEGSI modified the the free market. procedures for determining the raw material component, indexing it fully to spot market prices, introduced compo- On May 11, 2017, the Competition Authority, in response to nents to ensure a gradual transition (including one spe- reports by AIGET and Green Network SpA, initiated a pro- cifically for the renegotiation of long-term contracts) and ceeding against Enel SpA, Enel Energia SpA and Servizio increased the component covering retail sales costs to Elettrico Nazionale SpA for alleged abuse of dominant enhance cost-reflectivity. position on the retail electricity market for residential and With regard to the raw material (gas) cost component, on non-residential end users connected to the low voltage January 24, 2014, the Regional Administrative Court of grid. Analogous proceedings were also begun against oth- Lombardy, in the course of an action brought by Enel En- er operators. Unless extended, the proceeding is expected ergia and Enel Trade, voided the resolutions by which the to conclude by June 30, 2018. AEEGSI changed the formula for determining (and thereby Gas Legislative Decree 164/2000 established that, as from January 1, 2003, all customers may freely choose their natural gas supplier on the free market. However, sales companies must also offer a safeguard service to their customers (only for residential customers pursuant to Decree Law 69 of June 21, 2013), together with their own commercial offers, at the regulated prices established by the AEEGSI. If there is no company supplying this service, the con- tinuity of supply for small customers not in arrears on bill payments (residential and other uses with an annual consumption of less than 50,000 standard cubic meters) and for users involved in providing public services shall be ensured by the supplier of last resort. If the customer is in arrears with bill payments or it is not possible for the sup- plier of last resort to provide service, supply continuity is ensured by the default distribution supplier selected, like reducing) the QVD component for the 2010-2011 and 2011- 2012 gas years. In 2014, the AEEGSI filed an appeal with the Council of State. In 2016, the Council of State denied the AEEGSI’s appeal, granting the appeal of Enel Energia and Enel Trade, finding the measures were in conflict with the statutorily established principle of the necessary “cor- respondence between recognized costs and actual costs”. Resolution 737/2017/r/gas, in accordance with the Coun- cil of State’s decision, recalculated the value of the raw material for the October 2010 - September 2012 period. The manner of handling the amounts resulting from the recalculation will be addressed in a separate resolution expected for the 2nd Half of 2018. With regard to the definition of the component covering natural gas supply rates, the AEEGSI also confirmed the current procedures, with full indexing to the spot prices reported on the Dutch Title Transfer Facility (TTF), pending the development of greater liquidity in the Italian whole- sale markets until September 30, 2018 or in any event un- 129 Report on operationstil the elimination of the enhanced-protection market as set by the legislature, if sooner. Renewable energy With regard to gas settlement, specifically the mechanism for annually adjusting prior-period items, the AEEGSI pub- lished Resolutions 670/2017/R/gas and 782/2017/R/gas approving provisions for calculating the physical and finan- cial items for the prior-period adjustment sessions starting 2013. More specifically, a settlement mechanism was estab- lished for the 2013-2017 period through which operators can recover a share of the costs associated with grid loss previously allocated in proportion to their withdrawals. The AEEGSI has provided that, from January 1, 2018 until the definitive settlement mechanism is in place, operators will be paid almost all of the costs connected with grid loss. General industry-wide provisions In 2015, with its Resolution 296/2015/R/com, the AEEGSI The regulatory framework for supporting renewable energy technologies in Italy envisages a range of remuneration systems. Incentives for technologies other than photovolta- ic are awarded through competitive procedures established with Legislative Decree 28/2011, transposing Directive 2009/28/EC, and the associated implementing ministerial decrees of July 6, 2012 and June 23, 2016. The decrees en- visage the use of Dutch auctions and feed-in tariffs, based on the installed capacity and technology. Specifically: > Dutch auctions for plants with capacity of over 5 MW; > registries for plants with capacity of less than 5 MW; > direct access for wind plants with capacity of less than 60 kW, biomass plants of less than 200 kW and hydroe- lectric plants of less than 250 kW. The above incentive mechanisms will terminate when the indicative cumulative annual cost of the incentives reaches €5.8 billion. At November 30, 2017, the indicative cumula- tive annual cost was €5.122 billion. regulated the functional unbundling requirements for op- With regard to solar generation, the incentive system pro- erators in the electricity and gas sector. More specifically, vided for the application of a number of Energy Accounts, the Authority confirmed that companies must maintain a of which Accounts I, II, III and IV (from September 19, 2005 separation between the brand, other distinguishing marks to August 26, 2012) were based on a feed-in premium (a (including the company name) and communication policies rate premium over the hourly zonal price), while Energy Ac- of distribution companies and those of the companies that count V (from August 27, 2012) was based on a feed-in tariff sell power that operate within the same group. Separation (comprehensive price) and was terminated once a cost of must also be maintained between those companies that €6.7 billion was reached on July 6, 2013. sell electricity on the free market and those that do so on the enhanced-protection market, while different physical premises, personnel and information channels must be used for distribution and sales and for sales on the en- hanced-protection market and those on the free market. Between April and July 2016 the Regional Administrative Court of Lombardy rejected the appeals lodged by Enel Distribuzione, Enel Servizio Elettrico and Enel Energia. In implementation of the court’s ruling, Enel Distribuzione and Enel Servizio Elettrico modified their company name (and the associated brand) to “e-distribuzione SpA” and “Servizio Elettrico Nazionale SpA”. Ministerial Decree of February 14, 2017 on “Minor islands” The February 14, 2017 decree of the MED gave instruc- tions for gradually covering the electricity needs of the non- interconnected minor islands with renewable energy. The decree envisages remuneration for energy generated from renewable resources related to the cost of the fuel avoided and the launch of pilot projects to integrate renewable re- sources in the electricity systems of those islands. The companies e-distribuzione, Servizio Elettrico Nazionale National Energy Strategy and Enel Energia appealed the ruling of the Regional Ad- ministrative Court before the Council of State, which with decision 5519/2017 denied the appeals of the two sales companies, thereby affirming the legality of Resolution 296/2015/R/com. The appeal by e-distribuzione is pending before the Council of State. With the decree of November 10, 2017, the Ministers for Economic Development and for the Environment approved the National Energy Strategy (NES) which lays the ground- work for energy development in Italy based on the princi- ples of competitiveness, energy security and environmen- tal sustainability. 130 Annual Report 2017Specifically, the NES set a target of 55% for renewables as Energy Efficiency a share of electricity consumption by 2030, which should translate into a 75 TWh increase in renewable energy pro- duction. The NES provides for keeping technology-neutral auctions until 2020 as a way of supporting the development of re- newable energy. Thereafter, renewable capacity develop- ment will be tied to the signing of power purchase agree- ments, which are long-term contracts between producers and consumers, with the assistance of the State, at least during the initial phase, to enable it to get off the ground and develop. Iberia Spain Remuneration of distribution On March 31, 2016 the Ministry for Industry, Energy and Tourism initiated the procedure for the introduction of a new ministerial order that will establish the remuneration Order IET/258/2017 of March 24, 2017 charged Endesa with a contribution to the National Energy Efficiency Fund of €29.3 million, corresponding to the energy savings obli- gations for 2017. Sales margin incorporated in voluntary price for residential customers (PVPC) On November 25, 2016, Royal Decree 469/2016 was published, establishing the method for setting the sales margin of the voluntary price for residential customers, thereby implementing a number of rulings issued by the Supreme Court voiding the margin set on the basis of the provisions of Royal Decree 216/2014. On December 24, 2016 Ministerial Order ETU/1948/2016 was published, establishing, as from January 1, 2017, the value of the sales margin of the PVPC for 2014, 2015, 2016 and for the future. Electricity rates for 2017 of distribution activities for 2016, in accordance with the On December 29, 2016, Order ETU/1976/2016 was pub- provisions of Order IET/2735/2015. Temporarily, the remu- lished, establishing electricity access rates for 2017. The neration for 2015 will be retained until the new order is existing rates were left unchanged. approved. That order (IET/980/2016) was published on June 16, es- tablishing the remuneration for distribution activities for Natural gas rates for 2017 2016. Endesa was allocated a remuneration of €2,014 On December 23, 2016, Order ETU/1977/2016 was pub- million. In addition, the incentives for service quality and lished, establishing the natural gas access rates for 2017. non-technical losses for Endesa were set at €7 million and In general, the existing rates were left unchanged, with the €2 million respectively. That order also sets the base re- exception of the updating of the rate of last resort (TUR), muneration for the first regulatory period from January 1, which was reduced by an average of 9% as a result of the 2016 to December 31, 2019. decline in the price of raw materials. Social Discount On October 9, 2017, the Official State Gazette (BOE) pub- Fee for the use of continental water for the generation of electricity lished Royal Decree 897/2017 concerning regulations af- On June 10, 2017, the Official State Gazette (BOE) pub- fecting vulnerable consumers, the Social Discount and the lished Royal Decree Law 10/2017 adopting urgent meas- terms and conditions for suspending the Social Discount ures to mitigate the effects of the drought in certain catch- for consumers with 10 kW or less of capacity. Specifically ment basins, amending the current Water Law. More the decree sets out three categories of customers based specifically, the Royal Decree Law modifies the fee for the on income level (measured using the Multiplier for the use of continental waters for the generation of electric- Public Income Index - IPREM), with different percentage ity, which went from 22% to 25.5%, establishing a lower discounts for each category. percentage for installations up to 50 MW to offset the in- crease in withdrawal. 131 Report on operationsRenewables Europe and North Africa In February 2017, Ministerial Order ETU/130/2017 was pub- lished, containing the remuneration parameters for renew- able energy plants for 2017-2019. They are revised every Russia three years, as provided by Royal Decree 413/2014 regu- Electricity market lating generation from renewable resources. This revision is undertaken mainly to bring investment remuneration in line with the differences in market income projected for the coming years, as well as with differences that occurred in the three preceding years between actual market rev- enue and that projected under the regulation. In the 1st Half of 2017, the rules and procedures for a tech- nology neutral auction for 3,000 MW of renewable energy were issued. The auction was held on May 17. Enel Green Power España was awarded a specific remuneration sys- tem to develop 540 MW of wind power with COD (Cash on Delivery) before the end of 2019. Enel Green Power was allocated the third-highest capacity amount through the auction. The auction was open to the competition of all types of renewable technologies. However almost all the capacity awarded was wind capacity. The auction result serves to protect the internal rate of return of projects in low market price scenarios. However, if the market prices are above the protection level, the pro- jects are authorized to capture this income. The results of the first auction, in which there were com- petitive bids left that had not been awarded capacity and which demonstrated the need for more renewable energy to meet the 2020 targets, prompted the Spanish govern- ment to organize a second auction, held on July 26, 2017. In the second auction, Enel Green Power received 338 MW in photovoltaic capacity. As in the first auction, the winners’ internal rate of return is protected when market prices are low. Between July and September 2017, the Spanish govern- ment arranged a public consultation marking the start of the process of drafting new network access and connec- tion rules. Work on this new regulation will be carried out in 2018. 132 On June 27, 2016, Government Decree 563 was pub- lished, amending the calculation method used to deter- mine capacity payments (DPM) that will ensure accurate determination of those payments for 2017 and beyond. On July 25, 2016, the terms of participation in capacity market auctions were revised to permit demand to access the mechanism through the reduction of consumption. The most recent capacity auctions (results published on September 20, 2016) set the parameters (price and qual- ity) for 2020. Government Decree 1458 of December 23, 2016 retained the coefficients for penalties for the lack of availability at the minimum levels for 2017 as well. By the decision of January 9, 2017 the governement also established the rates for 2017 for the Trading System Ad- ministrator (-2.5% compared with 2016) and the System Operator (confirming the previous year’s rates). On March 3, 2017, the Ministry of the Economy published the new methodology for setting the yield rate on long-term government bonds in order to calculate capacity payments (DPM), resulting in a rate of 10.21% (it had been 8.9%). On June 16, 2017, the government issued a decree estab- lishing the rules for the new capacity auctions in Crimea: award of a 15-year capacity contract at the price estab- lished during the tender process (with a monthly cap of about 2 million rubles). On June 19, 2017, the government published its general plan for developing the electricity industry through 2035. It consists of non-binding guidelines that will be updat- ed every three years. The plan includes numerous data, including the long-term demand and supply projections, expected capacity and necessary adjustments, grid infra- structure, and proposals for containing the environmental impact. On September 2, 2017, the government signed Decree 1065 regarding the capacity market (KOM) auctions for 2021: it eliminated the price cap and the indexing of the price to the consumer price index (CPI) minus 0.1% (com- pared with the previous CPI -1%). On September 20, 2017, the system operator published the results of the auctions for 2021, with prices 16-18% higher than the 2020 auc- tions. Annual Report 2017The government, with its decree of December 27, 2017, tablished more stringent rules for Unified Heat Supplier set out the rules for the new thermal capacity (465 MW) (UHS) in the event of non-compliance with deadlines for tender in the Tamam area (southern Russia), to be held payment to other suppliers and for network services. by April 1, 2018. The winning bidder will receive a 15-year More specifically, UHS will lose its supply license if it fails capacity payments contract. to pay suppliers for two consecutive billing periods as Gas market well as in the event of repeated violation of other contrac- tual terms. Any violation must nevertheless be certified by a court or the FAS. On June 20, 2017, Antitrust Authority Decision 776/2017 on the new floor and ceiling prices for industrial custom- ers was published. Prices rose by 3.9% over the 2015- Romania 2016 period. Renewables With Government Decree 850 of May 10, 2016, the fol- lowing changes were made to the regulations governing Recognition of distribution investments in rates In March 2016, ANRE approved a new procedure for re- cognizing investments for rate purposes, which will enter force in 2017 and in 2016 will serve as a recommendation renewables: for distributors. > the incentive system for photovoltaic installations and small hydro systems was extended to 2024 (from 2020); > the capacity volume targets for solar and small hydro, which were not selected for previous auctions (2013- 2015), were achieved and reallocated until 2024 (85.8 MW for solar and 168 MW for small hydro); > the total volume target was kept at the initial level (5,871 MW). On June 14, 2016 the final results of the auctions for in- vestment in renewable resources for 2016-2019 were an- nounced, with the award of projects for wind plants only. The procedure establishes: (i) no recognition of inefficient investments; (ii) no recognition of costs for the works that exceed 10% of budgeted costs; and (iii) the possibility of modifying the annual investment plan by a maximum of 10% once it has been submitted. In July 2017, ANRE published a letter containing the basic principles for the calculation of the distribution rates for the fourth regulatory cycle, including substantial changes regarding WACC, operating expenses, regulatory asset base, other revenue, current assets, own use and annual adjustments. The methodology is expected to be approved On September 29, the Government Decree on state in April 2018. compensation for the connection of renewable resource plants or peat-fired plants to the grid was published. The Rates of last resort rules, which apply to plants with an installed capacity of up to 25 MW, establish that compensation may not ex- ceed 70% of the grid connection cost or in any case 15 million rubles per plant. Antitrust regulations On July 5, 2016, the Federal Antimonopoly Service (FAS) issued an official warning for T Plus to cease its unfair practices against Enel Russia in the heat market. More specifically, the warning requires T Plus to enter into a heat supply contract with Enel Russia for the SuGRES plant in Yekaterinburg. Heat market According to the calendar for the liberalization of regulated rates for residential customers, the percentage of electri- city that suppliers of last resort must purchase on the free market will be 80% in the 1st Quarter of 2017 and 90% in the 2nd Quarter of 2017. ANRE also approved the final rates. The regulated compo- nent for 2017 was reduced by 6.47% owing to the decrea- se in distribution rates. The competitive market component (CPC) fell by about 3%-4.8% during the 1st Half of the year compared with the 2nd Half of 2016 as a result of the de- cline in distribution rates. In the 3rd Quarter, the rate, ho- wever, increased by around 10.8% compared with the 1st Half of 2017 due to rate corrections for previous periods. Therefore Enel began legal proceedings against ANRE. Du- ring the 4th Quarter the rates rose by approximately 9% With a decree of December 1, 2016, the government es- over the 3rd Quarter. 133 Report on operationsAs of January 1, 2018, the unregulated percentage is 100%. and revenue for the 1st Half of 2017; The CPC rates for the 1st Half of 2018 were raised by 0.44% > phase 2 (starting January 1, 2018): simulation at the con- compared with the rates for the 4th Quarter of 2017. sumer level. Regulatory framework for suppliers of last resort On June 8, 2017, ANRE approved the suspension of the ANRE has designated 2019 as the deadline for implementa- tion of the binomial tariffs. Smart metering market for the purchase of electricity for universal servi- As part of the smart metering pilot project, at the end of ce customers (households and small businesses) called 2016 110,000 meters had been installed. The results of the PCSU. The suspension was in effect until August 10, 2017 pilot project were transmitted to ANRE, which is preparing and was prompted by the limited volumes indicated in the a cost-benefit analysis for approval of the mass roll-out bids for the 3rd Quarter 2017 auctions. As a result of this project for 2017-2020. decision, the suppliers of last resort must buy electricity In December ANRE published a draft order on the smart on other free markets, such as the day-ahead market and meter roll-out, envisaging a 10% cap on investment in me- the centralized markets for bilateral contracts. In July, Enel ters out of the distributors’ entire investment plan for 2017 officially appealed the decision. and 2018, and a ceiling of about €61 on the total unit cost In 2017, ANRE began revising the PCSU rules, the metho- for customers for 2018. In addition ANRE set June 30, 2018 dology for adjusting the criteria for suppliers of last resort as the final date for approval of the roll-out terms and con- and the rules for the suppliers of last resort. In September, ditions. Enel began legal action to dispute the legality of the metho- dology for determining the rates for suppliers of last resort. Distribution rates for 2017 Rebranding of distribution companies On August 16, ANRE sent electricity distribution compa- nies a letter containing the minimum measures distributors In December 2016, ANRE published distribution rates for must implement with regard to rebranding. 2017, equal to an average of 98.6 lei/MWh, down about 8% Between October and December 2016, Enel notified ANRE compared with distribution rates in 2016. that it had adopted a new name and logo for its distribution In 2017, Enel’s distribution companies charged an average companies in Romania and modified the corresponding li- rate of 98.6 lei/MWh, about 8% lower than in 2016 (107.2 censes. lei/MWh). In December 2017, following the consultation on the calcu- lation of rates, ANRE approved the rates applied as from January 1, 2018.The average rate of Enel’s distribution companies are 101.53 lei/MWh, about 3% higher than in 2017 (98.6 lei/MWh). 2017 binomial tariff Renewables The Romanian government adopted Order 24/2017, which took effect on April 1, 2017, modifying Law 220/2008 and in- troducing a number of changes: > Green certificates (GCs): - the granting of 2 GCs for photovoltaic system gene- ration is postponed to between January 1, 2025 and With Decision 71 of January 26, 2017, ANRE approved the December 31, 2030; timetable for introducing the binomial tariff for transmission - the recovery of GCs from wind power generation, and distribution services. The project will be carried out in already postponed, is set for between January 1, 2018 two phases: and December 31, 2025; > phase 1 (January 1, 2017 - October 31, 2017): simulation - the price of the CGs can fluctuate between €29.40 at the distribution service operator (DSO) level, without and €35, with no indexing to inflation; affecting customers. In 2017 the DSOs monitored the - the GCs granted do not expire, remain valid until the data according to the simulation calendar and transmit- incentive period ends and can be sold only once. ted to ANRE the analysis and impact on regulated costs > Market: 134 Annual Report 2017 - bilateral contracts for the sale of GCs remain valid but cannot be extended beyond their current expiry date; United Kingdom - creation of two anonymous trading platforms as from September 1, 2017 for: (i) spot or forward sales of GCs; (ii) the sale of renewable energy in combination with GCs (not yet in operation). > Batteries: - GCs can be granted for green energy storage in bat- teries. Polonia Capacity market On December 28, 2017, the president signed the Power Mar- ket Act introducing a capacity market in Poland. The first auc- tion is to be held in 2018 for the 2021-2023 delivery period. Subsequent auctions will be held every five years to cover a 10-year delivery period. In addition it will be possible to hold quarterly auctions announced one year prior. Demand-side response will be able to participate in the 5-year auctions if adequate investment is demonstrated. The Power Market Act must still be approved by the Euro- pean Commission with respect to state aid rules. The British government and Ofgem published the Smart Systems and Flexibility Plan on July 24, 2017. The objective is to open all markets to demand-side response, introduce real-time ancillary services and simplify metering require- ments. New de-rating factors for storage for capacity market partici- pants have been introduced starting with the 2018 auctions. On June 13, 2017, National Grid opened a consultation on “System Needs and Product Strategy”, followed by a prod- ucts roadmap, published on December 19, for frequency re- sponse and reserve balancing services. In December 2017, the government published the draft stat- utory instrument that transposes the Medium Combustion Plant Directive, which introduces tighter controls on emis- sions by generators. Republic of Ireland and Northern Ireland Capacity market Demand-side response On November 24, 2017 the European Commission approved the new joint capacity market for the two countries under The transmission authority began to prepare the calls for state aid rules. The first auction was held on December 15, tender for demand-side response in the balancing mar- 2017, with the delivery period set for May 23 through Sep- kets. Total demand for 2017-2018 was set at 500 MW tember 30, 2019. (eight hours in the summer and four hours in the winter), The market design enables the participation of demand-side of which 40% for summer capacity and 55% for winter ca- response operators in a manner similar to that for genera- pacity. The current call for tender provides for an additional tors. The EU authorization requires demand-side response 500 MW. Green mobility operators to have equal access to the capacity market by October 2020. The green mobility law was approved on January 4, 2018, Ancillary services envisaging the installation of charging stations in 2018- The ancillary services market was reformed with the goal of 2019. The goal is to install 6,400 charging stations for elec- ensuring system stability, even in a situation of high renewa- tric vehicles, of which 400 will be high-voltage stations, bles penetration. New ancillary services were also estab- and 70 service stations offering natural gas. They will be lished, guaranteeing the same treatment for demand-side located in 32 densely populated areas and their installation response and conventional generation. The first call for ten- will be public-private finance initiatives. If the installation ders was published on December 12, 2017, with a deadline targets are not met by the end of 2019, the local authorities of February 8, 2018 for products with a 5-year delivery period of those areas will be required to draw up development starting May 1, 2018. plans for the stations lacking. The distribution system op- erators will be responsible for building charging stations in the areas they cover. 135 Report on operationsGreece Renewables Greece’s renewables incentive system ensures remunera- tion using feed-in tariffs for all projects submitted prior to December 31, 2015. Starting January 1, 2016 projects are guaranteed a feed-in premium that varies by resource. In order to raise more funds to support these incentives and eliminate the deficit accumulated thus far, the Greek gov- ernment introduced a component specifically to be paid by electricity suppliers. With Resolution 616/2017 the Greek regulator considerably reduced the forced disconnections of wind power plants op- erating on non-interconnected islands. In October 2017, the system that allowed large industrial customers to obtain remuneration for agreed service inter- ruptibility expired. The system was reactivated starting Jan- mitted to reaching ambitious development targets for re- newables: 1 GW by 2020 and 4.7 GW by 2030. In November 2017 the first tender for wind and photovolta- ic projects was completed. Enel Green Power participated and is awaiting the results. Germany Renewables The new RES law (EEG), which entered force in January 2017, introduces a system of auctions for most renewables tech- nologies. Offers will specify an amount of installed capacity each year in order to foster new lines of growth, which are: a) for onshore wind plants, 2.8 GW per year for 2017-2019 and 2.9 GW per year after 2020 (repowering included); b) for offshore wind plants, 15 GW by 2030. Two offers are planned for 2017 and 2018 of 1.55 GW each; c) for photovoltaic plants, uary 2018 through the end of 2019. The scheme is financed to 2.5 GW per year, of which 600 MW in auctions. by renewables operators that do not operate in the islands through a percentage of their revenue, differentiated by technology: wind, 2%; photovoltaic, 3.6%; and small hy- droelectric plants, 1%. Bulgaria Renewables The current system of incentives is based on feed-in tariffs that vary by renewable resource. The mechanism is available to photovoltaic, wind and hydroelectric plants under 10 MW and biomass systems under 5 MW. Since 2012 a number of measures have been introduced to reduce the system deficit caused by increasing incentives for renewables. These include a local tax of 20% (subse- As demonstrated by the initials auctions conducted in 2017, current legislation is so favorable to local communities that participate with their projects that they were awarded most of the available capacity. For this reason the legislation was provisionally modified for the first two auctions in 2018 and should lead to results that are more balanced among the various kinds of participants. The coalition agreement between CDU/CSU and SPD in- cludes, among other things, further increases equal to around 4 GW of the capacity auctions in 2019-2020. South America quently revoked), network access charges, increases in bal- The Group operates in South America in Argentina, Brazil, ancing costs, a 5% tax on revenue and limits on volumes Chile, Colombia and Peru. Each country has its own regula- eligible for incentives. tory framework, the main features of which are described As of March 2015, once the European renewable generation below for the various business activities. targets are reached, plants above 30 kW will no longer be eligible for incentives. Tunisia Renewables With the approval of Law 12/2015, Tunisia began to de- velop a regulatory system to support renewable energy with three different systems of incentives (concessions, authorizations and self-consumption). The country is com- 136 Under the regulations established by the competent au- thorities (regulatory authorities and ministries) in the various countries, operators are free to make their own decisions concerning investment in generation. Only in Argentina, fol- lowing the change in energy policy in recent years, is there a regulatory framework that envisages greater public control of investments. In Brazil plans for new generation capacity are imposed by ministerial order, and this capacity is devel- oped through auctions open to all. Annual Report 2017All of the countries have a centralized dispatching system document (in force from 1 May to 31 October 2017) will be with a system marginal price. Usually, the merit order is cre- authorized jointly given the time taken to implement the ated based on variable production costs that are measured new legislation. The generation company will sign a com- periodically, with the exception of Colombia, where the merit mitment contract for guaranteed availability with CAMME- order is based on the bids of market operators. SA, which can then transfer it on the basis of a request Currently in Argentina and Peru, regulatory measures are in of the SEE. The remuneration established for each gene- place governing the formulation of the spot market price. In ration unit will be proportionate to actual compliance with Argentina, regulators are working to ensure greater sustain- the contractual terms, with the value calculated at the mi- ability in the electricity market, increase the efficiency of that nimum price. Conversely, thermal generators will be able market and implement a sweeping rate revision to enable to offer additional capacity availability for bimonthly periods operators to meet their cash needs and resume mainte- that can be subcontracted at maximum prices. nance of power stations and networks. The remuneration established by Resolution 19/2017 is de- Long-term auction mechanisms are widely used for whole- nominated in US dollars and is converted at the exchange sale energy and/or capacity sales. These systems guarantee rate published by Argentina’s central bank on the last day continuity of supply and offer greater stability to generation before the termination of each period set by CAMMESA. companies, with the expectation that this encourages new investments. Long-term sales contracts are used in Chile, In the renewables sector, the new legislation postpones Brazil, Peru and Colombia. In Brazil, the price at which elec- achievement of the target of meeting 8% of national elec- tricity is sold is based on the average long-term auction pric- tricity demand with power generated from renewable re- es for new and existing energy. In Colombia, the price is set sources to December 31, 2017, and establishes a series by auction between the operators, which usually enter into of phases for achieving 20% in 2025, setting intermediate medium-term contracts (up to four years). Finally, a regula- targets of 12%, 16% and 18% for 2019, 2021 and 2023 tory framework recently introduced in Chile and Peru allows respectively. Law 27191 creates a trust fund (FODER) to distribution companies to sign long-term contracts to sell finance works, grant tax benefits to renewable energy electricity on regulated end-user markets. Chile, Peru and projects and establish grants at the national, provincial and Brazil have also approved legislation to encourage the use municipal levels until 2025. Large customers (with capacity of unconventional renewable resources, which sets out the requirements of more than 300 kW) will have to individual- objectives for the contribution of renewable resources to the ly meet the above goals, stipulating in the associated con- energy mix and governs their generation. tracts that the price shall not exceed $113/MWh, and esta- Argentina Rate revision and other regulatory developments in 2017 On February 2, 2017, Resolution 19/2017 was published by the Secretaría de Energía Eléctrica (SEE). It sets out the guidelines for defining the rate remuneration for existing generation plants. Resolution 19/2017 establishes remune- ration based on capacity by technology and scale. In ad- dition, for thermal units it also provides for the possibility of undertaking commitments to ensure plant availability for additional remuneration. The generation company can de- clare its availability for each period (summer and winter), the amount of capacity guaranteed by each generation unit for a period of three years, differentiating supply by blishing penalties for those who do not meet these targets. In February 2017 the new rate rules and mechanisms were approved. On February 1, 2017, ENRE published Resolution 64, which closed the RTI (Revisión Tarifaria Integral) process and esta- blished the annual remuneration paid to Edesur SA totaling 14,539,836,941 Argentine pesos (about €830 million). Under the new rate system, the Mercado Eléctrico Mayori- sta limited increases in the Valor Agregado de Distribución (VAD) with specific instructions to ENRE. The new value for this rate component took effect on February 1, 2017, but invoicing of the amount is initially limited to a maximum of 42% of the total. Invoicing of the full amount will only be possible as from February 1, 2018, with an intermediate step in November 2017 where the 42% limit is raised in season. The only exception for 2017 is that the declaration part. of guaranteed availability and the seasonal winter planning The rules also establish that ENRE shall pay Edesur and Edenor the portion already accrued and not invoiced betwe- 137 Report on operationsen February 1, 2017 and February 1, 2018 in 48 installments assignment of about 3 GW of existing capacity. as from February 1, 2018, which will be incorporated in the In April 2017, a resolution introduced an indemnity mecha- value of the VAD to be invoiced subsequently. nism for costs incurred by hydroelectric plants as a result The new rules also provide for updating the rates of distri- of foregone generation due to the forced entry of thermal bution companies on the basis of inflation and criteria for generation plants that are theoretically outside the merit service quality and regulation of supply. order curve. SEE Resolution 1085/2017 modifies, as of December 1, 2017, the way in which operators pay for electricity tran- sport, although the remuneration has not been changed Updated Bandeiras Tarifárias As of November 2017, the generation cost classes (Bandei- apart from what is already incorporated in the rate revision. ras Tarifárias) are as follows: It establishes that: > “Green”: favorable hydroelectric generation conditions; > the costs associated with the remuneration for transport are divided in proportion to demand; > generation companies will only pay the direct connection > “Yellow”: $R1.00 per 100 kWh; > “Red level-1”: $R3.00 per 100 kWh; > “Red level-2”: $R5.00 per 100 kWh. costs; > CAMMESA shall propose the needed changes to the processes covered by the measure within 90 days. Conta de Desenvolvimento Energético (CDE) Brazil Rate revision for Enel Distribución Rio SA (formerly Ampla) On March 14, 2017, Enel Distribución Rio SA signed a new concession agreement (sixth revision) following public hearings 095 and 058. At the hearings, the parties involved discussed the regulation and application of the rate mecha- nism by the distribution companies, leading to the approval of the amendments discussed, which were to be incorpo- rated in the concession agreement in accordance with De- cree 2194/2016. Rate revision for Enel Distribución Ceará SA (formerly Coelce) On April 20, 2017, ANEEL endorsed the rate revision for Enel Distribución Ceará SA with Resolution 2.223. Created with Law 10438/2002, the CDE is a government fund designed to foster the development of generation from alternative energy sources, promote the globalization of energy services and subsidize low-income residential customers. The fund is financed with a surcharge levied through rates for consumers and generators. ANEEL’s initial proposal was to reduce the rate surcharge for the CDE by 36%, taking account of the fact that the substantial reduction in the cost of fuels, which had already begun in 2015, had not been promptly reflected in reduc- tions in the rate surcharges in 2016. Resolution 1.576 authorized distribution companies to off- set the reduction in amounts billed (following application of the court ruling upholding the demand of certain appel- lants to be charged a lower CDE rate surcharge) in monthly installments. The difference between the normal rate and that established in the court ruling will be recovered by the distribution companies through smaller monthly payments to the fund. Renewables In April 2017, the Ministry of Energy, following up on the measures already taken to reduce market over-contracting, published a resolution defining the mechanism for the auc- tion to void contracts signed in the past within the context of reserve auctions. The auction is scheduled to take place on August 31, 2017. A second auction for the reallocation of terminating hydroelectric plant concessions is expected to take place by the end of September and will involve the Enel Distribuição Goiás rate revision On October 17, 2017, ANEEL approved the updated rate for Enel Distribuição Goiás through Resolution 2,317. The annual rate revisions for Enel Distribuição Goiás mean an average increase of 14.65% for consumers. Specifically, this reflects the average of the increases of 12.03% and 15.89% respectively for low-voltage and high- voltage consumers. 138 Annual Report 2017White rate On September 12, 2016, ANEEL approved regulation. Distribution service quality technical regulations 733/2016 establishing the conditions for applying the new On December 18, 2017 CNE Resolution 706 was published, hourly rates for low-voltage power, the so-called white rate. setting higher distribution services quality standards. The white rate is a new hourly rate option that changes depending on the time of day and will differ on the basis of the consumption level of each customer as from 2018. Ini- tially, the new rate will apply to consumers with low-voltage connections (127, 220, 380 or 440 V, group B) and new cus- tomers. As from January 2020, it will be an option for any consumer, with the exception of those who already benefit from certain preferential rates. Chile Renewables On March 30, 2017 Resolution 154 was published. It es- tablishes the terms and conditions for the application of the Mechanism for Open Access to the system, legislat- ing articles 79 and 80 of the General Electrical Service Act. The resolution, which anticipates the rules in the Transmission Act, includes, for the first time in Chilean law, a mechanism that permits the reservation of techni- cal capacity for future projects in both private and public Electricity distribution transmission systems. Enel is promoting a demonstration project to install 50,000 smart meters in 2016, with the ultimate goal of replacing all existing meters (about 1.6 million) by 2020. This investment will be recognized by Chile’s regulator (CNE) if it recognizes the legitimacy of including the cost of the operation in the Valor Agregado de Distribución. In this regard, on September 5, Chilectra presented the CNE with a study prepared by Systeple to define the cost components of the VAD with a view to setting the rates that will enter force on November 4, 2016. At the same time, Chile’s parliament approved the “Ley de equidad tarifaria”, which modifies the rate structure in areas were generation plants are located in order to equal- ize these areas with the urban areas where greater econo- mies of scale can be achieved. The “Ley de transmisión eléctrica” (Law 20.936) achieved the objective of unifying the various electricity dispatching centers in the country, as well as eliminating the payment of transmission charges by generators and passing them on to society as a whole through rates. In 2017 the regu- lations and implementing decrees were published, with the exception of the ancillary services regulation, which is In April 2017, the Ministry of Public Assets published a ministerial order modifying the conditions for concessions for use of public lands for the development of renewables projects. More specifically, the maximum period for the entry into service of the plant has been extended (from 3 to 10 years) and the cost of the concession has been re- duced considerably (eliminating payment of a double tariff and lowering the values of the associated guarantees). Peru Emergency response to flooding in March 2017 Supreme Decree 007-2017-EM, issued in response to the heavy rains that fell in March 2017 in Peru and the damage produced by the consequent flooding, approved immedi- ate measures to secure the supply of electricity to custom- ers of the public power service at the national level. These included a suspension of service quality standards and the declaration of a 30-day state of emergency in the SEIN. Supreme Decree 008-2017-EM also responded to the flooding emergency with an authorization protocol for elec- expected to be published in 2018. tricity imports. In addition, along with the “Ley de transmisión eléctrica”, Resolution 650 was published, establishing the payment of taxes on thermal power plant emissions under the tax reform. 139 Report on operationsNorth and Central America United States of America Federal level Following the November 2016 elections, in March 2017, President Trump signed an executive order asking the En- vironmental Protection Agency (EPA) to take steps to undo the Clean Power Plan, the 2015 proposal that regulates greenhouse gas emissions from power plants in order to stimulate demand for renewable energy projects in the years following regulatory compliance period that begins in 2022. In December 2017, the United States undertook a complete overhaul of the federal tax code, cutting the corporate tax rate to 21% and changing the rules on depreciation to al- low 100% of expenditure to be depreciated in years 2018 through 2022, and reducing this percentage from 2023 to 2026. In April 2017, US photovoltaic solar cell manufacturer Su- niva submitted a petition with the US International Trade Commission (USITC) to safeguard Section 201 of the Trade Act of 1974, asserting it has suffered harm as a result of the importation of low-priced photovoltaic cells and modules. House Bill 2298 ends the eligibility for tax credit for all pro- jects that had not become operational before July 1, 2017, including Enel Green Power North America projects under construction and in the pipeline. Mexico Renewables The Energy Ministry published the requirements for the Energía Limpia certificates that companies must meet for the years 2018 through 2022, specifically: 5.0% for 2018; 5.8% for 2019; 7.4% for 2020; 10.9% for 2021; 13.9% for 2022. The Comisión Reguladora de Energía (CRE) and Comisión Federal de Electricidad (CFE) published the methodology for calculating the regulated rate and the rates for 2018. They will be revised each year. In 2017 the third long-term auction was held, with 7,451 MW being awarded at an average price of 20.57 MWh/$ + clean energy certificates (CELs). The first two auctions were held in 2015 and 2016. Panama Renewables In May, the USITC decided to move ahead with an inves- The Panamanian government is issuing a new law on elec- tigation to determine whether the photovoltaic products tricity making changes to the national transmission com- were imported into the US in such quantities as to threaten pany, introducing a new “market participants” designation the US photovoltaic manufacturing industry. In September, and imposing a carbon tax on greenhouse gas emissions. the USITC found that domestic PV production was injured The third electricity transmission line was inaugurated on by imports and in October it recommended three separate October 26, 2017 and will be managed by the national dis- remedies to President Trump. These remedies included po- patch center. The project is expected to improve the trans- tential tariffs and import licenses. Solar market experts pre- port of electricity from the province of ChiriquÍ, where dicted that the prices of PV solar panel prices will increase Enel Fortuna is located, to Panama City. by between $0.01 and $0.32 per watt depending on the remedy. Under the Trade Act of 1974, the President has the authority to accept or modify the recommendations of the USITC. The President is expected to make a decision Sub-Saharan Africa and Asia in January 2018. State level In April 207 Oklahoma Governor Mary Fallin signed SB 593 and HB 2298 into law. Senate Bill 593 eliminates some of the requirements for wind energy facilities for private air- ports and also establishes a notification system for facilities India Renewables India is a federal republic composed of 29 states, each of which has specific responsibilities in various sectors as well as shared responsibility with the federal government that are to be built in areas where oil and gas are found. in the electricity sector. 140 Annual Report 2017The Ministry of New and Renewable Energy (MNRE) On May 18, 2017, the government announced the new defines and implements policy for the development of tax rates for goods and services under the Goods & Ser- renewable energy at the national level. In addition to vices Tax Law reform, begun in the 3rd Quarter of 2016 the Ministry, the power market is supervised at the fed- to simplify the country’s indirect tax system, and taking eral level by the Central Energy Regulatory Commission effect July 1, 2017. The rate for most of the components (CERC), which sets guidelines and standard rates, and by needed to build renewables plants is 5%, leading to a the State Energy Regulatory Commissions (SERC), which slight overall increase since previously such components implement them at the state level. fell into tax exempt categories. In June 2015 the government headed by Prime Minister Narendra Modi approved a target of 175 GW of renewa- bles capacity by 2022, including 100 GW from solar, 60 GW from wind and about 15 GW from other technologies. This ambition target was further strengthened in October 2016, when India ratified the Paris climate agreement in December 2015, committing itself to cut carbon emis- sions by 33-35% (Intended Nationally Determined Contri- bution - INDC) from their 2005 levels and to ensure that 40% of its installed capacity will be generated from non- fossil sources by 2030. The renewables sector is highly fragmented since each state has its own regulatory scheme for developing new capacity. As a general rule, each state sets non-binding annual obligations, called Renewable Purchase Obligations (RPOs), for the share of electricity to be generated from re- newable resources. The state distribution companies must meet the RPOs by buying or producing renewable energy or by purchasing Renewable Energy Certificates (RECs). In general, the most often used way is to buy renewable energy through auctions. This instrument has been used since 2010 for solar power through the Jawaharlal Nehru National Solar Mission (JNNSM) program, whose imple- mentation is overseen mainly by Solar Energy Corpora- tion India (SECI), and through state auctions. Wind power, however, has only been formally subject to auctioning since January 2017, following the publication of the imple- mentation directives by the MNRE in 2016; the auctions replace the earlier system based on preferred feed-in tar- iffs set by each state. Usually the winners of the auctions are awarded 25-year power purchase agreements (PPAs) at fixed rates with SECI or Power Trading Company (PTC), which in turn sell the electricity through power sales agreements (PSAs) to state distribution companies (Discoms). The federal Generation Based Incentive (GBI), which pro- vided for premiums to be paid by Indian Renewable En- ergy Development Agency Limited (IREDA) in addition to the state preferred feed-in tariffs for wind plants, ceased as of April 1, 2017. South Africa Renewables 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 Produc- er Procurement Programme (REIPPPP), an auction system launched in 2011 that seeks to install around 13 GW in new renewable capacity between 2014 and 2020 (hydroelectric <40 MW, concentrated solar and photovoltaic, wind, bio- mass, biogas and landfill gas power). Currently, five rounds (bid windows) are scheduled, four of which have already been held, with the award of more than 5,000 MW of ca- pacity. In 2015 an additional round – called the Expedited Round, or Round 4.5 – was added and held for an additional 1,800 MW, which have not yet been assigned. After a pre-qualification phase, which is concerned with technical and financial issues, qualified projects are chosen 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 parameters focus- ing on the economic development of the country, including local content and the creation of jobs for South Africans, es- pecially non-whites. The winners are awarded 20-year power purchase agree- ments (PPAs) with Eskom, the national power utility. Es- kom’s payments are guaranteed by the government. The program has been suspended due to Eskom’s delay in signing the PPAs for the winners of Rounds R3.5 and R4, while the winners of Round R4.5 have not been announced. Negotiations are under way between Eskom, the independ- ent power producers and the Department of Energy to re- solve the situation. At the end of March 2017 the public consultation on the draft revision published in November 2016 by the South Afri- can Department of Energy (DOE) was concluded. This draft 141 Report on operationswas a revision of the Integrated Energy Plan (IEP) and the > the Small-scale Renewable Energy Scheme creates a Integrated Resource Plan (IRP), the long-term plans incor- financial incentive for households or small business cu- porating the development strategy for the country’s energy stomers to install small-scale renewable energy systems and electricity sectors through 2050. The final documents (usually rooftop solar panels), for which they can receive are expected to be published in the 1st Quarter of 2018. Small-scale Technology Certificates (STCs). Retailers are NERSA, the national electricity regulator, is in the process of also required to buy these STCs in specified amounts. revising the rules on the use of the national grid by third par- ties (wheeling), on the granting of generation licenses and The states have their own renewable energy policies and on distributed generation. some – with more ambitious targets than the federal ones Australia Renewables Australia is a federal constitutional monarchy composed of six states and two territories. The electricity sector is regulat- ed by a collection of federal and state policies, overseen by various actors. The primary regulators at the central level are: the Council of Australian Governments (COAG), made up of the federal and state energy ministers who guide the devel- opment of energy policies; the Australian Energy Regulator (AER), which is the economic regulator; the Australian Ener- gy Market Commission (AEMC), which is the rule maker and is responsible for market development; and the Australian Energy Market Operator (AEMO), which is the system and market operator. Each state has its own regulatory bodies. The electricity system is divided into two primary mar- kets: the National Electricity Market (NEM), which covers the eastern part of the country where almost 90% of the population resides, and the Wholesale Electricity Market (WEM) in the west, which is much smaller. Both the NEM and the WEM, albeit in slightly different ways, operate as spot markets for electricity, facilitating exchange between generators and suppliers to end users (retailers) and to large industrial customers. The country has a Renewable Energy Target (RET) scheme – have introduced in recent years programs in support of green energy. The state renewable energy targets are, for example: > Victoria: 25% of electricity from renewable sources by 2020 and 40% by 2025 (about 3.3 GW). Auctions began at the end of 2017; > Queensland: 50% by 2030. In August 2017 a tender was launched for 400 MW of electricity and storage; > South Australia: 50% by 2025. At the end of 2017 auc- tions for technologically advanced renewable resources and storage were announced. In the last few years the regulatory framework has been rapidly evolving to match the profound changes that have been occurring in the electricity sector, such as the integra- tion of renewable power plants and the closing of obsolete coal-fueled plants. In October 2017 the federal government introduced a new policy for the NEM, addressing primarily the security and reliability of the electricity system, consumer prices and reducing emissions. Under the new policy, called the Na- tional Energy Guarantee (NEG), retailers are required to buy an appropriate mix of resources to provide: > a “reliability guarantee”, to ensure the right amount of di- spatchable energy; > an “emissions guarantee”, to help reduce emissions in line with Australia’s international commitments (reduc- tion of emissions by 26-28% by 2030 compared with that is operated in two parts: 2005). The new policy must be approved by the states and the operational details must still be defined. It will not be im- plemented before the end of 2019. > the Large-scale Renewable Energy Target (LRET), set in 2015 at 33,000 GWh (around 23% of demand) of genera- tion by 2020, to be maintained at this level until 2030. The LRET creates a financial incentive for renewable energy power plants, which can produce Large-scale Generation Certificates (LGSs) to be sold to retailers. These retailers are required buy them in an amount equal to a certain percentage of the electricity sold to end users, currently around 14%; 142 Annual Report 2017Main risks and uncertainties Due to the nature of its business, the Group is exposed to See also the “Reference scenario” section for an analysis a variety of risks, notably financial risks, industrial and envi- of the factors that represent some of the underlying bases ronmental risks and regulatory risk. In order to mitigate its for these risks. exposure to these risks, Enel conducts specific analysis, measurement, monitoring and management activities, as described in this section. Strategic risks connected with developments in the market, competitive and regulatory environment On November 21, 2017, the Enel Group presented its Stra- nomic variables, as well as the evolution of the regulatory tegic Plan for 2018-2020 to the financial community. It sets framework. out the strategic guidelines and the performance and finan- The 2018-2020 Strategic Plan, drawn up on the basis of cial objectives of the Group. The document used for the these assumptions, includes the following estimates and presentation, “Capital Markets Day - Strategic Plan 2018- forecasts for the years 2018, 2019, 2020 and average 2020”, is available to the public on the Enel Group website growth in 2018-2020. The achievement of the objectives is at www.enel.com in the Investor Relations section. based on a set of assumptions on the occurrence of future The Enel Group Strategic Plan is implemented through a events and actions that the Enel Group plans to undertake, process that involves all the Business Lines and the Coun- including assumptions of a general and hypothetical nature tries/Regions of the Enel Group, which prepare their action relating to future events and actions that will not neces- plans on the foundation of the strategic guidelines speci- sarily occur. Accordingly, the forecasts, being based on fied by the Parent Company. These plans are finally consoli- hypotheses about future events and actions undertaken, dated in the Group’s Strategic Plan. or still to be undertaken, by management, are character- The preparation of the Enel Strategic Plan is based, inter ized by an inherent degree of subjectivity and uncertainty alia, on certain assumptions concerning future events that and, in particular, by the risk that forecast events and the management expects will occur and actions that it intends actions that could follow from those events may not occur to undertake at the time the Plan is prepared, as well as or may occur at different times and in different amounts general assumptions about future events and manage- from those originally planned, while events and actions ment actions that may not necessarily occur, as they de- that were unforeseeable at the time of preparation could pend essentially on variables that are outside the control instead occur. Therefore, divergences between final out- of management. More specifically, the Strategic Plan is comes and forecast values could be significant. based on assumptions about scenarios and the position- In addition, the markets and businesses in which the Group ing of the business. The former include developments in operates are currently experiencing gradual and growing electricity, gas, fuel and raw materials prices, the evolution competition and change in their competitive, technological of electricity and gas demand in the markets where the and regulatory contexts, with the timing and pace of these respective Groups operate, developments in macroeco- developments varying from country to country. As a result 143 Report on operationsof these processes, the Group is exposed to increasing sources with appropriate investment plans in a variety of competition. countries. The business risks generated by the natural participation The Group often operates in regulated markets or regulated of the Group in such markets have been addressed by regimes, and changes in the rules governing operations in integrating along the value chain, with a greater drive for such markets and regimes, and the associated instructions technological innovation, diversification and geographical and requirements with which the Group must comply, can expansion. More specifically, the initiatives taken have in- impact our operations and performance. creased the customer base in the free market, with the In order to mitigate the risks that such factors can engender, aim of integrating downstream into final markets, optimiz- Enel has forged closer relationships with local government ing the generation mix improving the competitiveness and regulatory bodies, adopting a transparent, collaborative of plants through cost leadership, seeking out new high- and proactive approach in tackling and eliminating sources potential markets and developing renewable energy re- of instability in regulatory arrangements. Risks connected with CO2 emissions In addition to being one of the factors with the largest po- monitors the development and implementation of EU and tential impact on Group operations, emissions of carbon Italian legislation, diversifies its generation mix towards the dioxide (CO2) are also one of the greatest challenges facing the Group in safeguarding the environment. use of low-carbon technologies and resources, with a fo- cus on renewables and nuclear power, develops strategies EU legislation governing the emissions trading scheme im- to acquire allowances at competitive prices and, above all, poses costs for the electricity industry. In order to mitigate enhances the environmental performance of its generation the risk factors associated with CO2 regulations, the Group plants, increasing their energy efficiency. Financial risks As part of its operations, Enel is exposed to a variety of fi- The financial risk governance system also defines a system nancial risks that, if not appropriately mitigated, can directly of operating limits at the Group and individual Region, Coun- impact our performance. These include market risks, credit try and Global Business Line levels for each risk, which are risk and liquidity risk. monitored periodically by risk management units. For the The financial risk governance arrangements adopted by Group, the system of limits constitutes a decision-making Enel establish specific internal committees, composed of tool to achieve its objectives. top management and chaired by the Chief Executive Of- For further information on the management of financial ficers of the companies involved, which are responsible risks, please see note 42 ”Risk management” of the con- for policy setting and supervision of risk management, as solidated financial statements. well as the definition and application of specific policies at the Group and individual Region, Country and Global Busi- ness Line levels that establish the roles and responsibilities for risk management, monitoring and control processes, ensuring compliance with the principle of organizational separation of units responsible for operations and those in charge of monitoring and managing risk. Market risks The market risks to which the Group is exposed are con- nected to the fluctuation of commodity prices, exchange rates and interest rates. To maintain the exposure to market risk within operating limits, Enel also uses derivatives. 144 Annual Report 2017Risks connected with commodity prices and supply continuity Enel operates in energy markets and for this reason is ex- posed to changes in the prices of fuel and electricity, which can have a significant impact on its results. panies are exposed, while translation risk is not hedged. Appropriate operational processes ensure the definition and implementation of appropriate hedging strategies, which typically employ financial derivatives obtained on OTC markets. Interest rate risk To mitigate this exposure, the Group has developed a strat- The Group is exposed to the risk that changes in the level egy of stabilizing margins by contracting for supplies of fuel of interest rates could produce unexpected changes in net and the delivery of electricity to end users or wholesalers financial expense or the value of financial assets and liabili- in advance. ties measured at fair value. Enel has also implemented a formal procedure that pro- The exposure to interest rate risk derives mainly from the vides for the measurement of the residual commodity risk, variability of the terms of financing, in the case of new the specification of a ceiling for maximum acceptable risk debt, and from the variability of the cash flows in respect and the implementation of a hedging strategy using deriva- of interest on floating-rate debt. tives on regulated markets and over-the-counter (OTC) mar- The policy for managing interest rate risk seeks to contain- kets. ing financial expense and its volatility by optimizing the In order to mitigate the risk of interruptions in fuel supplies, Group’s portfolio of financial liabilities and by obtaining fi- the Group has diversified fuel sources, using suppliers nancial derivatives on OTC markets. from different geographical areas. Exchange rate risk Credit risk Commercial, commodity and financial transactions expose In view of their geographical diversification, access to in- the Group to credit risk, i.e. the possibility of a deterioration ternational markets for the issuance of debt instruments in the creditworthiness of our counterparties that could and transactions in commodities, Group companies are ex- have an adverse impact on the expected value of the credi- posed to the risk that changes in exchange rates between tor position and, for trade receivables only, increase aver- the currency of account and other currencies could gener- age collection times. ate unexpected changes in the performance and financial The exposure to credit risk is attributable to the following aggregates in their respective financial statements. types of operations: Given the current structure of Enel, the exposure to ex- > the sale and distribution of electricity and gas in free and change rate risk is mainly linked to the US dollar and is at- regulated markets and the supply of goods and services tributable to: (trade receivables); > cash flows in respect of the purchase or sale of fuel or > trading activities that involve the physical exchange of electricity; assets or transactions in financial instruments (the com- > cash flows in respect of investments, dividends from for- modity portfolio); eign subsidiaries or the purchase or sale of equity invest- > trading in derivatives, bank deposits and, more generally, ments; financial instruments (the financial portfolio). > cash flows connected with commercial relationships; The policy for managing credit risk associated with com- > financial assets and liabilities. mercial activities provides for a preliminary assessment of The Group’s consolidated financial statements are also the creditworthiness of counterparties and the adoption of exposed to the exchange rate risk deriving from the con- mitigation instruments, such as obtaining collateral or un- version into euros of the items relating to investments secured guarantees. in companies whose currency of account is not the euro In addition, the Group undertakes transactions to assign re- (translation risk). ceivables without recourse, which results in the complete The exchange rate risk management policy is based on sys- derecognition of the corresponding assets involved in the tematically hedging the exposures to which the Group com- assignment. 145 Report on operationsFinally, with regard to financial and commodity transac- financing. A deterioration in the credit rating could therefore tions, risk mitigation is pursued through the diversification restrict access to the capital market and/or increase the cost of the portfolio (preferring counterparties with a high credit of funding, with consequent negative effects on the perfor- standing) and the adoption of specific standardized con- mance and financial situation of the Group. tractual frameworks that contain risk mitigation clauses In 2017, Enel’s ratings from the rating agencies Moody’s and (e.g. netting arrangements) and possibly the exchange of Fitch did not change, while Standard & Poor’s upgraded its cash collateral. Liquidity risk Liquidity risk is the risk that the Group, while solvent, would rating from “BBB” to “BBB+”. Accordingly, at the end of the financial year, Enel’s rating was: (i) “BBB+” with a stable out- look for Standard & Poor’s; (ii) “BBB+” with a stable outlook for Fitch; and (iii) “Baa2” with a stable outlook for Moody’s. Enel’s liquidity risk management policies are designed to not be able to discharge its obligations in a timely manner maintain a level of liquidity sufficient to meet its obligations or would only be able to do so on unfavorable terms owing over a specified time horizon without having recourse to to situations of tension or systemic crises (credit crunches, additional sources of financing as well as to maintain a pru- sovereign debt crises, etc.) or changes in the perception of dential liquidity buffer sufficient to meet unexpected obli- Group riskiness by the market. gations. In addition, in order to ensure that the Group can Among the factors that define the risk perceived by the discharge its medium and long-term commitments, Enel market, the credit rating assigned to Enel by rating agencies pursues a borrowing strategy that provides for a diversified plays a decisive role, since it influences its ability to access structure of financing sources to which it can turn and a sources of financing and the related financial terms of that balanced maturity profile. Country risk By now, more than 50% of the Enel Group’s total revenue The former include the tensions in Spain, the talks for the is generated abroad. The substantial internationalization of renegotiation of NAFTA and those relating to Brexit, and the Group – which among other regions operates in South the deterioration in relations between the United States and America, North America, Africa and Russia – requires Enel North Korea. In particular, in assessing risk, Brazil, while re- to consider and assess country risk, which consists of the maining in an intermediate class, showed a slight increase in macroeconomic, financial, regulatory, market, social and risk associated with socio-political factors. Political instability geopolitical risks whose manifestation could have an ad- in the country has delayed the implementation of structural verse impact on income or threaten corporate assets. Enel reforms capable of raising the country’s potential. The results has therefore adopted a model for assessing country risk of elections in a number of European countries reduced po- in the countries in which it operates. In order to mitigate litical tensions, leaving the risk unchanged at a very low level. country risk, the model supports capital allocation and in- vestment evaluation processes. The economic factors include the risks associated with the sustainability of fiscal balances in the face of the investments The year 2017 was marked by the strengthening of the necessary to increase productivity, or the lack of diversifica- global recovery and international trade. The signals of more tion of the South American countries, which increases their buoyant activity that emerged at the end of 2016 were con- exposure to cyclical fluctuations, or the spread of protectionist firmed in 2017. Economies boosted by cyclical factors and policies. From a financial point of view, the gradual normaliza- stimulated by expansionary monetary policies grew at a tion of central bank policies, which could increase the volatil- rapid pace. Despite the improvement in the global environ- ity of financial markets, should not be overlooked. The global ment and the increase in the level of confidence, political banking system, helped by the positive economic situation and economic risks remain. and as a consequence of the increasing level of regulation of the sector, is on a more solid footing than the previous year. 146 Annual Report 2017Industrial and environmental risks Extreme weather events and natural disasters in the current climate scenario Within the current climate scenario, the Group is exposed to the risk of damage to assets and infrastructures caused by extreme weather events or natural disasters and to the risk of the consequent prolonged unavailability of these assets. In order to mitigate these risks, the Group uses the most advanced prevention and protection strategies, with the concomitant aim of reducing the possible impacts on the communities and the areas surrounding the assets: constant monitoring and weather forecasting in the areas where the most exposed assets are located. Furthermore, numerous actions have been taken to increase the resil- ience of the assets most exposed to extreme weather or natural disasters. climatic variables (both gradual and extreme) on Enel’s busi- nesses. These scenarios are used to assess the possible economic and financial impacts on the business and to evaluate the Group’s strategy and the related risk manage- ment and governance arrangements. Constant effort goes into monitoring the development and implementation of Community and national regulations, maintaining transpar- ent and constructive relationships with local and interna- tional regulatory authorities and bodies. The Group is also involved in the continuous improve- ment of the environmental impact of its existing activi- ties through its emission reduction targets, first and fore- most the goal of “zero-emission generation” in 2050. Enel adopts a strategy aimed at growth through development of increasingly low-carbon technologies and services, in line with the COP21 objectives. All of the areas of the Group undergo ISO 14001 certifica- tion and potential sources of risk are monitored with the implementation of internationally recognized Environmen- tal Management Systems (EMS) so that any critical issues Risks related to cyber attacks The era of digitization and technological innovation means can be detected promptly. that organizations are increasingly exposed to cybernetic Failure to mitigate and adapt to climate change The fight against climate change is one of the major global challenges, which exposes the Group to a variety of me- dium/long-term risk factors. These include the risks related to legislative and regulatory changes associated with the fight against climate change. Work is also carried out to as- sess the risks connected with the impact of gradual climate changes (e.g. air and water temperatures) on the operation of our assets. Furthermore, the socio-economic transformations related to climate change are analyzed to assess the impact they can have on the Group’s business and activities. In order to assess and quantify the main risks related to the failure of climate change mitigation efforts, an analysis of long-term climate scenarios was launched, in line with the indications of Bloomberg’s Task Force for Climate-related Financial Disclosures. The focus of the exercise was to analyze the possible impacts of developments in the main attacks, which are becoming increasingly numerous and sophisticated, partly reflecting the changes in the context in which they occur. The organizational complexity of the Group and the numerous environments it encompasses (data, people and the industrial world) expose our assets to the risk of attacks. The Enel Group has adopted a model for managing these risks based on a “systemic” vision that integrates the traditional information technology sec- tor, the operational technology field most closely linked to the industrial sector and the Internet of Things associated with the networking of smart “objects”. In particular, Enel has adopted a “Cyber Security Framework” to guide and manage cyber security activities, which provides for the in- volvement of the business areas, the implementation of legislative, regulatory and legal requirements and recom- mendations, the use of the best available technologies, the preparation of ad hoc business processes and an informed workforce. The Framework bases strategic decisions and design activities on a “risk-based” approach and a design and development model that defines the appropriate se- curity measures throughout the life cycle of applications, 147 Report on operationsprocesses and services (cyber security by design). Enel has tional and international communities, in order to direct an also created its own active Cyber Emergency Readiness industrialized response to cyber threats and incidents. Team (CERT), which is recognized and accredited by na- 148 Annual Report 2017Outlook The Group’s 2018-2020 Strategic Plan, presented in No- by 2020 has been confirmed. vember 2017, confirms the key pillars of its strategy, with an > Shareholder remuneration: dividend pay-out confirmed additional evolution and acceleration of its implementation. at 70% on Group net ordinary income from 2018. Mini- Digitalization and customer focus remain major enabling mum dividend per share set at €0.28 in 2018. factors for the strategy, with a view to offering sharehol- ders attractive returns and create sustainable long-term 2018 will see: value for all stakeholders. Specifically, the Group’s 2018- > the continuation of investments in digitalization, with 2020 Strategic Plan focuses on the following issues. an acceleration of the installation of second-generation smart meters in Italy and completion of their installa- > Digitalization: €5.3 billion in investment to digitalize tion in Iberia. The roll-out of the optical fibre network by Enel’s asset base, operations and processes and enhan- OpEn Fiber will also be accelerated; ce connectivity, with a target of €1.9 billion in cumulati- > the contribution of the customer focus strategy on a ve incremental EBITDA between 2018 and 2020. global scale, with the launch of the new customer expe- > Customer focus: a target of €3.3 billion of EBITDA in rience platform in Italy in particular and the acceleration 2020, of which €2.9 billion from the retail power and of Enel X’s activities in the flexibility and electric mobi- gas sector and €400 million from Enel X, leveraging 67 lity businesses; million customers and almost 35 million power and gas > substantial progress in operational efficiency, supported customers in the unregulated market expected in 2020. by digitalization, with a cash cost target of €10.3 billion > Operational efficiency: a target of €1.2 billion of savings in 2020; in real terms in 2020 vs. 2017, of which €500 million > the contribution of industrial growth, focused on net- driven by increased investments in digitalization. works and renewables, with an EBITDA growth target > Industrial growth: shifting capital allocation towards of €1.1 billion; mature economies mainly in networks and renewables, > additional progress in the simplification of the Group with around 80% of growth capex invested in Italy, Ibe- and active portfolio management, with the completion ria and North and Central America. of the restructuring of the assets in Chile and the asso- > Group simplification & active portfolio management: ciated reduction in minority shareholders, and comple- continuing the streamlining of the ownership structu- tion of the BSO (”Build, Sell and Operate”) transforma- re of subsidiaries and rationalizing the operating com- tion for renewables assets in Mexico. panies in South America. Increased focus on minority buy-outs, increasing investment target to €2.3 billion in The progress achieved for each of the enabling factors and 2018-2020. Possibility of share buybacks of up to €2 the key pillars of the Strategic Plan permit us to confirm billion. the performance/financial targets for 2018. In addition, on > Creating sustainable long-term value: thanks to the the basis of the key elements presented above, the per- excellent results obtained in 2017, the Group has streng- formance and financial targets underpinning the Group’s thened its commitment towards: SDG 4 (quality educa- 2018-2020 Strategic Plan are as follows. tion), doubling the previous target to 800,000 beneficia- ries; SDG 7 (clean and accessible energy), confirming the target of 3 million beneficiaries; SDG 8 (decent work and economic growth), for which the previous target has been doubled to 3 million beneficiaries; and SDG 13 (climate action), for which the target of <350 gCO2/kWeq 149 Report on operationsRecurring EBITDA Net ordinary income Minimum dividend Pay-out FFO/Net financial debt billions of euro billions of euro euro per share % % 2018 ~16.2 ~4.1 0.28 70 27 2019 ~17.2 ~4.8 - 70 29 2020 CAGR 18-20 ~18.2 ~5.4 - 70 31 ~+6% ~+15% - - ~+4 p.p. 150 Annual Report 2017Other information Non-EU subsidiaries At the date of approval by the Board of Directors of the (formerly Empresa Nacional de Electricidad SA, a Chilean financial statements of Enel SpA for 2017 – March 22, 2018 company belonging to Enel Chile); 15) Enel Generación – the Enel Group meets the “conditions for the listing of Perú SAA (formerly Edegel SA, a Peruvian company be- shares of companies with control of over companies esta- longing to Enel Américas); 16) Enel Green Power Brasil blished and regulated under the law of non-EU countries” Participações Ltda (a Brazilian company belonging to (hereinafter “non-EU subsidiaries”) established by CON- Enel Green Power); 17) Enel Green Power Chile Ltda (a SOB with Article 15 of the Market Regulation (approved Chilean company belonging to Enel Green Power); 18) with Resolution 20249 of December 28, 2017). Enel Green Power del Sur SpA (a Chilean company belon- Specifically, we report that: ging to Enel Green Power); 19) Enel Green Power México > in application of the materiality criteria for the purposes S de RL de Cv (a Mexican company belonging to Enel of consolidation provided for in Article 15, paragraph 2, Green Power); 20) Enel Green Power North America Inc. of the CONSOB Market Regulation, 23 non-EU subsidia- (a US company belonging to Enel Green Power); 21) Enel ries of the Enel Group have been identified to which the Kansas LLC (a US company belonging to Enel Green Po- rules in question apply on the basis of the consolidated wer); 22) Enel Russia PJSC (a Russian company); 23) Gas accounts of the Enel Group at December 31, 2016. Atacama Chile SA (a Chilean company belonging to Enel They are: 1) Enel Distribución Rio SA (a Brazilian company Chile); belonging to Enel Américas); 2) Cimarron Bend Assets > the balance sheet and income statement for the 2017 LLC (formerly Cimarron Bend Wind Project LLC, a US financial statements of the above companies included in company belonging to Enel Green Power); 3) Codensa the reporting package used for the purpose of preparing SA ESP (a Colombian company belonging to Enel Améri- the consolidated financial statements of the Enel Group cas); 4) Enel Distribución Ceará SA (a Brazilian company will be made available to the public by Enel SpA (pursuant belonging to Enel Américas); 5) Dominica Energía Limpia to Article 15, paragraph 1a) of the Market Regulation) at S de RL de Cv (a Mexican company belonging to Enel least 15 days prior to the day scheduled for the Ordinary Green Power); 6) Emgesa SA ESP (a Colombian com- Shareholders’ Meeting called to approve the 2017 finan- pany belonging to Enel Américas); 7) Empresa Distribu- cial statements of Enel SpA together with the summary idora Sur - Edesur SA (an Argentine company belonging statements showing the essential data of the latest an- to Enel Américas); 8) Empresa Eléctrica Panguipulli SA nual financial statements of subsidiaries and associated (a Chilean company belonging to Enel Green Power); 9) companies (pursuant to the applicable provisions of Arti- Enel Américas SA (a Chilean company resulting from the cle 77, paragraph 2-bis, of the CONSOB Issuers Regula- demerger of Enersis SA); 10) Enel Brasil SA (a Brazilian tion approved with Resolution 11971 of May 14, 1999); company belonging to Enel Américas); 11) Enel Chile SA > the articles of association and composition and powers (a Chilean company resulting from the demerger of Ener- of the control bodies from all the above subsidiaries have sis SA); 12) Enel Distribución Chile SA (formerly Chilectra been obtained by Enel SpA and are available in updated SA, a Chilean company belonging to Enel Chile); 13) Enel form to CONSOB where the latter should request such Distribución Perú SAA (formerly Empresa de Distribución information for supervisory purposes (pursuant to Article Eléctrica de Lima Norte SAA, a Peruvian company be- 15, paragraph 1b) of the Market Regulation); longing to Enel Américas); 14) Enel Generación Chile SA > Enel SpA has verified that the above subsidiaries: 151 Report on operations - provide the auditor of the Parent Company, Enel SpA, auditor of the Parent Company, Enel SpA, of income with information necessary to perform annual and in- statement, balance sheet and financial data necessa- terim audits of Enel SpA (pursuant to Article 15, para- ry for preparation of the consolidated financial state- graph 1 (letter c-i)) of the Market Regulation); ments (pursuant to Article 15, paragraph 1 (letter c-ii)) - use an administrative and accounting system appro- of the Market Regulation). priate for regular reporting to the management and Approval of the financial statements The Shareholders’ Meeting to approve the financial state- 120 days from the close of the financial year, permitted un- ments, as provided for by Article 9.2 of the bylaws of Enel der Article 2364, paragraph 2, of the Italian Civil Code, is SpA, shall be called within 180 days of the close of the fi- justified by the fact that the company is required to prepare nancial year. consolidated financial statements. The use of that time limit rather than the ordinary limit of 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. 152 Annual Report 2017Atypical or unusual operations Pursuant to the CONSOB Notice of July 28, 2006, Enel did lating the transfer price or timing could give rise to doubts not carry out any atypical or unusual operations in 2017. concerning the propriety and/or completeness of disclosure, Such operations include transactions whose significance, conflicts of interest, preservation of company assets or pro- size, nature of the counterparties, object, method for calcu- tection of minority shareholders. Subsequent events Significant events following the close of the year are discussed in note 50 to the consolidated financial statements. 153 Report on operations02Sustainability The sustainable business model In an environment of constant and rapid change, exposing and which are a part of policies and standards of conduct the energy industry to new risks and offering new oppor- that are applicable throughout the Group. tunities, Enel’s model of sustainable business leverages It is a model that promotes sustainable development and the synergies among the various business areas and the is fully in line with the indications of the United Nations outside world in order to develop innovative solutions to Global Compact, of which Enel has been an active mem- reducing our environmental impact, to meeting the needs ber since 2004, reiterating the importance of increasing of local communities and to improving safety for both the integration of sustainability within the company’s stra- employees and suppliers. Understanding the context in tegic decision-making processes. Enel’s CEO has been which Enel operates and actively listening to everyone a member of the United Nations’ Global Compact Board with whom we work enable us to create sustainable long- since June 1, 2015. term value, blending economic and social growth. It is a A key aspect of this approach is the adoption of envi- strategic and operational approach founded on the “Open ronmental, social and governance (ESG) sustainability Power” concept of openness, where sustainability and in- indicators throughout the value chain, not only for asses- novation are an essential combination. sments of results achieved, but above all to drive decision- Framing this are the principles of ethics, transparency, making and develop a proactive stance, in line with the anti-corruption, human rights and health and safety that Sustainable Development Goals (SDG) 2030 of the United have always been a distinctive feature of Enel’s operations Nations. Enel’s commitment to the United Nations’ Sustainable Development Goals On September 25, 2015, the United Nations formally adopted the new Sustainable Development Goals (SDGs) 2030 that were officially launched the next day at the Private Sector Forum held in New York City. Through the SDGs, the United Nations called on companies to be creative and innovative in addressing the challenges of sustainable deve- lopment, such as poverty, gender equality, clean water, clean energy and climate change. The success in achieving the new goals will rely heavily on the policies that will be adopted by all actors involved. The sustainability of Enel’s strategy is also confirmed by the rapid progress achieved in contributing to attaining the 17 SDGs, with a focus on four in particular: > SDG 7 - ensuring access to affordable, reliable, sustainable and modern energy, including the promotion of energy- efficiency services, the beneficiaries of which will include three million people primarily in Africa, Asia and South America by 2020. In the 2015-2017 period, 1.7 million beneficiaries had been reached. > SDG 4 - supporting projects to ensure inclusive and equitable quality education for 400,000 people by 2020. In the 2015-2017 period, about 600,000 beneficiaries had been reached, prompting us to double the goal to 800,000 bene- ficiaries by 2020. > SDG 8 - promoting sustained, inclusive and sustainable economic growth for 500,000 people by 2020. In the 2015- 2017 period, around 1.5 million beneficiaries had been reached, so the target was doubled again to 3 million benefi- ciaries by 2020. > SDG 13 - taking targeted action to achieve decarbonization by 2050. As of December 2017, specific CO2 emissions totaled 411 g/kWheq and the target has been confirmed at <350 gCO2/kWheq by 2020. 156 Annual Report 2017For the second time, Enel was included in the “Change quently, it is possible to verify the degree of alignment or the World” ranking produced by Fortune magazine, which misalignment between external expectations and internal classifies the world’s 50 leading companies whose opera- priorities. tions create a positive social impact. The commitment to The materiality analysis, which is conducted with increasin- decarbonization, the construction of the first geothermal gly greater detail in terms both of issues and geographical plant in South America (Cerro Pabellón) and the Vehicle- scope, makes it possible to identify the company and sta- to-Grid (V2G) hub in Denmark, which transfers unused keholder priorities for the entire Group and for each country power from electric vehicles to the grid, are just some of of operations. It is also possible to obtain results with a the activities taken into consideration. Enel is also ranked specific focus such as the matrix for the sole stakeholder 19th in Forbes’ classification of the “500 best employers” category of “financial community”, which is useful for iden- in the world. tifying issues to be discussed in the Annual Report in order to provide integrated reporting on performance. In particu- Non-financial information is coming under increasing scru- lar, this analysis has pointed to the following priorities: new tiny by investors and the financial markets, who are now technologies, services and digitization, decarbonization of focusing on the ability of a company to make sustainable the energy mix, efficiency in operations, the creation of long-term business plans that translate into concrete, me- economic and financial value, and health and safety in the asurable actions and better financial performance. workplace. Socially responsible investment funds continued growing Based on the material analysis results, the issues to be in- in 2017. Enel has 160 socially responsible investors (up cluded in the reports are defined and the specific targets from 150 in 2016), which hold about 8.6% of all Enel sha- and objectives of the 2018-2020 Strategic Plan are set. res in circulation (compared with 8% in 2016), equal to Operations and projects regarding various functions and 11.3% of the float (10.5% in 2016). In absolute value, sha- Business Lines of the Group contribute towards achieving res held by SRI investors increased by 8%. these targets and objectives as detailed in the 2018-2020 Priority analysis and definition of sustainability goals For several years now, Enel has conducted materiality Sustainability Plan. As part of its Strategic Plan, Enel has identified the most significant emerging risks: > cyber attacks (“cyber risk”): the era of digitization and technological innovation means that organizations are increasingly exposed to cybernetic attacks, which are becoming increasingly numerous and sophisticated, analyses – based on the guidelines of the most widely partly reflecting the changes in the context in which they adopted standards such as the Global Reporting Initiative occur. The organizational complexity of the Group and (GRI) – in order to identify the Group’s intervention priori- the numerous environments it encompasses (data, pe- ties, the issues to consider for disclosure and which sta- ople and the industrial world) expose our assets to the keholder-engagement activities to strengthen. The aim is risk of attacks. The Enel Group has adopted a model for to map and assess the priority of the issues of interest to managing these risks based on a “systemic” vision that stakeholders, integrating them into the Group’s business integrates the traditional information technology sector, strategy and priorities for action. the operational technology field most closely linked to Through this analysis, the main stakeholders of the Group the industrial sector and the Internet of Things associa- are identified and assessed according to their importance ted with the networking of smart “objects”; to the company and to their priorities on the various issues > paradigm change in the world of energy and the transfor- approached in the numerous engagement activities. This mation of the business model of utilities: new macroe- information is then crosschecked with the assessments of conomic and energy trends, technologies and actors can the issues on which Enel intends to focus its efforts, with potentially support and decrease the intermediation role the respective priority value. of the traditional business model of utilities, especially By observing the two perspectives together, it is possible through the combination of factors linked to digitization to identify the issues, which, due to their relevance and and decentralization and changes in customer needs. priority, are essential to Enel and our stakeholders. Conse- Enel’s strategy and “Open Power” vision represent the 157 Report on operations - Sustainabilityframework for responding to the challenges of the tran- interest entities, has drafted a “Consolidated non-financial sition towards the utility of the future. The pillars of that statement” that covers the areas provided for in that de- strategy are the development of new businesses, indu- cree, accompanying the Group’s Sustainability Report. strial growth and agility in operations (operational effi- The reporting process involves collecting and calculating ciency, organizational simplification, short-term remune- specific key performance indicators of economic, envi- ration, active portfolio management), while the central ronmental and social sustainability in accordance with the focus on customers and the digital transformation repre- GRI international standards and the Electric Utilities Sector sent the main enabling factors for the strategy. Disclosures, as well as with the principles of accountability Management and reporting of non-financial information Enel undertakes to constantly manage and measure sustai- of the United Nations Global Compact. More specifically, as from 2017 the new GRI sustainability reporting standards apply. Projects, activities, performance and the other main re- sults, including progress made towards the SDGs in line with the SDG Compass, are presented in Enel’s Sustaina- bility Report, the completeness and reliability of which are nability performance by using and developing mechanisms verified by an accredited external auditing firm, by the Con- that allow for an integrated, standardized system of acti- trol and Risk Committee and by the Corporate Governance vities and information that are kept constantly up to date and Sustainability Committee. The documents are appro- based on developments in the scope of operations and re- ved by the Board of Directors of Enel SpA and presented in levant standards, while promoting the sharing of best prac- the Shareholders’ Meeting. tices and experience. Finally, the Group is included in the leading sustainability The Group, in implementation of the new EU (Directive indexes, such as the Dow Jones Sustainability Index World, 2014/97/EU) and national legislation (Legislative Decree FTSE4Good, the Carbon Disclosure Project (CDP) Climate 254/2016) that has introduced mandatory of non-financial and the Carbon Disclosure Project (CDP) Water, the STOXX information as from the 2017 financial year for large public- ESG Leaders, the Euronext Vigeo Eiris and the ECPI. Values and pillars of corporate ethics A robust system of ethics underlies all activities of the Enel Energia, Enel Sole, Enel Green Power, e-distribuzione, Group. This system is embodied in a dynamic set of rules Enel Trade) and foreign subsidiaries. The anti-bribery certi- constantly oriented towards incorporating national and in- fication process is expected to be completed for the main ternational best practices that everyone who works for and Enel Group companies in 2018-2019. with Enel must respect and apply in their daily activities. The system is based on specific compliance instruments: the Code of Ethics, the Human Rights Policy, the Zero-Toleran- ce-of-Corruption Plan, the Enel Global Compliance Program, Code of Ethics In 2002, Enel adopted a Code of Ethics, which expresses the Compliance Model under Legislative Decree 231/2001 the company’s ethical responsibilities and commitments in and any other national compliance models adopted by Group conducting business, governing and standardizing corpora- companies in accordance with local laws and regulations. te conduct on the basis of standards aimed to ensure the In 2017, Enel SpA achieved certification of the conformity maximum transparency and fairness with all stakeholders. of its anti-bribery management system with the internatio- The Code of Ethics is valid in Italy and abroad, taking due nal certification standard ISO 37001:2016 concerning anti- account of the cultural, social and economic diversity of bribery management systems. Also last year, analogous the various countries in which the Group operates. Enel efforts to achieve ISO 37001 certification were begun at also requires that all associates and other investees and its the Group’s main Italian (Enel Italia, Enel Produzione, Enel main suppliers and partners adopt conduct that is in line 158 Annual Report 2017with the general principles set out in the Code. Programs can be reported, including in anonymous form, Any violations or suspected violations of Enel Compliance through a single Group-level platform (the “Ethics Point”). Other indices No. Confirmed violations of the Code of Ethics (1) 2017 27 2016 21 Change 6 29.0% (1) In 2017, an analysis was performed of violations reported in 2016. As a result, the number of verified violations reported for 2016 was changed from 18 to 21. Compliance Model (Legislative Decree 231/2001) Legislative Decree 231/2001 introduced into Italian law a system of administrative (and de facto criminal) liability for companies for certain types of offences committed by their directors, managers or employees on behalf of or to the benefit of the company. Enel was the first organiza- tion in Italy to adopt, back in 2002, this sort of compliance model that met the requirements of Legislative Decree 231/2001 (also known as “Model 231”). Zero-Tolerance-of- Corruption Plan In compliance with the tenth principle of the Global Com- pact, according to which “businesses should work against corruption in all its forms, including extortion and bribery”, Enel is committed to combatting corruption. For this rea- son, in 2006 we adopted the Zero-Tolerance-of-Corruption (ZTC) Plan as confirmation of the Group’s commitment, as described in both the Code of Ethics and the Model 231, to ensure propriety and transparency in conducting com- pany business and operations and to safeguard our image and positioning, the work of our employees, the expecta- tions of shareholders and all of the Group’s stakeholders. Enel Global Compliance Program The Enel Global Compliance Program for the Group’s foreign Human Rights Policy In order to give effect to the United Nations Guiding Princi- companies was approved by Enel in September 2016. It is a ples on Business and Human Rights, in 2013 the Enel SpA governance mechanism aimed at strengthening the Group’s Board of Directors approved the Human Rights Policy, ethical and professional commitment to preventing the com- which was subsequently approved by all the subsidiaries mission of crimes abroad that could result in criminal liability of the Group. This policy sets out the commitments and for the company and do harm to our reputation. responsibilities in respect of human rights on the part of The types of crime covered by the Enel Global Compliance the employees of Enel SpA and its subsidiaries, whether Program – which encompasses standards of conduct and they be directors or employees in any manner of those areas to be monitored for preventive purposes – are based companies. Similarly, with this formal commitment, Enel on illicit conduct that is generally considered such in most explicitly becomes a promoter of the observance of such countries, such as corruption, crimes against the government, rights on the part of contractors, suppliers and business false accounting, money laundering, violations of regulations partners as part of its business relationships. In 2017 the governing safety in the workplace, environmental crimes, etc. due diligence process continued in line with international In 2017, the process of adopting the program by the Group’s best practice in this field. main foreign companies was completed. 159 Report on operations - Sustainability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 our mission or the following stakeholders: shareholders, lenders, emplo- who have a stake in its pursuit. yees and government. The economic value created and shared by Enel gives a Millions of euro Revenue Income/(Expense) from commodity risk External costs Gross global value added from continuing operations Gross value added from discontinued operations 2017 74,639 578 53,680 21,537 - 21,537 1,068 2,495 4,504 3,273 10,197 2016 70,592 (133) 49,257 21,202 - 21,202 2,542 2,698 4,637 3,244 8,081 Gross global value added distributed to: Shareholders Lenders Employees Government Enterprises Innovation, digitization and operating efficiency To promote new uses of energy and new ways of mana- tribute to sustainable business practices and to transform ging it and making it accessible to more people in a sustai- ideas into actual projects. In terms of these collaborations, nable manner, Enel has made innovation and digitization key Enel’s focus is not only on partnerships with major corpora- aspects of our business strategy. It is a strategy that touches tions, but also on virtuous collaborations with start-ups and both our traditional business and the development of new small and medium-sized enterprises that are doing excellent technologies and new business models in a manner that work. levers the creativity, passion, ideas and technologies both Enel’s commitment to digital progress and open innovation within the organization and from the outside. was recognized in 2017 with the Business Model Transfor- In line with our vision of Open Power, the Group promotes mation Award for the fourth edition of the World Open In- an open model of innovation in facing the challenges of the novation Conference, one of the most important events industry throughout the various areas of the organization. worldwide in the field organized by the Garwood Center for It is an approach based on sharing that enables us to face Corporate Innovation and the University of California, Berke- the challenges in all areas of the organization with start-ups, ley, Haas School of Business and held in San Francisco. industrial partners, small and medium-sized enterprises, re- Enel is currently involved in some 200 innovation projects search centers, universities, and crowdsourcing platforms. and 14 Global Innovation Partnerships, bringing the total Collaborations arise within the Open Innovation ecosystem, number of local and global innovation partnerships to 124. In with was renamed “Open Innovability” in 2017 as an expres- 2017, we also launched three more innovation hubs (in Cali- sion of our firm belief at Enel that innovation and sustainabi- fornia, Russia and Spain) to further strengthen Enel’s presen- lity are always inextricably linked. It is an ecosystem that, in ce in some of the world’s most cutting-edge ecosystems. 2017, enabled us to launch the online platform openinnovabi- These innovation hubs make a new model of collaboration lity.enel.com for individuals and businesses looking to con- possible in that the Group provides the infrastructures and 160 Annual Report 2017a global network of businesses along with their knowledge a drone system at the Torrevaldaliga Nord plant to provide and experience as global industry players. We also inaugu- environmental monitoring and security services. The drone rated the first Innovation Lab in Catania (Italy) to stimulate is able to fly autonomously with the aid of video-analysis al- research and innovation in the energy industry by creating a gorithms and the definition of three-dimensional flight paths technology campus and a business accelerator for young pe- via software. An anti-drone system has also been installed to ople designed to host local, national and international start- protect the plant from intrusions by hostile drones. ups and research centers. The digital revolution of grids involved improvements to Out of these intellectual collaborations and cross-contami- efficiency and service quality for customers in the various nations came innovative solutions that have also led to the countries in which Enel operates. One major example is the filing of specific patents. One such example in the workplace microgrid in Paratebueno (Colombia), which made it possible health and safety area is the fabric for gloves to be used to bring sustainable electricity to a number of villages and when working with low voltage, which was the result of a which will serve to test new technologies to be replicated collaboration between the Innovation unit of Global Thermal in other areas. In Spain, within the scope of the project “la Generation and Istituto Italiano di Tecnologia (IIT), which led Graciosa”, Enel has worked to demonstrate the efficacy of to the joint filing of a patent and an innovative agreement for storage systems in order to maximize the penetration of re- the joint management of the related rights. newable energy while maintaining maximum service quality The process of change must necessarily involve the deve- in the distribution networks. Work also continued for the Eu- lopment of specific projects to promote a culture of inno- ropean project RESCCUE (Resilience to cope with Climate vation and entrepreneurship globally, and this includes the Change in Urban Areas), in which Enel is involved through promotional campaign co-created by employees around the our Spanish subsidiary, Endesa. The project was launched in world known as “#nomoreexcuses”. The goal of this cam- order to develop innovative tools and models to improve the paign was to identify the causes – the “excuses” of the ability of urban areas to face current and future challenges hashtag – of the cultural obstacles to change, and for each of related to climate change. these a response was given in order to stimulate a reaction Finally, the Group is also focusing on the fields of access to overcome them and to promote an attitude of openness to energy, the integration of renewables into the electrical to innovation. system, and the use of new technologies in order to improve The main innovation efforts in 2017 in the field of thermal energy access in local communities by electrifying remote generation concerned improvements to plant flexibility and areas by combining diverse generation technologies and efficiency and minimization of emissions and environmental using storage systems, while also seeking solutions to en- impact, as well as the application of advanced monitoring hance the efficiency and flexibility of renewable resources and diagnostics system and Internet of Things (IoT) appli- in urban settings, as well, and developing the use of new cations and the development of storage systems and new renewable resources that are not currently being exploited, business models. One such example is the installation of with a particular emphasis on marine energy. Renewable energy and decarbonization of the energy mix Combatting climate change and protecting the environment mix, Enel is active in innovation, digitization, electric mobi- are among the responsibilities of a global energy organiza- lity, energy efficiency and a range of other efforts. In this tion like Enel as we seek to achieve full decarbonization of scenario, Enel’s commitment to the circular economy, which electricity production by 2050, thereby contributing to the melds innovation, competitiveness and environmental su- United Nations Sustainable Development Goal 13 (SDG 13). stainability, involves all of the Group’s operations in achieving Our strategy is based on a long-term vision with concrete these objectives. In 2017, Enel had about 85 GW in installed targets. In addition to actions that leverage the generation capacity, an increase of about 2 GW over 2016 due mainly 161 Report on operations - Sustainabilityto the start of operations of new renewable plants in Brazil, is fully aware that the availability of this resource is seen as Peru, and the United States. being a critical part of future energy scenarios. Enel has long Production in 2017 totaled about 250 TWh, a reduction of sought to enhance the efficiency of its management of the about 12 TWh compared with 2016, mainly due to the de- water we use, and we conduct ongoing monitoring of all po- consolidation of the Slovakian plants, and a number of plants wer plants located in areas threatened by water scarcity at in Belgium and North America, only partly offset by the ac- the following levels of analysis: quisition of new plants. Approximately 43% of Enel’s power > periodic mapping of all production sites in order to iden- generation currently comes from zero-emission sources. In tify potential risks in terms of water availability; terms of environmental impact, the Group has confirmed its > assessment of the consumption of freshwater; medium-term target for 2020 of reducing specific emissions > measures to optimize the use of sea water and waste of CO2 by 25% compared with 2017 (<350 g/kWheq). In ab- solute terms, CO2 emissions have decreased slightly from 2016; however, given the reduction in total net generation for the Group, specific CO2 emissions increased by 4% compa- red with the previous year (411 g/kWheq). Other specific emissions, i.e. SO2 and NOx, also increased slightly in relation to total power generation. Particulates, ho- water; > monitoring of climate and vegetation data for the various sites. Globally, Enel returns about 99% of the water used, and only 8% of the Enel Group’s total production uses and/or consu- mes fresh water in water-stressed areas. In 2017, overall water consumption totaled 126 million cubic wever, have increased compared with 2016 due to an incre- meters, a reduction of 15% from 2016 due to the elimination ase in coal-fired thermal generation in Russia. of thermoelectric and nuclear power plants. With managed capacity1 of about 2.6 GW and managed ou- Within the scope of total consumption, more than 5% of wa- tput of about 7 TWh, the totals came to 87.6 GW of capacity ter is reused, an increase compared with the previous year. and about 257 TWh of output, respectively. As a result, total zero-emission production is approximately 45% of the total mix, and specific CO2 emissions come to 400 g/kWheq. Enel has implemented specific policies aimed at protecting the environment and natural resources, at combatting clima- te change, and at contributing to sustainable economic deve- lopment. A key element of these policies are our internatio- nally recognized Environment Management Systems (EMS). Specific demand in 2017 came to 0.49 l/kWheq, a reduction of about 11% from 2016, which is in line with Enel’s com- mitment to reducing water consumption by 30% compared with 2010 levels by 2020. Preserving biodiversity Preserving biodiversity is one of the strategic objectives Within the scope of our nuclear technology activities, Enel of Enel’s environmental policy. The Group promotes spe- is publicly committed to ensuring that our plants adopt a cific projects in the various areas in which we operate in clear nuclear safety policy and that those facilities are ope- order to help protect local species, their natural habitats, rated based on standards that ensure absolute priority is and the local ecosystems in general. These projects cover given to safety and the protection of employees, the gene- a vast range of areas, including: inventory and monitoring; ral public, and the environment. The policy in respect of nu- programs to protect specific species; methodological re- clear safety is to encourage excellence in all plant activities search and other studies; repopulation and reforestation; based on a strategy that seeks to go beyond mere com- and the construction of infrastructure supports to promote pliance with applicable laws and regulations and to ensure the presence and activities of various species (e.g. artifi- the adoption of management approaches that embody the cial nests along power distribution lines or fish ladders at principles of continuous improvement and managing risk. hydroelectric plants). Water resource management Water is an essential part of electricity generation, and Enel In 2017, Enel entered into a collaboration with the Interna- tional Union for the Conservation of Nature (IUCN), a global authority on the preservation of biodiversity, to enhance the Group’s biodiversity action plans. The IUCN will be hel- ping Enel to assess the biodiversity risks and opportunities associated with our thermal and renewable-energy plants, 1 Capacity operated through joint ventures in the renewables sector in Italy, the United States and Canada. 162 Annual Report 2017to analyze best practices in order to prevent and minimize velop an organizational reporting framework aligned with the impact of biodiversity at our various sites, and to de- the United Nations Sustainable Development Goals (SDG). Human resource management, development and motivation As at December 31, 2017, the total workforce of the Enel In line with this context, the recruiting process focused on Group numbered 62,900 employees, 49.5% of which finding specialist profiles with high-level digital skills able within companies in Italy. This is a net increase of 800 to support the Group in the transformation process. Hiring employees during the year due, mainly, to the acquisition mainly concerned the ICT, market, communication, infra- of Enel Distribuição Goiás in Brazil and of EnerNOC and structures, and networks areas. eMotorWerks in North America. Of the total of 2,301 new hires, 18% were in Italy while the remaining 82% were The Open Power model of values and conduct, applied to distributed across the various countries abroad. the various aspects of operations so as to increase the en- In 2017, Enel’s organizational model, which features a ma- represents a point of reference for all processes of human gagement and participation of all those who work at Enel, trix of business lines and geographical areas, was enriched resources and development. with a new, global “Enel X” Division in order to manage all products and services other than the commodities and The qualitative and quantitative performance-evaluation to support Enel’s new business plan, one of the pillars of process in 2017 involved the Group’s workforce at various which is the central importance of the customer and the levels. More specifically, for the qualitative evaluation, 90% development of low-carbon technologies and services. of the workforce participated in the self-assessment stage Enel is going through a period of transition that involves not part in the feedback interview with their supervisors. only the introduction of innovative technologies, but also Quantitative appraisals, in turn, were conducted for em- an actual cultural change that concerns everyone. In order ployees with variable salary components, which involved to speed up the digital transformation of the entire orga- the assignment of targets and the assessment of those in 2017 and 99% in the evaluation stage, while 94% took nization, we launched a program of change management targets. which began with three events (in Rome, Madrid, and Bo- gota) in order to promote the leading drivers of digitization. In order to ensure merit is properly promoted and mana- In September 2017, a specific survey was also conducted gerial continuity is effective, the Enel Group also managed with all Enel personnel, with the participation of more than development plans in a manner aimed at promoting the 25 thousand people, who offered some 40 thousand sug- identification and differentiation of succession profiles for gestions, comments and proposals. The three priorities management positions. that emerged (“My integration in the company”, “Knowing The process is aimed at ensuring adequate organizational my colleagues, the organization and company procedures” controls while identifying the most strategic positions and and “My training program”) were addressed with specific providing each with a list of potential successors and the actions including the interdisciplinary organization of work, necessary development actions to support managerial real-time communication and constant interaction with the growth, while also taking account of the Enel Group’s com- various corporate functions. This new and agile organizatio- mitments in terms of diversity and inclusion. nal culture is focused on people, involving them and holding In order to ensure the efficacy of this process, all of the them accountable with a view to rapidly creating value in a Group’s management positions are analyzed based on the collaborative and effective effort. main variables of analysis according to an approach aligned with international best practices, identifying for each the 163 Report on operations - Sustainabilitysuccessors that are ready now, ready over the short term, our business. More specifically, Enel promoted solutions or in the pipeline, i.e. ready over the medium term, with a to improve the balance between private and working life particular emphasis on young people, on women, and on and to support the real everyday needs of our people. The taking advantage of international and cross-functional ex- years 2017 was marked by significant progress in consoli- perience. dating the culture of work flexibility and expanding smart Talent management also supports this process, aimed at working, which today involves nearly 9 thousand people in identifying development projects suited to the various indi- the various countries in which the Group operates. vidual, professional profiles and to the positions for which The impact of these policies is being monitored based on a successors have been identified. detailed set of indicators associated with the various actions and contexts. More specifically, Enel has set the public objec- Following the most recent corporate-climate survey in tive of ensuring equal representation of the sexes in the initial 2016, which involved the Group’s entire workforce (with an stages of the selection and recruiting process (approx. 50% 84% participation rate) and which pointed to a significant by 2020). In 2017, in line with the established trajectory, we level of overall consensus within the organization concer- reached the level of 35% women in the selection process. ning the various profiles analyzed, a detailed action plan to respond to the various needs that emerged was defined. In support of these outcomes, the group-wide action plan for 2017 called for the implementation of some 1,500 actions Labor relations Enel complies with the labor laws of the various countries in targeting the priorities identified in a range of areas: Work- which we operate and with the International Labor Organi- Life Balance, Lifestyle Diversity and Work Environment, zation (ILO) conventions on labor rights (i.e. freedom of as- Open Power Culture, Working Relationships and Organiza- sociation and of collective bargaining, consultation, the right tion, Health and Safety, and Meritocracy. to strike, etc.), while systematically promoting dialog betwe- Diversity and inclusion Enel’s commitment to promoting diversity in all its forms en 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 conducted in accordance with the model established un- – in terms of gender, age, culture and ability – continued der Enel’s Global Framework Agreement (GFA) signed in in 2017. Rome in 2013 with the Italian federations and with the Our global “Diversity and Inclusion” policies, which were global federations IndustriAll and Public Services Interna- approved in 2015, promote and ensure equal treatment tional. This agreement is based on the principles of hu- on the sole basis of professional capabilities and skill in all man rights, of labor rights, and of the best, most advanced decisions that concern the employment relationship, the systems of transnational labor relations for multinational ability to participate in the organization without hindrance, corporations and international organizations, including the importance of work-life balance, and support in the the ILO. It has also been recognized and appreciated as daily needs of our employees in all situations that may be an example of best practice among European and non- encountered in the workplace. Application of these poli- European multinationals. We have presented proposals cies has enabled us to develop local and global projects to for the renewal of this agreement, updated in line with promote diversity and a common language and has incre- the Group’s new Open Power philosophy and the values ased awareness, throughout the organization, of the im- underlying that philosophy, including in relations with the portance of diversity and inclusion for individuals and for employee-representative entities of every nation. Responsible relations with our communities Working in a constantly changing world in which global environments is one of the main challenges that multina- phenomena interact with highly diverse socio-economic tional groups must face. Enel is committed to respecting 164 Annual Report 2017the rights of communities and to contributing to their eco- beneficiaries in the various countries in which we operate, nomic and social development, interacting every day with Enel made a concrete contribution to the social and eco- a multitude of stakeholders. A distinctive element of this nomic growth of our communities, from expanding infra- effort is the definition of an approach that is both global and structures and providing education and training programs local in order to take account of the specific needs of each to initiatives of social inclusion and projects to support cul- country through listening, cooperation and understanding ture and the economy, all in accordance with the SDGs. of the local context. A crucial lever in carrying out these projects has been our This constant dialogue with the communities and the inclu- partnerships with local non-profit organizations that promo- sive engagement of small and medium enterprise and of te local development through innovative, custom-designed the various organizations operating within the communities initiatives. In 2017 in particular, we had more than 600 part- enable us, together, to build projects and solutions targe- nerships throughout the world with local organizations, so- ting shared priorities and which promote local development cial enterprises, universities, and international associations and the creation of shared value over the long term. and non-governmental organizations. In 2017, with over 1,200 projects and more than nine million Customer management Digitization and our focus on the customer are important sinesses in the zootechnical and agricultural industries in enabling factors of Enel’s strategy. Our constant com- areas affected by earthquake or heavy snowfall. Known mitment to ensuring the provision of energy, to providing as Energia Impresa Abruzzo, the offering is provided solely high-quality products and services, and to caring for our via direct channels (i.e. physical points of sale and key ac- customers is the distinguishing characteristic of Enel’s re- count managers) and was also presented to the industry lationship with our customers in the various countries in associations. which the Group operates. In 2017, the average number of power and gas customers came to about 64 million, an Our attention to the customer in providing quality services increase over 2016. concerns more than just the provision of electricity and/or natural gas, extending, above all, to intangible aspects of It is Enel’s precise responsibility to ensure the constant, our service that relate to the perception and satisfaction safe provision of energy to the electrical systems of the of our customers. nations in which we operate as a distributor. Provision There are numerous processes aimed at ensuring custo- quality is closely linked to the reliability and efficiency of mers receive high-quality service. In Italy, the commercial the transmission and distribution infrastructures, which quality of all our channels of contact is ensured through sy- must be able to deal with the levels of demand. In coordi- stematic monitoring of the sales and management proces- nation with the other entities that operate in various roles ses in order to ensure compliance with applicable laws and on the grid infrastructures, Enel carries out constant deve- regulations and that we respect the privacy, freedom and lopment and efficiency efforts aimed mainly at reducing dignity of our customers. To this end, there is the “New the number and duration of service interruptions. Quality Control” model, which introduces contractual KPIs, associated with minimum thresholds for the assignment of Through products designed for both the residential and bonuses and penalties, for partners that manage sales and business markets, the company has confirmed proposals customer-care activities. In Iberia, the Plan de Excelencia made in recent years by providing dedicated offerings en la Atención Comercial (Plan of Excellence in Customer that come with a lower environmental impact and a fo- Focus) continues to work towards improving customer- cus on the more vulnerable segments of the population. satisfaction indicators through call centers, physical offi- For example, in Italy in 2017, we launched a product for ces, and online presence, while customers in Romania are the provision of electricity to support the recovery of bu- now able to provide feedback through various channels, 165 Report on operations - Sustainabilityincluding contact centers, the website and, since 2017, the ces such as the installation, maintenance and repair of “live agent” online through which customers now have a advanced home technologies; new channel of communication in order to manage their > e-City, which provides integrated services to local and utilities. central governments, as well as connectivity solutions such as the wholesale offering of fiber-optic services. Enel also launched the new “Enel-X” Division in 2017 in or- There are also two global functions: the product lab, which der to create new services and provide innovative solutions designs, develops and tests – with the help of customers for customers. Four global product lines have been created: – new products and services; and platform development, > e-Industries, which concerns solutions aimed at large- in order to develop Internet of Things platforms, i.e. plat- scale customers and with a particular emphasis on fle- forms for the management of complex processes within xible services; the scope of various functions with the goal of meeting > e-Mobility, which is devoted to promoting electric mobility; new customer needs through innovative technologies. > e-Home, dedicated to residential customers with servi- Customers by geographical area Average no. Electricity: - Italy - South America (1) - Iberia - Romania 2017 2016 Change 26,420,058 26,776,635 18,044,215 15,478,255 10,941,644 11,047,937 2,782,014 2,736,908 (356,577) 2,565,960 (106,293) 45,106 Total electricity customers 58,187,931 56,039,735 2,148,196 Natural gas: - Italy - Spain Total natural gas customers 4,003,484 1,550,424 5,553,908 3,876,191 1,513,379 5,389,570 127,293 37,045 164,338 (1) The increase in customers is attributable to Brazil as a result of the acquisition of Enel Distribuição Goiás in February 2017. -1.3% 16.6% -1.0% 1.6% 3.8% 3.3% 2.4% 3.0% Sustainable supply chain At Enel, we base our procurement processes on pre-con- sues in the evaluation process. These are: tractual and contractual conduct centered around mutual fi- 1) Qualification system; delity, transparency and collaboration. In addition to meeting 2) General terms and conditions; certain quality standards, the services of our vendors must 3) Vendor ratings. also go hand in hand with the adoption of best practices in Enel’s global vendor-qualification system (with more than terms of human rights, health and safety in the workplace 6,700 active qualifications as at December 31, 2017) ena- and environmental and ethical responsibility. bles us to accurately assess businesses that intend to par- Our procurement procedures are designed to guarantee servi- ticipate in tender processes and acts as a guarantee for the ce quality in full respect of the principles of economy, effective- company, while the vendor-rating system seeks to monitor ness, timeliness, fairness and transparency. vendor services in terms of the quality, timeliness and su- In 2017, we signed new agreements with a total of about 31 stainability of contract execution. thousand suppliers. In 2017, we continued working on the Sustainable Procu- Vendor management involves three essential stages, rement project, with close collaboration between Procu- which integrate social, environmental and governance is- rement and the Sustainability units (at both the global and 166 Annual Report 2017local levels), with the goal of increasing the integration of zation across the Group of supplier selection, assessment environmental, social and governance issues in the supply and monitoring criteria from an ethical point of view and in chain strategy, creating shared value with suppliers in a vi- particular the impact on the company. sion of a circular economy. A key element is the standardi- Workplace health and safety Enel considers employee health, safety and general well- they are required to promptly report and halt any situation being to be the most valuable asset, one to be protected of risk or unsafe behavior. The constant commitment of us both at work and at home, and we are committed to develo- all, the integration of safety both in our processes and in our ping and promoting a strong culture of safety throughout the training, the reporting and analysis of near misses, rigor in world in order to ensure a healthy work environment. Quality the selection and management of contractors, controls over and safety must go hand in hand. All of us are responsible for quality, the sharing of experience throughout the Group and our own health and safety and that of the people with whom benchmarking against the leading international players are all we interact and, as provided for in the Enel Stop Work Policy, cornerstones to Enel’s culture of safety. Safety indicators No. Injury frequency rate - Enel (1) Injury severity rate - Enel (2) Serious and fatal injuries at Enel Serious injuries (3) Fatal injuries Total Serious and fatal injuries at contractors Serious injuries (3) Fatal injuries Total 2017 1.20 0.058 4 2 6 9 11 20 2016 1.25 0.050 5 - 5 7 5 12 Change (0.05) 0.008 -4.0% -16.0% (1) -20.0% 2 1 2 6 8 - 20.0% 28.6% - 66.7% (1) This indicator is calculated as the ratio between the total number of injuries and hours worked in millions, while the Lost Time Injury Frequency Rate (LTIFR) is calculated by as the ratio between the same number of injuries and the number of hours worked/200,000. (2) This indicator is calculated as the ratio between the total number of days of absence and hours worked in thousands, while the Lost Day Rate (LDR) is calculated by as the ratio between the same number of days of absence and the number of hours worked/200,000. (3) 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 prognosis 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 an unknown prognosis remain unknown, within 30 days of the event, the injury is to be deemed serious. Workplace accident statistics In 2017, the Lost Time Injury Frequency Rate (LTIFR) and Lost With regard to the employees of contractors, the LTIFR was 0.19 (down about 6% compared with 2016) and the LDR was 9.86 (up 16% compared with 2016). In 2017, there were two fatal injuries involving employees Day Rate (LDR) for Enel Group employees were 0.24 and 11.65, of the Enel Group and 11 fatal injuries involving Enel Group respectively. However, while the number of injuries and, con- contractors. sequently, the LTIFR decreased, there was a slight rise in the Policy 106 “Classification, communication, analysis and re- number of days lost and, as a result, an increase in the LDR. porting of incidents” establishes the roles and procedures 167 Report on operations - Sustainabilitythat ensure the timely reporting of accidents, analysis of mentation of prevention and protection measures and on their root causes, and definition and monitoring of impro- through the execution and analysis of corrective actions. vement plans. The policies also detail the procedures for In 2017, new projects of safety innovation were introduced disclosing and analyzing near misses that could have resul- and a number of projects continued from 2016. ted in serious harm. In accordance with these policies, all Intrinsic Safety: a project that began in 2016, centered serious and fatal injuries to Enel personnel and the person- around the design, analysis and alteration of new and exi- nel of Enel contractors and other significant, non-serious sting machinery aimed at reducing exposure to hazardous events have been investigated by a team of experts. Ac- situations and workplaces. tions for improvement emerging from this analysis are con- Safety Jacket: the project envisages the development of a stantly monitored until their completion, and steps have safety jacket with integrated airbag to supplement existing been taken in relation to contractors found to be in breach protections against falls with a new technology that has ne- of contract (e.g. contract termination, suspension of certi- ver been used in an industrial setting. fication, etc.). Safety in tender processes Safety is tightly integrated into Enel’s tender process, and Drones: the company has begun the use of inspection dro- nes in flues, furnaces and canals in order to prevent risks related to workers accessing these areas directly. Virtual Reality: ongoing development work on the virtual- reality 3D simulator, a project that began in 2015. More we closely monitor our contractors’ performance both specifically, new virtual reality environments were develo- upstream by way of our qualification system and ongoing ped for operational training concerning both maintenance as the contracts progress through numerous control pro- and safety. cesses. Virtual Safety Assistant (VSA): an electronic device that Within the vendor selection and qualification process, uses real-time mapping of the surrounding environment there are specific, strict rules for the selection of com- and stored data related to specific activities to help wor- panies based on health and safety (H&S) performance, kers implement the prevention and protection measures and there is also a pre-qualification audit for high-risk ac- needed to carry out their jobs safely. tivities. Our vendor rating system is a consolidated process used to monitor activities as a contract progresses. H&S per- formance is measured using a specific indicator and, sin- Health The Enel Group has created a structured health manage- ce 2015, application of a global model for vendor ratings ment system based on preventive measures in order to enables us to also consider the impact of any injuries to develop a corporate culture centered on the promotion of contractor employees as a part of the evaluation process. the physical, emotional and organizational wellbeing and All companies that work with the Enel Group must sha- on establishing work-life balance. To this end, the Group re in the various health and safety standards. The gene- carries out local and global awareness campaigns to pro- ral contract conditions that are valid for the entire Enel mote healthy lifestyles, sponsors screening programs Group include clauses dedicated to health and safety, aimed at preventing illness, and ensures the provision of which establish penalties in the event of violations of sa- medical services. Global programs and initiatives are deve- fety standards, and these may include termination of the loped in accordance with the calendar of the World Health contract and suspension of qualifications. Organization and with local needs. For this reason, contractors are involved in many initiati- The Enel Group implements a systematic, ongoing process ves aimed at promoting a culture of safety. of identifying and assessing work-related stress in accor- Infrastructure safety and technological innovation Innovations in technology are able to improve all H&S pro- cesses, beginning with employee training and the imple- dance with our policies for stress-at-work prevention and wellbeing-at-work promotion. This enables us to identify, prevent and manage stress in the workplace that could af- flict either individuals or broader segments of the organiza- tion, while also providing a series of indications aimed at promoting a general culture of wellbeing. 168 Annual Report 2017Development of the Culture of Safety: communication and training There were several communication campaigns concerning hypertension, hepatitis, smoking, risk factors in cardiovascular diseases, skin cancer, etc. These communication campaigns were based both on the publication of news on the company’s intranet and on specific segments on Enel TV and Enel Radio. In 2017, we provided more than 430 thousand hours of trai- ning, in addition to awareness-raising and training activities in order to increase the specific skills and knowledge of health and safety during the year, focusing on areas of par- workers throughout the Group. The topics covered included ticular importance to the organization. In particular this year, online car and motorcycle safety training and safety leader- global communication efforts focused on issues related to ship training for management. personal health and on the most common disorders, such as: Net efficient capacity by primary energy source MW 2017 2016 Change 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 Net efficient capacity by geographical area MW Italy Iberia South America Russia North and Central America Romania Greece Bulgaria India South Africa 15,965 15,028 12,301 43,294 3,318 27,799 7,431 802 57 2,216 38,305 84,917 2017 27,652 22,732 20,544 8,879 3,533 534 307 42 172 522 16,103 15,100 12,251 43,454 3,318 27,425 6,532 761 57 1,132 35,907 82,679 2016 27,760 22,744 18,915 8,944 2,792 534 290 42 172 486 (138) (72) 50 (160) - 374 899 41 - 1,084 2,398 2,238 (108) (12) 1,629 (65) 741 - 17 - - 36 Change Total net efficient capacity 84,917 82,679 2,238 -0.9% -0.5% 0.4% -0.4% - 1.4% 13.8% 5.4% - 95.8% 6.7% 2.7% -0.4% -0.1% 8.6% -0.7% 26.5% - 5.9% - - 7.4% 2.7% 169 Report on operations - SustainabilityNet electricity generation by primary energy source GWh 2017 2016 Change Net thermal electricity generation: - coal - CCGT - fuel oil/gas Total Net nuclear electricity generation Net renewable generation: - hydroelectric - wind - geothermal - biomass and co-generation - other Total Total net electricity generation Net electricity generation by geographical area GWh Italy Iberia South America Russia Slovakia North and Central America Romania Belgium Greece Bulgaria South Africa India 70,497 44,381 26,855 141,733 26,448 55,363 17,827 5,820 108 2,577 81,695 249,876 2017 53,518 78,618 64,627 39,830 - 9,793 1,358 - 548 103 1,156 325 72,342 40,303 29,749 142,394 33,444 60,031 18,294 6,194 226 1,229 85,974 261,812 2016 60,912 72,323 62,165 41,062 9,684 12,268 1,235 977 559 96 203 328 (1,845) 4,078 (2,894) (661) (6,996) (4,668) (467) (374) (118) 1,348 (4,279) (11,936) (7,395) 6,295 2,462 (1,232) (9,684) (2,475) 123 (977) (11) 7 953 (3) Total net electricity generation 249,876 261,812 (11,936) -2.6% 10.1% -9.7% -0.5% -20.9% -7.8% -2.6% -6.0% -52.2% - -5.0% -4.6% -12.1% 8.7% 4.0% -3.0% - -20.2% 10.0% - -2.0% 7.3% - -0.9% -4.6% Change 170 Annual Report 2017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 (%) (1) Specific emissions of CO2 from net generation (gCO2/ kWheq) (2) Specific consumption of water for total generation (I/kWheq) (3) 2017 32.7 43.3 99.0 40.7 411 0.49 2016 32.8 45.6 97.9 40.0 395 0.55 Change -0.3% -5.0% 1.1% 1.8% 4.1% (0.1) (2.3) 1.1 0.7 16 (0.06) -10.9% (1) Percentages calculated using new method that does not include oil and gas plants in Italy that are in the process of decommissioning or are marginal among thermal plants. The figures also do not consider consumption and generation for co-generation at Russian thermal plants. The average efficiency is calculated on the basis of the number of plants and weighted by output. (2) 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). (3) Specific consumption for generation is calculated by taking account of total consumption of water for simple thermal generation and combined electrical and heat and nuclear generation, as a ratio of total simple thermal generation and combined thermal electrical and heat generation (including the thermal contribution in MWh), renewables and nuclear generation. 171 Report on operations - SustainabilityRelated parties As an operator in the field of generation, distribution, tran- directly or indirectly controlled by the Italian State, the sport and sale of electricity and the sale of natural gas, Group’s controlling shareholder. Enel carries out transactions with a number of companies 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 Cassa Depositi e Prestiti Group Directly controlled by the Ministry for the Economy and Finance Sale of electricity on the Ancillary Services Market (Terna) Sale of electricity transport services (Eni Group) Purchase of transport, dispatching and metering services (Terna) Purchase of postal services (Poste Italiane) Purchase of fuels for generation plants and natural gas storage and distribution services (Eni Group) 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 GME - Energy Markets Operator Fully controlled (indirectly) by the Ministry for the Economy and Finance Sale of electricity on the Power Exchange (GME) Purchase of electricity on the Power Exchange for pumping and plant planning (GME) Leonardo Group Directly controlled by the Ministry for the Economy and Finance Purchase of IT services and supply of goods In addition, the Group conducts essentially commercial normal market terms and conditions, which in some ca- transactions with associated companies or companies in ses are determined by the Regulatory Authority for Ener- which it holds minority interests. gy, Networks and the Environment. Finally, Enel also maintains relationships with the pension funds FOPEN and FONDENEL, Fondazione Enel and Enel For more details on transactions with related parties, ple- Cuore, an Enel non-profit company devoted to providing ase see the discussion in note 47 to the consolidated fi- social and healthcare assistance. nancial statements. All transactions with related parties were carried out on 172 Annual Report 2017Reconciliation of shareholders’ equity and net income of Enel SpA and the corresponding consolidated figures Pursuant to CONSOB Notice DEM/6064293 of July 28, results for the year and shareholders’ equity with the corre- 2006, the following table provides a reconciliation of Group sponding figures for the Parent Company. Millions of euro Income statement Shareholders’ equity Income statement Shareholders’ equity at Dec. 31, 2017 at Dec. 31, 2016 (1) Financial statements - Enel SpA 2,270 27,236 1,720 26,916 Carrying amount and impairment adjustments of consolidated equity investments 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 Translation reserve Goodwill 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 (1) The figures for 2016 have been reclassified to improve the representation. 53 (76,076) 836 (77,868) 5,875 - - 73,608 (2,614) 13,745 4,593 - (31) (4,471) - (4,138) 52 3,779 1,550 5,329 (1,104) 34,795 17,366 52,161 (410) 2,570 1,217 3,787 74,469 (1,005) 13,556 - (1,265) 34,803 17,772 52,575 Report on operations 173 03Consolidated financial statements Financial statements Consolidated income statement Millions of euro Notes 2017 2016 of which with related parties of which with related parties 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) 176 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 72,664 1,975 74,639 36,039 17,982 4,504 5,861 2,886 (1,847) 65,425 578 9,792 1,611 2,371 2,766 3,908 111 7,211 1,882 5,329 - 5,329 3,779 1,550 0.37 0.37 0.37 0.37 4,550 20 6,603 2,577 312 29 21 39 5,124 22 7,761 2,664 531 27 18 25 68,604 1,988 70,592 32,039 17,393 4,637 6,355 2,783 (1,669) 61,538 (133) 8,921 1,884 2,289 2,821 4,339 (154) 5,780 1,993 3,787 - 3,787 2,570 1,217 0.26 0.26 0.26 0.26 Annual Report 2017        Statement of consolidated comprehensive income Millions of euro Notes Net income for the year Other comprehensive income recyclable to profit or loss (net of taxes) 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 2017 5,329 (72) 10 (129) 2016 3,787 (34) (18) (24) Change in translation reserve (2,519) 1,952 Other comprehensive income not recyclable to profit or loss (net of taxes) Remeasurement of net employee benefit liabilities/(assets) Total other comprehensive income/(loss) for the year 32 Total comprehensive income/(loss) for the year Attributable to: - shareholders of the Parent Company - non-controlling interests 74 (2,636) 2,693 1,968 725 (239) 1,637 5,424 3,237 2,187 177 Consolidated financial statements      at Dec. 31, 2017 at Dec. 31, 2016 of which with related parties of which with related parties 76,265 124 15,929 13,556 6,665 1,558 1,609 3,892 706 120,304 2,564 13,506 879 3,945 3,053 3,044 8,290 35,281 11 155,596 958 18 135 109 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 18 19 20 21 22 23 24 25 74,937 77 16,724 13,746 6,354 1,598 702 4,002 1,064 Current assets Inventories Trade receivables Income tax receivables Derivatives Other current financial assets Other current assets Cash and cash equivalents Assets classified as held for sale TOTAL ASSETS [Total] 119,204 26 27 23 28 29 30 [Total] 31 2,722 14,529 577 2,309 4,614 2,695 7,021 34,467 1,970 155,641 832 11 3 162 178 Annual Report 2017      Millions of euro Notes LIABILITIES AND SHAREHOLDERS’ EQUITY at Dec. 31, 2017 at Dec. 31, 2016 of which with related parties of which with related parties Equity attributable to shareholders of the Parent Company Share capital Other reserves Retained earnings/(Loss carried forward) Non-controlling interests Total shareholders’ equity Non-current liabilities Long-term borrowings Employee benefits Provisions for risks and charges - non-current Deferred tax liabilities Derivatives Other non-current liabilities Current liabilities Short-term borrowings Current portion of long-term borrowings Provisions for risks and charges - current 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 [Total] 32 33 34 35 21 23 36 33 33 35 37 23 38 40 [Total] 31 [Total] 63,016 10,167 3,348 21,280 34,795 17,366 52,161 10,167 5,152 19,484 34,803 17,772 52,575 42,439 893 41,336 1,072 2,407 4,821 8,348 2,998 2,003 1,894 7,000 1,210 2,585 4,981 8,768 2,532 1,856 62,058 5,372 4,384 1,433 36 89 23 89 12,671 2,365 12,688 2,921 284 2,260 954 12,462 38,735 1,729 103,480 155,641 9 37 359 3,322 1,264 12,141 40,963 - 103,021 155,596 11 28 179 Consolidated financial statements      Statement of changes in consolidated shareholders’ equity (note 32) Share capital and reserves attributable to shareholders of the Parent Company Millions of euro Share capital Share premium reserve Legal reserve Other reserves Reserve from translation of financial statements in currencies other than euro Reserve from measurement of cash flow hedge financial instruments Reserve from measurement of financial instruments AFS At January 1, 2016 9,403 5,292 1,881 2,262 (1,956) (1,341) 130 (551) (2,115) (196) 19,621 32,376 19,375 - - - - - (24) (24) - 106 - - - - Distributions of dividends and interim dividends Allocation of net income for the previous year - - - - - 153 Capital increase for non-proportional demerger of Enel Green Power 764 2,197 Transactions in 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 - - - - - - - - - - - - - - - - - - - - - - - - - - 119 - (136) 968 968 - - - (31) - 21 (97) (97) - At December 31, 2016 10,167 7,489 2,034 2,262 (1,005) (1,448) Distributions of dividends Allocation of net income for the previous year Transactions in 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - At December 31, 2017 10,167 7,489 2,034 2,262 (2,614) (1,588) 180 (1,609) (140) (129) 3,779 1,968 (1,609) - (140) - (129) - (23) (5) (646) (2,398) (1,163) (825) 1,550 (2,636) 5,329 17,366 52,161 Reserve Reserve from from equity remeasurement Equity investments of net liabilities/ Reserve from Reserve from Retained attributable to accounted for (assets) of disposal of equity transactions in earnings/(Loss shareholders using the equity defined benefit interests without non-controlling of the Parent Non-controlling shareholders’ plans loss of control interests Company interests carried forward) method (54) 49 (7) (7) - - - - - - - - - 7 7 - Total equity 51,751 (549) (435) 5,424 1,637 3,787 - 1 (73) 2,693 (266) (386) 2,187 970 1,217 - (6) (73) 725 (2,542) (2,542) (1,032) (3,574) (153) - - - (974) (12) 2,064 (2,106) (42) 17 (173) (173) - - - 1 - - - - - 60 60 - (283) - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 - - - - - - - 2,570 2,570 19,484 (1,983) 3,779 21,280 (283) (49) 3,237 667 2,570 34,803 (1,983) - 7 - (1,811) 3,779 34,795 (12) (706) (2,398) (1,170) 17,772 52,575 (1,052) (3,035) Annual Report 2017  demerger of Enel Green Power 764 2,197 119 (31) Millions of euro Distributions of dividends and interim dividends Allocation of net income for the previous year Capital increase for non-proportional Transactions in 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 Distributions of dividends Allocation of net income for the previous year Transactions in non-controlling interests Change in scope of consolidation of which: - other comprehensive income/(loss) for the period - net income/(loss) for the period - - - - - - - - - - - - - - (136) 968 21 (97) 968 (97) - - - - - - - - - - - - - - 153 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (24) (24) 106 - - - - - - - - - - - (1,609) (140) (129) Comprehensive income for the period (1,609) (140) (129) At December 31, 2016 10,167 7,489 2,034 2,262 (1,005) (1,448) Share capital and reserves attributable to shareholders of the Parent Company Reserve from translation Share capital Share premium reserve of financial Reserve from statements measurement Reserve from in currencies of cash flow measurement Legal Other other than hedge financial of financial reserve reserves euro instruments instruments AFS Reserve from equity investments accounted for using the equity method Reserve from remeasurement of net liabilities/ (assets) of defined benefit plans Reserve from disposal of equity interests without loss of control Reserve from transactions in non-controlling interests Retained earnings/(Loss carried forward) Equity attributable to shareholders of the Parent Company Non-controlling interests Total shareholders’ equity At January 1, 2016 9,403 5,292 1,881 2,262 (1,956) (1,341) 130 (54) (551) (2,115) (196) 19,621 32,376 19,375 51,751 At December 31, 2017 10,167 7,489 2,034 2,262 (2,614) (1,588) (23) (5) (646) (2,398) (1,163) - - - - 49 (7) (7) - (12) - - - - 7 7 - - - 1 - 17 (173) (173) - (706) - - - - 60 60 - - - - (283) - - - - - - - - - (2,398) (1,170) - - - - - - - - - 7 - - - - - - (2,542) (2,542) (1,032) (3,574) (153) - - - (974) (12) 2,064 (2,106) (42) - - 2,570 - 2,570 19,484 (1,983) - - - (283) (49) 3,237 667 2,570 34,803 (1,983) - 7 - 3,779 1,968 (266) (386) 2,187 970 1,217 (549) (435) 5,424 1,637 3,787 17,772 52,575 (1,052) (3,035) - (6) (73) 725 - 1 (73) 2,693 - 3,779 21,280 (1,811) 3,779 34,795 (825) 1,550 (2,636) 5,329 17,366 52,161 181 Consolidated financial statements  Consolidated statement of cash flows Millions of euro Notes 2017 2016 of which with related parties of which with related parties Income before taxes for the year Adjustments for: Depreciation, amortization and impairment losses Financial (income)/expense Net income of equity investments accounted for using the equity method Changes in net working capital: - inventories - trade receivables - trade payables - other assets/liabilities Accruals to provisions Utilization of provisions Interest income and other financial income collected Interest expense and other financial expense paid (Income)/Expense from measurement of commodities Income taxes paid (Gains)/Losses on disposals Cash flows from operating activities (A) 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) Financial debt (new long-term borrowing) Financial debt (repayments and other net changes) Transactions in non-controlling interests Dividends and interim dividends paid Cash flows from financing activities (C) 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 beginning of the year (1) Cash and cash equivalents at the end of the year (2) 7,211 5,861 2,692 (111) (1,265) (112) (1,530) 65 312 353 (1,149) 2,898 (4,747) 59 8.d 10-11 12 26 27 37 10-11 10-11 13 (1,579) (98) 10,125 (7,226) (1,273) (900) 216 (111) (9,294) 12,284 15 19 5 5 33 33 32 32 5,780 6,355 2,987 154 662 413 126 (959) (556) 1,149 106 59 772 (1,553) 21 1,544 (39) (4,343) (21) 10 (81) 21 (39) (278) (1,959) (274) 9,847 (7,927) (915) (382) 1,032 105 (8,087) 2,339 (10,579) (179) (4,049) (89) (478) (2,873) (1,646) (390) (1,205) 8,326 7,121 (257) (2,507) (4,474) 250 (2,464) 10,790 8,326 (1) Of which cash and cash equivalents equal to €8,290 million at January 1, 2017 (€10,639 million at January 1, 2016), short-term securities equal to €36 million at January 1, 2017 (€1 million at January 1, 2016) and cash and cash equivalents pertaining to assets held for sale equal to €150 million at January 1, 2016. (2) Of which cash and cash equivalents equal to €7,021 million at December 31, 2017 (€8,290 million at December 31, 2016), short-term securities equal to €69 million at December 31, 2017 (€36 million at December 31, 2016) and cash and cash equivalents pertaining to assets held for sale equal to €31 million at December 31, 2016. 182 Annual Report 2017      Notes to the consolidated financial statements 1 Form and content of the financial statements Enel SpA has its registered office in Viale Regina Margheri- and the consolidated statement of cash flows and the rela- ta 137, Rome, Italy, and since 1999 has been listed on the ted notes. Milan stock exchange. Enel is an energy multinational and The assets and liabilities reported in the consolidated ba- is one of the world’s leading integrated operators in the lance sheet are classified on a “current/non-current“ basis, electricity and gas industries, with a special focus on Euro- with separate reporting of assets held for sale and liabilities pe and South America. included in disposal groups held for sale. Current assets, The consolidated financial statements for the period ended which include cash and cash equivalents, are assets that are December 31, 2017 comprise the financial statements of intended to be realized, sold or consumed during the normal Enel SpA, its subsidiaries and Group holdings in associates operating cycle of the Group or in the 12 months following and joint ventures, as well as the Group’s share of the as- the balance sheet date; current liabilities are liabilities that sets, liabilities, costs and revenue of joint operations (“the are expected to be settled during the normal operating cycle Group”). A list of the subsidiaries, associates, joint opera- of the Group or within the 12 months following the close of tions and joint ventures included in the scope of consolida- the financial year. tion is attached. The consolidated income statement is classified on the ba- The consolidated financial statements were approved for sis of the nature of costs, with separate reporting of net inco- publication by the Board on March 22, 2018. me/(loss) from continuing operations and net income/(loss) These financial statements have been audited by EY SpA. from discontinued operations attributable to shareholders of Basis of presentation the Parent Company and to non-controlling interests. The indirect method is used for the consolidated cash flow The consolidated financial statements for the year ended statement, with separate reporting of any cash flows by December 31, 2017 have been prepared in accordance with operating, investing and financing activities associated with international accounting standards (International Accounting discontinued operations. Standards - IAS and International Financial Reporting Stan- In particular, although the Group does not diverge from the dards - IFRS) issued by the International Accounting Stan- provisions of IAS 7 in the classification of items: dards Board (IASB), the interpretations of the International Fi- > cash flows from operating activities report cash flows nancial Reporting Interpretations Committee (IFRIC) and the from core operations, interest on loans granted and Standing Interpretations Committee (SIC), recognized in the obtained and dividends received from joint ventures or European Union pursuant to Regulation 2002/1606/EC and in associates; effect as of the close of the year. All of these standards and > investing/disinvesting activities comprise investments interpretations are hereinafter referred to as the “IFRS-EU”. in property, plant and equipment and intangible assets The financial statements have also been prepared in confor- and disposals of such assets, including the effects of mity with measures issued in implementation of Article 9, business combinations in which the Group acquires or paragraph 3, of Legislative Decree 38 of February 28, 2005. loses control of companies, as well as other minor in- The consolidated financial statements consist of the conso- vestments; lidated income statement, the statement of consolidated > cash flows from financing activities include cash flows comprehensive income, the consolidated balance sheet, the generated by liability management transactions, dividen- statement of changes in consolidated shareholders’ equity ds paid to non-controlling interests by the Parent Com- 183 Consolidated financial statementspany or other consolidated companies and the effects circumstances. They are formulated when the carrying of transactions in non-controlling interests that do not amount of assets and liabilities is not easily determined change the status of control of the companies involved; from other sources. The actual results may therefore differ > a separate item is used to report the impact of exchange from these estimates. The estimates and assumptions are rates on cash and cash equivalents and their impact on periodically revised and the effects of any changes are re- profit or loss is eliminated in full in order to neutralize the flected through profit or loss if they only involve that period. effect on cash flows from operating activities. If the revision involves both the current and future periods, For more information on cash flows as reported in the state- the change is recognized in the period in which the revision ment of cash flows, please see the note on “cash flows” in is made and in the related future periods. the Report on operations. In order to enhance understanding of the financial state- The income statement, the balance sheet and the state- ments, the following sections examine the main items af- ment of cash flows report transactions with related parties, fected by the use of estimates and the cases that reflect the definition of which is given in the next section below. management judgments to a significant degree, undersco- The consolidated financial statements have been prepared ring the main assumptions used by managers in measuring on a going concern basis using the cost method, with the these items in compliance with the IFRS-EU. The critical exception of items measured at fair value in accordance with element of such valuations is the use of assumptions and IFRS-EU, as explained in the measurement bases applied to professional judgments concerning issues that are by their each individual item, and of non-current assets and disposal very nature uncertain. groups classified as held for sale, which are measured at Changes in the conditions underlying the assumptions and the lower of their carrying amount and fair value less costs judgments could have a substantial impact on future results. to sell. The consolidated financial statements are presented in euro, the functional currency of the Parent Company Enel SpA. All figures are shown in millions of euro unless stated other- wise. Use of estimates Revenue recognition Revenue from sales to customers is measured on an accrual basis and on the basis of the fair value of the consideration The consolidated financial statements provide comparative received or receivable. information in respect of the previous period. Revenue from sales of electricity and gas to retail customers 2 Accounting policies and measurement criteria Use of estimates and management judgment 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 or volumes notified by distributors and transporters (pertaining to the year), an estimate of the value of electricity and gas delivered 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. The sales prices charged to end users are applied to the volumes so determined. Revenue betwe- en 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 re- Preparing the consolidated financial statements under cord, adjusted to take account of weather conditions and IFRS-EU requires management to take decisions and make other factors that may affect estimated consumption. estimates and assumptions that may impact the value of revenue, costs, assets and liabilities and the related disclo- sures concerning the items involved as well as contingent assets and liabilities at the balance sheet date. The estima- Pension plans and other post-employment benefits Some of the Group’s employees participate in pension tes and management’s judgments are based on previous plans offering benefits based on their wage history and ye- experience and other factors considered reasonable in the ars of service. 184 Annual Report 2017Certain employees are also eligible for other post-em- The discount rate gross of taxes reflects current market ployment benefit schemes. assessments of the cost of money in relation to the period The expenses and liabilities of such plans are calculated on of investment and the specific risks of discounting. the basis of estimates carried out by consulting actuaries, who use a combination of statistical and actuarial elements Nevertheless, possible changes in the estimation of the in their calculations, including statistical data on past years factors on which the calculation of such values is perfor- and forecasts of future costs. med could generate different recoverable values. Other components of the estimation that are considered in- clude mortality and withdrawal rates as well as assumptions concerning future developments in discount rates, the rate of wage increases, the inflation rate and trends in the cost of medical care. Depreciable value of certain elements of Italian hydroelectric plants subsequent to enactment of Law 134/2012 Law 134 of August 7, 2012 containing “urgent measures These estimates can differ significantly from actual deve- for growth” (published in the Gazzetta Ufficiale of August lopments owing to changes in economic and market con- 11, 2012) introduced a sweeping overhaul of the rules go- ditions, increases or decreases in withdrawal rates and the verning hydroelectric concessions. Among its various provi- lifespan of participants, as well as changes in the effective sions, the law establishes that five years before the expira- cost of medical care. tion of a major hydroelectric water diversion concession and Such differences can have a substantial impact on the in cases of lapse, relinquishment or revocation, where there quantification of pension costs and other related expenses. is no prevailing public interest for a different use of the wa- ter, incompatible with its use for hydroelectric generation, Recoverability of non-current assets The carrying amount of non-current assets is reviewed perio- the competent public entity shall organize a public call for tender for the award for consideration of the concession for dically and wherever circumstances or events suggest that a period ranging from 20 to a maximum of 30 years. a review is necessary. Goodwill is reviewed at least annual- In order to ensure operational continuity, the law also go- ly. Such assessments of the recoverable amount of assets verns the methods of transfer ownership of the business are carried out in accordance with the provisions of IAS 36, unit necessary to operate the concession, including all legal as described in greater detail in note 20 below. The analysis relationships relating to the concession, from the outgoing of each group of non-current assets is unique and requires concession holder to the new concession holder, in exchan- management to use estimates and assumptions considered ge for payment of a price to be determined in negotiations prudent and reasonable in the given circumstances. between the departing concession holder and the grantor In particular, the recoverable amount of non-current assets agency, taking due account of the following elements: and goodwill is based on estimates and assumptions used > for intake and governing works, penstocks and outflow in order to determine the amount of cash flow and the di- channels, which under the consolidated law governing scount rates applied. waters and electrical plants are to be relinquished free The expected cash flows are prepared on the basis of the of charge (Article 25 of Royal Decree 1775 of Decem- most recently approved company plans and the informa- ber 11, 1933), the revalued cost less government capital tion available at the time of the estimation. Accordingly, grants, also revalued, received by the concession holder the assumptions used in estimating cash flows are based for the construction of such works, depreciated for ordi- on management judgments with regard, in particular, to nary wear and tear; future developments in, for example: > for other property, plant and equipment, the market va- > expected developments in electricity and gas demand; lue, meaning replacement value, reduced by estimated > expected availability of renewable resources; depreciation for ordinary wear and tear. > the generation mix of traditional generation plants, taking While acknowledging that the new regulations introduce account of the expected prices and availability of com- important changes as to the transfer of ownership of the modities (gas, coal, fuel oil, etc.); business unit with regard to the operation of the hydroelec- > expected sales prices of electricity and gas; tric concession, the practical application of these principles > macroeconomic variables such as inflation, exchange ra- faces difficulties, given the uncertainties that do not permit tes and discount rates. the formulation of a reliable estimate of the value that can 185 Consolidated financial statementsbe recovered at the end of existing concessions (residual Significant management judgement is required to determi- value). ne the amount of deferred tax assets that can be recogni- Accordingly, management has decided it could not produce zed, based upon the likely timing and the level of future a reasonable and reliable estimate of residual value. taxable profits together with future tax planning strategies The fact that the legislation requires the new concession and the tax rates applicable at the date of reversal. Howe- holder to make a payment to the departing concession hol- ver, where the Group should become aware that it is una- der prompted management to review the depreciation sche- ble to recover all or part of recognized tax assets in future dules for assets classified as to be relinquished free of char- years, the consequent adjustment would be taken to the ge prior to Law 134/2012 (until the year ended on December income statement in the year in which this circumstance 31, 2011, given that the assets were to be relinquished free arises. of charge, the depreciation period was equal to the closest date between the term of the concession and the end of the useful life of the individual asset), calculating depreciation Litigation The Enel Group is involved in various civil, administrative and no longer over the term of the concession but, if longer, tax disputes connected with the normal pursuit of its activi- over the economic and technical life of the individual assets. ties that could give rise to significant liabilities. It is not always If additional information becomes available to enable the objectively possible to predict the outcome of these dispu- calculation of residual value, the carrying amounts of the as- tes. The assessment of the risks associated with this litiga- sets involved will be adjusted prospectively. tion is based on complex factors whose very nature requi- Determining the fair value of financial instruments The fair value of financial instruments is determined on res recourse to management judgments, even when taking account of the contribution of external advisors assisting the Group, about whether to classify them as contingent liabilities or liabilities. the basis of prices directly observable in the market, whe- Provisions have been recognized to cover all significant liabili- re available, or, for unlisted financial instruments, using ties for cases in which legal counsel feels an adverse outcome specific valuation techniques (mainly based on present is likely and a reasonable estimate of the amount of the loss value) that maximize the use of observable market inputs. can be made. Note 49 provides information on the most signi- In rare circumstances were this is not possible, the inputs ficant contingent liabilities of the Group. are estimated by management taking due account of the characteristics of the instruments being measured. In accordance with IFRS 13, the Group includes a mea- surement of credit risk, both of the counterparty (Credit Valuation Adjustment or CVA) and its own (Debit Valua- Management judgments Identification of cash generating units (CGUs) In application of ”IAS 36 - Impairment of assets”, the go- tion Adjustment or DVA), in order to adjust the fair value odwill recognized in the consolidated financial statements of financial instruments for the corresponding amount of of the Group as a result of business combinations has been counterparty risk, using the method discussed in note 45. allocated to individual or groups of CGUs that will benefit Changes in the assumptions made in estimating the input from the combination. A CGU is the smallest group of as- date could have an impact on the fair value recognized for sets that generates largely independent cash inflows. those instruments. Recovery of deferred tax assets At December 31, 2017, the consolidated financial state- 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 framework, etc.), verifying that the cash flows of a given ments report deferred tax assets in respect of tax losses to group of assets were closely independent and largely auto- be reversed in subsequent years and income components nomous of those associated with other assets (or groups whose deductibility is deferred in an amount whose reco- of assets). very is considered by management to be highly probable. The assets of each CGU were also identified on the basis The recoverability of such assets is subject to the achieve- of the manner in which management manages and moni- ment of future profits sufficient to absorb such tax losses tors those assets within the business model adopted. For a and to use the benefits of the other deferred tax assets. more extensive discussion, please see notes 4 and 5 below 186 Annual Report 2017and the discussion in the section on “Results by business stee if facts and circumstances indicate that there are chan- area” in the Report on operations. ges to one or more of the elements considered in verifying The CGUs identified by management to which the goodwill the existence of control. recognized in these consolidated financial statements has Finally, the assessment of the existence of control did not been allocated are indicated in the section on intangible as- find any situations of de facto control. sets, to which the reader is invited to refer. The number and scope of the CGUs are updated systema- tically to reflect the impact of new business combinations and reorganizations carried out by the Group, and to take Determination of the existence of joint control and of the type of joint arrangement Under the provisions of IFRS 11, a joint arrangement is an account of external factors that could impact the ability of agreement where two or more parties have joint control. groups of assets to generate independent cash flows. Joint control exists when the decisions over the relevant Determination of the existence of control Under the provisions of IFRS 10, control is achieved when activities require the unanimous consent of at least two parties of a joint arrangement. A joint arrangement can be configured as a joint venture the Group is exposed, or has rights, to variable returns or a joint operation. Joint ventures are joint arrangements from its involvement with the investee and has the ability whereby the parties that have joint control have rights to to affect those returns through its power over the investee. the net assets of the arrangement. Conversely, joint opera- Power is defined as the current ability to direct the rele- tions are joint arrangements whereby the parties that have vant activities of the investee based on existing substantive joint control have rights to the assets and obligations for rights. the liabilities relating to the arrangement. The existence of control does not depend solely on ow- In order to determine the existence of the joint control and nership of a majority shareholding, but rather it arises from the type of joint arrangement, management must apply substantive rights that each investor holds over the inve- judgment and assess its rights and obligations arising from stee. Consequently, management must use its judgment in the arrangement. For this purpose, the management con- assessing whether specific situations determine substanti- siders the structure and legal form of the arrangement, the ve rights that give the Group the power to direct the rele- terms agreed by the parties in the contractual arrangement vant activities of the investee in order to affect its returns. and, when relevant, other facts and circumstances. For the purpose of assessing control, management analyses Following that analysis, the Group has considered its inte- all facts and circumstances including any agreements with rest in Asociación Nuclear Ascó-Vandellós II as a joint ope- other investors, rights arising from other contractual arran- ration. gements and potential voting rights (call options, warrants, The Group re-assesses whether or not it has joint control if put options granted to non-controlling shareholders, etc.). facts and circumstances indicate that changes have occur- These other facts and circumstances could be especially red in one or more of the elements considered in verifying significant in such assessment when the Group holds less the existence of joint control and the type of the joint ar- than a majority of voting rights, or similar rights, in the in- rangement. vestee. Following such analysis of the existence of control, which had already been done in previous years under the provi- sions of the then-applicable IAS 27, the Group consolidated Determination of the existence of significant influence over an associate Associated companies are those in which the Group exerci- certain companies (Emgesa and Codensa) on a line-by-line ses significant influence, i.e. the power to participate in the basis even though it did not hold more than half of the financial and operating policy decisions of the investee but voting rights. That approach was maintained in the asses- not exercise control or joint control over those policies. In sment carried out in application of IFRS 10 on the basis general, it is presumed that the Group has a significant in- of the requirements discussed above, as detailed in the fluence when it has an ownership interest of 20% or more. attachment “Subsidiaries, associates and other significant In order to determine the existence of significant influence, equity investments of the Enel Group at December 31, management must apply judgment and consider all facts 2017” to these financial statements. and circumstances. The Group re-assesses whether or not it controls an inve- The Group re-assesses whether or not it has significant in- 187 Consolidated financial statementsfluence if facts and circumstances indicate that there are changes to one or more of the elements considered in ve- Subsidiaries rifying the existence of significant influence. The Group controls an entity when it is exposed/has rights to variable returns deriving from its involvement and has Application of ”IFRIC 12 - Service concession arrangements” to concessions ”IFRIC 12 - Service concession arrangements” applies the ability, through the exercise of its power over the in- vestee, to affect its returns. Power is defined as when the investor has existing rights that give it the current ability to to “public-to-private” service concession arrangements, direct the relevant activities. which can be defined as contracts under which the grantor The figures of the subsidiaries are consolidated on a full transfers to a concession holder the right to deliver public line-by-line basis as from the date control is acquired until services that give access to the main public facilities for a such control ceases. specified period of time in return for managing the infra- structure used to deliver those public services. More specifically, IFRIC 12 applies to public-to-private servi- Consolidation procedures ce concession arrangements if the grantor: The financial statements of subsidiaries used to prepare > controls or regulates what services the operator must the consolidated financial statements were prepared at provide with the infrastructure, to whom it must provide December 31, 2017 in accordance with the accounting po- them, and at what price; and licies adopted by the Parent Company. > controls – through ownership or otherwise – any signifi- If a subsidiary uses different accounting policies from those cant residual interest in the infrastructure at the end of adopted in preparing the consolidated financial statements the term of the arrangement. for similar transactions and facts in similar circumstances, In assessing the applicability of these provisions for the appropriate adjustments are made to ensure conformity Group, management carefully analyzed existing conces- with Group accounting policies. sions. Assets, liabilities, revenue and expenses of a subsidiary On the basis of that analysis, the provisions of IFRIC 12 acquired or disposed of during the year are included in or are applicable to some of the infrastructure of a number excluded from the consolidated financial statements, re- of companies in the South America Region that operate in spectively, from the date the Group gains control or until Brazil (essentially Enel Distribución Rio and Enel Distribu- the date the Group ceases to control the subsidiary. ción Ceará SA). Related parties Profit or loss and the other components of other com- prehensive income are attributed to the shareholders of the Parent and non-controlling interests, even if this results in a loss for non-controlling interests. Related parties are mainly parties that have the same con- All intercompany assets and liabilities, equity, income, ex- trolling entity as Enel SpA, companies that directly or indi- penses and cash flows relating to transactions between rectly through one or more intermediaries control, are con- entities of the Group are eliminated in full. trolled or are subject to the joint control of Enel SpA and in Changes in ownership interest in subsidiaries that do not which the latter has a holding that enables it to exercise a result in loss of control are accounted for as equity tran- significant influence. Related parties also include entities sactions, with the carrying amounts of the controlling and that operate post-employment benefit plans for employe- non-controlling interests adjusted to reflect changes in their es of Enel SpA or its associates (specifically, the FOPEN interests in the subsidiary. Any difference between the fair and FONDENEL pension funds), as well as the members of value of the consideration paid or received and the corre- the boards of auditors, and their immediate family, and the sponding fraction of equity acquired or sold is recognized in key management personnel, and their immediate family, of consolidated equity. Enel SpA and its subsidiaries. Key management personnel When the Group ceases to have control over a subsidiary, comprises management personnel who have the power any interest retained in the entity is remeasured to its fair and direct or indirect responsibility for the planning, mana- value, recognized through profit or loss, at the date when gement and control of the activities of the company. They control is lost. In addition, any amounts previously reco- include directors. gnized in other comprehensive income in respect of the 188 Annual Report 2017former subsidiary are accounted for as if the Group had Enel Produzione to EP Slovakia, which is based on various directly disposed of the related assets or liabilities. parameters, including the evolution of the net financial po- Investments in joint arrangements and associates A joint venture is an entity over which the Group exerci- ses joint control and has rights to the net assets of the sition of SE, developments in energy prices in the Slovakian market, the operating efficiency of SE as measured on the basis of benchmarks defined in the contract and the enter- prise value of Mochovce units 3 and 4. This value is compa- red against the carrying amount of the investment, which is measured on the basis of the results of that formula at the arrangement. Joint control is the sharing of control of an ar- closing date for the transaction of July 28, 2017. rangement, whereby decisions about the relevant activities require unanimous consent of the parties sharing control. An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee without having control or joint control over the investee. If the investment ceases to be an associate or a joint ven- ture, the Group recognizes any retained investment at its fair value, through profit or loss. Any amounts previously recognized in other comprehensive income in respect of the former associate or joint venture are accounted for as if the Group had directly disposed of the related assets or The Group’s investments in its joint ventures and associa- liabilities. tes are accounted for using the equity method. Under the equity method, these investments are initially recognized at cost and any goodwill arising from the diffe- rence between the cost of the investment and the Group’s share of the net fair value of the investee’s identifiable as- sets and liabilities at the acquisition date is included in the carrying amount of the investment. Goodwill is not indivi- 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 that had previously been recognized in other comprehen- sive income relating to that reduction is accounted for as if the Group had directly disposed of the related assets or dually tested for impairment. liabilities. After the acquisition date, their carrying amount is adjusted to recognize changes in the Group’s share of profit or loss of the associate or joint venture. The OCI of such investees is presented as specific items of the Group’s OCI. Distributions received from joint venture and associates re- When a portion of an investment in an associate or joint venture meets the criteria to be classified as held for sale, any retained portion of an investment in the associate or joint venture that has not been classified as held for sale is accounted for using the equity method until disposal of the duce the carrying amount of the investments. portion classified as held for sale takes place. Profits and losses resulting from transactions between the Group and the associates or joint ventures are eliminated to the extent of the interest in the associate or joint ven- ture. The financial statements of the associates or joint ventures are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the ac- counting policies in line with those of the Group. After application of the equity method, the Group determi- Joint operations are joint arrangements whereby the par- ties that have joint control have rights to the assets and obligations for the liabilities relating to the arrangement. For each joint operation, the Group recognized assets, lia- bilities, costs and revenue on the basis of the provisions of the arrangement rather than the participating interest held. Translation of foreign currency items nes whether it is necessary to recognize an impairment loss Transactions in currencies other than the functional cur- on its investment in an associate or joint venture. If there is rency are recognized in these financial statements at the such evidence, the Group calculates the amount of impai- exchange rate prevailing on the date of the transaction. rment as the difference between the recoverable amount of Monetary assets and liabilities denominated in a foreign the associate or joint venture and its carrying amount. currency other than the functional currency are later adju- In the case of the Slovak Power Holding BV joint venture, sted using the balance sheet exchange rate. Non-moneta- any impairment losses are assessed by determining the ry assets and liabilities in foreign currency stated at cost recoverable value using the price formula specified in the are translated using the exchange rate prevailing on the agreement to sell the 66% stake in Slovenské elektrárne by date of initial recognition of the transaction. Non-monetary 189 Consolidated financial statementsassets and liabilities in foreign currency stated at fair value of acquisition any adjustment to the fair value of the net are translated using the exchange rate prevailing on the assets acquired previously was recognized in equity; the date that value was determined. Any exchange rate diffe- amount of goodwill was determined for each transaction rences are recognized through profit or loss. separately based on the fair values of the acquiree’s net Translation of financial statements denominated in a foreign currency assets at the date of each exchange transaction. Business combinations carried out as from January 1, 2010 are recognized on the basis of IFRS 3 (2008), which is refer- For the purposes of the consolidated financial statements, red to as IFRS 3 (Revised) hereafter. all profits/losses, assets and liabilities are stated in euro, which is the functional currency of the Parent Company, Enel SpA. In order to prepare the consolidated financial statements, the financial statements of consolidated companies in fun- ctional currencies other than the presentation currency used in the consolidated financial statements are transla- More specifically, business combinations are recognized using the acquisition method, where the purchase cost (the consideration transferred) is equal to the fair value at the purchase date of the assets acquired and the liabilities incurred or assumed, as well as any equity instruments is- sued by the purchaser. The consideration transferred inclu- des the fair value of any asset or liability resulting from a ted into euro by applying the relevant period-end exchan- contingent consideration arrangement. ge rate to the assets and liabilities, including goodwill and Costs directly attributable to the acquisition are recognized consolidation adjustments, and the average exchange rate through profit or loss. for the period, which approximates the exchange rates pre- vailing at the date of the respective transactions, to the in- come statement items. Any resulting exchange rate gains or losses are recognized as a separate component of equity in a special reserve. The gains and losses are recognized proportionately in the income statement on the disposal (partial or total) of the subsidiary. Business combinations Business combinations initiated before January 1, 2010 and The consideration transferred is allocated by recognizing the assets, liabilities and identifiable contingent liabilities of the acquired company at their fair values as at the acquisi- tion date. Any positive difference between the price paid, measured at fair value as at the acquisition date, plus the value of any non-controlling interests, and the net value of the identifiable assets and liabilities of the acquiree mea- sured at fair value is recognized as goodwill. Any negative difference is recognized in profit or loss. 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 completed within that financial year are recognized on the value as at the acquisition date. basis of IFRS 3 (2004). Such business combinations were recognized using the purchase method, where the purchase cost is equal to the fair value at the date of the exchange of the assets ac- quired and the liabilities incurred or assumed, plus costs directly attributable to the acquisition. This cost was allo- cated by recognizing the assets, liabilities and identifiable contingent liabilities of the acquired company at their fair values. Any positive difference between the cost of the acquisition and the fair value of the net assets acquired pertaining to the shareholders of the Parent Company was recognized as goodwill. Any negative difference was re- cognized in profit or loss. The value of non-controlling in- In the case of business combinations achieved in stages, at the date of acquisition of control the previously held equity interest in the acquiree is remeasured to fair value and any positive or negative difference is recognized in profit or loss. Any contingent consideration is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration classified as an asset or a liability, or as a financial instrument within the scope of IAS 39, is recognized in profit or loss. If the contingent consi- deration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS-EU. Contingent consideration that is classified as equity is not re-measu- red, and its subsequent settlement is accounted for within terests was determined in proportion to the interest held equity. by minority shareholders in the net assets. In the case of business combinations achieved in stages, at the date If the fair values of the assets, liabilities and contingent lia- bilities can only be calculated on a provisional basis, the bu- 190 Annual Report 2017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 12 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 liability The fair value measurement assumes that the transaction is recognized under provisions for risks and charges. The to sell an asset or transfer a liability takes place in the prin- accounting treatment of changes in the estimate of these cipal market, i.e. the market with the greatest volume and costs, the passage of time and the discount rate is discus- level of activity for the asset or liability. In the absence of sed under “Provisions for risks and charges”. a principal market, it is assumed that the transaction takes Property, plant and equipment transferred from customers to place in the most advantageous market to which the Group connect them to the electricity distribution network and/or to has access, i.e. the market that maximizes the amount provide them with ongoing access to a supply of electricity is that would be received to sell the asset or minimizes the initially recognized at its fair value at the time of the transfer. amount that would be paid to transfer the liability. Borrowing costs that are directly attributable to the acquisi- The fair value of an asset or a liability is measured using the tion, construction or production of a qualifying asset, i.e. an assumptions that market participants would use when pri- asset that takes a substantial period of time to get ready for cing the asset or liability, assuming that market participants its intended use or sale, are capitalized as part of the cost of act in their economic best interest. Market participants are the assets themselves. Borrowing costs associated with the independent, knowledgeable sellers and buyers who are purchase/construction of assets that do not meet such requi- able to enter into a transaction for the asset or the liability rement are expensed in the period in which they are incurred. and who are motivated but not forced or otherwise compel- Certain assets that were revalued at the IFRS-EU transi- led to do so. tion date or in previous periods are recognized at their fair When measuring fair value, the Group takes into account value, which is considered to be their deemed cost at the the characteristics of the asset or liability, in particular: revaluation date. > for a non-financial asset, a fair value measurement ta- Where individual items of major components of property, kes into account a market participant’s ability to generate plant and equipment have different useful lives, the compo- economic benefits by using the asset in its highest and nents are recognized and depreciated separately. best use or by selling it to another market participant that Subsequent costs are recognized as an increase in the would use the asset in its highest and best use; carrying amount of the asset when it is probable that futu- > for liabilities and own equity instruments, the fair value re economic benefits associated with the cost incurred to reflects the effect of non-performance risk, i.e. the risk replace a part of the asset will flow to the Group and the that an entity will not fulfill an obligation; cost of the item can be measured reliably. All other costs > in the case of groups of financial assets and financial liabi- are recognized in profit or loss as incurred. lities with offsetting positions in market risk or credit risk, The cost of replacing part or all of an asset is recognized managed on the basis of an entity’s net exposure to such as an increase in the carrying amount of the asset and is risks, it is permitted to measure fair value on a net basis. depreciated over its useful life; the net carrying amount of In measuring the fair value of assets and liabilities, the the replaced unit is derecognized through profit or loss. Group uses valuation techniques that are appropriate in the Property, plant and equipment, net of its residual value, is circumstances and for which sufficient data are available, depreciated on a straight-line basis over its estimated use- 191 Consolidated financial statementsful life, which is reviewed annually and, if appropriate, adju- The useful life of leasehold improvements is determined sted prospectively. Depreciation begins when the asset is on the basis of the term of the lease or, if shorter, on the available for use. duration of the benefits produced by the improvements themselves. The estimated useful life of the main items of property, Land is not depreciated as it has an undetermined useful life. plant and equipment is as follows: Assets recognized under property, plant and equipment are Civil buildings 20-70 years no future economic benefit is expected from their use or Buildings and civil works incorporated in plants 20-85 years disposal. Any gain or loss, recognized through profit or loss, derecognized either at the time of their disposal or when Hydroelectric power plants: - penstock 20-75 years - mechanical and electrical machinery 24-40 years - other fixed hydraulic works 25-100 years Thermal power plants: - boilers and auxiliary components - gas turbine components 19-46 years 10-40 years - mechanical and electrical machinery 10-45 years - other fixed hydraulic works Nuclear power plants Geothermal power plants: - cooling towers - turbines and generators - turbine parts in contact with fluid 10-66 years 60 years 10-20 years 20-30 years 10-25 years is calculated as the difference between the net considera- tion received in the disposal, where present, and the net carrying 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 re- gard major water diversion works and the public lands used for the operation of the thermal power plants. For Italy, the concessions terminate between 2020 and 2040. Within the Italian regulatory framework in force until 2011, if the concessions are not renewed, at those dates all inta- ke and governing works, penstocks, outflow channels and other assets on public lands were to be relinquished free of charge to the State in good operating condition. Accordin- gly, depreciation on assets to be relinquished was calcula- - mechanical and electrical machinery 20-22 years ted over the shorter of the term of the concession and the Wind power plants: - towers - turbines and generators 20-25 years 20-25 years - mechanical and electrical machinery 15-25 years 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: 18-25 years 20-25 years 20-50 years 10-60 years 30-50 years 10-60 years 23-50 years remaining useful life of the assets. In the wake of the legislative changes introduced with Law 134 of August 7, 2012, the assets previously classified as assets “to be relinquished free of charge” connected with the hydroelectric water diversion concessions are now con- sidered in the same manner as other categories of “pro- perty, plant and equipment” and are therefore depreciated over the economic 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 hydroelectric plants subsequent to enactment of Law 134/2012”, which you are invited to con- sult for more details. In accordance with Spanish laws 29/1985 and 46/1999, hydroelectric power stations in Spanish territory operate under administrative concessions at the end of which the plants will be returned to the government in good operating - electromechanical meters 2-27 years condition. The terms of the concessions extend up to 2067. - electricity balance measurement equipment 2-35 years A number of generation companies that operate in Argen- - electronic meters 10-20 years tina, Brazil and Mexico hold administrative concessions with similar conditions to those applied under the Spanish 192 Annual Report 2017concession system. These concessions will expire in the from the grantor (or from a third party at the direction of period between 2017 and 2088. the grantor) and the grantor has little discretion to avoid Infrastructure used in the service concession arrangement As regards the distribution of electricity, the Group is a con- payment. In this case, the grantor contractually guaran- tees to pay to the operator specified or determinable amounts or the shortfall between the amounts received from the users of the public service and specified or de- cession holder in Italy for this service. The concession, gran- terminable amounts (defined by the contract), and such ted by the Ministry for Economic Development, was issued payments are not dependent on the usage of the infra- free of charge and terminates on December 31, 2030. If the structure; 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 be license) to charge users of the public service provided. In determined by agreement of the parties using appropriate such a case, the operator does not have an unconditional valuation methods, based on both the balance sheet value right to receive cash because the amounts are contin- of the assets themselves and their profitability. gent on the extent that the public uses the service. In determining the indemnity, such profitability will be repre- If the Group (as operator) has a contractual right to receive sented by the present value of future cash flows. The infra- an intangible asset (the right to charge users of the public structure serving the concessions is owned and available to service), borrowing costs are capitalized using the criteria the concession holder. It is recognized under “Property, plant specified in the section “Property, plant and equipment”. and equipment” and is depreciated over the useful lives of During the operating phase of concession arrangements, the assets. the Group accounts for operating service payments in ac- Enel also operates under administrative concessions for cordance with criteria specified in the section “Revenue”. the distribution of electricity in other countries (including Spain and Romania). These concessions give the right to build and operate distribution networks for an indefinite pe- Leases riod of time. Infrastructure within the scope of ”IFRIC 12 - Service concession arrangements” The Group holds property, plant and equipment and intan- gible assets for its various activities under lease contracts. These contracts are analyzed on the basis of the cir- cumstances and indicators set out in IAS 17 in order to determine whether they constitute operating leases or fi- nance leases. Under a “public-to-private” service concession arrange- A finance lease is defined as a lease that transfers substan- ment within the scope of ”IFRIC 12 - Service concession tially all the risks and rewards incidental to ownership of arrangements” the operator acts as a service provider and, the related asset to the lessee. All leases that do not meet in accordance with the terms specified in the contract, it the definition of a finance lease are classified as operating constructs/upgrades infrastructure used to provide a public leases. service and operates and maintains that infrastructure for On initial recognition assets held under finance leases are the period of the concession. recognized as property, plant and equipment and the re- The Group, as operator, does not recognize the infrastruc- lated liability is recognized under long-term borrowings. ture within the scope of IFRIC 12 as property, plant and At inception date finance leases are recognized at the lo- equipment and it accounts for revenue and costs relating to wer of the fair value of the leased asset and the present construction/upgrade services as discussed in the section value of the minimum lease payments due, including the “Construction contracts”. In particular, the Group measures payment required to exercise any purchase option. the consideration received or receivable for the construc- The assets are depreciated on the basis of their useful li- tion/upgrading of infrastructure at its fair value and, depen- ves. If it is not reasonably certain that the Group will acqui- ding on the characteristics of the service concession arran- re the assets at the end of the lease, they are depreciated gement, it recognizes: over the shorter of the lease term and the useful life of the > a financial asset, if the operator has an unconditional con- assets. tractual right to receive cash or another financial asset Payment made under operating lease are recognized as a 193 Consolidated financial statementscost on a straight-line basis over the lease term. Amortization is calculated on a straight-line basis over the Although not formally designated as lease agreements, item’s estimated useful life, which is reassessed at least an- certain types of contract can be considered as such if the nually; any changes in amortization policies are reflected on a fulfilment of the arrangement is dependent on the use of a prospective basis. Amortization commences when the asset specific asset (or assets) and if the arrangement conveys a is ready for use. Consequently, intangible assets not yet avai- right to use such assets. lable for use are not amortized, but are tested for impairment Investment property at least annually. The Group’s intangible assets have a definite useful life, with the exception of a number of concessions and goodwill. Investment property consists of the Group’s real estate Intangible assets with indefinite useful lives are not amorti- held to earn rentals and/or for capital appreciation rather zed, but are tested for impairment annually. than for use in the production or supply of goods and ser- vices. Investment property is measured at acquisition cost less The assessment of indefinite life is reviewed annually to de- termine whether the indefinite life continues to be supporta- ble. If not, the change in useful life from indefinite to finite is any accumulated depreciation and any accumulated impai- accounted for as a change in accounting estimate. 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. Intangible assets are derecognized either at the time of their disposal or when no future economic benefit is expected from their 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, The breakdown of the fair value of investment property and the net book value of the derecognized assets. is detailed in note 45 “Assets measured at fair value”. In- vestment property is derecognized either at the time of its The estimated useful life of the main intangible assets, di- stinguishing between internally generated and acquired as- disposal or when no future economic benefit is expected sets, is as follows: 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 pre- sent, and the net book value of the derecognized assets. Development costs: - internally generated - acquired Intangible assets Industrial patents and intellectual property rights: - internally generated Intangible assets are identifiable assets without physical - acquired substance controlled by the entity and capable of generating future economic benefits. They are measured at purchase or Concessions, licenses, trademarks and similar rights: internal development cost when it is probable that the use of - internally generated such assets will generate future economic benefits and the related cost can be reliably determined. - acquired Other: The cost includes any directly attributable expenses neces- - internally generated sary to make the assets ready for their intended use. - acquired Internal development costs are recognized as an intangible asset when both the Group is reasonably assured of the technical feasibility of completing the intangible asset and Goodwill 3-5 years 3-5 years 5 years 3-25 years - 2-60 years 2-5 years 3-40 years that the asset will generate future economic benefits and Goodwill arises on the acquisition of subsidiaries and re- it has intention and ability to complete the asset and use or presents the excess of the consideration transferred, as sell it. measured at fair value at the acquisition date, and the value Research costs are recognized as expenses. of any non-controlling interests over the net fair value of Intangible assets with a finite useful life are reported net of the acquiree’s identifiable assets and liabilities. After initial accumulated amortization and any impairment losses. recognition, goodwill is not amortized, but is tested for re- 194 Annual Report 2017coverability at least annually using the criteria discussed in and impairment losses”, in an amount that shall not exceed the section “Impairment of non-financial assets”. For the the net carrying amount that the asset would have had if purpose of impairment testing, goodwill is allocated, from the impairment loss had not been recognized and deprecia- the acquisition date, to each of the identified cash genera- tion or amortization had been performed. The original value ting units. of goodwill is not restored even if in subsequent years the Goodwill relating to equity investments in associates and reasons for the impairment no longer obtain. joint ventures is included in their carrying amount. The recoverable amount of goodwill and intangible assets Impairment of non-financial assets with an indefinite useful life and intangible assets not yet available for use is tested for recoverability annually or more frequently if there is evidence suggesting that the assets At each reporting date, non-financial assets are reviewed to may be impaired. determine whether there is evidence of impairment. If such evidence exists, the recoverable amount of any involved as- set is estimated. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use. In order to determine the recoverable amount of property, If certain specific identified assets owned by the Group are impacted by adverse economic or operating conditions that undermine their capacity to contribute to the generation of cash flows, they can be isolated from the rest of the assets of the CGU, undergo separate analysis of their recoverability plant and equipment, investment property, intangible assets and are impaired where necessary. and goodwill, the Group generally adopts the value-in-use criterion. The value in use is represented by the present value of the Inventories estimated future cash flows generated by the asset in que- Inventories are measured at the lower of cost and net rea- stion. Value in use is determined by discounting estimated lizable value except for inventories involved in trading activi- future cash flows using a pre-tax discount rate that reflects ties, which are measured at fair value with recognition throu- the current market assessment of the time value of money gh profit or loss. Cost is determined on the basis of average and the specific risks of the asset. weighted cost, which includes related ancillary charges. Net The future cash flows used to determine value in use are estimated realizable value is the estimated normal selling based on the most recent business plan, approved by the price net of estimated costs to sell or, where applicable, re- management, containing forecasts for volumes, revenue, placement cost. operating costs and investments. For the portion of inventories held to discharge sales that These projections cover the next five years. Consequently, have already been made, the net realizable value is determi- cash flows related to subsequent periods are determined on ned on the basis of the amount established in the contract the basis of a long-term growth rate that does not exceed of sale. the average long-term growth rate for the particular sector Inventories include environmental certificates (green certifi- and country. The recoverable amount of assets that do not generate inde- pendent cash flows is determined based on the cash-gene- rating unit to which the asset belongs. cates, energy efficiency certificates and CO2 emissions allo- wances) that were not utilized for compliance in the reporting period. As regards CO2 emissions allowances, inventories are allocated between the trading portfolio and the compliance If the carrying amount of an asset or of a cash-generating portfolio, i.e. those used for compliance with greenhouse gas unit to which it is allocated is higher than its recoverable amount, an impairment loss is recognized in profit or loss emissions requirements. Within the latter, CO2 emissions al- lowances are allocated to sub-portfolios on the basis of the under “Depreciation, amortization and impairment losses”. compliance year to which they have been assigned. Impairment losses of cash generating units are firstly char- Inventories also include nuclear fuel stocks, use of which is ged against the carrying amount of any goodwill attributed 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 commo- carrying amount. dities) held for use in production are not written down if it is If the reasons for a previously recognized impairment loss expected that the final product in which they will be incorpo- no longer obtain, the carrying amount of the asset is resto- rated will be sold at a price sufficient to enable recovery of red through profit or loss, under “Depreciation, amortization the cost incurred. 195 Consolidated financial statementsConstruction contracts When the outcome of a construction contract can be esti- mated reliably and it is probable that the contract will be profitable, contract revenue and contract costs are recogni- zed by reference to the stage of completion of the contract activity at the end of the reporting period. Under this criteria, revenue, expenses and profit are attributed in proportion to the work completed. When it is probable that total contract costs will exceed total contract revenue, the expected loss on the construc- tion contract is recognized as an expense immediately, re- gardless of the stage of completion of the contract. 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 recoverable. The stage of completion of the contract in progress is de- termined, using the cost-to-cost method, as a ratio betwe- en costs incurred for work performed to the reporting date and the estimated total contract costs. In addition to initial amount of revenue agreed in the contract, contract revenue includes any payments in respect of variations, claims and incentives, to the extent that it is probable that they will re- sult in revenue and can be reliably measured. The amount due from customers for construction contract is presented as an asset; the amount due to customers for construction contract is presented as a liability. Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equi- ty instrument of another entity. Financial instruments are recognized and measured in accordance with IAS 32 and IAS 39. A financial asset or liability is recognized in the consolidated financial statements when, and only when, the Group be- comes party to the contractual provisions of the instrument (the trade date). Financial instruments are classified as follows under IAS 39: > financial assets and liabilities at fair value through profit or loss (FVTPL); > held-to-maturity financial assets (HTM); > loans and receivables; > available-for-sale financial assets (AFS); > financial liabilities measured at amortized cost. 196 Financial assets and liabilities at fair value through profit or loss This category includes: securities, equity investments in en- tities other than subsidiaries, associates and joint ventures and investment funds held for trading or designated as at fair value through profit or loss at the time of initial recognition. Financial instruments at fair value through profit or loss are financial assets and liabilities: > classified as held for trading because acquired or incur- red principally for the purpose of selling or repurchasing at short term; > designated as such upon initial recognition, under the op- tion 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 their fair value recognized through profit or loss. Held-to-maturity financial assets This category comprises non-derivative financial assets with fixed or determinable payments and fixed maturity, quoted on an active market and not representing equity investments, for which the Group has the positive intention and ability to hold until maturity. They are initially recognized at fair value, including any transaction costs, and subsequently measured at amortized cost using the effective interest method. Loans and receivables This category mainly includes trade receivables and other fi- nancial receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments, 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 the Group, on initial recognition, designates as either at fair value throu- gh profit or loss or available for sale. Such assets are initially recognized at fair value, adjusted for any transaction costs, and are subsequently measured at amortized cost using the effective interest method, without discounting unless ma- terial. Available-for-sale financial assets This category mainly includes listed debt securities not clas- sified as held to maturity and equity investments in other entities (unless classified as “designated as at fair value through profit or loss”). Available-for-sale financial assets are non-derivative financial assets that are designated as avai- lable for sale or are not classified as loans and receivables, Annual Report 2017held-to-maturity financial assets or financial assets at fair va- lable-for-sale equity investments, such as significant adverse lue through profit or loss. changes in the technological, market, economic or legal en- These financial instruments are measured at fair value with vironment. changes in fair value recognized in other comprehensive in- A significant or prolonged decline in fair value constitutes come. objective evidence of impairment and, therefore, the fair va- At the time of sale, or when a financial asset available for lue loss previously recognized in other comprehensive inco- sale becomes an investment in a subsidiary as a result of me is reclassified from equity to income. successive purchases, the cumulative gains and losses The amount of the cumulative loss is the difference betwe- previously recognized in equity are reversed to the income en the acquisition cost and the current fair value, less any statement. impairment loss previously recognized in profit or loss. An When the fair value cannot be determined reliably, these impairment loss on an available-for-sale equity investment assets are recognized at cost adjusted for any impairment cannot be reversed. losses. If there is objective evidence of impairment for unquoted equity instruments measured at cost because fair value can- Impairment of financial assets At each reporting date, all financial assets classified as loans not be reliably measured, the amount of the impairment loss is measured as the difference between the carrying amount and receivables (including trade receivables), held to maturi- and the present value of estimated future cash flows, di- ty or available for sale, are assessed in order to determine if scounted at the current rate of interest for a similar financial there is objective evidence that an asset or a group of finan- asset. Reversal of impairment are not permitted in these ca- cial assets is impaired. ses either. An impairment loss is recognized if and only if such evidence The amount of the impairment loss on a debt instrument exists as a result of one or more events that occurred after classified as available for sale, to be reclassified from equi- initial recognition and that have an impact on the future cash ty, is the cumulative fair value loss recognized in other flows of the asset and which can be estimated reliably. comprehensive income. Such impairment loss is reversed Objective evidence of an impairment loss includes observa- through profit or loss if the fair value of the debt instrument ble data about, for example: objectively increases as a result of an event that occurred > significant financial difficulty of the issuer or obligor; after the impairment loss was recognized. > a breach of contract, such as a default or delinquency in interest or principal payments; > evidence that the borrower will enter bankruptcy or other Cash and cash equivalents This category includes deposits that are available on demand form of financial reorganization; or at very short term, as well as highly liquid short-term fi- > a measurable decrease in estimated future cash flows. nancial investments that are readily convertible into a known Losses that are expected to arise as a result of future events amount of cash and which are subject to insignificant risk of are not recognized. changes in value. For financial assets classified as loans and receivables or In addition, for the purpose of the consolidated statement of held to maturity, once an impairment loss has been iden- cash flows, cash and cash equivalents do not include bank tified, its amount is measured as the difference between overdrafts at period-end. the carrying amount of the asset and the present value of expected future cash flows, discounted at the original ef- fective interest rate. This amount is recognized in profit or loss. Financial liabilities measured at amortized cost This category mainly includes borrowings, trade payables, The carrying amount of trade receivable is reduced through finance lease obligations and debt instruments. use of an allowance account. Financial liabilities other than derivatives are recognized If the amount of a past impairment loss decreases and the when the Group becomes a party to the contractual clau- decrease can be related objectively to an event occurring af- ses of the instrument and are initially measured at fair value ter the impairment was recognized, the impairment is rever- adjusted for directly attributable transaction costs. Finan- sed through profit or loss. cial liabilities are subsequently measured at amortized cost Further factors are considered in case of impairment of avai- using the effective interest rate method. 197 Consolidated financial statementsDerivative financial instruments A derivative is a financial instrument or another contract: > whose value changes in response to the changes in an underlying variable such as an interest rate, commodity or security price, foreign exchange rate, a price or rate index, a credit rating or other variable; > that requires no initial net investment, or an initial net investment that is smaller than would be required for a contract with a similar response to changes in market factors; > that is settled at a future date. Derivative instruments are classified as financial assets or liabilities depending on whether their fair value is positive or negative and they are classified as “held for trading” and measured at fair value through profit or loss, except for those designated as effective hedging instruments. For more details about hedge accounting, please see note 44 “Derivatives and hedge accounting”. All derivatives held for trading are classified as current assets or liabilities. Derivatives not held for trading purposes but measured at fair value through profit or loss since they do not qualify for hedge accounting and derivatives designated as effec- tive hedging instruments are classified as current or non- current on the basis of their maturity date and the Group’s intention to hold the financial instrument until maturity or not. Embedded derivatives An embedded derivative is a derivative included in a “com- bined” contract (the so-called “hybrid instrument”) that con- tains another non-derivative contract (the so-called “host contract“) and gives rise to some or all of the combined con- tract’s cash flows. 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 maturity. Such contracts, which do not represent financial instru- ments to be measured at fair value, are analyzed in order to identify any embedded derivative, which are to be sepa- rated and measured at fair value. This analysis is performed when the Group becomes party to the contract or when the contract is renegotiated in a manner that significantly changes the original associated cash flows. Embedded derivatives are separated from the host contract and ac- counted for as derivatives when: 198 > host contract is not a financial instrument measured at fair value through profit or loss; > the economic risks and characteristics of the embedded derivative are not closely related to those of the host con- tract; > a separate contract with the same terms as the embed- ded derivative would meet the definition of a derivative. Embedded derivatives that are separated from the host con- tract are recognized in the consolidated financial statements at fair value with changes recognized through profit or loss (except when the embedded derivative is part of a designa- ted hedging relationship). 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 delive- ry, in accordance with the Group’s normal expected purcha- se, sale or usage requirements, do not fall within the scope of IAS 39 and are then recognized in accordance with the accounting treatment of such transactions (the “own use exemption”). Such contracts are recognized as derivatives and, as a conse- quence, at fair value through profit or loss only if: > they can be settled net in cash; and > they are not entered into in accordance with the Group’s expected purchase, sale or usage requirements. A contract to buy or sell non-financial items is classified as a “normal purchase or sale” if it is entered into: > for the purpose of physical delivery; > in accordance with the Group’s expected purchase, sale or usage requirements. The Group analyses all contracts to buy or sell non-financial assets, with a specific focus on forward purchases and sa- les of electricity and energy commodities, in order to deter- mine if they should be classified and treated in accordance with IAS 39 or if they have been entered into for “own use”. Derecognition of financial assets and liabilities Financial assets are derecognized whenever one of the fol- lowing conditions is met: > the contractual right to receive the cash flows associated with the asset expires; > the Group has transferred substantially all the risks and rewards associated with the asset, transferring its rights to receive the cash flows of the asset or assuming a con- tractual obligation to pay such cash flows to one or more beneficiaries under a contract that meets the require- Annual Report 2017ments established by IAS 39 (the “pass through test”); Employees are also enrolled in defined contribution plans un- > the Group has not transferred or retained substantially all der which the Group pays fixed contributions to a separate the risks and rewards associated with the asset but has entity (a fund) and has no legal or constructive obligation to transferred control over the asset. pay further contributions if the fund does not hold sufficient Financial liabilities are derecognized when they are extingui- assets to pay all employee benefits relating to employee ser- shed, i.e. when the contractual obligation has been dischar- vice in the current and prior periods. Such plans are usually ged, cancelled or expired. aimed to supplement pension benefits due to employees Offsetting financial assets and liabilities The Group offsets financial assets and liabilities when: > there is a legally enforceable right to set off the recognized amounts; and > it has the intention of either settling on a net basis, or re- post-employment. The related costs are recognized in inco- me statement on the basis of the amount of contributions paid in the period. Termination benefits alizing the asset and settling the liability simultaneously. Liabilities for benefits due to employees for the early termi- Employee benefits nation of the employment relationship, both as a result of a decision by the Group or an employee’s decision to accept voluntary redundancy in exchange for these benefits, are re- Liabilities related to employee benefits paid upon or after ce- cognized at the earlier of the following dates: asing employment in connection with defined benefit plans > when the Group can no longer withdraw its offer of be- or other long-term benefits accrued during the employment nefits; and period are determined separately for each plan, using actua- > when the Group recognizes a cost for a restructuring that rial assumptions to estimate the amount of the future bene- is within the scope of IAS 37 and involves the payment of fits that employees have accrued at the balance sheet date termination benefits. (the projected unit credit method). More specifically, the The liabilities are measured on the basis of the nature of present value of the defined benefit obligation is calculated the employee benefits. More specifically, when the bene- by using a discount rate determined on the basis of mar- fits represent an enhancement of other post-employment ket yields at the end of the reporting period on high-quality benefits, the associated liability is measured in accordance corporate bonds. If there is no deep market for high-quality with the rules governing that type of benefit. Otherwise, corporate bonds in the currency in which the bond is deno- if the termination benefits due to employees are expected minated, the corresponding yield of government securities to be settled wholly before 12 months after the end of the is used. 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 perfor- benefits; if they are not expected to be settled wholly before med 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 limit ments for other long-term employee benefits. 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 mea- Provisions for risks and charges surement of the liabilities, the return on the plan assets (net Provisions are recognized where there is a legal or construc- of the associated interest income) and the effect of the asset tive obligation as a result of a past event at the end of the ceiling (net of the associated interest income) are recognized reporting period, the settlement of which is expected to re- in other comprehensive income when they occur. For other sult in an outflow of resources whose amount can be relia- long-term benefits, the related actuarial gains and losses are bly estimated. Where the impact is material, the accruals are recognized through profit or loss. determined by discounting expected future cash flows using In the event of a change being made to an existing defined a pre-tax discount rate that reflects the current market as- benefit plan or the introduction of a new plan, any past servi- sessment of the time value of money and, if applicable, the ce cost is recognized immediately in profit or loss. risks specific to the liability. If the provision is discounted, the 199 Consolidated financial statementsperiodic adjustment of the present value for the time factor all conditions attaching to them as set by the government, is recognized as a financial expense. government agencies and similar bodies whether local, na- When the Group expects some or all of the expenditure re- tional or international. quired to extinguish a liability will be reimbursed by a third When loans are provided by governments at a below-mar- party, the reimbursement is recognized as a separate asset ket rate of interest, the benefit is regarded as a government if such reimbursement is virtually certain. grant. The loan is initially recognized and measured at fair Where the liability relates to plant decommissioning and/ value and the government grant is measured as the diffe- or site restoration, the initial recognition of the provision is rence between the initial carrying amount of the loan and made against the related asset and the expense is then reco- the funds received. The loan is subsequently measured in gnized in profit or loss through the depreciation of the asset accordance with the requirements for financial liabilities. involved. Government grants are recognized in profit or loss on a sy- Where the liability regards the treatment and storage of nu- stematic basis over the periods in which the Group recogni- clear waste and other radioactive materials, the provision is zes as expenses the costs that the grants are intended to recognized against the related operating costs. compensate. In the case of contracts in which the unavoidable costs of Where the Group receives government grants in the form meeting the obligations under the contract exceed the eco- of a transfer of a non-monetary asset for the use of the nomic benefits expected to be received under it (onerous Group, it accounts for both the grant and the asset at the contracts), the Group recognizes a provision as the lower of fair value of the non-monetary asset received at the date the costs of fulfilling the obligation that exceed the economic of the transfer. benefits expected to be received under the contract and any Grants related to long-lived assets, including non-monetary compensation or penalty arising from failure to fulfil it. grants at fair value, i.e. those received to purchase, build or Changes in estimates of accruals to the provision are reco- otherwise acquire non-current assets (for example, an item gnized in the income statement in the period in which the of property, plant and equipment or an intangible asset), are changes occur, with the exception of those in respect of recognized on a deferred basis under other liabilities and are the costs of decommissioning, dismantling and/or resto- credited to profit or loss on a straight-line basis over the use- ration resulting from changes in the timetable and costs ful life of the asset. necessary to extinguish the obligation or from a change in the discount rate. These changes increase or decrease the value of the related assets and are taken to the income statement through depreciation. Where they increase the value of the assets, it is also determined whether the new carrying amount of the assets is fully recoverable. If this is Environmental certificates Some Group companies are affected by national regulations governing green certificates and energy efficiency certifica- tes (so-called white certificates), as well as the European not the case, a loss equal to the unrecoverable amount is “Emissions Trading System”. recognized in the income statement. 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 determining liabilities for plant dismantling and site restora- tion, especially those associated with nuclear power plants or the storage of waste fuel and other radioactive materials, please see the section on the use of estimates. Government grants Green certificates, which now only exist outside of Italy, accrued in proportion to electricity generated by renewable energy plants and energy efficiency certificates accrued in proportion to energy savings achieved that have been certi- fied by the competent authority are treated as non-monetary government operating grants and are recognized at fair value, under other revenue and income, with recognition of an as- set under other non-financial assets, if the certificates are not yet credited to the ownership account, or under inventories, if the certificates have already been credited to that account. At the time the certificates are credited to the ownership ac- count, they are reclassified from other assets to inventories. Government grants, including non-monetary grants at fair va- Revenue from the sale of such certificates are recognized lue, are recognized where there is reasonable assurance that under revenue from sales and services, with a correspon- they will be received and that the Group will comply with ding decrease in inventories. 200 Annual Report 2017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, energy amounts of such assets (or disposal groups) are measured 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 writedown 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 certifica- ing operations. tes to fulfil compliance requirements for the reporting pe- Non-current assets are not depreciated (or amortized) while riod are recognized through profit or loss on an accruals they are classified as held for sale or while they are part of a basis under other operating expenses, as they represent disposal group classified as held for sale. “system charges” consequent upon compliance with a re- If the classification criteria are no longer met, the Group cea- gulatory requirement. ses to classify non-current assets (or disposal group) as held Non-current assets (or disposal groups) classified as held for sale and discontinued operations 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 classified as held for sale; and for sale if their carrying amount will be recovered principally through a sale transaction, rather than through continuing use. > the recoverable amount, which is equal to the greater of its fair value net of costs of disposal and its value in use, as calculated at the date of the subsequent decision not This classification criteria is applicable only when non-current to sell. assets (or disposal groups) are available in their present con- dition for immediate sale and the sale is highly probable. Any adjustment to the carrying amount of a non-current as- set that ceases to be classified as held for sale is included in If the Group is committed to a sale plan involving loss of con- profit or loss from continuing operations. trol of a subsidiary and the requirements provided for under IFRS 5 are met, all the assets and liabilities of that subsidiary A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, are classified as held for sale when the classification criteria and: are met, regardless of whether the Group will retain a non- > represents a separate major line of business or geo- controlling interest in its former subsidiary after the sale. graphical area of operations; The Group applies these classification criteria as envisaged in IFRS 5 to an investment, or a portion of an investment, in > is part of a single coordinated plan to dispose of a sepa- rate major line of business or geographical area of ope- an associate or a joint venture. Any retained portion of an in- rations; or vestment in an associate or a joint venture that has not been classified as held for sale is accounted for using the equity > is a subsidiary acquired exclusively with a view to resale. The Group presents, in a separate line item of the income method until disposal of the portion that is classified as held statement, a single amount comprising the total of: for sale takes place. Non-current assets (or disposal groups) and liabilities of di- sposal groups classified as held for sale are presented sepa- rately from other assets and liabilities in the balance sheet. > the post-tax profit or loss of discontinued operations; and > the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or disposal groups constituting the discontinued The amounts presented for non-current assets or for the as- operation. sets and liabilities of disposal groups classified as held for sale are not reclassified or re-presented for prior periods pre- sented. Immediately before the initial classification of non-current The corresponding amount is re-presented in the income statement for prior periods presented in the financial state- ments, so that the disclosures relate to all operations that are discontinued by the end of the current reporting period. 201 Consolidated financial statementsIf the Group ceases to classify a component as held for sale, revenue is determined on the basis of the amounts that the results of the component previously presented in discon- have actually transited along the distribution network, net tinued operations are reclassified and included in income of estimated losses. Where provided for in the specific lo- from continuing operations for all periods presented. cal regulations, such revenue is adjusted to take account Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the amount can be reliably measured. Revenue includes only the gross inflows of economic benefits received and re- ceivable by the Group on its own account. Therefore, in an of the restrictions and mandatory rates established by the Regulatory Authority for Energy, Networks and the Envi- ronment in Italy or the equivalent national organizations in other countries. In particular, in setting restrictions and mandatory rates, each authority covers the costs incurred for investments in the network, the associated remunera- tion based on an appropriate rate of return on capital and the timing with which those amounts are incorporated in agency relationship, the amount collected on behalf of the rates; principal are excluded from revenue. Revenue is measured at the fair value of the consideration received or receivable, taking into account the amount of any trade discounts and volume rebates allowed by the Group. When goods or services are exchanged or swapped for go- ods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. In arrangements under which the Group will perform multi- ple revenue-generating activities (a multiple-element arran- gement), the recognition criteria are applied to the separa- tely identifiable components of the transaction in order to reflect the substance of the transaction or to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole. More specifically, the following criteria are used depending on the type of transaction: > revenue from the sale of goods is recognized when the si- gnificant risks and rewards of ownership of the goods are transferred to the buyer and their amount can be reliably determined; > revenue from the sale of electricity and gas is recognized > revenue from the rendering of services is recognized by reference to the stage of completion of services at the end of the reporting periods in which the services are ren- dered. The stage of completion of the transaction is deter- mined based on an assessment of the service rendered as a percentage of the total services to be rendered or as costs incurred as a proportion of the estimated total costs of the transaction. When it is not possible to reliably deter- mine the value of the revenue, it is recognized only to the extent of the expenses recognized that are recoverable; > revenue associated with construction contracts is recogni- zed as specified in the section “Construction contracts”; > revenue from monetary and in-kind fees for connection to the electricity distribution network is recognized in full upon completion of connection activities if the service supplied is identified. If more than one separately identi- fiable service is identified, the fair value of the total consi- deration received or receivable is allocated to each service and the revenue related to the service performed in the period is recognized; in particular, if any ongoing services (electricity distribution services) are identified, the related revenue is generally determined by the terms of the agre- ement with the customer or, when such an agreement does not specify a period, over a period no longer than the when these commodities are supplied to the customer useful life of the transferred asset; and regard the quantities provided during the period, even if these have not yet been invoiced. It is determined using > revenue from rentals and operating leases is accrued on a straight-line basis in accordance with the substance of the estimates as well as periodic meter readings. Where ap- relevant agreement. plicable, this revenue is based on the rates and related restrictions established by law or the Regulatory Authority for Energy, Networks and the Environment and analogous foreign authorities during the applicable period; Financial income and expense from derivatives Financial income and expense from derivatives includes: > revenue from the transport of electricity and gas is re- > income and expense from derivatives measured at fair va- cognized when the services are rendered to distribution lue through profit or loss on interest rate and exchange customers even if they have not yet been invoiced. That risks; 202 Annual Report 2017 > income and expense from fair value hedge derivatives on ble temporary differences associated with investments in interest rate risk; subsidiaries, associates and interests in joint arrangements, > income and expense from cash flow hedge derivatives on when the Group can control the timing of the reversal of the interest rate and exchange risks. temporary differences and it is probable that the temporary Other financial income and expense For all financial assets and liabilities measured at amortized Deferred tax assets are recognized for all deductible tempo- rary differences, the carry forward of unused tax credits and cost and interest-bearing financial assets classified as availa- any unused tax losses, when recovery is probable, i.e. when ble for sale, interest income and expense is recorded using an entity expects to have sufficient future taxable income to differences will not reverse in the foreseeable future. the effective interest rate method. The effective interest rate recover the asset. is the rate that exactly discounts the estimated future cash The recoverability of deferred tax assets is reviewed at each payments or receipts over the expected life of the financial period-end. instrument or a shorter period, where appropriate, to the net Unrecognized deferred tax assets are re-assessed at each carrying amount of the financial asset or liability. reporting date and they are recognized to the extent that it Interest income is recognized to the extent that it is probable has become probable that future taxable profits will allow that the economic benefits will flow to the Group and the the deferred tax asset to be recovered. Deferred taxes are amount can be reliably measured. recognized in profit or loss, with the exception of those in Other financial income and expense also includes changes respect of items recognized outside profit or loss that are in the fair value of financial instruments other than deriva- recognized in equity. tives. Income taxes Deferred tax assets and deferred tax liabilities are offset against current tax liabilities related to income taxes levied by the same taxation authority that arise at the time of rever- sal if a legally enforceable right to set-off exists. Current income taxes Current income taxes for the period, which are recognized under “Income tax payable” net of payments on account, Dividends or under “Tax receivables” where there is a credit balance, Dividends are recognized when the unconditional right to re- are determined using an estimate of taxable income and in ceive payment is established. conformity with the applicable regulations. Dividends and interim dividends payable to a company’s sha- In particular, such payables and receivables are determined reholders are recognized as changes in equity in the period in using the tax rates and tax laws that are enacted or substan- which they are approved by the Shareholders’ Meeting and tively enacted as at the end of the reporting period. the Board of Directors, respectively. Current income taxes are recognized in profit or loss with 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 correspon- ding values recognized for tax purposes on the basis of tax rates in effect on the date the temporary difference will re- verse, which is determined on the basis of tax rates that are enacted or substantively enacted as at end of the reporting period. 3 Recently issued accounting standards New accounting standards applied in 2017 Deferred tax liabilities are recognized for all taxable tempo- The Group adopted the following amendments to existing rary differences, except when the deferred tax liability arises standards with effect as from January 1, 2017. from the initial recognition of goodwill or in respect of taxa- > “Amendments to IAS 7 - Disclosure initiative”, issued in 203 Consolidated financial statementsJanuary 2016. The amendments apply to liabilities and as- IFRS 9 provides for a single approach for all types of fi- sets arising from financing activities, which are defined nancial asset, including those containing embedded de- as liabilities and assets for which cash flows were, or will rivatives, under which financial assets are classified in be, classified in the statement of cash flows as “cash their entirety, without the application of complex subdivi- flows from financing activities”. The amendments require sion methods. disclosure of changes in such liabilities/assets, distingui- In order to determine how financial assets should be shing between cash flow changes and non-cash varia- classified and measured, consideration must be given to tions (i.e. variations arising from the effect of changes in the business model used to manage its financial assets foreign exchange rates and changes in fair values). and the characteristics of the contractual cash flows. In The application of amendments did not entail substantial this regard, a business model is the manner in which an changes in the disclosures provided in these consolida- entity manages its financial assets in order to generate ted financial statements. cash flows, i.e. collecting contractual cash flows, selling > “Amendments to IAS 12 - Recognition of deferred tax the financial assets or both. assets for unrealised losses”, issued in January 2016. Financial assets are measured at amortized cost if they The amendments clarify the recognition of deferred tax are held in a business model whose objective is to col- assets in respect of debt instruments measured at fair lect contractual cash flows and are measured at fair value value. More specifically, the amendments clarify the through other comprehensive income (FVTOCI) if they requirements for recognizing deferred tax assets for are held with the objective of both collecting contractual unrealized losses in order to eliminate differences in ac- cash flows and selling the assets. This category enables counting treatment. The application of amendments did the recognition of interest calculated using the amortized not have an impact on these consolidated financial sta- cost method through profit or loss and the fair value of tements. the financial asset through OCI. > “Annual improvements to IFRSs 2014-2016 cycle”, issued in Financial assets at fair value through profit or loss (FVTPL) December 2016, limited to the amendments to “IFRS 12 - is now a residual category that comprises financial instru- Disclosure of interests in other entities”. The amendments ments that are not held under one of the two business clarify that the provisions governing disclosure under IFRS models indicated above, including those held for trading 12, with the exception of summarized financial informa- and those managed on the basis of their fair value. tion, also apply to interests in entities classified as held for As regards the classification and measurement of finan- sale. Prior to the amendments, it was not clear whether cial liabilities, IFRS 9 maintains the accounting treatment the provisions of IFRS 12 were applicable to such interests. envisaged in IAS 39, making limited amendments, for The application of amendments did not have an impact on which most of such liabilities are measured at amortized these consolidated financial statements. cost. It is still permitted to designate a financial liability as Accounting standards taking effect at a future date The following new standards, amendments and interpreta- at fair value through profit or loss if certain requirements are met. The standard introduces new provisions for financial liabi- lities designated at fair value through profit or loss, under tions take effect after December 31, 2017. which in certain circumstances the portion of changes > “IFRS 9 - Financial instruments”, the final version was is- in fair value due to own credit risk shall be recognized sued on July 24, 2014, replacing the existing “IAS 39 - Fi- through OCI rather than profit or loss. This part of the nancial instruments: recognition and measurement” and standard may be applied early, without having to apply supersedes all previous versions of the new standard. the entire standard. The standard will take effect as from January 1, 2018 and Since during the financial crisis the impairment approach early application will be permitted. based on “incurred credit losses” had displayed clear li- The final version of IFRS 9 incorporates the results of the mitations connected with the deferral of the recognition three phases of the project to replace IAS 39 concerning of credit losses until the occurrence of a trigger event, classification and measurement, impairment and hedge the standard proposes a new model that gives users of accounting. financial statements more information on “expected cre- As regards the classification of financial instruments, dit losses”. 204 Annual Report 2017 In essence the model provides for: b) “Impairment”: an analysis was conducted of impai- a) the application of a single framework for all financial red financial assets, with a focus on trade receivables, assets; which represent the majority of the Group’s credit ex- b) the recognition of expected credit losses on an on- posure. More specifically, in application of the simpli- going basis and the updating of the amount of such fied approach envisaged by the standard, those recei- losses at the end of each reporting period, with a view vables were sub-divided into specific clusters, taking to reflecting changes in the credit risk of the financial due account of the applicable legislative and regula- instrument; tory framework, and the impairment model based on c) the measurement of expected losses on the basis expected losses developed by the Group for collective of reasonable information, obtainable without undue assessment was applied. An analytical approach was cost, about past events, current conditions and fore- applied to trade receivables that management consi- casts of future conditions; ders significant on an individual basis and for which d) an improvement of disclosures on expected losses more detailed information on the increase in credit and credit risk. risk is available within the simplified model; IFRS 9 also introduces a new approach to hedge ac- c) “Hedge Accounting”: specific activities were perfor- counting, with the aim of aligning hedge accounting med to implement the new hedge accounting model, more closely with risk management, establishing a more including effectiveness testing and rebalancing hedge principle-based approach. relationships and analysis of the new strategies that The new hedge accounting approach will enable entities can be applied under IFRS 9. to reflect their risk management activities in the financial Upon first-time application, the effects of adoption of statements, extending the criteria for eligibility as hedged IFRS 9 for “Classification and Measurement” and “Im- items to the risk components of non-financial elements, to pairment” will be recognized in Group equity at January net positions, to layer components and to aggregate expo- 1, 2018, while for “Hedge Accounting”, the adoption of sures (i.e., a combination of a non-derivative exposure and a the new provisions is prospective, with the exception of derivative). The most significant changes regarding hedging the available option of separating currency basis spreads instruments compared with the hedge accounting appro- from the hedge relations, which the Group elected to ap- ach used in IAS 39 involve the possibility of deferring the ply retrospectively. time value of an option, the forward element of forward On the basis of available information, the adoption of contracts and currency basis spreads (i.e. “hedging costs”) IFRS 9 as from January 1, 2018 will produce an immate- in OCI up until the time in which the hedged element im- rial decrease in Group equity, net of the tax effect, mainly pacts profit or loss. IFRS 9 also eliminates the requirement due to the adoption of the expected loss model. for testing effectiveness under which the results of the re- > “IFRS 15 - Revenue from contracts with customers”, is- trospective test needed to fall with a range of 80%-125%, sued in May 2014, including “Amendments of IFRS 15: allowing entities to rebalance the hedging relationship if risk effective date of IFRS 15”, issued in September 2015. The management objectives have not changed. new standard will replace “IAS 11 - Construction con- Finally, IFRS 9 does not replace the provisions of IAS 39 tracts”, “IAS 18 - Revenue”, “IFRIC 13 - Customer loyalty concerning portfolio fair value hedge accounting for inte- programmes”, “IFRIC 15 - Agreements for the construc- rest rate risk (“macro hedge accounting”) as that phase tion of real estate”, “IFRIC 18 - Transfers of assets from of the IAS 39 replacement project has been separated customers” and “SIC 31 - Revenue - Barter transactions and is still under discussion. involving advertising services” and will apply to all con- In 2017 a transition project involving the three areas of tracts with customers, with a number of exceptions (for application of the new standard was completed. The indi- example, lease and insurance contracts, financial instru- vidual project areas address the following aspects: ments, etc.). The new standard establishes a general a) “Classification and Measurement”: an assessment framework for the recognition and measurement of re- was conducted of the procedures for classifying finan- venue based on the following fundamental principle: the cial instruments under IAS 39 compared with the new recognition of revenue in a manner that faithfully depicts policies provided for under IFRS 9 (i.e. SPPI test and the transfer of goods and services to customers in an business model); amount that reflects the consideration to which the enti- 205 Consolidated financial statements ty expects to be entitled in exchange for those goods or This decrease mainly reflects the redetermination of fees services. The fundamental principle will be applied on the for contracts to connect customers to the grid, partly of- basis of five key phases (steps): the entity must identify fset by an increase connected with the capitalization of the contract with the customer (step 1); the entity must contract acquisition costs net of the associated amortiza- identify the performance obligations in the contract, re- tion. cognizing separable goods or services as separate obli- > “Clarification to IFRS 15 - Revenue from contracts with gations (step 2); the entity must then determine the tran- customers”, issued in April 2016, introduces amendments saction price, which is represented by the consideration of the standard in order to clarify a number of practical that it expects to obtain (step 3); the entity must then expedients and topics addressed by the Joint Transition allocate the transaction price to the individual obligations Resource Group established by the IASB and the FASB. identified in the contract on the basis of the individual The aim of these amendments is to clarify a number of price of each separable good or service (step 4); revenue provisions of IFRS 15 without modifying the basic princi- is recognized when (or if) each individual performance ples of the standard. The amendments, which will take obligation is satisfied through the transfer of the good or effect for periods beginning on or after January 1, 2018, service to the customer, i.e. when the customer obtains do not affect the estimated potential impacts of the control of the good or service (step 5). adoption of IFRS 15. IFRS 15 also provides for a series of notes that ensure > “IFRS 16 - Leases”, issued in January 2016, replaces the complete disclosure concerning the nature, amount, ti- previous standard governing leases, IAS 17, and the as- ming and degree of uncertainty of the revenue and cash sociated interpretations. It establishes the criteria for the flows associated with contracts with customers. recognition, measurement and presentation of leases for The standard will take effect retrospectively for periods both the lessor and the lessee and the associated disclo- beginning on or after January 1, 2018, with the option of sures. Although IFRS 16 does not modify the definition recognizing the effect in equity at January 1, 2018. of a lease contract set out in IAS 17, the main change is In 2017, a project begun in 2016 was completed to iden- represented by the introduction of the concept of con- tify the possible impact of the standard on the Group’s trol within that definition. More specifically, in order to consolidated financial statements. More specifically, the determine whether a contract represents a lease, IFRS most significant aspects for the consolidated financial 16 requires the lessee to determine whether it has the statements that will be affected by the new provisions right to control the use of a given assets for a specified of IFRS 15 regard: (i) revenue in respect of certain grid period of time. IFRS 16 eliminates the distinction betwe- connection contracts, which was previously recognized en operating and finance leases, as required under IAS in profit or loss at the time of the connection, but under 17, introducing a single method for recognizing all leases. IFRS 15 will be deferred on the basis of the nature of the Under the new approach, the lessee must recognize: obligation arising from the contract with the customer; a) in the balance sheet, the assets and liabilities in re- and ii) the capitalization of contract acquisition costs, li- spect of all leases with a term of more than 12 months, mited to sales commission paid to agents. unless the underlying asset is of low value; and With regard to presentation, the application of IFRS 15 b) in the income statement, the depreciation of the as- will also entail a limited number of reclassifications in the sets involved in the lease contract separately from income statement. the interest connected with the associated liabilities. On the occasion of first-time application of the new stan- For lessors, IFRS 16 essentially retains the recognition dard, the Enel Group will elect to recognize the effect requirements provided for under IAS 17. Accordingly, the of the retrospective recalculation of values in equity at lessor shall continue to classify and recognize leases as January 1, 2018, for circumstances existing at that date, operating or finance leases. The standard will apply for without restating the figures for previous years presen- periods beginning on or after January 1, 2019. The Group ted for comparative purposes. In particular, on the basis is assessing the potential impact of the future application of available information, considering the circumstances of the standard. indicated previously, the adoption of the new IFRS 15 as > “IFRS 17 - Insurance contracts”, issued in May 2017, es- from January 1, 2018 will decrease Group equity, net of sentially defines the principles for the recognition, mea- the associated tax effect, by €3.7 billion. surement, presentation and disclosure of insurance and 206 Annual Report 2017 reinsurance contracts issued by the company, as well as connected with insurance to postpone the application reinsurance contracts held by the company. IFRS 17 re- of IFRS 9 until 2021 (“temporary exemption”); and places IFRS 4, which did not establish a single method - permits insurers, until the future issue of the new ac- for recognizing insurance contracts, with the result that counting standard for insurance contracts, to recogni- those contracts could be recognized differently in diffe- ze the volatility that should be caused by the applica- rent jurisdictions and, potentially, within the same com- tion of IFRS 9 in other comprehensive income rather pany. The new standard: than through profit or loss (the “overlay approach”). The amendments will take effect for periods beginning - requires the disclosure of updated information on the on or after January 1, 2018. The Enel Group has decided obligations, risks and performance of insurance con- not to exercise the option for the temporary exemption tracts; for the application of IFRS 9 to the insurance sector. - increases the transparency of financial information > “Amendments to IFRS 9: Prepayment features with provided by insurance companies, giving the users of negative compensation”, issued in October 2017. The financial statements greater confidence in their under- amendments introduce a narrow-scope exception to standing of the insurance industry; and the provisions of IFRS 9 for certain financial assets that - introduces a consistent accounting method for all in- would otherwise have contractual cash flows represen- surance contracts based on a single valuation model. ted solely by payments of principal and interest but do not The standard will take effect, subject to endorsement, meet that condition only because the contract contains a for periods beginning on or after January 1, 2021. The prepayment option. More specifically, the amendments Group is assessing the potential impact of the future ap- establish that financial assets with a contractual clause plication of the new standard. that permits (or requires) the issuer to prepay a debt in- > “Amendments to IFRS 2 - Share-based payment”, issued strument or that permits (or requires) the holder to put a in June 2016. The amendments: debt instrument back to the issuer before maturity can - clarify that the fair value of a share-based transaction be measured at amortized cost or at fair value through settled in cash at the measurement date (i.e. at the other comprehensive income, subject to assessment of grant date, at the close of each accounting period and the business model under which the assets are held, if at the settlement date) shall be calculated by taking the following conditions are satisfied: account of market conditions (e.g. a target price for - the entity acquires or originates the financial asset at the shares) and non-vesting conditions, ignoring servi- a premium or discount to the contractual par amount; ce conditions and performance conditions other than - the prepayment amount substantially represents the market conditions; contractual par amount and accrued (but unpaid) con- - clarify that share-based payments with net settlement tractual interest, which may include reasonable addi- for withholding tax obligations should be classified in tional compensation for the early termination of the their entirety as equity-settled transactions (if they contract; and would be so classified in the absence of the net set- - when the entity initially recognizes the financial asset, tlement feature); the fair value of the prepayment feature is insignifi- - establish provisions for the accounting treatment of cant. changes in terms and conditions that result in a chan- In 2017 the IASB discussed the issue of the modification ge in the classification of the transaction from cash- or exchange of a financial liability that does not result in settled to equity-settled. derecognition of the liability. The discussion resulted in The amendments will take effect for periods beginning the addition of a section to the Basis for Conclusions of on or after January 1, 2018. The Group does not expect “IFRS 9 - Another issue: Modification or exchange of a the future application of the amendments to have an im- financial liability that does not result in derecognition”. pact. The IASB concluded that the requirements under IFRS > “Amendments to IFRS 4: Applying IFRS 9 - Financial in- 9 for adjusting the amortized cost of a financial liability struments with IFRS 4 - Insurance contracts, issued in when a modification (or exchange) does not result in the September 2016. The amendments: derecognition of the financial liability are consistent with - permit insurers whose activities are predominantly the requirements for adjusting a financial asset when a 207 Consolidated financial statements modification does not result in the derecognition of the cognize a tax liability or asset in conditions of uncertainty financial asset. if it is probable that a taxation authority will accept an The amendments will take effect, subject to endorse- uncertain tax treatment, assuming that the authority will ment, for periods beginning on or after January 1, 2019. examine amounts it has a right to examine and have full Early application is permitted. knowledge of all related information when making those > “Amendments to IAS 28 - Long-term interests in asso- examinations. The interpretation also requires an entity ciates and joint ventures”, issued in October 2017. The to reassess a judgement or estimate in the presence of amendments clarify that an entity shall apply the provi- facts and circumstances that might change an entity’s sions of “IFRS 9 - Financial instruments” to long-term conclusions about the acceptability of a tax treatment or interests in associates and joint ventures for which the the entity’s estimate of the effect of uncertainty, or both. equity method is not used. The amendments will take The amendments will take effect, subject to endorse- effect, subject to endorsement, for periods beginning on ment, for periods beginning on or after January 1, 2019. or after January 1, 2019. The Group is assessing the po- The Group is assessing the potential impact of the future tential impact of the future application of the amended application of the provisions. standard. > “Annual improvements to IFRSs 2014-2016 cycle”, issued > “Amendments to IAS 40 - Transfers of investment proper- in December 2016, limited to the amendments of the fol- ty”, issued in December 2016. The amendments clarify lowing standards: that transfers of property to or from investment property - “IFRS 1 - First-time adoption of International Financial shall be permitted only when there is a change in use Reporting Standards”; the amendments eliminated supported by evidence of that change. A change in ma- the “short-term exemptions from IFRSs” regarding nagement’s intentions does not in itself provide evidence the transition to IFRS 7, IAS 19 and IFRS 10. These of a change in use sufficient to support the transfer. The transition provisions were only available for past re- amendments broadened the examples of changes of use porting periods and are therefore now no longer ap- to include property under construction or development plicable. The amendments will take effect for periods and not just the transfer of completed properties. The beginning on or after January 1, 2018; amendments will take effect for periods beginning on or - “IAS 28 - Investments in associates and joint ventu- after January 1, 2018. The Group does not expect the fu- res”; the amendments clarify that the option available ture application of the amendments to have an impact. to a venture capital organization (or a mutual fund, unit > “IFRIC 22 - Foreign currency transactions and advance trust and similar entities, including investment-linked consideration”, issued in December 2016; the interpre- insurance funds) to measure an investment in an as- tation clarifies that, for the purpose of determining the sociate or joint venture at fair value through profit or exchange rate to be used in the initial recognition of an loss, those entities shall make this election at initial asset, expense or income (or part of it) the date of the recognition separately for each associate or joint ven- transaction is that on which the entity recognizes any ture. Similar clarifications were made for entities that non-monetary asset (liability) in respect of advance con- are not investment entities and that, when they apply sideration paid (received). If there are multiple payments the equity method, elect to retain the fair value mea- or receipts in advance, the entity shall determine a date surement applied by the investment entities that re- of the transaction for each payment or receipt of advance present their interests in associates or joint ventures. consideration. The amendments will take effect, subject The amendments will apply retrospectively for periods to endorsement, for periods beginning on or after Janua- beginning on or after January 1, 2018. ry 1, 2018. The Group is assessing the potential impact of The new provisions contain formal modifications and cla- the future application of the amended standard. rifications of existing standards that are not expected to > “IFRIC 23 - Uncertainty over income tax treatments”, have a significant impact for the Group. issued in June 2017. The interpretation clarifies how to > “Annual improvements to IFRSs 2015-2017 cycle”, issued apply the recognition and measurement requirements of in December 2017; the document contains formal mo- IAS 12 in the case of uncertainty over income tax tre- difications and clarifications of existing standards. Each atments. The uncertainty may regard current or deferred of the amendments will apply, subject to endorsement, taxation. The interpretation states that the entity shall re- for periods beginning on or after January 1, 2019. Early 208 Annual Report 2017application is permitted. More specifically, the following standards were amended: - “IFRS 3 - Business combinations”; the amendments 5 clarify that when a joint operator obtains control of a business that is a joint operation, it shall remeasure its previously held interest in the joint operation at fair Main changes in the scope of consolidation value at the acquisition date; - “IFRS 11 - Joint arrangements”; the amendments cla- rify that a party that participates in, but does not have In the two periods under review, the scope of consolidation changed as a result of a number of transaction. joint control of, a joint operation and obtains joint con- trol of the joint operation that constitutes a business 2016 as defined in IFRS 3 is not required to remeasure pre- viously held interests in the joint operation; - “IAS 12 - Income taxes”; the amendments clarify that an entity shall recognize the income tax conse- quences of dividends (as defined in IFRS 9) when it recognizes a liability to pay a dividend in profit or loss, other comprehensive income or equity according to where the entity originally recognized the transactions that generated distributable profits; - “IAS 23 - Borrowing costs”; the amendments clarify that an entity shall include borrowings made specifi- cally for the purpose of obtaining a qualifying asset outstanding when the asset is ready for its intended use or sale in the generic borrowings of the entity. The Group is assessing the potential impact of the future application of the provisions. 4 Restatement of comparative disclosures The figures presented in the comments and tables of the notes to the financial statements are consistent and com- parable between 2016 and 2017. No restatements of the comparative disclosures were required. > Disposal, completed in early March 2016, of Compos- tilla Re, which at December 31, 2015 had been classified as “held for sale”. The sale price was €101 million (the company also held liquid assets of about €111 million) and generated a gain of about €19 million; > disposal, on May 1, 2016, of 65% of Drift Sand Wind Project, a company operating in the wind generation sector in the United States. The sale price was €72 mil- lion and generated a gain of about €2 million and a reme- asurement at fair value of the remaining 35% of about €4 million; > disposal, completed on July 13, 2016, of Enel Lon- ganesi, which held the Italian assets (composed of 21 applications for onshore and offshore exploration permits and exploration permits) in the upstream gas sector. The maximum sales price is €30 million, of which about €7 million were collected immediately, while the right to re- ceive the remainder (in multiple tranches) is subject to a number of conditions, such as the start of production at the Longanesi gas field in Emilia-Romagna, scheduled for 2019. No capital losses were recognized through profit or loss given that its value had already been adjusted to estimated realizable value; > disposal, on July 28, 2016, of 50% of Slovak Power Holding (“SPH”), which in turn holds 66% of Slovenské elektrárne (“SE”). More specifically, Enel Produzione fi- nalized the disposal to EP Slovakia, a subsidiary of Ener- getický a pru˚myslový holding (“EPH”), of 50% of SPH in execution of the contract agreed on December 18, 2015 between Enel Produzione and EP Slovakia. The total pri- ce for the two phases, equal to €750 million (of which €150 million paid immediately in cash), is subject to a price adjustment mechanism, which will be calculated by independent experts and applied at the closing of the second phase on the basis of a number of parameters, including the evolution of the net financial position of SE, 209 Consolidated financial statementsdevelopments in energy prices in the Slovakian market, the operating efficiency of SE measured on the basis of benchmarks defined in the contract and the enterprise value of Mochovce units 3 and 4. Accordingly, the finan- cial receivable generated by the disposal is measured at 2017 > Acquisition, on January 10, 2017, of 100% of Demand Energy Networks, a company headquartered in the Uni- ted States specialized in software solutions and smart fair value through profit or loss. The same parameters de- electricity storage systems; scribed above were used in determining the recoverable > acquisition, on February 10, 2017, of 100% of Más value of the interest in the SPH joint venture; Energía, a Mexican company operating in the renewa- > acquisition of control, on October 1, 2016, of Distribui- ble energy sector; dora Eléctrica de Cundinamarca (“DEC”), previously accounted for using the equity method, through the mer- ger of DEC into Codensa (which had already held 49%); > loss of control, on November 21, 2016, following chan- ges in governance arrangements and the disposal of an interest of 1%, for €12 million, of EGPNA Renewable Energy Partners (“EGPNA REP”), a developer of rene- > acquisition, on February 14, 2017, and May 4, 2017, of 94.84% and 5.04% respectively (for a total of 99.88%) of Enel Distribuição Goiás (formerly CELG-D), an elec- tricity distribution company operating in the Brazilian sta- te of Goiás. For more details, see note 5.1 below; > acquisition, on May 16, 2017, of 100% of Tynemouth Energy Storage, a British company operating in the wables generation projects in the United States. As from electricity storage sector; that date it has been accounted for using the equity me- thod. The transaction involved the recognition of a gain of €2 million and the recognition of income from reme- > acquisition, on June 4, 2017, of 100% of Amec Foster Wheeler Power (now Enel Green Power Sannio), a company that owns two wind plants in the province of asurement at fair value of the 50% still held by EGPNA Avellino; of €95 million; > disposal, on November 30, 2016, of 100% of Enel France, a thermal generation company in France at a pri- ce of about zero, generating a loss of €4 million; > loss of control, on December 20, 2016, of Enel OpEn Fiber (now OpEn Fiber - OF) following a capital increase by Enel and CDP Equity (“CDPE”), after which Enel and CDPE hold an equal stake in OF, which is therefore ac- counted for using the equity method; > disposal, on December 28, 2016, of the Cimarron and Lindahl wind farms to the EGPNA REP joint venture, the starting point of a new industrial growth strategy founded on a less capital-intensive “Build, Sell and Ope- rate“ approach intended to accelerate the development of project pipelines at the global level. The loss of control generated a gain of €37 million; > acquisition, on August 7, 2017, of 100% of the EnerNOC Group following the acceptance of the EGPNA offer to the previous shareholders. For more details, see note 5.2; > acquisition, on October 25, 2017, of 100% of eMotor- Werks, a US company operating in electric mobility management systems. For more details, see note 5.3; > disposal, in December 2017, by Enel Green Power North America using a cash equity agreement, of 80% of the Class A securities of the EGPNA subsidiary Rocky Caney Wind. The total price in the transaction was $233 million, generating a capital gain of €4 million. In addition to the above changes in the scope of consolida- tion, the period also saw the following transactions, which although they do not represent transactions involving the acquisition or loss of control gave rise to a change in the > disposal, on December 30, 2016, of 100% of Marcinelle interest held by the Group in the investees: Energie, a thermal generation company in Belgium, for a total of about €36,5 million, all of which has been paid. During 2016, the net asset value of Marcinelle was adju- sted to its estimated realizable value with the recognition of an impairment loss of about €51 million. The sales pri- ce is subject to customer price adjustments that include an earn-out clause. > disposal, on February 29, 2016, of the remaining inte- rest in Hydro Dolomiti Enel, a company operating in the hydroelectric generation sector in Italy. The sales price was initially estimated at €335 million. Subsequently, following specification of a price adjustment (a negative €22 million) in application of the contractual price formu- la updated on the basis of the final disposal accounts, a capital gain of €124 million was recognized; > on March 31, 2016, the non-proportional demerger of Enel Green Power took effect, following which – with 210 Annual Report 2017a capital increase by Enel SpA as part of the demerger produced a decrease in the interest pertaining to the – the Group increased its stake in the company from Group (from 88.04% to 70.10%) in the results of EGPE 68.29% to 100%, with the consequent reduction of as from the time the operation took effect; non-controlling interests; > merger, on December 1, 2016, into Enel Américas of > on May 3, 2016, Enel Green Power acquired the remai- Endesa Américas and Chilectra Américas, companies ning 40% of Maicor Wind, a company operating in the created with the demerger of Enersis, Endesa Chile and wind generation sector in Italy, thus becoming its sole Chilectra. As the combined effect of exchange ratios shareholder; between shares and the exercise of the right of withdra- > on July 27, 2016, Enel Green Power International, a whol- wal by some shareholders of the companies involved in ly-owned subsidiary of Enel, sold 60% of Enel Green the transaction, the percentage interest in the compa- Power España (“EGPE”) to Endesa Generación, a whol- nies held directly or indirectly by Enel Américas changed; ly-owned subsidiary of Endesa, which as it already held > acquisition, on October 5, 2017, of 7.7% of Enel Dis- the other 40% of EGPE became its sole shareholder. In tribución Perú in a stock market transaction for a price the consolidated financial statements, the transaction of $80 million. 5.1 Acquisition of Enel Distribuição Goiás (formerly CELG-D) On February 14, 2017, Enel Brasil finalized the acquisition allocation of the purchase price, determining the definitive of 94.84% of Enel Distribuição Goiás (formerly CELG-D), fair value of the assets and liabilities acquired. an electricity distribution company operating in the Brazi- The main adjustments of the carrying amount essentially lian state of Goiás under a concession valid until 2045. The regarded the recognition of intangible assets (in particular, remaining interest in Enel Distribuição Goiás was offered those in respect of concession rights) and the associated to current and retired employees using a procedure under tax effects, taking account of the impact of the reverse which Enel Brasil guaranteed the acquisition of any sha- merger of Enel Distribuição Goiás into Enel Investimentos. res not purchased by those employees and retirees. The In view of the characteristics of the concession arrange- procedure closed on May 4, 2017 and enabled the Group ments under which it operates, the distribution activity per- to acquire an additional 5.04% of Enel Distribuição Goiás, formed by the company falls within the scope of application giving it a total holding of 99.88%. The price was paid enti- of IFRIC 12. rely in cash. During the year, the company completed the Determination of goodwill Millions of euro Net assets acquired before allocation (1) Adjustments to allocate purchase price: - intangible assets - deferred tax liabilities - employee benefit obligations - other adjustments - non-controlling interests Net assets acquired after allocation Purchase price for 94.84% Purchase price for additional 5.04% Cost of the acquisition Goodwill (1) Net assets in proportion to Enel’s stake of 99.88%. (278) 1,234 (161) (40) (64) (1) 690 665 25 690 - 211 Consolidated financial statementsAccordingly, the accounts at the acquisition date were as follows: Accounts of Enel Distribuição Goiás as at the acquisition date Millions of euro Property, plant and equipment Intangible assets Other non-current assets Trade receivables Inventories Other current assets Cash and cash equivalents Borrowings Employee benefits Deferred tax liabilities Other non-current liabilities Provisions for risks and charges Trade payables Other current liabilities Non-controlling interests Net assets acquired Carrying amount before February 14, 2017 Adjustments for purchase price allocation Carrying amount as at February 14, 2017 13 572 318 238 7 132 9 (326) (43) - (161) (216) (446) (375) - (278) - 1,234 (34) - - (64) - 81 (40) (161) (17) (11) (4) (15) (1) 968 13 1,806 284 238 7 68 9 (245) (83) (161) (178) (227) (450) (390) (1) 690 Enel Distribuição Goiás contributed €1,359 million in revenue and €37 million in operating income to 2017 results. Enel Distribuição Goiás is part of the Brazil CGU. 5.2 Acquisition of EnerNOC On August 7, 2017, Enel Green Power North America at the same per share price and obtaining a 100% ownership (“EGPNA”) completed the acquisition of 100% of the Ener- interest in the company. The price was paid entirely in cash. NOC Group. The transaction took place in two stages: in the Here too the company completed the purchase price allo- first stage, EGPNA acquired 71.61% of EnerNOC’s outstan- cation process during the year, determining the definitive ding shares at a price of $7.67 per share in cash following an fair value of the assets and liabilities acquired: with an ac- offer to shareholders for at least a majority interest in Ener- quisition cost of €212 million, the net assets acquired were NOC. Following the successful offer, EGPNA completed the determined as follows. acquisition by acquiring the shares of the other shareholders Determination of goodwill Millions of euro Net assets acquired before allocation Adjustments to allocate purchase price: - intangible assets - existing goodwill - deferred tax liabilities - other adjustments Net assets acquired after allocation Cost of the acquisition (of which paid in cash) Goodwill 212 (29) 142 (27) (68) (2) 16 212 212 196 Annual Report 2017The goodwill was mainly recognized in respect of the synergies that are expected to be generated by the combination: Accounts of the EnerNOC Group as at the acquisition date Millions of euro Property, plant and equipment Intangible assets Goodwill Other non-current assets Trade receivables Cash and cash equivalents Other current assets Borrowings Deferred tax liabilities Other non-current liabilities Trade payables Other current liabilities Net assets acquired Carrying amount before August 7, 2017 Adjustments for purchase price allocation Carrying amount as at August 7, 2017 19 26 27 2 65 68 17 (90) - (7) (67) (89) (29) - 142 169 - - - - - (68) - - (2) 241 19 168 196 2 65 68 17 (90) (68) (7) (67) (91) 212 EnerNOC contributed €146 million in revenue and €8 million in operating income to 2017 results. EnerNOC is part of the North America - Enel X CGU. 5.3 Acquisition of eMotorWerks On October 25, 2017, EnerNOC acquired the California-based remainder of €99 million was estimated on the basis of the eMotorWerks, a leading supplier of electric vehicle charging price adjustment agreements between the parties. In the final stations, called JuiceBox, and the owner of JuiceNet, an Inter- months of the year, the company completed the purchase price net of Things (IoT) platform for the smart management of EV allocation process, determining the definitive fair value of the charging and other distributed energy storage facilities. assets and liabilities acquired: with an acquisition cost of €130 The price for the acquisition was €130 million, of which €31 million, the net assets acquired were determined as follows. million paid in cash at the time of the acquisition, while the Determination of goodwill Millions of euro Net assets acquired before allocation Adjustments to allocate purchase price: - intangible assets - deferred tax liabilities Net assets acquired after allocation Cost of the acquisition (of which paid in cash) Goodwill - 49 (12) 37 130 31 93 213 Consolidated financial statementsThe goodwill was mainly recognized in respect of the synergies that are expected to be generated by the combination. Accounts of the eMotorWerks Group as at the acquisition date Millions of euro Intangible assets Goodwill Other non-current assets Inventories Deferred tax liabilities Other non-current liabilities Trade payables Net assets acquired Carrying amount before October 25, 2017 Adjustments for purchase price allocation Carrying amount as at October 25, 2017 - - 1 1 - (1) (1) - 49 93 - - (12) - - 130 49 93 1 1 (12) (1) (1) 130 eMotorWerks contributed €2 million in revenue and a €1 million operating loss to 2017 results. eMotorWerks is part of the North America - Enel X CGU. 5.4 Other minor acquisitions Determination of goodwill Millions of euro Property, plant and equipment Intangible assets Deferred tax assets Cash and cash equivalents Trade receivables Other current assets Medium/long-term borrowings Deferred tax liabilities Trade payables Other current liabilities Net assets acquired Cost of the acquisition (of which paid in cash) Goodwill/(Badwill) Demand Energy Networks Más Energía Tynemouth Energy Storage Amec Foster Wheeler Power (now Enel Green Power Sannio) Azovskaya WPS and Windlife Kola Vetro - 30 6 2 - 1 - (10) (2) (2) 25 38 30 13 - - - - - - - - (3) - (3) 8 8 11 2 - - - - - - - - - 2 5 4 3 46 - - 10 1 7 (29) - (1) (19) 15 10 10 (5) - - - 2 - - - - - (2) - 2 2 - The provisional allocation of the purchase price was completed for all of these acquisitions during the year. 214 Annual Report 20176 Segment information The representation of performance and financial position by For more information on performance and financial deve- business area presented here is based on the approach used lopments during the year, please see the dedicated section by management in monitoring Group performance for the in the Report on operations. two periods being compared. Segment information for 2017 and 2016 Results for 2017 (1) Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other, eliminations and adjustments Total Revenue from third parties 37,900 19,940 13,126 2,374 1,185 Revenue from transactions with other segments 881 54 28 Total revenue 38,781 19,994 13,154 Total costs 32,455 16,434 8,976 37 2,411 1,868 Net income/(expense) from commodity contracts measured at fair value Depreciation and amortization 537 13 26 - 1,769 1,562 1,149 Impairment losses 626 461 134 Reversals of impairment losses Operating income Capital expenditure (2) 4,470 1,812 (292) 1,842 1,105 (49) 2,970 3,002 189 83 (35) 306 307 (2) 1,802 (3 2 1,187 430 2 202 4 - 553 96 - 96 39 - 40 2 - 15 30 18 74,639 (1,002) (984) (638) - 20 1 (3) (364) 72 - 74,639 59,564 578 4,931 1,311 (381) 9,792 8,130 (1) Segment revenue includes both revenue from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the period. (2) Does not include €44 million regarding units classified as “held for sale”. (3) Does not include €325 million regarding units classified as “held for sale”. 215 Consolidated financial statementsResults for 2016 (1) Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Revenue from third parties 36,091 18,831 10,739 3,618 1,122 Revenue from transactions with other segments 954 122 29 Total revenue 37,045 18,953 10,768 Total costs 30,161 15,522 7,221 180 3,798 3,030 3 1,125 291 Net income/(expense) from commodity contracts measured at fair value Depreciation and amortization (266) 131 9 (6) (1) 1,698 1,677 Impairment losses 650 359 Reversals of impairment losses Operating income Capital expenditure - 4,270 1,894 (2) (240) 1,766 1,147 952 442 (1) 2,163 3,069 246 248 (18) 286 249 19 - 565 265 (3) 1,832 Other, eliminations and adjustments Total 162 70,592 29 - 29 15 - 12 7 - (1,288) (1,126) (1,057) - 56 1 (2) (5) 304 (124) 41 - 70,592 55,183 (133) 4,890 1,726 (261) 8,921 8,552 (1) Segment revenue includes both revenue from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the period. (2) Does not include €7 million regarding units classified as “held for sale”. (3) Does not include €283 million regarding units classified as “held for sale”. Financial position by segment At December 31, 2017 Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other, eliminations and adjustments Property, plant and equipment 25,935 (1) 23,783 17,064 3,052 5,800 Intangible assets 1,358 15,662 11,857 Trade receivables Other 10,073 3,033 2,340 1,697 2,432 954 731 337 194 838 193 377 749 115 29 10 54 34 (856) (308) Total 76,437 30,595 14,548 5,957 Operating assets 40,399 (1) 43,482 32,307 4,314 (2) 7,208 (3) 903 (1,076) 127,537 Trade payables Sundry provisions Other 6,847 2,843 7,170 Operating liabilities 16,860 2,738 3,592 3,225 9,555 2,790 1,325 2,451 6,566 426 101 297 782 29 254 60 20 74 824 (4) 1,065 (5) 154 (837) 527 (244) (554) 12,806 8,437 13,227 34,470 (1) Of which €4 million regarding units classified as “held for sale”. (2) Of which €141 million regarding units classified as “held for sale”. (3) Of which €1,675 million regarding units classified as “held for sale”. (4) Of which €74 million regarding units classified as “held for sale”. (5) Of which €145 million regarding units classified as “held for sale”. 216 Annual Report 2017At December 31, 2016 Millions of euro Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Other, eliminations and adjustments Property, plant and equipment Intangible assets Trade receivables Other 25,963 24,158 17,411 3,048 4,831 1,314 9,437 3,373 15,653 11,045 2,243 1,461 1,833 515 743 317 179 633 111 41 Operating assets 40,087 (1) 43,515 30,804 4,287 5,616 (2) Trade payables Sundry provisions Other 7,605 3,122 7,126 Operating liabilities 17,853 2,155 4,096 3,042 9,293 2,445 1,039 1,980 5,464 374 127 305 806 490 25 210 725 (1) Of which €4 million regarding units classified as “held for sale”. (2) Of which €2 million regarding units classified as “held for sale”. 780 113 18 2 913 58 18 54 130 The following table reconciles segment assets and liabilities and the consolidated figures. Total 76,271 29,485 13,506 5,473 124,735 80 (16) (453) (98) (487) (439) 12,688 572 209 342 8,999 12,926 34,613 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 Income tax receivables Long-term tax receivables included in other current assets 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 Other current financial liabilities Derivatives Deferred tax liabilities Income tax payable Other tax payables Financial and tax liabilities included in disposal groups classified as “held for sale” at Dec. 31, 2017 at Dec. 31, 2016 155,641 155,596 1,598 4,002 260 4,614 3,011 7,021 6,354 577 517 150 1,558 3,892 301 3,053 5,554 8,290 6,665 879 664 5 127,537 124,735 103,480 42,439 1,894 7,000 954 5,258 8,348 284 1,323 1,510 103,021 41,336 5,372 4,384 1,264 5,854 8,768 359 1,071 - Segment liabilities 34,470 34,613 217 Consolidated financial statementsRevenue 7.a Revenues from sales and services - €72,664 million Millions of euro Revenue from the sale of electricity Revenue from the transport of electricity Fees from network operators Transfers from institutional market operators Revenue from the sale of natural gas Revenue from the transport of natural gas Revenues from fuel sales Connection fees to electricity and gas networks Revenue from the sale of environmental certificates Revenue from other sales and services Total 2017 43,433 9,973 900 1,635 3,964 570 8,340 800 566 2,483 72,664 2016 42,337 9,587 557 1,462 3,876 563 7,028 814 560 1,820 68,604 Change 2.6% 4.0% 61.6% 11.8% 2.3% 1.2% 18.7% -1.7% 1.1% 36.4% 5.9% 1,096 386 343 173 88 7 1,312 (14) 6 663 4,060 In 2017, “Revenue from the sale of electricity” came to ties transported, and the Enel Distribuição Goiás acquisition. €43,433 million (€42,337 million for 2016), including €31,418 In Italy, the increase in transport revenue was due to the million in revenue from electricity sales to end users (€29,101 greater volumes transported on the free market. However, million for 2016), €8,820 million in revenue from wholesale this effect was largely offset by the reduction in distribu- electricity sales (€11,009 million for 2016), and €3,195 mil- tion rates and in balancing mechanisms (ARERA Resolution lion in revenue from the trading of electricity (€2,227 million 654/2015, as amended, regarding regulation of electricity for 2016). The increase in revenue from electricity sales to transmission, distribution and metering rates for the 2016- end users and for the trading of electricity, which was par- 2023 regulatory period) and the reduction in revenue related tially offset by wholesale electricity sales, was due mainly to system charges. to the increase in volumes handled within a landscape of recovering average sales prices as well as to the change in In 2017, revenue related to “Transfers from institutional mar- exchange rates. The overall change in revenue from the sale ket operators” came to €1,635 million, up €173 million com- of electricity was also negatively impacted by the change in pared with the previous year. This increase is essentially at- consolidated companies, as the increase in revenue related tributable to the Spanish companies, in the amount of €200 to the acquisition of Enel Distribuição Goiás in the amount million, and due to the increase in generation from liquid of €1,042 million was more than offset by the reduction in fuels and the associated prices, for which the Group has the revenue due to the deconsolidation of Slovenské elektrárne right to reimbursements. This effect was partially offset by (€1,225 million), EGPNA REP (€152 million), Marcinelle Ener- the reduction in revenue from contributions received for the gie (€102 million), and Enel France (€97 million). generation of renewable energy, by Enel Green Power in the amount of €35 million, due to the expiration of incentives “Revenue from the transport of electricity” came to €9,973 related to certain geothermal and hydroelectric plants. million in 2017, an increase of €386 million, which was mainly concentrated in Spain, South America and Italy. In “Revenue from the sale of natural gas” for 2017, which to- Spain, the increase in transport revenue was related to the taled €3,964 million (€3,876 million in 2016), increased by use of new parameters for calculating transport rates as de- €88 million over the previous year. This increase was essen- fined by the ministerial Decree proposed by the Ministry for tially due to the increase in revenue in Iberia, in the amount Tourism and Commerce. of €131 million, as a result, in particular, of the increase in In South America, the increase in transport revenue was quantities sold and of a slight increase in average per-unit due mainly to the increase in average rates, greater quanti- prices compared with 2016, which was partially offset by a 218 Annual Report 2017reduction in revenue due to the deconsolidation of Marcinel- €49 million for the sale of other fuels (€75 million in 2016). le Energie in the amount of €39 million. “Revenue from the transport of natural gas” totaled €570 tes” increased by €6 million due to the increase in sales of million, increasing by €7 million (+1.2%) due above all to the greater quantities transported in Italy. CO2 emission rights, in the amount of €22 million, and of energy efficiency certificates, in the amount of €8 million, which was partially offset by a decrease of €24 million in Finally, “Revenue from the sale of environmental certifica- Revenue from the sale of fuels, in the amount of €8,340 sales of green certificates. million, increased by €1,312 million related mainly to the sale of natural gas. In 2017, this included the sale of natural gas, The table below gives a breakdown of revenue from sales in the amount of €8,291 million (€6,953 million in 2016) and and services by geographical area. Millions of euro Italy Europe Iberia France Switzerland Germany Austria Slovenia Slovakia Romania Greece Bulgaria Belgium Czech Republic Hungary Russia Netherlands United Kingdom Other European countries Americas United States Canada Mexico Brazil Chile Peru Colombia Argentina Other South American countries Other Africa Asia Total 2017 27,935 19,032 1,333 135 2,244 290 39 54 1,067 58 9 46 - 472 1,128 4,063 648 82 693 - 359 4,687 3,473 1,167 2,103 1,364 14 79 90 72,664 2016 27,516 17,953 1,001 367 1,880 10 29 660 996 60 9 416 382 335 961 3,554 1,008 144 367 - 144 2,536 3,510 1,215 2,028 1,051 156 28 288 68,604 219 Consolidated financial statements7.b Other revenue and income - €1,975 million Millions of euro Operating grants Grants for environmental certificates Capital grants (electricity and gas business) Sundry reimbursements Gains on disposal of 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 the disposal of property, plant and equipment, and intangible assets Service continuity bonuses Other revenue Total 2017 2016 Change 40 878 21 361 159 - 43 66 407 1,975 22 536 19 241 399 99 65 51 556 1,988 18 342 2 120 (240) (99) (22) 15 (149) (13) 81.8% 63.8% 10.5% 49.8% -60.2% - -33.8% 29.4% -26.8% -0.7% “Grants for environmental certificates” increased by €342 > the recognition of a price adjustment related to the sale million compared with the previous year due essentially to of the Portuguese assets in 2015 in the amount of €30 the increase in grants for energy efficiency certificates, in million. the amount of €351 million, which was partially offset by a reduction in grants for green certificates in the amount of In 2017, there were no “Gains on remeasurement at fair va- €9 million. lue after changes in control”, whereas this aggregate came to €99 million for the prior year. “Sundry reimbursements” concern reimbursements from In 2016, these gains included €95 million for the adjustment customers and suppliers totaling €165 million (€184 million to the present value of the assets and liabilities of the in 2016) and insurance indemnities in the amount of €196 Group following the loss in control that took place with the million (€57 million in 2016). The increase in revenue from change in governance and the consequent loss of control compensation for damages essentially refers to the arbitra- over EGPNA REP. tion initiated by the Group related to the Chucas wind farm, for which the Group was awarded €100 million from the Other revenue in the amount of €407 million (€556 million Instituto Costarricense de Electricidad (ICE) and the Enel in 2016) decreased by €149 million from the previous year. Américas Group was awarded €41 million. This decrease is mainly attributable to: > the reduction of €94 million in lease payments related Gains on disposals, in the amount of €159 million in 2017, essentially to Enel Américas; decreased by €240 million from 2016 and mainly includes > the decrease of €50 million in other gains and revenue, the gain of €143 million on the sale of the equity investment €35 million of which related to Renovables de Guatema- in the Chilean firm Electrogas. la; In 2016, this aggregate mainly concerned the following > the reduction of €34 million in other revenue related to transactions: the electricity business, €23 million of which was related > the gain on the sale of GNL Quintero (an associated to the Enel Américas Group and €11 million to the decon- company in which the Group held a 20% interest) in the solidation of Slovenské elektrárne. amount of €173 million; > the gain of €124 million on the sale of Hydro Dolomiti Enel; > the gain of €35 million recognized by Enel Green Power Kansas on the sale of its subsidiaries Cimarron and Lin- dhal; 220 Annual Report 2017Costs 8.a Electricity, gas and fuel purchases - €36,039 million Millions of euro Electricity Gas Nuclear fuel Other fuels Total 2017 20,011 12,654 137 3,237 36,039 2016 18,514 10,514 165 2,846 32,039 Change 8.1% 20.4% -17.0% 13.7% 12.5% 1,497 2,140 (28) 391 4,000 Purchases of “Electricity” totaled €20,011 million in 2017, sentially related to the reduction in volumes and in prices increasing by €1,497 million over 2016 (8.1%). These costs of Country Italy and to the effect of the change in conso- include purchases made by way of bilateral agreements on lidated companies with the deconsolidation of Slovenské national and international markets in the amount of €7,494 elektrárne. million (€6,801 million in 2016), energy purchases negotia- ted on the power exchange in the amount of €6,444 million Purchases of “Gas” increased by €2,140 million due essen- (€4,418 million in 2016), and other purchases made on local tially to the increase in the price of gas purchased from and international markets and within the scope of ancillary third parties. This change reflects the increase in average and balancing services totaling €6,073 million (€7,295 mil- costs in terms of both price and quantity, in addition to the lion on 2016). fact that, in 2016, this aggregate benefitted from the grea- As such, the increase in costs was mainly due to the increa- ter reductive effects of price-review agreements for a num- se in purchases on the power exchange (particularly in Italy, ber of provision contracts than in 2017. Iberia and South America, the latter of which mainly due to the consolidation of Enel Distribuição Goiás beginning Purchases of “Other fuels” increased by €391 million, to in February 2017). These effects were partially offset by a €3,237 million in 2017, mainly due to the increase in con- reduction of €1,222 million in purchases of other types, es- sumption within a context of rising prices. 8.b Services and other materials - €17,982 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 2017 9,840 1,128 199 127 627 525 3,656 1,880 17,982 2016 9,448 1,169 190 113 442 541 3,782 1,708 17,393 Change 4.1% -3.5% 4.7% 12.4% 41.9% -3.0% -3.3% 10.1% 3.4% 392 (41) 9 14 185 (16) (126) 172 589 Costs for services and other materials, in the amount of million in costs for transmission and transport, which was €17,982 million in 2017, increased by €589 million com- concentrated in Italy and in the Americas, as well as gre- pared with 2016 due essentially to the increase of €392 ater costs for IT services in the amount of €185 million, 221 Consolidated financial statementsmainly within Italy, and an increase of €105 million in costs These effects were partially offset by a reduction of €219 incurred due to the increase in purchases of material and million in charges for access to the transmission network, equipment for infrastructure and grid work contracted in particularly in Spain related to power generation, and of €78 Brazil, primarily as a result of the consolidation of Enel Di- million due to the deconsolidation of Slovenské elektrárne. stribuição Goiás. 8.c Personnel - €4,504 million Millions of euro Wages and salaries Social security contributions Deferred compensation benefits Other post-employment and long-term benefits Early retirement incentives Other costs Total 2017 3,152 895 104 139 76 138 2016 3,127 901 105 129 228 147 4,504 4,637 Change 0.8% -0.7% -1.0% 7.8% -66.7% -6.1% -2.9% 25 (6) (1) 10 (152) (9) (133) Personnel costs amounted to €4,504 million in 2017, a de- The increase in wages and salaries essentially reflects the crease of €133 million. increase in the average workforce in 2017. The Group’s workforce increased by 820 employees, the net effect of new hires and terminations (-2,111 employe- Early retirement incentives amounted to €76 million in 2017, es) due to early retirement incentives and, above all, of a decrease of €152 million, mainly attributable to the lower changes in consolidated companies (+2,931 employees) costs (€205 million) incurred for early-retirement plans in due essentially to the acquisitions made in 2017, and spe- Spain (“Plan de Salida”). The reduction was only partly of- cifically: fset by the introduction of a similar mechanism in the newly > the acquisition of Demand Energy in North America in acquired Enel Distribuição Goiás in order to enhance the January; efficiency of the structure (€45 million). > the acquisition of Enel Distribuição Goiás in Brazil in Fe- bruary; The table below shows the average number of employe- > the acquisition of Enel Green Power Sannio in Italy in es by category, along with a comparison with the previous June; year, as well as the actual numbers as of December 31, > the acquisition of EnerNOC in North America in August; 2017. > the acquisition of eMotorWerks in North America in Oc- tober; > the consolidation of Endesa Comercialização in Portugal in November. 222 Annual Report 2017Managers Middle managers White collar Blue collar Total Average number (1) Headcount (1) 2017 1,308 10,073 32,558 18,956 62,895 2016 1,329 10,185 34,373 19,401 65,288 Change at Dec. 31, 2017 (21) (111) (1,815) (446) (2,393) 1,281 10,416 32,653 18,550 62,900 (1) For companies representing joint operations, the headcount corresponds to Enel percentage share of the total. 8.d Depreciation, amortization and impairment losses - €5,861 million Millions of euro Property, plant and equipment Investment property Intangible assets Impairment losses Reversals of impairment losses Total 2017 4,119 7 805 1,311 (381) 5,861 2016 4,171 8 711 1,726 (261) 6,355 Change -1.2% -12.5% 13.2% -24.0% -46.0% -7.8% (52) (1) 94 (415) (120) (494) Depreciation, amortization and impairment losses for 2017 Specifically, these changes concerned the extension of the decreased by €494 million, due mainly to a reduction in im- useful life of turbines and generators and other mechanical pairment losses recognized in 2017 as compared with the and electrical machinery for wind generation plants to 30 previous year. In 2017, the Group, with the support of tech- years, as well as the extension of the useful life of the me- nical advisors, completed a study to assess the operating chanical and electrical machinery of solar generation plants, performance of its solar and wind farms, analyzing histo- although this remained within the useful life interval alrea- rical data on the duration and frequency of maintenance dy adopted by the Group. interventions prompted by technical issues, and to exami- Moreover, as a result of a number of specific technical stu- ne the environmental and climatic conditions to which the dies conducted internally for hydroelectric generation plants Group’s plants are exposed. The results of the study provi- in Spain and Chile, the Group also found that the conditions ded sufficient evidence to consider it reasonable to leng- existed for the extension of the economic-technical lives then the economic-technical lives of some components of of certain components of schedulable hydroelectric plants. solar and wind generation plants from the estimates made Here too, while the new useful lives remain within the in- in previous years. terval already used by the Group, the average increase in Therefore, starting from January 1, 2017, the Group revised those lives within each category led to a reduction in depre- the useful lives of these components based on the findings ciation charges for the year. of the study, taking due account of any legal constraints The estimated overall impact of these changes in the de- that may exist in certain jurisdictions in which the Group preciation rates on these financial statements is a reduc- operates and that could effectively influence the right to tion of €128 million in depreciation charges. exploit those assets until their economic-technical life ter- minates. 223 Consolidated financial statements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 - investment property - intangible assets - trade receivables - assets classified as held for sale - other assets Total reversals of impairment losses 2017 2016 Change 65 10 7 - 1,204 - 25 1,311 (53) - (9) (310) - (9) (381) 280 6 241 31 973 74 121 1,726 (2) - (5) (250) - (4) (261) (215) 4 (234) (31) 231 (74) (96) (415) (51) - (4) (60) - (5) -76.8% 66.7% -97.1% - 23.7% - -79.3% -24.0% - - -80.0% -24.0% - - (120) -46.0% “Impairment losses” decreased by €415 million on the pre- upstream-gas exploration assets, on the land owned by the vious year. Spanish subsidiary operating in the distribution segment More specifically, 2016 included an adjustment to the value (€22 million) and finally other minor items related mainly to of rights for the use of water resources in the Chilean rivers the renewable-energy companies. of Neltume and Choshuenco (€273 million, of which €33 In 2017, the aggregate included impairment losses on the million related to property, plant and equipment and €240 geothermal assets of the German investee Erdwärme million related to intangible assets), as well as the impai- Oberland GmbH (€42 million), which were recognized fol- rment losses on the CGUs of Enel Green Power Romania lowing unsuccessful exploration work. (€130 million) and Nuove Energie (totaling €92 million, of The impairment of trade receivables and other assets came which €66 million for property, plant and equipment and to €1,229 million, which, net of reversals, increased by €70 €26 million for goodwill) and the impairment losses of €51 million in 2017, particularly in Argentina and Brazil as a result million on the assets of Marcinelle Energie, a subsidiary of worsening economic conditions and in Italy due to the that was then sold in November 2016, of €55 million on the risk of default of a number of traders. 8.e Other operating expenses - €2,886 million Millions of euro System charges - emissions allowances Charges for energy efficiency certificates Charges for purchases of green certificates Losses on disposal of property, plant and equipment, and intangible assets Taxes and duties Other Total 224 2017 392 776 35 105 1,197 381 2,886 2016 557 426 (19) 266 1,060 493 2,783 Change -29.6% 82.2% - -60.5% 12.9% -22.7% 3.7% (165) 350 54 (161) 137 (112) 103 Annual Report 2017Other operating expenses, totaling €2,886 million, increa- tricity provision (€44 million) and for the change in the sed by €103 million. scope of consolidation in Brazil with Enel Distribuição This was due essentially to the following: Goiás in the amount of €18 million; > an increase of €239 million in charges for environmental > a decrease of €161 million in capital losses, which parti- compliance, particularly in Italy and Romania; cularly reflects the impairment losses in South America > an increase of €137 million in taxes and duties, essential- in 2016 due to the abandonment of water usage rights ly related to taxes on thermal generation in Spain and on for various development projects following an analysis of nuclear generation in Catalonia following the introduction their profitability and socio-economic impact; of the new law 5/2017 taxing nuclear waste. This effect > the release of the provision for disputes allocated in 2016 was amplified by the fact that, in 2016, the Group bene- in relation to the SAPE dispute in the amount of €80 mil- fitted from the reversal of nuclear tax set aside previously lion following the arbitration award; for which the law previously in effect had been deemed > the recognition of a decrease in charges related to the to be unconstitutional; ruling that granted Endesa a refund of amounts paid to > an increase in costs incurred for fines in Argentina for finance the “bono social” in 2014, 2015 and 2016, the failure to reach the established quality standards in elec- impact of which was €222 million. 8.f Capitalized costs - €(1,847) million Millions of euro Personnel Materials Other Total 2017 (780) (618) (449) 2016 (730) (544) (395) (50) (74) (54) (1,847) (1,669) (178) Change 6.8% -13.6% -13.7% -10.7% Capitalized costs consist of €780 million in personnel costs, regard the development and implementation of major in- €618 million in materials costs, and €449 million in service vestments, mainly in the renewables and distribution sec- costs (compared with €730 million, €544 million, and €395 tors. million, respectively, for 2016). Capitalized costs mainly 9. Net income/(expense) from commodity contracts measured at fair value - €578 million Net income from the management of commodity risk > net income on derivatives at fair value through profit or amounted to €578 million for 2017 (as compared with a loss in the amount of €332 million (compared with net net expense of €133 million in 2016), which may be broken income of €477 million in 2016). down as follows: For more information on derivatives, see note 44, “Deriva- > net income on cash flow hedge derivatives in the amount tives and hedge accounting”. of €246 million (compared with net expense of €610 mil- lion in 2016); 225 Consolidated financial statementsMillions of euro Income: - income from cash flow hedge derivatives - income from derivatives at fair value through profit or loss Total income Expense: - expense on cash flow hedge derivatives - expense on derivatives at fair value through profit or loss Total expenses NET INCOME/(EXPENSE) FROM COMMODITY CONTRACTS MEASURED AT FAIR VALUE 2017 2016 Change 284 1,288 1,572 (38) (956) (994) 578 14 974 988 (624) (497) (1,121) (133) 270 314 584 586 (459) 127 711 - 32.2% 59.1% -93.9% -92.4% -11.3% - 10. Net financial income/(expense) from derivatives - €(1,155) million Millions of euro Income: - income from cash flow hedge derivatives - income from derivatives at fair value through profit or loss - income from fair value hedge derivatives Total income Expense: - expense on cash flow hedge derivatives - expense on derivatives at fair value through profit or loss - expense on fair value hedge derivatives Total expenses TOTAL FINANCIAL INCOME/(EXPENSE) FROM DERIVATIVES 2017 2016 Change 728 847 36 1,611 (2,171) (552) (43) (2,766) 475 1,369 40 1,884 (1,141) (1,620) (60) (2,821) 253 (522) (4) (273) (1,030) 1,068 17 55 53.3% -38.1% -10.0% -14.5% -90.3% -65.9% -28.3% -1.9% (1,155) (937) (218) -23.3% Net expense from derivatives on interest and exchange loss in the amount of €295 million (compared with a net rates amounted to €1,155 million for 2017 (as compared expense of €251 million in 2016); with a net expense of €937 million in 2016), which may be > net expense on fair value hedge derivatives in the amount broken down as follows: of €7 million (compared with net expense of €20 million > net expense on cash flow hedge derivatives in the in 2016). amount of €1,443 million (compared with a net expense For more information on derivatives, see note 44, “Deriva- of €666 million in 2016); tives and hedge accounting”. > net income on derivatives at fair value through profit or 226 Annual Report 201711. Other net financial income/(expense) - €(1,537) million Other financial income Millions of euro Interest income from financial assets (current and non- current): - interest income at effective rate on non-current securities and receivables - interest income at effective 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 Exchange gains Income on equity investments Other income TOTAL FINANCIAL INCOME 2017 2016 Change 52 132 184 - 1,852 54 281 2,371 45 179 224 - 1,776 9 280 2,289 7 15.6% (47) (40) - 76 45 1 82 -26.3% -17.9% - 4.3% - 0.4% 3.6% Other financial income, in the amount of €2,371 million, tax rate related, primarily, to the deconsolidation of Slo- increased by €82 million compared with the previous year venské elektrárne; due to: > an increase of €45 million in income on equity in- > an increase in exchange gains in the amount of €76 mil- vestments in other companies, which totaled €54 mil- lion, reflecting the impact, above all, of trends in exchan- lion in 2017 due essentially to the gain on the sale of ge rates on net financial debt denominated in currencies the investment in the Indonesian firm Bayan Resources other than the euro; (€52 million). > a €40 million decrease in interest income at the effective Other financial expense Millions of euro Interest expense on financial debt (current and non- current): - interest on bank borrowings - interest expense on bonds - interest expense on other borrowings Total interest expense Exchange losses Accretion of post-employment and other employee benefits Accretion of other provisions Charges on equity investments Other expenses 2017 2016 Change 357 1,987 95 2,439 820 72 190 - 387 405 2,135 138 2,678 947 79 286 - 349 (48) (148) (43) (239) (127) (7) (96) - 38 TOTAL FINANCIAL EXPENSE 3,908 4,339 (431) -11.9% -6.9% -31.2% -8.9% -13.4% -8.9% -33.6% - 10.9% -9.9% Other financial expense amounted to €3,908 million, a total following factors in particular: decrease of €431 million on 2016. The change reflects the > a decrease of €148 million in interest expense on bon- 227 Consolidated financial statementsds, attributable mainly to Enel SpA (€106 million) and to - an increase in charges recognized by Enel Finance In- the Enersis Américas Group (€54 million). These effects ternational (€109 million) following the early redemption were partially offset by an increase in interest expense of bonds based on the “make whole call option” allo- for Enel Finance International (€24 million); wed for under the original financing agreement; > a €48 million reduction in interest expense on bank bor- - a reduction in capitalized interest (€75 million); rowings related, above all, to long-term financing (€53 - an increase in other financial expenses related to the million); acquisition of Enel Distribuição Goiás (€55 million) and > a decrease of €43 million in interest expense on other in charges on revolving lines of credit (€37 million) borrowing related mainly to interest expense on medium attributable essentially to Enel Finance International and long-term tax-partnership payables (€33 million); (€22 million) and Enel SpA (€18 million); > a decrease of €127 million in exchange losses; - a decrease of €255 million in impairment losses on > a decrease of €96 million in charges for the accretion of financial receivables related mainly to the fair value other provisions, mainly related to the reduction of in- adjustment to the financial receivable arising as a terest expense on the early-retirement provision in the result of the sale of the 50% stake in Slovak Power amount of €58 million, which was concentrated in Spain Holding following an update to the pricing formula in- (€47 million), and to the reduction in charges for the de- cluded in the agreements with EPH, which resulted in commissioning fund in the amount of €48 million fol- the recognition of €220 million in charges in 2016 and lowing the deconsolidation of Slovenské elektrárne; in 2017 in an upward adjustment of €34 million. > a €38 million increase in other financial expenses (€387 million in 2017 compared with €349 million in 2016), due essentially to: 12. Share of income/(losses) of equity investments accounted for using the equity method - €111 million Millions of euro Share of income of associates Share of losses of associates Total 2017 225 (114) 111 2016 115 (269) (154) Change 95.7% -57.6% - 110 155 265 The share of income on equity investments accounted for €219 million in 2016 following changes in the parameters using the equity method increased by €265 million compa- used to determine the pricing formula as defined in the red with the previous year. This change was mainly due to agreements with EPH, but was then increased by €27 mil- the adjustment in the value of the 50% interest in Slovak lion to take account of earnings for the year. Power Holding (€246 million), which was written down by 13. Income taxes - €1,882 million Millions of euro Current taxes Adjustments for income taxes relating to prior years Total current taxes Deferred tax liabilities Deferred tax assets TOTAL 228 2017 1,926 (59) 1,867 (169) 184 1,882 2016 1,695 1 1,696 (312) 609 1,993 Change 13.6% - 10.1% -45.8% -70% -5.6% 231 (60) 171 143 (425) (111) Annual Report 2017Income taxes for 2017 amounted to €1,882 million, compa- These reductions in taxation were partially offset by greater red with a balance of €1,993 million in 2016. pre-tax income in 2017 compared with the previous year The €111 million reduction in income taxes for 2017 as rates different from the theoretical rates (in 2016, the gains compared with the previous year was mainly due to the on Hydro Dolomiti Enel and GNL Quintero, in addition to following factors: the adjustments in the value of the assets of Slovak Power > a reduction in current taxes in Italy due to the corporate Holding; in 2017, the gain on the sale of Electrogas in par- and to the different weight of transactions subject to tax tax rate being reduced from 27.5% to 24%; ticular). > an adjustment to deferred taxes for US companies (€173 million) following tax reform in December 2017, which re- For more on developments in deferred tax liabilities, see duced the corporate tax rate from 35% to 21%; note 21. > the recognition of deferred tax assets in Argentina due to improved earnings forecasts for the companies in that The following table provides a reconciliation of the theoreti- country. Millions of euro Income before taxes Theoretical taxes Change in tax effect on impairment losses, capital gains and negative goodwill Additional taxes for change in tax rate on temporary fiscal differences during the year Recognition of deferred tax assets in Argentina Impact on deferred taxation of changes in tax rates IRAP Other differences, effect of different tax rates abroad compared with the theoretical rate in Italy, and other minor items Total cal tax rate and the effective tax rate: 27.5% 24.0% 2017 7,211 1,731 (6) - (60) (182) 231 168 1,882 2016 5,780 1,590 118 44 - 55 208 (22) 1,993 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 10,166,679,946 options (none in both periods). 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) 2017 3,780 - 2016 2,570 - Change 1,210 47.1% - 3,779 2,570 1,210 10,166,679,946 9,975,849,408 190,830,538 - 0.37 0.37 - - 0.26 0.26 - - 0.11 0.11 - - 47.1% 1.9% - 42.3% 42.3% - 229 Consolidated financial statements15. Property, plant and equipment - €74,937 million The breakdown of and changes in property, plant and equipment for 2017 are shown below. Millions of euro Cost Accumulated depreciation and impairment Balance at Dec. 31, 2016 Capital expenditure Assets entering service Exchange rate differences Change in consolidated companies Disposals Depreciation Impairment losses Reversals of impairment losses Other changes Reclassifications to/from assets held for sale Total changes Cost Accumulated depreciation and impairment Balance at Dec. 31, 2017 Land 660 - 660 1 20 (23) - (3) - (1) - (5) - (11) 649 - 649 Buildings Plant and machinery Industrial and commercial equipment Other assets Leased assets Leasehold improvements and advances Assets under construction 9,224 5,098 4,126 29 485 (167) (18) (11) (148) (6) - (19) (28) 117 9,425 5,182 4,243 152,781 89,790 62,991 1,003 4,860 (1,887) (222) (38) (3,782) (32) 53 28 (632) (649) 154,013 91,671 62,342 414 335 79 26 21 (3) - (2) (27) (1) - 58 - 72 491 340 151 1,336 1,066 270 46 67 (20) 9 (6) (79) - - - 12 29 1,321 1,022 299 1,015 285 730 1 55 (14) (46) 17 - - - - - 13 1,054 311 743 402 253 149 9 22 (1) (1) (31) - - - - - (2) 429 282 147 7,260 7,260 5,742 (5,530) (559) 3 (45) (25) 67 (550) (897) 6,363 6,363 - - - - Total 173,092 96,827 76,265 6,857 - (2,674) (228) (106) (4,113) (65) 53 158 (1,210) (1,328) 173,745 98,808 74,937 Plant and machinery includes assets to be relinquished tricity distribution network in South America totaling €3,453 free of charge with a net carrying amount of €8,702 million million (€3,630 million at December 31, 2016). (€9,459 million at December 31, 2016), largely regarding po- wer plants in Iberia and South America amounting to €4,624 For more information on leased assets, see note 17 below. million (€5,280 million at December 31, 2016) and the elec- 230 Annual Report 201715. Property, plant and equipment - €74,937 million The breakdown of and changes in property, plant and equipment for 2017 are shown below. Millions of euro Cost Accumulated depreciation and impairment Balance at Dec. 31, 2016 Capital expenditure Assets entering service Exchange rate differences Change in consolidated companies Disposals Depreciation Impairment losses Other changes for sale Total changes Cost Reversals of impairment losses Reclassifications to/from assets held Accumulated depreciation and impairment Balance at Dec. 31, 2017 Land 660 - - - - - - 660 1 20 (23) (3) (1) (5) (11) 649 649 9,224 5,098 4,126 29 485 (167) (18) (11) (148) (6) - (19) (28) 117 9,425 5,182 4,243 152,781 89,790 62,991 1,003 4,860 (1,887) (222) (38) (3,782) (32) 53 28 (632) (649) 154,013 91,671 62,342 414 335 79 26 21 (3) - (2) (27) (1) 58 - - 72 491 340 151 Buildings Plant and machinery equipment Industrial and commercial Other assets Leased assets Leasehold improvements Assets under construction and advances 1,336 1,066 270 46 67 (20) 9 (6) (79) - - 12 - 29 1,321 1,022 299 1,015 285 730 1 55 (14) - - (46) - - 17 - 13 1,054 311 743 402 253 149 9 22 (1) - (1) (31) - - - - (2) 429 282 147 7,260 - 7,260 5,742 (5,530) (559) 3 (45) - (25) - 67 (550) (897) 6,363 - 6,363 Total 173,092 96,827 76,265 6,857 - (2,674) (228) (106) (4,113) (65) 53 158 (1,210) (1,328) 173,745 98,808 74,937 231 Consolidated financial statementsThe types of capital expenditure made during 2017 are sum- decreased by €411 million from 2016, a decrease that was marized below. These expenditures, totaling €6,857 million, particularly concentrated in wind and solar power plants. Millions of euro Power plants: - thermal - hydroelectric - geothermal - nuclear - alternative energy sources Total power plants Electricity distribution networks Land, buildings, and other assets and equipment TOTAL 2017 577 450 224 127 2,819 4,197 2,627 33 6,857 2016 694 551 265 115 3,407 5,032 2,558 47 7,637 Capital expenditure on power plants amounted to €4,197 In order to verify the robustness of the value in use identi- million, a decrease of €853 million on the previous year, fied for those CGUs, sensitivity analyses were conducted essentially reflecting decreased investment in alternative for the main value drivers, and in particular WACC, the energy plants in Chile and South Africa following the com- long-term growth rate and EBITDA, assuming individual pletion and start of operations of power plants in 2016. Ca- changes in each assumption of up to 5% of the value used pital expenditure on power plants mainly concerned wind in the tests. Within that range of variation, it was found farms, in the amount of €1,823 million, and photovoltaic that: plants, in the amount of €991 million. > for the Enel Produzione CGU, the main value drivers Capital expenditure on the electricity distribution grid were essentially in line with the breakeven levels; came to €2,627 million, an increase of €69 million over the > for the Enel Russia CGU, achieving the breakeven levels previous year, and mainly concerned improvements to ser- for the main value drivers is expected upon reaching a vice quality and the installation of next-generation meters pre-tax WACC of 15.34%, a growth rate of -0.8% and in Iberia, as well as work on the distribution grid in Brazil. EBITDA of 7.6%. The change in consolidated companies for 2017 mainly Reclassifications to/from assets held for sale include – in concerned the deconsolidation of EGPNA Rocky Caney accordance with IFRS 5 – €1,169 million for the carrying Wind (€305 million) following its sale in December 2017, amount of three operating plants and five plants under the effects of which were only partially offset by the incre- construction in Mexico for which Enel Green Power has ase resulting from the acquisitions of Enel Green Power signed agreements for the sale of an 80% stake in share Sannio (€46 million), EnerNOC (€19 million), and Enel Di- capital (“Kino Project”), as well as €41 million for the Ka- stribuição Goiás (€13 million). fireas wind farm, for which Enel Green Power Hellas has signed an agreement for its sale. Impairment losses on property, plant and equipment amounted to €65 million. For a more detailed analysis, see Other changes include, among other items, the effect of note 8.d. the capitalization of interest on specific loans for capital As at December 31, 2017, tests for the reversal of impai- expenditure in the amount of €167 million (€201 million in rment losses were conducted for the assets of a number 2016), as detailed in the following table. of CGUs (Enel Russia, Enel Green Power Hellas, and Enel Produzione) that had previously been written down. 232 Annual Report 2017Millions of euro Enel Green Power SpA PH Chucas SA Enel Green Power Brasil Enel Green Power North America Enel Green Power México Enel Green Power South Africa Enel Green Power Chile Enel Américas Group Enel Chile Group Endesa Group Enel Produzione Enel Trade Total 2017 Rate (%) 2016 Rate (%) Change 14 1 84 10 12 7 13 7 6 8 5 - 167 4.8% 6.1% 6.8% 1.3% 4.6% 7.8% 4.3% 9.0% 7.1% 2.1% 4.8% - 21 7 49 11 12 17 29 28 4 8 13 2 5.2% 6.1% 9.5% 1.6% 5.0% 5.9% 4.1% 18.1% 9.0% 2.6% 4.8% 0.4% (7) (6) 35 (1) - (10) (16) (21) 2 - (8) (2) -33.3% -85.7% 71.4% -9.1% - -58.8% -55.2% -75.0% 50.0% - -61.5% - 201 (1) (34) -16.9% (1) Figure does not include €41 million for the period in which Slovenské elektrárne was reclassified as held for sale. At December 31, 2017, contractual commitments to purchase property, plant and equipment amounted to €551 million. 16. Infrastructure within the scope of “IFRIC 12 - Service concession arrangements” Service concession arrangements, which are recognized in The following table summarizes the salient details of those accordance with IFRIC 12, regard certain infrastructure ser- concessions: ving 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, 2017 Amount recognized among intangible assets at Dec. 31, 2017 Enel Distribución Rio Brazilian government Electricity distribution Enel Distribución Ceará Brazilian government Electricity distribution Enel Green Power Mourão Brazilian government Power generation Enel Green Power Paranapanema Brazilian government Power generation Enel Distribuição Goiás Brazilian government Electricity distribution Enel Green Power Projetos I Brazilian government Power generation Total Brazil 1997-2026 9 years Brazil 1998-2028 10 years Brazil 2016-2046 28 years Brazil 2016-2046 28 years Brazil 2015-2045 28 years Brazil 2017-2047 30 years Yes Yes No No No No 721 348 7 34 25 357 1,492 913 771 - - 531 - 2,215 The value of the assets at the end of the concessions fair value. For more information, see note 45 “Assets me- classified under financial assets has been measured at asured at fair value”. 233 Consolidated financial statements17. Leases The Group, in the role of lessee, has entered into finance lea- the Ventanilla combined-cycle plant (with a duration of eight se agreements. They include certain assets which the Group years remunerated at an annual rate of Libor + 1.75%), as is using in Spain, Peru, Italy and Greece. In Spain, the assets well as an agreement that financed construction of a new relate to a 25-year tolling agreement (18 years remaining) for open-cycle system at the Santa Rosa plant (with a duration which an analysis pursuant to IFRIC 4 identified an embed- of nine years and annual interest of Libor + 1.75%). ded finance lease, under which Endesa has access to the The other lease agreements regard wind plants that the generation capacity of a combined-cycle plant for which the Group uses in Italy (expiring in 2030-2031 and with a di- toller, Elecgas, has undertaken to transform gas into electri- scount rate of between 4.95% and 5.5%). city in exchange for a toll at a rate of 9.62%. The carrying amount of assets held under finance leases is In Peru, leases concern agreements related to financing for reported in the following table: Millions of euro Property, plant and equipment Intangible assets Total 2017 743 - 743 2016 730 - 730 Change 1.8% - 1.8% 13 - 13 The following table reconciles total future minimum lease payments and the present value, broken down by maturity. Millions of euro Periods Within 1 year Between 1 and 5 years Beyond 5 years Total Finance cost 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, 2017 at Dec. 31, 2016 88 326 573 987 (293) 694 58 210 426 694 108 338 625 1,071 (326) 745 75 217 453 745 The Group, in the role of lessee, has entered also into ope- Costs for operating leases are broken down in the fol- rating lease agreements regarding the use of certain assets lowing table into minimum payments, contingent rents for industrial purposes. The associated lease payments are and sublease payments. expensed under “Services and other materials”. 234 Annual Report 2017Millions of euro Minimum lease payments Contingent rents Sublease payments Total 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 2017 958 - - 958 2017 163 539 256 958 18. Investment property - €77 million Investment property at December 31, 2017 amounted to €77 million, a decrease of €47 million compared with 2016. Millions of euro Cost Accumulated depreciation and impairment Balance at Dec. 31, 2016 Assets entering service Exchange rate differences Change in consolidated companies Depreciation Impairment losses Other changes Total changes Cost Accumulated depreciation and impairment Balance at Dec. 31, 2017 2017 167 43 124 - (1) (39) (7) (10) 10 (47) 121 44 77 The Group’s investment property consists of properties in The change for the year is mainly attributable to the sale of Italy, Spain and Chile, which are free of restrictions on the the company Nueva Marina in Spain. 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 see notes 45, “Assets measured at fair value”, and 45.1, no contractual obligations to purchase, construct or develop “Fair value of other assets”. investment property or for repairs, maintenance or enhan- cements. 235 Consolidated financial statements19. Intangible assets - €16,724 million A breakdown of and changes in intangible assets for 2017 are shown below. Development costs Industrial patents and intellectual property rights Concessions, licenses, trademarks and similar rights Service concession arrangements 3,213 13,910 3,946 Assets under development and advances Total 711 23,431 Other 1,632 Millions of euro Cost Accumulated amortization and impairment Balance at Dec. 31, 2016 Investments Assets entering service Exchange rate differences Change in consolidated companies Disposals Amortization Impairment losses Reversals of impairment losses Other changes Reclassifications from/to assets held for sale Total changes Cost Accumulated amortization and impairment Balance at Dec. 31, 2017 19 19 - 3 7 (1) - (9) (4) (1) - 14 - 9 31 22 9 2,586 1,647 1,991 1,259 - 7,502 627 103 61 (6) (1) 2 (193) (1) - (284) - (319) 2,148 12,263 1,955 10 10 (726) 1,234 - (200) - 9 (24) (38) 275 731 - (371) 572 (6) (235) - - (432) - 259 373 23 119 (32) 220 (8) (187) - - 333 - 468 14,171 4,840 3,060 711 403 (197) 15,929 1,273 - (13) (1,149) - (1) - (5) - (32) (52) 103 814 2,025 (22) (819) (7) 9 (425) (90) 795 25,064 1,840 1,633 2,626 2,219 - 8,340 308 12,538 2,214 841 814 16,724 “Industrial patents and intellectual property rights” re- clude the costs incurred for the acquisition of customers by late mainly to costs incurred in purchasing software and the foreign electricity distribution and gas sales companies. open-ended software licenses. The most important appli- Amortization is calculated on a straight-line basis over the cations relate to invoicing and customer management, the term of the average period of the relationship with custo- development of Internet portals and the management of mers or of the concessions. company systems. Amortization is calculated on a straight- The following table reports service concession arrange- line basis over the asset’s residual useful life (on average ments that do not fall within the scope of IFRIC 12 and had between three and five years). a balance as at December 31, 2017. “Concessions, licenses, trademarks and similar rights” in- 236 Annual Report 2017- - - - 5,678 5,673 1,514 1,839 1,641 1,667 612 548 Millions of euro Grantor Activity Country Concession period Concession period remaining Renewal option at Dec. 31, 2017 Initial fair value Endesa Distribución Eléctrica Electricity distribution - Spain Indefinite Indefinite Codensa Republic of Colombia Electricity distribution Colombia Indefinite Indefinite Enel Distribución Chile (formerly Chilectra) Republic of Chile Electricity distribution Chile Indefinite Indefinite Enel Distribución Perú (formerly Empresa de Distribución Eléctrica de Lima Norte) e-distribut¸ie Muntenia Republic of Peru Romanian Ministry for the Economy Electricity distribution Electricity distribution Peru Indefinite Indefinite Romania 2005-2054 36 years Yes 142 191 The item includes assets with an indefinite useful life in in the amount of €1,806 million, as well as of Enel X group the amount of €9,445 million (€9,776 million at Decem- in North America (EnerNOC, €168 million; eMotorWerks, ber 31, 2016), essentially accounted for by concessions for €49 million; and Demand Energy Networks, €30 million). distribution activities in Spain (€5,678 million), Colombia These effects were only partially offset by the sale of (€1,514 million), Chile (€1,641 million), and Peru (€612 mil- EGPNA Rocky Caney Wind (€28 million). lion), for which there is no statutory or currently predictable expiration date. On the basis of the forecasts developed, “Impairment losses” amounted to €7 million in 2017. For cash flows for each CGU, with which the various conces- more information, see note 8.d. sions are associated, are sufficient to recover the carrying amount. The change during the year is essentially attribu- “Reclassifications to/from assets held for sale” include – in table to changes in exchange rates. For more information accordance with IFRS 5 – €52 million for intangible assets on service concession arrangements, see note 24. related to the Greek wind farm Kafireas and €38 million for the Mexican plants in the “Kino Project”. Changes in consolidated companies in 2017 mainly con- cerned the acquisition of Enel Distribuição Goiás in Brazil, 237 Consolidated financial statementsImpairment CGU from/to assets losses reclassification held for sale Other changes Reclassifications - - - - - - - - - - - - - - - (3,615) 1,209 276 561 530 945 94 - - - - - - - - - - - - - - - - - - - - - 5 - - - - - - - - - - - - (38) (11) at Dec. 31, 2017 Net carrying amount Cumulative impairment (2,392) - - - - - - - - - - - (11) (13) 8,764 - 1,209 276 561 530 945 56 95 292 579 23 413 3 Cost 11,156 - 1,209 276 561 530 945 56 106 292 579 23 426 3 (38) (6) 16,162 (2,416) 13,746 20. Goodwill - €13,746 million Goodwill amounted to €13,746 million, an increase of €190 million over the previous year. Millions of euro Iberia (1) South America (2) Chile Argentina Peru Colombia Brazil Central America Enel Green Power North America North America - Enel X Market Italy (3) Enel Green Power Romania (4) Tynemouth Energy Total at Dec. 31, 2016 Change in scope of consol. Exchange rate diff. Cumulative impairment Net carrying amount Cost 11,156 3,645 - - - - - - 132 - 579 23 437 - (2,392) - - - - - - - (11) - - - (13) - 8,764 3,645 - - - - - - 121 - 579 23 424 - - 10 - - - - - - - 302 - - - 3 - (45) - - - - - - (15) (10) - - (11) - (81) 15,972 (2,416) 13,556 315 (1) Includes Endesa and Enel Green Power España. (2) Includes South America and Enel Green Power Latin America. (3) Includes Enel Energia. (4) Includes e-distribut¸ie Muntenia, Enel Energie Muntenia and Enel Green Power Romania. Changes in consolidated companies mainly concern the led to the reallocation of the goodwill previously assigned acquisitions in North America within the Enel X business to them, under the provisions of IAS 36.87. The analysis (EnerNOC, €196 million; eMotorWerks, €93 million; and became necessary in order to take account of the Group’s Demand Energy Networks, €13 million). reorganization, especially with regard to business con- ducted outside Italy. More specifically, in addition to the Reclassification from/to assets held for sale, which integration of the renewables and traditional sectors in the amounted to €38 million, regards the goodwill associated various countries and recent reorganization of the Group, with the Central America CGU allocated to the “Kino” wind the criterion underlying this reallocation can be seen in the farms in Mexico which during the year qualified for such following changes: classification under IFRS 5. > as concerns Italy, a separation by legal entity: i) as a re- sult of the corporate separation of the former monopoly The criteria used to identify the cash generating units (Enel SpA) over the years in response to legislative and (CGUs) were essentially based – in line with manage- regulatory measures; ii) based on the materiality of busi- ment’s strategic and operational vision – on the specific nesses conducted by the Group within Italy that did not characteristics of their business, on the operational rules permit the recognition of a single CGU; and regulations of the markets in which Enel operates and > a separation by Country outside Italy: i) as a result of on the corporate organization, as well as on the level of the acquisitions of companies or other business combi- reporting monitored by management. nations since 2005 as a part of the gradual process of In 2017, we conducted a reassessment of CGUs, which internationalization of the Group; ii) taking account of 238 Annual Report 201720. Goodwill - €13,746 million Goodwill amounted to €13,746 million, an increase of €190 million over the previous year. Millions of euro Iberia (1) South America (2) Chile Argentina Peru Colombia Brazil Central America North America - Enel X Market Italy (3) Enel Green Power Romania (4) Tynemouth Energy Total Cost 11,156 3,645 - - - - - - - - 132 579 23 437 Cumulative Net carrying impairment amount (2,392) 8,764 3,645 10 (45) - - - - - - - - - - - (13) - - - - - - - - 579 23 424 - - - - - - - - - - - 302 3 315 - - - - - - - - - - (15) (10) (11) (81) Enel Green Power North America (11) 121 15,972 (2,416) 13,556 (1) Includes Endesa and Enel Green Power España. (2) Includes South America and Enel Green Power Latin America. (3) Includes Enel Energia. (4) Includes e-distribut¸ie Muntenia, Enel Energie Muntenia and Enel Green Power Romania. at Dec. 31, 2016 of consol. Exchange rate diff. Change in scope Impairment losses CGU reclassification Reclassifications from/to assets held for sale Other changes - - - - - - - - - - - - - - - - (3,615) 1,209 276 561 530 945 94 - - - - - - - - - - - - - - (38) - - - - - - - 5 - - - - - - (11) - - - - - Cumulative impairment (2,392) - - - - - - - (11) - - - (13) - at Dec. 31, 2017 Net carrying amount 8,764 - 1,209 276 561 530 945 56 95 292 579 23 413 3 Cost 11,156 - 1,209 276 561 530 945 56 106 292 579 23 426 3 (38) (6) 16,162 (2,416) 13,746 the current Country model, in which we are seeing an mated by calculating the value in use of the CGUs using increasing interdependency in cash flows between the discounted cash flow models, which involve estimating various businesses in a given geographical area under expected future cash flows and applying an appropriate di- the responsibility of the Country Manager and in the or- scount rate, selected on the basis of market inputs such as ganization models implemented. risk-free rates, betas and market-risk premiums. Therefore, compared with the previous year: Cash flows were determined on the basis of the best in- > in Spain, the Endesa and EGP España CGUs have been formation available at the time of the estimate, taking ac- merged; count of the specific risks of each CGU, and drawn: > in Romania, the Romania and EGP Romania CGUs have > for the explicit period, from the 5-year business plan ap- been merged; proved by the Board of Directors of the Parent Company > in South America, the previous CGUs based on sharehol- on November 20, 2017, containing forecasts for volumes, ding structure, i.e. “South America (formerly Endesa)” revenue, operating costs, capital expenditure, industrial and “EGP Latin America”, have been reallocated geo- and commercial organization and developments in the graphically. The reallocation was carried out on the basis main macroeconomic variables (inflation, nominal inte- of the associated fair values. The Group also carried out rest rates and exchange rates) and commodity prices. impairment tests prior to the reallocation of goodwill, The explicit period of cash flows considered in impai- which found no evidence of impairment. rment testing differs in accordance with the specific fe- atures and business cycles of the various CGUs being The recoverable value of the goodwill recognized was esti- tested. These differences are generally associated with 239 Consolidated financial statementsthe different average times needed to build and bring into the long-term rate of growth in electricity and/or inflation service the plant and other works that characterize the (depending on the country and business involved) and in investments of the specific businesses that make up the any case no higher than the average long-term growth rate CGU (conventional thermal generation, nuclear power, of the reference market. The value in use calculated as de- renewables, distribution, etc.); scribed above was found to be greater than the amount > for subsequent years, from assumptions concerning recognized on the balance sheet. long-term developments in the main variables that de- In order to verify the robustness of the value in use of the termine cash flows, the average residual useful life of CGUs, sensitivity analyses were conducted for the main assets or the duration of the concessions. drivers of the values, in particular WACC, the long-term More specifically, the terminal value was calculated as a growth rate and margins, the outcomes of which fully sup- perpetuity or annuity with a nominal growth rate equal to ported that value. Millions of euro Amount Growth rate (1) Pre-tax WACC discount rate (2) Explicit period of cash flows Terminal value (3) Amount Growth rate (1) Pre-tax WACC discount rate (2) Explicit period of cash flows Terminal value (3) Iberia (4) 8,764 1.65% 6.87% 5 years Perpetuity/19 years at Dec. 31, 2017 at Dec. 31, 2016 Enel Green Power España Endesa - South America (5) Chile Argentina Peru Colombia Brazil Central America Enel Green Power Latin America (6) North America North America - Enel X Enel Energia (7) Market Italy Enel Green Power Romania (8) Tynemouth Energy - - 1,209 276 561 530 945 56 - 95 292 - 579 23 413 3 - - 2.94% 8.58% 3.38% 2.92% 3.99% 1.42% - 2.31% 2.31% - 0.73% 1.89% 2.40% - - - - - - - 7.43% 5 years Perpetuity/23 years 18.67% 5 years Perpetuity/29 years 6.90% 9.31% 5 years Perpetuity/27 years 5 years Perpetuity/29 years 10.01% 5 years Perpetuity/26 years 8.24% 5 years 26 years - 6.44% 10.35% - - 5 years 5 years - - 25 years 15 years - 10.83% 5 years 15 years 7.28% 6.66% - 5 years Perpetuity/22 years 5 years Perpetuity/19 years - - (1) Perpetual growth rate for cash flows after the explicit forecast 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) Includes Endesa and Enel Green Power España. (5) Goodwill allocated to the Chile, Argentina, Peru, Colombia and Brazil CGUs. (6) Goodwill allocated to the Chile, Argentina, Peru, Colombia, Brazil and Central America CGUs. (7) Goodwill allocated to the Market Italy CGU. (8) Includes e-distribut¸ie Muntenia, Enel Energie Muntenia and Enel Green Power Romania. 240 8,607 157 3,285 - - - - - - - - - 360 121 579 23 424 1.40% 1.60% 2.71% - - - - - - - - - 3.27% 2.20% 0.23% 1.50% 2.00% 5 years 5 years 5 years Perpetuity 13 years Perpetuity 7.78% 7.99% 8.83% - - - - - - - - - 8.72% 6.03% 8.49% 7.24% - - - - - - - - - - - - - - - - - - 12.16% 5 years 15 years 5 years 5 years 21 years 21 years 5 years 5 years Perpetuity/16 years Perpetuity Annual Report 2017The table below reports the composition of the main go- tes applied and the time horizon over which the expected odwill values according to the company to which the cash- cash flows have been discounted. generating unit (CGU) belongs, along with the discount ra- Millions of euro Amount Growth rate (1) discount rate (2) of cash flows Terminal value (3) Amount Growth rate (1) Pre-tax WACC Explicit period Pre-tax WACC discount rate (2) Explicit period of cash flows Terminal value (3) at Dec. 31, 2017 at Dec. 31, 2016 Iberia (4) 8,764 1.65% 6.87% 5 years Perpetuity/19 years Enel Green Power España Endesa - South America (5) Chile Argentina Peru Colombia Brazil Central America Enel Green Power Latin America (6) North America North America - Enel X Enel Energia (7) Market Italy Enel Green Power Romania (8) Tynemouth Energy 1,209 7.43% 5 years Perpetuity/23 years - - - - 276 561 530 945 56 95 292 579 23 413 3 - - - - - 2.94% 8.58% 3.38% 2.92% 3.99% 1.42% 2.31% 2.31% 0.73% 1.89% 2.40% - - - - - 18.67% 5 years Perpetuity/29 years 6.90% 9.31% 5 years Perpetuity/27 years 5 years Perpetuity/29 years 10.01% 5 years Perpetuity/26 years 8.24% 5 years 26 years 6.44% 10.35% 5 years 5 years 25 years 15 years 10.83% 5 years 15 years 7.28% 6.66% 5 years Perpetuity/22 years 5 years Perpetuity/19 years - - - - - - - - - - 8,607 157 3,285 - - - - - - 360 121 - 579 - 23 424 - 1.40% 1.60% 2.71% - - - - - - 3.27% 2.20% - 0.23% - 1.50% 2.00% - 7.78% 7.99% 8.83% - - - - - - 8.72% 6.03% - 12.16% - 8.49% 7.24% - 5 years 5 years 5 years - - - - - - 5 years 5 years - 5 years - 5 years 5 years - Perpetuity 13 years Perpetuity - - - - - - 21 years 21 years - 15 years - Perpetuity/16 years Perpetuity - (1) Perpetual growth rate for cash flows after the explicit forecast 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. At December 31, 2017, the impairment tests of the CGUs €26 million in the Nuove Energie CGU and €5 million in the (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. to which goodwill had been allocated found no evidence of Enel Green Power Bulgaria CGU. impairment, while in 2016 they had found impairment of (4) Includes Endesa and Enel Green Power España. (5) Goodwill allocated to the Chile, Argentina, Peru, Colombia and Brazil CGUs. (6) Goodwill allocated to the Chile, Argentina, Peru, Colombia, Brazil and Central America CGUs. (7) Goodwill allocated to the Market Italy CGU. (8) Includes e-distribut¸ie Muntenia, Enel Energie Muntenia and Enel Green Power Romania. 241 Consolidated financial statements21. Deferred tax assets and liabilities - €6,354 million and €8,348 million The following table details changes in deferred tax assets The table also reports the amount of deferred tax assets and liabilities by type of timing difference and calculated ba- that, where allowed, can be offset against deferred tax lia- sed on the tax rates established by applicable regulations. bilities. Millions of euro Deferred tax assets: - differences in the value of intangible assets, 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 - employee benefits - 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 Increase/(Decrease) taken to income statement Increase/(Decrease) taken to equity Change in scope of consolidation Other changes Exchange rate differences held for sale Reclassifications of assets at Dec. 31, 2016 at Dec. 31, 2017 1,796 1,521 81 722 637 1,908 6,665 6,451 385 1,932 8,768 (157) (56) 95 6 1 57 (54) (212) (4) 192 (24) - - - (36) (23) (2) (61) - (143) 3 (140) - - - - - 7 7 223 - 33 256 - - - - - - - - - - - (22) (26) (9) (2) (11) (35) (105) (335) (1) (58) (394) - - - - - - (98) (98) (76) (42) (118) 1,617 1,439 167 690 604 1,837 6,354 6,051 237 2,060 8,348 3,455 3,297 2,152 At December 31, 2017, deferred tax assets, recognized €2,286 million because, on the basis of current estimates when there is a reasonable certainty of their recoverabili- of future taxable income, it is not certain that such assets ty, totaled €6,354 million (€6,665 million at December 31, will be recovered. 2016). Deferred tax assets decreased by €311 million during the Deferred tax liabilities amounted to €8,348 million at De- year due mainly to the tax effect related to components cember 31, 2017 (€8,768 million at December 31, 2016). of income not recognized for fiscal purposes, particularly They essentially include the determination of the tax ef- concerning derivative instruments and provisions for risks, fects of the value adjustments to assets acquired as part of reversals for the period, and reclassifications of the assets the final allocation of the cost of acquisitions made in the held for sale of the Mexican companies. various years and the deferred taxation in respect of the dif- This decrease was only partially offset by the increase in ferences between depreciation charged for tax purposes, deferred tax assets on past losses in Argentina in light of including accelerated depreciation, and depreciation based the improved earnings forecasts for the companies in that on the estimated useful lives of assets. country. It should also be noted that no deferred tax assets were Deferred tax liabilities decreased by a total of €420 million, recorded in relation to prior tax losses in the amount of particularly in the United States following the reduction in 242 Annual Report 2017Millions of euro Deferred tax assets: - differences in the value of intangible assets, 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 - employee benefits - 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 1,796 1,521 81 722 637 1,908 6,665 6,451 385 1,932 8,768 (157) (56) 95 6 1 57 (54) (212) (4) 192 (24) - - - (36) (23) (2) (61) (143) - 3 (140) Increase/(Decrease) taken to Increase/(Decrease) income statement taken to equity Change in scope of consolidation Other changes Exchange rate differences Reclassifications of assets held for sale at Dec. 31, 2016 at Dec. 31, 2017 - - - - - 7 7 223 - 33 256 - - - - - - - - - - - (22) (26) (9) (2) (11) (35) (105) (335) (1) (58) (394) - - - - - (98) (98) (76) - (42) (118) 1,617 1,439 167 690 604 1,837 6,354 6,051 237 2,060 8,348 3,455 3,297 2,152 the corporate income tax rate from 35% to 21% as part These decreases were only partially offset by deferred tax of the tax reform there (€173 million), as well as for the liabilities for the acquired companies EnerNOC, Enel Distri- reclassification to available for sale of deferred tax assets buição Goiás, eMotorWerks, and Demand Energy following associated with the Mexican companies (€118 million) and allocation of the price paid (for a total of €251 million). the impact of currency differences. 243 Consolidated financial statements22. Equity investments accounted for using the equity method - €1,598 million Investments in joint arrangements and associated companies accounted for using the equity method are as follows. Millions of euro Joint arrangements EGPNA Renewable Energy Partners Rocky Caney Holding OpEn Fiber Slovak Power Holding Enel F2i Solare Italia (formerly Ultor) Tejo Energia Produção e Distribuição de Energia Eléctrica RusEnergoSbyt Energie Electrique de Tahaddart Drift Sand Wind Project Electrogas Transmisora Eléctrica de Quillota Centrales Hidroeléctricas de Aysén PowerCrop Enel Green Power Bungala Associates Elica 2 CESI Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas Other Total % held Income effect Change in scope of consol. Reclassifications from/to Dividends assets held for sale Other changes % held at Dec. 31, 2016 at Dec. 31, 2017 50.0% - 50.0% 50.0% 50.0% 43.8% 49.5% 32.0% 35.0% 42.5% 50.0% 51.0% 50.0% - 30.0% 42.7% 45.0% 33.5% 35.6% 402 - 355 156 164 71 71 31 20 17 12 9 2 - 45 42 34 17 13 97 1,558 64 - (13) 27 (1) 10 41 7 10 - 1 (6) (4) (2) - 5 (4) 1 1 (26) 111 3 39 - - - - - - 8 (17) - - - - - - - - - (2) 31 (9) (70) (6) - - - - - - - - - - - - - (1) (5) (2) (10) (103) - - - - - - - - - - - - - - - - - - - (6) (6) (65) - 1 7 - 1 (6) (2) (6) - (1) 3 14 15 (1) 4 - - - 43 7 404 39 343 190 163 73 36 30 32 - 12 6 12 13 49 46 29 13 12 96 1,598 50.0% 20.0% 50.0% 50.0% 50.0% 43.8% 49.5% 32.0% 50.0% - 50.0% 51.0% 50.0% 50.0% 30.0% 42.7% 45.0% 33.5% 35.6% Income effects include the profits and losses recognized It should also be noted that application of the equity me- by the companies in proportion to the interest that the Enel thod to the investments in RusEnergoSbyt and PowerCrop Group holds. incorporates implicit goodwill of €27 million and €9 million, Changes in the scope of consolidation mainly reflect: No evidence of impairment was found for equity in- > the 20% interest in EGPNA Rocky Caney following the vestments measured using the equity method. respectively. sale of the remaining 80%, which resulted in deconso- lidation; > sale of the 42.5% interest held in the Chilean firm Elec- trogas. 244 Annual Report 201722. Equity investments accounted for using the equity method - €1,598 million Investments in joint arrangements and associated companies accounted for using the equity method are as follows. Millions of euro Joint arrangements EGPNA Renewable Energy Partners Rocky Caney Holding OpEn Fiber Slovak Power Holding Enel F2i Solare Italia (formerly Ultor) Tejo Energia Produção e Distribuição de Energia Eléctrica RusEnergoSbyt Energie Electrique de Tahaddart Drift Sand Wind Project Electrogas Transmisora Eléctrica de Quillota Centrales Hidroeléctricas de Aysén Enel Green Power Bungala PowerCrop Associates Elica 2 CESI Tecnatom Other Total Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 50.0% - 50.0% 50.0% 50.0% 43.8% 49.5% 32.0% 35.0% 42.5% 50.0% 51.0% 50.0% - 30.0% 42.7% 45.0% 33.5% 35.6% 402 - 355 156 164 71 71 31 20 17 12 9 2 - 45 42 34 17 13 97 1,558 64 - (13) 27 (1) 10 41 7 10 - 1 (6) (4) (2) (4) - 5 1 1 (26) 111 3 39 8 (17) - - - - - - - - - - - - - - - (2) 31 % held Income effect Change in scope of consol. Dividends Reclassifications from/to assets held for sale at Dec. 31, 2016 Other changes % held at Dec. 31, 2017 - - - - - (9) (70) (6) - - - - - - - (1) - (5) (2) (10) (103) - - - - - - - - - - - - - - - - - - - (6) (6) (65) - 1 7 - 1 (6) (2) (6) - (1) 3 14 15 4 - (1) - - 43 7 404 39 343 190 163 73 36 30 32 - 12 6 12 13 49 46 29 13 12 96 1,598 50.0% 20.0% 50.0% 50.0% 50.0% 43.8% 49.5% 32.0% 50.0% - 50.0% 51.0% 50.0% 50.0% 30.0% 42.7% 45.0% 33.5% 35.6% 245 Consolidated financial statementsThe following tables provide a summary of financial infor- Group not classified as held for sale in accordance with mation for each joint arrangement and associate of the IFRS 5. Millions of euro Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Shareholders’ equity at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Joint arrangements Centrales Hidroeléctricas de Aysén OpEn Fiber Enel F2i Solare Italia (formerly Ultor) RusEnergoSbyt Tejo Energia Produção e Distribuição de Energia Eléctrica Energie Electrique de Tahaddart PowerCrop Associates Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 11 699 77 4 250 93 37 74 71 29 22 769 279 6 277 111 40 77 74 35 - - 163 138 149 27 89 59 24 6 1 240 70 213 134 32 41 58 18 2 11 699 240 142 399 120 126 133 95 35 23 1,009 349 219 411 143 81 135 92 37 129 163 247 168 164 - - - - 10 - 25 23 2 - - - 139 9 1 31 23 1 - - - 127 102 16 111 43 34 1 299 5 4 129 84 36 61 26 17 2 - - - 127 231 26 111 68 57 3 5 299 143 129 45 62 57 40 3 11 699 240 15 94 15 65 38 32 18 710 206 90 98 19 78 52 34 246 Annual Report 2017Millions of euro Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Shareholders’ equity at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Joint arrangements Centrales Hidroeléctricas de Aysén OpEn Fiber Enel F2i Solare Italia (formerly Ultor) RusEnergoSbyt Tejo Energia Produção e Distribuição de Energia Eléctrica Energie Electrique de Tahaddart PowerCrop Associates Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 11 699 77 4 250 93 37 74 71 29 22 769 279 6 277 111 40 77 74 35 - - 163 138 149 27 89 59 24 6 1 240 70 213 134 32 41 58 18 2 11 699 240 142 399 120 126 133 95 35 23 1,009 349 219 411 143 81 135 92 37 - - - - - - 139 - 129 163 10 - 25 23 2 9 1 31 23 1 - - - 127 102 16 111 43 34 1 5 299 4 129 84 36 61 26 17 2 - - - 127 231 26 111 68 57 3 5 299 143 129 11 699 240 15 18 710 206 90 247 168 164 45 62 57 40 3 94 15 65 38 32 98 19 78 52 34 247 Consolidated financial statementsMillions of euro Total revenue Income before taxes Net income from continuing operations at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Joint arrangements Centrales Hidroeléctricas de Aysén OpEn Fiber Enel F2i Solare Italia (formerly Ultor) - - 7 - 15 26 RusEnergoSbyt 2,515 1,991 Tejo Energia Produção e Distribuição de Energia Eléctrica Energie Electrique de Tahaddart PowerCrop Associates Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 23. Derivatives 267 207 56 - 57 5 11 56 - 88 15 8 (11) (11) 7 106 34 30 (5) (9) 3 2 (6) (11) 5 86 31 28 (4) 1 8 (2) (11) (11) 7 85 23 21 (4) (9) 3 1 (6) (9) 5 69 22 19 (4) 1 8 (1) Millions of euro Non-current Current Derivative financial assets Derivative financial liabilities 702 2,998 1,609 2,532 2,309 2,260 3,945 3,322 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 For more information on derivatives classified as non-current financial assets, please see note 44 for hedging derivatives and trading derivatives. 248 Annual Report 201724. Other non-current financial assets - €4,002 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 24.1) Service concession arrangements Non-current prepaid financial expense Total at Dec. 31, 2017 at Dec. 31, 2016 Change 6 52 2,444 1,476 24 4,002 149 47 2,621 1,022 53 3,892 (143) 5 (177) 454 (29) 110 -96.0% 10.6% -6.8% 44.4% -54.7% 2.8% Total non-current financial assets increased by €110 million for which the market value is not readily measurable; there- in 2017 as compared with the previous year. In particular, fore, in the absence of expected sales of these investments, the change reflects an increase in receivables included in they have been measured at purchase cost and adjusted for net financial debt, as discussed in note 24.1, and service any impairment. concession agreements related mainly to the consolidation Equity investments in other companies measured at fair of Enel Distribuição Goiás. value and at cost break down as follows: Equity investments in other companies include investments Millions of euro % held % held Bayan Resources Echelon Galsi Other Total at Dec. 31, 2017 at Dec. 31, 2016 7.1% 17.6% - 1 17 40 58 10.0% 7.1% 17.6% 139 1 17 39 196 Change (139) - - 1 (138) The change on the previous year essentially reflects the to the licensing authorities for the construction and/or sale of Bayan Resources, a Indonesian company listed on improvement of public-service infrastructures involved in the local Indonesian market that operates in the coal-ex- concession arrangements, which have been recognized in traction industry. accordance with IFRIC 12. Service concession arrangements concern amounts paid 249 Consolidated financial statements24.1 Other non-current financial assets included in net financial debt Millions of euro Securities held to maturity Financial investments in funds or portfolio management products at fair value through profit or loss Securities available for sale Financial receivables in respect of Spanish electrical system deficit Other financial receivables Total at Dec. 31, 2017 at Dec. 31, 2016 Change - - 382 3 2,059 2,444 - - 440 15 2,166 2,621 - - - - (58) -13.2% (12) (107) (177) -80.0% -4.9% -6.8% Securities held to maturity and available for sale, as well vironment in Italy with Resolution 157/2012, of costs incur- as financial investments in funds or portfolio management red with the termination of the Electrical Worker Pension products, represent the financial instruments in which the Fund in the total amount of €225 million at December 31, Dutch insurance companies invest a portion of their liqui- 2017 (€280 million at December 31, 2016). dity. These decreases were only partly offset by the following increases: Other financial receivables decreased by €107 million in > an increase of €24 million in the financial receivables from 2017 compared with the previous year. The change mainly EGPNA REP Wind Holdings related to the financing for reflects the following factors: development of the new wind farms by the joint venture; > a decrease of €78 million in the receivable for CO2 emis- sions allowances connected with “new-entrant” plants; > an increase of €34 million in relation to the receivable emerging from the sale of the 50% stake in Slovak Po- > the reclassification to short term of €44 million of the re- wer Holding. This receivable has been measured at fair ceivable in respect of the Energy & Environmental Servi- value, which was determined based on the pricing for- ces Fund (formerly the Electricity Equalization Fund), the mula contained in the agreements with EPH and which balance of which was €296 million as at December 31, takes account of a number of parameters, including the 2017 (compared with €340 million at December 31, 2016), evolution of Slovenské elektrárne’s net financial position, concerning the reimbursement of costs incurred with the trends in energy prices on the Slovakian market, the levels early replacement of electromechanical meters; of operating efficiency of Slovenské elektrárne based on > the reclassification to short term of €55 million of the re- benchmarks established in the agreement, and the enter- ceivable in respect of the reimbursement, provided for by prise value of Mochovce units 3 and 4. the Regulatory Authority for Energy, Networks and the En- 25. Other non-current assets - €1,064 million Millions of euro Receivables from institutional market operators Other receivables Total at Dec. 31, 2017 at Dec. 31, 2016 Change 200 864 1,064 106 600 706 94 264 358 88.7% 44.0% 50.7% Receivables from institutional market operators totaled payments in the Spanish market, as described in relation €200 million as at December 31, 2017, and increased to revenue. mainly due to recognition of certain positive equalization 250 Annual Report 2017At December 31, 2017, other receivables mainly regarded Distribuição Goiás and, in particular (€266 million), the re- tax receivables in the amount of €261 million (€301 million ceivable held by this company from Fundo de Aporte a at December 31, 2016), security deposits in the amount of Enel Distribuição Goiás (FUNAC) created by the State of €189 million (€157 million at the end of 2016), and non-mo- Goiás in order to compensate the Brazilian company in the netary grants to be received in respect of green certificates event of disputes arising from operations conducted prior totaling €61 million (€51 million at December 31, 2016). to the privatization process of Electrobras. The change for the year reflects the consolidation of Enel 26. Inventories - €2,722 million Millions of euro Raw materials, consumables and supplies: - fuel - materials, equipment and other inventories Total Environmental certificates: - CO2 emissions allowances - green certificates - white certificates Total Buildings available for sale Payments on account TOTAL at Dec. 31, 2017 at Dec. 31, 2016 Change 1,215 1,136 2,351 287 14 1 302 62 7 1,119 812 1,931 412 7 - 419 65 149 2,722 2,564 96 324 420 8.6% 39.9% 21.8% (125) -30.3% 7 1 (117) (3) (142) 158 - - -27.9% -4.6% -95.3% 6.2% Raw materials, consumables and supplies, in the amount of LV/MV materials to be used in maintenance and operations. of €2,351 million at December 31, 2017 (€1,931 million in 2016), consist of fuel inventories to cover the requirements Conversely, CO2 emissions rights declined. The reduction in payments on account is related almost of the generation companies and trading activities, as well entirely to gas purchased on account by Enel Trade in 2016 as materials and equipment for the operation, maintenance under the take-or-pay formula, which was used in its enti- and construction of plants and distribution networks. rety during 2017. The overall increase in inventories for the year (€158 million) The buildings available for sale are related to remaining was mainly due to the increase in purchases of second-gene- units from the Group’s real estate portfolio and are prima- ration meters in execution of the Open Meter plan as well as rily civil buildings. 27. Trade receivables - €14,529 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, 2017 at Dec. 31, 2016 Change 11,123 2,029 1,234 14,386 143 14,529 10,488 1,645 1,258 13,391 115 13,506 635 384 (24) 995 28 1,023 6.1% 23.3% -1.9% 7.4% 24.3% 7.6% Trade receivables from customers are recognized net of million at the end of the year, as compared with an opening allowances for doubtful accounts, which totaled €2,402 balance of €2,028 million. More specifically, the increase 251 Consolidated financial statementsfor the period was mainly due to the increase in receiva- and the rate increases recognized especially in Argentina. bles recognized in Italy from traders and customers as well For more details on trade receivables, see note 41, “Finan- as, in South America, to the greater quantities sold and cial instruments”. transported, the consolidation of Enel Distribuição Goiás, 28. Other current financial assets - €4,614 million Millions of euro Current financial assets included in debt Other Total at Dec. 31, 2017 at Dec. 31, 2016 Change 4,458 156 4,614 2,924 129 3,053 1,534 27 1,561 52.5% 20.9% 51.1% 28.1 Other current financial assets included in debt - €4,458 million Millions of euro at Dec. 31, 2017 at Dec. 31, 2016 Change Short-term portion of long-term financial receivables 1,094 Receivables for factoring Securities measured at FVTPL Securities held to maturity Securities available for sale Financial receivables and cash collateral Other Total 42 - - 69 2,664 589 4,458 767 128 1 - 35 1,082 911 2,924 327 (86) (1) - 34 1,582 (322) 1,534 42.6% -67.2% - - 97.1% - -35.3% 52.5% Other current financial assets included in net financial debt fically, at the end of 2017, the increase in receivables for the totaled €4,458 million (€2,924 million at December 31, extra-peninsular deficit of €304 million (a debtor position of 2016). The change mainly concerns the increase in financial €296 million in 2016) was only partly offset by the reduction receivables recognized by Enel SpA and Enel Finance In- of €35 million in the peninsular deficit. ternational following the increase in cash collateral paid to This increase reflected differences in the way the Spanish counterparties for over-the-counter derivative contracts on rate deficit is covered by system operators through the va- interest and exchange rates. rious periodic settlements (monthly). The short-term portion of long-term financial receivables in- The residual item “Other” reports a decrease of €322 mil- creased by €327 million due mainly to the increase of €269 lion in financial receivables as a result of the collection of million in financial receivables in respect of the Spanish receivables recognized in 2016 by EGPNA for taxable gains electrical system for financing the rate deficit. More speci- and related to the sale of Cimarron Bend and Lindhal. 252 Annual Report 201729. Other current assets - €2,695 million Millions of euro Receivables from institutional market operators Advances to suppliers Receivables due from employees Receivables due from others Sundry tax receivables Accrued operating income and prepaid expenses Revenue for construction contracts at Dec. 31, 2017 at Dec. 31, 2016 Change 853 217 20 872 517 150 66 1,025 188 37 913 664 146 71 (172) 29 (17) (41) (147) 4 (5) (349) -16.8% 15.4% -45.9% -4.5% -22.1% 2.7% -7.0% -11.5% Total 2,695 3,044 Receivables from institutional market operators include recei- Including the portion of receivables classified as long-term vables in respect of the Italian system in the amount of €575 in the amount of €200 million (€106 million in 2016), recei- million (€862 million at December 31, 2016) and the Spanish vables due from institutional market operators at December system in the amount of €260 million (€147 million at De- 31, 2017 totaled €1,053 million (€1,131 million at December cember 31, 2016). The reduction in this item for the period, 31, 2016), with payables of €5,029 million (€4,966 million at recognized by the Italian company operating in the sale of December 31, 2016). electricity on the regulated market, is mainly the result of col- The reduction of €147 million in sundry tax receivables is due lection of the receivable on white certificates in 2016 and of to the decreased receivable for value-added tax, particularly the receivable resulting from the assessment of the equaliza- in Italy as a result of the split-payment mechanism introduced tion of energy purchases. into Italian tax law. 30. Cash and cash equivalents - €7,021 million Cash and cash equivalents, detailed in the table below, are essentially in respect of deposits pledged to secure tran- not restricted by any encumbrances, apart from €80 million sactions carried out. Millions of euro Bank and post office deposits Cash and cash equivalents on hand Other liquid investments Total at Dec. 31, 2017 at Dec. 31, 2016 Change 6,486 343 192 7,021 7,777 298 215 8,290 (1,291) 45 (23) (1,269) -16.6% 15.1% -10.7% -15.3% 253 Consolidated financial statements 31. Assets and disposal groups classified as held for sale - €1,970 million and €1,729 million Changes in assets held for sale during 2017 may be broken down as follows. Millions of euro Property, plant and equipment Intangible assets Goodwill Deferred tax assets Investments accounted for using the equity method Non-current financial assets Other non-current assets Cash and cash equivalents and current assets Total Reclassification from/to current and non-current assets 1,210 90 38 98 6 - 3 232 1,677 at Dec. 31, 2016 6 - - - - 5 - - 11 Changes in liabilities in 2017 were as follows. Millions of euro Disposals and changes in consolidation Impairment losses Other changes at Dec. 31, 2017 2 - - - - - - - 2 - - - - - - - - - 283 1,501 (3) - 11 - (5) (1) (5) 280 87 38 109 6 - 2 227 1,970 Long-term borrowings Post-employment and other employee benefits Provisions for risks and charges, non- current portion Deferred tax liabilities Non-current financial liabilities Other non-current liabilities Short-term borrowings Other current financial liabilities Provisions for risks and charges, current portion Trade payables and other current liabilities Total at Dec. 31, 2016 Reclassification from/to current and non-current assets Disposals and changes in consolidation Other changes at Dec. 31, 2017 - - - - - - - - - - - 416 - - 118 - 58 980 1 - 316 1,889 - - - - - - - - - - - - - - (5) - - - 1 - 416 - - 113 - 58 980 2 - (156) (160) 160 1,729 Assets and liabilities held for sale at December 31, 2017 those (including net working capital) in respect of the therefore amount to €1,970 million and €1,729 million re- eight projects and the loans obtained by the Group in spectively and regard: order to build the plants; > eight Mexican project companies that own three opera- > the project companies associated with the Kafireas wind tional plants and five plants under construction for which farm, for which Enel Green Power Hellas has signed a Enel Green Power has signed agreements for the sale of joint venture agreement (JVA) with a partner that governs 80% of their share capital (“Kino Project”). More speci- the terms and management of 100% of the projects con- fically, the assets falling within the scope of IFRS 5 are nected with that wind farm. 254 Annual Report 201732. Shareholders’ equity - €52,161 million 32.1 Equity attributable to shareholders of the Parent Company - €34,795 million Share capital - €10,167 million At December 31, 2017, the share capital of Enel SpA – con- sidering that as at December 31, 2016 there were no ap- proved stock option plans (and thus no options exercised) – amounted to €10,166,679,946 fully subscribed and paid up, represented by the same number of ordinary shares with a Reserve from translation of financial statements in currencies other than euro - €(2,614) million The decrease for the year, equal to €1,609 million, is due to the net appreciation of the functional currency against the fo- reign currencies used by subsidiaries. par value of €1.00 each. At December 31, 2017, based on the shareholders regi- ster and the notices submitted to CONSOB and received by the company pursuant to Article 120 of Legislative Reserve from measurement of cash flow hedge financial instruments - €(1,588) million This includes the net charges recognized in equity from the Decree 58 of February 24, 1998, as well as other avai- measurement of cash flow hedge derivatives. The cumulative lable information, the only shareholders with interests of tax effect is equal to €456 million. greater than 3% in the company’s share capital were the Ministry for the Economy and Finance (with a 23.585% stake) and BlackRock Inc. (with a 5.615% stake held at August 15, 2017 through subsidiaries for asset manage- ment purposes). Other reserves - €3,348 million Share premium reserve - €7,489 million Pursuant to Article 2431 of the Italian Civil Code, the share premium reserve contains, in the case of the issue of sha- res at a price above par, the difference between the issue price of the shares and their par value, including those re- sulting from conversion from bonds. The reserve, which is a capital reserve, may not be distributed until the legal re- serve has reached the threshold established under Article 2430 of the Italian Civil Code. Legal reserve - €2,034 million The legal reserve is formed of the part of net income that, pursuant to Article 2430 of the Italian Civil Code, cannot be distributed as dividends. Other reserves - €2,262 million These include €2,215 million related to the remaining portion of the value adjustments carried out when Enel was transfor- med from a public entity to a joint-stock company. Pursuant to Article 47 of the Uniform Income Tax Code (Testo Unico Imposte sul Reddito), this amount does not constitute taxable income when distributed. Reserve from measurement of financial instruments available for sale - €(23) million This includes net unrealized income from the measurement at fair value of financial assets. The negative change of €129 million for the year is mainly at- tributable to the sale of the 10% stake in Bayan Resources. There is no cumulative tax effect on the reserve in view of the tax rules in the countries in which those instruments are held. Reserve from equity investments accounted for using the equity method - €(5) million The reserve reports the share of comprehensive income to be recognized directly in equity of companies accounted for using the equity method. The cumulative tax effect is equal to €17 million. Reserve from remeasurement of net liabilities/(assets) of defined benefit plans - €(646) million The reserve, which was created in previous years, includes all actuarial gains and losses, net of tax effects. The chan- ge is attributable to the decrease in net actuarial losses recognized during the period, mainly reflecting changes in the discount rate. The cumulative tax effect is equal to €94 million. Reserve from disposal of equity interests without loss of control - €(2,398) million This item mainly reports: > the gain posted on the public offering of Enel Green Po- 255 Consolidated financial statementswer shares, net of expenses associated with the dispo- in companies already controlled in South America (genera- sal and the related taxation; ted in previous years by the purchase of additional stakes > the sale of minority interests recognized as a result of in Enel Distribución Rio, Ampla Investimentos e Serviços, the Enersis capital increase; Eléctrica Cabo Blanco, Enel Distribución Ceará, Generan- > the capital loss, net of expenses associated with the di- des Perú, Enersis, Endesa Latinoamérica and Enel Green sposal and the related taxation, from the public offering Power SpA) exceeds the value of the equity acquired. of 21.92% of Endesa; The change for the period, equal to €7 million, regards the > the income from the disposal of the minority interest income from the purchase of a non-controlling interest in in Enel Green Power North America Renewable Energy Enel Distribución Perú. Partners; > the effects of the merger into Enel Américas of Endesa Américas and Chilectra Américas; > the disposal to third parties of a minority interest without loss of control in Enel Green Power North America Rene- wable Energy Partners. Reserve from transactions in non- controlling interests - €(1,163) million The reserve reports the amount by which the purchase price in purchases from third parties of additional stakes Retained earnings and loss carried forward - €21,280 million The reserve reports earnings from previous years that have not been distributed or allocated to other reserves. The table below shows the changes in gains and losses recognized directly in other comprehensive income, inclu- ding non-controlling interests, with specific reporting of the related tax effects. at Dec. 31, 2016 Change at Dec. 31, 2017 Of which shareholders of the Parent Company Of which non- controlling interests Total Gains/ (Losses) recognized in equity for the year Released to income statement Taxes Total Of which shareholders of the Parent Company Of which non- controlling interests Total Of which shareholders of the Parent Company Of which non- controlling interests (2,903) (988) (1,915) (2,519) - - (2,519) (1,609) (910) (5,422) (2,597) (2,825) (1,731) (1,438) (293) (1,417) 1,278 67 (72) (140) 68 (1,803) (1,578) (225) 105 106 (1) (14) (118) 3 (129) (129) - (24) (23) (1) (62) (61) (1) 4 8 (2) 10 7 3 (52) (54) 2 (927) (724) (203) 99 - (25) 74 60 14 (854) (664) (189) (5,518) (3,105) (2,413) (3,847) 1,168 43 (2,636) (1,811) (825) (8,154) (4,916) (3,238) Millions of euro Reserve from translation of financial statements in currencies other than euro Reserve from measurement of cash flow hedge financial instruments Reserve from measurement of financial instruments available for sale Share of OCI of associates accounted for using the equity method Remeasurements of net employee benefit liabilities/ (assets) Total gains/ (losses) recognized in equity 256 Annual Report 201732.2 Dividends Net dividends paid in 2016 Dividends for 2015 Interim dividends for 2016 (1) Special dividends Total dividends paid in 2016 Net dividends paid in 2017 Dividends for 2016 Interim dividends for 2017 (2) Special dividends Total dividends paid in 2017 Amount distributed (millions of euro) Dividend per share (euro) 1,627 - - 1,627 1,830 - - 1,830 0.16 - - 0.16 - 0.18 - - 0.18 (1) Approved by the Board of Directors on November 10, 2016 and paid as from January 25, 2017 (interim dividend of €0.09 per share for a total of €915 million). (2) Approved by the Board of Directors on November 8, 2017 and paid as from January 24, 2018 (interim dividend of €0.105 per share for a total of €1,068 million). At its meeting of November 8, 2017, of the Board of Di- ry return for shareholders and ensure access to external rectors approved the distribution of an interim dividend of sources of financing, in part by maintaining an adequate €0.105 per share, for a total of €1,068 million. That interim rating. dividend, gross of any withholding tax, was paid as of Ja- In this context, the Group manages its capital structure nuary 24, 2018. Capital management The Group’s objectives for managing capital comprise sa- feguarding the business as a going concern, creating value for stakeholders and supporting the development of the and adjusts that structure when changes in economic con- ditions so require. There were no substantive changes in objectives, policies or processes in 2017. To this end, the Group constantly monitors developments in the level of its debt in relation to equity. The situation at December 31, 2017 and 2016 is summarized in the fol- Group. In particular, the Group seeks to maintain an ade- lowing table. quate capitalization that enables it to achieve a satisfacto- 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 shareholders of the Parent Company Non-controlling interests Shareholders’ equity Debt/equity ratio at Dec. 31, 2017 at Dec. 31, 2016 42,439 (2,585) (2,444) 37,410 34,795 17,366 52,161 0.72 41,336 (1,162) (2,621) 37,553 34,803 17,772 52,575 0.71 See note 39 for a breakdown of the individual items in the table. Change 1,103 (1,423) 177 (143) (8) (406) (414) - 257 Consolidated financial statements32.3 Non-controlling interests - €17,366 million The following table reports the composition of non-controlling interests by Division. Millions of euro Non-controlling interests Net income attributable to non-controlling interests Italy Iberia South America Europe and North Africa North and Central America Sub-Saharan Africa and Asia Total at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 4 6,954 8,934 1,002 387 85 4 6,957 9,307 1,017 409 78 - 396 1,020 67 60 7 - 352 662 99 104 1 17,366 17,772 1,550 1,217 The decrease in non-controlling interests mainly reflects and Endesa, only partly offset by the recognition of net in- exchange rate effects and dividends from South America come for the year. 33. Borrowings Millions of euro Non-current Current Long-term borrowings Short-term borrowings Total at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 42,439 - 42,439 41,336 - 41,336 7,000 1,894 8,894 4,384 5,372 9,756 For more details on the nature of borrowings, please see note 41 “Financial instruments”. 258 Annual Report 201734. Employee benefits - €2,407 million The Group provides its employees with a variety of bene- bargaining agreement prior to the changes introduced fits, including deferred compensation benefits, additional with the framework agreement noted earlier and (ii) for months’ pay for having reached age limits or eligibility for employees of the former Catalan companies (Fecsa/En- old-age pension, loyalty bonuses for achievement of senio- her/HidroEmpordà). Both are defined benefit plans and rity milestones, supplemental retirement and healthcare benefits are fully ensured, with the exception of the for- plans, residential electricity discounts and similar benefits. mer plan for benefits in the event of the death of a reti- More specifically: red employee. Finally, the Brazilian companies have also > for Italy, the item “pension benefits” regards estimated established defined benefit plans; accruals made to cover benefits due under the supple- > the item “electricity discount” comprises benefits regar- mental retirement schemes of retired executives and the ding electricity supply associated with foreign compa- benefits due to personnel under law or contract at the nies. For Italy, that benefit, which was granted until the time the employment relationship is terminated. For the end of 2015 to retired employees only, was unilaterally foreign companies, the item reports post-employment cancelled; benefits, of which the most material regard the pension > the item “health insurance” reports benefits for current benefit schemes of Endesa in Spain, which break down or retired employees covering medical expenses; into three types that differ on the basis of employee se- > the item “other benefits” mainly regards the loyalty bo- niority and company. In general, under the framework nus, which is adopted in various countries and for Italy agreement of October 25, 2000, employees participa- is represented by the estimated liability for the benefit te in a specific defined contribution pension plan and, entitling employees covered by the electricity workers in cases of disability or death of employees in service, national collective bargaining agreement to a bonus for a defined benefit plan which is covered by appropriate achievement of seniority milestones (25th and 35th year insurance policies. In addition, Endesa has two other of service). It also includes other incentive plans, which limited-enrollment plans (i) for current and retired Endesa provide for the award to certain company managers of a employees covered by the electricity industry collective monetary bonus subject to specified conditions. 259 Consolidated financial statementsThe following table reports changes in the defined benefit 2016, respectively, as well as a reconciliation of that obliga- obligation for post-employment and other long-term em- tion with the actuarial liability. ployee benefits at December 31, 2017 and December 31, Millions of euro 2017 2016 2016 Pension benefits Electricity discount Health insurance Other benefits Total Pension benefits Electricity discount Health insurance Other benefits CHANGES IN ACTUARIAL OBLIGATION Actuarial obligation at the start of the year 2,440 847 231 284 3,802 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 differences Employer contributions Employee contributions Benefits paid Other changes Liabilities classified as held for sale Actuarial obligation at year end (A) CHANGES IN PLAN ASSETS Fair value of plan assets at the start of the year Interest income Expected return on plan assets excluding amounts included in interest income Exchange differences Employer contributions Employee contributions Benefits paid Other payments Change in scope of consolidation Fair value of plan assets at year end (B) EFFECT OF ASSET CEILING Asset ceiling at the start of the year Interest income Changes in asset ceiling Exchange differences Change in scope of consolidation Asset ceiling at year end (C) 17 118 2 54 (35) 5 - (124) - 1 (226) 161 - 2,413 1,272 83 53 (94) 142 1 (226) - 86 1,317 54 4 16 (9) - 65 5 16 - 30 (138) - - (1) - - (22) 2 - 739 - - - - 22 - (22) - - - - - - - - - 5 11 (2) 3 15 - - (12) - - (12) 14 - 253 - - - - 12 - (12) - - - - - - - - - 47 7 (1) 2 (5) - - (6) - - 74 152 (1) 89 (163) 5 - (143) - 1 (79) (339) 5 - 182 - 254 3,659 - - - - 23 - (23) - - - - - - - - - 1,272 83 53 (94) 199 1 (283) - 86 1,317 54 4 16 (9) - 65 2,126 14 108 221 126 2 9 1 2 - 1 (194) 24 - 2,440 1,110 75 40 104 136 1 - - (194) 1,272 (20) 57 5 13 - 55 729 4 19 97 22 - - - - - 1 3 - (28) 847 28 (28) - - - - - - - - - - - - - - Total 3,337 73 145 347 13 147 1 3 2 - 1 (298) 32 - 3,802 1,110 75 40 104 200 1 - - (258) 1,272 (20) 57 5 13 - 55 285 50 10 (14) (62) 284 22 (22) 7 1 1 - 6 - - 1 - - - - - - - - - - - - - - - 197 5 11 (2) 19 (4) 1 14 - - - (14) 4 - 231 14 (14) - - - - - - - - - - - - - - Net liability in balance sheet (A-B+C) 1,161 739 253 254 2,407 1,223 847 231 284 2,585 260 Annual Report 2017  Millions of euro 2017 2016 2016 Pension benefits Electricity discount Health insurance Other benefits Total Pension benefits Electricity discount Health insurance Other benefits (124) (1) (12) (6) (143) CHANGES IN ACTUARIAL OBLIGATION Actuarial obligation at the start of the year 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 differences Employer contributions Employee contributions Benefits paid Other changes Liabilities classified as held for sale Actuarial obligation at year end (A) CHANGES IN PLAN ASSETS Fair value of plan assets at the start of the year Interest income Expected return on plan assets excluding amounts included in interest income Exchange differences Employer contributions Employee contributions Benefits paid Other payments Change in scope of consolidation Fair value of plan assets at year end (B) EFFECT OF ASSET CEILING Asset ceiling at the start of the year Interest income Changes in asset ceiling Exchange differences Change in scope of consolidation Asset ceiling at year end (C) 2,440 17 118 54 (35) 5 2 1 - - - (226) 161 2,413 1,272 83 53 (94) 142 1 (226) - 86 1,317 54 4 16 (9) - 65 847 5 16 30 (138) (22) 2 - 739 22 (22) - - - - - - - - - - - - - - - - - - - (79) (339) 254 3,659 12 23 (12) (23) (283) 47 7 (1) 2 (5) 5 - - - - - - - - - - - - - - - - - - - 74 152 (1) 89 (163) 5 - - 1 182 - 1,272 83 53 (94) 199 1 1,317 - 86 54 4 16 (9) - 65 5 11 (2) 3 15 (12) 14 253 - - - - - - - - - - - - - - - - - - - 231 284 3,802 2,126 729 197 14 108 2 221 9 1 2 126 - 1 (194) 24 - 2,440 1,110 75 40 104 136 1 (194) - - 1,272 57 5 (20) 13 - 55 4 19 - 97 22 - - 1 - - (28) 3 - 847 - - - - 28 - (28) - - - - - - - - - 5 11 (2) 19 (4) 1 - 14 - - (14) 4 - 231 - - - - 14 - (14) - - - - - - - - - 285 50 7 1 10 (14) 1 - 6 - - (62) 1 - 284 - - - - 22 - (22) - - - - - - - - - Total 3,337 73 145 1 347 13 3 2 147 - 1 (298) 32 - 3,802 1,110 75 40 104 200 1 (258) - - 1,272 57 5 (20) 13 - 55 Net liability in balance sheet (A-B+C) 1,161 739 253 254 2,407 1,223 847 231 284 2,585 261 Consolidated financial statements  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 Other changes Total 2017 2016 40 73 - 39 (4) 148 34 78 2 42 (4) 152 2017 2016 (53) (71) 16 9 (99) (40) 365 (20) (9) 296 The change in cost recognized through profit or loss was the year is reported net of the fair value of plan assets, equal to €4 million. The impact on profit or loss is therefore amounting to €1,317 million at December 31, 2017. Those essentially in line with 2016. assets, which are entirely in Spain and Brazil, break down The liability recognized in the balance sheet at the end of as follows. 2017 4% 37% 5% - - 54% 100% 2016 2% 35% 5% 1% - 57% 100% Investments quoted in active markets Equity instruments Fixed-income securities Investment property Other Unquoted investments Assets held by insurance undertakings Other Total 262 Annual Report 2017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 Iberia South America Other Italy Iberia South America Other Discount rate Inflation rate Rate of wage increases 0.20%- 1.50% 1.50% 1.50%- 3.50% 2017 0.65%- 1.67% 2.00% 2.00% Rate of increase in healthcare costs Expected rate of return on plan assets 2.50% 3.20% - 1.65% 5.00%- 9.93% 3.00%- 4.25% 3.00%- 7.38% 3.00%- 8.00% 9.72%- 9.78% 1.50%- 7.18% 1.50%- 4.22% 3.00%- 4.22% - - 0.30%- 1.40% 1.40% 1.40%- 3.40% 2016 0.64%- 1.75% 2.00% 2.00% 2.40% 3.20% - 1.74% 4.70%- 12.31% 3.00%- 6.00% 3.00%- 9.19% 3.50%- 9.19% 12.20%- 12.31% 1.40%- 8.36% 1.40%- 4.84% 2.90%- 4.84% - - The following table reports the outcome of a sensitivity of the year in the actuarial assumptions used in estimating analysis that demonstrates the effects on the defined be- the obligation. nefit obligation of changes reasonably possible at the end Millions of euro Pension benefits Electricity discount Health insurance Other benefits Pension benefits Electricity discount Health insurance Other benefits at Dec. 31, 2017 at Dec. 31, 2016 Decrease of 0.5% in discount rate Increase of 0.5% in discount rate Increase of 0.5% in inflation rate Decrease of 0.5% in inflation rate Increase of 0.5% in remuneration Increase of 0.5% in pensions currently being paid Increase of 1% in healthcare costs Increase of 1 year in life expectancy of active and retired employees 155 (121) (20) 47 32 35 - 54 60 (55) (63) 61 (1) (1) - 25 15 (18) (14) 12 - - 28 147 4 159 75 12 4 (10) (136) (69) (15) (10) (9) 30 74 2 2 1 1 (3) - (3) (20) (67) (18) (10) 8 12 - 50 - - - 12 - - 20 5 1 (3) - (3) 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 €34 million. changes in an individual actuarial assumption, leaving the other assumptions unchanged. 263 Consolidated financial statements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, 2017 at Dec. 31, 2016 197 184 591 1,030 204 186 589 1,058 35. Provisions for risks and charges - €6,031 million Millions of euro Accruals Reversals Utilization Unwinding of interest Change in scope of consolidation Translation adjustment Other Millions of euro Provision for litigation, risks and other charges: - nuclear decommissioning - retirement, removal and site restoration - litigation - environmental certificates - taxes and duties - other Total Provision for early retirement incentives TOTAL at Dec. 31, 2016 Provision for litigation, risks and other charges: - nuclear decommissioning 567 - - - - retirement, removal and site restoration - litigation - environmental certificates - taxes and duties - other Total Provision for early retirement incentives TOTAL 264 789 734 7 346 1,629 4,072 2,342 6,414 32 138 29 60 374 633 48 681 (16) (139) (4) (28) (274) (461) (41) (92) (3) (59) (193) (388) (40) (501) (422) (810) at Dec. 31, 2017 at Dec. 31, 2016 Non-current Current Non-current Current 538 814 861 - 300 778 3,291 1,530 4,821 - 64 70 29 23 637 823 387 1,210 567 754 698 - 290 770 3,079 1,902 4,981 - 35 36 7 56 859 993 440 1,433 at Dec. 31, 2017 7 12 40 - 9 109 177 5 182 - - (36) 538 (11) 168 - 2 58 217 - 217 (16) (79) - (4) 129 161 - (3) (57) (231) (156) 20 - (156) (16) 4 878 931 29 323 1,415 4,114 1,917 6,031 Annual Report 2017Nuclear decommissioning provision At December 31, 2017, the provision reflected solely the Provision for environmental certificates costs that will be incurred at the time of decommissioning The provision for “environmental certificates” covers costs of nuclear plants by Endesa in respect of Enresa, a Spanish in respect of shortfalls in the environmental certificates public enterprise responsible for such activities in accordan- need for compliance with national or supranational envi- ce with Royal Decree 1349/2003 and Law 24/2005. Quan- ronmental protection requirements and mainly regards Enel tification of the costs is based on the standard contract Energia and Enel Produzione. between Enresa and the electricity companies approved by the Ministry for the Economy in September 2001, which re- gulates 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 transfer of plant management to Enresa (so-called post-ope- rational costs) and takes into account, among the various assumptions used to estimate the amount, the quantity of unused nuclear fuel expected at the date of closure of each of the Spanish nuclear plants on the basis of the provisions of the concession agreement. Non-nuclear plant retirement and site restoration provision Provision for charges in respect of taxes and duties The provision for “charges in respect of taxes and duties” reports the estimated liability deriving from tax disputes concerning direct and indirect taxes. The balance of the pro- vision also includes the provision for current and potential disputes concerning local property tax – whether the Im- posta Comunale sugli Immobili (“ICI”) or the new Imposta Municipale Unica (“IMU”) – in Italy. The Group has taken due account of the criteria introduced with circular 6/2012 of the Public Land Agency (which resolved interpretive issues concerning the valuation methods for movable assets con- sidered relevant for property registry purposes, including The provision for “non-nuclear plant retirement and site certain assets typical to generation plants, such as turbines) restoration” represents the present value of the estimated in estimating the liability for such taxes, both for the purpo- cost for the retirement and removal of non-nuclear plants ses of quantifying the probable risk associated with pending where there is a legal or constructive obligation to do so. litigation and generating a reasonable valuation of probable The provision mainly regards the Endesa Group, Enel Produ- future charges on positions that have not yet been assessed zione and the companies in South America. by Land Agency offices and municipalities. Litigation provision Other provisions The “litigation” provision covers contingent liabilities in re- “Other” provisions cover various risks and charges, mainly spect of pending litigation and other disputes. It includes in connection with regulatory disputes and disputes with an estimate of the potential liability relating to disputes that local authorities regarding various duties and fees or other arose during the period, as well as revised estimates of the charges. potential costs associated with disputes initiated in prior pe- The decrease of €214 million for the year is mainly due to riods. The estimates are based on the opinions of internal the reversal of provisions for the dispute with the Region and external legal counsel. The balance for litigation mainly of Sardinia concerning the Tirso 1 and Tirso 2 plants, the re- regards disputes concerning service quality and disputes versal of the provision recognized by Enel Trade for onerous with employees, end users or suppliers of the companies in contracts for the supply of natural gas and the reversal of the Spain (€201 million), Italy (€199 million) and South America risk provision recognized for regulatory disputes concerning (€520 million). the self-consumption of power generators in Spain. The increase compared with the previous year, equal to €197 million, mainly reflects the change in the scope of consolidation with the acquisition of Enel Distribuição Goiás and provisions for disputes with employees, partly offset by reversals and uses, primarily in Iberia and Italy. Provision for early retirement incentives The “provision for early retirement incentives” includes the estimated charges related to binding agreements for the vo- 265 Consolidated financial statementsluntary termination of employment contracts in response to In Spain, the provisions regard the expansion, in 2015, of organizational needs. The reduction of €425 million for the the Acuerdo de Salida Voluntaria (ASV) introduced in Spain year reflects, among other factors, uses for incentive provi- in 2014. The ASV mechanism was agreed in Spain in con- sions established in Spain and Italy in previous years. nection with Endesa’s restructuring and reorganization plan, In Italy, the latter is largely associated with the union-com- which provides for the suspension of the employment con- pany agreements signed in September 2013 and Decem- tract with tacit annual renewal. With regard to that plan, on ber 2015, implementing, for a number of companies in Italy, December 30, 2014, the company had signed an agreement the mechanism provided for under Article 4, paragraphs 1-7 with union representatives in which it undertook to not exer- ter, of Law 92/2012 (the Fornero Act). The latter agreement cise the option to request a return to work at subsequent envisages the voluntary termination, in Italy, of about 6,100 annual renewal dates for the employees participating in the employees in 2016-2020. mechanism. 36. Other non-current liabilities - €2,003 million Millions of euro Accrued operating expenses and deferred income Other items Total at Dec. 31, 2017 at Dec. 31, 2016 Change 929 1,074 2,003 973 883 1,856 (44) 191 147 -4.5% 21.6% 7.9% At December 31, 2017 the item was essentially accounted million, and the reclassification from the early retirement for by revenue for electricity and gas connections and incentive provision of amounts to be paid to employees grants received in respect of specific assets. The increase who terminated their employment in implementation of in “Other items” mainly regarded an increase in a number the provisions of Article 4 of Law 92/2012 (€87 million net of regulatory liabilities in Argentina and Brazil, totaling €113 of payments made). 37. Trade payables - €12,671 million The item amounted to €12,671 million (€12,688 million in More specifically, trade payables falling due in less than 2016) and includes payables in respect of electricity supplies, 12 months amounted to €11,965 million (€12,230 million fuel, materials, equipment associated with tenders and other in 2016), while those falling due in more than 12 months services. amounted to €706 million (€458 million in 2016). 38. Other current financial liabilities - €954 million at Dec. 31, 2017 at Dec. 31, 2016 Change 857 97 954 842 422 1,264 15 (325) (310) 1.8% -77.0% -24.5% Millions of euro Deferred financial liabilities Other items Total 266 Annual Report 2017The decrease in other current financial liabilities mainly re- to the financial statements for more information. flects a decline in financial debt (€296 million) as a result of “Deferred financial liabilities” regard accrued expense on the change in the method used to finance the rate deficit in bonds. the Spanish electrical system. See note 28.1 in these notes 39. Net financial position and long-term financial receivables and securities - €37,410 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 Other current financial payables (1) Current portion of long-term borrowings Other non-current financial assets included in debt Other current financial assets included in debt Cash and cash equivalents Total Notes at Dec. 31, 2017 at Dec. 31, 2016 Change 41 41 41 24.1 28.1 30 42,439 1,894 - 7,000 (2,444) (4,458) (7,021) 37,410 41,336 1,103 2.7% 5,372 296 4,384 (2,621) (2,924) (8,290) 37,553 (3,478) -64.7% (296) 2,616 177 (1,534) 1,269 (143) - 59.7% 6.8% 52.5% 15.3% -0.4% (1) Includes current financial payables included in other current financial liabilities. 267 Consolidated financial statements Pursuant to the CONSOB instructions of July 28, 2006, the financial debt as provided for in the presentation methods following table reports the net financial position at Decem- of the Enel Group. ber 31, 2017, and December 31, 2016, reconciled with net at Dec. 31, 2017 at Dec. 31, 2016 Change 343 6,486 192 69 7,090 3,253 42 1,094 4,389 (249) (889) (1,346) (5,429) (225) (756) (8,894) 2,585 (8,310) (32,285) (1,844) (42,439) (39,854) 2,444 (37,410) 298 7,777 215 36 8,326 1,993 128 767 2,888 (909) (3,059) (749) (3,446) (189) (1,700) (10,052) 1,162 (7,446) (32,401) (1,489) (41,336) (40,174) 2,621 (37,553) 45 15.1% (1,291) -16.6% (23) 33 -10.7% 91.7% (1,236) -14.8% 1,260 63.2% (86) 327 1,501 660 2,170 (597) -67.2% 42.6% 52.0% 72.6% 70.9% -79.7% (1,983) -57.5% (36) 944 1,158 1,423 (864) 116 (355) (1,103) 320 (177) 143 -19.0% -55.5% 11.5% - -11.6% 0.4% -23.8% -2.7% 0.8% -6.8% 0.4% Millions of euro Cash and cash equivalents on hand Bank and post office deposits Other investments of liquidity 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 (1) 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 (1) Includes current financial payables included in other current financial liabilities. 268 Annual Report 201740. Other current liabilities - €12,462 million Millions of euro Payables due to customers Payables due to institutional market operators 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 Liabilities for construction contracts Payables for dividends Other Total at Dec. 31, 2017 at Dec. 31, 2016 Change 1,824 4,765 422 1,323 218 56 1 302 - 364 1,541 1,646 1,785 4,617 436 1,071 215 85 403 325 - 358 1,410 1,436 12,462 12,141 39 148 (14) 252 3 (29) (402) (23) - 6 131 210 321 2.2% 3.2% -3.2% 23.5% 1.4% -34.1% - -7.1% - 1.7% 9.3% 14.6% 2.6% “Payables due to customers” include €984 million (€1,038 million (€1,285 million at December 31, 2016) and on the million at December 31, 2016) in security deposits rela- South American market amounting to €324 million (€263 ted to amounts received from customers in Italy as part million at December 31, 2016). of electricity and gas supply contracts. Following the fina- “Contingent consideration” regards a number of investe- lization of the contract, deposits for electricity sales, the es held primarily by Enel Green Power Brasil Participações use of which is not restricted in any way, are classified as whose fair value was determined on the basis of the terms current liabilities given that the company does not have an and conditions of the contractual agreements between the unconditional right to defer repayment beyond 12 months. parties. “Payables due to institutional market operators” include The item “Payables for put options granted to minority payables arising from the application of equalization me- shareholders” had decreased to nearly zero at December chanisms to electricity purchases on the Italian market 31, 2017, with €401 million attributable to the liability in re- amounting to €3,042 million (€3,069 million at December spect of the put option on 13.6% of e-distribut¸ie Muntenia 31, 2016), on the Spanish market amounting to €1,399 and Enel Energie Muntenia, which was paid in 2017. 41. Financial instruments This note provide disclosure necessary for users to assess the significance of financial instruments for the company's financial position and performance. 269 Consolidated financial statements41.1 Financial assets by category The following table reports the carrying amount for each showing hedging derivatives and derivatives measured at category of financial asset provided for under IAS 39, bro- fair value through profit or loss separately. ken down into current and non-current financial assets, Millions of euro Non-current Current Notes at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 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 Assets held for trading 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 41.1.1 41.1.2 41.1.3 41.1.4 41.1.4 41.1.4 41.1.5 41.1.5 2,062 1,916 2,181 1,658 - - 17 - 17 23 662 685 4,680 - - 21 - 21 36 1,552 1,588 5,448 25,939 24,684 85 - - 1,982 - 35 - - 3,027 1 1,982 3,028 - 327 327 1 917 918 28,333 28,665 For more information on fair value measurement, please see note 45 “Assets measured at fair value”. 41.1.1 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, 2017 at Dec. 31, 2016 Notes at Dec. 31, 2017 at Dec. 31, 2016 Cash and cash equivalents Trade receivables 27 Short-term portion of long-term financial receivables Receivables for factoring Cash collateral Other financial receivables 24.1 Total - - - - - 2,062 2,062 - - - - - 30 27 28.1 28.1 28.1 2,181 28.1 7,021 14,529 1,094 42 2,664 589 8,290 13,506 767 128 1,082 911 2,181 25,939 24,684 Trade receivables from customers at December 31, 2017 rment losses, which amounted to €2,402 million at the end amounted to €14,529 million (€13,506 million at December of the year, compared with the opening balance of €2,028 31, 2016) and are recognized net of allowances for impai- million. 270 Annual Report 2017The table below shows impairment losses on trade receivables. Millions of euro Trade receivables Gross value Allowances for impairment Net value The table below shows changes in these allowances during the year. Millions of euro Opening balance at January 1, 2016 Charge for the year Utilized Unused amounts reversed Other changes Closing balance at December 31, 2016 Opening balance at January 1, 2017 Charge for the year Utilized Unused amounts reversed Other changes Closing balance at December 31, 2017 at Dec. 31, 2017 at Dec. 31, 2016 16,931 (2,402) 14,529 15,534 (2,028) 13,506 2,085 873 (548) (151) (231) 2,028 2,028 1,204 (601) (310) 81 2,402 Note 42 “Risk management” provides additional information on the ageing of receivables past due but not impaired. 41.1.2 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 Non-current Current Notes at Dec. 31, 2017 at Dec. 31, 2016 Notes at Dec. 31, 2017 at Dec. 31, 2016 Equity investments in other companies Available-for-sale securities Service concession arrangements Total 24 24.1 24 58 382 1,476 1,916 24 28.1 196 440 1,022 1,658 - 69 16 85 Changes in financial assets available for sale Millions of euro Opening balance at January 1, 2017 Increases Decreases Changes in fair value through OCI Reclassifications Other changes Closing balance at December 31, 2017 Non-current 1,658 - (1) - 215 44 1,916 - 35 - 35 Current 35 - - - 13 37 85 271 Consolidated financial statements41.1.3 Financial assets held to maturity There were no financial assets held to maturity. 41.1.4 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 Derivatives at FVTPL Securities held for trading Financial investments in funds Total financial assets designated upon initial recognition (fair value option) TOTAL Notes 44 24.1 at Dec. 31, 2017 at Dec. 31, 2016 17 - - - 17 21 - - - 21 Notes 44 28.1 at Dec. 31, 2017 at Dec. 31, 2016 1,982 3,027 - - - 1 - - 1,982 3,028 41.1.5 Derivative financial assets designated as hedging instruments For more information on derivative financial assets, please see note 44 “Derivatives and hedge accounting”. 41.2 Financial liabilities by category The following table shows the carrying amount for each showing hedging derivatives and derivatives measured at category 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 Non-current Current 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 41.2.1 41.4 41.4 41.4 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 42,439 41,336 21,565 22,444 21 21 7 2,970 2,977 45,437 22 22 15 2,495 2,510 43,968 1,980 3,016 1,980 3,016 6 274 280 1 305 306 23,825 25,766 For more information on fair value measurement, please see note 46 “Liabilities measured at fair value”. 272 Annual Report 201741.2.1 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 Total 41.3 Borrowings Non-current Current Notes at Dec. 31, 2017 at Dec. 31, 2016 Notes at Dec. 31, 2017 at Dec. 31, 2016 41.3 42,439 41,336 37 - - - - 42,439 41,336 41.3 41.3 37 7,000 1,894 12,671 21,565 4,384 5,372 12,688 22,444 41.3.1 Long-term borrowings (including the portion falling due within 12 months) - €49,439 million The following table reports the carrying amount and fair va- and the associated market data at the reporting date, inclu- lue for each category of debt, including the portion falling ding the credit spreads of Enel SpA. due within 12 months. For listed debt instruments, the fair value is given by official prices, while for unlisted debt in- The table reports the situation of long-term borrowings and struments, fair value is determined using valuation techni- repayment schedules at December 31, 2017, broken down ques appropriate for each category of financial instrument by type of borrowing and interest rate. 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, 2017 at Dec. 31, 2016 Bonds: - listed, fixed rate 25,862 25,275 4,679 20,596 29,561 26,426 25,770 1,583 24,187 30,332 - listed, floating rate 2,942 2,926 684 2,242 3,201 3,338 3,320 376 2,944 3,673 (495) (394) - unlisted, fixed rate 8,532 8,458 - unlisted, floating rate 1,055 1,055 - 66 8,458 9,257 5,660 5,619 1,422 4,197 6,240 2,839 989 1,051 1,138 1,138 65 1,073 1,132 (83) Total bonds 38,391 37,714 5,429 32,285 43,070 36,562 35,847 3,446 32,401 41,377 1,867 Bank borrowings: - fixed rate - floating rate 1,545 1,533 293 1,240 4,155 1,283 1,278 8,146 8,116 1,053 7,063 8,445 6,951 6,902 - use of revolving credit lines 8 7 - 7 7 15 15 152 597 - 1,126 1,372 255 6,305 7,187 1,214 15 15 (8) Total bank borrowings 9,699 9,656 1,346 8,310 12,607 8,249 8,195 749 7,446 8,574 1,461 Non-bank borrowings: - fixed rate - floating rate Total non-bank borrowings Total fixed-rate borrowings Total floating-rate borrowings 1,884 1,865 223 204 198 27 1,667 2,149 1,549 1,548 177 231 130 130 159 30 1,389 1,565 100 138 317 74 2,107 2,069 225 1,844 2,380 1,679 1,678 189 1,489 1,703 391 37,823 37,131 5,170 31,961 45,122 34,918 34,215 3,316 30,899 39,509 2,916 12,374 12,308 1,830 10,478 12,935 11,572 11,505 1,068 10,437 12,145 803 TOTAL 50,197 49,439 7,000 42,439 58,057 46,490 45,720 4,384 41,336 51,654 3,719 273 Consolidated financial statementsThe balance for bonds is reported net of €860 million in The table below reports long-term financial debt by cur- respect of the unlisted floating-rate “Special series of bon- rency and interest rate. ds reserved for employees 1994-2019”, which the Parent Company holds in portfolio. Long-term financial debt by currency and interest rate Millions of euro Carrying amount Nominal value Carrying amount Nominal value Current average nominal interest rate Current effective interest rate at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 Euro US dollar Pound sterling Colombian peso Brazilian real Swiss franc Chilean peso/UF Peruvian sol Russian ruble Japanese yen Other currencies 25,925 13,521 4,786 1,618 1,201 687 465 385 245 233 373 26,449 13,658 4,835 1,618 1,230 688 475 385 245 233 381 Total non-euro currencies TOTAL 23,514 49,439 23,748 50,197 3.4% 4.9% 6.1% 8.3% 9.5% 2.4% 7.1% 6.3% 10.6% 2.4% 3.8% 5.0% 6.2% 8.3% 9.6% 2.4% 7.2% 6.3% 10.6% 2.5% 25,546 26,127 9,879 4,955 1,872 1,088 539 490 437 295 255 364 20,174 45,720 9,978 5,011 1,872 1,098 540 501 437 295 255 376 20,363 46,490 Long-term financial debt denominated in currencies other largely attributable to new borrowing in US dollars by Enel than the euro increased by €3,340 million. The change is Finance International. Change in the nominal value of long-term debt Millions of euro value Repayments Nominal Change in own bonds Change in scope of consolidation Exchange offer New financing Exchange differences at Dec. 31, 2016 Reclassification from/to assets/ (liabilities) held for sale Nominal value at Dec. 31, 2017 Bonds 36,562 (4,878) Borrowings 9,928 (1,357) (19) - Total financial debt 46,490 (6,235) (19) - 230 230 - - - 8,992 (1,850) (416) 38,391 3,292 (287) - 11,806 12,284 (2,137) (416) 50,197 Compared with December 31, 2016, the nominal value of February 2017 of the Brazilian distribution company Enel long-term debt at December 31, 2017 increased by €3,707 Distribuição Goiás, partly offset by the decrease in debt as- million, the net effect of €12,284 million in new borrowings sociated with the disposal in November 2017 of the Caney and €230 million from the change in the scope of consoli- River and Rocky Ridge wind farms in the United States. dation, partly offset by repayments of €6,235 million and exchange differences of €2,137 million, as well as the re- The main repayments in 2017 concerned bonds in the classification to “assets/liabilities held for sale” of the debt amount of €4,878 million and borrowings totaling €1,357 associated with the Mexican project companies (the “Kino million. Project”). The change in the scope of consolidation mainly reflects the increase in debt following the acquisition in More specifically, the main bonds maturing in 2017 included: 274 Annual Report 2017  > a fixed-rate bond (€909 million) issued by Enel SpA, ma- > €224 million in respect of subsidized loans of e-distribu- turing in June 2017; zione and Enel Produzione; > a fixed-rate bond (€637 million) issued by Enel Finance > €123 million in respect of bank borrowings of Endesa, of International, maturing in July 2017; which €13 million in subsidized loans; > a fixed-rate bond in US dollars (the equivalent of €1,254 > €131 million in respect of bank borrowings of Enel Green million) issued by Enel Finance International, maturing in Power SpA, of which €40 million in subsidized loans; September 2017; > the equivalent of €57 million in respect of bank bor- > bonds (the equivalent of €479 million) issued by a num- rowings of Enel Russia, of which €12 million in subsidi- ber of South American companies, maturing in 2017. zed loans; > the equivalent of €107 million in respect of loans of Enel In addition, in August 2017 Enel Finance International re- Green Power North America; purchased bonds it had issued in US dollars with an original > the equivalent of €467 million in respect of loans of com- maturity of October 2019. The transaction was part of the panies in South America. strategy to optimize the structure of the Enel Group’s lia- bilities. The main new borrowing carried out in 2017 involved bonds in the amount of €8,992 million and borrowings of €3,292 The main repayments of borrowings in the year included million. the following: 275 Consolidated financial statementsThe table below shows the main characteristics of financial transactions carried out in 2017. Issuer/Borrower Issue/Grant date Amount in millions of euro Currency Interest rate Interest rate type Maturity Bonds Enel Finance International Enel Finance International Enel Finance International Enel Finance International Enel Finance International Enel Finance International Enel Finance International Enel Finance International 16.01.2017 1,250 € 1.14% Fixed rate 16.09.2024 03.03.2017 192 CHF 0.55% Fixed rate 03.09.2024 25.05.2017 1,668 USD 2.88% Fixed rate 25.05.2022 25.05.2017 1,668 USD 3.62% Fixed rate 25.05.2027 25.05.2017 834 USD 4.75% Fixed rate 25.05.2047 06.10.2017 1,042 USD 2.75% Fixed rate 06.04.2023 06.10.2017 1,042 USD 3.50% Fixed rate 06.04.2028 Enel Distribución Rio 15.12.2017 06.10.2017 417 149 USD 4.75% Fixed rate 25.05.2047 BRL CDI + 1.14% Floating rate 15.12.2020 Total bonds Bank borrowings Total bank borrowings Enel Distribución Ceará 15.12.2017 87 BRL CDI + 0.80% Floating rate 15.12.2022 8,349 150 450 200 Enel SpA 27.04.2017 Enel SpA 15.06.2017 Enel SpA 10.07.2017 Euribor 3M + 37.5 bps Euribor 6M+ 33.5 bps Euribor 6M + 20 bps € € € Floating rate 27.04.2020 Floating rate 15.07.2020 Floating rate 26.06.2021 Enel SpA 10.07.2017 189 USD Libor 3M+ 71.8 bps Floating rate 12.07.2021 Endesa 18.01.2017 Endesa 20.02.2017 Enel Green Power Projetos I 09.11.2017 150 150 211 1,500 Euribor 6M + 38 bps Euribor 6M + 39 bps € € Floating rate 18.01.2029 Floating rate 20.02.2029 USD 3.19% Fixed rate 08.11.2019 During 2017, Enel SpA and Enel Finance International ned by covenants that are commonly adopted in interna- agreed a €10 billion revolving credit line with a pool of tional business practice. These liabilities primarily regard banks maturing in December 2022. The facility, which re- the bond issues carried out within the framework of the places an existing €9.44 billion credit line renegotiated in Global/Euro Medium-Term Notes program, issues of su- 2015 with a five-year maturity, was undrawn at December bordinated unconvertible hybrid bonds (so-called “hybrid 31, 2017. bonds”) and loans granted by banks and other financial institutions (including the European Investment Bank and The Group’s main long-term financial liabilities are gover- Cassa Depositi e Prestiti SpA). 276 Annual Report 2017The main covenants regarding bond issues carried out the establishment of mortgages, liens or other encum- within the framework of the Global/Euro Medium-Term brances on all or part of their respective assets, with the Notes program of (i) Enel and Enel Finance International exception of expressly permitted encumbrances; NV (including the Green Bonds of Enel Finance Internatio- > disposals clauses, under which the borrower and, in nal NV guaranteed by Enel SpA, which are used to finance some cases, the guarantor may not dispose of their as- the Group’s so-called eligible green projects) and of (ii) En- sets or operations, with the exception of expressly per- desa Capital SA and International Endesa BV, can be sum- mitted disposals; marized as follows: > pari passu clauses, under which the payment underta- > negative pledge clauses under which the issuer and the kings of the borrower have the same seniority as its other guarantor may not establish or maintain mortgages, liens unsecured and unsubordinated payment obligations; or other encumbrances on all or part of its assets or reve- > change of control clauses, under which the borrower nue to secure certain financial liabilities, unless the same and, in some cases, the guarantor could be required to encumbrances are extended equally or pro rata to the renegotiate the terms and conditions of the financing or bonds in question; make compulsory early repayment of the loans granted; > pari passu clauses, under which the bonds and the as- > rating clauses, which provide for the borrower or the gua- sociated security constitute a direct, unconditional and rantor to maintain their rating above a certain specified unsecured obligation of the issuer and the guarantor and level; are issued without preferential rights among them and > cross-default clauses, under which the occurrence of a have at least the same seniority as other present and fu- default event in respect of a specified financial liability ture unsubordinated and unsecured bonds of the issuer (above a threshold level) of the issuer or, in some cases, and the guarantor; the guarantor constitutes a default in respect of the liabi- > cross-default clauses, under which the occurrence of a lities in question, which become immediately repayable. default event in respect of a specified financial liability (above a threshold level) of the issuer, the guarantor or, In some cases the covenants are also binding for the signi- in some cases, “significant” subsidiaries constitutes a ficant companies or subsidiaries of the obligated parties. default in respect of the liabilities in question, which be- All the financial borrowings considered specify “events of come immediately repayable. default” typical of international business practice, such as, for example, insolvency, bankruptcy proceedings or the en- In 2017, Enel Finance International NV issued a number of tity ceases trading. bonds on the US market with guarantees from Enel. Their In addition, the guarantees issued by Enel in the interest of main covenants are the same as those for bond issues car- e-distribuzione SpA for certain loans to e-distribuzione SpA ried out under the Euro Medium-Term Notes program. from Cassa Depositi e Prestiti SpA require that at the end The main covenants covering Enel’s hybrid bonds can be of each six-month measurement period Enel’s net consoli- summarized as follows: dated financial debt shall not exceed 4.5 times annual con- > subordination clauses, under which each hybrid bond is solidated EBITDA. subordinate to all other bonds issued by the company Finally, the debt of Enel Américas SA and the other South and has the same seniority with all other hybrid financial American subsidiaries (notably Enel Generación Chile SA) instruments issued, being senior only to equity instru- contain covenants and events of default typical of interna- ments; tional business practice. > prohibition on mergers with other companies, the sale or leasing of all or a substantial part of the company’s assets to another company, unless the latter succeeds in all obligations of the issuer. The main covenants envisaged in the loan contracts of Enel and Enel Finance International NV and the other Group companies can be summarized as follows: > negative pledge clauses, under which the borrower and, in some cases, the guarantor are subject to limitations on 277 Consolidated financial statementsThe following table reports the impact on gross long-term debt of hedges established to mitigate exchange risk. Hedged long-term financial debt by currency Millions of euro at Dec. 31, 2017 at Dec. 31, 2016 Initial debt structure Impact of hedge Debt structure after hedging Initial debt structure Impact of hedge Debt structure after hedging Carrying amount Nominal amount 25,546 26,127 9,879 4,955 1,872 1,088 539 490 437 295 255 364 20,174 45,720 9,978 5,011 1,872 1,098 540 501 437 295 255 376 20,363 46,490 % 56.2 21.5 10.8 4.0 2.4 1.2 1.1 0.9 0.6 0.5 0.8 43.8 100.0 12,220 (6,889) (5,011) 276 (540) 112 (255) 87 - - - - (12,220) 38,347 3,089 1,872 1,374 - - - 501 437 407 463 8,143 46,490 % 82.5 - 6.6 - 4.0 3.0 1.1 0.9 0.9 - 1.0 17.5 100.0 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 Carrying amount Nominal amount 25,925 13,521 4,786 1,618 1,201 687 465 385 245 233 373 26,449 13,658 4,835 1,618 1,230 688 475 385 245 233 381 % 52.7 27.2 9.6 3.2 2.5 1.4 0.9 0.8 0.5 0.5 0.7 15,144 (10,577) (4,835) 29 977 (688) - - 100 (233) 83 41,593 3,081 - 1,647 2,207 - 475 385 345 - 464 % 82.9 6.1 - 3.3 4.4 - 0.9 0.8 0.7 - 0.9 23,514 49,439 23,748 50,197 47.3 100.0 (15,144) - 8,604 50,197 17.1 100.0 The amount of floating-rate debt that is not hedged against the income statement (raising borrowing costs) in the interest rate risk is the main risk factor that could impact event of an increase in market interest rates. Millions of euro Floating rate Fixed rate Total 2017 2016 Pre-hedge % Post-hedge % Pre-hedge % Post-hedge 14,268 37,823 52,091 27.4 72.6 11,358 40,733 52,091 21.8 78.2 17,240 34,918 52,158 33.1 66.9 14,667 37,491 52,158 % 28.1 71.9 At December 31, 2017, 27.4% of financial debt was floating purposes but ineligible for hedge accounting, 78% of net rate (33.1% at December 31, 2016). Taking account of hed- financial debt was hedged (72% hedged at December 31, ges of interest rates considered effective pursuant to the 2016). IFRS-EU, 21.8% of net financial debt (28.1% at December 31, 2016) was exposed to interest rate risk. Including in- These results are in line with the limits established in the terest rate derivatives treated as hedges for management risk management policy. 278 Annual Report 2017The following table reports the impact on gross long-term debt of hedges established to mitigate exchange risk. Hedged long-term financial debt by currency Millions of euro 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 Carrying amount Nominal amount 25,925 13,521 4,786 1,618 1,201 687 465 385 245 233 373 26,449 13,658 4,835 1,618 1,230 688 475 385 245 233 381 % 52.7 27.2 9.6 3.2 2.5 1.4 0.9 0.8 0.5 0.5 0.7 23,514 49,439 23,748 50,197 47.3 100.0 15,144 (10,577) (4,835) 29 977 (688) 100 (233) 83 - - - (15,144) 41,593 3,081 1,647 2,207 - - - 475 385 345 464 8,604 50,197 % 82.9 6.1 3.3 4.4 - - 0.9 0.8 0.7 - 0.9 17.1 100.0 at Dec. 31, 2017 at Dec. 31, 2016 Initial debt structure Impact of hedge Initial debt structure Impact of hedge Debt structure after hedging Debt structure after hedging Carrying amount Nominal amount 25,546 26,127 9,879 4,955 1,872 1,088 539 490 437 295 255 364 20,174 45,720 9,978 5,011 1,872 1,098 540 501 437 295 255 376 20,363 46,490 % 56.2 21.5 10.8 4.0 2.4 1.2 1.1 0.9 0.6 0.5 0.8 43.8 100.0 12,220 (6,889) (5,011) - 276 (540) - - 112 (255) 87 (12,220) - 38,347 3,089 - 1,872 1,374 - 501 437 407 - 463 8,143 46,490 % 82.5 6.6 - 4.0 3.0 - 1.1 0.9 0.9 - 1.0 17.5 100.0 279 Consolidated financial statements41.3.2 Short-term borrowings - €1,894 million At December 31, 2017 short-term borrowings amounted to €1,894 million, a decrease of €3,478 million on December 31, 2016. They break down as follows. Millions of euro Short-term bank borrowings Commercial paper Cash collateral on derivatives and other financing Other short-term borrowings (1) Short-term borrowings at Dec. 31, 2017 at Dec. 31, 2016 249 889 449 307 1,894 909 3,059 1,286 118 5,372 Change (660) (2,170) (837) 189 (3,478) (1) Does not include current financial debt included in other current financial liabilities. Short-term bank borrowings amounted to €249 million. At December 31, 2017 issues under these programs to- The payables represented by commercial paper relate to taled €889 million pertaining to International Endesa BV. issues outstanding at the end of December 2017 under The substantial €2,170 million decline regards the con- the €6,000 million program launched in November 2005 traction in the exposure of Enel Finance International as by Enel Finance International and guaranteed by Enel SpA, a result of a decrease in issues during the year and the which was renewed in April 2010, as well as the €3,000 reclassification to “assets/liabilities held for sale” of the million program of International Endesa BV and that of Enel debt associated with the Mexican project companies (the Américas and Enel Generación Chile of $400 million (equal “Kino Project”). to €334 million). 41.4 Derivative financial liabilities For more information on derivative financial liabilities, please see note 44 “Derivatives and hedge accounting”. 41.5 Net gains and losses The following table shows net gains and losses by category of financial instruments, excluding derivatives. Millions of euro 2017 2016 Of which impairment/ reversal of impairment Net gains/ (losses) Of which impairment/ reversal of impairment Net gains/ (losses) Available-for-sale financial assets measured at fair value Available-for-sale financial assets measured at amortized cost Financial assets held to maturity 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 81 1 - (701) - - - (1,054) 1 - 1 - - - 59 7 (1) - - - (870) (595) (764) - - - - - - - 1 (1) - (1,873) - - - - - - - - - - For more details on net gains and losses on derivatives, please see note 10 “Net financial income/(expense) from derivatives”. 280 Annual Report 201742. Risk management Financial risk management governance and objectives As part of its operations, the Enel Group is exposed to a variety of financial risks, notably market risks (including in- terest rate risk, exchange risk and commodity risk), credit risk and liquidity risk. As noted in the section “Main risks and uncertainties”, the Group’s governance arrangements for financial risks inclu- de internal committees and the establishment of specific policies and operational limits. Enel’s primary objective is to mitigate financial risks appropriately so that they do not give rise to unexpected changes in results. Market risks Market risks are mainly composed of interest rate risk, exchange risk and commodity price risk. The sources of Enel’s exposure to market risks have not changed since the previous year. Interest rate risk is primarily generated by the use of finan- cial instruments. The main financial liabilities held by the Group include bonds, bank borrowings, other borrowings, commercial paper, derivatives, cash deposits received to secure commercial or derivatives transactions (guaran- tees received, cash collateral), liabilities for construction contracts and trade payables. The main financial assets held by the Group include financial receivables, factoring receivables, derivatives, cash deposits made to secure commercial or derivatives transactions (guarantees pled- ged, cash collateral), cash (and cash equivalents), receiva- bles for construction contracts and trade receivables. The main purpose of those financial instruments is to sup- port the operations of the Group. For more details, please see note 41 “Financial instruments”. Exchange risk is generated by transactions in fuels and power, industrial investments, dividends from investe- es, commercial transactions and the use of financial in- struments. The consolidated financial statements of the Group are also exposed to translation risk. The Group’s policies for managing market risks provide for the mitigation of the effects on performance of changes in interest rates and exchange rates with the exclusion of translation risk (consolidated financial statements). This objective is achieved at the source of the risk, through the diversification of both the nature of the financial instru- ments and the sources of revenue, and by modifying the risk profile of specific exposures with derivatives entered into on over-the-counter (OTC) markets or with specific commercial agreements. The risk of fluctuations in commodity prices is generated by the volatility of those prices and existing structural cor- relations between them, which creates uncertainty about the margin on transactions in fuels and energy. Price de- velopments are observed and analyzed in order to develop the Group’s industrial, financial and commercial strategies and policies. In order to contain the effects of such fluctuations and stabilize margins, in accordance with the Group’s policies and operational limits established with the risk gover- nance arrangements, Enel develops and plans strategies that impact the various stages of the industrial process associated with the production and sale of electricity and gas (such as advance sourcing and long-term commercial agreements) and risk mitigation plans and techniques for hedging risks with derivatives. As part of its governance of market risks, Enel regularly monitors the size of the OTC derivatives portfolio in rela- tion to the threshold values set by regulators for the ac- tivation of clearing obligations (EMIR – European Market Infrastructure Regulation – 648/2012 of the European Par- liament and of the Council). During 2017, no overshoot of those threshold values was detected. Interest rate risk Interest rate risk primarily manifests itself as unexpected changes in charges on financial liabilities, if indexed to flo- ating rates and/or exposed to the uncertainty of financial terms and conditions in negotiating new debt instruments, or as an unexpected change in the value of financial instru- ments measured at fair value (such as fixed-rate debt). The Enel Group mainly manages interest rate risk through the definition of an optimal financial structure, with the dual goal of stabilizing borrowing costs and containing the cost of funds. This goal is pursued through the diversifica- tion of the portfolio of financial liabilities by contract type, 281 Consolidated financial statementsmaturity and interest rate, and modifying the risk profile of dexing criteria for floating-rate financial liabilities. specific exposures using OTC derivatives, mainly interest Some structured borrowings have multi-stage cash flows rate swaps and interest rate options. The term of such de- hedged by interest rate swaps that at the reporting date, rivatives does not exceed the maturity of the underlying and for a limited time, provide for the exchange of fixed- financial liability, so that any change in the fair value and/ rate interest flows. or expected cash flows of such contracts is offset by a Interest rate options involve the exchange of interest dif- corresponding change in the fair value and/or cash flows ferences calculated on a notional principal amount once of the hedged position. certain thresholds (strike prices) are reached. These th- Proxy hedging techniques may be used in a number of re- resholds specify the effective maximum rate (cap) or the sidual circumstances, when the hedging instruments for minimum rate (floor) to which the synthetic financial in- the risk factors are not available on the market or are not strument will be indexed as a result of the hedge. Certain sufficiently liquid. For the purpose of EMIR compliance, in hedging strategies provide for the use of combinations order to test the actual effectiveness of the hedging tech- of options (collars) that establish the minimum and maxi- niques adopted, the Group subjects its hedge portfolios to mum rates at the same time. In this case, the strike prices periodic statistical assessment. are normally set so that no premium is paid on the con- tract (zero cost collars). Using interest rate swaps, the Enel Group agrees with Such contracts are normally used when the fixed interest the counterparty to periodically exchange floating-rate in- rate that can be obtained in an interest rate swap is con- terest flows with fixed-rate flows, both calculated on the sidered too high with respect to market expectations for same notional principal amount. future interest rate developments. In addition, interest Floating-to-fixed interest rate swaps transform floating- rate options are also considered most appropriate in pe- rate financial liabilities into fixed-rate liabilities, thereby riods of greater uncertainty about future interest rate de- neutralizing the exposure of cash flows to changes in in- velopments because they make it possible to benefit from terest rates. any decrease in interest rates. Fixed-to-floating interest rate swaps transform fixed-rate financial liabilities into floating-rate liabilities, thereby neu- The following table reports the notional amount of interest tralizing the exposure of their fair value to changes in in- rate derivatives at December 31, 2017 and December 31, terest rates. 2016 broken down by type of contract. Floating-to-floating interest rate swaps transform the in- 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 2017 11,166 884 - 165 50 2016 11,526 853 - 165 50 12,265 12,594 For more details on interest rate derivatives, please see note 44 “Derivatives and hedge accounting”. Interest rate risk sensitivity analysis Enel analyzes the sensitivity of its exposure by estimating ves or in the financial expense associated with unhedged the effects of a change in interest rates on the portfolio of gross debt. financial instruments. These market scenarios are obtained by simulating parallel More specifically, sensitivity analysis measures the poten- increases and decreases in the yield curve as at the repor- tial impact on profit or loss and on equity of market scena- ting date. rios that would cause a change in the fair value of derivati- There were no changes introduced in the methods and as- 282 Annual Report 2017sumptions used in the sensitivity analysis compared with before tax would be affected by a change in the level of the previous year. interest rates as follows. With all other variables held constant, the Group’s profit Millions of euro 2017 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 Pre-tax impact on profit or loss Pre-tax impact on equity Basis points Increase Decrease Increase Decrease 25 25 25 25 24 8 - (3) (24) (8) - 3 - - 107 - - - (107) - Exchange risk Exchange risk mainly manifests itself as unexpected chan- than the currency of account into an equivalent liability in ges in the financial statement items associated with tran- the currency of account. sactions denominated in a currency other than the currency Currency forwards are contracts in which the counter- of account. The Group’s exposure is connected with the parties agree to exchange principal amounts denomina- purchase or sale of fuels and power, investments (cash ted in different currencies at a specified future date and flows for capitalized costs), dividends and the purchase or exchange rate (the strike). Such contracts may call for the sale of equity investments, commercial transactions and actual exchange of the two principal amounts (deliverable financial assets and liabilities. forwards) or payment of the difference generated by diffe- In order to minimize the exposure to exchange risk, Enel rences between the strike exchange rate and the prevai- implements diversified revenue and cost sources geo- ling exchange rate at maturity (non-deliverable forwards). graphically, and uses indexing mechanisms in commercial In the latter case, the strike rate and/or the spot rate may contracts. Enel also uses various types of derivative, typi- be determined as averages of the rates observed in a given cally on the OTC market. period. The derivatives in the Group’s portfolio of financial instru- Currency swaps are contracts in which the counterparties ments include cross currency interest rate swaps, currency enter into two transactions of the opposite sign at different forwards and currency swaps. The term of such contracts future dates (normally one spot, the other forward) that pro- does not exceed the maturity of the underlying instrument, vide for the exchange of principal denominated in different so that any change in the fair value and/or expected cash currencies. flows of such instruments offsets the corresponding chan- ge in the fair value and/or cash flows of the hedged posi- The following table reports the notional amount of transac- tion. tions outstanding at December 31, 2017 and December 31, Cross currency interest rate swaps are used to transform 2016, broken down by type of hedged item. a long-term financial liability denominated in currency other 283 Consolidated financial statementsMillions of euro Notional amount Cross currency interest rate swaps (CCIRSs) hedging debt denominated in currencies other than the euro Currency forwards hedging exchange risk on commodities Currency forwards hedging future cash flows in currencies other than the euro Currency swaps hedging commercial paper Currency forwards hedging loans Other currency forwards Total 2017 19,004 3,526 6,319 - - 300 29,149 2016 14,973 2,887 6,036 - - 1,014 24,910 More specifically, these include: of account connected with the purchase of investment > CCIRSs with a notional amount of €19,004 million to hed- goods in the renewables and infrastructure and networks ge the exchange risk on debt denominated in currencies sectors (new generation digital meters), on operating ex- other than the euro (€14,973 million at December 31, penses for the supply of cloud services and on revenue 2016); from the sale of renewable energy. > currency forwards with a total notional amount of €9,845 million used to hedge the exchange risk associated with At December 31, 2017, 47% (44% at December 31, 2016) purchases and sales of natural gas, purchases of fuel and of Group long-term debt was denominated in currencies expected cash flows in currencies other than the euro other than the euro. (€8,923 million at December 31, 2016); Taking account of hedges of exchange risk, the percentage > other currency forwards which include OTC derivatives of debt not hedged against that risk amounted to 17% at transactions carried out to mitigate exchange risk on ex- December 31, 2017 (18% at December 31, 2016). pected cash flows in currencies other than the currency Exchange risk sensitivity analysis The Group analyses the sensitivity of its exposure by esti- These scenarios are obtained by simulating the apprecia- mating the effects of a change in exchange rates on the tion/depreciation of the euro against all of the currencies portfolio of financial instruments. compared with the value observed as at the reporting date. More specifically, sensitivity analysis measures the poten- There were no changes in the methods or assumptions tial impact on profit or loss and equity of market scenarios used in the sensitivity analysis compared with the previous that would cause a change in the fair value of derivatives or year. in the financial expense associated with unhedged gross With all other variables held constant, the profit before tax medium/long-term debt. would be affected by changes in exchange rates as follows. Millions of euro 2017 Pre-tax impact on profit or loss Pre-tax impact on equity Exchange rate Increase Decrease Increase Decrease Change in financial expense on gross long-term debt denominated in currencies other than the euro 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 284 10% 10% 10% 10% - - 544 (663) - - - - - - - - (2,413) 2,946 - - Annual Report 2017Commodity risk The risk of fluctuations in the price of commodities is struments for the specific risk factors generating the expo- mainly associated with the purchase and sale of electricity sure are not available on the market or are not sufficiently li- and fuels at variable prices (e.g. indexed bilateral contracts, quid. In addition, Enel uses portfolio hedging techniques to transactions on the spot market, etc.). assess opportunities for netting intercompany exposures. The exposures on indexed contracts are quantified by bre- The Group mainly uses plain vanilla derivatives for hedging aking down the contracts that generate exposure into the (more specifically, forwards, swaps, options on commodi- underlying risk factors. ties, futures, contracts for differences). As regards electricity sold by the Group, Enel mainly uses Enel also engages in proprietary trading in order to main- fixed-price contracts in the form of bilateral physical con- tain a presence in the Group’s reference energy commo- tracts (PPAs) and financial contracts (e.g. contracts for dif- dity markets. These operations consist in taking on expo- ferences, VPP contracts, etc.) in which differences are paid to the counterparty if the market electricity price exceeds sures in energy commodities (oil products, gas, coal, CO2 certificates and electricity) using financial derivatives and the strike price and to Enel in the opposite case. The resi- physical contracts traded on regulated and over-the-counter dual exposure in respect of the sale of energy on the spot markets, optimizing profits through transactions carried out market not hedged with such contracts is aggregated by on the basis of expected market developments. uniform risk factors that can be managed with hedging The following table reports the notional amount of outstan- transactions on the market. Proxy hedging techniques may ding transactions at December 31, 2017 and December 31, be used for the industrial portfolios when the hedging in- 2016, broken down by type of instrument. Millions of euro Notional amount Forward and futures contracts Swaps Options Embedded derivatives Total 2017 24,824 4,584 422 - 29,830 2016 28,197 6,195 308 - 34,700 For more details, please see note 44 “Derivatives and hedge accounting”. Commodity risk sensitivity analysis The following table presents the results of the analysis of the fuel scenario and the basket of formulas used in the sensitivity to a reasonably possible change in the commodi- contracts is mainly attributable to the change in the price ty prices underlying the valuation model used in the scena- of gas and petroleum products and, to a lesser extent, rio at the same date, with all other variables held constant. The impact on pre-tax profit of shifts of +10% and -10% of electricity and CO2. The impact on equity of the same shifts in the price curve is primarily due to changes in the in the price curve for the main commodities that make up prices of coal and electricity and, to a lesser extent, CO2. Millions of euro 2017 Pre-tax impact on profit or loss Pre-tax impact on equity Commodity price Increase Decrease Increase Decrease Change in the fair value of trading derivatives on commodities Change in the fair value of derivatives on commodities designated as hedging instruments 10% 10% 23 - (18) - - 67 - (65) 285 Consolidated financial statementsCredit risk The Group’s commercial, commodity and financial opera- The policy for managing credit risk associated with com- tions expose it to credit risk, i.e. the possibility that a dete- mercial activities provides for a preliminary assessment of rioration in the creditworthiness of a counterparty has an the creditworthiness of counterparties and the adoption of adverse impact on the expected value of the creditor posi- mitigation instruments, such as obtaining collateral or unse- tion or, for trade payables only, increase average collection cured guarantees. times. In addition, the Group undertakes transactions to assign re- Accordingly, the exposure to credit risk is attributable to the ceivables without recourse, which results in the complete following types of operations: derecognition of the corresponding assets involved in the > the sale and distribution of electricity and gas in free and assignment, as the risks and rewards associated with them regulated markets and the supply of goods and services have been transferred. (trade receivables); Finally, with regard to financial and commodity transac- > trading activities that involve the physical exchange of tions, risk mitigation is pursued with a uniform system assets or transactions in financial instruments (the com- for assessing counterparties at the Group level, including modity portfolio); implementation at the level of Regions/Countries/Global > trading in derivatives, bank deposits and, more generally, Business Lines, as well as with the adoption of specific financial instruments (the financial portfolio). standardized contractual frameworks that contain risk miti- In order to minimize credit risk, credit exposures are mana- gation clauses (e.g. netting arrangements) and possibly the ged at the Region/Country/Business Line level by different exchange of cash collateral. units, thereby ensuring the necessary segregation of risk management and control activities. Monitoring of the con- solidated exposure is carried out by Enel SpA. Concentration of customer credit risk Trade receivables are generated by the Group’s operations In addition, at the Group level the policy provides for the in many Regions and Countries with a base of customers use of uniform criteria – in all the main Regions/Countries/ and counterparties that is highly diversified, whether geo- Global Business Lines and at the consolidated level – in me- graphically, sectorally or by size (corporate, residential and asuring commercial credit exposures in order to promptly government customers). Through its subsidiaries, Enel has identify any deterioration in the quality of outstanding recei- more than 60 million customers or counterparties with vables and any mitigation actions to be taken. whom it has generally granular credit exposures. 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 286 2017 2,402 10,425 4,105 1,779 444 349 343 1,190 16,932 2016 2,028 10,006 3,499 1,349 288 334 500 1,028 15,533 Annual Report 2017Liquidity risk Liquidity risk manifests itself as uncertainty about the ble committed credit lines and a portfolio of highly liquid Group’s ability to discharge its obligations associated with assets. financial liabilities that are settled by delivering cash or ano- In the long term, liquidity risk is mitigated by maintaining a ther financial asset. balanced maturity profile for our debt, access to a range of Enel manages liquidity risk by implementing measures to sources of funding on different markets, in different curren- ensure an appropriate level of liquid financial resources, mi- cies and with diverse counterparties. nimizing the associated opportunity cost and maintaining a The mitigation of liquidity risk enables the Group to main- balanced debt structure in terms of its maturity profile and tain a credit rating that ensures access to the capital market funding sources. and limits the cost of funds, with a positive impact on its In the short term, liquidity risk is mitigated by maintaining performance and financial position. an appropriate level of unconditionally available resources, including liquidity on hand and short-term deposits, availa- The Group holds the following undrawn lines of credit. Millions of euro at Dec. 31, 2017 at Dec. 31, 2016 Committed credit lines Uncommitted credit lines Commercial paper Total Expiring within one year Expiring beyond one year Expiring within one year Expiring beyond one year 245 360 7,464 8,069 13,761 1 - 13,762 176 448 6,320 6,944 14,214 19 - 14,233 Maturity analysis The table below summarizes the maturity profile of the Group’s long-term debt. Millions of euro Maturing in Less than 3 months From 3 months to 1 year 2019 2020 2021 2022 Beyond 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 2,506 500 - - 2,173 184 - 66 2,098 2,173 1,320 229 - 229 115 - 177 168 - 111 3,006 2,423 2,556 2,465 1,599 73 93 - 166 53 7 60 220 960 - 398 797 - 1,180 1,195 145 20 165 164 30 194 340 1,374 7 1,721 176 30 206 133 1,067 - 1,200 173 40 213 2,254 306 1,291 97 3,948 53 545 - 598 174 16 190 TOTAL 3,232 3,768 3,945 4,392 3,012 4,736 12,751 1,274 7,167 525 21,717 316 3,280 - 3,596 980 61 1,041 26,354 287 Consolidated financial statementsCommitments to purchase commodities In conducting its business, the Enel Group has entered into The following table reports the undiscounted cash flows contracts to purchase specified quantities of commodities associated with outstanding commitments at December at a certain future date for its own use, which qualify for the 31, 2017. own use exemption provided for under IAS 39. Millions of euro Commitments to purchase commodities: - electricity - fuels Total at Dec. 31, 2017 2015-2019 2020-2024 2025-2029 Beyond 79,163 42,302 121,465 19,475 24,671 44,146 14,596 10,764 25,360 14,163 5,222 19,385 30,929 1,645 32,574 43. Offsetting financial assets and financial liabilities At December 31, 2017, the Group did not hold offset posi- policy to settle financial assets and liabilities on a net basis. tions in assets and liabilities, as it is not the Enel Group’s 44. Derivatives and hedge accounting The following tables show the notional amount and the The notional amount of a derivative contract is the amount fair value of derivative financial assets and derivative finan- on the basis of which cash flows are exchanged. This cial liabilities eligible for hedge accounting or measured a amount can be expressed as a value or a quantity (for exam- FVTPL, classified on the basis of the type of hedge rela- ple tons, converted into euros by multiplying the notional tionship and the hedged risk, broken down into current and amount by the agreed price). Amounts denominated in cur- non-current instruments. rencies other than the euro are converted at the end-year exchange rates provided by the European Central Bank. Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 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 288 827 827 780 3,644 367 4,791 394 134 177 705 848 848 379 8,057 99 8,535 50 120 69 239 23 23 5 594 63 662 3 5 9 17 36 36 3 1,531 18 1,552 3 7 11 21 - - 20 20 127 1,130 1,975 3,232 - 4,442 12,909 17,351 17 3,561 1,869 5,447 - 3,246 15,539 18,785 - - 1 45 281 327 - 80 1,902 1,982 1 1 - 464 453 917 - 70 2,957 3,027 6,323 9,622 702 1,609 20,583 24,252 2,309 3,945 Annual Report 2017Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Fair value hedge derivatives: - on interest rates - on exchange rates - on commodities 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 - 63 - 63 - 106 - 106 9,899 15,756 368 11,042 5,686 352 26,023 17,080 88 326 18 432 88 37 64 189 - 7 - 7 556 2,375 39 2,970 9 10 2 21 - 15 - 15 695 1,764 36 2,495 13 5 4 22 - 35 - 35 50 2,096 1,114 3,260 100 1,474 12,902 14,476 - 7 4 11 31 457 1,096 1,584 119 3,633 15,608 19,360 - 6 - 6 1 114 159 274 65 38 1,877 1,980 - 1 - 1 1 88 216 305 73 62 2,881 3,016 26,518 17,375 2,998 2,532 17,771 20,955 2,260 3,322 44.1 Derivatives designated as hedging instruments Derivatives are initially recognized at fair value, at the trade ted with long-term debt denominated in a currency other date of the contract, and are subsequently re-measured at than the currency of account or the functional currency fair value. in which the company holding the financial liability opera- The method for recognizing the resulting gain or loss de- tes; iii) changes in the price of fuels and non-energy com- pends on whether the derivative is designated as a hedging modities denominated in a foreign currency; iv) changes instrument, and if so, the nature of the item being hedged. in the price of forecast electricity sales at variable prices; Hedge accounting is applied to derivatives entered into in v) changes in the price of transactions in coal and petro- order to reduce risks such as interest rate risk, exchange risk, leum commodities; vi) changes in the prices of capital commodity risk, credit risk and equity risk when all the crite- goods; vii) changes in operating expenses; and viii) chan- ria provided for under IAS 39 are met. ges in revenue from the sale of electricity; At the inception of the transaction, the Group documents > fair value hedge derivatives involving the hedging of ex- the relationship between hedging instruments and hedged posures to changes in the fair value of an asset, a liability items, as well as its risk management objectives and stra- or a firm commitment attributable to a specific risk; tegy. The Group also analyzes, both at hedge inception and > derivatives hedging a net investment in a foreign ope- on an ongoing systematic basis, the effectiveness of hedges ration (NIFO), involving the hedging of exposures to using prospective and retrospective tests in order to deter- exchange rate volatility associated with investments in mine whether hedging instruments are highly effective in foreign entities. offsetting changes in the fair values or cash flows of hedged For more details on the nature and the extent of risks arising items. from financial instruments to which the company is expo- Depending on the nature of the risks to which it is exposed, sed, please see note 42 “Risk management”. the Group designates derivatives as hedging instruments in one of the following hedge relationships: > cash flow hedge derivatives in respect of the risk of: i) Cash flow hedges Cash flow hedges are used in order to hedge the Group’s changes in the cash flows associated with long-term flo- exposure to changes in future cash flows that are attributa- ating-rate debt; ii) changes in the exchange rates associa- ble to a particular risk associated with an asset, a liability or 289 Consolidated financial statementsa highly probable transaction that could affect profit or loss. The Group currently uses these hedge relationships to mini- The effective portion of changes in the fair value of derivati- mize the volatility of profit or loss. ves that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. Amounts accumulated in equity are reclassified to profit or loss in the period when the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting but the hedged item has not expired or been cancelled, any cu- mulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit or loss. Fair value hedges Fair value hedges are used to protect the Group against ex- posures to adverse changes in the fair value of assets, liabili- ties or firm commitments attributable to a particular risk that could affect profit or loss. Changes in the fair value of derivatives that qualify and are designated as hedging instruments are recognized in the in- come statement, together with changes in the fair value of the hedged item that are attributable to the hedged risk. If the hedge is ineffective or no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity. The Group currently makes marginal use of such hedge re- lationships to seize opportunities associated with general developments in the yield curve. 44.1.1 Hedge relationships by type of risk hedged Interest rate risk The following table shows the notional amount and the fair transactions outstanding as at December 31, 2017 and De- value of the hedging instruments on the interest rate risk of cember 31, 2016, broken down by type of hedge. Millions of euro Hedging instrument Interest rate swaps Interest rate swaps Interest rate swaps Total Fair value Notional amount Fair value Notional amount Hedged item at Dec. 31, 2017 at Dec. 31, 2016 Fixed-rate borrowings Floating-rate borrowings Floating-rate financial receivables 22 812 35 853 (550) 10,799 (691) 11,484 - (528) 72 - - 11,683 (656) 12,337 290 Annual Report 2017The following table shows the notional amount and the fair cember 31, 2017 and December 31, 2016, 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, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Fair value hedge derivatives: - interest rate swaps 827 868 23 37 - - - - Cash flow hedge derivatives: - interest rate swaps 907 396 Total interest rate derivatives 1,734 1,264 6 29 3 40 9,949 11,073 (557) (696) 9,949 11,073 (557) (696) The notional amount of derivatives classified as hedging in- The improvement in the fair value of €128 million mainly struments at December 31, 2017 came to €11,683 million, reflects the rise in the long-term segment of the yield curve with a corresponding negative fair value of €528 million. during the year. The notional amount decreased by €654 million. More spe- cifically, interest rate swaps with a total value of €1,089 Cash flow hedge derivatives million expired, while new derivatives amounted to €666 million. The value also reflects the reduction in the notional The following table shows the cash flows expected in co- ming years from cash flow hedge derivatives on interest amount of amortizing interest rate swaps. rate risk. Millions of euro Fair value at Dec. 31, 2017 Cash flow hedge derivatives on interest rates: Distribution of expected cash flows 2018 2019 2020 2021 2022 Beyond - positive fair value - negative fair value 6 (557) 1 (93) 3 2 (113) (109) 1 (88) - (61) - (131) The following table shows the impact of reserves from 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, 2016 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2016 Opening balance at January 1, 2017 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2017 (442) (361) 35 (768) (768) 99 52 (617) 291 Consolidated financial statementsExchange risk The following table shows the notional amount and the fair transactions outstanding as at December 31, 2017 and De- value of the hedging instruments on the exchange risk of cember 31, 2016, broken down by type of hedged item. Millions of euro Hedging instrument Cross currency interest rate swaps (CCIRSs) Cross currency interest rate swaps (CCIRSs) Cross currency interest rate swaps (CCIRSs) Currency forwards Currency forwards Currency forwards Total Hedged asset 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 Purchases of investment goods and other Fair value Notional amount Fair value Notional amount at Dec. 31, 2017 at Dec. 31, 2016 (1,720) 17,616 148 (16) 977 (4) (29) 321 (69) 13,988 650 335 (130) 3,076 120 2,091 30 (9) (1,863) 552 1 38 183 22,725 (57) 127 772 17,874 Cash flow hedges and fair value hedges include: > currency forwards with a notional amount of €183 million > CCIRSs with a notional amount of €17,616 million used to and a negative fair value of €9 million in respect of OTC hedge the exchange risk on fixed-rate debt denominated transactions to mitigate the exchange risk on expected in currencies other than the euro, with a negative fair va- cash flows in currencies other than the currency of ac- lue of €1,720 million; count connected with the purchase of investment goods > CCIRSs with a notional amount of €1,298 million used to in the renewables and infrastructure and networks sec- hedge the exchange risk on floating-rate debt denomina- tors (new generation digital meters), on operating expen- ted in currencies other than the euro, with a negative fair ses for the supply of cloud services and on revenue from value of €33 million; the sale of renewable energy. > currency forwards with a notional amount of €3,628 mil- lion used to hedge the exchange risk associated with The following table reports the notional amount and fair va- purchases of natural gas, purchases of fuel and expected lue of foreign exchange derivatives at December 31, 2017 cash flows in currencies other than the euro, with a ne- and December 31, 2016, broken down by type of hedge. gative fair value of €100 million; Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Fair value hedge derivatives: - currency forwards - CCIRSs Cash flow hedge derivatives: - currency forwards - CCIRSs Total exchange derivatives 292 - - - - 747 4,028 4,775 2,521 9,097 11,618 - - 32 607 639 - - 4 93 7 106 - (13) (1) (15) 141 1,854 1,995 3,060 14,793 17,950 373 5,770 6,256 (142) (2,347) (2,502) (76) (1,776) (1,868) Annual Report 2017The notional amount of CCIRSs at December 31, 2017 The notional value of currency forwards at December 31, amounted to €18,914 million (€14,973 million at December 2017 amounted to €3,807 million (€2,894 million at Decem- 31, 2016), an increase of €3,941 million. Cross currency in- ber 31, 2016), an increase of €913 million. The exposure to terest rate swaps with a total value of €1,513 million expi- exchange risk, especially that associated with the US dollar, red, while cross currency interest rate swaps with a value is mainly due to purchases of natural gas, purchase of fuel of €1,660 were closed early. New derivatives amounted to and cash flows in respect of investments. Changes in the €7,896 million, of which €2,501 million and €4,169 million in notional amount are connected with normal developments respect of bond issues denominated in US dollars in May in operations. and October 2017, respectively. The value also reflects deve- lopments in the exchange rate of the euro against the main Cash flow hedge derivatives other currencies, which caused their notional amount to de- The following table shows the cash flows expected in coming years from cash flow hedge derivatives on exchange risk. crease by €782 million. Millions of euro Fair value at Dec. 31, 2017 Distribution of expected cash flows 2018 2019 2020 2021 2022 Beyond Cash flow hedge derivatives on exchange rates: - positive fair value - negative fair value 638 (2,488) 81 (52) 138 (174) 66 71 53 38 44 (46) 493 268 The following table shows the impact of reserves from cash flow hedge derivatives on exchange risk on equity during the period, gross of tax effects. Millions of euro Opening balance at January 1, 2016 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2016 Opening balance at January 1, 2017 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2017 (614) (508) (230) (1,341) (1,341) (211) (88) (1,640) 293 Consolidated financial statementsCommodity risk Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Fair value hedge derivatives Derivatives on power: - swaps - forwards/futures - options Total derivatives on power Cash flow hedge derivatives Derivatives on power: - swaps - forwards/futures - options Total derivatives on power Derivatives on coal: - swaps - forwards/futures - options - - - - 458 116 - 574 - - - - 21 87 - 108 525 380 - - - - Total derivatives on coal 525 380 Derivatives on gas and oil: - swaps - forwards/futures - options 45 161 1,036 1,259 - - Total derivatives on gas and oil 1,081 1,420 Derivatives on CO2: - swaps - forwards/futures - options Total derivatives on CO2 TOTAL DERIVATIVES ON COMMODITIES - 162 - 162 - 60 - 60 - - - - 39 11 - 50 84 - - 84 12 130 - 142 - 68 - 68 - - - - 5 10 - 15 247 - - 247 44 149 - 193 - 16 - 16 - - - - 238 545 - 783 18 - - 18 - 681 - 681 - - - - - 4 - 4 4 590 - 594 1 - - 1 13 744 - 757 - 96 - 96 - - - - (22) (102) - (124) (1) - - (1) - (73) - (73) - - - - - - - - - (66) - (66) - - - - (2) (180) - (182) - (4) - (4) 2,342 1,968 344 471 1,482 1,452 (198) (252) The table reports the notional amount and fair value of deri- in-one hedges). vatives hedging the price risk on commodities at December Cash flow hedge derivatives on commodities included in 31, 2017 and at December 31, 2016, broken down by type liabilities regard derivatives on power in the amount of of hedge. The positive fair value of cash flow hedge deri- €124 million, derivatives on gas and oil commodities in the vatives on commodities regards derivatives on gas and oil amount of €73 million and, to a marginal extent, derivatives commodities in the amount of €142 million, hedges of coal on coal (€1 million). purchases requested by the generation companies in the amount of €84 million, and, to a lesser extent, derivatives Cash flow hedge derivatives on CO2 (€68 million) and power (€50 million). The first cate- gory primarily regards hedges of fluctuations in the price of The following table shows the cash flows expected in co- ming years from cash flow hedge derivatives on commo- natural gas, for both purchases and sales, carried out for oil dity risk. commodities and gas products with physical delivery (all- 294 Annual Report 2017Millions of euro Cash flow hedge derivatives on commodities: - positive fair value - negative fair value Fair value at Dec. 31, 2017 Distribution of expected cash flows 2018 2019 2020 2021 2022 Beyond 344 (198) 280 (159) 28 (39) 15 - - - - - 21 - The following table shows the impact of reserves from cash flow hedge derivatives on commodity risk on equity during the period, gross of tax effects. Millions of euro Opening balance at January 1, 2016 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2016 Opening balance at January 1, 2017 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2017 (622) 137 830 345 345 409 (513) 241 295 Consolidated financial statements44.2 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, 2017 and December 31, 2016. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Derivatives at FVTPL Derivatives on interest rates: - interest rate swaps - interest rate options Derivatives on exchange rates: - currency forwards - CCIRSs Derivatives on commodities Derivatives on power: - swaps - forwards/futures - options 394 - 50 - 4,576 3,366 - - 776 3,439 7 1,105 5,820 16 Total derivatives on power 4,222 6,941 Derivatives on coal: - swaps - forwards/futures - options Total derivatives on coal Derivatives on gas and oil: - swaps - forwards/futures - options Total derivatives on gas and oil Derivatives on CO2: - swaps - forwards/futures - options Total derivatives on CO2 Derivatives on other: - swaps - forwards/futures - options Total derivatives on other Embedded derivatives 369 29 - 398 534 7,653 181 8,368 - 97 1 98 - - - - - 1,077 103 - 1,180 616 6,591 125 7,332 - 155 - 155 - - - - - 3 - 85 - 125 457 9 591 86 1 - 87 125 823 254 3 - 77 - 138 50 157 50 1,759 3,670 90 - (68) (6) (46) (2) (79) (7) (67) - 163 1,005 14 608 3,500 16 1,169 5,705 23 (107) (522) (5) (172) (1,033) (9) 1,182 4,124 6,897 (634) (1,214) 387 15 - 402 205 941 177 1,202 1,323 - 30 1 31 - - - - - - 61 - 61 - - - - - 294 1,069 (57) (409) 4 - 93 1 - - (2) (1) 298 1,163 (57) (412) 629 7,483 216 8,328 572 6,648 143 (123) (732) (293) (109) (853) (245) 7,363 (1,148) (1,207) - 79 1 80 90 - - 90 - 6 243 - 249 - - - - - - (34) (1) (35) (5) - - (5) - (3) (49) - (52) - - - - - TOTAL DERIVATIVES 18,056 19,024 1,999 3,048 14,957 19,549 (2,001) (3,038) At December 31, 2017 the notional amount of derivatives on exchange rates was €6,425 million. The decrease in their on interest rates came to €582 million. The fair value of a notional value and the rise in the associated net fair value negative €71 million improved by €12 million on the previous of €27 million mainly reflected normal operations and deve- year, mainly due to the rise in the long-term segment of the lopments in exchange rates. yield curve. At December 31, 2017, the notional amount of derivatives At December 31, 2017, the notional amount of derivatives on commodities came to €26,006 million. The fair value 296 Annual Report 2017of trading derivatives on commodities classified as assets These values include transactions that, although established mainly reflects the market valuation of hedges of gas and for hedging purposes, did not meet the requirements for oil amounting to €1,202 million and derivatives on power hedge accounting. amounting to €591 million. The “Other” category includes hedges using weather deri- The fair value of trading derivatives on commodities classified vatives. In addition to commodity risk, the Group companies as liabilities mainly regards hedges of gas and oil amounting are also exposed to changes in volumes associated with to €1,148 million and derivatives on power amounting to weather conditions (for example, temperature impacts the €634 million. consumption of gas and power). 45. Assets measured at fair value The Group determines fair value in accordance with IFRS > Level 3, where the fair value is determined on the basis 13 whenever such measurement is required by the inter- of unobservable inputs. national accounting standards as a recognition or measu- This note also provides detailed disclosures concerning the rement criterion. valuation techniques and inputs used to perform these me- Fair value is defined as the price that would be received to asurements. sell an asset or paid to transfer a liability, in an orderly tran- To that end: saction, between market participants, at the measurement > recurring fair value measurements of assets or liabilities date (i.e. an exit price). are those required or permitted by the IFRS in the balan- The best proxy of fair value is market price, i.e. the current ce sheet at the close of each period; publically available price actually used on a liquid and active > non-recurring fair value measurements are those requi- market. red or permitted by the IFRS in the balance sheet in par- The fair value of assets and liabilities is classified in ac- ticular circumstances. cordance with the three-level hierarchy described below, For general information or specific disclosures on the ac- depending on the inputs and valuation techniques used in counting treatment of these circumstances, please see determining their fair value: note 2 “Accounting policies and measurement criteria”. > Level 1, where the fair value is determined on the basis of quoted prices (unadjusted) in active markets for iden- The following table shows, for each class of assets mea- tical assets or liabilities that the entity can access at the sured at fair value on a recurring or non-recurring basis in measurement date; the financial statements, the fair value measurement at the > Level 2, where the fair value is determined on the basis end of the reporting period and the level in the fair value of inputs other than quoted prices included within Level hierarchy into which the fair value measurements of those 1 that are observable for the asset or liability, either di- assets are classified. rectly (such as prices) or indirectly (derived from prices); 297 Consolidated financial statementsLevel 1 Level 2 Level 3 Millions of euro Non-current assets Current assets Equity investments in other companies measured at fair value Service concession arrangements Securities available for sale Notes 24 24 24.1 Loans and receivables measured at fair value 24 and 28 Other investments of liquidity at fair value 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 Contingent consideration Other assets measured at fair value Assets classified as held for sale 30 44 44 44 44 44 44 44 26 25 25 31 Fair value 6 1,476 382 49 - 5 594 63 23 3 5 9 - 23 5 4 Level 1 Level 2 Level 3 4 - 382 - - - - 41 - - - 3 - - - - - 1,476 - 15 - 5 594 22 23 3 5 6 - 23 5 - 2 - - 34 - - - - - - - - - - - 4 Fair value - 16 69 41 - - 69 41 - 16 - - 203 101 102 1 45 - - 281 216 - - 80 - - - 1 45 65 - - 80 1,902 902 1,000 45 - - - 1 - - - 44 - - - - - - - - - - - - - - - - - - - The fair value of “Equity investments in other companies” is of the period (such as interest rates, exchange rates, volatili- determined for listed companies on the basis of the quoted ty), discounting expected future cash flows on the basis of price set on the closing date of the year, while that for unli- the market yield curve and translating amounts in currencies sted companies is based on a reliable valuation of the relevant other than the euro using exchange rates provided by the Eu- assets and liabilities. ropean Central Bank. For contracts involving commodities, the measurement is conducted using prices, where available, “Service concession arrangements” concern electricity di- for the same instruments on both regulated and unregulated stribution operations in Brazil, mainly by Enel Distribución Rio, markets. Enel Distribución Ceará and Enel Distribuição Goiás and are accounted for in accordance with IFRIC 12. Fair value was In accordance with the new international accounting stan- estimated as the net replacement cost based on the most re- dards, in 2013 the Group included a measurement of credit cent rate information available and on the general price index risk, both of the counterparty (Credit Valuation Adjustment for the Brazilian market. or CVA) and its own (Debit Valuation Adjustment or DVA), “Loans and receivables measured at fair value” include (reco- the corresponding amount of counterparty risk. More speci- gnized in level 3) the receivable from the disposal of Slovak fically, the Group measures CVA/DVA using a Potential Futu- Power Holding of €189 million at December 31, 2017. The fair re Exposure valuation technique for the net exposure of the value is determined on the basis of the price formula speci- position and subsequently allocating the adjustment to the in order to adjust the fair value of financial instruments for fied in the contract. individual financial instruments that make up the overall port- folio. All of the inputs used in this technique are observable The fair value of derivative contracts is determined using the on the market. official prices for instruments traded on regulated markets. The notional amount of a derivative contract is the amount on The fair value of instruments not listed on a regulated market which cash flows are exchanged. This amount can be expres- is determined using valuation methods appropriate for each sed as a value or a quantity (for example tons, converted into type of financial instrument and market data as of the close euros by multiplying the notional amount by the agreed price). 298 Annual Report 2017Amounts denominated in currencies other than the euro are exposure. For listed debt instruments, the fair value is given converted into euros at the year-end exchange rates provided by official prices. For unlisted instruments the fair value is de- by the European Central Bank. termined using appropriate valuation techniques for each ca- The notional amounts of derivatives reported here do not ne- tegory of financial instrument and market data at the closing cessarily represent amounts exchanged between the parties date of the year, including the credit spreads of Enel SpA. and therefore are not a measure of the Group’s credit risk 45.1 Fair value of other assets For each class of assets not measured at fair value on a riod and the level in the fair value hierarchy into which the recurring basis but whose fair value must be reported, the fair value measurements of those assets are classified. following table reports the fair value at the end of the pe- 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 Loans and receivables 24 and 28 Investment property Equity investments in other companies Inventories 18 24 26 649 111 34 62 - - - - 5 - - - 644 111 34 62 102 - - - - - - - - - - - 102 - - - The table reports the fair value of investment property and The largest aggregate is “Loans and receivables”, which es- inventories of real estate not used in the business in the sentially reports the receivables of e-distribuzione for the eli- amount of €111 million and €62 million respectively. The mination of the Electrical Workers Pension Fund and for the amounts were calculated with the assistance of appraisals reimbursement of charges connected with the early retire- conducted by independent experts, who used different me- ment of electromechanical meters. thods depending on the specific assets involved. 299 Consolidated 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 ca- the financial statements the fair value measurement at the tegorized. 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 Fair value hedge derivatives: - on interest rates - on exchange rates - on commodities Trading derivatives: - on interest rates - on exchange rates - on commodities 44 44 44 44 44 44 44 44 44 Contingent consideration 36 and 40 556 2,375 39 - - 12 556 2,375 27 - 7 - 9 10 2 9 - - - - - 1 - - 7 - 9 10 1 9 - - - - - - - - - - 1 114 159 - 6 - 65 38 - - 21 - - - - - 1 114 138 - 6 - 65 38 1,877 774 1,098 23 - 23 - - - - - - - - 5 - Contingent consideration regards a number of equity in- tracts, measurement uses certified historical data on the vestments held by the Group in North America, whose underlying variables. For example, an HDD (“Heating De- fair value was determined on the basis of the contractual gree Days”) derivative on a given measurement station in- terms and conditions. dicated in the derivative contract is measured at fair value by calculating the difference between the agreed strike The fair value of derivatives on commodities classified as and the historical average of the same variable observed level 3 regards the measurement of hedging derivatives at the same station. on weather indices (weather derivatives). For these con- 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 Total 300 Notes Fair value Level 1 Level 2 Level 3 41.3.1 41.3.1 41.3.1 41.3.1 41.3.1 41.3.1 38,818 4,252 4,155 8,452 2,149 231 58,057 35,739 667 - - - - 36,406 3,079 3,585 4,155 8,452 2,149 231 21,651 - - - - - - - Annual Report 201747. Related parties As an operator in the field of generation, distribution, tran- The table below summarizes the main types of transac- sport and sale of electricity and the sale of natural gas, Enel tions carried out with such counterparties. carries out transactions with a number of companies directly or indirectly controlled by the Italian State, the Group’s con- trolling shareholder. 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 Cassa Depositi e Prestiti Group Directly controlled by the Ministry for the Economy and Finance GSE - Energy Services Operator Fully controlled (directly) by the Ministry for the Economy and Finance GME - Energy Markets Operator Fully controlled (indirectly) by the Ministry for the Economy and Finance Sale of electricity on the Ancillary Services Market (Terna) Sale of electricity transport services (Eni Group) Purchase of transport, dispatching and metering services (Terna) Purchase of postal services (Poste Italiane) Purchase of fuels for generation plants and natural gas storage and distribution services (Eni Group) Sale of subsidized electricity Payment of A3 component for renewable resource incentives Sale of electricity on the Power Exchange (GME) Purchase of electricity on the Power Exchange for pumping and plant planning (GME) Leonardo Group Directly controlled by the Ministry for the Economy and Finance Purchase of IT services and supply of goods In addition, the Group conducts essentially commercial All transactions with related parties were carried out on transactions with associated companies or companies in normal market terms and conditions, which in some cases which it holds minority interests. are determined by the Regulatory Authority for Energy, Finally, Enel also maintains relationships with the pension Networks and the Environment. funds FOPEN and FONDENEL, as well as Fondazione Enel and Enel Cuore, an Enel non-profit company devoted to providing social and healthcare assistance. 301 Consolidated financial statementsThe following tables summarize transactions with related outstanding at December 31, 2017 and December 31, parties, associated companies and joint arrangements 2016 and carried out during the period. Millions of euro Acquirente Unico Cassa Depositi e Prestiti Group GME GSE Other Key management personnel Total 2017 arrangements Overall total 2017 % of total Associates and joint Total in financial statements 1 - - - - - 5 - - 1 1,767 2,668 443 - - 2 - 89 3 - 4 115 - - - - - - - - - - - 3,345 2,458 1,636 - 4 - - 75 524 - - 2,340 3 32 - Acquirente Unico Cassa Depositi e Prestiti Group GME GSE Other Key management personnel Total at Dec. 31, 2017 Associates and joint arrangements Overall total at Dec. 31, 2017 Total in financial statements % of total - - - - - - 77 - - - - - 682 110 - - - - - - - - - 280 - - 526 - 24 - - 893 543 10 - 89 360 208 46 57 - 129 - - - 977 - - - - - - 34 - 1 - 6 - 11 - - - 108 23 6 - - - - - - - - - - - - - 4,968 5 - 7,443 2,535 531 32 1 893 2,323 694 154 - - 6 10 - 89 748 231 52 156 17 18 318 129 - (5) 24 138 3 8 11 30 - 42 27 9 - - - - 5,124 22 18 7,761 2,664 531 27 25 2,365 832 3 162 11 36 893 37 9 89 748 231 52 72,664 1,975 2,371 36,039 17,982 2,886 578 3,908 14,529 4,614 2,695 2,309 2,003 42,439 12,671 12,462 2,260 7,000 7.1% 1.1% 0.8% 21.5% 14.8% 18.4% 4.7% 0.6% 5.7% 0.1% 6.0% 0.5% 1.8% 2.1% 18.7% 0.3% 0.4% 1.3% Income statement Revenue from sales and services Other revenue and income Other financial income Purchases of electricity, gas and fuel Costs for services and other materials Other operating expenses Net income/(expense) from commodity risk management Other financial expense Millions of euro Balance sheet Trade receivables Other current financial assets Other current assets Derivative assets Other non-current liabilities Long-term borrowings Trade payables Other current liabilities Current derivative liabilities Current portion of long-term borrowings Other information Guarantees issued Guarantees received Commitments 302 Annual Report 2017Revenue from sales and services 1,767 2,668 443 89 Income statement Other revenue and income Other financial income Purchases of electricity, gas and fuel materials Costs for services and other Other operating expenses Net income/(expense) from commodity risk management Other financial expense Millions of euro Balance sheet Trade receivables Other current financial assets Other current assets Derivative assets Other non-current liabilities Long-term borrowings Trade payables Other current liabilities Current derivative liabilities Current portion of long-term borrowings Other information Guarantees issued Guarantees received Commitments 3,345 2,458 1,636 75 524 2,340 115 1 - - - 4 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 280 2 - 3 32 - 526 24 - - - 893 543 10 - 89 360 208 46 - - - - - 5 1 - - - - - - - - - - 57 129 3 - 4 - - - 1 6 - - - - - - 108 23 6 - - - - - - - - - - - - - - - - - - - - - 77 34 682 110 977 11 Millions of euro Acquirente Unico GME Prestiti Group GSE Other personnel Cassa Depositi e Key management Total 2017 Associates and joint arrangements Overall total 2017 Total in financial statements % of total 4,968 5 - 7,443 2,535 531 32 1 156 17 18 318 129 - (5) 24 5,124 22 18 7,761 2,664 531 27 25 72,664 1,975 2,371 36,039 17,982 2,886 578 3,908 7.1% 1.1% 0.8% 21.5% 14.8% 18.4% 4.7% 0.6% Acquirente Unico GME Prestiti Group GSE Other personnel Total at Dec. 31, 2017 Associates and joint arrangements Overall total at Dec. 31, 2017 Total in financial statements % of total Cassa Depositi e Key management 694 - 154 - 6 893 2,323 10 - 89 748 231 52 138 3 8 11 30 - 42 27 9 - - - - 14,529 4,614 2,695 2,309 2,003 42,439 12,671 12,462 2,260 7,000 832 3 162 11 36 893 2,365 37 9 89 748 231 52 5.7% 0.1% 6.0% 0.5% 1.8% 2.1% 18.7% 0.3% 0.4% 1.3% 303 Consolidated financial statementsMillions of euro Acquirente Unico Cassa Depositi e Prestiti Group GME GSE Other Key management personnel Total 2016 arrangements Overall total 2016 % of total Associates and joint Total in financial statements Income statement Revenue from sales and services Other revenue and income Other financial income Purchases of electricity, gas and fuel Costs for services and other materials Other operating expenses Net income/(expense) from commodity risk management Other financial expense Millions of euro Balance sheet Trade receivables Other current financial assets Other current assets Derivative assets Other non-current liabilities Long-term borrowings Trade payables Other current liabilities Current derivative liabilities Current portion of long-term borrowings Other information Guarantees issued Guarantees received Commitments 46 - - 4 - 2 4 - - 1 1,486 2,190 468 1 - 1 17 90 3 - - 139 - - - - - - - - - - - 3,169 1,769 1,319 - 3 - - 75 309 - - 2,259 - 5 12 Acquirente Unico Cassa Depositi e Prestiti Group GME GSE Other Key management personnel Total at Dec. 31, 2016 Associates and joint arrangements Overall total at Dec. 31, 2016 Total in financial statements % of total 8 - - - - - 301 - - - - - 638 372 - - - - - - - - - 280 - - 477 - 15 - - 1,072 490 3 - 89 262 261 72 27 9 92 - - - 1,239 - - - - - - 57 - 1 - 6 - 18 21 - - 80 32 9 - - - - - - - - - - - - - 4,280 9 17 6,259 2,477 312 5 13 1,072 2,757 870 108 9 - 6 24 - 89 622 293 81 270 11 4 344 100 - 24 26 88 126 1 18 17 - 164 4 11 - - - - 4,550 20 21 6,603 2,577 312 29 39 1,072 2,921 958 135 109 18 23 28 11 89 622 293 81 68,604 1,988 2,289 32,039 17,393 2,783 (133) 4,339 13,506 3,053 3,044 3,945 1,856 41,336 12,688 12,141 3,322 4,384 6.6% 1.0% 0.9% 20.6% 14.8% 11.2% -21.8% 0.9% 7.1% 4.4% 3.6% 0.5% 1.2% 2.6% 23.0% 0.2% 0.3% 2.0% In November 2010, the Board of Directors of Enel SpA ap- implementation of the provisions of Article 2391-bis of the proved a procedure governing the approval and execution Italian Civil Code and the implementing regulations issued of transactions with related parties carried out by Enel SpA by CONSOB. In 2017, no transactions were carried out for directly or through subsidiaries. The procedure (available which it was necessary to make the disclosures required in at www.enel.com/investors/bylaws-rules-and-policies/tran- the rules on transactions with related parties adopted with sactions-with-related-parties) sets out rules designed to en- CONSOB Resolution 17221 of March 12, 2010, as amended sure the transparency and procedural and substantive pro- with Resolution 17389 of June 23, 2010. priety of transactions with related parties. It was adopted in 304 Annual Report 2017Revenue from sales and services 1,486 2,190 468 3,169 1,769 1,319 Income statement Other revenue and income Other financial income Purchases of electricity, gas and fuel materials Costs for services and other Other operating expenses Net income/(expense) from commodity risk management Other financial expense Millions of euro Balance sheet Trade receivables Other current financial assets Other current assets Derivative assets Other non-current liabilities Long-term borrowings Trade payables Other current liabilities Current derivative liabilities Current portion of long-term borrowings Other information Guarantees issued Guarantees received Commitments 46 - - - 3 - - - - - - - - - - - - - 1 - 75 309 - - - - - - - - - - - - 280 2,259 1 17 - 5 12 15 - - - 3 - 89 1,072 490 262 261 72 8 301 477 638 372 1,239 4 - 2 4 - - 1 - - - - - - - - - 27 9 92 90 3 - - - - - 139 57 1 - - 6 - - - 18 21 80 32 9 - - - - - - - - - - - - - - - - - - - - - Millions of euro Acquirente Unico GME Prestiti Group GSE Other personnel Cassa Depositi e Key management Total 2016 Associates and joint arrangements Overall total 2016 Total in financial statements % of total 4,280 9 17 6,259 2,477 312 5 13 270 11 4 344 100 - 24 26 4,550 20 21 6,603 2,577 312 29 39 68,604 1,988 2,289 32,039 17,393 2,783 (133) 4,339 6.6% 1.0% 0.9% 20.6% 14.8% 11.2% -21.8% 0.9% Acquirente Unico GME Prestiti Group GSE Other personnel Total at Dec. 31, 2016 Associates and joint arrangements Overall total at Dec. 31, 2016 Total in financial statements % of total Cassa Depositi e Key management 870 9 108 - 6 1,072 2,757 24 - 89 622 293 81 88 126 1 18 17 - 164 4 11 - - - - 13,506 3,053 3,044 3,945 1,856 41,336 12,688 12,141 3,322 4,384 958 135 109 18 23 1,072 2,921 28 11 89 622 293 81 7.1% 4.4% 3.6% 0.5% 1.2% 2.6% 23.0% 0.2% 0.3% 2.0% 305 Consolidated financial statements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: at Dec. 31, 2017 at Dec. 31, 2016 Change - sureties and other guarantees granted to third parties 8,171 8,123 48 Commitments to suppliers for: - electricity purchases - fuel purchases - various supplies - tenders - other Total TOTAL 79,163 42,302 3,119 3,334 2,912 130,830 139,001 63,407 47,305 1,309 1,846 3,751 117,618 125,741 15,756 (5,003) 1,810 1,488 (839) 13,212 13,260 For more details on the expiry of commitments and guarantees, please see the section “Commitments to purchase com- modities” in note 42. 306 Annual Report 201749. Contingent assets and liabilities The following reports the main contingent assets and liabi- vate actors who had already participated as injured parties in lities at December 31, 2017, which are not recognized in the the criminal case asked the Venice Court of Appeal to order financial statements as they do not meet the requirements Enel SpA and Enel Produzione to pay civil damages for harm provided for in IAS 37. Porto Tolle thermal plant - Air pollution - Criminal proceedings against Enel directors and employees caused by the emissions from the Porto Tolle power station. The amount of damages requested for economic and envi- ronmental losses was about €100 million, which Enel con- tested. During 2013, an agreement was reached – with no admission of liability by Enel/Enel Produzione – with the pu- blic entities of 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 The Court of Adria, in a ruling issued on March 31, 2006, received no payments from Enel during the proceedings) convicted former directors and employees of Enel for a remain open. On July 10, 2014, the decision of the Venice number of incidents of air pollution caused by emissions Court of Appeal was filed ordering the defendants, jointly from the Porto Tolle thermoelectric plant. The decision with Enel/Enel Produzione, to pay damages in the amount held the defendants and Enel (as a civilly liable party) join- of €312,500, plus more than €55,000 in legal expenses. The tly liable for the payment of damages for harm to multiple Ministry’s request for calculation of the amount of damages parties, both natural persons and public authorities. Dama- it claimed it was owed was deemed inadmissible, as groun- ges for a number of mainly private parties (individuals and ds for barring such action arose in the course of the criminal environmental associations), were set at the amount of proceedings. In the meantime the Court issued a general €367,000. The calculation of the amount of damages owed conviction with damages to be awarded in a separate de- to certain public entities (Ministry for the Environment, a cision and ordered payment of legal costs. Enel ledged an number of public entities of Veneto and Emilia Romagna, appeal with the Court of Cassation in February 2015 of the including the area’s park agencies) was postponed to a la- ruling of the Venice Court of Appeal of July 10, 2014 and is ter civil trial, although a “provisional award” of about €2.5 currently waiting for the date of the hearing to be set. million was immediately due. In August 2011, the Public Prosecutor’s Office of Rovigo An appeal was lodged against the ruling of the Court of asked that a number of directors, former directors, offi- Adria and on March 12, 2009, the Court of Appeal of Veni- cers, former officers and employees of Enel and Enel Pro- ce partially reversed the lower court decision. It found that duzione be remanded for trial on the charge of willful omis- the former directors had not committed a crime and that sion to take precautionary actions to prevent a disaster in there was no environmental damage and therefore ordered respect of the alleged emissions from the Porto Tolle plant. recovery of the provisional award already paid. The prose- Subsequently, the public prosecutor filed charges of will- cutors and the civil claimants lodged an appeal against the fully causing a disaster. During 2012, the pre-trial hearing ruling with the Court of Cassation. In a ruling on January 11, judge of Rovigo, granting the request of the Public Pro- 2011, the Court of Cassation granted the appeal, overturning secutor’s Office of Rovigo, ordered the committal for trial the decision of the Venice Court of Appeal, and referred the of all of the accused for both offences. The Ministry for case to the civil section of the Venice Court of Appeal to rule the Environment, the Ministry of Health and other actors, as regards payment of damages and the division of such mainly local authorities in Emilia Romagna and Veneto, as damages among the accused. As regards amounts paid to a well as the park agencies of the area, joined the case as number of public entities in Veneto, Enel has already made injured parties, seeking unspecified damages from the payment under a settlement agreement reached in 2008. above individuals, without citing Enel or Enel Produzione With a suit lodged in July 2011, the Ministry for the Envi- as liable parties. During 2013, as part of the agreement ronment, the public entities of Emilia Romagna and the pri- mentioned earlier, most of the public entities withdrew 307 Consolidated financial statementstheir suits. parties and associations acting in the criminal proceeding At the hearing of March 31, 2014, the Court issued its ru- to recover damages; and (ii) granted most of the claims fi- ling of first instance, acquitting all of the accused of the led by the private parties acting to recover damages, refer- charge of willful omission to take precautionary safety me- ring the latter to the civil courts for quantification without asures, also acquitting the accused of the charge of willful- granting a provisional award. The convicted employees and ly causing a disaster, with the exception of the two former Enel Produzione SpA as the civil part appealed the ruling. Chief Executive Officers of Enel SpA. The former Chief The employee for whom the offense was time-barred also Executive Officers were then ordered to pay unspecified appealed. damages in a separate civil action, with a total provisional Criminal proceedings were held before the Courts of Reg- ruling of €410,000 and payment of court costs for the re- gio Calabria and Vibo Valentia against a number of emplo- maining civil parties to the action. yees of Enel Produzione for the offense of illegal waste Following the appeal, the appellate level of the proceeding disposal in connection with alleged violations concerning before the Court of Appeals of Venice was completed on the disposal of waste from the Brindisi plant. Enel Produ- January 18, 2017 with the acquittal of all defendants on the zione has not been cited as a liable party for civil damages. grounds that “no crime was committed”. The prosecution The criminal proceedings before the Court of Reggio Cala- appealed the acquittal of the three former Chief Executi- bria ended with the hearing of June 23, 2016. The court ac- ve Officers before the Court of Cassation, with the appeal quitted nearly all of the Enel defendants of the main char- being rejected by the court as inadmissible on January 10, ges because no crime was committed. Just one case was 2018. Brindisi Sud thermal generation plant - Criminal proceedings against Enel employees A criminal proceeding was held before the Court of Brindi- si concerning the Brindisi Sud thermal plant. A number of employees of Enel Produzione – cited in 2012 as a liable party in civil litigation – 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 exten- ded 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 bil- lion. In its decision of October 26, 2016, the Court of Brin- disi: (i) acquitted nine of the thirteen defendants (employe- es/managers of Enel Produzione) for not having committed the offense; (ii) ruled that it did not have to proceed as the dismissed under the statute of limitations. Similarly, all of the remaining charges involving minor offenses were di- smissed under the statute of limitations. The proceedings before the Court of Vibo Valentia were adjourned to April 19, 2018, in order to hear the testimony of the final witnes- ses called by the other defendants. Brindisi Sud thermal generation plant - Seizure of plant For more details on the case, please see the presentation in “Significant events in 2017” in the Report on operations and in note 50 “Events after the reporting period”. Out-of-court disputes and litigation connected with the blackout of September 28, 2003 offense was time-barred for two of the defendants; (and In the wake of the blackout that occurred on September iii) convicted the remaining two defendants, sentencing 28, 2003, numerous claims were filed against Enel Distri- them with all the allowances provided for by law to nine buzione (now e-distribuzione) for automatic and other in- months’ imprisonment. With regard to payment of dama- demnities for losses. These claims gave rise to substantial ges, the Court’s ruling also: (i) denied all claims of public litigation before justices of the peace, mainly in the regions 308 Annual Report 2017of Calabria, Campania and Basilicata, with a total of some 120,000 proceedings. Charges in respect of such indem- nities could be recovered in part under existing insurance policies. Most of the initial rulings by these judges found in favor of the plaintiffs, while appellate courts have nearly all found in favor of Enel Distribuzione. The Court of Cassation has also consistently ruled in favor of Enel Distribuzione. At December 31, 2017 pending cases numbered about 8,100. 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 num- ber 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 (Catto- lica) 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 ruling of October 21, 2013, the Court of Rome granted Enel’s petition, finding the insurance coverage to be valid and ordering Cattolica, and consequently the reinsurance companies, 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 de- fense costs. 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. At the hearing of February 23, 2018, the judge issued the deadline for the exchange of closing arguments and took the case for jud- gement. On the basis of the ruling of October 21, 2013, in Octo- ber 2014, Enel filed suit against Cattolica with the Court of Rome to obtain a quantification and payment of the amounts due to Enel from Cattolica. At the hearing of Oc- tober 3, 2016, the court denied the counterparties’ petition for a suspension of the proceeding pending completion of the appeals process, adjourning the case for the examina- tion of motions to July 4, 2017. In a ruling of July 12, 2017 the court decided on the basis of the preliminary briefs to adjourn the suit until November 25, 2019 for a decision. Enel Energia and Servizio Elettrico Nazionale antitrust proceeding With measure 26581 notified on May 11, 2017, the Com- petition Authority began proceedings for alleged abuse of a dominant position against Enel SpA (Enel), Enel Energia SpA (EE) and Servizio Elettrico Nazionale SpA (SEN), con- ducting inspections on the same date to acquire documen- tation at certain offices of these companies, Enel Italia Srl and the Punto Enel in Catania. The proceeding was initiated on the basis of reports made by the Italian Association of Energy Wholesalers and Tra- ders (AIGET), the company Green Network SpA (GN), and reports from individual consumers received by the Compe- tition Authority, especially since the second half of 2016. According to the allegations formulated by the Competi- tion Authority in the measure, the Enel Group, as an inte- grated actor in the distribution and sale of power on the re- gulated market, has engaged (in a market in the middle of a crucial transition phase towards the complete opening to competition of retail markets of low-voltage domestic and non-domestic customers) in an exclusionary strategy using a series of non-replicable commercial stratagems capable of hindering their non-integrated competitors to the benefit of the Group’s company operating on the free market, i.e. Enel Energia. Enel and the other Group companies involved in the proceeding, while not admitting the disputed conduct, submitted commitments to address the anti-competitive concerns expressed by Competition Authority in the mea- sure initiating the proceeding. With measures adopted on November 8, 2017, the Com- petition Authority rejected the commitments submitted, arguing that there is an interest in ascertaining the merits of the disputed conduct. Consequently, the proceeding will continue with the ordinary preliminary enquiry, in which the companies involved may file briefs and present their position in relation to the objections formulated by the Authority. The time limit for closing the proceeding is June 30, 2018. 309 Consolidated financial statements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 entirely rejected the complaint with regard to alle- ged breach by Enelpower of an agreement concerning the construction of a hydroelectric power station in Albania. Subsequently, BEG, acting through its subsidiary Albania BEG Ambient, filed suit against Enelpower and Enel SpA in Albania concerning the matter, obtaining a ruling from a petition with the Albanian Court of Cassation, asking for the ruling issued by the District Court of Tirana on March 24, 2009 to be voided. The proceeding is still pending. Proceedings undertaken by Albania BEG Ambient Shpk to obtain enforcement of the ruling of the District Court of Tirana of March 24, 2009 the District Court of Tirana, upheld by the Albanian Court of Cassation, ordering Enelpower and Enel to pay tortious France damages of about €25 million for 2004 as well as an un- specified amount of tortious damages for subsequent ye- ars. Following the ruling, Albania BEG Ambient demanded payment of more than €430 million from Enel. The European Court of Human Rights, with which Enelpo- wer SpA and Enel SpA had filed an appeal for violation of the right to a fair trial and the rule of law by the Republic of Albania, rejected the petition as inadmissible. The ruling was purely procedural and did not address the substance of the suit. With a ruling of June 16, 2015, the first level was com- pleted in the additional suit lodged by Enelpower SpA and Enel SpA with the Court of Rome asking the Court to ascertain the liability of BEG SpA for having evaded com- pliance with the arbitration ruling issued in Italy in favor of Enelpower SpA through the legal action taken by Albania BEG Ambient Shpk. With this action, Enelpower SpA and Enel SpA asked the Court to find BEG liable and order it to pay damages in the amount that the other could be requi- red to pay to Albania BEG Ambient Shpk in the event of the enforcement of the sentence issued by the Albanian courts. With the ruling, the Court of Rome found that BEG SpA did not have standing to be sued, or alternatively, that the request was not admissible for lack of an interest for Enel SpA and Enelpower SpA to sue, as the Albanian ruling In February 2012, Albania BEG Ambient filed suit against Enel SpA and Enelpower SpA with the Tribunal de Grande Instance in Paris in order to render the ruling of the Alba- nian court enforceable in France. Enel SpA and Enelpower SpA challenged the suit. Following the beginning of the case before the Tribunal de Grande Instance, again at the initiative of BEG Ambient, between 2012 and 2013 Enel France was served with two “Saise Conservatoire de Créances” (orders for the precau- tionary attachment of receivables) to conserve any receiva- bles of Enel SpA in respect of Enel France. On January 29, 2018, the Tribunal de Grande Instance is- sued a ruling in favor of Enel and Enelpower, denying Al- bania BEG Ambient Shpk the recognition and enforcement of the Tirana court’s ruling in France for lack of the requi- rements under French law for the purposes of granting exequatur. Among other issues, the Tribunal de Grande Instance ruled that: (i) the Albanian ruling conflicted with an existing decision, in this case the arbitration ruling of 2002 and that (ii) the fact that BEG sought to obtain in Al- bania what it was not able to obtain in the Italian arbitration proceeding, resubmitting the same claim through Albania BEG Ambient Shpk, represented fraud. Albania BEG Ambient Shpk appealed the ruling and the proceeding is at its preliminary stages. had not yet been declared enforceable in any court. The State of New York Court ordered the setting off of court costs. Enel SpA and Enelpower SpA appealed the ruling before the Rome Court of Appeal, asking that it be overturned in full. The next he- aring is scheduled for November 14, 2018. On November 5, 2016, Enel SpA and Enelpower SpA filed In March 2014, Albania BEG Ambient Shpk filed suit against Enel SpA and Enelpower SpA in New York to ren- der the ruling of the Albanian court enforceable in the State of New York. On April 22, 2014, in response to a motion filed by Enel and Enelpower, the court revoked the previous ruling is- 310 Annual Report 2017sued with no hearing of the parties against the compa- ding the revocation of the preliminary injunctions. nies freezing assets of around $600 million (about €487 At the end of July 2014, Albania BEG Ambient Shpk filed million). On April 27, 2015, Enel SpA and Enelpower SpA suit with the Court of Amsterdam to render the ruling of asked for the case to be transferred from the New York the Albanian court enforceable in the Netherlands. On state courts to the federal courts. In a ruling of March 10, June 29, 2016, the court filed its judgment, which: (i) ruled 2016, the federal court referred the case to the New York that the Albanian ruling meet the requirements for recogni- state court. Enel SpA and Enelpower SpA appealed the de- tion and enforcement in the Netherlands; (ii) ordered Enel cision denying the pleading that the New York state courts and Enelpower to pay €433,091,870.00 to Albania BEG had no jurisdiction. In a unanimous decision of February 8, Ambient Shpk, in addition to costs and ancillary charges of 2018, the Appellate Court of the State of New York upheld €60,673.78; and (iii) denied Albania BEG Ambient Shpk’s the appeal of Enel SpA and Enelpower SpA, rejecting the request to declare the ruling provisionally enforceable. On argument that the Court of New York had jurisdiction over July 14, 2016, Albania BEG Ambient Shpk filed an appeal the request for enforcement submitted by Albania BEG for a precautionary seizure on the basis of the Court of Ambient Shpk. The Netherlands On June 2, 2014 Albania BEG Ambient Shpk obtained an order from the court in the Hague, based upon the preli- minary injunction, freezing up to €440 million held with a number of entities and the establishment of a lien on the shares of two subsidiaries of Enel SpA in that country. Enel SpA and Enelpower SpA challenged that ruling and on July 1, 2014, the Dutch court, in granting the petition of Enel and Enelpower, provisionally determined the value of the suit at €25 million and ordered the removal of the prelimi- nary injunction subject to the issue of a bank guarantee in the amount of €25 million by Enel and Enelpower. Enel and Enelpower have appealed this ruling. On July 3, 2014, Albania BEG Ambient Shpk petitioned for a second precautionary freeze of assets with no hearing of the parties. Following the hearing of August 28, 2014, the Hague Court granted a precautionary freeze of €425 mil- lion on September 18, 2014. Enel and Enelpower appealed that measure. In a ruling of February 9, 2016, the Hague Court of Appeal upheld the appeals, ordering the revocation of the prelimi- nary injunctions subject to the pledging of a guarantee by Enel of €440 million and a counter-guarantee by Albania BEG Ambient Shpk of about €50 million (the estimated va- lue of the losses of Enel and Enelpower from the seizure of assets and the pledge of bank guarantees). Enel’s guaran- tee was issued on March 30, 2016. Albania BEG Ambient Shpk did not issue its counter-guarantee. On April 4, 2016, Albania BEG Ambient Shpk appealed the Amsterdam’s decision of June 29, 2016 in the amount of €440 million with a number of entities and the seizure of the shares of three companies controlled by Enel SpA in the Netherlands. Enel appealed and in a ruling of August 26, 2016, the Court of Amsterdam decided that the pre- cautionary measures issued in 2014 and 2016 would be re- voked if Albania BEG Ambient Shpk did not provide a bank guarantee of €7 million to Enel and Enelpower by October 21, 2016. Albania BEG Ambient Shpk did not provide the guarantee and, accordingly, the seizures of the assets of Enel and Enelpower in the Netherlands were revoked and no longer effective as from October 21, 2016. Albania BEG Ambient Shpk appealed the decision of August 26, 2016 but the proceeding was suspended under an agreement between the parties pending the ruling of the Dutch Court of Cassation in the proceeding over the precautionary me- asures (which was then issued on June 23, 2017). The appeal against the decision of August 26, 2016 therefore remains suspended in the absence of a specific request by one of the parties. The suspension has had no impact on the fact that the seizures of assets in the Netherlands have not been in effect since October 2016. On June 29, 2016, Enel and Enelpower filed appeals against the ruling of the Court of Amsterdam issued on the same date. The appeal has full de novo effect. The Court of Appeal will re-examine the entire subject of the dispute. Accordingly, Enel and Enelpower will be able to present their defense in its entirety. On September 27, 2016, Alba- nia BEG Ambient also appealed the court’s ruling of June 29, 2016, to request the reversal of its partial loss on the merits. On April 11, 2017, the Amsterdam Court of Appeal granted the request of Enel and Enelpower to join to two ruling of February 9, 2016 before the Court of Cassation in pending appeals. the Netherlands, which in a ruling of June 23, 2017, denied the appeal of Albania BEG Ambient Shpk, definitively deci- On January 29, 2018, oral arguments in the appellate pro- ceeding were held, following which the Court allowed 311 Consolidated financial statementsEnel and Enelpower to place in evidence the decision with which the Tribunal de Grande Instance of Paris denied exequatur of the Albanian ruling in France. The decision of the Amsterdam Court of Appeal will be issued on July 17, 2018. Ireland Albania BEG Ambient Shpk also filed suit in Ireland to ren- der the ruling of the Court of Tirana enforceable in this country. The High Court issued a ruling on March 8, 2016 upholding the defense of Enel and Enelpower, finding that the country had no jurisdiction. On March 31, 2017, Albania BEG Ambient Shpk filed an expedited appeal against the ruling of March 8, 2016 finding that Ireland had no jurisdic- tion. Enel and Enelpower responded to the appeal filing on April 7, 2017. In a ruling of February 26, 2018, the Irish court denied the appeal of Albania BEG Ambient Shpk. Luxembourg In Luxembourg, again at the initiative of Albania BEG Am- bient Shpk, JP Morgan Bank Luxembourg SA was also ser- ved with an order for the precautionary attachment of any receivables of Enel SpA. In parallel Albania BEG Ambient Shpk filed a claim to obtain enforcement of the ruling of the Court of Tirana in that country. The proceeding is still under way and briefs are being exchanged between the parties. No ruling has been issued. Violations of Legislative Decree 231/2001 CIEN litigation - Brazil In 1998 the Brazilian company CIEN (now Enel CIEN) signed an agreement with Tractebel for the delivery of electricity from Argentina through its Argentina-Brazil interconnection line. As a result of Argentine regulatory changes introduced as a consequence of the economic crisis in 2002, CIEN was unable to make the electricity available to Tractebel. In Octo- ber 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 R$118 million (about €27 million), plus unspecified da- mages. For analogous reasons, in May 2010 Furnas also filed suit against CIEN for failure to deliver electricity, requesting payment of about R$520 million (about €121 million), in ad- dition to unspecified damages. In alleging non-performance by CIEN, Furnas is also seeking to acquire ownership (in this case 70%) of the interconnection line. CIEN’s defense is si- milar to the earlier case. The claims put forth by Furnas were rejected by the trial court in August 2014. Furnas lodged an appeal against the latter decision, while CIEN also lodged an appeal and the proceeding is under way. Cibran litigation - Brazil Companhia Brasileira de Antibióticos (“Cibran”) has filed six suits against Enel Distribución Rio (formerly Ampla) to obtain damages for alleged losses incurred as a result of the interruption of electricity service by the Brazilian distri- On July 14, 2017, Enel Green Power SpA received notice bution company between 1987 and 2002, in addition to of charges brought before the Court of Ancona for alleged non-pecuniary damages. The Court ordered a unified tech- violation of Legislative Decree 231/2001 concerning the nical appraisal for those cases, the findings of which were administrative liability of legal persons. The proceeding partly unfavorable to Enel Distribución Rio. The latter chal- was begun for the alleged commission by an agent of the lenged the findings, asking for a new study, which led to company, in the company’s interest, of the offence of de- the denial of part of Cibran’s petitions. Cibran subsequently struction of a natural habitat in a protected area. The case appealed the decision and the ruling was in favor of Enel has been joined with a separate proceeding involving the Distribución Rio. same agent and two other defendants for the same alleged The first suit, filed in 1999 and regarding the years from offences. The court has set the dates for hearings of the 1994 to 1999, was adjudicated in September 2014 when witnesses. 312 the court of first instance issued a ruling against Enel Di- stribución Rio, levying a penalty of about R$200,000 (about Annual Report 2017€46,000) as well as other damages to be quantified at a later stage. Enel Distribución Rio appealed the ruling and the appeal was upheld by the Tribunal de Justiça. In respon- se, on December 16, 2016, Cibran filed an appeal (recurso Enel Distribuição Goiás AGM - Brazil especial) before the Superior Tribunal de Justiça, and the In 1993, Enel Distribuição Goiás, the Association of Muni- proceeding is under way. cipalities of Goiás (AGM), the State of Goiás and the Bank With regard to the second case, filed in 2006 and regar- of Goiás reached an agreement (convenio) for the payment ding the years from 1987 to 2002, on June 1, 2015, the of municipal debts to Enel Distribuição Goiás through the courts issued a ruling ordering Enel Distribución Rio to pay transfer of the portion of ICMS - Imposto sobre Circulação R$80,000 (about €18,000) in non-pecuniary damages as de Mercadorias e Serviços (VAT) that the State would have well as R$96,465,103 (about €22 million) in pecuniary da- transferred to those governments. In 2001 the parties to mages, plus interest. On July 8, 2015 Enel Distribución Rio the agreement were sued by the individual municipal go- appealed the decision with the Tribunal de Justiça of Rio de vernments to obtain a ruling that the agreement was invalid, Janeiro and the parties are awaiting a ruling. a position then upheld by the Supreme Federal Court on the Decisions are still pending with regard to the remaining grounds of the non-participation of the local governments four suits. The value of all the disputes is estimated at themselves in the agreement process. In September 2004, about R$445 million (about €124 million). Coperva litigation - Brazil Enel Distribuição Goiás reached a settlement with 23 muni- cipalities. Between 2007 and 2008, Enel Distribuição Goiás was again sued on numerous occasions (there are currently 113 pending suits) seeking the restitution of amounts paid under the agreement. Despite the ruling that the agreement As part of the project to expand the grid in rural areas of was void, Enel Distribuição Goiás argues that the payment Brazil, in 1982 Enel Distribución Ceará SA (formerly Coel- of the debts on the part of the local governments is legi- ce), then owned by the Brazilian government and now an timate, as electricity was supplied in accordance with the Enel Group company, had entered into contracts for the supply contracts and, accordingly, the claims for restitution use of the grids of a number of cooperatives established of amounts paid should be denied. The total value of the specifically to pursue the expansion project. The contracts suits is equal to about R$1 billion (about €277 million). provided for the payment of a monthly fee by Enel Distri- It is important to note that, as part of the privatization of Enel bución Ceará SA, which was also required to maintain the Distribuição Goiás, a tax relief mechanism was introduced networks. that allows Enel Distribuição Goiás to offset its ICMS (VAT) Those contracts, between cooperatives established in spe- liability with a tax credit in respect of investments by Enel cial circumstances and the then public-sector company, do Distribuição Goiás in the development and maintenance of not specifically identify the grids governed by the agree- its grid. The value of the tax credits is limited to the liabilities ments, which has prompted a number of the cooperatives of Enel Distribuição Goiás accrued until January 27, 2015, to sue Enel Distribución Ceará SA asking for, among other including those referred to in the litigation. things, a revision of the fees agreed in the contracts. The- se actions include the suit filed by Cooperativa de Eletrifi- cação Rural do V do Acarau Ltda (“Coperva”) with a value of about R$203 million (about €56 million). Enel Distribu- El Quimbo - Colombia ción Ceará SA was granted rulings in its favor from the trial A number of legal actions (“acciones de grupo” and “ac- court and the court of appeal, but Coperva filed a further ciones populares”) brought by residents and fishermen in appeal (Embargo de Aclaración), which was denied in a ru- the affected area are pending with regard to the El Quim- ling of January 11, 2016. Coperva lodged an extraordinary bo project for the construction of a 400 MW hydroelectric appeal before the Superior Tribunal de Justiça on February plant in the region of Huila (Colombia). More specifically, 3, 2016. The proceedings are currently under way. the first acción de grupo, currently in the preliminary stage, was brought by around 1,140 residents of the municipality of Garzón, who claim that the construction of the plant would reduce their business revenue by 30%. A second action 313 Consolidated financial statementswas brought, between August 2011 and December 2012, nary injunction in August 2017, in the absence of contrary by residents and businesses/associations of five municipa- court rulings the El Quimbo plant is continuing to generate lities of Huila claiming damages related to the closing of a electricity as the oxygenation system installed by Emgesa bridge (Paso El Colegio). With regard to acciones popula- has so far demonstrated that it can maintain the oxygen le- res, or class action lawsuits, in 2008 a suit was filed by a vels required by the court. The proceeding is currently stal- number of residents of the area demanding, among other led as the court evaluates a proposed settlement between things, that the environmental permit be suspended. Ano- the parties, submitted on November 27, 2017, which has ther acción popular was brought by a number of fish farming also been notified to the competent authorities. On January companies over the alleged impact that filling the El Quimbo 24, 2018, the Court of Huila rejected the settlement agree- basin would have on fishing in the Betania basin downstre- ment, a ruling that has been appealed by the parties. am from Quimbo. In February 2015, the Court ordered the precautionary suspension of filling operations until a number of specific requirements have been met. The precautionary suspension was subsequently modified to permit filling to proceed, which began on June 30, 2015. However, on July 17, 2015 Emgesa received a notice mo- difying the precautionary measure to prohibit generation activities until ANLA (the national environmental authority) certifies that the company removed the biomass and forest waste from the El Quimbo reservoir basin. Pending the ruling, as an energy emergency has been de- clared, the Ministry of Energy issued a decree authorizing Emgesa to begin generation. On December 16, 2015, the Constitutional Court ruled that the Presidential Decree was unconstitutional and as from that date Emgesa suspended electricity generation. On December 24, 2015, the Ministerio de Minas y Energía and the AUNAP (the authority for agriculture and fishing) fi- led a joint motion asking the criminal court to authorize ge- neration as a precautionary measure. On January 8, 2016, the court granted the precautionary measure requested by the Ministry and the AUNAP, authorizing the temporary and immediate resumption of generation at El Quimbo. The pre- cautionary measure granted by the court would remain in force until the Huila court issued a ruling on the substance of the case, i.e. the revocation or upholding of the precautionary measure previously issued by the local administrative court. With a decision of February 22, 2016, the Huila court issued a ruling allowing generation to continue for six months. The court ordered Emgesa to prepare a technical design that would ensure compliance with oxygen level requirements and to provide collateral of about 20,000,000,000 Colom- bian pesos (about €5.5 million). In a ruling of the Administra- tive Court of Huila of April 11, 2016 the temporary revocation of the precautionary injunction was upheld for a period of six months until October 16, 2016, which was subsequently extended for a further six months as from February 2017. Following the deadline for the suspension of the precautio- 314 Nivel de Tensión Uno proceedings - Colombia This dispute involves an “acción de grupo” brought by Cen- tro Médico de la Sabana hospital and other parties against Codensa seeking restitution of allegedly excess rates. The action is based upon the alleged failure of Codensa to ap- ply a subsidized rate that they claim the users should have paid as Tensión Uno category users (voltage of less than 1 kV) and owners of infrastructure, as established in Reso- lution 82/2002, as amended by Resolution 97/2008. The suit is at a preliminary stage. The estimated value of the proceeding is about 337 billion Colombian pesos (about €96 million). Emgesa and Codensa arbitration proceedings - Colombia On December 4, 2017, Enel Américas SA was notified by the Grupo Energía di Bogotá (“GEB”) (which holds about 51.5% of Emgesa and Codensa) of the start of arbitration proceedings before the Arbitration Board of Bogotá to re- solve the dispute between the parties concerning the di- stribution of net profit for 2016 for Emgesa and Codensa. GEB alleges that the “Framework Investment Agreement” (a shareholders’ agreement) had been breached for the fai- lure to distribute 100% of the profits. GEB has filed a claim of about 63,619,000,000 Colombian pesos (about €18 million) for Codensa and 82,820,000,000 Colombian pesos (about €23 million) for Emgesa. Annual Report 2017SAPE (formerly Electrica) arbitration proceedings - Romania On April 20, 2016, SAPE submitted a request for arbitration before the International Chamber of Commerce in Paris in respect of Enel SpA and Enel Investment Holding BV con- cerning an alleged contractual breach for failure to distribu- te dividends from e-distribut¸ie Muntenia and Enel Energie Muntenia. In September 2016, SAPE modified its arbitra- tion claims, suing Enel Energie Muntenia and e-distribut¸ie Muntenia as well and revising its monetary claim to about €56 million. On May 22, 2017, SAPE again modified its claim, quantifying it in the amount of about €110 million plus interest. The parties are exchanging briefs. Gabcˇíkovo dispute - Slovakia Slovenské elektrárne (“SE”) is involved in a number of cases before the national courts concerning the 720 MW Gabcˇíkovo hydroelectric plant, which is administered by Vo- dohospodárska Výsatavba Štátny Podnik (“VV”) and whose operation and maintenance, as part of the privatization of SE in 2006, had been entrusted to SE for a period of 30 years under a management agreement (the VEG Operating Agreement). Immediately after the closing of the privatization, the Public Procurement Office (PPO) filed suit with the Court of Bra- tislava seeking to void the VEG Operating Agreement on the basis of alleged violations of the regulations governing public tenders, qualifying the contract as a service contract and as such governed by those regulations. In November 2011 the trial court ruled in favor of SE, whereupon the PPO immediately appealed the decision. In parallel with the PPO action, VV also filed a number of suits, asking in particular for the voidance of the VEG Ope- rating Agreement. On December 12, 2014, VV withdrew unilaterally from the VEG Operating Agreement, notifying its termination on March 9, 2015, for breach of contract. On March 9, 2015, ring of June 29, 2016, the Supreme Court denied the appe- al. SE then appealed the ruling to the Constitutional Court, which denied the appeal on January 18, 2017. In addition, SE lodged a request for arbitration with the Vienna International Arbitral Centre (VIAC) under the VEG Indemnity Agreement. Under that accord, which had been signed as part of the privatization between the National Pro- perty Fund (now MH Manazment) of the Slovak Republic and SE, the latter is entitled to an indemnity in the event of the early termination of the VEG Operating Agreement for reasons not attributable to SE. The arbitration court rejected the objection that it did not have jurisdiction and the arbi- tration proceeding continued to examine the merits of the case, with a ruling on the amount involved being deferred to any subsequent proceeding. On June 30, 2017, the ar- bitration court issued its ruling denying the request of SE. In parallel with the arbitration proceeding launched by SE, both VV and the National Property Fund (now MH Ma- nazment) filed suits, currently pending, in the Slovakian courts to void the VEG Indemnity Agreement owing to the alleged connection of the latter with the VEG Operating Agreement. With regard to the proceeding brought by VV against SE, on September 27, 2017, a hearing was held be- fore the Court of Bratislava in which the judge denied the request of the plaintiff for procedural reasons. In addition, at the local level, SE was sued by VV for alleged unjustified enrichment (estimated at about €360 million plus interest) for the period from 2006 to 2015. The exchange-of-briefs phase of the proceeding was held and on February 2, 2018 SE filed counter-claims for the proceedings concerning 2010, 2013 and 2014. Finally, in another proceeding before the Court of Bratislava, VV asked for SE to return the fee for the transfer from SE to VV of the technology assets of the Gabcˇíkovo plant as part of the privatization, with a va- lue of about €43 million plus interest. The hearing was held on December 4, 2017 and the judge set a deadline for the exchange of further briefs between the parties. Precautionary administrative proceeding and Chucas arbitration the decision of the appeals court overturned the ruling of PH Chucas SA (“Chucas”) is a special purpose entity esta- the trial court and voided the contract as part of the action blished by Enel Green Power Costa Rica SA after it won pursued by the PPO. SE lodged an extraordinary appeal a tender organized in 2007 by the Instituto Costarricense against that decision before the Supreme Court. At a hea- de Electricidad (“ICE”) for the construction of a 50 MW 315 Consolidated financial statementshydroelectric plant and the sale of the power generated by the plaintiff’s claims to be denied, filed a counter-claim the plant to ICE under a build, operate and transfer contract to obtain confirmation of termination of contract for non- (“BOT”). The agreement provides for Chucas to build and performance, asking for damages of at least $38 million operate the plant for 20 years, before transferring it to ICE. (about €30 million). The hearing was held in February 2018 Under the BOT contract, the plant should have entered and the exchange of final pleadings is under way. service on September 26, 2014. For a number of rea- sons, including flooding, landslides and similar events, the project experienced cost overruns and delays, with a consequent delay in meeting the obligation to deliver electricity. In view of these developments, in 2012 and 2013 Chucas submitted an administrative petition to ICE to recover the higher costs incurred and obtain a postpo- nement of the entry into service of the plant. ICE denied the petition in 2015 and in fact levied two fines of about $9 million (about €7 million) for the delays in entering service. Following the precautionary appeal of Chucas, payment of the fines was suspended. The plant entered service in December 2016. In addition, as ICE had rejected the administrative peti- tion, on May 27, 2015, under the provisions of the BOT contract, Chucas initiated an arbitration proceeding before the Cámara Costarricense-Norteamericana de Comercio (AMCHAM CICA) seeking reimbursement of the additio- nal costs incurred to build the plant and as a result of the delays in completing the project as well as voidance of the fine levied by ICE. In a decision issued in December 2017, the arbitration board ruled in Chucas’ favor, granting reco- gnition of the additional costs in the amount of about $113 million (about €91 million) and legal costs and ruling that the fines should not be paid. ICE appealed the arbitration ruling in the local courts and the proceeding is in a prelimi- nary stage. In addition, on October 3, 2015, in consideration of the violation of a number of contractual obligations (including failure to meet the deadline to complete the works) on the part of FCC Construcción América SA and FCC Construc- ción SA (FCC) – which had been engaged to build some of the works for the hydroelectric plant – Chucas notified the parties that it was terminating the contract for breach, enforcing the guarantees issued to it. However, the gua- rantees have not yet been paid pending resolution of a precautionary proceeding initiated by FCC on October 27, 2015, at the International Court of Arbitration in Paris. In a filing of March 10, 2017, FCC requested a ruling that the contract had been terminated without cause and asked for damages of about $27 million (about €22 million). In a brief filed in May 2017, Chucas, in addition to asking for 316 Tax litigation in Brazil Withholding tax - Enel Distribución Rio SA In 1998, Enel Distribución Rio SA financed the acquisition of Enel Distribución Ceará SA with the issue of bonds in the amount of $350 million (“Fixed Rate Notes” - FRN) subscri- bed by its Panamanian subsidiary, which had been establi- shed to raise funds abroad. Under the special rules then in force, subject to maintaining the bond until 2008, the inte- rest paid by Enel Distribución Rio SA 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, Enel Distribución Rio SA carried out a spin-off that involved the transfer of the residual FRN debt and the associated rights and obligations. On November 6, 2012, the Câmara Superior de Recursos Fiscais (the highest level of administrative courts) issued a ruling against Enel Distribución Rio SA, for which the company promptly asked that body for clarifications. On October 15, 2013, Enel Distribución Rio SA was notified of the denial of the request for clarification (“Embargo de Declaración”), thereby upholding the previous adverse decision. The company provided security for the debt and on June 27, 2014 continued litigation before the ordinary courts (“Tribunal de Justiça”). In December 2017, the court appointed an expert to examine the issue in greater detail in support of the future ruling. The amount involved in the dispute at December 31, 2017 was about €312 million. Annual Report 2017ICMS - Enel Distribución Rio SA and Enel Distribución Ceará SA The States of Rio de Janeiro and Ceará issued a number of tax assessments against Enel Distribución Rio SA (for the years 1996-1999 and 2007-2014) and Enel Distribución Ceará (for the years 2003, 2004 and 2006-2011), challenging the deduction of ICMS (Imposto sobre Circulação de Mercado- rias e Serviços) in relation to the purchase of certain non- current assets. The companies challenged the assessments, arguing that they correctly deducted the tax and asserting that the assets, the purchase of which generated the ICMS, are intended for use in their electricity distribution activities. The companies are continuing to defend their actions at the various levels of adjudication. The amount involved in the disputes totaled approximately €69 million at December 31, 2017. Withholding tax - Endesa Brasil The overall amount involved in the dispute at December 31, 2017 was about €69 million. Tax litigation in Spain Income taxes - Enel Green Power España SL On June 7, 2017, the Spanish tax authorities issued a notice of assessment to Enel Green Power España SL, contesting the treatment of the merger of Enel Unión Fenosa Reno- vables SA (“EUFER”) into Enel Green Power España SL in 2011 as a tax neutral transaction, asserting that the transac- tion had no valid economic reason. On July 6, 2017, the company appealed the assessment at the first administrative level (Tribunal Económico-Admini- strativo Central - TEAC), defending the appropriateness of the tax treatment applied to the merger. During the procee- ding, the company will provide all the supporting documen- tation demonstrating the synergies achieved as a result of the merger in order to prove the existence of a valid econo- mic reason for the transaction. On November 4, 2014, the Brazilian tax authorities issued an The total value involved in the proceeding as at Decem- assessment against Endesa Brasil SA (now Enel Brasil SA) ber 31, 2017 was about €88 million. This amount has been alleging the failure to apply withholding tax to payments of secured with bank guarantees to obtain a suspension of allegedly higher dividends to non-resident recipients. collection efforts. More specifically, in 2009, Endesa Brasil, as a result of the first-time application of the IFRS-IAS, had cancelled goodwill, recognizing the effects in equity, on the basis of the correct application of the accounting standards it had adopted. The Brazilian tax authorities, however, asserted – during an au- dit – that the accounting treatment was incorrect and that the effects of the cancellation should have been recognized through profit or loss. As a result, the corresponding value (about €202 million) was reclassified as a payment of income to non-residents and, therefore, subject to withholding tax of 15%. It should be noted that the accounting treatment adopted by the company was agreed with the external auditor and also confirmed by a specific legal opinion issued by a local firm specializing in corporate law. On December 2, 2014, the company appealed the initial ru- ling, arguing that its accounting treatment was correct. In July 2016, the dispute was ruled at first instance in favor of the tax authorities. Endesa Brasil will therefore appeal the decision to the second level of administrative jurisdiction. 317 Consolidated financial statements50. Events after the reporting period Issue of new Green Bond in Europe for €1,250 million investors exposure to companies that are best placed to seize the opportunities presented by the challenge of cli- mate change; > ECPI Euro ESG Equity Index, which is composed of the On January 9, 2018, Enel Finance International successful- 320 companies with the largest market capitalization in ly placed its second Green Bond on the European market. the Eurozone market that meet ECPI ESG criteria; It is reserved for institutional investors and is backed by a > ECPI World ESG Equity Index, a broad benchmark re- guarantee issued by Enel. presentative of developed market companies that meet The issue amounts to a total of €1,250 million and provides ECPI ESG criteria. for repayment in a single instalment at maturity on Sep- The ECPI Index series provides an essential tool to analyze tember 16, 2026 and the payment of a fixed-rate coupon companies’ risk and performance regarding their ESG-rela- equal to 1.125%, payable annually in arrears in the month of ted activities and to assess the performance of sustainabi- September as from September 2018. The issue price was lity-driven asset managers. The socially responsible criteria set at 99.184% and the effective yield at maturity is equal used to select the indices’ constituents enable investors to to 1.225%. express their interest in sustainability issues and to move The transaction has received orders amounting to approxi- them up the corporate agenda. mately €3 billion, with the significant participation of Social- ly Responsible Investors (“SRI”), enabling the Enel Group to continue to diversify its investor base. The net proceeds of the issue – carried out under the “€35,000,000,000 Euro Medium-Term Notes Program” – will be used to finance and/or refinance, in whole or in part, the eligible green projects of the Enel Group identified and/or to be identified in accordance with the “Green Bond Principles” published by the International Capital Market Association (ICMA). Enel confirmed in ECPI Sustainability Indices Memorandum of understanding with PwC On January 25, 2018, Enel X and PwC signed a memo- randum of understanding for the development of corpora- te electric mobility with a program of testing and experi- mental projects. The agreement has a term of about three years and provides for a preliminary phase of studies and analysis, followed by the implementation of pilot projects in the field. The objective is to foster the sustainable development of the transport sector, in particular the business sector, ex- On January 23, 2018, Enel was confirmed for the tenth time ploiting the potential offered by electric mobility in terms in the ECPI Sustainability Index series, which assess com- of reducing atmospheric pollution and fleet management panies on the basis of their environmental, social and go- costs. The test will be carried out with the PwC fleet with vernance (ESG) performance. Enel’s inclusion in the index the aim of overturning the idea that electric vehicles can is recognition of its clear long-term strategic view, sound only be used by private individuals and in urban areas. PwC operational management practices and positive work in will also provide Enel X with its expertise in the field of elec- tackling social and environmental needs. Enel’s Spanish tric mobility and fleet management for the development of subsidiary Endesa has also been included in ECPI Indices. innovative solutions in managing corporate fleets. In fact, e- Enel has been included in four of ECPI’s Indices: cars could easily become part of the corporate world, given > ECPI Global Renewable Energy Equity Index, which se- that almost half of company vehicles travel less than 100 lects the 40 highest ESG-rated companies active in the kilometers a day, well below the average range of electric production or trading of energy from renewable sources; models on the market. The agreement between Enel and > ECPI Global Climate Change Equity Index, which offers PwC will therefore enable them to share their respective 318 Annual Report 2017know-how and spread the culture of electric cars in cor- the Spanish companies Elawan Energy and Genera Avante porate fleets among the companies in the PwC network for a total price of €178 million. in Italy. Agreement to supply power in Nevada On January 25, 2018, Enel Green Power North America (“EGPNA”) signed a Power Purchase Agreement (PPA) with Wynn Las Vegas whereby the resort, located on the world- famous Las Vegas Strip, will buy the energy produced by EGPNA’s new 27 MW Wynn Solar Facility at Stillwater. The new solar project, currently under construction in Nevada, Following the closing, which is scheduled to take place in the 1st Half of 2018 and subject to a series of normal con- ditions for this type of transaction, the installed capacity of EGPE in Spain will exceed 1,806 MW, of which 1,749 MW of wind power (about 8% of total installed wind capacity in Spain), 43 MW of mini-hydro and 14 MW from other rene- wable resources. Partnership agreement in Canada is expected to start production by the 1st Half of 2018. On February 7, 2018, Enel Green Power North America The investment in the construction of the new, 160-acre (“EGPNA”) signed a partnership agreement with Alber- solar PV facility amounts to approximately $40 million, in ta Investment Management Corporation under which the line with the investment outlined in Enel’s current Strate- Group will sell 49% of the shares in the 115 MW Riverview gic Plan. The total output that will be produced by the PV Wind and the 30.6 MW Phase 2 of Castle Rock Ridge wind plant and sold under the PPA with the Las Vegas resort is farms, both to be built in Alberta, Canada. The total price expected to amount to over 43,900 MWh annually. for the transaction, which will be paid upon closing of the Yankee Bond Award 2017 deal, will be determined at commercial operation of the wind farm, which is expected by the end of 2019. Following the closing of the transaction, EGPNA will manage, operate and maintain both wind farms while retaining a 51% majo- On January 31, 2018, Enel was recognized by International rity ownership of the interest in the projects. Financing Review (IFR), a leading provider of global capital Riverview Wind and Phase 2 of Castle Rock Ridge, which markets intelligence, with the 2017 Yankee Bond Award for is an expansion of EGPNA’s existing 76.2 MW Castle Rock its $5 billion triple-tranche bond issued in May 2017, which Ridge wind farm, are both located in Pincher Creek, Alber- is the largest ever US bond issued by an Italian corporate. ta. The overall investment in the construction of the two IFR praised Enel for the outstanding execution and pricing wind farms, which are due to enter into service by the end of the deal, the company’s first US dollar foray since 2013. of 2019, amounts to about $170 million. Once operational, The transaction followed a concerted marketing approach the two facilities are expected to generate around 555 implemented over more than four years, during which Enel GWh per year, more than doubling the Group’s capacity in updated US investors on a regular basis, making them awa- Canada, which currently stands at more than 103 MW. re of the fundamental strengths of Enel’s business. The two wind farms will supply their power and renewa- Agreement for acquisition of Parques Eólicos Gestinver ble energy credits to the Alberta Electric System Operator (“AESO”) under two 20-year Renewable Energy Support Agreements that were awarded to Enel in December 2017 in the first tender under the Province’s Renewable Electri- city Program. On February 2, 2018 Enel Green Power España (“EGPE”) signed an agreement to purchase 100% of Parques Eólicos Gestinver, a company that owns five wind plants in Galicia and Catalonia with a total capacity of about 132 MW, from Contract to supply demand response services in Japan On February 8, 2018, Enel X, acting through its US demand 319 Consolidated financial statementsresponse services company EnerNOC, was awarded the to install electric charging stations at tourist accommoda- delivery of 165 MW of demand response resources in Ja- tions using tailored commercial solutions and on research pan following the completion of a tender for balancing re- and design for replicable solutions to be extended to other serves launched by a group of Japanese utilities. areas of the Italian peninsula. As a result of this award, which confirms Enel as the lar- Enel will also experiment with electric mobility systems in gest independent demand response aggregator in Japan, metropolitan areas and in the main tourist cities, including the Group will nearly triple its virtual power plant in the Ja- arrangements in partnership with other operators in the in- panese market, reaching approximately 165 MW from the dustry. current 60 MW, equivalent to a market share of 17%, when the new programs begin in July 2018. Fortaleza - Brazil 2018 Corporate Governance Award On February 12, 2018, Ethical Boardroom, a leading specia- lized UK magazine, recognized Enel with the 2018 Corpora- te Governance Award for Europe in the “Utilities” industry sector. The magazine, which covers and analyzes global governance issues, praised Enel’s sustainability standards and corporate governance best practices. Enel was nomi- nated for the award by the magazine’s readers, which inclu- de top executives from leading global listed companies and sustainability analysts from major institutional investors. Enel is the only Italian company in this year’s Ethical Boar- droom corporate governance awards edition. Memorandum of understanding for sustainable mobility in the tourist industry in Italy The company Petroleo Brasileiro SA (“Petrobras”), the gas supplier for the Fortaleza plant (Central Geradora Termelétri- ca Fortaleza - “CGTF”) in Brazil, announced its intention to terminate the contract between the parties on the basis of an alleged economic-financial imbalance in consideration of current market conditions. The contract was signed in 2003 as part of the “Thermoelectric priority program” esta- blished by the Brazilian government to increase thermal generation and enhance supply security in the country. The program provided for the Brazilian State to be the guarantor of the supply of gas at regulated prices determined by the Ministry of Finance, Mines and Energy. CGTF, in order to guarantee electricity security in Brazil, started legal action against Petrobras and at the end of 2017 obtained a precautionary injunction from the courts that suspended the termination of the contract, which was declared to be still in effect. At the end of January 2018, CGTF received the arbitration request from Petrobras concerning the disputes described above and this proceeding is in the preliminary stages. Subsequently, on February 27, 2018, the court decided to extinguish the action initiated by CFTG before the ordinary courts and, consequently, to revoke the precautionary in- On February 15, 2018, Enel and the Ministry for Cultural junction that had allowed the supply of gas. Heritage signed a memorandum of understanding for the promotion and development of the use of electricity for su- CGTF has challenged this last decision in order to restore the gas supply, confident that the court recognizes Petro- stainable mobility in the tourism sector. bras’ obligation to perform the contract. The memorandum is a strategic lever for increasing public awareness of the benefits of electric mobility. It will also permit the creation of an institutional framework for subse- quent commercial agreements with trade associations for the installation of electric charging infrastructure at tourist facilities and the launch of projects in the main tourist cities. Enel, through Enel X, the Group company dedicated to the development of innovative products and services, will colla- borate with trade associations and tourism industry bodies Construction of new wind farm in the United States Enel, acting through its US renewable energy company Enel Green Power North America, has started construction of Diamond Vista wind farm, which will have an installed ca- 320 Annual Report 2017pacity of around 300 MW and will be located in Marion and Dickinson Counties, in Kansas. Once completed, Diamond Vista will further secure Enel’s position as the largest wind operator in the state with some 1,400 MW of operational Seizure of Brindisi power station wind capacity. With a measure issued on March 16, 2018, the Prosecutor’s The Diamond Vista wind project will sell its power to three Office of Lecce confirmed the measure issued on Decem- large customers, including the global manufacturing com- ber 18, 2017 and, as a result, ordered the enforcement of pany Kohler Co. the precautionary seizure of €523.3 million by the Finance The planned investment in the construction of Diamond Police of Taranto. Vista amounts to about $400 million and is part of the in- The Finance Police notified that measure on March 19, vestment outlined in the Enel Group’s current Strategic 2018, giving a time limit of March 21, 2018, for the identifi- Plan. The project is financed through the Enel Group’s own cation/opening of a current account with a bank recognized resources. The project is expected to enter into service by by the Fondo Unico di Giustizia (Single Justice Fund). the end of 2018 and, once fully operational, will be able to The company is complying with the order. generate around 1,300 GWh annually. e-distribuzione wins tender of Ministry for Economic Development for the construction of smart grids e-distribuzione has won a national call for tenders for elec- tricity infrastructure for the construction of smart grids for the distribution of electricity in the less developed regions, for which the Ministry for Economic Development has allo- cated €80 million to the National Operational Programme (NOP) on “Enterprises and Competitiveness” 2014-2020. The tender calls for the construction, upgrading, efficiency enhancement and strengthening of electricity distribution infrastructure, or smart grids, in order to directly increase the share of electricity demand met by distributed gene- ration from renewables. To reach this goal, e-distribuzione was awarded all of the resources currently allocated by the Ministry for Economic Development to finance the initiati- ve, with 21 projects admitted for funding (grants for 100% of costs) totaling €80 million, with two projects worth €7 million in Basilicata, seven projects worth €29 million in Campania and 12 projects worth €44 million in Sicily. 321 Consolidated financial statementsDeclaration of the Chief Executive Officer and the officer responsible for the preparation of the consolidated financial reports of the Enel Group 322 Annual Report 2017Declaration of the Chief Executive Officer and the officer responsible for the preparation of the consolidated financial reports of the Enel Group at December 31, 2017, pursuant to the provi- sions 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, 2017 and December 31, 2017. 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, 2017: a. have been prepared in compliance with the international accounting standards recognized in the European Union pursuant to Regulation 2002/1606/EC 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 2017 and accompanied by the consolidated financial statements of the Enel Group at December 31, 2017, 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 22, 2018 Francesco Starace Alberto De Paoli Chief Executive Officer of Enel SpA Officer responsible for the preparation of the financial reports of Enel SpA 323 Consolidated financial statements04Financial statements of Enel SpA Notes 4.a 4.b 2017 2016 of which with related parties of which with related parties 119,973,169 117,964,169 196,643,777 196,280,057 12,536,313 11,816,934 9,861,498 9,069,283 [Subtotal] 132,509,482 206,505,275 5.a 5.b 5.c 5.d 5.e 527,618 397,627 584,840 164,647,974 83,362,136 151,952,810 77,696,819 173,833,672 15,386,821 166,399,594 448,085,594 19,640,692 1,042,212 16,599,951 108,251 [Subtotal] 374,036,777 (241,527,295) 783,622,789 (577,117,514) 6 7 8 7 8 3,032,755,082 3,032,046,630 2,882,499,648 2,876,316,848 2,682,999,217 1,639,718,234 2,786,671,950 1,239,467,879 409,494,784 157,113,888 556,019,345 146,646,523 2,901,726,027 835,546,371 3,126,763,778 466,545,748 872,053,419 71,712,486 979,163,840 54,073,673 [Subtotal] 2,351,469,637 2,109,942,342 9 (160,045,845) 2,269,988,187 2,119,263,325 1,542,145,811 (177,792,922) 1,719,938,733 Financial statements Income statement Euro Revenue Revenue from services Other revenue and income Costs Purchases of consumables Services, leases and rentals Personnel Depreciation, amortization and impairment losses Other operating expenses Operating income Income from equity investments Financial income from derivatives Other financial income Financial expense from derivatives Other financial expense Income before taxes Income taxes NET INCOME FOR THE YEAR 326 Annual Report 2017Statement of comprehensive income Euro Notes Net income for the year Other comprehensive income recyclable to profit or loss (net of taxes) 2017 2016 2,269,988,187 1,719,938,733 Effective portion of change in the fair value of cash flow hedges 38,191,311 (98,254,561) Income/(Loss) recognized directly in equity recyclable to profit or loss 38,191,311 (98,254,561) Other comprehensive income not recyclable to profit or loss (net of taxes) Remeasurement of employee benefit liabilities (5,419,377) (11,273,042) Income/(Loss) recognized directly in equity not recyclable to profit or loss (5,419,377) (11,273,042) Income/(Loss) recognized directly in equity 22 32,771,934 (109,527,603) TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE PERIOD 2,302,760,121 1,610,411,130 327 Financial statements of Enel SpABalance sheet Euro ASSETS Notes at Dec. 31, 2017 at Dec. 31, 2016 of which with related parties of which with related parties 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 Income tax receivables Derivatives Other current financial assets Other current assets Cash and cash equivalents 10 11 12 10,130,911 31,499,091 298,564,422 8,859,467 18,440,490 370,298,399 13 42,811,272,440 42,793,374,282 14 15 16 1,455,620,268 911,987,785 2,469,135,121 953,412,489 16,520,527 52,883,343 26,612,507 147,703,070 138,750,969 186,999,080 153,765,974 [Total] 44,771,310,729 45,899,990,182 236,901,820 228,047,369 255,046,164 247,815,639 265,116,255 212,324,448 111,187,134 98,089,135 480,063,926 18,842,181 4,350,254,731 2,185,263,224 4,220,574,127 3,047,741,908 451,717,926 435,163,901 298,790,729 260,724,520 17 18 14 19 20 21 2,489,231,277 [Total] 7,904,409,143 3,037,878,236 8,504,677,630 TOTAL ASSETS 52,675,719,872 54,404,667,812 328 Annual Report 2017Euro Notes LIABILITIES AND SHAREHOLDERS’ EQUITY at Dec. 31, 2017 at Dec. 31, 2016 of which with related parties of which with related parties Shareholders’ equity Share capital Other reserves Retained earnings/(Loss carried forward) Net income for the year (1) 10,166,679,946 11,442,355,799 4,424,283,417 1,202,486,793 TOTAL SHAREHOLDERS’ EQUITY 22 27,235,805,955 10,166,679,946 11,409,583,162 4,534,347,074 804,937,538 26,915,547,720 Non-current liabilities Long-term borrowings 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 23 24 25 12 14 26 10,780,028,411 1,200,000,000 13,664,164,147 1,200,000,000 273,380,648 43,060,382 168,341,991 285,581,064 67,712,242 246,395,098 2,270,128,975 28,238,268 3,082,463,484 746,835,995 11,486,594 9,283,268 35,665,460 33,077,332 [Subtotal] 13,546,427,001 17,381,981,495 23 23 27 14 28 30 5,397,181,835 4,896,380,309 6,184,078,839 4,267,908,087 3,653,698,811 973,290,366 136,749,208 73,724,909 149,913,241 68,088,313 175,573,958 13,057,571 555,974,838 464,162,608 465,099,793 28,593,746 549,580,628 81,565,385 2,065,183,311 428,216,349 1,694,300,685 543,742,274 TOTAL LIABILITIES 25,439,913,917 [Subtotal] 11,893,486,916 10,107,138,597 27,489,120,092 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 52,675,719,872 54,404,667,812 (1) For 2017, net income for the year of €2,270 million (€1,720 million in 2016) is reported net of the interim dividend of €1,068 million (€915 million in 2016). 329 Financial statements of Enel SpAStatement of changes in shareholders’ equity Share capital and reserves (Note 22) Euro At January 1, 2016 Other changes Allocation of 2015 net income: - distribution of dividends - legal reserve - retaining earnings Capital increase 2016 interim dividend (1) Comprehensive income for the year: - income/(loss) recognized directly in equity - net income for the year Share capital Share premium reserve Legal reserve Reserve pursuant to Law 292/1993 employee benefit plan measurement of financial Retained earnings/(Loss Total shareholders’ liabilities/(assets) instruments carried forward) Net income for the year equity 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 68,243,876 (15,930,702) (277,999,841) 5,303,025,796 1,010,654,499 24,879,544,140 Reserve from remeasurement of net Reserve from - - - - - - - - 763,322,151 2,203,939,405 - - - - - - - - 152,664,429 - - - - - - - - - - - - - At December 31, 2016 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 (27,203,744) (376,254,402) 4,534,347,074 804,937,538 26,915,547,720 At January 1, 2017 Other changes Allocation of 2016 net income: - distribution of dividends - legal reserve - retaining earnings Capital increase 2017 interim dividend (2) Comprehensive income for the year: - income/(loss) recognized directly in equity - net income for the year 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 (27,203,744) (376,254,402) 4,534,347,074 804,937,538 26,915,547,720 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total at December 31, 2017 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,245,460 (32,623,121) (338,063,091) 4,424,283,417 1,202,486,793 27,235,805,955 (1) Approved by the Board of Directors on November 10, 2016 and paid as from January 25, 2017. (2) Approved by the Board of Directors on November 8, 2017 and paid as from January 24, 2018. Other sundry reserves 881 68,244,757 68,244,757 703 - - - - - - - - - - - - - - (813,334,396) (813,334,396) (1,626,668,792) (152,664,429) 44,655,674 (44,655,674) 2,967,261,556 (915,001,195) (915,001,195) (11,273,042) (98,254,561) (109,527,603) 1,719,938,733 1,719,938,733 (203,333,599) (711,667,596) (915,001,195) 93,269,942 (93,269,942) (1,067,501,394) (1,067,501,394) (5,419,377) 38,191,311 32,771,934 2,269,988,187 2,269,988,187 881 - - - - - 703 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 330 Annual Report 2017Share capital and reserves (Note 22) Share capital Share premium reserve Legal reserve Law 292/1993 Reserve pursuant to Other sundry reserves Reserve from remeasurement of net employee benefit plan liabilities/(assets) Reserve from measurement of financial instruments Retained earnings/(Loss carried forward) Net income for the year Total shareholders’ equity 9,403,357,795 5,292,076,658 1,880,671,559 2,215,444,500 68,243,876 (15,930,702) (277,999,841) 5,303,025,796 1,010,654,499 24,879,544,140 881 - - - - - - - 68,244,757 68,244,757 703 - - - - - - - - - - - - - - - - - - - (11,273,042) (98,254,561) - - - - 881 (813,334,396) (813,334,396) (1,626,668,792) - (152,664,429) 44,655,674 (44,655,674) - - - - - - - 2,967,261,556 (915,001,195) (915,001,195) - (109,527,603) 1,719,938,733 1,719,938,733 (27,203,744) (376,254,402) 4,534,347,074 804,937,538 26,915,547,720 (27,203,744) (376,254,402) 4,534,347,074 804,937,538 26,915,547,720 - - - - - - - - - - - - (5,419,377) 38,191,311 - - - - 703 (203,333,599) (711,667,596) (915,001,195) - - 93,269,942 (93,269,942) - - - - - - - - (1,067,501,394) (1,067,501,394) - 32,771,934 2,269,988,187 2,269,988,187 Euro At January 1, 2016 Other changes Allocation of 2015 net income: - distribution of dividends - legal reserve - retaining earnings Capital increase 2016 interim dividend (1) Comprehensive income for the year: - income/(loss) recognized directly in equity - net income for the year At January 1, 2017 Other changes Allocation of 2016 net income: - distribution of dividends - legal reserve - retaining earnings Capital increase 2017 interim dividend (2) Comprehensive income for the year: - income/(loss) recognized directly in equity - net income for the year 152,664,429 763,322,151 2,203,939,405 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - At December 31, 2016 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 Total at December 31, 2017 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,245,460 (32,623,121) (338,063,091) 4,424,283,417 1,202,486,793 27,235,805,955 (1) Approved by the Board of Directors on November 10, 2016 and paid as from January 25, 2017. (2) Approved by the Board of Directors on November 8, 2017 and paid as from January 24, 2018. 331 Financial statements of Enel SpAStatement of cash flows Euro Notes Income before taxes Adjustments for: 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 2017 2016 of which with related parties of which with related parties 2,109,942,342 1,542,145,811 5.d 15,386,821 16,085,594 (231,638,389) 37,912,889 (353,311,142) 23,768,717 6 (3,032,755,082) (3,032,046,630) (2,882,499,648) (2,876,316,848) Net financial (income)/expense 905,461,585 (889,403,744) 1,122,415,365 (865,494,981) (Gains)/Losses from disposals and other non-monetary items Cash flows from operating activities before changes in net current assets Increase/(Decrease) in provisions - 432,000,000 (195,689,834) (74,765,165) (99,395,303) (15,363,660) (Increase)/Decrease in trade receivables 17 18,144,344 19,768,270 28,356,606 29,925,376 (Increase)/Decrease in other financial and non-financial assets/liabilities 886,354,164 (1,526,661,213) 1,404,233,678 (522,698,024) Increase/(Decrease) in trade payables 27 (13,164,033) 5,636,596 (14,106,282) 8,843,510 Interest income and other financial income collected 1,134,440,570 325,498,532 1,047,226,510 541,234,816 Interest expense and other financial expense paid (1,823,403,773) (716,621,016) (1,806,973,424) (365,049,730) 6 2,976,903,441 2,976,194,989 2,882,499,648 2,876,316,848 (443,549,585) 2,465,270,129 (915,300,136) 2,511,177,637 10-11 (29,716,867) (29,716,867) (22,087,927) (22,158,868) (17,898,158) (17,898,158) (386,599,202) (386,599,202) - (47,615,025) 989,235,387 (992,598,185) - (408,687,129) 50,000,000 (3,847,804,205) (2,854,462,654) (26,612,508) 1,803,737,509 44,836,206 1,721,306,401 1,511,596,115 (1,358,393,143) 1,409,771,529 13 13 23 23 22 22 (1,829,783,012) - (2,966,302,063) (548,646,959) 21 21 3,037,878,236 2,489,231,277 (1,626,668,107) (10,847,528) (4,989,975,474) (2,887,484,966) 5,925,363,202 3,037,878,236 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 Investments in equity investments Disposals of equity investments Cash flows from investing/disinvesting activities (b) Financial debt (new long-term borrowing) Financial debt (repayments) Net change in long-term financial payables/(receivables) Net change in short-term financial payables/(receivables) Dividends paid Increase in capital and reserves 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 332 Annual Report 2017Notes to the separate financial statements 1 Form and content of the financial statements - Global Purchasing; - Global ICT. Enel SpA is a corporation (società per azioni) that operates in the electricity and gas sector and has its registered office in Viale Regina Margherita 137, Rome, Italy. In its capacity as holding company, Enel SpA sets the stra- tegic objectives for the Group and its subsidiaries and co- ordinates their activities. The activities that Enel SpA per- forms in respect of the other Group companies as part of its management and coordination function, including with regard to the company’s organizational structure, can be summarized as follows: Within the Group, Enel SpA meets liquidity requirements primarily through cash flows generated by ordinary opera- tions and the use of a range of sources of funds, while managing any excess liquidity appropriately. As the Parent Company, Enel SpA has prepared the conso- lidated financial statements of the Enel Group for the year ending December 31, 2017, which form an integral part of this Annual Report pursuant to Article 154-ter, paragraph 1, of the Consolidated Law on Financial Intermediation (Legi- slative Decree 58 of February 24, 1998). > Holding company functions, associated with the coor- dination of governance processes at the Group level: - Administration, Finance and Control; - Human Resources and Organization; - Communications; - Legal and Corporate Affairs; - Innovation and Sustainability; - European Affairs; - Audit; > Global Business Line functions, which are responsi- ble for coordination and development of their business in all the geographical areas in which the Group opera- tes: - Global Infrastructure and Networks; - Global Thermal Generation; - Global Renewable Energy; - Global Trading; - Global Enel X; > Global service functions, which are responsible at the Group level for coordinating all information technology and purchasing activities: On March 22, 2018, the Board authorized the publication of these financial statements at December 31, 2017. These financial statements have undergone statutory audi- ting by EY SpA. Basis of presentation The separate financial statements for the year ended De- cember 31, 2017 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 Stan- dards 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 2002/1606/EC and in effect as of the close of the year. All of these stan- dards and interpretations 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 financial statements consist of the income statement, the statement of comprehensive income, the balance sheet, 333 Financial statements of Enel SpAthe statement of changes in shareholders’ equity and the tion of the consolidated financial statements, to which the statement of cash flows and the related notes. reader should refer for more information, with the excep- The assets and liabilities reported in the balance sheet are tion of those regarding equity investments in subsidiaries, classified on a “current/non-current” basis with separate re- associated companies and joint ventures. porting of assets held for sale and liabilities included in dispo- Subsidiaries are all entities over which Enel SpA has con- sal groups held for sale, if any. Current assets, which include trol. The company controls an entity when it is exposed to cash and cash equivalents, are assets that are intended to or has rights to variable returns deriving from its involve- be realized, sold or consumed during the normal operating ment and has the ability, through the exercise of its power cycle of the company or in the 12 months following the close over the investee, to affect its returns. Power is defined as of the financial year; current liabilities are liabilities that are having the concrete ability to direct the significant activi- expected to be settled during the normal operating cycle of ties of the entity by virtue of the existence of substantive the company or within the 12 months following the close of rights. the financial year. Associates comprise those entities in which Enel SpA has The income statement is classified on the basis of the na- a significant influence. Significant influence is the power to ture of costs, with separate reporting of net income/(loss) participate in the financial and operating policy decisions from continuing operations and net income/(loss) from any of investees but not exercise control or joint control over discontinued operations. those entities. The indirect method is used for the statement of cash flows, Joint ventures are entities over which Enel SpA exercises with separate reporting of any cash flows by operating, inve- joint control and has rights to the net assets of the entities. sting and financing activities associated with discontinued Joint control means sharing control of an arrangement, operations, if any. which only exists when the decisions over the relevant The income statement, the balance sheet and the state- activities require the unanimous consent of all the parties ment of cash flows report transactions with related parties, that share control. the definition of which is given in the section “Accounting Equity investments in subsidiaries, associates and joint policies and measurement criteria” for the consolidated fi- ventures are measured at cost. Cost is adjusted for any im- nancial statements. pairment losses, which are reversed where the reasons for The financial statements have been prepared on a going their recognition no longer obtain. The carrying amount re- concern basis using the cost method, with the exception of sulting from the reversal may not exceed the original cost. items measured at fair value in accordance with IFRS, as ex- Where the loss pertaining to Enel SpA exceeds the carrying plained in the measurement bases applied to each individual amount of the investment and the company is obligated to item in the consolidated financial statements. perform the legal or constructive obligations of the inve- The financial statements are presented in euro, the functio- stee or in any event to cover its losses, the excess with nal currency of the company, and the figures shown in the respect to the carrying amount is recognized in liabilities in notes are reported in millions of euro unless stated other- the provision for risks and charges. wise. In the case of a disposal, without economic substance, The financial statements provide comparative information in of an investment to an entity under common control, any respect of the previous period. difference between the consideration received and the 2 Accounting policies and measurement criteria 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 The accounting policies and measurement criteria are the Directors, respectively. same, where applicable, as those adopted in the prepara- 334 Annual Report 2017Use of estimates and management judgments 3 The use of estimates and management judgements adop- ted in preparing the separate financial statements are the Recent accounting standards same, where applicable, as those adopted in the preparation For information on recent accounting standards, please re- of the consolidated financial statements, which readers are fer to the corresponding section of the notes to the conso- invited to consult, with the exception of the measurement lidated financial statements. of equity investments, which is discussed below. Recoverability of equity investments The company assesses the presence of evidence of im- pairment of each equity investment at least once a year, consistent with its strategy for managing the legal entities within the Group. If such evidence is found, the assets involved undergo impairment testing. The processes and procedures for determining the recoverable value of each equity investment are based on assumptions that can be complex and whose nature requires management to use its judgment, especially as regards the identification of evidence of impairment, the forecasting of future profi- tability over the horizon of the Group business plan, the determination of the normalized cash flows underlying the estimation of terminal value and the determination of long- term growth rates and discount rates applied to forecasts of future cash flows. As regards the application of the new standards “IFRS 9 - Financial instruments” and “IFRS 15 - Revenue from con- tracts with customers”, the projects begun in 2016 to iden- tify the impact of their adoption were completed in 2017. Upon first-time application, the effects of the adoption of IFRS 9 associated with “Classification and measurement” and “Impairment” will be recognized in shareholders’ equi- ty at January 1, 2018, while the adoption of the “Hedge accounting” provisions is prospective, with the exception of the option of separating the currency basis spreads from the hedge relationship, which the Group opted to apply re- trospectively. On the basis of the analysis conducted, the adoption as from January 1, 2018 of IFRS 9 will produce, net of the associated tax effects, an immaterial reduction in sharehol- ders’ equity, mainly associated with the adoption of the expected loss model. As regards the application of IFRS 15, no significant cir- cumstances that would be impacted by the new provisions have emerged. 335 Financial statements of Enel SpAInformation on the income statement Revenue 4.a Revenue from services - €120 million Revenue from services breaks down as follows. Millions of euro Services Group companies Non-Group counterparties Total revenue from services 2017 2016 Change 118 2 120 197 - 197 (79) 2 (77) Revenue from services, in the amount of €120 million, remuneration model adopted by the Parent Company du- include €118 million for services provided to subsidiaries ring the year. within the scope of the company’s management and co- Revenue from services breaks down by geographical area ordination functions and for the billing of costs of various as follows: nature incurred in relation to subsidiaries. > €75 million in Italy (€129 million in 2016); The overall decrease of €77 million was due mainly to the > €25 million in the European Union (€46 million in 2016); reduction in management and technical fees, which re- > €7 million in non-EU Europe (€13 million in 2016); flects a number of balancing payments related to financial > €13 million in other countries (€9 million in 2016). years 2015 and 2016, as well as to application of the new 4.b Other revenue and income - €13 million Other revenue and income, in the amount of €13 million for the year under review and for the previous year, and in 2017, is essentially related to seconded personnel, both increased by €3 million (€10 million in 2016). 336 Annual Report 2017Costs 5.a Purchases of consumables - €1 million Purchases of consumables, in the amount of €1 million, remained unchanged from the previous year. 5.b Services, leases and rentals - €165 million Costs for services, leases and rentals break down as follows. Millions of euro Services Leases and rentals Total services, leases and rentals 2017 149 16 165 2016 135 17 152 Change 14 (1) 13 Costs for services, totaling €149 million, include costs for were partially offset by the recognition of past items in 2017. services provided by third parties in the amount of €79 mil- Costs for services provided by Group companies increased lion (€73 million in 2016) and costs for services provided by by €8 million due mainly to an increase in costs for IT ser- Group companies in the amount of €70 million (€62 million vices, personal services, and facility-management services in 2016). More specifically, the €6 million increase in costs provided by the subsidiary Enel Italia Srl (€4 million). for services provided by third parties was mainly due both Costs for leases and rentals mainly concern costs for lea- to the increase in costs incurred for strategic, management sing assets from the subsidiary Enel Italia Srl and decrea- and organizational consulting and to greater costs for adver- sed by €1 million compared with the previous year. tising, marketing, promotional and press materials, which 5.c Personnel - €174 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 personnel costs Notes 24 24 25 2017 108 34 9 20 3 174 2016 108 35 7 14 2 166 Change - (1) 2 6 1 8 Personnel costs, in the amount of €174 million, increased by The table below shows the average number of employees €8 million compared with 2016 due mainly to the increase by category, compared with the previous year, and the ac- in costs for other long term benefits (of which €5 million tual number of employees at December 31, 2017. in long-term incentive plans) and post-employment benefits for defined benefit plans (€2 million). 337 Financial statements of Enel SpAManagers Middle managers White collar Total Average number Headcount 2017 239 565 367 1,171 2016 240 539 356 1,135 Change at Dec. 31, 2017 (1) 26 11 36 248 623 375 1,246 5.d Depreciation, amortization and impairment losses - €15 million Millions of euro Depreciation Amortization Impairment losses Reversals of impairment losses Total depreciation, amortization and impairment losses 2017 2016 Change 4 11 - - 15 4 12 474 42 448 - (1) (474) (42) (433) Depreciation, amortization and impairment losses, in the In 2016, in addition to depreciation and amortization, the ag- amount of €15 million (€448 million in 2016), decreased by gregate included the impairment loss on the investment in €433 million compared with the previous year. In 2017, the Enel Produzione SpA (€474 million) and the reversal of im- aggregate was related solely to depreciation (€4 million) and pairment on the investment in Enel Trade SpA (€42 million), amortization (€11 million), which remained essentially un- which had been recognized based on the impairment tests changed compared with the previous year. conducted on the investments. 5.e Other operating expenses - €20 million Other operating expenses, totaling €20 million, increased As a result, the operating loss came to €242 million, an by €3 million compared with the previous year due essen- improvement of €335 million compared with the previous tially to an increase in entertainment expenses. year. 6. Income from equity investments - €3,033 million Income from equity investments, in the amount of €3,033 the previous year due, in part, to the effect of advances on million in 2017, represents dividends and advances on di- dividends approved by the subsidiaries Enel Américas and vidends approved by subsidiaries and associates in the Enel Chile following the reorganization that involved the amount of €3,032 million and by other shareholdings in the Group’s businesses in South America. amount of €1 million. This is an increase of €151 million over 338 Annual Report 2017Millions of euro Dividends from subsidiaries and associates Enel Produzione SpA e-distribuzione SpA Enel.Factor SpA Enel Italia Srl Enel Energia SpA Servizio Elettrico Nazionale SpA Enel Green Power SpA Enel Iberia Srl Enel Sole Srl Enel Américas SA Enel Chile SA CESI SpA Dividends from other companies Emittenti Titoli SpA Empresa Propietaria de la Red SA 2017 3,032 - 1,448 3 23 679 80 50 677 15 25 31 1 1 - 1 2016 2,876 304 1,610 3 - 358 - 50 550 - - - 1 6 6 - Total income from equity investments 3,033 2,882 Change 156 (304) (162) - 23 321 80 - 127 15 25 31 - (5) (6) 1 151 339 Financial statements of Enel SpA7. Net financial income/(expense) from derivatives - €(219) million This item breaks down as follows. Millions of euro 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 income from derivatives Expenses on derivatives: - on behalf of Group companies: - expense on derivatives at fair value through profit or loss - on behalf of Enel SpA: - expense on fair value hedge derivatives - expense on cash flow hedge derivatives - expense on derivatives at fair value through profit or loss Total expenses on derivatives TOTAL FINANCIAL INCOME/(EXPENSE) FROM DERIVATIVES 2017 2,533 2,533 150 32 108 10 2,683 2,523 2,523 379 30 341 8 2,902 (219) 2016 Change 2,515 2,515 272 32 158 82 2,787 2,520 2,520 607 27 497 83 3,127 (340) 18 18 (122) - (50) (72) (104) 3 3 (228) 3 (156) (75) (225) 121 The net expense on derivatives totals €219 million (as com- were entered into on behalf of Enel SpA on both interest pared with €340 million in 2016) and essentially represents rates and exchange rates. the net expense on derivatives entered into on behalf of Enel SpA. For more details on derivatives, see note 31 “Financial The improvement of €121 million compared with the pre- instruments” and note 33 “Derivatives and hedge ac- vious year is essentially due to the decrease in net expense counting”. on cash flow hedge derivatives (€106 million), all of which 340 Annual Report 20178. Other net financial income/(expense) - €(462) million This item breaks down as follows. Millions of euro Other financial income Interest income Interest income on long-term financial assets Interest income on short-term financial assets Total Positive exchange rate differences Income on fair value hedges - post-hedge adjustment Other Total other financial income Other financial expense Interest expense Interest expense on bank borrowings Interest expense on bonds Interest expense on other borrowings Total Negative exchange rate differences Interest expense on defined benefit plans and other long- term employee benefits Other Total other financial expense TOTAL OTHER NET FINANCIAL INCOME/(EXPENSE) 2017 2016 Change 2 30 32 238 13 127 410 55 735 70 860 5 4 3 872 (462) 4 42 46 398 8 104 556 32 840 54 926 44 6 3 979 (423) (2) (12) (14) (160) 5 23 (146) 23 (105) 16 (66) (39) (2) - (107) (39) Other net financial expense amounted to €462 million, €124 million. The increase of €39 million in other net finan- mainly reflecting interest expense on borrowings in the cial expense compared with 2016 was due mainly to the amount of €860 million, which was partially offset by positi- €160 million decrease in positive exchange rate differences ve exchange rate differences in the amount of €238 million, on hedged loans in foreign currencies, which were affected interest income on short and long-term financial assets to- by the trends in the euro against the dollar and the pound taling €32 million, and other financial income on guarantees sterling. These effects were partially offset by the decrease granted on behalf of Group companies in the amount of in interest expense on bonds in the amount of €105 million. 9. Income taxes - €(160) million Millions of euro Current taxes Deferred tax income Deferred tax expense Total taxes 2017 (162) 4 (2) (160) 2016 (184) 6 - (178) Change 22 (2) (2) 18 Income taxes for 2017 showed a creditor position of €160 before taxes due to the exclusion of 95% of the dividends million, mainly as a result of the reduction in the tax base received from the subsidiaries and the deductibility of Enel for the corporate income tax (IRES) compared with income SpA’s interest expense for the Group in accordance with 341 Financial statements of Enel SpAcorporate income tax law (Article 96 of the Uniform Income The following table reconciles the theoretical tax rate with Tax Code). the effective tax rate. The €18 million difference compared with the previous year (when the creditor position was €178 million) is attributable to the increase in estimated taxable income. Millions of euro Income before taxes Theoretical corporate income taxes (IRES) Tax decreases: - dividends on equity investments, collected - dividends from equity investments, not collected - uses of provisions - other Tax increases: - writedowns/(writebacks) for the year - accruals to provisions - prior-year expense - other 2017 2,110 506 (678) (13) (16) - - 12 2 23 Total current corporate income taxes (IRES) (164) IRAP Difference on estimated income taxes from prior years Definitive withholdings on dividends from foreign shareholdings Total deferred tax items - of which impact of change in tax rate - of which changes for the year - of which difference of prior-year estimates TOTAL INCOME TAXES - - 2 2 - 4 (2) (160) % rate 24.0% -32.1% -0.6% -0.8% - - 0.6% 0.1% 1.1% -7.8% - - 0.1% 0.1% % rate 27.5% -48.8% - -0.8% -0.5% 7.7% 0.5% 0.2% 1.6% -12.6% - 0.7% - 0.4% 2016 1,542 424 (753) - (13) (7) 119 7 3 25 (195) - 11 - 6 1 5 - -7.6% (178) -11.5% 342 Annual Report 2017Information on the balance sheet Assets 10. Property, plant and equipment - €10 million Developments in property, plant and equipment for 2016 and 2017 are set out in the table below. Millions of euro Cost Accumulated depreciation Balance at Dec. 31, 2015 Capital expenditure Depreciation Total changes Cost Accumulated depreciation Balance at Dec. 31, 2016 Capital expenditure Depreciation Total changes Cost Accumulated depreciation Balance at Dec. 31, 2017 Land Buildings Plant and machinery Industrial and commercial equipment Other assets Leasehold improvements 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 1 (1) - 20 35 (31) 4 5 (3) 2 40 Total 66 (59) 7 6 (4) 2 72 (19) (34) (63) 1 4 (1) 3 24 (20) 4 6 1 (3) (2) 41 (37) 4 9 5 (4) 1 77 (67) 10 Property, plant and equipment totaled €10 million, an incre- for the same period (€4 million). Capital expenditure related ase of €1 million compared with the previous year, essen- to other assets refer to hardware systems, while leasehold tially attributable to the positive net balance between capi- improvements regard the renovation and redevelopment of tal expenditure during the year (€5 million) and depreciation a number of buildings housing Enel SpA’s headquarters. 343 Financial statements of Enel SpA11. Intangible assets - €31 million Intangible assets, all of which have a finite useful life, break down as follows. Millions of euro Balance at Dec. 31, 2015 Investments Assets entering service Amortization Total changes Balance at Dec. 31, 2016 Investments Assets entering service Amortization Total changes Balance at Dec. 31, 2017 Industrial patents and intellectual property rights Other intangible assets under development 14 9 - (12) (3) 11 24 7 (11) 20 31 - 7 - - 7 7 - (7) - (7) - Total 14 16 - (12) 4 18 24 - (11) 13 31 Industrial patents and intellectual property rights, in the related to the evolution of software associated with exi- amount of €31 million at December 31, 2017, relate mainly sting systems and the development of new systems, whi- to costs incurred in purchasing software as well as related le assets entering service refer mainly to the Evolution for evolutionary maintenance. Amortization is calculated on a Energy (E4E) project, which was undertaken at the global straight-line basis over the item’s residual useful life (three level to harmonize and integrate processes and systems to years on average). support the Global Business Lines and the Administration, The amount of the item increased by €20 million as compa- Finance and Control, and Global Procurement functions, as red with the previous year, attributable to investments for well as other projects connected with the evolution of sof- the year amounting to €24 million and assets entering ser- tware associated with existing systems. vice in the amount of €7 million, which were partially offset Other intangible assets under development had a zero ba- by amortization for the year of €11 million. More specifical- lance as at December 31, 2017. ly, investments concerned information-technology projects 344 Annual Report 201712. Deferred tax assets and liabilities - €299 million and €168 million Changes in deferred tax assets and deferred tax liabilities, grouped by type of temporary difference, are shown below. Millions of euro Increase/(Decrease) taken to income statement at Dec. 31, 2016 Total Increase/(Decrease) taken to equity Other changes at Dec. 31, 2017 Deferred tax assets Nature of temporary differences: - provisions for risks and charges and impairment losses - derivatives - costs for capital increase - 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 6 299 2 63 370 239 7 246 169 (45) (1) - - (3) (4) - (2) (2) - (69) - 2 (67) (76) - (76) - - - - - - - - Total 5 230 2 62 299 163 5 168 162 (31) Deferred tax assets totaled €299 million (€370 million at De- The amount of deferred tax assets and liabilities was de- cember 31, 2016), a decrease of €71 million compared with termined by applying a rate of 24% for IRES. IRAP was ap- the previous year, which was due mainly to the recognition plied only on deferred tax liabilities at a rate of 5.57% (taking of deferred tax assets connected with the fair value measu- account of the business conducted by the company). The rement of cash flow hedge operations. amount of deferred tax assets was determined without ap- Deferred tax liabilities totaled €168 million (€246 million at plying IRAP as in the coming years we do not expect to earn December 31, 2016), a decrease of €78 million, due essen- income subject to IRAP sufficient to reverse the temporary tially to the recognition of deferred taxes on the fair value deductible differences. measurement of cash flow hedge financial instruments. 13. Equity investments - €42,811 million The table below shows the changes during the year for each in subsidiaries, joint ventures, associates, and other com- investment, with the corresponding values at the beginning panies. and end of the year, as well as the list of investments held 345 Financial statements of Enel SpAMillions of euro Original cost (Writedowns)/ Revaluations Other changes - IFRIC 11 & IFRS 2 Carrying amount % holding at Dec. 31, 2016 Acquisitions/ (Disposals)/ (Liquidations)/ (Repayments) Formation/ Contributions (+/-)/ Changes in 2017 Demergers (+/-)/ Mergers (+/-) Net change Original cost Revaluations IFRS 2 Other changes - (Writedowns)/ IFRIC 11 & Carrying amount % holding at Dec. 31, 2017 A) Subsidiaries Enel Produzione SpA Enel Ingegneria e Ricerca SpA e-distribuzione SpA Servizio Elettrico Nazionale SpA Enel Trade SpA Enel Green Power SpA Enel X Srl Enel Investment Holding BV Enelpower SpA Enel Global Thermal Generation Srl Enel Energia SpA Enel Iberia Srl Enel South America Srl Enel.Factor SpA Enel Sole Srl Enel Italia Srl Enel Innovation Hubs Srl Enel M@p Srl Enel Finance International NV Tynemouth Energy Storage Limited Enel Américas SA Enel Chile SA 4,892 86 4,054 110 1,401 6,538 - 8,498 189 - 1,321 18,300 - 18 5 525 70 - 2,397 - - - (986) (84) - - (208) - - (4,473) (159) - (8) - - - - (41) (54) - - - - - 4 1 2 - 1 2 - - - - - - - - - 3 - - - - - - 3,910 3 4,056 110 1,194 6,540 - 4,025 30 - 1,313 18,300 - 18 5 487 16 - 2,397 - - - Total subsidiaries 48,404 (6,013) 13 42,404 365 365 23 23 - - - 5 1 - 6 - - - - - - - (5) - - (5) - - - - - - - - - - - 365 365 23 23 - - - - 1 - 1 B) Joint ventures OpEn Fiber SpA Total joint ventures C) Associates CESI SpA Total associates D) Other companies Empresa Propietaria de la Red SA Red Centroamericana de Telecomunicaciones SA Compañía de Transmisión del Mercosur SA Elcogas SA Emittenti Titoli SpA in liquidation Idrosicilia SpA Total other companies TOTAL EQUITY INVESTMENTS 346 100,0 100,0 100,0 100,0 100,0 100,0 - 100,0 100,0 - 100,0 100,0 - 100,0 100,0 100,0 100,0 - 100,0 - - - 50,0 42,7 - - - 4,3 10,0 1,0 - - - - - - - - - - - - - - - - 12 - 5 - - 17 - - - - - - - - - - - 48,798 (6,018) 13 42,793 17 48,816 (6,018) 13 42,811 (4,587) 4,587 (5) - - - - - - - - 5 1 - 1 - - - - - - - - - - - - - - - - - - - 1 3 (3) 3 (3) (4,587) 2,822 1,760 (5) - - - - - - - - - - - - - - - - - - - - - - - - - - 5 5 - (4,587) (5) 12 2,822 1,760 13 5 1 - - - - - - - - - - - - 5 5 - - - - - - - - - 5 18 4,895 83 4,054 110 1,401 6,538 8,498 189 5 1 18 - - 525 70 12 2,397 5 2,822 1,760 1,321 13,713 365 365 23 23 5 - - 5 1 - (986) (84) (208) (4,473) (159) (8) (41) (54) - - - - - - - - - - - - - - - - - - - - - - - (5) 11 (5) 4 1 2 - 1 2 3 - - - - - - - - - - - - - - - - - - - - - - - - - - 3,913 - 4,056 110 1,194 6,540 5 4,025 30 1 18 - - 16 12 487 2,397 5 2,822 1,760 1,313 13,713 365 365 23 23 5 - - - 1 - 6 100.0 - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - - 100.0 100.0 100.0 100.0 100.0 51.8 60.6 50.0 42.7 11.1 11.1 - 4.3 10.0 1.0 48,417 (6,013) 13 42,417 Annual Report 2017Millions of euro Original cost Revaluations IFRIC 11 & IFRS 2 Carrying amount % holding (Writedowns)/ Other changes - at Dec. 31, 2016 Acquisitions/ (Disposals)/ (Liquidations)/ (Repayments) Formation/ Contributions (+/-)/ Demergers (+/-)/ Changes in 2017 Mergers (+/-) Net change Original cost (Writedowns)/ Revaluations Other changes - IFRIC 11 & IFRS 2 Carrying amount % holding at Dec. 31, 2017 A) Subsidiaries Enel Produzione SpA Enel Ingegneria e Ricerca SpA e-distribuzione SpA Servizio Elettrico Nazionale SpA Enel Trade SpA Enel Green Power SpA Enel X Srl BV Enel Investment Holding Enelpower SpA Enel Global Thermal Generation Srl Enel Energia SpA Enel Iberia Srl Enel South America Srl Enel.Factor SpA Enel Sole Srl Enel Italia Srl Enel Innovation Hubs Srl Enel M@p Srl Enel Finance International NV Tynemouth Energy Storage Limited Enel Américas SA Enel Chile SA B) Joint ventures OpEn Fiber SpA Total joint ventures C) Associates CESI SpA Total associates D) Other companies Empresa Propietaria de la Red SA Red Centroamericana de Telecomunicaciones SA Compañía de Transmisión del Mercosur SA Elcogas SA Emittenti Titoli SpA in liquidation Idrosicilia SpA Total other companies TOTAL EQUITY INVESTMENTS 4,892 86 4,054 110 1,401 6,538 8,498 189 1,321 18,300 18 5 525 70 2,397 365 365 23 23 - - - - - - - - - - 5 1 - 6 (986) (84) (208) (4,473) (159) (8) (41) (54) - - - - - - - - - - - - - - - - - - - - - - - (5) (5) 4 1 2 - 1 2 3 - - - - - - - - - - - - - - - - - - - - - - - - - - 3,910 3 4,056 110 1,194 6,540 4,025 30 1,313 18,300 18 5 487 16 - - - - - - - - - - - 1 - 1 365 365 23 23 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 50,0 42,7 4,3 10,0 1,0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12 5 17 2,397 100,0 Total subsidiaries 48,404 (6,013) 13 42,404 48,798 (6,018) 13 42,793 17 - - - - - - 5 - - 1 - (4,587) 4,587 - (5) - - - - - - - 1 - - - - - - - - - - - 1 3 (3) - - - - - - - - - - (4,587) - - - - - - - 2,822 1,760 (5) - - - - 5 - - - - - 5 - 3 (3) - - - - 5 - - 1 - (4,587) - - (5) - - 12 - 5 2,822 1,760 13 - - - - 5 - - - - - 5 18 4,895 83 4,054 110 1,401 6,538 5 8,498 189 1 1,321 13,713 - 18 - 525 70 12 2,397 5 2,822 1,760 (986) (84) - - (208) - - (4,473) (159) - (8) - - - - (41) (54) - - - - - 4 1 2 - 1 2 - - - - - - - - - 3 - - - - - - 3,913 - 4,056 110 1,194 6,540 5 4,025 30 1 1,313 13,713 - 18 - 487 16 12 2,397 5 2,822 1,760 48,417 (6,013) 13 42,417 365 365 23 23 5 - - 5 1 - 11 - - - - - - - (5) - - (5) - - - - - - - - - - - 365 365 23 23 5 - - - 1 - 6 48,816 (6,018) 13 42,811 100.0 - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 100.0 - 100.0 100.0 100.0 100.0 100.0 51.8 60.6 50.0 42.7 11.1 11.1 - 4.3 10.0 1.0 347 Financial statements of Enel SpAThe table below reports changes in equity investments in 2017. Millions of euro Increases Merger of Enel Ingegneria e Ricerca SpA into Enel Produzione SpA Acquisition of the entire share capital of Tynemouth Energy Storage Limited Formation of Enel eS Srl (renamed Enel X Srl) and subsequent assignment of the equity investment held by Enel SpA in Enel Sole Srl Formation of Enel South America Srl by way of the partial cross-border, intra-European demerger of Enel Iberoamérica Srl (renamed Enel Iberia Srl) Merger of Enel South America Srl into Enel SpA - Direct investment in Enel Américas SA Merger of Enel South America Srl into Enel SpA - Direct investment in Enel Chile SA Merger of Enel South America Srl into Enel SpA - Direct investment in Empresa Propietaria de la Red SA Merger of Enel South America Srl into Enel SpA - Direct investment in Red Centroamericana de Telecomunicaciones SA Merger of Enel South America Srl into Enel SpA - Direct investment in Compañía de Transmisión del Mercosur SA Acquisition of the entire share capital of Enel M@p from e-distribuzione Formation of Enel Global Thermal Generation Srl Total increases Decreases Merger of Enel Ingegneria e Ricerca SpA into Enel Produzione SpA Assignment of the equity investment in Enel Sole Srl held by Enel SpA to Enel X Srl Partial cross-border, intra-European demerger of Enel Iberoamérica Srl (renamed Enel Iberia Srl) in favor of the newly formed Enel South America Srl Merger of Enel South America Srl into Enel SpA Total decreases NET CHANGE 3 5 5 4,587 2,822 1,760 5 - - 12 1 9,200 (3) (5) (4,587) (4,587) (9,182) 18 In 2017, the value of investments in subsidiaries, joint ven- created in order to capitalize on the transformation of tures, associated and other companies increased by €18 the energy industry, seeks to understand and meet the million as a result of: needs of Enel customers around the world, exploring > the acquisition in May 2017, for €5 million (including opportunities in new technologies in order to develop a number of expected price adjustments), of the enti- innovative products focused on the needs of consumers re share capital of Tynemouth Energy Storage Limited and on digital, non-commodity solutions. The company from Element Power, a European company specialized will specifically focus on electric mobility, Vehicle-to- in the development and operation of energy projects. Grid projects, recharging infrastructures, energy effi- The company holds a stand-alone project for a battery ciency management, batteries and energy-optimization energy storage system (BESS) in Newcastle, England. platforms, public lighting, and distributed generation sy- The project, which is ready for construction, is to be carri- stems. To this end, on November 1, 2017, the Parent ed out by Enel’s Global Thermal Generation Division, will Company, Enel SpA, subscribed a capital increase in use lithium-ion batteries with a capacity of 25 MW (12.5 kind plus the share premium for a total value of €5 million MWh), and is to be completed in early 2018; (of which €1 million in share capital and €4 million in sha- > the formation, on June 5, 2017, of Enel eS Srl (subse- re premium) by assigning the entirety of the investment quently renamed Enel X Srl) by paying in €50,000 of held in Enel Sole Srl; share capital held entirely by Enel SpA. This company, > the acquisition, on November 16, 2017, of the entire sha- 348 Annual Report 2017re capital of Enel M@p Srl from e-distribuzione SpA for a register. Following this merger, conducted without the payment of €12 million; exchange of shares and so with no increase in capital for > the formation, on November 20, 2017, of Enel Global the surviving company, Enel SpA will be able to benefit Thermal Generation Srl by subscribing and paying in the from direct control of the Chilean companies Enel Améri- entire share capital in the amount of €1 million. cas SA and Enel Chile SA, which represent the lion’s sha- Other operations in 2017 did not result in changes in the re of the Group’s business in South America as a result overall value of the equity investments held by Enel SpA. of shorting the chain of control. The merger also resulted Of particular note were the following: in Enel SpA holding an 11.11% direct investment in both > the merger of Enel Ingegneria e Ricerca SpA into Enel Empresa Propietaria de la Red SA and Red Centroame- Produzione SpA effective on January 1, 2017; ricana de Telecomunicaciones SA, as well as a 0.0001% > the formation, on June 8, 2017, of Enel South America direct investment in Compañía de Transmisión del Mer- Srl, an Italian company based in Rome (Viale Regina Mar- cosur SA. gherita 137) established as a result of the partial cross- border, intra-European demerger of Enel Iberoamérica The share certificates for Enel SpA’s investments in Ita- Srl (subsequently renamed Enel Iberia Srl) and wholly lian subsidiaries are held in custody at Monte dei Paschi owned by Enel SpA; di Siena. > the merger of Enel South America Srl into Enel SpA in The following table reports the share capital and sharehol- November 2017, effective retroactively for accounting and ders’ equity of the investments in subsidiaries, joint ven- tax purposes to June 8, 2017, the date on which Enel tures, associates and other companies at December 31, South America Srl was listed with the Rome company 2017. 349 Financial statements of Enel SpAHead office Currency Share capital Shareholders’ equity (millions of euro) Prior year income/(loss) (millions of euro) % holding Carrying amount (millions of euro) A) Subsidiaries Enel Produzione SpA e-distribuzione SpA Servizio Elettrico Nazionale SpA Enel Trade SpA Enel Green Power SpA Enel X Srl Rome Rome Rome Rome Rome Rome Enel Investment Holding BV Amsterdam Enelpower SpA Enel Global Thermal Generation Srl Enel Energia SpA Enel Iberia Srl Enel.Factor SpA Enel Italia Srl Enel Innovation Hubs Srl Enel M@p Srl Milan Rome Rome Madrid Rome Rome Rome Rome Enel Finance International NV Amsterdam Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro 1,800,000,000 2,600,000,000 10,000,000 90,885,000 3,971 4,454 210 527 272,000,000 6,601 1,050,000 (8) 1,593,050,000 3,282 2,000,000 1,000,000 30 1 229 100.0 3,913 1,332 100.0 4,056 101 (19) 58 (13) 140 - - 100.0 110 100.0 1,194 100.0 6,540 100.0 5 100.0 4,025 100.0 100.0 30 1 302,039 1,872 793 100.0 1,313 336,142,500 16,448 1,130 100.0 13,713 12,500,000 50,000,000 1,000,000 100,000 52 400 21 2 3 16 1 2 100.0 100.0 100.0 100.0 18 487 16 12 1,478,810,371 1,863 (96) 100.0 2,397 Tynemouth Energy Storage Limited London Pound sterling 2 Enel Américas SA Santiago US dollar 6,763,204,424 Enel Chile SA Santiago Chilean peso 2,229,108,974,538 2 5,813 1,856 - 100.0 5 1,072 378 51.8 60.6 2,822 1,760 Milan Euro 250,000,000 699 (11) 50.0 365 B) Joint ventures OpEn Fiber SpA C) Associates CESI SpA D) Other companies Empresa Propietaria de la Red SA Red Centroamericana de Telecomunicaciones SA Milan Euro 8,550,000 111 Panama US dollar 58,500,000 105 Panama US dollar 2,700,000 1 Compañía de Transmisión del Mercosur SA Buenos Aires Argentine peso 14,012,000 Elcogas SA Puertollano Euro 809,690 Emittenti Titoli SpA in liquidation (1) Idrosicilia SpA (1) Milan Milan Euro Euro 4,264,000 22,520,000 (25) (109) 12 47 (1) The figures for share capital, shareholders’ equity and net income refer to the financial statements at December 31, 2016. 350 7 5 - (8) 3 1 1 42.7 23 11.1 11.1 - 4.3 10.0 1.0 5 - - - 1 - Annual Report 2017The carrying amounts of the equity investments in Enel and models used for the assessments were consistent, Investment Holding BV, Enel Trade SpA, Enel X Srl, Enel to the extent compatible, with those used for impairment Italia Srl, Enel Finance International NV and Enel M@p Srl testing in the consolidated financial statements. The are considered to be recoverable even though they indivi- exercise found a larger value for the equity investments dually exceed the value of their respective shareholders’ that was not reflected in book shareholders’ equity, the- equity at December 31, 2017. This circumstance is not reby confirming that the value of the equity investments felt to represent an impairment loss in respect of the in- was fully recoverable; vestment but rather a temporary mismatch between the > in the case of Enel Finance International NV, it is attribu- two amounts. More specifically: table to the negative developments in the fair value of a > in the case of Enel Italia Srl, it is attributable to the re- number of items in shareholders’ equity. troactive application of ”IAS 19 - Employee benefits” in 2013, which involved the recognition of net actuarial It should also be noted that these shareholdings have pas- losses and the consequent impact on the companies’ sed their related impairment tests. shareholders’ equity. As these losses are not monetary in nature, they will be recovered in future years with no Equity investments in other companies at December 31, cash outflow for the subsidiary; 2017, all regard unlisted companies and are measured at > in the cases of Enel Trade SpA, Enel Investment Holding cost, as the fair value cannot be reliably determined. BV, Enel M@p Srl and Enel X Srl, the negative difference The investment in Elcogas was completely written off in between the carrying amount of the equity investments 2014 and, since January 1, 2015, the company, in which and their shareholders' equity represented a trigger Enel has a stake of 4.3%, has been in liquidation. The pro- event, following which an impairment testing exercise fit participation loan of €6 million granted in 2014 has also determined the equity value of the investments on the been written down to take account of accumulated losses. basis of expected future cash flows. The assumptions Millions of euro Equity investments in unlisted companies measured at cost Empresa Propietaria de la Red SA Red Centroamericana de Telecomunicaciones SA Compañía de Transmisión del Mercosur SA Elcogas SA Emittenti Titoli SpA in liquidation Idrosicilia SpA at Dec. 31, 2017 at Dec. 31, 2016 6 5 - - - 1 - 1 - - - - 1 - 14. Derivatives - €1,456 million, €111 million, €2,270 million, €176 million Millions of euro Non-current Current at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Derivative financial assets Derivative financial liabilities 1,456 2,270 2,469 3,082 111 176 480 556 For more details about the nature, recognition and classi- see notes 31, “Financial instruments”, and 33, “Derivati- fication of derivative financial assets and liabilities, please ves and hedge accounting”. 351 Financial statements of Enel SpA15. Other non-current financial assets - €16 million The aggregate is composed of the following. Millions of euro Prepaid financial expense Other non-current financial assets included in debt Total Notes at Dec. 31, 2017 at Dec. 31, 2016 Change 15.1 10 6 16 21 32 53 (11) (26) (37) Prepaid financial expense refers to transaction costs on compared with the previous year reflects the difference the new €10 billion revolving credit facility established on between the residual costs on the credit facility that was December 18, 2017, between Enel SpA, Enel Finance In- closed in advance and the transaction costs for the new ternational, and Mediobanca following the closure of the facility. Acquisition of the new, five-year credit facility has existing credit facility established on April 10, 2010, and resulted in a general reduction in cost. renegotiated in 2013 and 2015. The change of €11 million 15.1 Other non-current financial assets included in debt - €6 million Millions of euro Financial receivables Notes at Dec. 31, 2017 at Dec. 31, 2016 Change Due from subsidiaries 31.1.1 Other financial receivables Total - 6 6 27 5 32 (27) 1 (26) Other non-current financial assets included in debt totaled es, which only included the receivable resulting from Enel €6 million as at December 31, 2017, and related solely to Italia Srl taking over its portion of financial debt. loans to employees. In 2017, this receivable was reclassified among current fi- The €26 million decrease compared with the previous year nancial assets. was due to the reduction in amounts due from subsidiari- 16. Other non-current assets - €148 million This item breaks down as follows. Millions of euro Tax receivables Receivable from subsidiaries for assumption of supplementary pension plan liabilities Total 352 at Dec. 31, 2017 at Dec. 31, 2016 Change 9 139 148 34 154 188 (25) (15) (40) Annual Report 2017Tax receivables regard the tax credit in respect of the claim refers to receivables in respect of the assumption by Group for reimbursement submitted by Enel SpA on its own behalf companies of their share of the supplementary pension plan. for 2003 and on its own behalf and as the consolidating com- The terms of the agreement state that the Group companies pany for 2004-2011 for excess income tax paid as a result of concerned are to reimburse the costs of extinguishing de- not partially deducting IRAP in calculating taxable income for fined benefit obligations of the Parent Company, which are IRES purposes. The decrease of €25 million compared with recognized under employee benefits. the previous year was essentially due to the reimbursement On the basis of actuarial forecasts made using current as- by the Revenue Agency, both principal and interest, of the sumptions, the portion due beyond five years of these recei- receivable related to 2011. vables from subsidiaries for assumption of supplementary pension plan liabilities came to €76 million (€90 million at Receivable from subsidiaries for assumption of supplemen- December 31, 2016). tary pension plan liabilities, in the amount of €139 million, 17. Trade receivables - €237 million The item breaks down as follows. Millions of euro Trade receivables: - due from subsidiaries - due from non-Group customers Total at Dec. 31, 2017 at Dec. 31, 2016 Change 208 29 237 229 26 255 (21) 3 (18) Trade receivables, which totaled €237 million, consist of €21 million reflects the trend in revenue related to these receivables due from subsidiaries (€208 million) and non- services. Group customers (€29 million). Receivables from non-Group customers concern services Trade receivables due from subsidiaries primarily regard of various nature and totaled €29 million, which is essen- the management and coordination services and other ac- tially unchanged from December 31, 2016. tivities performed by Enel SpA on behalf of Group compa- Trade receivables due from subsidiaries break down as fol- nies. Compared with December 31, 2016, the decrease of lows. 353 Financial statements of Enel SpAMillions of euro Subsidiaries Enel Iberia Srl Enel Produzione SpA e-distribuzione SpA Enel Green Power SpA Enel Américas SA Endesa SA Servizio Elettrico Nazionale SpA Enel Trade SpA Enel Energia SpA Enel Italia Srl Enel Green Power North America Inc. Enel X Srl Enel Russia PJSC Endesa Distribución Eléctrica SL Endesa Generación SA Endesa Energía SA Enel Romania Srl Enel Brasil SA Enel Distribución Perú SAA Enel Generación Perú SAA Unión Eléctrica de Canarias Generación SAU Other Total at Dec. 31, 2017 at Dec. 31, 2016 Change 1 13 33 3 3 4 1 1 1 18 1 2 16 27 10 4 4 25 6 6 3 26 208 2 16 34 16 4 - 4 4 10 9 1 - 17 36 20 5 4 13 5 5 5 19 229 (1) (3) (1) (13) (1) 4 (3) (3) (9) 9 - 2 (1) (9) (10) (1) - 12 1 1 (2) 7 (21) Trade receivables by geographical area are shown below. Millions of euro Italy EU Non-EU Europe Other Total at Dec. 31, 2017 at Dec. 31, 2016 Change 77 97 17 46 237 96 103 6 50 255 (19) (6) 11 (4) (18) 18. Income tax receivables - €265 million Income tax receivables at December 31, 2017 amounted receivable with respect to the consolidated IRES return for to €265 million and essentially regard the company’s IRES 2016 (€98 million). credit for estimated current taxes (€165 million) and the 354 Annual Report 201719. Other current financial assets - €4,350 million This item can be broken down as follows. Millions of euro Other current financial assets included in debt Other sundry current financial assets Total Notes 19.1 at Dec. 31, 2017 at Dec. 31, 2016 Change 4,085 265 4,350 3,912 309 4,221 173 (44) 129 19.1 Other current financial assets included in debt - €4,085 million Millions of euro Notes at Dec. 31, 2017 at Dec. 31, 2016 Change Financial receivables due from Group companies: - short-term financial receivables (intercompany current accounts) - current portion of receivables for assumption of loans Financial receivables due from others: - current portion of long-term financial receivables - other financial receivables 31.1.1 31.1.1 - cash collateral for margin agreements on OTC derivatives 31.1.1 Total 1,984 27 1 (1) 2,074 4,085 2,849 45 1 5 1,012 3,912 (865) (18) - (6) 1,062 173 Other current financial assets included in debt, amounting due from Group companies on the intercompany current to €4,085 million at December 31, 2017, refer to financial account (€865 million). receivables due from Group companies (€2,011 million) Financial receivables due from others increased by €1,056 and financial receivables due from others (€2,074 million). million, essentially attributable to the increase in cash col- Financial receivables due from Group companies decrea- lateral paid to counterparties for over-the-counter derivati- sed by €883 million compared with December 31, 2016, ves on interest rates and exchange rates. due to the decline in in short-term financial receivables 20. Other current assets - €452 million At December 31, 2017, 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, 2017 at Dec. 31, 2016 Change 10 435 7 452 34 261 4 299 (24) 174 3 153 With respect to December 31, 2016, other current assets (now a payable balance of €90 million as at December 31, show an overall increase of €153 million. 2017). Tax receivables amounted to €10 million, primarily including Other receivables due from Group companies essentially receivables with respect to prior-year income taxes (€8 mil- regard VAT receivables in respect of participating in the lion). The €24 million decrease compared with the previous Group VAT mechanism (€348 million), IRES receivables in year is essentially attributable to the VAT receivable (€27 respect of the Group companies participating in the conso- million) recognized by the Group as at December 31, 2016 lidated taxation mechanism (€33 million), and receivables 355 Financial statements of Enel SpAfor the interim dividend approved in 2017 by the subsidia- interim dividends (totaling €52 million), and the reduction in ries Enel Américas SA and Enel Chile SA (€24 million and intragroup receivables related to the Italian IRES tax conso- €28 million, respectively), which was collected in January lidation (€175 million). 2018. The increase of €174 million compared with Decem- Receivables due from others, in the amount of €7 million ber 31, 2016 was essentially due to the greater VAT recei- as at December 31, 2107, were essentially in line with the vables in respect of participating in the Group VAT mecha- figure for 2016 (€4 million). nism (€295 million), the aforementioned receivables for the 21. Cash and cash equivalents - €2,489 million Cash and cash equivalents, detailed in the table below, are essentially in respect of deposits pledged to secure tran- not restricted by any encumbrances, apart from €4 million sactions carried out. Millions of euro Bank and post office deposits Cash and cash equivalents on hand Total at Dec. 31, 2017 at Dec. 31, 2016 2,489 - 2,489 3,038 - 3,038 Change (549) - (549) Cash and cash equivalents amounted to €2,489 million, payment of dividends during 2016 as approved by the Enel a decrease of €549 million compared with December 31, SpA shareholders on May 4, 2017, as well as normal opera- 2016, due to the impact of the redemption and repurchase tions connected with the central treasury function perfor- of a number of bonds, new long-term bank borrowings, the med by the Parent Company. Liabilities and equity 22. Shareholders’ equity - €27,236 million Shareholders’ equity amounted to €27,236 million, up €320 reholders on May 4, 2017, and the interim dividend for 2017 million compared with December 31, 2016. The increase is approved by the Board of Directors on November 8, 2017, attributable to net income for the year (€2,303 million), the and paid as from January 24, 2018 (€0.105 per share, for a distribution of the dividend for 2016 in the amount of €0.09 total of €1,068 million). per share (for a total of €915 million), as approved by the sha- Share capital - €10,167 million At December 31, 2017, the share capital of Enel SpA nomy and Finance (with a 23.585% stake) and BlackRock amounted to €10,166,679,946 fully subscribed and paid Inc. (with a 5.615% stake held through subsidiaries as of Au- up, represented by that same number of ordinary shares gust 15, 2017, for the purposes of asset management). with a par value of €1.00 each. This figure for Enel SpA share capital is therefore unchanged compared with the €10,166,679,946 of December 31, 2016. At December 31, 2017, based on the shareholder register and Other reserves - €11,443 million Share premium reserve - €7,496 million The share premium reserve as at December 31, 2017 is taking account of CONSOB’s instructions to the company unchanged compared with the previous year. in accordance with Article 120 of Italian Legislative Decree 58 of February 24, 1998, and all other information available, the only shareholders with interests of greater than 3% in Legal reserve - €2,034 million The legal reserve, equal to 20.0% of share capital, is un- the company’s share capital were the Italian Ministry of Eco- changed compared with the previous year. 356 Annual Report 2017Reserve pursuant to Law 292/1993 - €2,215 million The reserve shows the remaining portion of the value Reserve from measurement of financial instruments - €(338) million At December 31, 2017, the item was entirely represented adjustments carried out when Enel was transformed from by the reserve from measurement of cash flow hedge de- a public entity to a joint-stock company. rivatives with a negative value of €338 million (net of the In the case of a distribution of this reserve, the tax tre- positive tax effect of €66 million). atment for capital reserves as defined by Article 47 of the Uniform Income Tax Code shall apply. Other sundry reserves - €68 million Other reserves include €19 million related to the reserve for capital grants, which reflects 50% of the grants recei- ved from Italian public entities and EU bodies in application of related laws for new works (pursuant to Article 55 of Presidential Decree 917/1986), which is recognized in equi- ty in order to take advantage of tax deferment benefits. It also includes €29 million in respect of the stock option reserve and €20 million for other reserves. Reserve from remeasurement of net employee benefit plan liabilities/(assets) - €(32) million At December 31, 2017, the employee benefit plan reserve amounted to €32 million (net of the positive tax effect of €8 mil- lion). The reserve includes actuarial gains and losses recogni- zed directly in equity, as the corridor approach is no longer per- mitted under the new version of ”IAS 19 - Employee benefits”. The table below provides a breakdown of changes in the reserve from measurement of financial instruments and the reserve from measurement of defined benefit plan lia- bilities/assets in 2016 and 2017. Gross gains/ (losses) recognized in equity for the year Gross released to income statement at Jan. 1, 2016 Taxes at Dec. 31, 2016 Gross gains/ (losses) recognized in equity for the year Gross released to income statement Taxes (277) (479) 339 41 (376) (201) 232 (16) (15) - 4 (27) (7) - (293) (494) 339 45 (403) (208) 232 at Dec. 31, 2017 7 2 9 (338) (32) (370) Millions of euro Reserve from measurement of cash flow hedge financial instruments Reserve from remeasurement of net employee benefit plan liabilities/(assets) Gains/(Losses) recognized directly in equity Retained earnings/(Loss carried forward) - €4,424 million For 2017, the item shows a decrease of €110 million, attribu- amount of €203 million for the distribution of dividends to table to the resolution of the Shareholders’ Meeting of May shareholders and the allocation to retained earnings of part 4, 2017, which provided for the use of this reserve in the of the net income for 2016, equal to €93 million. Net income for the year - €1,202 million Net income for 2017, net of the interim dividend for 2017 of The table below shows the availability of shareholders’ €0,105 per share (for a total of €1,068 million), amounted equity for distribution. to €1,202 million. 357 Financial statements of Enel SpA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 employee benefit plan liabilities - other Retained earnings/(Loss carried forward) Total of which amount available for distribution at Dec. 31, 2017 Possible uses Amount available 10,167 7,496 2,034 2,215 (338) 19 29 (32) 20 4,424 26,034 ABC B ABC ABC ABC ABC ABC 7,496 2,215 19 29 (1) (2) 20 4,424 14,203 14,200 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. There are no restrictions on the distribution of the reserves Enel’s goals in capital management are focused on the crea- pursuant to Article 2426, paragraph 1(5) of the Italian Civil tion of value for shareholders, safeguarding the interests of Code since there are no unamortized start-up and expansion stakeholders and ensuring business continuity, as well as on costs or research and development costs, or departures pur- maintaining sufficient capitalization to ensure cost-effective suant to Article 2423, paragraph 4, of the Italian Civil Code. access to outside sources of financing, so as to adequately Note that, in the three previous years, the available reserve support growth in the Group’s business. denominated “retained earnings/(loss carried forward) has been used in the amount of €1,862 million for the distribution of dividends to shareholders. 358 Annual Report 201722.1 Dividends The table below shows the dividends paid by the company in 2016 and 2017. Amount distributed (in millions of euro) Net dividend per share (in euro) Dividends paid in 2016 Dividends for 2015 Interim dividend for 2016 (1) Special dividends Total dividends paid in 2016 Dividends paid in 2017 Dividends for 2016 Interim dividend for 2017 (2) Special dividends Total dividends paid in 2017 1,627 - - 1,627 1,830 - - 1,830 0.16 - - 0.16 0.18 - - 0.18 (1) Approved by the Board of Directors on November 10, 2016, and paid as from January 25, 2017 (interim dividend per share of €0.09 for a total of €915 million). (2) Approved by the Board of Directors on November 8, 2017, and paid as from January 24, 2018 (interim dividend per share of €0.105 for a total of €1,068 million). The dividend for 2017, equal to €0.237 per share, amounting the effects of the distribution of this dividend for 2017 to to a total of €2,410 million (of which €0.105 per share, for shareholders, with the exception of liabilities due to sha- a total of €1,068 million, already paid as an interim divi- reholders for the 2017 interim dividend approved by the dend as from January 24, 2018), has been proposed to and Board of Directors on November 8, 2017, and paid as from resolved by the Shareholders’ Meeting of May 24, 2018, January 24, 2018. at a single call. These financial statements do not reflect 22.2 Capital management The company’s objectives for managing capital comprise In this context, the company manages its capital structure safeguarding the business as a going concern, creating va- and adjusts that structure when changes in economic con- lue for stakeholders and supporting the development of ditions so require. There were no substantive changes in the Group. In particular, the Group seeks to maintain an objectives, policies or processes in 2017. 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, 2017 and 2016 is summarized in rating. Millions of euro Non-current financial position Net short-term financial position Non-current financial receivables and long-term securities Net financial debt Shareholders’ equity Debt/equity ratio the following table. at Dec. 31, 2017 at Dec. 31, 2016 (10,780) (2,477) 6 (13,251) 27,236 (0.49) (13,664) (207) 32 (13,839) 26,916 (0.51) Change 2,884 (2,270) (26) 588 320 0.02 359 Financial statements of Enel SpA23. Borrowings - €10,780 million, €3,654 million, €5,397 million Millions of euro Non-current Current at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Long-term borrowings Short-term borrowings 10,780 - 13,664 - 3,654 5,397 973 6,184 For more details about the nature, recognition and classification of borrowings, please see note 31, “Financial instruments”. 24. Employee benefits - €273 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 by law, by con- pay, indemnities in lieu of notice, loyalty bonuses for achie- tract, or under other forms of employee incentive schemes. vement of seniority milestones, supplementary pension These obligations, in accordance with IAS 19, were deter- plans, supplementary healthcare plans, additional indemni- mined using the projected unit credit method. ty for FOPEN pension contributions, FOPEN pension con- The following table reports the change during the year in tributions in excess of deductible amount and personnel the defined benefit obligation, as well as a reconciliation of incentive plans. the defined benefit obligation with the obligation recogni- zed at December 31, 2017, and December 31, 2016. The item includes accruals made to cover post-employment Millions of euro 2017 2016 Pension benefits Electricity discount Health insurance Other benefits Total Pension benefits Electricity discount Health insurance Other benefits Total 222 - 3 - (1) 2 (25) (1) 200 - - - - - - - - - 40 2 1 - - 6 (2) (2) 45 24 20 - - - - 286 22 4 - (1) 8 (14) (41) (2) (5) 28 273 230 - 5 1 10 1 (26) 1 222 - - - - - - - - - 37 1 1 (1) 3 1 (3) 1 40 24 14 - - - - 291 15 6 - 13 2 (15) (44) 1 3 24 286 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 assumptions Experience adjustments Other payments Other changes Actuarial obligation at December 31 360 Annual Report 2017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 Other changes Total 2017 22 4 - 26 2017 7 - 7 2016 15 6 - 21 2016 15 - 15 The current service cost for employee benefits in 2017 The main actuarial assumptions used to calculate the liabilities amounted to €22 million, recognized under personnel costs arising from employee benefits, which are consistent with tho- (€15 million in 2015), while the interest cost from the accretion se used the previous year, are set out below. of the liability amounted to €4 million (€6 million in 2016). Discount rate Rate of wage increases Rate of increase in healthcare costs 2017 0.20%-1.50% 1.50%-3.50% 2.50% 2016 0.30%-1.40% 1.40%-3.40% 2.40% 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 (3) 3 3 - - 7 - 25. Provisions for risks and charges - €43 million Provisions for risks and charges cover probable potential from court judgments and other dispute settlements for the liabilities that could arise from legal proceedings and other year and an update of the estimates for positions arising in disputes, without considering the effects of rulings that are previous 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 ta- and charges. ken account of both the charges that are expected to result 361 Financial statements of Enel SpAMillions of euro Accruals Reversals Utilization Total Taken to income statement at Dec. 31, 2016 at Dec. 31, 2017 of which current portion Provision for litigation, risks and other charges: - litigation - other Total Provision for early retirement incentives TOTAL 12 28 40 28 68 1 6 7 - 7 (2) - (2) - (2) - (23) (23) (4) (27) 11 11 22 21 43 7 8 15 2 17 The €1 million decrease in the provision for litigation re- effect of utilizations and accruals for the year and related flects amounts released to the income statement following to sundry risks. the settlement of a number of disputes, which were par- The decrease of €7 million in the provision for early retire- tially offset by new accruals for pending suits. ment incentives is essentially attributable to payments in The provision covers disputes in Italy and essentially re- 2017 of voluntary terminations under Article 4 of the Forne- gards labor litigation (€8 million) and litigation concerning ro Act, as well as to transfers of personnel from Enel SpA to tender contracts (€2 million). other companies of the Group, which resulted in the intra- The decrease of €17 million in other provisions is the net group transfer of the related portions of this provision. 26. Other non-current liabilities - €12 million Other non-current liabilities amounted to €12 million (€36 by the recognition of non-current tax receivables (note 16). million at December 31, 2016). They essentially regard the The decrease of €24 million is essentially attributable to the debt towards Group companies that initially arose following payment to the consolidated companies of the reimburse- Enel SpA’s application (submitted in its capacity as the con- ment of the receivable for 2011 received from the Revenue solidating company) for reimbursement for 2004-2011 of Agency in 2017. The amount of the liability at December 31, the additional income taxes paid as a result of not deduc- 2017 reflects the updating of the interest accrued on the ting part of IRAP in computing taxable income for IRES pur- residual receivable. poses. The liability in respect of the subsidiaries is balanced 27. Trade payables - €137 million Millions of euro Trade payables: - due to third parties - due to Group companies Total at Dec. 31, 2017 at Dec. 31, 2016 Change 66 71 137 83 67 150 (17) 4 (13) Trade payables mainly include payables for the provision of Trade payables due to subsidiaries at December 31, 2017, services and other activities performed in 2017, and compri- break down as follows. se payables due to third parties of €66 million (€83 million at December 31, 2016) and payables due to Group compa- nies of €71 million (€67 million at December 31, 2016). 362 Annual Report 2017Millions of euro Subsidiaries Enel Produzione SpA e-distribuzione SpA Enel Ingegneria e Ricerca SpA Servizio Elettrico Nazionale SpA Enel Trade SpA Enel Green Power SpA Enel Italia Srl Enel Iberia Srl Enel.Factor SpA Endesa SA Enel Russia PJSC Other Total at Dec. 31, 2017 at Dec. 31, 2016 Change 1 1 - - 1 1 35 21 2 3 - 6 71 1 - 1 1 1 - 41 10 1 2 3 6 67 - 1 (1) (1) - 1 (6) 11 1 1 (3) - 4 Trade payables break down by geographical area as follows. Millions of euro Suppliers: Italy EU Non-EU Europe Other Total at Dec. 31, 2017 at Dec. 31, 2016 Change 99 31 4 3 137 119 20 7 4 150 (20) 11 (3) (1) (13) 28. Other current financial liabilities - €465 million Other current financial liabilities mainly regard interest expense accrued on debt outstanding at year end. Millions of euro Deferred financial liabilities Other items Total Notes 31.2.1 31.2.1 at Dec. 31, 2017 at Dec. 31, 2016 Change 450 15 465 501 49 550 (51) (34) (85) More specifically, deferred financial liabilities consist of in- the following year, comprising both financial expense on terest expense accrued on financial debt, while the other hedge derivatives on commodity exchange rates and inte- items essentially include amounts due to Group companies rest expense on intercompany current accounts. that accrued as of December 31, 2017, but to be settled in 363 Financial statements of Enel SpA29. Net financial position and long-term financial receivables and securities - €13,251 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 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, 2017 at Dec. 31, 2016 23 23 23 15.1 19.1 21 10,780 5,397 3,654 6 4,085 2,489 13,251 13,664 6,184 973 32 3,912 3,038 13,839 Change (2,884) (787) 2,681 (26) 173 (549) (588) Pursuant to the CONSOB instructions of July 28, 2006, the ber 31, 2017, reconciled with net financial debt as reported following table reports the net financial position at Decem- in the Report on operations. at Dec. 31, 2017 at Dec. 31, 2016 Change of which with related parties of which with related parties 2,489 2,489 4,085 (245) (3,654) (5,152) (9,051) (2,477) (1,039) (8,541) (1,200) (10,780) (10,780) (13,257) 6 (13,251) 2,011 (4,896) 2,894 (4,268) 3,038 3,038 3,912 (810) (973) (5,374) (7,157) (207) (50) (12,414) (1,200) (13,664) (13,664) (13,871) - 32 27 (13,839) (549) (549) 173 565 (2,681) 222 (1,894) (2,270) (989) 3,873 - 2,884 2,884 614 (26) 588 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 Long-term bank debt Bonds Other long-term debt Long-term borrowings Non-current financial position NET FINANCIAL POSITION as per CONSOB instructions Long-term financial receivables NET FINANCIAL DEBT 364 Annual Report 201730. Other current liabilities - €2,065 million Other current liabilities mainly concern payables due to tax interim dividend for 2017 approved by the Enel SpA Bo- authorities and to the Group companies participating in the ard of Directors on November 8, 2017, and paid as from consolidated IRES taxation mechanism and the Group VAT January 24, 2018 (€1,068 million in 2017 and €915 million system, as well as the liability due to shareholders for the in 2016). 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, 2017 at Dec. 31, 2016 502 428 27 12 2 1,094 2,065 184 544 30 12 1 923 1,694 Change 318 (116) (3) - 1 171 371 Tax payables amounted to €502 million and essentially re- tion mechanism (€457 million at December 31, 2016) and gard amounts due to tax authorities for consolidated IRES €252 million in respect of Group VAT (€86 million at Decem- (€405 million) and for Group VAT for the 4th Quarter of 2017 ber 31, 2016). The decrease of €116 million reflects deve- (€90 million). The increase of €318 million compared with lopments in the debtor positions noted above. the previous year was mainly due to the increase in taxes The item “Other”, equal to €1,094 million, includes €1,068 payable for consolidated IRES (€228 million) and for Group million (€915 million at December 31, 2016) for the liability VAT (€90 million). due to shareholders for the interim dividend to be paid as Payables due to Group companies amounted to €428 mil- from January 24, 2018 (€0.105 per share for 2017 and €0.09 lion. They essentially consist of €175 million in payables in per share for 2016). respect of the IRES liability under the consolidated taxa- 365 Financial statements of Enel SpA31. Financial instruments 31.1 Financial assets by category The following table shows the carrying amount for each ca- parately hedging derivatives and derivatives measured at tegory of financial assets provided by IAS 39, broken down fair value through profit or loss. into current and non-current financial assets, showing se- Millions of euro Non-current Current Notes at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Loans and receivables Financial assets available for sale 31.1.1 31.1.2 Financial assets at fair value through profit or loss Derivative financial assets at FVTPL Total Derivative financial assets designated as hedging instruments Cash flow hedge derivatives Fair value hedge derivatives Total TOTAL 33 33 33 16 6 940 940 501 15 516 1,478 53 1 1,691 1,691 751 27 778 2,523 7,076 - 111 111 - - - 7,514 - 480 480 - - - 7,187 7,994 For more details on the recognition and classification of current and non-current derivative financial assets, please see note 33 “Derivatives and hedge accounting”. 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, 2017 at Dec. 31, 2016 Cash and cash equivalents Trade receivables Financial receivables due from Group companies Receivables for assumption of share of financial debt 15.1 Receivables on intercompany current accounts Current portion of receivables for assumption of loans 19.1 Other financial receivables Total Financial receivables due from others Current portion of long-term financial receivables Cash collateral for margin agreements on OTC derivatives Other financial receivables Total TOTAL - - - - - - - - - 16 16 16 - - 27 - - - 27 - - 26 26 53 Notes 21 17 at Dec. 31, 2017 at Dec. 31, 2016 2,489 237 3,038 255 - - 19.1 1,984 2,849 27 174 45 154 2,185 3,048 1 2,074 90 2,165 7,076 1 1,012 160 1,173 7,514 19.1 The primary changes compared with 2016 regarded: lion, essentially attributable to the redemption and repur- > a decrease in “Cash and cash equivalents” of €549 mil- chase of a number of bonds, the payment of dividends 366 Annual Report 2017for 2016 and to the normal central treasury functions per- > an increase of “Financial receivables due from others” formed by Enel SpA; totaling €982 million, mainly as a result of an increase > a decrease in “Financial receivables due from Group in cash collateral paid to counterparties for OTC deriva- companies” totaling €863 million, largely reflecting the tives transactions on interest rates and exchange rates decrease in receivables on the intercompany current ac- (€1,062 million). count held with Group companies (€865 million); 31.1.2 Financial assets available for sale Financial assets available for sale amounted to €6 million 2017 following the merger into Enel SpA of Enel South (€1 million at December 31, 2016) and are represented America Srl, and in Emittenti Titoli SpA (€1 million). Both by equity investments held by Enel SpA in Empresa Pro- investments are classified as “Equity investments in other pietaria de la Red SA (€5 million), which was acquired in entities” and carried at cost. 31.2 Financial liabilities by category The following table shows the carrying amount for each ing separately hedging derivatives and derivatives measu- category of financial liabilities provided by IAS 39, broken red at fair value through profit or loss. down into current and non-current financial liabilities, show- Millions of euro Non-current Current Financial liabilities measured at amortized cost Financial liabilities at fair value through profit or loss Derivative financial liabilities at FVTPL Total Derivative financial liabilities designated as hedging instruments Cash flow hedge derivatives Total TOTAL Notes at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 31.2.1 10,780 13,664 9,653 7,857 33 33 943 943 1,327 1,327 13,050 1,703 1,703 1,379 1,379 16,746 176 176 - - 556 556 - - 9,829 8,413 For more details on the recognition and classification of cur- For more details about fair value measurement, please see rent and non-current derivative financial liabilities, please note 34 “Fair value measurement”. see note 33 “Derivatives and hedge accounting”. 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, 2017 at Dec. 31, 2016 Notes at Dec. 31, 2017 at Dec. 31, 2016 Long-term borrowings 23 10,780 13,664 Short-term borrowings Trade payables Other current financial liabilities - - - - - - 23 27 28 Total 10,780 13,664 3,654 5,397 137 465 9,653 973 6,184 150 550 7,857 367 Financial statements of Enel SpABorrowings Long-term borrowings (including the portion falling due within 12 months) - €14,434 million Long-term borrowings, which refer to bonds, bank bor- cember 31, 2017, including the portion falling due within 12 rowings and loans from Group companies, denominated in months, grouped by type of borrowing and type of interest euros and other currencies, including the portion falling due rate. For listed debt instruments, the fair value is given by offi- within 12 months (equal to €3,654 million), amounted to cial prices. For unlisted debt instruments, fair value is determi- €14,434 million at December 31, 2017. ned using valuation techniques appropriate for each category The following table shows the nominal values, carrying of financial instrument and the associated market data for the amounts and fair values of long-term borrowings at De- reporting date, including the credit spreads of the Group. 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 Carrying amount at Dec. 31, 2017 at Dec. 31, 2016 Change Bonds: - fixed rate 10,447 10,390 3,088 7,302 11,880 11,584 11,502 908 10,594 13,117 (1,112) - floating rate 1,805 1,805 566 1,239 1,767 1,888 1,885 65 1,820 1,858 (80) Total 12,252 12,195 3,654 8,541 13,647 13,472 13,387 973 12,414 14,975 (1,192) Bank borrowings: - fixed rate - - - floating rate 1,039 1,039 Total 1,039 1,039 Loans from Group companies: - fixed rate 1,200 1,200 - floating rate - - Total 1,200 1,200 - - - - - - - - 1,039 1,043 1,039 1,043 - 50 50 - 50 50 1,200 1,540 1,200 1,200 - - - - 1,200 1,540 1,200 1,200 - - - - - - - 50 50 - 50 50 1,200 1,575 - - 1,200 1,575 - 989 989 - - - Total fixed-rate borrowings Total floating- rate borrowings 11,647 11,590 3,088 8,502 13,420 12,784 12,702 908 11,794 14,692 (1,112) 2,844 2,844 566 2,278 2,810 1,938 1,935 65 1,870 1,908 909 TOTAL 14,491 14,434 3,654 10,780 16,230 14,722 14,637 973 13,664 16,600 (203) The balance for bonds is reported net of €860 million in re- please see note 32 “Risk management”, while for more spect of the unlisted floating-rate “Special series of bonds about fair value measurement inputs, please see note 34 reserved for employees 1994-2019”, which Enel SpA holds “Fair value measurement”. in its portfolio. The table below shows long-term borrowings by currency For more details about the maturity analysis of borrowings, and interest rate. 368 Annual Report 2017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, 2016 at Dec. 31, 2017 at Dec. 31, 2017 Euro US dollar Pound sterling Total non-euro currencies TOTAL 11,113 1,168 2,356 3,524 14,637 10,939 1,218 2,277 3,495 14,434 10,961 1,232 2,298 3,530 14,491 4.6% 7.7% 6.5% 4.8% 8.1% 6.7% The table below reports changes in the nominal value of long-term debt. Millions of euro Nominal value Repayments New borrowing Own bonds repurchased Exchange differences at Dec. 31, 2016 Bonds Bank borrowings Loans from Group companies Total 13,472 50 1,200 14,722 (974) - - (974) - 999 - 999 (19) - - (19) (227) (10) - (237) Nominal value at Dec. 31, 2017 12,252 1,039 1,200 14,491 Compared with December 31, 2016, the nominal value of rate bonds of the “Special series of bonds reserved for long-term debt decreased by €231 million, reflecting: employees 1994-2019”; > the redemption of the residual portion amounting to > the recognition of exchange gains of €237 million; €909 million of a bond issued in 2007 in the amount of > new long-term bank borrowings totaling €999 million. €1,500 million, which was partially redeemed in 2016; > the redemption of four tranches of INA and ANIA bonds The table below reports the characteristics of the bank bor- in the total amount of €65 million; rowings obtained in 2017. > the repurchase of €19 million in own unlisted floating- New borrowings Type of loan Counterparty Issue date Bank borrowings UBI Banca SpA 27.04.2017 Bank borrowings UniCredit SpA 15.06.2017 Bank borrowings UniCredit SpA 10.07.2017 Bank borrowings Bank of America 10.07.2017 Total Amount financed (millions of euro) 150 450 200 199 999 Currency Interest rate (%) Type of interest rate Due date EUR 3M + 37.5 bps EUR 6M + 33.5 bps EUR 6M + 20 bps € € € Floating rate 27.04.2020 Floating rate 15.07.2020 Floating rate 26.06.2021 USD Libor 3M + 71.8 bps Floating rate 12.07.2021 In 2017 the following borrowings were obtained: due in 2020 (at December 31, 2016, the line was drawn > a three-year loan from UBI Banca SpA amounting to €150 in the amount of €50 million); million; > a new loan from UniCredit SpA amounting to €200 mil- > an additional drawing of €450 million on the financing lion and falling due in 2021; obtained from UniCredit SpA the previous year, falling > a loan denominated in US dollars from Bank of Ameri- 369 Financial statements of Enel SpAca amounting to the equivalent of €199 million at the The main covenants for the Revolving Facility Agreement exchange rate at the time the loan was granted ($227 and the loan agreements between Enel SpA and UniCredit million) falling due in 2021. SpA are substantially similar and can be summarized as follows: The main long-term borrowings of Enel SpA are governed > negative pledge clauses, under which the borrower and, by covenants that are commonly adopted in international in some cases, significant subsidiaries may not establish business practice. These borrowings are mainly represen- mortgages, liens or other encumbrances on all or part of ted by the bond issues carried out within the framework their respective assets to secure certain financial liabili- of the Global/Euro Medium-Term Notes program, issues ties, with the exception of expressly permitted encum- of subordinated unconvertible hybrid bonds, the Revolving brances; Facility Agreement agreed on December 18, 2017 by Enel > disposals clauses, under which the borrower and, in SpA and Enel Finance International NV with a pool of banks some cases, the subsidiaries of Enel may not dispose of up to €10 billion and the loans granted by UniCredit SpA. of their assets or a significant portion of their assets or The main covenants in respect of the bond issues in the operations, with the exception of expressly permitted di- Global/Euro Medium-Term Notes program of Enel SpA and sposals; Enel Finance International NV (including the Green Bon- > pari passu clauses, under which the payment underta- ds of Enel Finance International NV guaranteed by Enel kings of the borrower have the same seniority as its other SpA, which are used to finance the Group’s eligible green unsecured and unsubordinated payment obligations; projects) can be summarized as follows: > change of control clauses, which are triggered in the > negative pledge clauses under which the issuer and the event (i) control of Enel is acquired by one or more par- guarantor may not establish or maintain (except under ties other than the Italian State or (ii) Enel or any of its statutory requirement) mortgages, liens or other encum- subsidiaries transfer a substantial portion of the Group’s brances on all or part of its assets or revenue, to secure assets to parties outside the Group such that the finan- certain financial borrowings, unless the same restrictions cial reliability of the Group is significantly compromised. are extended equally or pro rata to the bonds in question; The occurrence of one of the two circumstances may > pari passu clauses, under which bonds and the asso- give rise to (a) the renegotiation of the terms and condi- ciated guarantees constitute a direct, unconditional and tions of the financing or (b) compulsory early repayment unsecured obligation of the issuer and the guarantor, of the financing by the borrower; do not grant preferential rights among them and have > cross-default clauses, under which the occurrence of a at least the same seniority as other present and future default event in respect of a specified financial liability unsubordinated and unsecured bonds of the issuer and (above a threshold level) of the borrower or significant the guarantor; subsidiaries constitutes a default in respect of the liabi- > cross-default clauses, under which the occurrence of a lities in question, which may become immediately repa- default event in respect of a specified financial liability yable. (above a threshold level) of the issuer, the guarantor or In 2017, Enel Finance International NV issued a number of significant subsidiaries constitutes a default in respect of bonds guaranteed by Enel SpA on the US market. Their the liabilities in question, which may become immedia- main covenants are the same as those of the bonds issued tely repayable. under the Euro Medium-Term Notes program. The main covenants covering the hybrid bonds of Enel SpA All the financial borrowings considered specify “events of can be summarized as follows: default” typical of international business practice, such as, > subordination clauses: each hybrid bond is subordinate for example, insolvency, bankruptcy proceedings or the en- to all other bonds of the issuer and has the same se- tity ceases trading. niority as other hybrid financial instruments issued and None of the covenants indicated above has been triggered greater seniority than equity instruments; to date. > prohibition on mergers with other companies, the sale or leasing of all or a substantial part of the company’s Finally, following the partial, non-proportional demerger assets to another company, unless the latter succeeds in of Enel Green Power SpA (“EGP”) to Enel SpA, as from all obligations of the issuer. the final moment of March 31, 2016, certain balance sheet 370 Annual Report 2017items and legal relationships of EGP were assigned to Enel as the guarantor, typical of international business practice. SpA. The legal relationships included guarantees issued by EGP on behalf of its subsidiaries in respect of commit- Debt structure after hedging ments assumed in loan transactions. Those guarantees and the associated loan contracts include certain cove- nants and “events of default”, some borne by Enel SpA The following table shows the effect of the hedges of fo- reign currency risk on the gross long-term debt structure (including portions maturing in the next 12 months). Millions of euro at Dec. 31, 2017 at Dec. 31, 2016 Initial debt structure Carrying amount Nominal amount 10,939 10,961 1,218 2,277 1,232 2,298 % 75.6 8.5 15.9 Euro US dollar Pound sterling Debt structure after hedging Hedged debt Initial debt structure Carrying amount Nominal amount 3,530 14,491 11,113 11,153 (1,232) (2,298) - - 1,168 2,356 1,186 2,383 Debt structure after hedging Hedged debt % 75.8 8.0 16.2 3,569 14,722 (1,186) (2,383) - - Total 14,434 14,491 100.0 - 14,491 14,637 14,722 100.0 - 14,722 The following table shows the effect of the hedges of interest rate risk on the gross long-term debt outstanding at the reporting date. Gross long-term debt % Floating rate Fixed rate Total at Dec. 31, 2017 at Dec. 31, 2016 Before hedging After hedging Before hedging After hedging 19.6 80.4 100.0 24.2 75.8 100.0 13.2 86.8 100.0 17.7 82.3 100.0 Short-term borrowings - €5,397 million The following table shows short-term borrowings at December 31, 2017, by nature. Millions of euro Borrowings from non-Group counterparties Bank borrowings Short-term bank borrowings (ordinary current account) Cash collateral for CSAs on OTC derivatives received Total Borrowings from Group counterparties Short-term borrowings from Group companies (on intercompany current account) Total TOTAL at Dec. 31, 2017 at Dec. 31, 2016 Change 120 125 256 501 4,896 4,896 5,397 808 1 1,107 1,916 4,268 4,268 6,184 (688) 124 (851) (1,415) 628 628 (787) Short-term borrowings amounted to €5,397 million (€6,184 > the €688 million decrease in liabilities to banks for short- million in 2016), down €787 million over the previous year, term loans received; mainly due to: > the €851 million decrease in cash collateral received 371 Financial statements of Enel SpAfrom counterparties for transactions in OTC derivatives It should be specified that the fair value of current bor- on interest rates and exchange rates; rowings equals their carrying amount as the impact of di- > the €628 million increase in “Short-term borrowings scounting is not significant. from Group companies” attributable to the deterioration in the debtor position on the intercompany current ac- count held with subsidiaries. 31.2.2 Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss, bro- million) financial liabilities, refer solely to derivative financial ken down into non-current (€943 million) and current (€176 liabilities. 31.2.3 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 Loans and receivables at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 Net gains/(losses) of which: impairment/reversal of impairment 1 2 6 - 1 Financial liabilities measured at amortized cost (546) (510) For more details on net gains and losses on derivatives, please see note 7 “Net financial income/(expense) from derivatives“. 32. Risk management 32.1 Financial risk management objectives and policies As part of its operations, the company is exposed to a varie- Line levels that establish the roles and responsibilities for ty of financial risks, notably market risks (including interest risk management, monitoring and control processes, ensu- rate risk and exchange risk), credit risk and liquidity risk. ring compliance with the principle of organizational separa- tion of units responsible for operations and those in charge The financial risk governance arrangements adopted by of monitoring and managing risk. Enel establish specific internal committees, composed of The financial risk governance system also defines a sy- top management and chaired by the Chief Executive Offi- stem of operating limits at the Group and individual Re- cers of the companies involved, which are responsible for gion, Country and Global Business Line levels for each risk, policy setting and supervision of risk management, as well which are monitored periodically by risk management units. as the definition and application of specific policies at the For the Group, the system of limits constitutes a decision- Group and individual Region, Country and Global Business making tool to achieve its objectives. 32.2 Market risks Market risk is the risk that the value of financial and non- risk of changes in interest rates and exchange rates. financial assets or liabilities and the associated expected cash flows could change owing to changes in market pri- Interest rate risk and exchange risk are primarily generated ces. by the presence of financial instruments. As part of its operations as an industrial holding company, The main financial liabilities held by the company include Enel SpA is exposed to different market risks, notably the bonds, bank borrowings, other borrowings, derivatives, 372 Annual Report 2017cash collateral for derivatives transactions and trade paya- on which cash flows are exchanged. This amount can be bles. The main purpose of those financial instruments is to expressed as a value or a quantity (for example tons, con- finance the operations of the company. verted into euro by multiplying the notional amount by the The main financial assets held by the Group include finan- agreed price). cial receivables, derivatives, cash collateral for derivatives The notional amounts of derivatives reported here do not transactions, cash and short-term deposits and trade recei- represent amounts exchanged between the parties and vables. therefore are not a measure of the company’s credit risk For more details, please see note 31 “Financial instru- exposure. ments”. The source of exposure to interest rate risk and exchange risk did not change with respect to the previous year. 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- As the Parent Company, Enel SpA centralizes some treasury ges in market interest rates. management functions and access to financial markets with regard to financial derivatives contracts on interest rates and Interest rate risk for the company manifests itself as a change exchange rates. As part of this activity, Enel SpA acts as an in the flows associated with interest payments on floating- intermediary for Group companies with the market, taking rate financial liabilities, a change in financial terms and condi- positions that, while they can be substantial, do not however tions in negotiating new debt instruments or as an adverse represent an exposure to markets risks for Enel SpA. change in the value of financial assets/liabilities measured at fair value, which are typically fixed-rate debt instruments. During 2017, no overshoots of the threshold values set by Interest rate risk is managed with the dual goals of reducing regulators for the activation of clearing obligations (EMIR – the amount of debt exposed to interest rate fluctuations and European Market Infrastructure Regulation – 648/2012 of containing the cost of funds, limiting the volatility of results. the European Parliament) were detected. This goal is pursued through the strategic diversification of the portfolio of financial liabilities by contract type, maturity The volume of transactions in financial derivatives outstan- and interest rate, and modifying the risk profile of specific ding at December 31, 2017, is reported below, with specifi- exposures using OTC derivatives, mainly interest rate swaps. cation of the notional amount of each class of instrument. The notional amount of outstanding contracts is reported be- The notional amount of a derivative contract is the amount low. Millions of euro Notional amount Interest rate derivatives Interest rate swaps Total at Dec. 31, 2017 at Dec. 31, 2016 20,599 20,599 22,377 22,377 The term of such contracts does not exceed the maturity end of the year was €20,599 million (€22,377 million at of the underlying financial liability, so that any change in December 31, 2016), of which €1,329 million (essentially the fair value and/or cash flows of such contracts is offset unchanged on December 31, 2016) in respect of hedges of by a corresponding change in the fair value and/or cash the company’s share of debt, and €9,635 million (€10,524 flows of the underlying position. million at December 31, 2016) in respect of hedges of the Interest rate swaps normally provide for the periodic debt of Group companies with the market intermediated in exchange of floating-rate interest flows for fixed-rate inte- the same notional amount with those companies. rest flows, both of which are calculated on the basis of the notional principal amount. For more details on interest rate derivatives, please see note 33 “Derivatives and hedge accounting”. The notional amount of open interest rate swaps at the 373 Financial statements of Enel SpAThe amount of floating-rate debt that is not hedged against More specifically, sensitivity analysis measures the poten- interest rate risk is the main risk factor that could impact tial impact of market scenarios on equity, for the cash flow the income statement (raising borrowing costs) in the hedge component, and on profit or loss, for the fair value event of an increase in market interest rates. hedge component, for derivatives that are not eligible for At December 31, 2017, 19.6% of gross long-term finan- hedge accounting and for the portion of gross long-term cial debt was floating rate (13.2% at December 31, 2016). debt not hedged using derivative financial instruments. Taking account of hedges of interest rates considered ef- These scenarios are represented by parallel increases and fective pursuant to the IAS 39, 75.8% of gross long-term decreases in the yield curve as at the reporting date. financial debt was hedged at December 31, 2017 (82.3% There were no changes in the methods and assumptions at December 31, 2016). Including derivatives treated as used in the sensitivity analysis compared with the previous hedges for management purposes but ineligible for hedge year. accounting, the ratio is essentially unchanged. Interest rate risk sensitivity analysis The company analyses the sensitivity of its exposure by estimating the effects of a change in interest rates on the portfolio of financial instruments. With all other variables held constant, the company’s profit before tax would be affected as follows. Millions of euro Change in financial expense on gross long- term floating-rate debt in foreign currency 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 Basis points 25 25 25 25 at Dec. 31, 2017 at Dec. 31, 2016 Pre-tax impact on profit or loss Pre-tax impact on equity Pre-tax impact on profit or loss Pre-tax impact on equity Increase Decrease Increase Decrease Increase Decrease Increase Decrease 9 6 - (2) (9) (6) - 2 - - 11 - - - (11) - 7 7 - (5) (7) (7) - 5 - - 13 - - - (13) - Exchange risk Exchange risk is the risk that the fair value or future cash In order to minimize exposure to changes in exchange flows of a financial instrument will fluctuate because of rates, the company normally uses a variety of OTC de- changes in exchange rates. rivatives such as currency forwards and cross currency interest rate swaps. The term of such contracts does not For Enel SpA, the main source of exchange risk is the exceed the maturity of the underlying exposure. presence of monetary financial instruments denominated in a currency other than the euro, mainly bonds denomi- Currency forwards are contracts in which the counterpar- nated in foreign currency. ties agree to exchange principal amounts denominated in The exposure to exchange risk did not change with re- different currencies at a specified future date and exchan- spect to the previous year. ge rate (the strike). Such contracts may call for the actual For more details, please see note 31 “Financial instru- exchange of the two amounts (deliverable forwards) or ments”. 374 payment of the difference between the strike exchange Annual Report 2017rate and the prevailing exchange rate at maturity (non- rest rate swaps in that they provide both for the periodic deliverable forwards). exchange of cash flows and the final exchange of princi- Cross currency interest rate swaps are used to transform pal. a long-term fixed- or floating-rate liability in foreign cur- The following table reports the notional amount of tran- rency into an equivalent floating- or fixed-rate liability in sactions outstanding at December 31, 2017 and Decem- euros. In addition to having notionals denominated in ber 31, 2016, broken down by type of hedged item. different currencies, these instruments differ from inte- Millions of euro Notional amount at Dec. 31, 2017 at Dec. 31, 2016 Foreign exchange derivatives Currency forwards: - hedging exchange risk on commodities - hedging future cash flows - other currency forwards Cross currency interest rate swaps Total 5,410 3,664 1,190 556 15,527 20,937 5,399 4,507 196 696 22,668 28,067 More specifically, these include: in foreign currency that is denominated in the currency of > currency forward contracts with a total notional amount account or the functional currency of the company, the debt of €3,664 million (€4,507 million at December 31, 2016), is fully hedged using cross currency interest rate swaps. of which €1,832 million to hedge the exchange risk asso- ciated with purchases of energy commodities by Group companies, with matching transactions with the market; > currency forward contracts with a notional amount of Exchange risk sensitivity analysis The company analyses the sensitivity of its exposure by estimating the effects of a change in exchange rates on the €1,190 million (€196 million at December 31, 2016), to portfolio of financial instruments. hedge the exchange risk associated with other expected cash flows in currencies other than the euro, of which €595 million in market transactions; > currency forward contracts with a notional amount of €556 million (€696 million at December 31, 2016), to hedge the exchange rate risk on investment spending, of which €278 million in market transactions; > cross currency interest rate swaps with a notional amount of €15,527 million (€22,668 million at December 31, 2016), to hedge the exchange risk on the debt of Enel SpA or other Group companies denominated in curren- More specifically, sensitivity analysis measures the poten- tial impact of market scenarios on equity, for the cash flow hedge component, and on profit or loss, for the fair value hedge component, for derivatives that are not eligible for hedge accounting and for the portion of gross long-term debt not hedged using derivative financial instruments. These scenarios are represented by the appreciation/de- preciation of the euro against all of the foreign currencies compared with the value observed as at the reporting date. There were no changes in the methods and assumptions used in the sensitivity analysis compared with the previous cies other than the euro. year. With all other variables held constant, the profit before tax For more details, please see note 33 “Derivatives and hed- would be affected as follow. ge accounting”. An analysis of the Group’s debt shows that 24.4% of gross medium and long-term debt (24.2% at December 31, 2016) is denominated in currencies other than the euro. Considering exchange rate hedges and the portion of debt 375 Financial statements of Enel SpAMillions of euro at Dec. 31, 2017 at Dec. 31, 2016 Pre-tax impact on profit or loss Pre-tax impact on equity Pre-tax impact on profit or loss Pre-tax impact on equity Exchange rate Appreciation of euro Depreciation of euro Appreciation of euro Depreciation of euro Appreciation of euro Depreciation of euro Appreciation of euro Depreciation of euro Change in financial expense on gross long- term floating-rate debt 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 32.3 Credit risk 10% 10% 10% 10% - 5 - - - (6) - - - - - - (431) - 526 - - - - - - - - - - - - - (462) - 564 - Credit risk is represented by the possibility of a deteriora- ring risks under the policies and procedures outlined in the tion in the creditworthiness of a counterparty in a financial governance rules for managing the Group’s risks, which are transaction that could have an adverse impact on the cre- also designed to ensure prompt identification of possible ditor position. The company is exposed to credit risk from mitigation actions to be taken. its financial activities, including transactions in derivatives Within this general framework, Enel entered into margin (typically on financial or commodity underlyings), deposits agreements with the leading financial institutions with with banks and financial institutions, foreign exchange tran- which it operates that call for the exchange of cash collate- sactions and other financial instruments. ral, which significantly mitigates the exposure to counter- The sources of exposure to credit risk did not change with party risk. respect to the previous year. The company’s management of credit risk is based on the At December 31, 2017, the exposure to credit risk, represen- selection of counterparties from among leading Italian and ted by the carrying amount of financial assets net of related international financial institutions with high credit standing provisions for impairment as well as derivatives with a positive considered solvent both by the market and on the basis fair value, net of any cash collateral held, amounted to €8,392 of internal assessments, diversifying the exposure among million (€9,388 million at December 31, 2016). Of the total, them. Credit exposures and associated credit risk are regu- €3,403 million regard receivables in respect of Group com- larly monitored by the departments responsible for monito- panies and €2,489 million regard cash and cash equivalents. 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 Total 376 at Dec. 31, 2017 at Dec. 31, 2016 Change of which Group of which Group - 5 237 2,011 2,339 1,311 2,489 8,392 - - 208 2,011 174 1,010 - 3,403 27 5 255 2,894 1,327 1,842 3,038 9,388 27 - 229 2,894 154 973 - 4,277 (27) - (18) (883) 1,012 (531) (549) (996) Annual Report 201732.4 Liquidity risk Liquidity risk is the risk that the company will encounter diffi- sources in terms of instruments, markets/currencies and culty in meeting obligations associated with financial liabilities counterparties. that are settled by delivering cash or another financial asset. The objectives of liquidity risk management policies are: At December 31, 2017 Enel SpA had a total of about > ensuring an appropriate level of liquidity for the Group, €2,489 million in cash or cash equivalents (€3,038 mil- minimizing the associated opportunity cost; lion at December 31, 2016), and committed lines of cre- > maintaining a balanced debt structure in terms of the ma- dit amounting to €5,800 million (of which none had been turity profile and funding sources. drawn) maturing in more than one year (€6,170 million at In the short term, liquidity risk is mitigated by maintaining December 31, 2016). an appropriate level of unconditionally available resources, including cash and short-term deposits, available commit- ted credit lines and a portfolio of highly liquid assets. In the long term, liquidity risk is mitigated by maintaining Maturity analysis The table below summarizes the maturity profile of the company’s financial liabilities based on contractual undi- a balanced debt maturity profile and diversifying funding 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 Bank borrowings: - fixed rate - floating rate Total Loans from Group companies: - fixed rate - floating rate Total TOTAL 2,498 500 2,998 - - - - - - 590 66 656 - - - - - - 1,867 229 2,096 - - - - - - 1,999 235 2,234 - 1,039 1,039 - - - 2,998 656 2,096 3,273 3,436 775 4,211 - - - 1,200 - 1,200 5,411 377 Financial statements of Enel SpA32.5 Offsetting financial assets and financial liabilities The following table reports the net financial assets and and to guarantee transactions involving derivatives, Enel liabilities. More specifically, it shows that there are no SpA has entered into margin agreements with leading fi- netting arrangements for derivatives in the financial state- nancial institutions that call for the exchange of cash colla- ments since the company does not plan to set-off assets teral, broken down as shown in the table. and liabilities. As envisaged by current market regulations Millions of euro at Dec. 31, 2017 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d) Correlated 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 exchange risk Total derivative financial assets TOTAL FINANCIAL ASSETS FINANCIAL LIABILITIES Derivative financial liabilities: - on interest rate risk - on exchange risk Total derivative financial liabilities TOTAL FINANCIAL LIABILITIES TOTAL NET FINANCIAL ASSETS/(LIABILITIES) 420 1,147 1,567 1,567 (608) (1,838) (2,446) (2,446) (879) - - - - - - - - - 420 1,147 1,567 1,567 (608) (1,838) (2,446) (2,446) (879) - - - - - - - - - (46) (552) (598) (598) 608 1,808 2,416 2,416 1,818 374 595 969 969 - (30) (30) (30) 939 378 Annual Report 201733. Derivatives and hedge accounting The following tables report the notional amount and fair on the basis of which cash flows are exchanged. This value of derivative financial assets and liabilities by type amount can be expressed as a value or a quantity (for exam- of hedge relationship and hedged risk, broken down into ple tons, converted into euros by multiplying the notional current and non-current derivative financial assets and lia- amount by the agreed price). Amounts denominated in cur- bilities. rencies other than the euro are converted at the end-year The notional amount of a derivative contract is the amount exchange rates provided by the European Central Bank. Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Change at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Change Derivatives designated as hedging instruments Cash flow hedges: - on exchange risk Total cash flow hedges Fair value hedges: - on interest rate risk Total fair value hedges Derivatives at FVTPL: - on interest rate risk - on exchange risk Total derivatives at FVTPL TOTAL DERIVATIVE FINANCIAL ASSETS 2,327 2,327 2,517 2,517 800 800 800 800 9,586 5,632 10,497 7,860 501 501 15 15 405 535 751 751 (250) (250) 27 27 (12) (12) - - - - - - - - 527 1,164 (122) (629) 50 27 2,419 3,718 15,218 18,357 940 1,691 (751) 2,469 3,745 18,345 21,674 1,456 2,469 (1,013) 2,469 3,745 - - - - 1 110 111 111 - - - - 1 - - - - - 479 (369) 480 (369) 480 (369) Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Change at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Change Derivatives designated as hedging instruments Cash flow hedges: - on interest rate risk - on exchange risk Total cash flow hedges Derivatives at FVTPL: 390 2,501 2,891 390 2,394 2,784 - on interest rate risk 9,624 10,535 - on exchange risk 5,632 7,860 135 1,192 1,327 408 535 154 1,225 1,379 (19) (33) (52) - - - - - - 530 (122) 150 127 1,173 (638) 2,425 3,718 Total derivatives at FVTPL TOTAL DERIVATIVE FINANCIAL LIABILITIES 15,256 18,395 943 1,703 (760) 2,575 3,845 18,147 21,179 2,270 3,082 (812) 2,575 3,845 - - - 66 110 176 176 - - - - - - 74 (8) 482 (372) 556 (380) 556 (380) 379 Financial statements of Enel SpA33.1 Hedge accounting Derivatives are initially recognized at fair value, on the trade date of the contract and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss de- ble to a particular risk associated with an asset, a liability or a highly probable transaction that could affect profit or loss. The effective portion of changes in the fair value of deriva- tives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized imme- pends on whether the derivative is designated as a hed- diately in the income statement. ging instrument, and if so, the nature of the item being hedged. Hedge accounting is applied to derivatives entered into in order to reduce risks such as interest rate risk, exchange risk, commodity risk, credit risk and equity risk when all the criteria provided for under IAS 39 are met. At the inception of the transaction, the company docu- ments the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy. The company also analyzes, both at hedge Amounts accumulated in equity are reclassified to profit or loss in the period when the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting but the hedged item has not expired or been cancelled, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast tran- saction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is inception and on an ongoing systematic basis, the effec- immediately transferred to profit or loss. tiveness of hedges using prospective and retrospective tests in order to determine whether hedging instruments The company currently uses these hedge relationships to are highly effective in offsetting changes in the fair values minimize the volatility of profit or loss. or cash flows of hedged items. Depending on the nature of the risks to which it is expo- sed, the company designates derivatives as hedging in- Fair value hedges Fair value hedges are used to protect the company against struments in one of the following hedge relationships: exposures to adverse changes in the fair value of assets, > cash flow hedge derivatives in respect of the risk of: i) liabilities or firm commitments attributable to a particular changes in the cash flows associated with long-term flo- risk that could affect profit or loss. ating-rate debt; ii) changes in the exchange rates associa- Changes in the fair value of derivatives that qualify and are ted with long-term debt denominated in a currency other designated as hedging instruments are recognized in the than the currency of account or the functional currency income statement, together with changes in the fair value in which the company holding the financial liability opera- of the hedged item that are attributable to the hedged risk. tes; iii) changes in the price of fuels, non-energy commo- If the hedge is ineffective or no longer meets the crite- dities and services denominated in a foreign currency; ria for hedge accounting, the adjustment to the carrying > fair value hedge derivatives involving the hedging of ex- amount of a hedged item for which the effective interest posures to changes in the fair value of an asset, a liability method is used is amortized to profit or loss over the pe- or a firm commitment attributable to a specific risk; riod to maturity. > derivatives hedging a net investment in a foreign ope- ration (NIFO), involving the hedging of exposures to The company currently makes use of such hedge rela- exchange rate volatility associated with investments in tionships to seize opportunities associated with general foreign entities. developments in the yield curve. For more details on the nature and the extent of risks ari- sing from financial instruments to which the company is exposed, please see note 32 “Risk management”. Cash flow hedges Cash flow hedges are used in order to hedge the company’s exposure to changes in future cash flows that are attributa- Hedge of a net investment in a foreign operation (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 in foreign entities. The hedge instrument is a liability denomi- nated in the same currency as the investment. The foreign 380 Annual Report 2017exchange differences of the hedged item and the hedge are The company does not currently hold any hedges of net in- accumulated each year in equity until the disposal of the in- vestments in a foreign operation. vestment, at which time the foreign exchange differences are transferred to profit or loss. For more on the fair value measurement of derivatives, plea- se 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 of transactions outstanding as at December 31, 2017 and value of the hedging instruments on the interest rate risk December 31, 2016, 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, 2017 at Dec. 31, 2016 Interest rate swaps Interest rate swaps Total Floating-rate borrowings Fixed-rate borrowings (135) 15 (120) 390 800 1,190 (154) 27 (127) 390 800 1,190 The interest rate swaps outstanding at the end of the year cash flow hedge derivatives refer to the hedging of certain and designated as hedging instruments function as a cash floating-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 hedging value of hedging derivatives on interest rate risk as at De- of the part of the change in the fair value of a hybrid bond cember 31, 2017 and December 31, 2016, broken down by issued in September 2013 that is linked to changes in inte- type of hedge. rest rates, hedged in the amount of €800 million, while the Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Cash flow hedge derivatives: - interest rate swaps Fair value hedge derivatives: - interest rate swaps Total interest rate derivatives - - 800 800 800 - - 800 800 800 - - 15 15 15 - - 27 27 27 390 390 - - 390 390 - - (135) (135) (154) (154) - - - - 390 390 (135) (154) The notional amount of the interest rate swaps at Decem- The improvement in the fair value of derivatives compared ber 31, 2017 came to €1,190 million (€1,190 million at De- with the previous year is mainly attributable to the rise in cember 31, 2016) with a corresponding negative fair value the long-term segment of the yield curve over the course of €120 million (negative €127 million at December 31, of 2017. 2016). 381 Financial statements of Enel SpACash flow hedge derivatives The following table shows the cash flows expected in coming years from cash flow hedge derivatives. Millions of euro Cash flow hedge derivatives on interest rates: - positive fair value - negative fair value Fair value at Dec. 31, 2017 Distribution of expected cash flows 2018 2019 2020 2021 2022 Beyond - (135) - (15) - (14) - (13) - (13) - (12) - (83) 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 2017 (110) - 12 - (98) 2016 (87) - (23) - (110) 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 at Dec. 31, 2017 2018 2019 2020 2021 2022 Beyond Fair value hedge derivatives: - positive fair value - negative fair value 15 - 15 - 33 - - - - - - - - - 33.1.2 Exchange risk The following table shows the notional amount and the fair sactions outstanding as at December 31, 2017 and Decem- value of the hedging instruments on exchange risk of tran- ber 31, 2016, 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, 2017 at Dec. 31, 2016 Cross currency interest rate swaps (CCIRSs) Cross currency interest rate swaps (CCIRSs) Fixed-rate borrowings Floating-rate borrowings Total (679) (12) (691) 4,639 189 4,828 (474) - (474) 4,911 - 4,911 The cross currency interest rate swaps outstanding at the cifically, these derivatives hedge fixed-rate bonds denomi- end of the year and designated as hedging instruments fun- nated in foreign currencies and floating-rate borrowing in ction as a cash flow hedge for the hedged item. More spe- US dollars obtained from Bank of America in 2017. 382 Annual Report 2017The following table shows the notional amount and the 31, 2017 and December 31, 2016, broken down by type of fair value of derivatives on exchange risk as at December hedge. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 Cash flow hedge derivatives: - forwards - options - cross currency interest rate swaps Total foreign exchange derivatives 2,327 2,517 501 751 2,501 2,394 (1,192) (1,225) - - - - 2,327 2,517 2,327 2,517 - - 501 501 - - - - - - - - - - 751 2,501 2,394 (1,192) (1,225) 751 2,501 2,394 (1,192) (1,225) The notional amount of the cross current interest rate US dollar, as well as a new hedge of exchange rates with a swaps at December 31, 2017 came to €4,828 million notional amount of €189 million. (€4,911 million at December 31, 2016) with a correspon- ding negative fair value of €691 million (a negative €474 million at December 31, 2016). Cash flow hedge derivatives The following table shows the cash flows expected in co- The change in the value of the notional amount and the ming years from cash flow hedge derivatives on exchange associated fair value of derivatives mainly reflects the ap- risk. preciation of the euro against the pound sterling and the Millions of euro Fair value at Dec. 31, 2017 Distribution of expected cash flows 2018 2019 2020 2021 2022 Beyond Cash flow hedge derivatives on exchange rates: - positive fair value - negative fair value 501 (1,192) 83 (69) 85 (243) 48 (50) 47 (85) 46 (37) 461 (684) The following table shows the impact of cash flow hedge derivatives on 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 2017 (326) - 20 - (306) 2016 (208) - (118) - (326) 383 Financial statements of Enel SpA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, 2017 and December 31, 2016. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 at Dec. 31, 2017 at Dec. 31, 2016 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 9,635 9,635 8,052 2,702 10,524 10,524 11,577 2,699 5,350 8,878 405 405 645 123 522 527 527 1,644 158 9,774 9,774 8,057 2,708 10,663 10,663 11,577 2,699 (473) (473) (645) (122) (604) (604) (1,656) (158) 1,486 5,349 8,878 (523) (1,498) 17,687 22,101 1,050 2,171 17,831 22,240 (1,118) (2,260) At December 31, 2017, the notional amount of derivatives lion (€2,699 million at December 31, 2016), relate mainly to at fair value through profit or loss on interest rates and fo- OTC derivatives entered into to mitigate the exchange risk reign exchange rates came to €35,518 million (€44,341 mil- associated with the prices of energy commodities within lion at December 31, 2016) corresponding to a negative fair the provisioning process of Group companies and matched value of €68 million (a negative €89 million at December with market transactions. They also hedge the expected 31, 2016). cash flows in currencies other than the currency of account The decrease compared with the previous year in the notio- connected with the acquisition of non-energy commodities nal amount of derivatives at fair value through profit or loss and investment goods in the sectors of renewable energy reflects €7,045 million from a decline in forex operations sector and infrastructure and networks (new generation and a decrease of €1,778 million in the notional amount of digital meters) and the expected cash flows in currencies interest rate swaps. other than the euro connected with operating expenses for Interest rate swaps at the end of the year refer primarily the provision of cloud services. The change in the notional to hedges of the debt of the Group companies with the amount and the fair value as compared with the previous market and intermediated in the same notional amount year is associated with normal operations. with those companies in the amount of €9,635 million. The Cross currency interest rate swaps, with a notional amount overall notional amount shows a decline of €1,778 million of €5,350 million (€8,878 million at December 31, 2016), on the previous year. More specifically, the decline of €889 relate to hedges of exchange risk on the debt of the Group million in the notional amount of interest rate swaps with companies denominated in currencies other than the euro the market is attributable to the closure of pre-hedge in- and matched with market transactions. The decline in the terest rate swaps in respect of the issue of a Green Bond notional amount of cross currency interest rate swaps of of €1,000 million, interest rate swaps reaching their natu- €3,528 million is mainly due to the early closure of cross ral expiry date of €27 million, new interest rate swaps of currency interest rate swaps in the amount of €1,660 mil- €344 million and the decline of €206 million in the notional lion in respect of the repurchase by Enel Finance Interna- amount of amortizing interest rate swaps. tional of its own bonds issued in US dollars and to cross Compared with December 31, 2016, the overall change currency interest rate swaps that expired naturally in the in the fair value (a positive €9 million) is largely connected amount of €1,423 million. The value also reflects deve- with the rise in the long-term segment of the yield curve lopments in the exchange rate of the euro against the other over the course of the year. major currencies. Forward contracts, with a notional amount of €2,702 mil- 384 Annual Report 2017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 estima- slating amounts in currencies other than the euro using te is the market price, i.e. its current price, publicly availa- exchange rates provided by the European Central Bank. ble and effectively traded on an active, liquid market. For contracts involving commodities, the measurement The fair value of assets and liabilities is categorized into a is conducted using prices, where available, for the same fair value hierarchy that provides three levels defined as instruments on both regulated and unregulated markets. follows on the basis of the inputs to 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 directly (that is, as prices) or indirectly (that is, derived a Potential Future Exposure valuation technique for the from prices); net exposure of the position and subsequently allocating > Level 3: inputs for the asset or liability that are not based the 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 disclosures 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 on an effect on the fair value reported for such instruments. a recurring or non-recurring basis in the balance sheet af- The notional amount of a derivative contract is the amount ter initial recognition, the valuation techniques and inputs on which cash flows are exchanged. This amount can be 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 measure- the agreed price). ments 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 mar- closing date of the year, including the credit spreads of kets. The fair value of instruments not listed on a regu- Enel SpA. lated market is determined using valuation methods ap- 385 Financial statements of Enel SpA34.1 Assets measured at fair value in the balance sheet The following table shows, for each class of assets measu- the reporting period and the level in the fair value hierarchy red at fair value on a recurring or non-recurring basis in the into which the fair value measurements are categorized. balance sheet, the fair value measurement at the end of Millions of euro Non-current assets Current assets Fair value at Dec. 31, 2017 Notes Level 1 Level 2 Level 3 Fair value at Dec. 31, 2017 Level 1 Level 2 Level 3 Derivatives Cash flow hedge derivatives: - on exchange risk Total Fair value hedge derivatives: - on interest rate risk Total Fair value through profit or loss: - on interest rate risk - on exchange risk Total TOTAL 33 33 33 33 501 501 15 15 405 535 940 1,456 - - - - - - - - 501 501 15 15 405 535 940 1,456 - - - - - - - - - - - - 1 110 111 111 - - - - - - - - - - - - 1 110 111 111 - - - - - - - - 34.2 Liabilities measured at fair value in the balance sheet The following table reports, for each class of liabilities the end of the reporting period and the level in the fair measured at fair value on a recurring or non-recurring ba- value hierarchy into which the fair value measurements sis in the balance sheet, the fair value measurement at are categorized. Millions of euro Non-current liabilities Current liabilities Fair value at Dec. 31, 2017 Notes Level 1 Level 2 Level 3 Fair value at Dec. 31, 2017 Level 1 Level 2 Level 3 33 33 33 33 135 1,192 1,327 408 535 943 2,270 - - - - - - - 135 1,192 1,327 408 535 943 2,270 - - - - - - - - - - 66 110 176 176 - - - - - - - - - - 66 110 176 176 - - - - - - - Derivatives Cash flow hedge derivatives: - on interest rate risk - on exchange risk Total Fair value through profit or loss: - on interest rate risk - on exchange risk Total TOTAL 386 Annual Report 2017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 Notes 31.2.1 31.2.1 31.2.1 31.2.1 Bonds: - fixed rate - floating rate Total Bank borrowings: - fixed rate - floating rate Total Loans from Group companies: - fixed rate - floating rate Total TOTAL Fair value at Dec. 31, 2017 Level 1 Level 2 Level 3 11,880 1,767 13,647 - 1,043 1,043 1,540 - 1,540 16,230 11,880 572 12,452 - - - - - - 12,452 - 1,195 1,195 - 1,043 1,043 1,540 - 1,540 3,778 - - - - - - - - - - 387 Financial statements of Enel SpA35. Related parties Related parties have been identified on the basis of the In November 2010, the Board of Directors of Enel SpA provisions of international accounting standards and the approved a procedure governing the approval and exe- applicable CONSOB measures. cution of transactions with related parties carried out by Enel SpA directly or through subsidiaries. The procedure The transactions Enel SpA entered into with its subsidiaries (available at www.enel.com/investors/bylaws-rules-and- mainly involved the provision of services, the sourcing and policies/transactions-with-related-parties) sets out rules employment of financial resources, insurance coverage, designed to ensure the transparency and procedural and human resource management and organization, legal and substantive propriety of transactions with related parties. corporate services, and the planning and coordination of It was adopted in implementation of the provisions of Arti- tax and administrative activities. cle 2391-bis of the Italian Civil Code and the implementing regulations issued by CONSOB. In 2017, no transactions All the transactions are part of routine operations, are carri- were carried out for which it was necessary to make the ed out in the interest of the company and are settled on an disclosures required in the rules on transactions with re- arm’s length basis, i.e. on the same market terms as agree- lated parties adopted with CONSOB Resolution 17221 of ments entered into between two independent parties. March 12, 2010, as amended with Resolution 17389 of Finally, the Enel Group’s corporate governance rules, which June 23, 2010. are discussed in greater detail in the Report on Corporate The following tables summarize commercial, financial and Governance and Ownership Structure available on the com- other relationships between the company and related parties. pany’s website (www.enel.com), establish conditions for en- suring that transactions with related parties are performed in accordance with procedural and substantive propriety. 388 Annual Report 2017Commercial and other relationships 2017 Millions of euro Receivables Payables Goods Services Goods Services at Dec. 31, 2017 at Dec. 31, 2017 2017 2017 Costs Revenue Subsidiaries Codensa SA ESP Central Geradora Termelétrica Fortaleza SA Enel Generación Perú SAA Enel Américas SA Enel Chile SA Enel Distribución Perú SAA Enel Generación Piura SA Enel Brasil SA Enel X Srl Endesa Distribución Eléctrica SL Endesa Generación SA Endesa Red SA Endesa SA e-distribut¸ie Banat SA e-distribut¸ie Dobrogea SA e-distribut¸ie Muntenia SA e-distribuzione SpA Enel Distribución Chile SA Enel Energia SpA Enel Energie Muntenia SA Enel Energie SA Enel Iberia Srl Enel Green Power SpA Enel Green Power North America Inc. Enel Innovation Hubs Srl Enel Russia PJSC Enel Produzione SpA Enel Romania Srl Enel Italia Srl Servizio Elettrico Nazionale SpA Enel Sole Srl Enel Trade SpA Enel.Factor SpA Endesa Energía SA Energía Nueva Energía Limpia México S de RL de Cv Gas y Electricidad Generación SAU OpEn Fiber SpA RusEnergoSbyt LLC Slovenské elektrárne AS Tynemouth Energy Storage Limited Unión Eléctrica de Canarias Generación SAU 3Sun Srl Total Other related parties CESI SpA Enel Cuore Onlus Eni GSE Fondazione Centro Studi Enel Monte dei Paschi di Siena Total TOTAL - 1 6 27 30 6 1 25 2 27 10 1 4 4 4 7 124 1 204 1 1 1 10 1 - 16 59 4 30 158 5 1 - 4 1 3 1 - 17 - 3 - 800 - - - 1 1 - 2 1 - - - - - - - - 1 - - 3 - - - 164 - - - - 22 1 1 1 - 97 - 86 - 8 100 3 - - - - - - 1 - 19 508 - - 1 1 - 1 3 802 511 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 - 1 - - - 2 - - - - 11 1 - - - 1 - 66 - - - - - - - - - - - - - 83 1 - - - - - 1 84 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 2 1 - - 12 2 6 2 1 5 1 1 2 34 1 2 - - 1 8 - - 8 13 1 15 1 - 1 - 3 - 1 - 1 - - 1 - 127 - 1 - - 2 - 3 130 389 Financial statements of Enel SpA2016 Millions of euro Receivables Payables Goods Services Goods Services Costs Revenue at Dec. 31, 2016 at Dec. 31, 2016 2016 2016 Subsidiaries Central Geradora Termelétrica Fortaleza SA Enel Generación Perú SAA Enel Distribución Perú SAA Enel Generación Piura SA Enel Brasil SA Endesa Distribución Eléctrica SL Endesa Generación SA Enel Latinoamérica SA Endesa SA e-distribut¸ie Banat SA e-distribut¸ie Dobrogea SA e-distribut¸ie Muntenia SA e-distribuzione SpA Enel Energia SpA Enel Iberia Srl Enel Green Power SpA Enel Green Power North America Inc. Enel Ingegneria e Ricerca SpA Enel Russia PJSC Enel Produzione SpA Enel Romania Srl Enel Italia Srl Servizio Elettrico Nazionale SpA Enel Sole Srl Enel Trade SpA Enel.Factor SpA Enel.si Srl Endesa Energía SA Enel Américas SA Gas y Electricidad Generación SAU RusEnergoSbyt LLC Slovenské elektrárne AS Unión Eléctrica de Canarias Generación SAU 3Sun Srl Total Other related parties GSE Fondazione Centro Studi Enel Total TOTAL 390 1 5 6 1 13 36 20 - - 3 2 6 132 120 2 16 1 - 17 67 5 61 51 4 57 1 - 5 4 3 1 17 5 - 662 1 - 1 - - - - - 1 1 1 2 - - - 263 37 10 15 1 12 3 186 - 55 20 5 2 2 1 - - - - - - 28 645 - - - 663 645 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 1 1 - - - - - 10 - - - 1 - - 64 - - - - - - - - - - - - 78 - - - 78 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 3 3 1 7 18 17 - 1 2 1 3 53 16 1 20 - - 5 24 1 10 4 1 3 - - 1 1 2 - 1 4 - 204 - 1 1 205 Annual Report 2017Financial relationships 2017 Millions of euro Receivables Payables Guarantees Costs Revenue Dividends at Dec. 31, 2017 2017 Subsidiaries Concert Srl Enel Américas SA Enel Chile SA e-distribuzione SpA Enel X Srl Enel Energia SpA Enel Iberia Srl Enel Finance International NV Enel Green Power North America Inc. Enel Green Power SpA Enel Green Power Perú SA Enel Green Power Development Srl Enel Investment Holding BV Enel M@P Srl Enel Produzione SpA Enel Italia Srl Servizio Elettrico Nazionale SpA Enel Sole Srl Enel Trade Romania Srl Enel Trade SpA Enel Trade d.o.o. Enel.Factor SpA Enel Innovation Hubs Srl Enel.si Srl Enelpower SpA Nuove Energie Srl OpEn Fiber SpA Enel X Italia SpA Tynemouth Energy Storage Limited Total Other related parties CESI SpA Total TOTAL - - - 1,759 6 7 1 756 - 161 - - - 3 192 35 114 1 - 105 - 18 - 8 - 23 - - 6 2 - - - - 1,007 - - - - 3,765 - 1,806 - - - - 33 - - - - - - 84 - 8 1 3,735 28,196 679 1,268 - 4 - 2 1 - 523 16 - 60 - 46 12,994 - - - 1 2,141 123 1,402 277 5 761 1,578 - - 16 - 37 - - 2 - 1 - 1 18 1 87 300 - 10 - 57 11 - - - 30 1 - - - 97 - - - - - - - - - - 68 6 - 1 - 75 12 7 1 - 265 - - - - - 1 - - - - 25 31 1,448 - 679 677 - - 50 - - - - - 23 80 15 - - - 3 - - - - - - - 3,195 6,166 52,752 908 1,797 3,031 - - - - - - - - - - 1 1 3,195 6,166 52,752 908 1,797 3,032 391 Financial statements of Enel SpA 2016 Millions of euro Receivables Payables Guarantees Costs Revenue Dividends at Dec. 31, 2016 2016 Subsidiaries Concert Srl e-distribuzione SpA Enel Energia SpA Enel Iberia Srl - 1,898 6 1 2 13 791 1 - 3,725 1,733 54 Enel Finance International NV 733 4,407 23,131 3 - - 588 5 24 - 1 636 94 334 1 - 28 - 91 - 14 - 20 - - 28 3 - - - - 53 18 10,596 - - 2 - 30 - - 70 - - 30 2 1 2,412 94 1,701 231 7 - - 16 - 37 - - 2 - 1 - 1 7 1 86 123 - - 1,369 1,579 208 124 - 1,610 358 550 - - - - 50 - - - - 304 - - - - - - 3 - - - - - - - - 13 - - 178 - 96 - 3 - - - - 19 - - - - - 84 6 1 1,068 - 18 - 33 6 - - - 29 6 7 1 - - 3 - - - - - - - - 2 - - - - - - 2 521 - - 4,505 6,761 45,568 - - - - - - 1,386 2,875 - - 1 1 4,505 6,761 45,568 521 1,386 2,876 Enel Green Power Chile Ltda Enel Green Power International BV Enel Green Power North America Inc. Enel Green Power SpA Enel Green Power Perú SA Enel Ingegneria e Ricerca SpA Enel Investment Holding BV Enel M@P Srl Enel Produzione SpA Enel Italia Srl Servizio Elettrico Nazionale SpA Enel Sole Srl Enel Trade Romania Srl Enel Trade SpA Enel Trade d.o.o. Enel.Factor SpA Enel Innovation Hubs Srl Enel.si Srl Enelpower SpA Nuove Energie Srl OpEn Fiber SpA Enel X Italia SpA 3Sun Srl Total Other related parties CESI SpA Total TOTAL 392 Annual Report 2017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, 2017 at Dec. 31, 2016 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 Trade payables Derivatives - current Other current financial liabilities 1,456 16 148 237 111 4,350 453 10,780 2,270 12 5,397 137 176 465 912 - 139 228 98 2,185 435 1,200 28 9 4,896 74 13 29 62.6% 2,469 - 93.9% 96.2% 88.3% 50.2% 96.0% 11.1% 1.2% 75.0% 90.7% 54.0% 7.4% 6.2% 53 188 255 480 4,221 299 13,664 3,082 36 6,184 150 556 550 Other current liabilities 2,065 428 20.7% 1,694 953 27 154 248 19 3,048 261 1,200 747 33 4,268 68 464 82 544 38.6% 50.9% 81.9% 97.3% 4.0% 72.2% 87.3% 8.8% 24.2% 91.7% 69.0% 45.3% 83.5% 14.9% 32.1% Impact on income statement Millions of euro Total Related parties % of total Total Related parties % of total Revenue 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 Millions of euro 2017 2016 133 359 3,033 2,683 410 2,902 872 130 84 3,032 1,640 157 836 72 97.7% 23.4% 100.0% 61.1% 38.3% 28.8% 8.3% 207 335 2,882 2,787 556 3,127 979 205 78 2,876 1,239 147 467 54 99.0% 23.3% 99.8% 44.5% 26.4% 14.9% 5.5% Total Related parties % of total Total Related parties % of total 2017 2016 Cash flows from operating activities 2,465 (2,838) - 2,511 (1,173) -46.7% Cash flows from investing/disinvesting activities Cash flows from financing activities (48) (2,966) (48) 1,485 100.0% -50.1% (409) (4,989) (409) 1,455 100.0% -29.2% 393 Financial statements of Enel SpA36. Contractual commitments and guarantees Millions of euro Sureties and guarantees given: - third parties - subsidiaries Total at Dec. 31, 2017 at Dec. 31, 2016 Change 36 52,752 52,788 347 45,568 45,915 (311) 7,184 6,873 Sureties granted to third parties essentially regard guaran- co (Single Buyer) on behalf of Servizio Elettrico Nazionale tees issued by the Parent Company to INPS for employees for obligations under the electricity purchase contract; participating in the structural staff reduction plan Article 4 of > €713 million issued to INPS on behalf of various Group Law 92/2012) as well as a bank surety issued in favor of Ban- companies whose employees elected to participate co Centroamericano de Integración Economica (BCIE) of €26 in the structural staff reduction plan (Article 4 of Law million, acquired following the merger of Enel South America 92/2012); into Enel SpA. The decrease compared with the previous year > €600 million issued to Terna on behalf of e-distribuzione, is due to the agreement that led to the extinguishment of Enel Trade, Enel Produzione, Enel Green Power and Enel the guarantee issued in the sale of real estate assets (€346 Energia in respect of agreements for electricity transmis- million) with the concomitant issue of a new parent company sion services; guarantee on behalf of Enel Italia. > €331 million issued to Snam Rete Gas on behalf of Enel Trade and Enel.si for gas transport capacity; Other sureties and guarantees issued on behalf of subsidia- > €330 million as counter-guarantees in favor of the banks ries include: that guaranteed the Energy Markets Operator (GME) on > €27,216 million issued on behalf of Enel Finance Inter- behalf of Enel Trade and Enel Produzione; national securing bonds denominated in dollars, pounds, > €50 million issued to RWE Supply & Trading GmbH on euros and yen as part of the €35 billion Global Medium- behalf of Enel Trade for electricity purchases; Term Notes program; > €50 million issued to E.ON on behalf of Enel Trade for > €6,584.92 million issued on behalf of various compa- trading on the electricity market; nies controlled by Enel Green Power, mainly acquired in > €32 million issued to Wingas GmbH & CO.KG on behalf Group reorganization operations; of Enel Trade for the supply of gas; > €3,040 million issued to the European Investment Bank > €33 million issued on behalf of Enel Italia to Excelsia (EIB) for loans granted to e-distribuzione, Enel Produzio- Nove for the performance of obligations under rental ne, Enel Green Power and Enel Sole; contracts; > €1,552 issued to the tax authorities in respect of parti- > €8,682 million issued to various beneficiaries as part of cipation in the Group VAT procedure on behalf of Enel financial support activities by the Parent Company on be- Italia, Enel Innovation Hubs, Enel Trade, Enel Produzione, half of subsidiaries. Enelpower, Servizio Elettrico Nazionale, Nuove Energie, Enel.si, Enel Green Power, Enel Sole, Energy Hydro Piave Compared with December 31, 2016, the increase in other su- and Enel X Italia; reties and guarantees issued on behalf of subsidiaries mainly > €980 million issued on behalf of Enel Finance Internatio- reflects the issue of bonds. As part of the Enel Group finance nal to secure the Euro commercial paper program; strategy and the refinancing strategy for maturing consolida- > €1,407 million in favor of Cassa Depositi e Prestiti issued ted debt, the Enel Board of Directors approved the issue by on behalf of e-distribuzione, which received the Enel Grid December 31, 2018 of one or more bonds to be placed with Efficiency II loan; institutional investors. Enel Finance International launched > €1,150 million issued by Enel SpA to the Acquirente Uni- multiple multi-tranche bond issues in the US and international 394 Annual Report 2017markets, with the issues guaranteed by Enel and reserved for granted letters of patronage to a number of Group compa- institutional investors. nies, essentially for assignments of receivables. In its capacity as the Parent Company, Enel SpA has also 37. Contingent assets and liabilities Please see note 49 to the consolidated financial statements for information on contingent assets and liabilities. 38. Events after the reporting date On January 1, 2018 the Global Business Lines and the Glo- > seize opportunities to grow their businesses in interna- bal services functions (hereinafter “Global Structures”), i.e. tional markets. Global Infrastructure & Networks, Global Thermal Genera- In this context, Enel SpA retains its role as an industrial hol- tion and Global Procurement, which previously operated ding company, focusing its activities on the management in Enel SpA, were transferred to the wholly-owned Italian and coordination of Group companies; providing strategic subsidiaries Enel M@p Srl, Enel Global Thermal Generation policy guidance for operations, remunerated exclusively Srl and Enel Italia Srl. through dividends from subsidiaries; providing institutional The corporate reorganization of the Global Structures gives services through its staff functions on behalf of subsidiaries the Group a uniform organizational and corporate structu- (remunerated through an “institutional services” contract). re in which each Global Structure can seek maximum ef- ficiency and focus more clearly on its activities, within the On March 8, the subsidiary e-distribuzione SpA was reca- framework of a “Global Hub” model. In other words, the pitalized through the partial waiver of a financial receivable organizational units can: due from that company on the intercompany current ac- > perform their activities in an operating company other count in the amount of €2,275 million, which was allocated than Enel SpA; by the latter to a specific available equity reserve. > deliver technical services at the global level to Group companies with the context of a uniform business, pur- Please see note 50 to the consolidated financial statements suing effectiveness and efficiency objectives while ensu- for information on other events after the reporting date. ring legal and accounting clarity; 395 Financial statements of Enel SpA39. Fees of audit firm pursuant to Article 149-duodecies of the CONSOB “Issuers Regulation” Fees paid in 2017 by Enel SpA and its subsidiaries at De- ble, pursuant to the provisions of Article 149-duodecies of cember 31, 2017 to the audit firm and entities belonging to the CONSOB “Issuers Regulation”. its network for services are summarized in the following ta- Entity providing the service Fees (millions of euro) of which: - EY SpA - Entities of Ernst & Young Global Limited network of which: - EY SpA - Entities of Ernst & Young Global Limited network of which: - EY SpA - Entities of Ernst & Young Global Limited network of which: - EY SpA - Entities of Ernst & Young Global Limited network of which: - EY SpA - Entities of Ernst & Young Global Limited network of which: - EY SpA - Entities of Ernst & Young Global Limited network 2.3 - 0.7 - - - 3.0 2.8 11.6 1.2 1.8 - 0.8 18.2 21.2 Type of service Enel SpA Auditing Certification services Other services Total Enel SpA subsidiaries Auditing Certification services Other services Total TOTAL 396 Annual Report 2017Declaration of the Chief Executive Officer and the officer responsible for the preparation of the financial reports of Enel SpA 397 Financial statements of Enel SpADeclaration of the Chief Executive Officer and the officer responsible for the preparation of the financial reports of Enel SpA at December 31, 2017, 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 no. 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 provi- sions 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, 2017 and December 31, 2017. 2. In this regard, we report that: a. the appropriateness of the administrative and accounting procedures used in the preparation of the separate finan- cial 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 guidelines set out in the “Internal Controls - Integrated Fra- mework” 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 separate financial statements of Enel SpA at December 31, 2017: a. have been prepared in compliance with the international accounting standards recognized in the European Union pursuant to Regulation 2002/1606/EC 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 2017 and accompanied by the financial statements of Enel SpA at December 31, 2017, 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. Roma, March 22, 2018 Francesco Starace Alberto De Paoli Chief Executive Officer of Enel SpA Officer responsible for the preparation of the financial reports of Enel SpA 398 Annual Report 2017399 Declaration of the Chief Executive Officer and the officer responsible05Reports 400 Annual Report 2017401 ReportsReport of the Board of Auditors to the Shareholders’ Meeting of Enel SpA 402 Annual Report 2017Report of the Board of Auditors to the shareholders’ meeting of Enel SpA called to approve the financial statements for 2017 (pursuant to Article 153 of Legislative Decree 58/1998) Shareholders, During the year ended December 31, 2017 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, paragraph 1, of Legislative Decree 58 of February 24, 1998 (hereinafter the “Consolidated Law on Financial Intermediation”) and Article 19, paragraph 1 of Legislative Decree 39 of January 27, 2010, as amended by Legislative Decree 135 of July 17, 2016 (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 system, 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 Enel to meet statutory public 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 participa- tion 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 report 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 reso- lutions 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 accompanying the separate financial statements of the company and the consolidated financial statements of the Enel Group for 2017 (in the section “Significant events in 2017”); > 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 2017 financial statements of the company, the directors describe the main transactions with related parties – the latter being identified on the basis of international accounting 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 transparency and procedural and substantive fairness. The transac- tions were carried out in compliance with the approval and execution processes set out in the related procedure – adop- ted 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 2017. All transactions with related parties reported in the notes to the separate 2017 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 2017 on the basis of international ac- 403 Reportscounting standards (IAS/IFRS) – and the interpretations issued by the IFRIC and the SIC – endorsed by the European Union pursuant to Regulation 2002/1606/EC and in force at the close of 2017, as well as the provisions of Legislative De- cree 38 of February 28, 2005 and its related implementing measures, as it did the previous year. The company’s separate financial statements for 2017 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 statements 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, associates and joint ventures, which are carried in the com- pany’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 2017 of the company underwent the statutory audit by the audit firm, EY SpA, which issued an unqualified opinion, including with regard to the consistency of the Report on operations and certain information in the Report on Corporate Governance and Ownership Structure with the financial statements, as well as the compliance of the Report on Operations with the provisions of law, pursuant to Article 14 of Decree 39/2010 and Article 10 of Regulation 2014/537/EU. The report of EY SpA also includes: - a discussion of key aspects of the audit report on the company’s financial statements; and - the declaration provided pursuant to Article 14, paragraph 2(e) of Decree 39/2010 stating that the audit firm did not identify any significant errors in the contents of the Report on operations; > the company declares that it has also prepared the consolidated financial statements of the Enel Group for 2017 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 2002/1606/EC and in force at the close of 2017, 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 2017 consolidated financial statements 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 discus- sion 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 standards and measurement criteria adopted. As re- gards recently issued accounting standards, the notes to the consolidated financial statements discuss (i) new standards applied in 2017, which according to the notes did not have a material impact in the year under review; and (ii) standards that will apply in the future. The consolidated financial statements for 2017 of the Enel Group underwent statutory audit by the audit firm EY SpA, which issued an unqualified opinion, including with regard to the consistency of the Report on operations and certain information in the Report on Corporate Governance and Ownership Structure with the financial statements, as well as the compliance of the Report on operations with the provisions of law, pursuant to Article 14 of Decree 39/2010 and Article 10 of Regulation 2014/537/EU. The report of EY SpA also includes: - a discussion of key aspects of the audit report on the consolidated financial statements; and - the declaration provided pursuant to Article 14, paragraph 2(e) of Decree 39/2010 and Article 4 of CONSOB Regulation 20267 (implementing Legislative Decree 254 of December 30, 2016) concerning, respectively, a statement that the audit firm did not identify any significant errors in the contents of the Report on operations and that it verified that the Board of Directors had approved the non-financial statement. Under the terms of its engagement, EY SpA also issued unqualified opinions on the financial statements for 2017 of the most significant Italian companies of the Enel Group. Moreover, during periodic meetings with the representatives of the audit firm, EY SpA, the latter did not raise any issues concerning the reporting packages of the main foreign companies of the Enel Group, selected by the auditors 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 issued on January 21, 2013, and most recently confirmed with the Public Statement of October 27, 2015, to ensure greater transparency con- cerning the methods used by listed companies in testing goodwill for impairment, in line with the recommendations 404 Annual Report 2017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 7780 of January 28, 2016, 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 opi- nion in this regard from the Control and Risk Committee in March 2018, i.e. prior to the date of approval of the financial statements for 2017; > we examined the Board of Directors’ proposal for the allocation of net income for 2017 and the distribution 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 and the Board of Auditors in March 2018, that as at the date on which the 2017 financial statements were approved, the Enel Group continued to meet the conditions established by CONSOB (set out in Article 15 of the Market Rules, approved with Resolution 20249 of December 28, 2017) 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 companies in Italy and abroad, for the purpose of the recipro- cal exchange of material information. As from the second Half of 2014, the organizational structure of the Enel Group is based on a matrix of Global Business Lines and geographical areas. Taking account of the changes implemented in 2017, it is organized into: (i) Global Business Lines, 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 Glo- bal Business Lines are: Infrastructure and Networks, Renewable Energy, Thermal Generation, Trading and E-Solutions; (ii) Regions and Countries, which are responsible for managing relationships with local institutional bodies, regulatory authorities and the media, as well as the development of the customer base with regard to the sale of electricity and gas, in each of the countries in which the Group is present, while also providing staff and other service support to the Global Business Lines. Regions and Countries comprise: Italy, Iberia, Europe and North Africa, South America, North and Cen- tral America, and Sub-Saharan Africa and Asia; (iii) Global service functions, which are responsible for managing informa- tion and communication technology activities and procurement at the Group level; and (iv) Holding company functions, which are responsible for managing governance processes at the Group level. They include: Administration, Finance and Control, Human Resources and Organization, Communications, Legal and Corporate Affairs, Audit, European Affairs, and Innovation and Sustainability. The Board of Auditors feels that the organizational system described above is adequate to support the strategic development 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 EY SpA, having received from them specific written confirmation today that they met that requirement (pursuant to the provisions of Article 6, paragraph 2(a), of Regulation 2014/ 537/EU) 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(e), of Decree 39/2010 – the nature and the scale of non-audit services provided to the company and other Enel Group companies by EY 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 examinations, the Board of Auditors feels that there are no critical issues concerning the independence of the audit firm EY SpA. We held periodic meetings with the representatives of the audit firm, pursuant to Article 150, paragraph 3, of the Consolidated Law on Financial Interme- diation, and no material issues emerged that would require mention in this report. As regards the provisions of Article 11 of Regulation 2014/537/EU, EY SpA today provided the Board of Auditors with the “additional report” for 2017 on the results of the statutory audit carried out, which indicates no significant difficulties encountered during the audit or any significant shortcomings in the internal control system for financial reporting or the Enel accounting system. The Board of Auditors then transmitted that report to the Board of Directors, in accordance with Article 19, paragraph 1(a), of Decree 39/2010. The audit firm also reported that it did not prepare any management letter for 2017; 405 Reports > 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 per- formance of the company’s business and we have no comments in that regard. We conducted our checks by obtaining information from the head of the Administration, Finance and Control department (taking due account of the head’s role as the officer responsible for the preparation of the company’s financial reports), examining company documentation and analyzing the findings of the examination performed by EY 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 2017 financial state- ments) 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 2002/1606/EC; (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 po- sition of the company; and (iv) that the Report on operations accompanying the financial statements 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. 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 testing performed by a qualified external advisor and the company’s Audit department, with each focusing on their respective areas of responsibility on the basis of the different nature of the various checks) 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 2017 of the Enel Group; > we monitored the adequacy and effectiveness of the internal control system, primarily through periodic meetings with the head of the Audit department of the company and holding most of the meetings jointly with the Control and Risk Committee as well as with the participation of all members of the Board of Auditors in the sole meeting of the Control and Risk Committee not held jointly with the Board of Auditors. In the light of our examination and in the absence of si- gnificant issues, the internal control and risk management system can be considered adequate and effective. In February 2018, the Board of Directors of the company expressed an analogous assessment of the situation and also noted, in November 2017, that the main risks associated with the strategic targets set out in the 2018-2022 Business Plan were compatible with the management of the company in a manner consistent with those targets; > in 2017 we received numerous complaints, most of which based on press reports, from a single shareholder holding one share concerning 11 events deemed censurable by that shareholder pursuant to Article 2408 of the Italian Civil Code. In this regard, the Board of Auditors, having conducted appropriate enquiries with the support of the Audit department and the competent company units, found no irregularities to report and notified the shareholder of our findings. No petitions were received by the Board of Auditors during 2017; > we monitored the effective implementation of the Corporate Governance Code, which the company has adopted, ve- rifying 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 2017. In March and June 2017 and March 2018, the Board of Auditors verified that the Board of Directors, in evaluating the independence of non-executive 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 tran- sparent procedure, the details of which are discussed in the Report on Corporate Governance and Ownership Structure for 2017. In March and September 2017 and March 2018, the Board of Auditors conducted a “self-assessment” of the independence of its members. On those occasions, the Board of Auditors verified that the Chairman Sergio Duca and the standing auditor Romina Guglielmetti met the independence requirements established by the Consolidated Law on Financial Intermediation and the Corporate Governance Code with regard to directors. In September 2017 and March 2018, the Board of Auditors found that the standing auditor Roberto Mazzei, while no longer meeting the independence requirements provided for in the Corporate Governance Code for directors (following the hiring of a close family member as head of the “Global Brand and Advertising Management” unit within Enel’s Communications department), continues 406 Annual Report 2017to meet the independence requirements of the Consolidated Law on Financial Intermediation with regard to the mem- bers of the boards of auditors of listed companies; > we monitored the first-time adoption of the provisions of Legislative Decree 254 of December 30, 2016 (hereinafter “De- cree 254”) concerning the disclosure of non-financial and diversity information by certain large undertakings and groups. In performing that activity, we monitored the adequacy of the organizational, administrative, reporting and control system established by the company in order to enable the accurate representation in the consolidated non-financial statement for 2017 of the activity of the Enel Group, its results and its impacts in the non-financial areas referred to in Article 3, paragraph 1, of Decree 254, and have no comments in this regard. The audit firm, EY SpA, issued, pursuant to Article 3, paragraph 10, of Decree 254 and Article 5 of CONSOB Regulation 20267 of January 18, 2018, its certification of the con- formity of the information provided in the consolidated non-financial statement with the requirements of applicable law; > since the listing of its shares, the company has adopted specific rules (most recently amended in March 2017) 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 on the corporate website) contain appropriate provisions directed at subsidiaries to enable Enel to comply with statutory public disclosure requirements, pursuant to Article 114, paragraph 2, of the Consolidated Law on Financial Intermediation; > in 2002 the company also adopted (and has subsequently updated) a Code of Ethics (also available on the corporate website) 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 different 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 adapted to the characteristics of the various Italian companies of the Group, as well as a description of the purposes of the “Enel Global Compliance Program” for the Group’s foreign companies, please see the Report on Corporate Gover- nance and Ownership Structure for 2017. 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 2017 it was composed of three external members with specific professio- nal expertise on corporate organization matters, and the heads of the Audit and Legal and Corporate Affairs departments. In December 2017, the Board of Directors of the company changed the overall number of members of the Supervisory Body to three in the light of the request of the heads of the Audit and Legal and Corporate Affairs departments to resign as members of that body in order to further enhance the role of the external members with a view to ensuring the full autonomy and independence of the body’s activity. The Board of Auditors received adequate information on the main activities carried out in 2017 by the Supervisory Body, including in meetings with the members of that body. Our exami- nation of those activities found no facts or situations that would require mention in this report; > in 2017, the Board of Auditors issued the following opinions: - a favorable opinion at the meeting of January 30, 2017, concerning the 2017 Audit Plan in accordance with the pro- visions 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 July 13, 2017, pursuant to Article 2389, paragraph 3, of the Italian Civil Code, concerning the level of the remuneration of the members of the various committees established within the Board of Directors following the appointment of the latter body by the Shareholders’ Meeting of May 4, 2017; - a favorable opinion at the meeting of July 13, 2017 on the attendance fees paid to the magistrate of the State Audit Court delegated to monitor the finance operations of Enel for participating in the meetings of the corporate bodies; - a favorable opinion at the meeting of November 8, 2017, 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/ 407 ReportsGeneral Manager during the 2017-2019 term; - a favorable opinion at the meeting of November 8, 2017, on the findings of the audit firm, EY SpA, in its report on the major issues that arose in the statutory audit in 2016, in accordance with the provisions 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 report on the fixed and variable compensation accrued by those who served as Chairman of the Board of Directors, Chief Executive Officer/General Manager and other directors in 2017 for their respective positions and any compen- sation instruments awarded to them will be contained in the Remuneration Report referred to in Article 123-ter of the Consolidated Law on Financial Intermediation (on the basis of the draft of that document made available to the Board of Auditors), which will be submitted for the approval of 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, complying with the principle of establishing a link with appropria- te 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 entirely of independent directors, drawing on the findings of benchmarking analyses, including at the international level, conducted by an independent consulting firm. Finally, the Remuneration Report referred to in Article 123-ter of the Consolidated Law on Financial Intermediation will contain, in compliance with the applicable CONSOB regulations, specific disclosures on the remuneration earned in 2017 by key management personnel. The Board of Auditors’ oversight activity in 2017 was carried out in 22 meetings (14 of which held jointly with the Control and Risk Committee) and with participation in the 15 meetings of the Board of Directors, and, together or through the Chairman, in the sole meeting of the Control and Risk Committee not held jointly with the Board of Auditors, in the 8 me- etings of the Nomination and Compensation Committee, in the 4 meetings of the Related Parties Committee and in the 8 meetings of the Corporate Governance and Sustainability Committee. The delegated magistrate 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 EY SpA, no omissions, censurable facts, irregularities or other significant developments were found that would require reporting to the regulatory authorities or mention in this report. Based on the oversight activity performed and the information exchanged with the independent auditors EY SpA, we re- commend that you approve the company’s financial statements for the year ended December 31, 2017 in conformity with the proposals of the Board of Directors. Rome, April 17, 2018 The Board of Auditors Chairman Sergio Duca Auditor Romina Guglielmetti Auditor Roberto Mazzei 408 Annual Report 2017409 ReportsReport of the independent audit firm on the 2017 financial statements of Enel SpA 410 Annual Report 2017EY S.p.A. Via Po, 32 00198 Roma Tel: +39 06 324751 Fax: +39 06 32475504 ey.com Independent audit or ’s repor t pursuant to art icle 14 of Legislat ive Decree n. 39, dat ed 27 J anuary 2010 and art icle 10 of EU Regulat ion n. 537/ 2014 (Translat ion from t he original It alian t ext ) To t he Shareholders of Enel S.p.A. Report on t he Audit of t he Financial Stat ement s Opinion We have audited the financial statements of Enel S.p.A. (the Company), which comprise the balance sheet as at December 31, 2017, and t he statement of income, the statement of comprehensive income, the statement of changes in shareholders’ equity and the statement of cash flows for the year t hen ended, and notes to t he financial statement s, including a summary of significant account ing policies. In our opinion, the financial statements give a true and fair view of the financial position of the Company as at December 31, 2017, and of its financial performance and its cash flows for the year t hen ended in accordance wit h International Financial Report ing Standards as adopted by t he European Union and with the regulations issued for implementing art. 9 of Legislative Decree n. 38/ 2005. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilit ies under t hose standards are further described in t he Auditor’s Responsibilities for the Audit of the Financial Statement s section of our report. We are independent of the Company in accordance with the regulat ions and standards on ethics and independence applicable to audits of financial statements under Italian Laws. We believe t hat t he audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Mat t ers Key audit matters are t hose matters t hat , in our professional judgment , were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on t hese matters. EY S.p.A. Sede Legale: Via Po, 32 - 00198 Roma Capit ale Sociale deliberat o Eur o 3.250.000 ,00, sot t oscr it t o e ver sat o Eur o 3.100.0 00,00 i.v. Iscr it t a alla S.O. del Regist r o delle Impr ese pr esso la C.C.I.A.A. di Roma Codice fiscale e numer o di iscr izione 00434000584 - numer o R.E.A. 250904 P.IVA 00891231003 Iscr it t a al Regist r o Revisor i Legali al n. 70945 Pubblicat o sulla G.U. Suppl. 13 - IV Ser ie Speciale del 17/ 2/ 1998 Iscr it t a all’Albo Speciale delle societ à di r evisione Consob al progr essivo n. 2 deliber a n.10831 del 16/ 7/ 1997 A member firm of Ernst & Young Global Limit ed 411 ReportsWe identified t he following key audit matters: Key Audit Mat t er Audit Response Recoverabilit y of equit y invest ment s The financial statements as of December 31, 2017 include wit hin non-current assets equit y investments for Euro 42.811 million. The Directors annually assess for impairment indicat ors each equit y investment , consist ent wit h t he st rat egy for managing legal ent it ies wit hin t he Group and, if such indicat ors exist , perform an impairment test on t hese assets. The processes and methodologies implement ed for det ermining t he recoverable amount of each equity investment are based on complex assumpt ions which, due t o t heir nat ure, require t he Directors t o exercise t heir judgment . Such judgment relat es, primarily, to the ident ificat ion of impairment indicators, the cash flow projections deriving from t he Indust rial Plan 2018-2022 and the determination of the long- t erm growth rat es and the discount rates applied t o such projections. The disclosures related t o t he impairment of equity investments are included in Note 2. “ Accounting policies and measurement criteria - Recoverabilit y of equit y invest ment s” and Note 13. “ Equit y Invest ment s” . Our audit procedures in response t o t his Key Audit Matt er included, among ot hers: • Assessment of t he impairment process for equit y investments and relat ed cont rols implement ed by t he Company; • Assessment of t he criteria adopted t o ident ify impairment indicat ors; • Assessment of t he key assumptions underlying the Industrial Plan 2018-2022 and future cash flows, including the comparison with indust ry dat a and forecasts; • Assessment of t he consistency of t he cash flow projections for each equit y investment with the Industrial Plan 2018-2022; • Assessment of t he management’s abilit y to make accurat e projections, t hrough t he comparison of t he act ual result s wit h t he previous forecasts. In performing our procedures we engaged our valuat ion experts in order t o verify the met hodologies used in t he process, t he mathematical accuracy of the model, the reasonableness of t he long-term growt h rates and the discount rates. Lastly, we reviewed the adequacy of the disclosures provided in t he notes t o t he financial statement s relating t his Key Audit Matt er. Responsibilit ies of Direct ors and Those Charged wit h Governance for t he Financial St at ement s The Directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and with the regulations issued for implementing art. 9 of Legislative Decree n. 38/ 2005, and, within the terms provided by the law, for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 2 412 Annual Report 2017The Directors are responsible for assessing the Company’s ability to continue as a going concern and, when preparing the financial statements, for the appropriateness of the going concern assumption, and for appropriate disclosure t hereof. The Directors prepare t he financial statement s on a going concern basis unless t hey eit her intend to liquidate t he Company or to cease operations, or have no realist ic alternative but to do so. The stat utory audit committee (“ Collegio Sindacale” ) is responsible, within the terms provided by the law, for overseeing t he Company’s financial report ing process. Audit or’s Responsibilit ies for t he Audit of t he Financial St atement s Our objectives are to obtain reasonable assurance about whether t he financial statements as a whole are free from material misstatement , whet her due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee t hat an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exist s. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, t hey could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with International Standards on Auditing (ISA Italia), we have exercised professional judgment and maintained professional skept icism t hroughout t he audit . In addition: • we have identified and assessed t he risks of material misstatement of t he financial statement s, whether due to fraud or error, designed and performed audit procedures responsive to t hose risks, and obtained audit evidence t hat is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or t he override of internal cont rol; • we have obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on t he effect iveness of t he Company’s internal cont rol; • we have evaluated the appropriateness of accounting policies used and the reasonableness of account ing est imates and related disclosures made by t he Directors; • we have concluded on the appropriateness of Directors’ use of the going concern basis of account ing and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions t hat may cast significant doubt on t he Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attent ion in our auditor’s report to the related disclosures in t he financial statements or, if such disclosures are inadequate, to consider this matter in forming our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern; • we have evaluated the overall presentation, st ruct ure and content of t he financial statement s, including t he disclosures, and whether t he financial statement s represent t he underlying t ransactions and event s in a manner that achieves fair presentation. 3 413 ReportsWe have communicated wit h t hose charged wit h governance, ident ified at an appropriate level as required by ISA Italia, regarding, among ot her matters, t he planned scope and t iming of the audit and significant audit findings, including any significant deficiencies in internal cont rol t hat we identify during our audit . We have provided those charged with governance with a statement that we have complied wit h the ethical and independence requirements applicable in Italy, and we have communicated with them all matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From t he matters communicated wit h t hose charged wit h governance, we have determined those matters that were of most significance in t he audit of the financial statements of t he current period and are t herefore t he key audit matters. We have described these matters in our auditor’s report . Addit ional informat ion pursuant t o art icle 10 of EU Regulat ion n. 537/ 14 The shareholders of Enel S.p.A., in the general meeting held on April 27, 2011, engaged us to perform the audits of the financial statements for each of the years ending December 31, 2011 to December 31, 2019. We declare that we have not provided prohibited non-audit services, referred to article 5, par. 1, of EU Regulation n. 537/ 2014, and that we have remained independent of the Company in conducting the audit . We confirm that the opinion on the financial statements included in t his report is consistent wit h t he content of t he additional report to t he audit committee (Collegio Sindacale) in t heir capacity as audit committee, prepared pursuant to article 11 of the EU Regulation n. 537/ 2014. Report on compliance wit h ot her legal and regulatory requirement s Opinion pursuant t o art icle 14, paragraph 2, subparagraph e) of Legislat ive Decree n. 39 dat ed 27 January 2010 and of art icle 123-bis, paragraph 4 of Legislat ive Decree n. 58, dat ed 24 February 1998 The Directors of Enel S.p.A. are responsible for the preparation of the Report on Operations and of the Report on Corporate Governance and Ownership Structure of Enel S.p.A. as at December 31, 2017, including their consistency wit h the related financial statements and their compliance with the applicable laws and regulations. We have performed the procedures required under audit standard (SA Italia) n. 720B, in order to express an opinion on t he consistency of t he Report on Operat ions and of specific informat ion included in the Report on Corporate Governance and Ownership Structure as provided for by article 123-bis, paragraph 4, of Legislative Decree n. 58, dated 24 February 1998, with the financial statements of Enel S.p.A. as at December 31,2017 and on their compliance with the applicable laws and regulations, and in order to assess whether they contain material misstatements. 4 414 Annual Report 2017In our opinion, the Report on Operations and the above mentioned specific information included in t he Report on Corporate Governance and Ownership St ruct ure are consistent wit h the financial statements of Enel S.p.A. as at December 31, 2017and comply wit h the applicable laws and regulations. With reference to the statement required by art. 14, paragraph 2, subparagraph e) of Legislative Decree n. 39, dated 27 January 2010, based on our knowledge and understanding of the entity and its environment obtained t hrough our audit , we have no matters to report. St at ement pursuant t o art icle 4 of Consob Regulat ion implement ing Legislat ive Decree n. 254, dated 30 December 2016 The Directors of Enel S.p.A. are responsible for the preparation of the non-financial information pursuant to Legislative Decree n. 254, dated 30 December 2016. We have verified that non-financial informat ion have been approved by Directors. Pursuant to article 3, paragraph 10, of Legislative Decree n. 254, dated 30 December 2016, such non-financial informat ion are subject to a separate compliance report signed by us. Rome, April 17, 2018 EY S.p.A. Signed by: Massimo Antonelli, partner This report has been translated into the English language solely for the convenience of international readers. 5 415 ReportsReport of the independent audit firm on the 2017 consolidated financial statements of the Enel Group 416 Annual Report 2017EY S.p.A. Via Po, 32 00198 Roma Tel: +39 06 324751 Fax: +39 06 32475504 ey.com Independent audit or ’s repor t pursuant to art icle 14 of Legislat ive Decree n. 39, dat ed 27 J anuary 2010 and art icle 10 of EU Regulat ion n. 537/ 2014 (Translat ion from t he original It alian t ext ) To t he Shareholders of Enel S.p.A. Report on t he Audit of t he Consolidat ed Financial Stat ement s Opinion We have audited the consolidated financial statements of t he Enel Group (the Group), which comprise t he balance sheet as at December 31, 2017, t he income statement , the statement of comprehensive income, the statement of changes in shareholders’ equity, the statement of cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant account ing policies. In our opinion, the consolidated financial statements give a t rue and fair view of the financial position of the Group as at December 31, 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with the regulations issued for implementing art. 9 of Legislative Decree n. 38/ 2005. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our responsibilit ies under t hose standards are further described in t he Auditor’s Responsibilities for the Audit of the Consolidated Financial Statement s section of our report. We are independent of Enel S.p.A. in accordance wit h t he regulations and standards on ethics and independence applicable to audits of financial statements under Italian Laws. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Mat t ers Key audit matters are t hose matters t hat , in our professional judgment , were of most significance in our audit of t he consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion t hereon, and we do not provide a separate opinion on t hese matters. EY S.p.A. Sede Legale: Via Po, 32 - 00198 Roma Capit ale Sociale deliberat o Eur o 3.250.000 ,00, sot t oscr it t o e ver sat o Eur o 3.100.0 00,00 i.v. Iscr it t a alla S.O. del Regist r o delle Impr ese pr esso la C.C.I.A.A. di Roma Codice fiscale e numer o di iscr izione 00434000584 - numer o R.E.A. 250904 P.IVA 00891231003 Iscr it t a al Regist r o Revisor i Legali al n. 70945 Pubblicat o sulla G.U. Suppl. 13 - IV Ser ie Speciale del 17/ 2/ 1998 Iscr it t a all’Albo Speciale delle societ à di r evisione Consob al progr essivo n. 2 deliber a n.10831 del 16/ 7/ 1997 A member firm of Ernst & Young Global Limit ed 417 ReportsWe identified t he following key audit matters: Key Audit Mat t er Audit Response Our audit procedures in response t o t his Key Audit Matt er included, among ot hers: • Assessment of t he impairment process of non-current asset s and related cont rols implemented by the Group; • Assessment of t he criteria adopted t o ident ify t he CGUs and t he reconciliat ion of t heir carrying amount s t o t he consolidat ed financial statement s; • Assessment of t he key assumptions underlying the Industrial Plan 2018-2022 and relevant future cash flows, including the comparison with indust ry dat a and forecasts; • Assessment of t he consistency of t he cash flow projections for each CGU with the Industrial Plan 2018-2022; • Assessment of t he management’s abilit y to make accurat e projections, t hrough t he comparison of t he act ual result s wit h t he previous forecasts. In performing our procedures we engaged our valuat ion experts in order t o verify the met hodologies used in t he process, t he mathematical accuracy of the model, the reasonableness of t he long-term growt h rates and the discount rates as well as t he result s of t he sensit ivit y analysis performed by the management . Lastly, we reviewed the adequacy of the disclosures provided in t he notes t o t he financial statement s relating t his Key Audit Matt er. Recoverabilit y of non-current asset s The consolidated financial statements include, wit hin t he non-current assets balance, Propert y, Plant and Equipment for Euro 74.937 million, Intangible Assets for Euro 16.724 million and Goodwill for Euro 13.746 million. The Directors tested for impairment the carrying values of the Cash Generat ing Unit s (CGUs) as of t he balance sheet dat e, which include goodwill, intangible assets with indefinite useful lives and other non-current assets where indication of impairment were noted. The process adopt ed by management and t he met hodologies for assessing and determining t he recoverable amount of each CGU are sometimes based on complex assumptions which, due to t heir nature, require t he Direct ors to exercise t heir judgment. Such a judgment relat es, primarily, to the cash flow projections deriving from the Indust rial Plan 2018-2022 as well as from t he det erminat ion of t he long-t erm growth rates and t he discount rat es applied t o t hese projections. In relation to the above, t he key assumptions made by the Directors relate to future economic t rends, including fut ure t rends of t he elect ricit y and gas demand and t he related expected prices, the availability of renewable resources as well as certain assumpt ions such as inflat ion, exchange and interest rates. Because of the judgment required and t he complexit y of assumptions used to estimate the recoverable amount of t he non-current asset s, we ident ified t his area as a Key Audit Mat ter. The disclosures related to the impairment of non- current assets are included in Note 2. “ Accounting policies and measurement criteria - Recoverabilit y of non-current asset s” , Note 15. “ Propert y, Plant and Equipment ” and Note 20. “ Goodwill” . 2 418 Annual Report 2017Key Audit Mat t er Audit Response Revenues from unbilled sale of elect ricit y and gas Revenues from sales of elect ricit y and gas t o retail cust omers are recognized upon delivery and include, in addition to amount s invoiced based on periodic met er readings or on t he volumes notified by distributors and t ransport ers, an est imat e of t he elect ricit y and gas delivered during the year but not yet invoiced. Revenues accrued between the date of t he last met er reading and year-end are based on estimates of the daily consumption of cust omers, primarily det ermined on their historical information, adjusted to reflect the climate factors or other mat ters that may affect t he estimated consumpt ion. Because of the complexit y of assumptions used t o est imat e t he revenues from unbilled sale of electricity and gas, we identified this area as a Key Audit Matt er. The disclosures related to the revenues from unbilled sale of elect ricit y and gas are included in Note 2. “ Accounting policies and measurement criteria – Use of est imates – Revenue Recognition” . Our audit procedures in response t o t his Key Audit Matt er included, among ot hers: • assessment of t he process related t o t he recognition of revenues from sales of elect ricit y and gas and related key cont rols, including Information Technology controls, implement ed by t he entities within the Group; • • assessment of t he algorit hms and data in t he ERP systems of such Group ent it ies, also with the support of our Information Technology specialists; testing of a sample of data used by management t o determine the accrued revenues, including, whenever applicable, t he comparison of quant it ies ent ered int o t he network as made available by t ransport ers and dist ributors; look-back analysis of prior est imat es against actual data subsequent ly reported. • Lastly, we reviewed the adequacy of the disclosures provided in t he notes t o t he financial statement s relating t his Key Audit Matt er. 3 419 ReportsKey Audit Mat t er Legal proceedings Audit Response The Group is involved in several civil, administrative and tax disputes arising from the normal course of business, for which final outcomes cannot be easily predicted and could pot ent ially result s in significant liabilities. The assessment of the risks associated with t he litigations is based on complex assumpt ions, which, by t heir nat ure, require t he use of the Direct ors’ judgment . Such judgment relat es, primarily, to the assessment of the uncertainties connect ed t o t he prediction of t he outcome of t he proceedings and to the adequacy of the disclosures in the financial statement s; it is also based on t he assessment made by internal and ext ernal legal counsels. Because of the judgment required, t he mat erialit y of such litigat ions and t he complexit y of t he assessment process, we ident ified t his area as a Key Audit Matt er. The disclosures related t o legal proceedings are included in Note 2. “ Account ing policies and measurement criteria – Use of estimat es – Litigat ion” and Note 49. “ Cont ingent liabilities and asset s” . Our audit procedures in response t o t his Key Audit Matt er included, among ot hers: • assessment of t he process and relevant cont rols implemented to identify legal and t ax lit igations, and pending administ rative proceedings; • assessment of t he assumpt ions used in the valuation of potential legal and tax risks performed by the legal and t ax departments wit hin t he Group; inquiry with the legal and tax departments regarding the status of the most significant disputes and inspect ion of t he key relevant document at ion, also with the support of our t ax and legal experts; • • analysis of the external confirmations received from the external legal and tax counsels assisting the Group ent ities involved in such disputes, and assessment of t he consistency of the information obtained with t he risk assessment performed by management and t he legal and t ax departments. Lastly, we reviewed the adequacy of the disclosures provided in t he notes t o t he financial statement s relating t his Key Audit Matt er. 4 420 Annual Report 2017Key Audit Mat t er Audit Response Impact of t he first t ime adopt ion of IFRS 15 “ Revenue from cont ract s with customers” Effective January 1, 2018, the Group adopted t he int ernat ional accounting standard IFRS 15 “ Revenue from cont ract s with cust omers” . The new standard introduces, among others, a new framework for the recognition and measurement of revenues based on t he t ransfer of t he cont rol over goods and services t o t he clients for an amount t hat reflect s t he expect ed consideration in exchange for t hose goods and services. The new standard introduces, additionally, new revenue recognition criteria for separate performance obligations or t he combination of such obligations for recognizing revenues. At the transition date, the Group elected to adopt t he modified ret rospective application criteria and recognize ret rospectively t he cumulated effect deriving from t he adopt ion as an adjustment t o t he opening balance of Equit y as of January 1, 2018, for circumstances that existed at that dat e, which does not require t he restatement of previously reported figures. The Group identified as most significant impacts from the application of the new standard the deferral of revenues deriving from certain connect ion arrangement s t o the elect ric network, and t he recognition as an asset of t he increment al cost s of obtaining a cont ract wit h cust omers only relat ed t o agent s sale commissions. The impact s ment ioned above will drive a decrease of the Net Equity of the Group for Euro 3.7 billion as of January 1, 2018, net of t ax effect. Because of the significance of the expect ed impacts deriving from the adoption of the new standard and the significance of the related disclosures, we identified this area as a Key Audit Matt er. The disclosures related to the adoption of the accounting st andard IFRS 15 are included in Note 3. “ Accounting st andards t aking effect at a future date” . Our audit procedures in response t o t his Key Audit Matt er included, among ot hers: • assessment of t he analysis performed by t he Directors aimed at identifying the differences from the previous accounting standards, as well as the relevant key controls; • assessment of t he informat ion collect ed by the management from the Italian and foreign components through specific quest ionnaires aimed at ident ifying t he different t ypes of arrangement s and such det ails relevant for t he provisions of the new standard IFRS 15; • assessment of t he impacts identified by management as a result of obt aining the above mentioned questionnaires, and the benchmarking analysis against t he indust ry practice; • assessment of t he main t ypes of arrangement s, and of the arrangements executed with key customers of t he Group; • assessment of t he consist ency, on a sample basis, of the informat ion collected by t he Group from cont ract s with cust omers, including the relevant amounts; • assessment of t he process adopt ed by t he Group to measure revenues in accordance wit h IFRS 15 for those cont racts impacted by t he new standard, and relevant key cont rols; • assessment of adequacy of the t ransition method to the new standard at the date of first adopt ion; • complet eness check of t he informat ion collected from t he component s and t esting of t he mathemat ical accuracy of t he impacts from t he first t ime adoption of t he new standard. Lastly, we reviewed the adequacy of the disclosures provided in t he notes t o t he financial statement s relating t his Key Audit Matt er. 5 421 ReportsResponsibilit ies of Direct ors and Those Charged wit h Governance for t he Consolidat ed Financial St atement s The Directors are responsible for the preparation of the consolidated financial statements that give a t rue and fair view in accordance with International Financial Report ing Standards as adopted by t he European Union and with the regulations issued for implementing art. 9 of Legislative Decree n. 38/ 2005, and, wit hin the terms provided by the law, for such internal control as they determine is necessary to enable t he preparation of financial statements t hat are free from material misstatement, whether due to fraud or error. The Directors are responsible for assessing the Group’s ability to continue as a going concern and, when preparing the consolidated financial statements, for the appropriateness of the going concern assumption, and for appropriate disclosure thereof. The Directors prepare the consolidated financial statement s on a going concern basis unless t hey either intend to liquidate t he Parent Company Enel S.p.A. or to cease operations, or have no realistic alternative but to do so. The stat utory audit committee (“ Collegio Sindacale” ) is responsible, within the terms provided by the law, for overseeing the Group’s financial reporting process. Audit or’s Responsibilit ies for t he Audit of t he Consolidat ed Financial St atement s Our objectives are to obtain reasonable assurance about whether t he consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report t hat includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will always detect a material misstatement when it exist s. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statement s. As part of an audit in accordance with International Standards on Auditing (ISA Italia), we have exercised professional judgment and maintained professional skept icism t hroughout t he audit . In addition: • we have identified and assessed the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or t he override of internal cont rol; • we have obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on t he effect iveness of t he Group’s internal cont rol; • we have evaluated the appropriateness of accounting policies used and the reasonableness of account ing est imates and related disclosures made by t he Directors; • we have concluded on the appropriateness of Directors’ use of the going concern basis of account ing and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions t hat may cast significant doubt on t he Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to consider this matter in forming our opinion. Our conclusions are 6 422 Annual Report 2017based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to cont inue as a going concern; • we have evaluated the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whet her the consolidated financial statements represent the underlying transact ions and events in a manner t hat achieves fair presentation. • we have obtained sufficient appropriate audit evidence regarding the financial information of the entities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We have communicated wit h t hose charged wit h governance, ident ified at an appropriate level as required by ISA Italia, regarding, among ot her matters, t he planned scope and t iming of the audit and significant audit findings, including any significant deficiencies in internal cont rol t hat we identify during our audit . We have provided those charged with governance with a statement that we have complied wit h the ethical and independence requirements applicable in Italy, and we have communicated with them all matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From t he matters communicated wit h t hose charged wit h governance, we have determined those matters that were of most significance in t he audit of the financial statements of t he current period and are t herefore t he key audit matters. We have described these matters in our auditor’s report . Addit ional informat ion pursuant t o art icle 10 of EU Regulat ion n. 537/ 14 The shareholders of Enel S.p.A., in the general meeting held on April 29, 2011, engaged us to perform the audits of t he consolidated financial statements for each of t he years ending December 31, 2011 to December 31, 2019. We declare that we have not provided prohibited non-audit services, referred to article 5, par. 1, of EU Regulation n. 537/ 2014, and that we have remained independent of the Company in conducting the audit . We confirm that the opinion on the consolidated financial statements included in this report is consistent wit h t he content of t he addit ional report to t he audit committee (Collegio Sindacale) in their capacity as audit committee, prepared pursuant to article 11 of the EU Regulation n. 537/ 2014 . 7 423 ReportsReport on compliance wit h ot her legal and regulatory requirement s Opinion pursuant t o art icle 14, paragraph 2, subparagraph e) of Legislat ive Decree n. 39 dat ed 27 January 2010 and of art icle 123-bis, paragraph 4 of Legislat ive Decree n. 58, dat ed 24 February 1998 The Directors of Enel S.p.A. are responsible for the preparation of the Report on Operations and of the Report on Corporate Governance and Ownership Structure of Enel S.p.A. as at December 31, 2017, including t heir consistency wit h the related consolidated financial statement s and t heir compliance with the applicable laws and regulations. We have performed the procedures required under audit standard (SA Italia) n. 720B in order to express an opinion on t he consistency of t he Report on Operat ions and of specific informat ion included in the Report on Corporate Governance and Ownership Structure as provided for by article 123-bis, paragraph 4 of Legislative Decree n. 58, dated 24 February 1998, with the consolidated financial statements of the Enel Group as at December 31, 2017 and on their compliance with the applicable laws and regulations, and in order to assess whether they contain material misstatements. In our opinion, the Report on Operations and the above mentioned specific information included in t he Report on Corporate Governance and Ownership St ruct ure are consistent wit h the consolidated financial statements of the Enel Group as at December 31, 2017 and comply with the applicable laws and regulations. With reference to the statement required by art. 14, paragraph 2, subparagraph e) of Legislative Decree n. 39, dated 27 January 2010, based on our knowledge and understanding of the entity and its environment obtained t hrough our audit , we have no matters to report. St at ement pursuant t o art icle 4 of Consob Regulat ion implement ing Legislat ive Decree n. 254, dated 30 December 2016 The Directors of Enel S.p.A. are responsible for the preparation of the non-financial information pursuant to Legislative Decree n. 254, dated 30 December 2016. We have verified that non-financial informat ion have been approved by Directors. Pursuant to article 3, paragraph 10, of Legislative Decree n. 254, dated 30 December 2016, such non-financial informat ion are subject to a separate compliance report signed by us. Rome, April 17, 2018 EY S.p.A. Signed by: Massimo Antonelli, partner This report has been translated into the English language solely for the convenience of international readers. 8 424 Annual Report 2017425 ReportsSummary of the resolutions of the Ordinary and Extraordinary Shareholders’ Meeting The Shareholders’ Meeting of Enel SpA held in Rome in single call on May 24, 2018 at the Enel Conference Center at 125, Viale Regina Margherita, adopted the following resolutions during the ordinary session: 1. approved the financial statements of Enel SpA for the year ended December 31, 2017, having acknowledged the results of the consolidated financial statements of the Enel Group, which closed with Group’s net income of €3,779 million, together with the consolidated non-financial statement, both referred to the financial year 2017; 2. resolved: (i) to allocate Enel SpA’s net income for the year 2017, amounting to €2,269,988,186.84, as follows: a) to earmark for the distribution to the shareholders: • €0.105 for each of the 10,166,679,946 ordinary shares in circulation on the ex-dividend date, to cover the inte- rim dividend payable from January 24, 2018, the ex-dividend date of coupon no. 27 having fallen on January 22, 2018 and the “record date” (i.e. the date of the title to the payment of the dividend) on January 23, 2018, for an overall amount of €1,067,501,394.33; • €0.118 for each of the 10,166,679,946 ordinary shares in circulation on July 23, 2018 (i.e. on the scheduled ex-dividend date), as the balance of the dividend, for an overall amount of €1,199,668,233.63; b) to earmark for “retained earnings” the remaining part of the net income, for an overall amount of €2,818,558.88; (ii) to earmark for the distribution to the shareholders, always as the balance of the dividend, also a part of the avai- lable reserve named “retained earnings” allocated in the financial statements of Enel SpA (amounting as of De- cember 31, 2017 to €4,424,283,417.19), for an amount of €0.014 for each of the 10,166,679,946 ordinary shares in circulation on July 23, 2018 (i.e. on the scheduled ex-dividend date), for an overall amount of €142,333,519.24; paying, before withholding tax, if any, the overall balance of the dividend of €0.132 per ordinary share – of which €0.118 as distribution of part of the remaining 2017 net income and €0.014 as partial distribution of the available reserve na- med “retained earnings” – as from July 25, 2018, with the ex-dividend date of coupon no. 28 falling on July 23, 2018 and the “record date” (i.e. the date of the title to the payment of the dividend) coinciding with July 24, 2018; 3. resolved: (i) to revoke the resolution concerning the authorization for the acquisition and the disposal of own shares approved by the Ordinary Shareholders’ Meeting held on May 4, 2017; (ii) to authorize the Board of Directors to acquire, in one or more instalments and for a period of eighteen months starting from the date of the Shareholders’ Meeting resolution, a maximum number of 500 million ordinary shares of the company, representing approximately 4.92% of the share capital of Enel SpA, up to a maximum amount of €2 billion; and (iii) to authorize the Board of Directors to dispose, in one or more instalments and for an unlimited period of time, of all or part of the own shares held in portfolio, also before having reached the maximum amount of shares that can be pur- chased, as well as, as the case may be, to buy-back the shares, provided that the own shares held by the company and, if applicable, by its subsidiaries, do not exceed the limit set by above-mentioned authorization to the purchase; 426 Annual Report 20174. resolved: (i) to approve an increase of the fees due to the audit company EY SpA for the statutory audit of Enel SpA with reference to the financial years from 2011 to 2019 – as resolved by the Ordinary Shareholders’ Meeting held on April 29, 2011 – since “circumstances exceptional and/or unforeseeable” at the moment of the appointment of EY SpA have occurred, in accordance with the provisions of CONSON Communication 96003556 of April 18, 1996; (ii) consequently, to grant the audit company EY SpA, within the framework of the performance of the statutory audit of the annual financial statements of Enel SpA and the consolidated financial statements of the Enel Group as of December 31, 2018 and as of December 31, 2019: • an increase of €25,000 per year (equal to 560 working hours) for the drafting of the audit report on the basis of the new contents requested by Article 10 of Regulation 2014/537/EU; • an increase of €15,000 per year (equal to 336 working hours) for the drafting of the additional report to be submitted to the Board of Statutory Auditors (in its capacity as audit committee pursuant to Article 19, paragraph 2, letter a), of Legislative Decree 39 of January 27, 2010, as amended by Legislative Decree 135 of July 17, 2016); • an increase of €25,000 per year (equal to 560 working hours) for the issuance of the opinion on the com- pliance of the management report and of certain information contained in the report on corporate gover- nance of Enel SpA with the applicable laws; 5. approved the Long-term Incentive Plan for 2018 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; 6. 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 Re- solution 11971/1999, containing the description of the policy for the remuneration of directors, general manager and executives with strategic responsibilities adopted by Enel SpA for the financial year 2018, as well as the procedures used for the adoption and implementation of such policy. In the extraordinary session, the Shareholders’ Meeting resolved: (i) the repeal of Article 31 of the corporate bylaws, which includes a transitional clause limiting timewise the appli- cation of the provisions that ensure gender balance in the composition of the Board of Directors and Board of Statutory Auditors; (ii) the amendment of Article 21 of the corporate bylaws, which aims to incorporate and clarify – in line with the practice followed by the company since the listing of its shares – the power of the Board of Directors to establish internal committees with proposing and/or consultative functions. 427 Reports06Attachments Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, 2017 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, 2017, 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, registered office, 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. 430 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Parent Company Enel SpA Rome Italy 10,166,679,946.00 EUR Holding company Holding company 100.00% Subsidiaries (Cataldo) Hydro Power New York USA - USD Electricity generation Equity Hydro 50.00% 50.00% Associates (New York) from renewable resources Development Group Acquisition LLC Pyrites Hydro 50.00% LLC Società di sviluppo Milan Italy 37,419,179.00 EUR Energy and - Enel Produzione 17.65% 17.65% realizzazione e gestione del gasdotto Algeria- Italia via Sardegna SpA (”in breve Galsi SpA”) infrastructure engineering SpA 3-101-665717 SA San José Costa Rica 10,000.00 CRC Electricity generation Line-by-line PH Chucas SA 100.00% 65.00% from renewable resources 3Sun Srl Catania Italy 35,205,984.00 EUR Plant development, Line-by-line Enel Green 100.00% 100.00% design, construction and operation Power SpA Activation Energy - Ireland 100,000.00 EUR Renewable energy Line-by-line EnerNOC Ireland 100.00% 100.00% Limited Limited Adams Solar PV Johannesburg South Africa 10,000,000.00 ZAR Electricity generation Line-by-line Enel Green 60.00% 60.00% Project Two (RF) (Pty) Ltd from renewable resources Power RSA (Pty) Ltd Adria Link Srl Gorizia Italy 500,000.00 EUR Design, construction Equity Enel Produzione 33.33% 33.33% and operation of merchant lines SpA Agassiz Beach LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Agatos Green Power Rome Italy 10,000.00 EUR Electricity generation Line-by-line Enel Green 80.00% 80.00% Trino from renewable resources Power Solar Energy Srl Agrupación Acefhat Barcelona Spain 793,340.00 EUR Design and services - Endesa 16.67% 11.69% AIE Distribución Eléctrica SL Aguilón 20 SA Zaragoza Spain 2,682,000.00 EUR Electricity generation Line-by-line Enel Green 51.00% 35.75% from renewable resources Power España SL Alba Energia Ltda Rio de Janeiro Brazil 15,061,880.00 BRL Plant development, Line-by-line Enel Green 100.00% 100.00% design, construction and operation Power Brasil Participações Ltda Albany Solar LLC Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC Almeyda Solar SpA Santiago Chile 1,736,965,000.00 CLP Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Chile Ltda Almussafes Servicios Valencia Spain 3,010.00 EUR Management and Line-by-line Enel Green 100.00% 70.10% Energéticos SL maintenance of power Power España SL plants Alpe Adria Energia Srl Udine Italy 450,000.00 EUR Design, construction Line-by-line Enel Produzione 100.00% 100.00% and operation of merchant lines SpA Altomonte FV Srl Rome Italy 5,100,000.00 EUR Electricity generation Equity Enel F2i Solare 100.00% 50.00% from renewable resources Italia SpA 431 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Alvorada Energia SA Rio de Janeiro Brazil 17,117,415.92 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% and sale Power Brasil Participações Ltda Annandale Solar LLC Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC Apiacás Energia SA Rio de Janeiro Brazil 21,216,846.33 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Power Brasil Participações Ltda Aquenergy Systems Greenville USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% LLC (South Carolina) from renewable resources Hydro Holdings LLC Aragonesa de Teruel Spain 60,100.00 EUR Electricity generation Line-by-line Endesa Red SA 100.00% 70.10% Actividades Energéticas SA Asociación Nuclear Tarragona Spain 19,232,400.00 EUR Management and Joint operation Endesa 85.41% 59.87% Ascó-Vandellós II AIE maintenance of power Generación SA plants Athonet Smartgrid Srl Bolzano Italy 14,285.71 EUR Research, development Equity Enel X Srl 30.00% 30.00% Atwater Solar LLC Delaware USA Aurora Distributed Wilmington USA Solar LLC (Delaware) Aurora Land Holdings Delaware USA LLC Aurora Solar Holdings Delaware USA LLC Autumn Hills LLC Delaware USA - - - - - and design USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC USD Electricity generation Line-by-line Aurora Solar 51.00% 51.00% from renewable resources Holdings LLC USD Electricity generation Line-by-line Enel Kansas LLC 100.00% 100.00% from renewable resources USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% from renewable resources Wind LLC Avikiran Energy India Gurugram India 100,000.00 INR Electricity generation Line-by-line BLP Energy 100.00% 76.56% Private Limited (Haryana) and sale from renewable resources Private Limited Avikiran Solar India Haryana India 100,000.00 INR Electricity generation Line-by-line BLP Energy 100.00% 76.56% Private Llimited from renewable resources Private Limited Aysén Energía SA Santiago Chile 4,900,100.00 CLP Electricity activities Equity Centrales 99.00% 18.54% Hidroeléctricas de Aysén SA Enel Generación 0.51% Chile SA Aysén Transmisión SA Santiago Chile 22,368,000.00 CLP Electricity generation Equity Centrales 99.00% 18.54% and sale Hidroeléctricas de Aysén SA Enel Generación 0.51% Chile SA Azovskaya WPS Moscow Russia 10,000.00 RUB - Line-by-line Enel Rus Wind 100.00% 56.43% Burlington USA - USD Electricity generation Held for sale Enel Green 10.00% 100.00% (Vermont) from renewable resources Power North America Inc. Generation LLC Sweetwater 90.00% Hydroelectric LLC Limited Liability Company Barnet Hydro Company LLC 432 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Baylio Solar SLU Seville Spain 3,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% Consolidation % Group % holding 70.10% Beaver Falls Water Philadelphia USA Power Company (Pennsylvania) Beaver Valley Holdings LLC Philadelphia USA (Pennsylvania) Beaver Valley Power Philadelphia USA Company LLC (Pennsylvania) - - - from renewable resources Power España SL USD Electricity generation Line-by-line Beaver Valley 67.50% 67.50% from renewable resources Holdings LLC USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC Bioenergy Casei Rome Italy 100,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Gerola Srl from renewable resources Power SpA Black River Hydro New York USA - USD Electricity generation Equity (Cataldo) Hydro 75.00% 62.50% Assoc (New York) from renewable resources Power Associates Enel Green Power North 25.00% America Inc. BLP Energy Private New Delhi India 50,000,000.00 INR Electricity generation Line-by-line Enel Green 76.56% 76.56% Limited from renewable resources Power Development Srl BLP Vayu (Project 1) Haryana India 7,500,000.00 INR Electricity generation Line-by-line BLP Energy 100.00% 76.56% Private Limited from renewable resources Private Limited BLP Vayu (Project 2) Haryana India 45,000,000.00 INR Electricity generation Line-by-line BLP Energy 100.00% 76.56% Private Limited from renewable resources Private Limited BLP Wind Project New Delhi India 5,000,000.00 INR Electricity generation Line-by-line BLP Energy 100.00% 76.56% (Amberi) Private Limited from renewable resources Private Limited Boiro Energía SA Boiro Spain 601,010.00 EUR Electricity generation Equity Enel Green 40.00% 28.04% from renewable resources Power España SL Bondia Energia Ltda Rio de Janeiro Brazil 2,000,000.00 BRL Plant development, Line-by-line Enel Green 100.00% 100.00% Boott Hydropower Boston USA LLC (Massachusetts) Bp Hydro Associates Boise USA (Idaho) - - design, construction and operation Power Brasil Participações Ltda USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC USD Electricity generation Line-by-line Chi Idaho LLC 68.00% 100.00% from renewable resources Enel Green 32.00% Bp Hydro Finance Salt Lake City USA - USD Electricity generation Line-by-line Partnership (Utah) from renewable resources Power North America Inc. Bp Hydro Associates 75.92% 100.00% Enel Green 24.08% Power North America Inc. Buffalo Dunes Wind Topeka USA - USD Electricity generation Line-by-line EGPNA 75.00% 75.00% Project LLC (Kansas) from renewable resources Development Holdings LLC Bungala One FinCo Sydney Australia 1,000.00 AUD Electricity generation Equity Bungala One 100.00% 50.00% (Pty) Ltd from renewable resources Property (Pty) Ltd Bungala One Sydney Australia 100.00 AUD Renewable energy Equity Enel Green 50.00% 50.00% Operation Holding Trust Power Bungala (Pty) Ltd 433 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Bungala One Sydney Australia 100.00 AUD Electricity generation Equity Enel Green 50.00% Operations Holding (Pty) Ltd from renewable resources Power Bungala (Pty) Ltd Consolidation % Group % holding 50.00% Bungala One Sydney Australia 1,000.00 AUD Electricity generation Equity Bungala One 100.00% 50.00% Operations (Pty) Ltd from renewable resources Operations Holding (Pty) Ltd Bungala One Sydney Australia - AUD Renewable energy Equity Bungala One 100.00% 50.00% Operations Trust Operations Holding (Pty) Ltd Bungala One Property Sydney Australia 1,000.00 AUD Electricity generation Equity Bungala One 100.00% 50.00% (Pty) Ltd from renewable resources Property Holding (Pty) Ltd Bungala One Property Sydney Australia 100.00 AUD Electricity generation Equity Enel Green 50.00% 50.00% Holding (Pty) Ltd from renewable resources Power Bungala (Pty) Ltd Bungala One Property Sydney Australia 100.00 AUD Electricity generation Equity Enel Green 50.00% 50.00% Holding Trust from renewable resources Power Bungala (Pty) Ltd Bungala One Property Sydney Australia - AUD Electricity generation Equity Bungala One 100.00% 50.00% Trust from renewable resources Property Holding (Pty) Ltd Bungala Two FinCo Sydney Australia - AUD Electricity generation Equity Bungala Two 100.00% 50.00% (Pty) Ltd from renewable resources Property (Pty) Ltd Bungala Two Sydney Australia - AUD Electricity generation Equity Enel Green 50.00% 50.00% Operations Holding (Pty) Ltd from renewable resources Power Bungala (Pty) Ltd Bungala Two Sydney Australia - AUD Renewable energy Equity Enel Green 50.00% 50.00% Operations Holding Trust Power Bungala (Pty) Ltd Bungala Two Sydney Australia - AUD Renewable energy Equity Bungala Two 100.00% 50.00% Operations (Pty) Ltd Operations Holding (Pty) Ltd Bungala Two Sydney Australia - AUD Renewable energy Equity Bungala Two 100.00% 50.00% Operations Trust Operations Holding (Pty) Ltd Bungala Two Property Sydney Australia - AUD Electricity generation Equity Enel Green 50.00% 50.00% Holding (Pty) Ltd from renewable resources Power Bungala (Pty) Ltd Bungala Two Property Sydney Australia - AUD Renewable energy Equity Enel Green 50.00% 50.00% Holding Trust Power Bungala (Pty) Ltd Bungala Two Property Sydney Australia - AUD Renewable energy Equity Bungala Two 100.00% 50.00% (Pty) Ltd Property Holding (Pty) Ltd Bungala Two Property Sydney Australia 1.00 AUD Renewable energy Equity Bungala Two 100.00% 50.00% Trust Property Holding (Pty) Ltd Business Venture Lombardy East South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% Investments 1468 (Pty) Ltd Bypass Limited LLC Boise USA (Idaho) Canastota Wind Wilmington USA Power LLC (Delaware) Caney River Wind Topeka USA Project LLC (Kansas) - - - from renewable resources Power RSA (Pty) Ltd USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Equity Rocky Caney 100.00% 20.00% from renewable resources Wind LLC 434 Annual Report 2017Company name Headquarters Country Share capital Currency Activity Carbopego - Abrantes Portugal 50,000.00 EUR Fuel supply Abastecimientos e Combustíveis SA Consolidation method Equity Held by Endesa Generación Portugal SA % holding 0.01% Group % holding 35.05% Endesa 49.99% Generación SA Carodex (Pty) Ltd Houghton South Africa 116.00 ZAR Electricity generation Line-by-line Enel Green 98.49% 98.49% from renewable resources Power RSA (Pty) Ltd Cascade Energy Delaware USA - USD Renewable energy Line-by-line EGP Energy 100.00% 100.00% Storage LLC Storage Holdings LLC Castiblanco Solar SL Valencia Spain 3,000.00 EUR Photovoltaic systems Line-by-line Enel Green 100.00% 70.10% Power España SL Castle Rock Ridge Calgary Canada - CAD Electricity generation Line-by-line Enel Alberta 0.10% 100.00% Limited Partnership (Alberta) from renewable resources Wind Inc. Enel Green 99.90% Power Canada Inc. Central Costanera SA Buenos Aires Argentina 701,988,378.00 ARS Electricity generation Line-by-line Enel Argentina 75.68% 39.16% and sale SA Central Dock Sud SA Buenos Aires Argentina 35,595,178,229.00 ARS Electricity generation, Line-by-line Enel Argentina 0.25% 20.85% transmission and distribution SA Inversora Dock 69.99% Sud SA Central Geradora Caucaia Brazil 151,940,000.00 BRL Thermal generation Line-by-line Enel Brasil SA 100.00% 51.61% Termelétrica Fortaleza SA plants Central Hidráulica Seville Spain 364,210.00 EUR Plant operation Equity Enel Green 33.30% 23.34% Güejar-Sierra SL Power España SL Central Térmica de Madrid Spain 595,000.00 EUR Plant operation Equity Endesa 33.33% 23.36% Anllares AIE Generación SA Central Vuelta de Buenos Aires Argentina 500,000.00 ARS Electrical facilities Equity Central 1.30% 9.80% Obligado SA construction Costanera SA Central Dock 6.40% Sud SA Enel Generación 33.20% El Chocón SA Centrales Santiago Chile 158,975,665,182.00 CLP Design Equity Enel Generación 51.00% 18.54% Hidroeléctricas de Aysén SA Chile SA Centrales Nucleares Madrid Spain - EUR Plant operation Equity Endesa 23.57% 16.76% Almaraz-Trillo AIE Generación SA Nuclenor SA 0.69% Centrum Pre Vedu a Kalná nad Slovakia 6,639.00 EUR Research and Equity Slovenské 100.00% 33.00% Vyskum Sro Hronom development in sciences and engineering elektrárne AS Milan Italy 8,550,000.00 EUR Testing, inspection and Equity Enel SpA 42.70% 42.70% CESI - Centro Elettrotecnico Sperimentale Italiano Giacinto Motta SpA Champagne Storage Wilmington USA LLC (Delaware) Cherokee Falls Delaware USA Hydroelectric Project LLC Chi Black River LLC Wilmington USA (Delaware) - - - certification services, engineering and consulting services USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. 435 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Chi Idaho LLC Wilmington USA (Delaware) Chi Minnesota Wind Wilmington USA LLC (Delaware) - - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Chi Operations Inc. Wilmington USA 100.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% (Delaware) from renewable resources Power North America Inc. Chi Power Inc. Wilmington USA 100.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% (Delaware) from renewable resources Power North America Inc. Chi Power Marketing Wilmington USA 100.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Inc. (Delaware) from renewable resources Power North America Inc. Chi West LLC Wilmington USA 100.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% (Delaware) from renewable resources Power North America Inc. Chinango SAC Lima Peru 294,249,298.00 PEN Electricity generation, Line-by-line Enel Generación 80.00% 34.64% Chisago Solar LLC Delaware USA Chisholm View II Delaware USA Holding LLC Chisholm View Wind Delaware USA Project II LLC Chisholm View Wind Oklahoma City USA Project LLC (Oklahoma) Cimarron Bend Assets Wilmington USA LLC (Delaware) Cimarron Bend Wind Delaware USA Holdings I LLC Cimarron Bend Wind Delaware USA Holdings LLC Cimarron Bend Wind Delaware USA Project I LLC Cimarron Bend Wind Delaware USA Project II LLC Cimarron Bend Wind Wilmington USA Project III LLC (Delaware) - - - - - - - - - - sale and transmission Perú SAA USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC USD Electricity generation Line-by-line Enel Kansas LLC 100.00% 100.00% from renewable resources USD Electricity generation Line-by-line Chisholm View II 100.00% 51.00% from renewable resources Holding LLC USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Wind Holdings LLC USD Electricity generation Equity Cimarron Bend 49.00% 50.00% from renewable resources Wind Project I LLC Cimarron Bend 49.00% Wind Project II LLC Cimarron Bend 1.00% Wind Project III LLC Enel Kansas LLC 1.00% USD Electricity generation Equity Cimarron Bend 100.00% 50.00% from renewable resources Wind Holdings LLC USD Electricity generation Equity EGPNA Preferred 100.00% 50.00% from renewable resources Wind Holdings LLC USD Electricity generation Line-by-line Cimarron Bend 100.00% 50.00% from renewable resources Wind Holdings I LLC USD Electricity generation Equity Cimarron Bend 100.00% 50.00% from renewable resources Wind Holdings I LLC USD Electricity generation Line-by-line Enel Kansas LLC 100.00% 100.00% from renewable resources Codensa SA ESP Bogotá DC Colombia 13,514,515,800.00 COP Electricity distribution Line-by-line Enel Américas 48.41% 25.07% and sale SA Cogeneración El Salto Zaragoza Spain 36,060.73 EUR Cogeneration of - Enel Green 20.00% 14.02% SL electricity and heat Power España SL Cogent Energy Inc. Delaware USA 100,000.00 USD Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% 436 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Comercializadora Cadiz Spain 600,000.00 EUR Electricity transmission, Equity Endesa Red SA 33.50% Eléctrica de Cádiz SA distribution and sale Consolidation % Group % holding 23.48% Compagnia Porto di Rome Italy 24,372,000.00 EUR Construction of port Equity Enel Produzione 25.00% 25.00% Civitavecchia SpA infrastructure SpA Compañía de Buenos Aires Argentina 14,012,000.00 ARS Electricity generation, Line-by-line Enel CIEN SA 100.00% 51.61% Transmisión del Mercosur Ltda - CTM transmission and distribution Enel SpA 0.00% Compañía Energética Lima Peru 2,886,000.00 PEN Hydroelectric projects Line-by-line Enel Perú SAC 100.00% 51.80% Veracruz SAC Compañía Eólica Soria Spain 13,222,000.00 EUR Wind plants Equity Enel Green 37.51% 26.29% Tierras Altas SA Power España SL Concert Srl Rome Italy 10,000.00 EUR Product, plant and Line-by-line Enel Produzione 100.00% 100.00% equipment certification SpA Coneross Power Greenville USA 110,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Corporation Inc. (South Carolina) Consolidated Hydro Wilmington USA New Hampshire LLC (Delaware) Consolidated Hydro Wilmington USA New York LLC (Delaware) Consolidated Hydro Wilmington USA Southeast LLC (Delaware) - - - from renewable resources Power North America Inc. USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Consolidated Pumped Wilmington USA 550,000.00 USD Electricity generation Line-by-line Enel Green 81.82% 81.82% Storage Inc. (Delaware) from renewable resources Power North America Inc. Consorcio Eólico Cadiz Spain 200,000.00 EUR Wind plants Equity Enel Green 50.00% 35.05% Marino Cabo de Trafalgar SL (in liquidation) Power España SL Construction Lab Ltd Airport City Israel 10,000.00 EUR Legal services Line-by-line Enel Innovation 50.00% 50.00% Hubs Srl Copenhagen Hydro Wilmington USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% LLC (Delaware) from renewable resources Hydro Holdings LLC Corporación Eólica de Zaragoza Spain 1,021,600.00 EUR Electricity generation Equity Enel Green 25.00% 17.53% Zaragoza SL from renewable resources Power España SL Danax Energy Houghton South Africa 100.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% (Pty) Ltd from renewable resources Power RSA (Pty) Ltd De Rock’l Srl Bucharest Romania 5,629,000.00 RON Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Romania Srl Enel Green Power SpA 0.00% Dehesa de Los Seville Spain 3,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 70.10% Guadalupes Solar SLU from renewable resources Power España SL Demand Energy Washington USA 171,689.00 USD Services Line-by-line Enel Green 100.00% 100.00% Networks Inc. DC Power North America Inc. Depuración Boiro Spain 600,000.00 EUR Electricity generation Equity Enel Green 40.00% 28.04% Destilación Reciclaje SL from renewable resources Power España SL Desarrollo de Fuerzas Mexico City Mexico 33,101,350.00 MXN Electricity generation Line-by-line Enel Green 99.99% 100.00% Renovables S de RL de Cv from renewable resources Power México S de RL de Cv Energía Nueva 0.01% Energía Limpia México S de RL de Cv 437 AttachmentsCompany name Headquarters Country Share capital Currency Activity Consolidation method Diego de Almagro Santiago Chile 351,604,338.00 CLP Electricity generation Line-by-line Matriz SpA from renewable resources % holding Group % holding 100.00% 100.00% Held by Empresa Eléctrica Panguipulli SA Dietrich Drop LLC Delaware USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC Distribuidora de Barcelona Spain 108,240.00 EUR Electricity distribution Line-by-line Endesa Red SA 55.00% 70.10% Energía Eléctrica del Bages SA and sale Hidroeléctrica de 45.00% Catalunya SL Distribuidora Eléctrica Tenerife Spain 12,621,210.00 EUR Electricity purchase, Line-by-line Endesa Red SA 100.00% 70.10% del Puerto de La Cruz SA transmission and distribution Distrilec Inversora SA Buenos Aires Argentina 497,610,000.00 ARS Holding company Line-by-line Enel Américas 51.50% 26.68% SA Dodge Center Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% Distributed Solar LLC from renewable resources Distributed Solar LLC Dolores Wind Mexico City Mexico 100.00 MXN Electricity generation Line-by-line Enel Rinnovabile 99.00% 100.00% Sa de Cv from renewable resources SA de Cv Hidroelectricidad 1.00% del Pacífico S de RL de Cv Dominica Energía Mexico City Mexico 279,282.24 MXN Electricity generation Held for sale Enel Green 0.04% 100.00% Limpia S de RL de Cv from renewable resources Power Guatemala SA Enel Green 99.96% Power México S de RL de Cv Drift Sand Wind Delaware USA Holdings LLC Drift Sand Wind Delaware USA Project LLC - - USD Electricity generation Equity Enel Kansas LLC 35.00% 50.00% from renewable resources USD Electricity generation Equity Drift Sand Wind 100.00% 50.00% from renewable resources Holdings LLC e-distribut¸ie Banat Timisoara Romania 382,158,580.00 RON Electricity distribution Line-by-line Enel Investment 51.00% 51.00% SA Holding BV e-distribut¸ie Dobrogea Constant‚a Romania 280,285,560.00 RON Electricity distribution Line-by-line Enel Investment 51.00% 51.00% SA Holding BV e-distribut¸ie Muntenia Bucharest Romania 271,635,250.00 RON Electricity distribution Line-by-line Enel Investment 78.00% 78.00% SA Holding BV e-distribuzione SpA Rome Eastwood Solar LLC Delaware Italy USA 2,600,000,000.00 - EUR USD Electricity distribution Line-by-line Enel SpA 100.00% 100.00% Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC EGP BioEnergy Srl Rome Italy 1,000,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Puglia Srl EGP Diamond Vista Wilmington USA 1.00 USD Electricity generation Line-by-line Enel Kansas LLC 100.00% 100.00% Wind Project LLC (Delaware) from renewable resources EGP Energy Storage Delaware USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Holdings LLC from renewable resources Power North America Inc. EGP Geronimo Wilmington USA 1,000.00 USD Holding company Line-by-line Enel Green 100.00% 100.00% Holdings Inc. (Delaware) Power North America Inc. EGP Nevada Power Delaware USA - USD Renewable energy Line-by-line Enel Green 100.00% 100.00% LLC 438 Power North America Inc. Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding EGP Salt Wells Solar Delaware USA LLC EGP San Leandro Delaware USA Microgrid I LLC EGP Solar 1 LLC Wilmington USA (Delaware) EGP Stillwater Solar Wilmington USA LLC (Delaware) EGP Stillwater Solar PV II LLC Delaware USA EGP Timber Hills Los Angeles USA Project LLC (California) EGPNA Development Wilmington USA Holdings LLC (Delaware) EGPNA Hydro Holdings LLC Delaware USA EGPNA Preferred Delaware USA Holdings II LLC EGPNA Preferred Delaware USA Wind Holdings LLC EGPNA Renewable Delaware USA Energy Partners LLC EGPNA REP Holdings LLC Delaware USA EGPNA REP Hydro Delaware USA Holdings LLC EGPNA REP Solar Delaware USA Holdings LLC EGPNA REP Wind Delaware USA Holdings LLC EGPNA Wind Wilmington USA Holdings 1 LLC (Delaware) El Dorado Hydro LLC Los Angeles USA (California) - - - - - - - - - - - - - - - - - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Solar Holdings LLC USD Electricity generation Equity Enel Stillwater 100.00% 50.00% from renewable resources LLC USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Line-by-line Padoma Wind 100.00% 100.00% from renewable resources Power LLC USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Development LLC USD Holding company Line-by-line Enel Green 100.00% 100.00% Power North America Inc. USD Holding company Line-by-line Enel Green 100.00% 100.00% Power North America Inc. USD Holding company Equity EGPNA REP 100.00% 50.00% Wind Holdings LLC USD Joint venture Equity EGPNA REP 50.00% 50.00% Holdings LLC USD Holding company Line-by-line Enel Green 100.00% 100.00% Power North America Inc. USD Holding company Equity EGPNA 100.00% 50.00% Renewable Energy Partners LLC USD Holding company Equity EGPNA 100.00% 50.00% Renewable Energy Partners LLC USD Electricity generation Equity EGPNA 100.00% 50.00% from renewable resources Renewable Energy Partners LLC USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Wind Holdings LLC USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC EL Paso Solar Bogotá DC Colombia 300,000,000.00 COP Electricity generation Line-by-line Enel Green 100.00% 100.00% SAS ESP Power Colombia SAS ESP Elcogas SA Puertollano Spain 809,690.40 EUR Electricity generation Equity Endesa 40.99% 33.05% Generación SA Enel SpA 4.32% 439 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Elcomex Solar Energy Constant‚a Romania 4,590,000.00 RON Electricity generation Line-by-line Enel Green 100.00% 100.00% Srl from renewable resources Power Romania Srl Enel Green 0.00% Power SpA Elecgas SA Santarem Portugal 50,000.00 EUR Combined-cycle Equity Endesa 50.00% 35.05% (Pego) electricity generation Generación Portugal SA Electra Capital (RF) Johannesburg South Africa 10,000,000.00 ZAR Electricity generation Line-by-line Enel Green 60.00% 60.00% (Pty) Ltd from renewable resources Power RSA (Pty) Ltd Eléctrica de Jafre SA Girona Spain 165,876.00 EUR Electricity distribution Equity Endesa Red SA 52.54% 70.10% and sale Hidroeléctrica de 47.46% Catalunya SL Eléctrica de Lijar SL Cadiz Spain 1,081,820.00 EUR Electricity transmission Equity Endesa Red SA 50.00% 35.05% and distribution Eléctrica Del Ebro SA Tarragona Spain 500,000.00 EUR Electricity supply Line-by-line Endesa Red SA 100.00% 70.10% (Sociedad Unipersonal) Electricidad de Puerto Cadiz Spain 6,611,130.00 EUR Electricity distribution Equity Endesa Red SA 50.00% 35.05% Real SA and sale Elk Creek Hydro LLC Delaware USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Emgesa SA ESP Bogotá DC Colombia 655,222,310,000.00 COP Electricity generation Line-by-line Enel Américas 48.48% 25.11% and sale SA Emittenti Titoli SpA Milan Italy 5,200,000.00 EUR - - Enel SpA 10.00% 10.00% (in liquidation) eMotor Werks Inc. Wilmington USA - USD Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% (Delaware) Empresa Carbonífera Madrid Spain 18,030,000.00 EUR Mining Line-by-line del Sur SA Endesa Generación SA 100.00% 70.10% Empresa de Santiago Chile 250,428,941.00 CLP Electricity transmission Line-by-line Empresa 0.10% 60.07% Transmisión Chena SA Eléctrica de Colina Ltda Enel Distribución Chile SA 99.90% Empresa Distribuidora Buenos Aires Argentina 898,590,000.00 ARS Electricity distribution Line-by-line Distrilec 56.36% 37.34% Sur SA - Edesur and sale Inversora SA Empresa Eléctrica de Santiago Chile 82,222,000.00 CLP Electricity generation, Line-by-line Enel Distribución 100.00% 60.07% Colina Ltda transmission and distribution Chile SA Luz Andes Ltda 0.00% Empresa Eléctrica Santiago Chile 48,038,937.00 CLP Electricity generation Line-by-line Enel Green 99.96% 100.00% Enel Argentina 43.10% SA Panguipulli SA from renewable resources Power Chile Ltda Enel Green 0.04% Power Latin America SA Empresa Eléctrica Santiago Chile 175,774,920,733.00 CLP Electricity generation, Line-by-line Enel Generación 92.65% 33.69% Pehuenche SA transmission and distribution Chile SA Empresa Nacional de Santiago Chile 12,647,752,517.00 CLP Electricity generation Line-by-line Enel Green 51.00% 51.00% Geotermia SA from renewable resources Power Chile Ltda Empresa Propietaria Panama Panama 58,500,000.00 USD Electricity transmission - Enel SpA 11.11% 11.11% de La Red SA and distribution 440 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Endesa Capital SA Madrid Spain 60,200.00 Endesa Oporto Portugal 250,000.00 EUR EUR Comercialização de Energia SA Finance company Line-by-line Endesa SA 100.00% 70.10% Electricity generation Line-by-line Endesa Energía 100.00% 70.10% and sale SA Endesa Distribución Barcelona Spain 1,204,540,060.00 EUR Electricity distribution Line-by-line Endesa Red SA 100.00% 70.10% Eléctrica SL Endesa Energía SA Madrid Spain 12,981,860.00 EUR Marketing of energy Line-by-line Endesa SA 100.00% 70.10% products Endesa Energía XXI Madrid Spain 2,000,000.00 EUR Marketing and energy- Line-by-line Endesa Energía 100.00% 70.10% SL related services SA Endesa Financiación Madrid Spain 4,621,003,006.00 EUR Finance company Line-by-line Endesa SA 100.00% 70.10% Filiales SA Endesa Generación Seville Spain 63,107.00 EUR Electricity generation Line-by-line Endesa SA 100.00% 70.10% II SA Endesa Generación Seville Spain 60,000.00 EUR Subholding company in Line-by-line Endesa 100.00% 70.10% Nuclear SA the nuclear sector Generación SA Endesa Generación Paço de Arcos Portugal 50,000.00 EUR Electricity generation Line-by-line Endesa Energía 0.20% 70.10% Portugal SA (Oeiras) SA Endesa 99.20% Generación SA Enel Green 0.40% Power España SL Energías de 0.20% Aragón II SL Endesa Generación Seville Spain 1,940,379,737.02 EUR Electricity generation Line-by-line Endesa SA 100.00% 70.10% SA and sale Endesa Ingeniería Seville Spain 1,000,000.00 EUR Consulting and Line-by-line Endesa Red SA 100.00% 70.10% SLU engineering services Endesa Medios y Madrid Spain 89,999,790.00 EUR Services Line-by-line Endesa SA 100.00% 70.10% Sistemas SL (Sociedad Unipersonal) Endesa Operaciones Barcelona Spain 10,138,580.00 EUR Services Line-by-line Endesa Energía 100.00% 70.10% 2.00 GBP Trading Line-by-line Endesa SA 100.00% 70.10% SA Enel Alberta Wind Inc. Calgary Canada 16,251,021.00 (Alberta) 719,901,728.28 1,270,502,540.40 EUR EUR CAD Electricity distribution Line-by-line Endesa SA 100.00% Holding company Line-by-line Enel Iberia Srl 70.10% 70.10% 70.10% Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Canada Inc. Enel Américas SA Santiago Chile 3,575,339,011,549.00 CLP Holding company - Line-by-line Enel SpA 51.80% 51.80% Electricity generation and distribution Enel Argentina SA Buenos Aires Argentina 514,530,000.00 ARS Holding company Line-by-line Enel Américas 99.88% 51.74% SA Gas Atacama 0.12% Chile SA Enel Bella Energy Wilmington USA - USD Renewable energy Line-by-line EGP Energy 100.00% 100.00% Storage LLC (Delaware) Storage Holdings LLC Enel Brasil SA Rio de Janeiro Brazil 6,276,994,956.09 BRL Holding company Line-by-line Enel Américas 97.73% 51.61% SA Enel Generación 2.27% Perú SAA Enel Chile SA Santiago Chile 2,229,108,974,538.00 CLP Holding company - Line-by-line Enel SpA 60.62% 60.62% Electricity generation and distribution 441 Y Servicios Comerciales SL Endesa Power Trading London Ltd Endesa Red SA Barcelona Endesa SA Madrid United Kingdom Spain Spain Attachments Company name Headquarters Country Share capital Currency Activity method Held by holding Enel CIEN SA Rio de Janeiro Brazil 285,050,000.00 BRL Electricity generation, Line-by-line Enel Brasil SA 100.00% Consolidation % Group % holding 51.61% Enel Cove Fort II LLC Wilmington USA (Delaware) Enel Cove Fort LLC Wilmington USA (Delaware) - - transmission and distribution USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. USD Electricity generation Equity Enel Geothermal 100.00% 50.00% from renewable resources LLC Enel Distribución Fortaleza Brazil 615,946,885.77 BRL Electricity distribution Line-by-line Enel Brasil SA 74.05% 38.22% Ceará SA Enel Distribución Chile Santiago Chile 230,137,980,270.00 CLP Holding company - Line-by-line Enel Chile SA 99.09% 60.07% SA Electricity distribution Enel Distribución Perú Lima Peru 638,563,900.00 PEN Electricity distribution Line-by-line Enel Perú SAC 83.15% 43.09% SAA and sale Enel Distribución Rio de Janeiro Brazil 2,498,230,386.65 BRL Electricity distribution Line-by-line Enel Brasil SA 99.79% 51.42% Rio SA and sale Enel Distribuição Goiás Brazil 5,075,679,362.52 BRL Electricity transmission, Line-by-line Enel 99.93% 51.57% Goiás distribution and sale Investimentos SA Enel Energia SpA Rome Italy 302,039.00 EUR Sale of gas and Line-by-line Enel SpA 100.00% 100.00% electricity Enel Energía Mexico City Mexico 10,000.10 MXN Electricity generation Line-by-line Enel Green 99.00% 100.00% SA de Cv Enel Energie Muntenia SA from renewable resources Power Mexico S de RL de Cv Energía Nueva 1.00% de Iguu S de RL de Cv Bucharest Romania 37,004,350.00 RON Electricity sales Line-by-line Enel Investment 78.00% 78.00% Holding BV Enel Energie SA Bucharest Romania 140,000,000.00 RON Electricity sales Line-by-line Enel Investment 51.00% 51.00% Holding BV Enel Energy South Gauteng South Africa 100.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% Africa from renewable resources Power SpA Enel F2i Solare Italia Rome Italy 5,100,000.00 EUR Electricity generation Equity Marte Srl 50.00% 50.00% SpA Enel Finance Amsterdam Netherlands 1,478,810,371.00 EUR Holding company Line-by-line Enel SpA 100.00% 100.00% International NV Enel Fortuna SA Panama Panama 100,000,000.00 USD Electricity generation Line-by-line Enel Green 50.06% 50.06% from renewable resources Power Panama SA Enel Generación Chile Santiago Chile 552,777,320,871.00 CLP Electricity generation, Line-by-line Enel Chile SA 59.98% 36.36% SA transmission and distribution Enel Generación El Buenos Aires Argentina 298,584,050.00 ARS Electricity generation Line-by-line Enel Argentina 8.67% 34.02% Chocón SA and sale SA Enel Generación Perú Lima SAA Enel Generación Piura Lima SA Peru Peru 2,545,960,353.20 PEN Electricity generation, Line-by-line Enel Perú SAC 83.60% 43.30% distribution and sales 73,982,594.00 PEN Electricity generation Line-by-line Enel Perú SAC 96.50% 49.99% Hidroinvest SA 59.00% Enel Generación SA Mexico City Mexico 2,000,100.00 MXN Electricity generation Line-by-line Enel Green 99.00% 100.00% de Cv Enel Geothermal LLC Wilmington USA - USD Electricity generation Equity (Delaware) from renewable resources Power México S de RL de Cv Energía Nueva 1.00% de Iguu S de RL 100.00% 50.00% de Cv EGPNA Renewable Energy Partners LLC 442 Annual Report 2017Company name Headquarters Country Share capital Currency Activity Consolidation method Enel Global Thermal Rome Italy 1,000,000.00 EUR Business consulting, Line-by-line Held by Enel SpA % holding Group % holding 100.00% 100.00% Generation Srl administrative and management consulting and corporate planning Enel Green Power Newfoundland Canada 1,000.00 CAD Electricity generation Equity EGPNA REP 100.00% 50.00% Newfoundland and Labrador Inc. from renewable resources Wind Holdings LLC Enel Green Power Rome Italy 10,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Africa Srl Power SpA Enel Green Power Buenos Aires Argentina 100,000.00 ARS Electricity generation Line-by-line Enel Green 5.00% 100.00% Argentina SA from renewable resources Power Latin America SA Enel Green Power Sydney Australia 100.00 AUD Electricity generation Line-by-line Enel Green 100.00% 100.00% Australia (Pty) Ltd from renewable resources Power SpA Enel Green Power Sydney Australia 100.00 AUD Renewable energy Line-by-line Enel Green 100.00% 100.00% Australia Trust Power SpA Enel Green Power Niterói Brazil 1,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Enel Green 95.00% Power SpA Boa Vista Eólica SA (Rio de Janeiro) from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Rio de Janeiro Brazil - BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Bom Jesus da Lapa Solar SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 4,024,724,678.00 BRL Holding company Line-by-line Enel Green 0.01% 100.00% Brasil Participações Ltda Power Latin America SA Enel Green 99.99% Power SpA Enel Green Power Sofia Bulgaria 35,231,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% Bulgaria EAD operation and maintenance Power SpA Enel Green Power Sydney Australia 100.00 AUD Electricity generation Line-by-line Enel Green 100.00% 100.00% Bungala (Pty) Ltd from renewable resources Power Australia (Pty) Ltd Enel Green Power Sydney Australia - AUD Renewable energy Line-by-line Enel Green 100.00% 100.00% Bungala Trust Power Australia (Pty) Ltd Enel Green Power Rio de Janeiro Brazil 76,000,000.00 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Cabeça de Boi SA from renewable resources Power Brasil Participações Ltda Enel Green Power Goiania Brazil 6,433,983,585.00 BRL Electricity generation Line-by-line Enel Brasil SA 99.75% 51.48% Cachoeira Dourada SA and sale Enel Green Power Rome Italy 10,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Calabria Srl from renewable resources Power SpA Enel Green Power Montreal Canada 85,681,857.00 CAD Electricity generation Line-by-line Enel Green 100.00% 100.00% Canada Inc. (Quebec) from renewable resources Power North America Inc. Enel Green Power Santiago Chile 842,086,000.00 USD Electricity generation Line-by-line Enel Green 99.99% 100.00% Chile Ltda from renewable resources Power Latin America SA Hydromac Energy Srl 0.01% 443 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Enel Green Power Bogotá DC Colombia 468,138,000.00 COP Electricity generation Line-by-line Enel Green 100.00% 100.00% Colombia SAS ESP from renewable resources Power SpA Enel Green Power San José Costa Rica 27,500,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Costa Rica SA from renewable resources Power SpA Enel Green Power Rio de Janeiro Brazil 144,640,892.85 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Cristal Eólica SA and sale from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Rio de Janeiro Brazil 1,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Cristalândia I Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 1,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Cristalândia II Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 70,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Damascena Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Santiago Chile 353,605,313.37 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% del Sur SpA (formerly Parque Eólico Renaico SpA) and sale from renewable resources Power Chile Ltda Enel Green 0.00% Power Latin America SA Enel Green Power Rio de Janeiro Brazil 70,379,344.85 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Delfina A Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 23,054,973.26 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Delfina B Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 7,298,322.77 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Delfina C Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 24,624,368.53 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Delfina D Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 24,623,467.93 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Delfina E Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 13,900,297.00 BRL Electricity generation Line-by-line Enel Green 99.99% 100.00% Desenvolvimento Ltda from renewable resources Power Brasil Participações Ltda Enel Green 0.01% Power Latin America SA 444 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Enel Green Power Rome Italy 20,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Development Srl from renewable resources Power SpA Enel Green Power Rio de Janeiro Brazil 135,000,000.00 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Dois Riachos Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Quito Ecuador 26,000.00 USD Electricity generation Line-by-line Enel Green 0.10% 100.00% Ecuador SA from renewable resources Power Latin America SA Enel Green Power Cairo Egypt 250,000.00 EGP Management, Line-by-line Enel Green 100.00% 100.00% Enel Green 99.90% Power SpA Egypt SAE operation and maintenance of all types of generation plant and their distribution grids Power SpA Enel Green Power Rio de Janeiro Brazil 177,500,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Emiliana Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Madrid Spain 11,152.74 EUR Electricity generation Line-by-line Endesa 100.00% 70.10% España SL from renewable resources Generación SA Enel Green Power Rio de Janeiro Brazil 135,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Esperança Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Rio de Janeiro Brazil 62,000,000.00 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Fazenda SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rome Italy 10,000,000.00 EUR Electricity generation Line-by-line Enel Green 70.00% 70.00% Finale Emilia Srl from renewable resources Power SpA Enel Green Power Munich Germany 25,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Germany GmbH and sale Power SpA Enel Green Power Amsterdam Netherlands 10,000.00 EUR Holding company Line-by-line Enel Green 100.00% 100.00% Global Investment BV Power SpA Enel Green Power Tenerife Spain 3,012.00 EUR Electricity generation Line-by-line Enel Green 65.00% 45.57% Granadilla SL from renewable resources Power España SL Enel Green Power Guatemala Guatemala 100,000.00 GTQ Holding company Line-by-line Enel Green 98.00% 100.00% Guatemala SA City Power SpA Energía y 2.00% Servicios South America SpA Enel Green Power Maroussi Greece 7,852,850.00 EUR Holding company - Line-by-line Enel Green 100.00% 100.00% Hellas SA Energy services Power SpA Enel Green Power Maroussi Greece 600,000.00 EUR Electricity generation, Line-by-line Enel Green 100.00% 100.00% Hellas Supply AS transport, sale and trading Power Hellas SA 445 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Enel Green Power Maroussi Greece 23,599,641.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Hellas Wind Parks Of South Evia SA Power Hellas SA Enel Green Power Rio de Janeiro Brazil - BRL Electricity generation Line-by-line Enel Green 99.99% 99.99% Horizonte MP Solar SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 1,639,346.69 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Ituverava Norte Solar SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 1,639,346.69 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Ituverava Solar SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 8,513,128.89 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Ituverava Sul Solar SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 165,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Joana Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Nairobi Kenya 100,000.00 KES Electricity generation, Line-by-line Enel Green 1.00% 100.00% Kenya Limited transmission, distribution, sale and purchase Power RSA (Pty) Ltd Enel Green 99.00% Power SpA Enel Green Power Santiago Chile 827,205,371.00 USD Holding company Line-by-line Enel Green 0.09% 100.00% Latin America SA Power SpA Hydromac Energy Srl 99.91% Enel Green Power Rio de Janeiro Brazil 70,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Maniçoba Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Mexico City Mexico 2,399,774,165.00 MXN Holding company Line-by-line Enel Green 0.00% 100.00% México S de RL de Cv Power Latin America SA Enel Green 100.00% Power SpA Enel Green Power Rio de Janeiro Brazil 167,000,000.00 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Modelo I Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 147,800,000.00 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Modelo II Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power - Morocco 1,000,000.00 MAD Electricity generation Line-by-line Enel Green 100.00% 100.00% Morocco SARLAU 446 from renewable resources Power SpA Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by Enel Green Power Niterói Brazil 1,000,000.00 BRL Electricity generation Line-by-line Enel Green Consolidation % holding 99.00% Group % holding 99.00% Morro do Chapéu I (Rio de Janeiro) Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Niterói Brazil 1,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 99.00% Morro do Chapéu II (Rio de Janeiro) Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rio de Janeiro Brazil 8,513,128.89 BRL Electricity generation Line-by-line Enel Green 99.90% 99.90% Mourão SA from renewable resources Power Brasil Participações Ltda Enel Green Power Windhoek Namibia 100.00 NAD Electricity generation Line-by-line Enel Green 100.00% 100.00% Namibia (Pty) Ltd from renewable resources Power SpA Enel Green Power Wilmington USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% North America (Delaware) Development LLC from renewable resources Power SpA Enel Green Power Wilmington USA 50.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% North America Inc. (Delaware) Enel Green Power Rio de Janeiro Brazil Nova Lapa Solar SA Enel Green Power Rio de Janeiro Brazil Nova Olinda B Solar SA Enel Green Power Rio de Janeiro Brazil Nova Olinda C Solar SA Enel Green Power Rio de Janeiro Brazil Nova Olinda Norte Solar SA Enel Green Power Rio de Janeiro Brazil Nova Olinda Sul Solar SA - - - - - from renewable resources Power SpA BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Brasil Participações Ltda BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Brasil Participações Ltda BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Brasil Participações Ltda BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Brasil Participações Ltda BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Brasil Participações Ltda Enel Green Power Panama Panama 3,000.00 USD Holding company Line-by-line Enel Green 100.00% 100.00% Panama SA Power SpA Enel Green Power Rio de Janeiro Brazil 1,000.00 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Paranapanema SA from renewable resources Power Brasil Participações Ltda Enel Green Power Rome Italy 10,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Partecipazioni Speciali Srl from renewable resources Power SpA Enel Green Power Rio de Janeiro Brazil 178,670,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Pau Ferro Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda 447 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by Enel Green Power Rio de Janeiro Brazil 230,000,000.00 BRL Electricity generation Line-by-line Enel Green Consolidation % holding 99.00% Group % holding 100.00% Pedra do Gerônimo Eólica SA from renewable resources Enel Green Power Lima Peru 387,009,088.00 PEN Electricity generation Line-by-line Perú SA from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Empresa Eléctrica Panguipulli SA 0.00% 100.00% Enel Green 100.00% Power SpA Enel Green Power Rio de Janeiro Brazil 144,640,892.85 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Primavera Eólica SA and sale from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Niterói Brazil 1,000.00 BRL Trading Line-by-line Enel Brasil SA 100.00% 51.61% Projetos I SA (Rio de Janeiro) Enel Green Power Rome Italy 1,000,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Puglia Srl from renewable resources Power SpA Enel Green Power RA Cairo Egypt 15,000,000.00 EGP Design, decision, Line-by-line Enel Green 100.00% 100.00% SAE Enel Green Power Romania Srl Rusu de Sus (Nus‚ eni) operation and maintenance of generation plants of all types and their distribution grids Power Egypt SAE Romania 2,430,631,000.00 RON Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power SpA Enel Green Power Johannesburg South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% RSA (Pty) Ltd from renewable resources Power Development Srl Enel Green Power Johannesburg South Africa 120.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% RSA 2 (Pty) Ltd from renewable resources Power RSA (Pty) Ltd Enel Green Power Niterói Brazil 14,412,120.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Salto Apiacás SA (Rio de Janeiro) from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power San Rome Italy 10,000.00 EUR Electricity generation Equity Altomonte FV 80.00% 40.00% Gillio Srl from renewable resources Srl Enel Green Power Rome Italy 750,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% Sannio Power SpA Enel Green Power Niterói Brazil 1,000,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 99.00% São Abraão Eólica SA (Rio de Janeiro) from renewable resources Power Brasil Participações Ltda 448 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by Enel Green Power Rio de Janeiro Brazil 144,640,892.85 BRL Electricity generation Line-by-line Enel Green Consolidation % holding 99.00% Group % holding 100.00% São Judas Eólica SA and sale from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Cairo Egypt 15,000,000.00 EGP Design, decision, Line-by-line Enel Green 100.00% 100.00% SHU SAE management, operation and maintenance of generation plants of all types and their distribution grids Power Egypt SAE Enel Green Power Singapore Singapore 50,000.00 SGD Electricity generation Line-by-line Enel Green 100.00% 100.00% Singapore Pte Ltd from renewable resources Power SpA Enel Green Power Rome Italy 10,000.00 EUR Plant development, Line-by-line Enel Green 100.00% 100.00% Solar Energy Srl design, construction and operation Power SpA Enel Green Power Rome Italy 272,000,000.00 EUR Electricity generation Line-by-line Enel SpA 100.00% 100.00% SpA from renewable resources Enel Green Power Turin Italy 250,000.00 EUR Electricity generation Equity Altomonte FV 60.00% 30.00% Strambino Solar Srl from renewable resources Srl Enel Green Power Rio de Janeiro Brazil 125,765,000.00 BRL Electricity generation Line-by-line Enel Green 99.00% 100.00% Tacaicó Eólica SA from renewable resources Power Brasil Participações Ltda Enel Green 1.00% Power Desenvolvimento Ltda Enel Green Power Cairo Egypt 15,000,000.00 EGP Design, decision, Line-by-line Enel Green Power 100.00% 100.00% Tefnut SAE management, operation Egypt SAE and maintenance of generation plants of all types and their distribution grids Enel Green Power Istanbul Turkey 61,654,658.00 TRY Electricity generation Line-by-line Enel Green 100.00% 100.00% Turkey Enerjì Yatirimlari Anonìm S¸ ìrketì from renewable resources Power SpA Enel Green Power Montevideo Uruguay 400,000.00 UYU Electricity generation Line-by-line Enel Green 100.00% 100.00% Uruguay SA from renewable resources Power SpA Enel Green Power Rome Italy 1,200,000.00 EUR Electricity generation Line-by-line Enel Green 51.00% 51.00% Villoresi Srl from renewable resources Power SpA Enel Green Power Lusaka Zambia 15,000.00 ZMW Electricity sales Line-by-line Enel Green 99,.00% 100.00% Zambia Limited Power Africa Srl Enel Green 1.00% Power RSA (Pty) Ltd Enel Iberia Srl Madrid Enel Innovation Hubs Rome Spain Italy 336,142,500.00 1,000,000.00 EUR EUR Holding company Line-by-line Enel SpA 100.00% 100.00% Civil and mechanical Line-by-line Enel SpA 100.00% 100.00% Srl engineering, water systems Enel Insurance NV Amsterdam Netherlands 60,000.00 EUR Holding company Line-by-line Enel Investment 100.00% 100.00% Holding BV Enel Investimentos Niterói Brazil 3,868,678,819.00 BRL Holding company Line-by-line Enel Brasil SA 100.00% 51.61% SA (Rio de Janeiro) Enel Investment Amsterdam Netherlands 1,593,050,000.00 EUR Holding company Line-by-line Enel SpA 100.00% 100.00% Holding BV 449 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Enel Italia Srl Rome Italy 50,000,000.00 EUR Personnel Line-by-line Enel SpA 100.00% 100.00% administration activities, information technology, real estate and business services Enel Kansas LLC Wilmington USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% (Delaware) from renewable resources Power North America Inc. Enel M@P Srl Rome Italy 100,000.00 EUR Metering, remote Line-by-line Enel SpA 100.00% 100.00% control and connectivity services via power line communication Enel Minnesota Minneapolis USA Holdings LLC (Minnesota) Enel Nevkan Inc. Wilmington USA (Delaware) - - USD Electricity generation Line-by-line EGP Geronimo 100.00% 100.00% from renewable resources Holding Inc. USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Enel Oil & Gas España Madrid Spain 33,000.00 EUR Prospecting and Line-by-line Enel X Italia SpA 100.00% 100.00% SL development of hydrocarbon fields Enel Perú SAC Lima Peru 5,361,789,105.00 PEN Holding company Line-by-line Enel Américas 100.00% 51.80% SA Enel Productie Srl Bucharest Romania 20,210,200.00 RON Electricity generation Line-by-line Enel Investment 100.00% 100.00% Holding BV Enel Produzione SpA Rome Italy 1,800,000,000.00 Enel Rinnovabile SA Mexico City Mexico 100.00 EUR MXN Electricity generation Line-by-line Enel SpA 100.00% 100.00% Electricity generation Line-by-line Enel Green 99.00% 100.00% de Cv Power Global Investment BV Enel Green 1.00% Power México S de RL de Cv Enel Romania SA Judetul Ilfov Romania 200,000.00 RON Business services Line-by-line Enel Investment 100.00% 100.00% Holding BV Enel Rus Wind Moscow Russia 350,000.00 RUB Energy services Line-by-line Enel Russia 100.00% 56.43% Generation LLC PJSC Enel Russia PJSC Ekaterinburg Russia 35,371,898,370.00 RUB Electricity generation Line-by-line Enel Investment 56.43% 56.43% Holding BV Enel Salt Wells LLC Wilmington USA - USD Electricity generation Equity Enel Geothermal 100.00% 50.00% (Delaware) from renewable resources LLC Enel Saudi Arabia Al-Khobar Saudi Arabia 5,000,000.00 SAR Management of Line-by-line e-distribuzione 60.00% 60.00% Limited SpA activities associated with participation in tenders called by the SEC for the development of smart metering and grid automation Enel Servicii Comune Bucharest Romania 33,000,000.00 RON Energy services Line-by-line e-distribut¸ie 50.00% 51.00% SA Banat SA e-distribut¸ie 50.00% Dobrogea SA Enel Sole Srl Rome Italy 4,600,000.00 EUR Public lighting systems Line-by-line Enel X Srl 100.00% 100.00% and services 450 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by Enel Soluções Niterói Brazil 5,000,000.00 BRL Electricity generation Line-by-line Enel Green Consolidation % holding 99.99% Group % holding 100.00% Energéticas Ltda (Rio de Janeiro) from renewable resources Power Brasil Participações Ltda Enel Green 0.01% Power Desenvolvimento Ltda Enel Soluções SA Rio de Janeiro Brazil 15,733,466.45 BRL Electricity activities Line-by-line Central Geradora 0.01% 51.61% Termelétrica Fortaleza SA Enel Brasil SA 99.99% Enel Stillwater LLC Wilmington USA - USD Electricity generation Equity Enel Geothermal 100.00% 50.00% (Delaware) from renewable resources LLC Enel Surprise Valley Wilmington USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% LLC (Delaware) from renewable resources Power North America Inc. Enel Texkan Inc. Wilmington USA - USD Electricity generation Line-by-line Chi Power Inc. 100.00% 100.00% (Delaware) from renewable resources Enel Trade d.o.o. Zagabria Croatia 2,240,000.00 Enel Trade Romania Bucharest Romania 21,250,000.00 HRK RON Electricity trading Line-by-line Enel Trade SpA 100.00% 100.00% Electricity sourcing and Line-by-line Enel Trade SpA 100.00% 100.00% Srl trading Enel Trade Serbia Beograd Serbia 300,000.00 EUR Electricity trading Line-by-line Enel Trade SpA 100.00% 100.00% d.o.o. Enel Trade SpA Rome Italy 90,885,000.00 EUR Fuel trading and Line-by-line Enel SpA 100.00% 100.00% logistics Enel Trading Argentina Buenos Aires Argentina 14,010,014.00 ARS Electricity trading Line-by-line Enel Américas 55.00% 51.78% Srl SA Enel Argentina 45.00% SA Enel Trading North - USA 10,000,000.00 USD Trading Line-by-line Enel Green 100.00% 100.00% America LLC Power North America Inc. Enel X Canada Inc. Vancouver Canada 1,000.00 Enel X International Rome Srl Enel X Italia SpA Enel X Mobility Srl Enel X Srl Enel.Factor SpA Enel.si Srl Rome Rome Rome Rome Rome Italy Italy Italy Italy Italy Italy 100,000.00 200,000,000.00 100,000.00 1,050,000.00 12,500,000.00 5,000,000.00 CAD EUR EUR EUR EUR EUR EUR Holding company Line-by-line EnerNOC Ltd 100.00% 100.00% Holding company Line-by-line Enel X Srl 100.00% 100.00% Upstream gas Line-by-line Enel X Srl 100.00% 100.00% Electric mobility Line-by-line Enel X Srl 100.00% 100.00% Holding company Line-by-line Enel SpA 100.00% 100.00% Factoring Line-by-line Enel SpA 100.00% 100.00% Plant engineering and Line-by-line Enel Energia SpA 100.00% 100.00% energy services Enelco SA Athens Greece 60,108.80 EUR Plant construction, Line-by-line Enel Investment 75.00% 75.00% operation and maintenance Holding BV Enelpower Contractor Riyadh Saudi Arabia 5,000,000.00 SAR Plant construction, Line-by-line Enelpower SpA 51.00% 51.00% and Development Saudi Arabia Ltd operation and maintenance Enelpower do Brasil Rio de Janeiro Brazil 1,242,000.00 BRL Electrical engineering Line-by-line Enel Green 99.99% 100.00% Ltda Power Brasil Participações Ltda Enel Green 0.01% Power Latin America SA Enelpower SpA Milan Italy 2,000,000.00 EUR Engineering and Line-by-line Enel SpA 100.00% 100.00% construction 451 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Energética de Rosselló Barcelona Spain 3,606,060.00 EUR Cogeneration of Equity Enel Green 27.00% AIE electricity and heat Power España SL Consolidation % Group % holding 18.93% Energética Monzón Lima Peru 6,463,000.00 PEN Electricity generation Line-by-line SAC from renewable resources 0.00% 100.00% Empresa Eléctrica Panguipulli SA Enel Green 100.00% Power Perú SA Energia Eléctrica del Tarragona Spain 96,160.00 EUR Electricity generation Line-by-line Eléctrica 100.00% 70.10% Ebro SA (Sociedad Unipersonal) and supply del Ebro SA (Sociedad Unipersonal) Energia Eolica Srl Rome Italy 4,840,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power SpA Energía Global de Mexico City Mexico 50,000.00 MXN Electricity generation Line-by-line Enel Green 99.00% 99.00% México (Enermex) SA de Cv from renewable resources Power SpA Energía Global San José Costa Rica 10,000.00 CRC Electricity generation Line-by-line Enel Green 100.00% 100.00% Operaciones SA from renewable resources Power Costa Rica SA Energía Limpia de Mexico City Mexico 296,822.00 MXN Electricity generation Held for sale Enel Green 99.99% 100.00% Amistad S de RL de Cv from renewable resources Power México S de RL de Cv Energía Limpia de Palo Mexico City Mexico 673,583,489.00 MXN Electricity generation Held for sale Enel Green 99.99% 100.00% Alto S de RL de Cv from renewable resources Power México S de RL de Cv Hidroelectricidad 0.01% del Pacífico S de RL de Cv Energía Marina SpA Santiago Chile 2,404,240,000.00 CLP Electricity generation Equity Enel Green 25.00% 25.00% from renewable resources Power Chile Ltda Energía Nueva Mexico City Mexico 51,879,307.00 MXN Electricity generation Line-by-line Enel Green 99.90% 99.91% de Iguu S de RL de Cv from renewable resources Power México S de RL de Cv Hidroelectricidad 0.01% del Pacífico S de RL de Cv Energía Nueva 0.01% Energía Limpia México S de RL de Cv Energía Nueva Mexico City Mexico 5,339,650.00 MXN Electricity generation Line-by-line Enel Green 0.04% 100.00% Energía Limpia México S de RL de Cv from renewable resources Power Guatemala SA Enel Green 99.96% Power SpA Energía y Servicios Santiago Chile 1,000,000.00 CLP Electricity generation Line-by-line Enel Green 100.00% 100.00% South America SpA from renewable resources Power SpA Energías Alternativas Las Palmas de Spain 546,919.10 EUR Electricity generation Line-by-line Enel Green 54.95% 38.52% del Sur SL Gran Canaria from renewable resources Power España SL Energías de Aragón Zaragoza Spain 3,200,000.00 EUR Electricity transmission, Line-by-line Endesa Red SA 100.00% 70.10% I SL distribution and sale Energías de Aragón Zaragoza Spain 18,500,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 70.10% II SL Power España SL Energías de Graus SL Barcelona Spain 1,298,160.00 EUR Hydroelectric plants Line-by-line Enel Green 66.67% 46.74% Power España SL 452 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by Energías Especiales La Coruña Spain 270,450.00 EUR Electricity generation Line-by-line Enel Green Consolidation % holding 77.00% Group % holding 53.98% de Careón SA from renewable resources Power España SL Energías Especiales Madrid Spain 963,300.00 EUR Electricity generation Line-by-line Enel Green 80.00% 56.08% de Peña Armada SA from renewable resources Power España SL Energías Especiales Madrid Spain 1,722,600.00 EUR Electricity generation Line-by-line Enel Green 100.00% 70.10% del Alto Ulla SA from renewable resources Power España SL Energías Especiales Torre del Bierzo Spain 1,635,000.00 EUR Electricity generation Equity Enel Green 50.00% 35.05% del Bierzo SA from renewable resources Power España SL Energías Renovables Mexico City Mexico 656,615,400.00 MXN Electricity generation Line-by-line Enel Green 99.99% 100.00% La Mata SAPI de Cv from renewable resources Power México S de RL de Cv Energie Electrique de Tangier Morocco 750,400,000.00 MAD Combined-cycle Equity Energía Nueva 0.01% de Iguu S de RL de Cv Endesa 32.00% 22.43% Tahaddart SA generation plants Generación SA Energotel AS Bratislava Slovakia 2,191,200.00 EUR Operation of optical Equity Slovenské 20.00% 6.60% fiber network elektrárne AS ENergy Hydro Piave Soverzene Italy 800,000.00 EUR Electricity purchasing Line-by-line Enel Produzione 51.00% 51.00% Srl and sale SpA Energy Response Melbourne Australia 630,451.00 AUD Renewable energy Line-by-line EnerNOC 100.00% 100.00% Holdings (Pty) Ltd Australia (Pty) Ltd Enerlive Srl Rome Italy 6,520,000.00 EUR Electricity generation Line-by-line Maicor Wind Srl 100.00% 100.00% from renewable resources EnerNOC Australia Melbourne Australia 1,937,248.00 AUD Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% (Pty) Ltd EnerNOC Brasil São Paulo Brazil 117,240.00 BRL Renewable energy Line-by-line EnerNOC Ireland 0.00% Gerenciamento de Energia Holding Limited EnerNOC Energy Marathon India 20,000,000.00 INR Renewable energy Line-by-line EnerNOC Inc. 50.00% 100.00% Intelligence Software Chamber - A Private Limited EnTech Utility 50.00% Service Bureau Inc. EnerNOC Federal LLC Delaware USA 5,000.00 EnerNOC GmbH Darmstadt Germany 25,000.00 EnerNOC Inc. Delaware USA 1,000.00 USD EUR USD Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% Renewable energy Line-by-line Enel X 100.00% 100.00% Ireland 100,000.00 EUR Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% International Srl Ireland 100,000.00 EUR Renewable energy Line-by-line EnerNOC Ireland 100.00% 100.00% EnerNOC Ireland Holding Limited EnerNOC Ireland Limited - - EnerNOC Japan K.K. Tokyo EnerNOC Korea Seoul Japan Korea 13,200.00 120,000.00 Limited EnerNOC Ltd Oakville Canada - EnerNOC New Wellington New Zealand 313,606.00 Zealand Limited JPY KRW CAD AUD Renewable energy Line-by-line EnerNOC Inc. 60.00% 60.00% Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% Holding Limited Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% Renewable energy Line-by-line Energy 100.00% 100.00% Response Holdings (Pty) Ltd EnerNOC Polska sp Warsaw Poland 100.00 EUR Renewable energy Line-by-line EnerNOC Ireland 100.00% 100.00% Z oo Holding Limited EnerNOC (Pty) Ltd Melbourne Australia 9,880.00 AUD Renewable energy Line-by-line Energy 100.00% 100.00% Response Holdings (Pty) Ltd EnerNOC Taiwan Ltd Taipei City Taiwan 44,776,120.00 EUR Renewable energy Line-by-line EnerNOC Ireland 67.00% 67.00% EnerNOC UK II Limited London United Kingdom 1,000.00 GBP Renewable energy Line-by-line EnerNOC UK 100.00% 100.00% Holding Limited Limited 453 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding EnerNOC UK Limited London EnTech (China) - Information Technology Co Ltd United Kingdom China 100,000.00 GBP Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% 1,500.00 EUR Renewable energy Equity EnerNOC UK II 50.00% 50.00% Limited EnTech Utility Service Delaware USA 1,500.00 USD Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% Bureau Inc. Eólica del Noroeste La Coruña Spain 36,100.00 EUR Plant development and Line-by-line Enel Green 51.00% 35.75% SL construction Power España SL Eólica del Principado Oviedo Spain 60,000.00 EUR Electricity generation Equity Enel Green 40.00% 28.04% SAU from renewable resources Power España SL Eólica Fazenda Niterói Brazil 7,859,906.00 BRL Wind plants Line-by-line Enel Brasil SA 100.00% 51.58% Nova - Generação e (Rio de Janeiro) Comercialização de Energia SA Eólica Valle del Ebro Zaragoza Spain 5,559,340.00 EUR Electricity generation Line-by-line Enel Green 50.50% 35.40% SA from renewable resources Power España SL Eólica Zopiloapan Mexico City Mexico 1,877,201.54 MXN Electricity generation Line-by-line Enel Green 56.98% 96.48% SAPI de Cv from renewable resources Power México S de RL de Cv Enel Green 39.50% Power Partecipazioni Speciali Srl Eólicas de Agaete SL Las Palmas de Spain 240,400.00 EUR Electricity generation Line-by-line Enel Green 80.00% 56.08% Gran Canaria from renewable resources Power España SL Eólicas de Las Palmas de Spain 216,360.00 EUR Electricity generation Line-by-line Enel Green 55.00% 38.56% Fuencaliente SA Gran Canaria from renewable resources Power España SL Eólicas de Fuerteventura Spain - EUR Electricity generation Equity Enel Green 40.00% 28.04% Fuerteventura AIE (Las Palmas) from renewable resources Power España SL Eólicas de La Patagonia SA Buenos Aires Argentina 480,930.00 ARS Electricity generation - Enel Green 50.00% 35.05% from renewable resources Power España SL Eólicas de Lanzarote Las Palmas de Spain 1,758,000.00 EUR Electricity generation Equity Enel Green 40.00% 28.04% SL Gran Canaria and distribution Power España SL Eólicas de Tenerife Santa Cruz de Spain 420,708.40 EUR Electricity generation Equity Enel Green 50.00% 35.05% AIE Tenerife from renewable resources Power España SL Eólicas de Tirajana Las Palmas de Spain - EUR Electricity generation Line-by-line Enel Green 60.00% 42.06% AIE Gran Canaria from renewable resources Power España SL Empresa Energía SA Cadiz Spain 2,500,000.00 Erdwärme Oberland Munich Germany 154,011.00 EUR EUR Electricity supply Equity Endesa Red SA 50.00% Electricity generation Line-by-line Enel Green 85.17% 35.05% 85.17% GmbH from renewable resources Power SpA Erecosalz SL Zaragoza Spain 18,030.36 EUR Electricity generation - Enel Green 33.00% 23.13% from renewable resources Power España SL Essex Company LLC Boston USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% (Massachusetts) from renewable resources Hydro Holdings LLC Estrellada SA Montevideo Uruguay 448,000.00 UYU Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Uruguay SA Explotaciones Eólicas Zaragoza Spain 3,505,000.00 EUR Electricity generation Line-by-line Enel Green 70.00% 49.07% de Escucha SA from renewable resources Power España SL Explotaciones Eólicas Teruel Spain 3,230,000.00 EUR Electricity generation Line-by-line Enel Green 73.60% 51.59% El Puerto SA from renewable resources Power España SL Explotaciones Eólicas Zaragoza Spain 100,000.00 EUR Electricity generation Line-by-line Enel Green 51.00% 35.75% Santo Domingo de Luna SA 454 from renewable resources Power España SL Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by Explotaciones Eólicas Zaragoza Spain 5,488,500.00 EUR Electricity generation Line-by-line Enel Green Consolidation % holding 65.00% Group % holding 45.57% Saso Plano SA from renewable resources Power España SL Explotaciones Eólicas Zaragoza Spain 8,046,800.00 EUR Electricity generation Line-by-line Enel Green 90.00% 63.09% Sierra Costera SA from renewable resources Power España SL Explotaciones Eólicas Zaragoza Spain 4,200,000.00 EUR Electricity generation Line-by-line Enel Green 90.00% 63.09% Sierra La Virgen SA from renewable resources Power España SL Florence Hills LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Fowler Hydro LLC Delaware USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Fulcrum LLC Boise (Idaho) USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC Furatena Solar 1 SLU Seville Spain 3,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 70.10% from renewable resources Power España SL Garob Wind Farm Gauteng South Africa 100.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% (Pty) Ltd from renewable resources Power RSA (Pty) Ltd Gas Atacama Chile Santiago Chile 589,318,016,243.00 CLP Electricity generation Line-by-line Enel Chile SA 2.63% 37.00% SA Gas y Electricidad Palma de Spain 213,775,700.00 EUR Electricity generation Line-by-line Generación SAU Mallorca Enel Generación 97.37% Chile SA Endesa Generación SA 100.00% 70.10% Gasoducto Atacama Santiago Chile 208,173,124.00 USD Natural gas transport Line-by-line Enel Generación 0.03% 37.00% Argentina SA Chile SA Gas Atacama 99.97% Chile SA Gasoducto Atacama Buenos Aires Argentina - ARS Natural gas transport Line-by-line Gasoducto 100.00% 37.00% Argentina SA Sucursal Argentina Atacama Argentina SA Gauley Hydro LLC Wilmington USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% (Delaware) Willison (Vermont) Gauley River Management Corporation from renewable resources Power North America Inc. USA 1.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Gauley River Power Willison USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% Partners LLC (Vermont) from renewable resources Hydro Holdings LLC Generadora de Occidente Ltda Guatemala Guatemala 16,261,697.33 GTQ Electricity generation Line-by-line Enel Green 1.00% 100.00% City from renewable resources Power Guatemala SA Generadora Eólica Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Alto Pacora SA from renewable resources Power Panama SA Generadora Estrella Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Solar SA from renewable resources Power Panama SA Generadora Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Fotovoltaica Chiriquí SA from renewable resources Power Panama SA Enel Green 99.00% Power SpA 455 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Generadora Guatemala Guatemala 3,820,000.00 GTQ Electricity generation Line-by-line Enel Green 0.01% 100.00% Montecristo SA City from renewable resources Power Guatemala SA Enel Green 99.99% Power SpA Generadora Solar Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Caldera SA from renewable resources Power Panama SA Generadora Solar Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Tolé SA from renewable resources Power Panama SA Geotérmica del Norte Santiago Chile 326,577,419,702.00 CLP Electricity generation Line-by-line Enel Green 84.59% 84.59% SA from renewable resources Power Chile Ltda Gibson Bay Wind Johannesburg South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 60.00% 60.00% Farm (RF) (Pty) Ltd from renewable resources Power RSA (Pty) Ltd Global Energy Delaware USA 100,000.00 USD Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% Partners Inc. Global Energy Partners LLC Delaware USA - USD Renewable energy Line-by-line Global Energy 100.00% 100.00% Partners Inc. Gnl Chile SA Santiago Chile 3,026,160.00 USD Design and LNG supply Equity Enel Generación 33.33% 12.12% Chile SA Goodwell Wind Wilmington USA - USD Electricity generation Equity Origin Goodwell 100.00% 50.00% Project LLC (Delaware) from renewable resources Holdings LLC Goodyear Lake Hydro Delaware USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% LLC from renewable resources Power North America Inc. Gorona del Viento El Valverde de El Spain 30,936,736.00 EUR Development and Equity Unión Eléctrica 23.21% 16.27% Hierro SA Hierro maintenance of El Hierro generation plant de Canarias Generación SAU Guadarranque Solar 4 Seville Spain 3,006.00 EUR Electricity generation Line-by-line Endesa 100.00% 70.10% SL Unipersonal from renewable resources Generación II SA GV Energie Bucharest Romania 1,145,400.00 RON Electricity generation Line-by-line Enel Green 100.00% 100.00% Rigenerabili ITAL-RO Srl from renewable resources Power Romania Srl Enel Green 0.00% Power SpA Hadley Ridge LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Hastings Solar LLC Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC Hidroeléctrica de Barcelona Spain 126,210.00 EUR Electricity transmission Line-by-line Endesa Red SA 100.00% 70.10% Catalunya SL and distribution Hidroeléctrica de Lugo Spain 1,608,200.00 EUR Electricity generation Equity Enel Green 30.00% 21.03% Ourol SL from renewable resources Power España SL Hidroeléctrica Don San José Costa Rica 10,000.00 CRC Electricity generation Line-by-line Enel Green 65.00% 65.00% Rafael SA from renewable resources Power Costa Rica SA Hidroelectricidad del Mexico City Mexico 30,890,736.00 MXN Electricity generation Line-by-line Enel Green 99.99% 99.99% Pacífico S de RL de Cv from renewable resources Power México S de RL de Cv Hidroflamicell SL Barcelona Spain 78,120.00 EUR Electricity distribution Line-by-line Hidroeléctrica de 75.00% 52.58% and sale Catalunya SL 456 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Hidroinvest SA Buenos Aires Argentina 55,312,093.00 ARS Holding company Line-by-line Enel Américas 41.94% Consolidation % Group % holding 50.06% SA Enel Argentina 54.76% SA Hidromondego - Lisbon Portugal 3,000.00 EUR Hydroelectric power Line-by-line Endesa 10.00% 70.10% Hidroeléctrica do Mondego Lda Generación Portugal SA Endesa 90.00% Generación SA High Shoals LLC Delaware USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC High Street Melbourne Australia - AUD Renewable energy Line-by-line Energy 100.00% 100.00% Corporation (Pty) Ltd Response Holdings (Pty) Ltd Highfalls Hydro Wilmington USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Company Inc. (Delaware) HillTopper Wind Wilmington USA Holdings LLC (Delaware) HillTopper Wind Dover USA Power LLC (Delaware) - - from renewable resources Power North America Inc. USD Renewable energy Line-by-line Enel Kansas LLC 70.00% 70.00% USD Wind power Line-by-line HillTopper Wind 100.00% 70.00% Holdings LLC Hispano Generación Jerez de los Spain 3,500.00 EUR Electricity generation Line-by-line Enel Green 51.00% 35.75% de Energía Solar SL Caballeros (Badajoz) from renewable resources Power España SL Hope Creek LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Hydro Development Albany USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% Group Acquisition LLC (New York) Hydro Energies Corporation Willison (Vermont) from renewable resources Hydro Holdings LLC USA 5,000.00 USD Electricity generation Held for sale Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Hydrogen Park - Venice Italy 245,000.00 EUR Development of Line-by-line Enel Produzione 65.85% 65.85% Marghera per l’idrogeno Scrl Hydromac Energy Srl Rome I-EM Srl Turin Italy Italy studies and projects for the use of hydrogen SpA 18,000.00 EUR Holding company Line-by-line Enel Green 100.00% 100.00% Power SpA 28,571.43 EUR Design and Equity Enel X Srl 30.00% 30.00% development Ingendesa do Brasil Rio de Janeiro Brazil 500,000.00 BRL Design, engineering Line-by-line Enel Generación 1.00% 36.99% Ltda (in liquidation) and consulting Chile SA Inkolan Información y Bilbao Spain 84,140.00 EUR Information on Equity Coordinación de obras AIE infrastructure of Inkolan associates Gas Atacama 99.00% Chile SA Endesa Distribución Eléctrica SL 12.50% 8.76% International Endesa Amsterdam Netherlands 15,428,520.00 EUR Holding company Line-by-line Endesa SA 100.00% 70.10% BV International Rome Italy 24,000.00 EUR Training - Enel Italia Srl 13.04% 13.04% Multimedia University Srl (in liquidation) Inversora Codensa Bogotá DC Colombia 5,000,000.00 COP Electricity transmission Line-by-line Codensa SA ESP 100.00% 25.07% SAS and distribution Inversora Dock Sud Buenos Aires Argentina 241,490,000.00 ARS Holding company Line-by-line Enel Américas 57.14% 29.60% SA SA Isamu Ikeda Energia Rio de Janeiro Brazil 61,474,475.77 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% SA and sale Power Brasil Participações Ltda 457 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Italgest Energy (Pty) Johannesburg South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% Ltd from renewable resources Power RSA (Pty) Ltd Jack River LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Jessica Mills LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC JuiceNet GmbH Berlin Germany 25,000.00 EUR Renewable energy Line-by-line eMotor Werks 100.00% 100.00% Inc. JuiceNet Ltd London United Kingdom 1.00 GBP - Line-by-line eMotor Werks 100.00% 100.00% Inc. Julia Hills LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Kalenta SA Maroussi Greece 4,359,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Solar Energy Srl Kavacik Eolìco Enerjì Istanbul Turkey 9,000,000.00 TRY Electricity generation Line-by-line Enel Green 100.00% 100.00% Elektrìc Üretìm ve Tìcaret Anonìm S¸ ìrketì from renewable resources Power Turkey Enerjì Yatirimlari Anonìm S¸ ìrketì Kelley’s Falls LLC Delaware USA - USD Electricity generation Held for sale Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Kings River Hydro Wilmington USA 100.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Company Inc. (Delaware) from renewable resources Power North America Inc. Kingston Energy Wilmington USA - USD Renewable energy Line-by-line EGP Energy 100.00% 100.00% Storage LLC (Delaware) Storage Holdings LLC Kinneytown Hydro Wilmington USA 100.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Company Inc. (Delaware) from renewable resources Power North America Inc. Kino Contractor SA Mexico City Mexico 100.00 MXN Electricity generation Line-by-line Enel Green 99.00% 100.00% de Cv from renewable resources Power México S de RL de Cv Kino Facilities Mexico City Mexico 100.00 MXN Electricity generation Line-by-line Enel Green 99.00% 100.00% Manager SA de Cv from renewable resources Power México S de RL de Cv Hidroelectricidad 1.00% del Pacífico S de RL de Cv Hidroelectricidad 1.00% del Pacífico S de RL de Cv Kirklarelì Eolìko Enerjì Istanbul Turkey 5,250,000.00 TRY - Line-by-line Enel Green 100.00% 100.00% Elektrìk Üretìm ve Tìcaret Anonìm S¸ ìrketì Power Turkey Enerjì Yatirimlari Anonìm S¸ ìrketì Kongul Enerjì Sanayi Istanbul Turkey 125,000,000.00 TRY Electricity generation Line-by-line Enel Green 100.00% 100.00% ve Tìcaret Anonìm S¸ ìrketì from renewable resources Power Turkey Enerjì Yatirimlari Anonìm S¸ ìrketì Kromschroeder SA Barcelona Spain 627,126.00 EUR Services Equity Endesa Medios 29.26% 20.51% y Sistemas SL (Sociedad Unipersonal) La Pereda CO2 AIE Oviedo Spain 224,286.00 EUR Services Equity Endesa 33.33% 23.36% Generación SA 458 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding LaChute Hydro Wilmington USA - USD Electricity generation Equity EGPNA REP 100.00% Company LLC (Delaware) from renewable resources Hydro Holdings LLC Consolidation % Group % holding 50.00% Lake Emily Solar LLC Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC Lake Pulaski Solar Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% LLC Land Run Wind Wilmington USA Project LLC (Delaware) Lawrence Creek Solar Minneapolis USA LLC (Minnesota) - - from renewable resources Distributed Solar LLC USD Renewable energy Line-by-line Sundance Wind 100.00% 100.00% Project LLC USD - Line-by-line Aurora 100.00% 51.00% Distributed Solar LLC Lindahl Wind Holdings LLC Delaware USA - USD Electricity generation Line-by-line EGPNA Preferred 100.00% 50.00% from renewable resources Wind Holdings LLC Lindahl Wind Project Delaware USA - USD Electricity generation Equity Lindahl Wind 100.00% 50.00% LLC from renewable resources Holdings LLC Little Elk Wind Delaware USA - USD Electricity generation Line-by-line Enel Kansas LLC 100.00% 100.00% Holdings LLC from renewable resources Little Elk Wind Project Oklahoma City USA - USD Electricity generation Line-by-line Little Elk Wind 100.00% 100.00% LLC (Oklahoma) from renewable resources Holdings LLC Littleville Power Boston USA 1.00 USD Electricity generation Held for sale Enel Green 100.00% 100.00% Company Inc. (Massachusetts) from renewable resources Power North America Inc. Llano Sánchez Solar Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Power One SA from renewable resources Power Panama SA Llano Sánchez Solar Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Power Cuatro SA from renewable resources Power Panama SA Llano Sánchez Solar Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Power Tres SA from renewable resources Power Panama SA LLC Azovskaya VES Moscow Russia 10,000.00 RUB Electricity generation Line-by-line Enel Russia 100.00% 56.43% Lone Pine Wind Inc. Lone Pine Wind Project LP - - Canada - CAD Renewable energy Line-by-line Enel Green 10.00% 10.00% from renewable resources PJSC Power Canada Inc. Canada - CAD Renewable energy Line-by-line Enel Green 10.00% 10.00% Power Canada Inc. Lower Saranac Hydro Delaware USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% Partners LLC from renewable resources Hydro Holdings LLC Lower Saranac Hydro Delaware USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% LLC from renewable resources Power North America Inc. Lower Valley LLC Delaware USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Lowline Rapids LLC Delaware USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% from renewable resources Hydro Holdings LLC Luz Andes Ltda Santiago Chile 1,224,348.00 CLP Electricity transmission, Line-by-line Enel Chile SA 0.10% 60.07% distribution and sale and fuels Enel Distribución 99.90% Chile SA 459 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Maicor Wind Srl Rome Italy 20,850,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power SpA Marte Srl Rome Italy 5,100,000.00 EUR Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power SpA Marudhar Wind Gurgaon India 100,000.00 INR Electricity transmission, Line-by-line BLP Energy 99.00% 75.79% Energy Private Limited distribution and sale Private Limited Más Energía S de RL Mexico City Mexico 100.00 MXN Electricity generation Line-by-line Enel Green 99.00% 100.00% de Cv from renewable resources Power México S de RL de Cv Hidroelectricidad 1.00% del Pacífico S de RL de Cv Mascoma Hydro Concord USA 1.00 USD Electricity generation Held for sale Enel Green 100.00% 100.00% Corporation (New Hampshire) from renewable resources Power North America Inc. Mason Mountain Wilmington USA - USD Electricity generation Line-by-line Padoma Wind 100.00% 100.00% Wind Project LLC (Delaware) from renewable resources Power LLC Matrigenix (Pty) Ltd Houghton South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power RSA (Pty) Ltd Medidas Ambientales Medina de Spain 60,100.00 EUR Environmental studies Equity Nuclenor SA 50.00% 17.53% SL Pomar (Burgos) Metro Wind LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Mexicana de Mexico City Mexico 181,728,901.00 MXN Electricity generation Line-by-line Enel Green 99.99% 99.99% Hidroelectricidad Mexhidro S de RL de Cv from renewable resources Power México S de RL de Cv Mibgas SA Madrid Spain 3,000,000.00 Mill Shoals Hydro Wilmington USA - Company I LLC (Delaware) EUR USD Gas market operator - Endesa SA 1.35% 0.95% Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Minicentrales Zaragoza Spain 1,202,000.00 EUR Hydroelectric plants - Enel Green 15.00% 10.52% del Canal de las Bárdenas AIE Power España SL Minicentrales Zaragoza Spain 1,820,000.00 EUR Hydroelectric plants Equity Enel Green 36.50% 25.59% del Canal Imperial- Gallur SL Power España SL Mira Energy (Pty) Ltd Houghton South Africa 100.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power RSA (Pty) Ltd Missisquoi Associates Los Angeles USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% LLC (California) from renewable resources Hydro Holdings LLC Montrose Solar LLC Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC Navalvillar S olar SL Valencia Spain 3,000.00 EUR Photovoltaic systems Line-by-line Enel Green 100.00% 70.10% Power España SL Nevkan Renewables Wilmington USA - USD Electricity generation Line-by-line Enel Nevkan Inc. 100.00% 100.00% LLC (Delaware) from renewable resources Newbury Hydro Delaware USA - USD Electricity generation Held for sale Enel Green 100.00% 100.00% Company LLC from renewable resources Power North America Inc. Ngonye Power Lusaka Zambia 10,000.00 ZMW Electricity sales Line-by-line Enel Green 80.00% 80.00% Company Limited Power Africa Srl 460 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by Nojoli Wind Farm (RF) Johannesburg South Africa 10,000,000.00 ZAR Electricity generation Line-by-line Enel Green Consolidation % holding 60.00% Group % holding 60.00% (Pty) Ltd North Canal Waterworks Boston USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% (Massachusetts) from renewable resources Power North America Inc. from renewable resources Power RSA (Pty) Ltd Northwest Hydro Wilmington USA - USD Electricity generation Line-by-line Chi West LLC 100.00% 100.00% LLC (Delaware) from renewable resources Notch Butte Hydro Wilmington USA 100.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Company Inc. (Delaware) from renewable resources Power North America Inc. Nuclenor SA Burgos Spain 102,000,000.00 EUR Nuclear plants Equity Endesa 50.00% 35.05% Generación SA Nuove Energie Srl Porto Italy 5,204,028.73 EUR Construction and Line-by-line Enel Trade SpA 100.00% 100.00% Empedocle management of LNG regasification infrastructure Nxuba Wind Farm Gauteng South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% (Pty) Ltd from renewable resources Power RSA 2 (Pty) Ltd NYC Storage (353 Wilmington USA 1.00 USD - Line-by-line Demand Energy 100.00% 100.00% Chester) SPE LLC (Delaware) Networks Inc. Ochrana A Mochovce Slovakia 33,193.92 EUR Security services Equity Slovenské 100.00% 33.00% Bezpecnost Se AS elektrárne AS OGK-5 Finance LLC Moscow Russia 10,000,000.00 RUB Finance company Line-by-line Enel Russia 100.00% 56.43% PJSC OpEn Fiber SpA Milan Italy 250,000,000.00 EUR Installation, Equity Enel SpA 50.00% 50.00% maintenance and repair of electronic plant Origin Goodwell Wilmington USA - USD Electricity generation Equity EGPNA Wind 100.00% 50.00% Holdings LLC (Delaware) from renewable resources Holdings 1 LLC Origin Wind Energy Wilmington USA - USD Electricity generation Equity Origin Goodwell 100.00% 50.00% LLC (Delaware) from renewable resources Holdings LLC Osage Wind Holdings Delaware USA - USD Electricity generation Line-by-line Enel Kansas 50.00% 50.00% LLC from renewable resources LLC Osage Wind LLC Delaware USA - USD Electricity generation Line-by-line Osage Wind 100.00% 50.00% from renewable resources Holdings LLC Ottauquechee Hydro Wilmington USA 100.00 USD Electricity generation Held for sale Enel Green 100.00% 100.00% Company Inc. (Delaware) from renewable resources Power North America Inc. Ovacik Eolìko Enerjì Istanbul Turkey 11,250,000.00 TRY - Line-by-line Enel Green 100.00% 100.00% Elektrìk Üretìm ve Tìcaret Anonìm S¸ ìrketì Power Turkey Enerjì Yatirimlari Anonìm S¸ ìrketì Oxagesa AIE Teruel Spain 6,010.00 EUR Cogeneration of Equity Enel Green 33.33% 23.36% electricity and heat Power España SL Oyster Bay Wind Cape Town South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% Farm (Pty) Ltd from renewable resources Power RSA (Pty) Ltd P.V. Huacas SA San José Costa Rica 10,000.00 CRC Electricity generation Line-by-line Enel Green 65.00% 65.00% from renewable resources Power Costa Rica SA Padoma Wind Power Los Angeles USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% LLC (California) from renewable resources Power North America Inc. Palo Alto Farms Wind Dallas USA - USD Electricity generation Line-by-line Enel Kansas LLC 100.00% 100.00% Project LLC (Texas) from renewable resources 461 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Paravento SL Lugo Spain 3,006.00 EUR Electricity generation Line-by-line Enel Green 90.00% Consolidation % Group % holding 63.09% from renewable resources Power España SL Parc Eòlic La Tossa-La Madrid Spain 1,183,100.00 EUR Electricity generation Equity Enel Green 30.00% 21.03% Mola D’en Pascual SL from renewable resources Power España SL Parc Eòlic Los Aligars Madrid Spain 1,313,100.00 EUR Electricity generation Equity Enel Green 30.00% 21.03% SL from renewable resources Power España SL Parque Amistad II SA Mexico City Mexico 100.00 MXN Electricity generation Line-by-line Enel Rinnovabile 99.00% 100.00% de Cv from renewable resources SA de Cv Hidroelectricidad 1.00% del Pacífico S de RL de Cv Parque Amistad III SA Mexico City Mexico 100.00 MXN Electricity generation Line-by-line Enel Rinnovabile 99.00% 100.00% de Cv from renewable resources SA de Cv Hidroelectricidad 1.00% del Pacífico S de RL de Cv Parque Amistad IV SA Mexico City Mexico 100.00 MXN Electricity generation Line-by-line Enel Rinnovabile 99.00% 100.00% de Cv from renewable resources SA de Cv Hidroelectricidad 1.00% del Pacífico S de RL de Cv Parque Eólico A Santiago de Spain 5,857,586.40 EUR Electricity generation Line-by-line Enel Green 100.00% 70.10% Capelada SL Compostela (Sociedad Unipersonal) from renewable resources Power España SL Parque Eólico Las Palmas de Spain 1,603,000.00 EUR Electricity generation Line-by-line Enel Green 80.00% 56.08% Carretera de Arinaga Gran Canaria SA from renewable resources Power España SL Parque Eólico de La Coruña Spain 3,606,000.00 EUR Electricity generation Line-by-line Enel Green 75.00% 52.58% Barbanza SA from renewable resources Power España SL Parque Eólico de Madrid Spain 120,400.00 EUR Electricity generation Line-by-line Enel Green 50.16% 35.16% Belmonte SA from renewable resources Power España SL Parque Eólico de San La Coruña Spain 552,920.00 EUR Electricity generation Line-by-line Enel Green 82.00% 57.48% Andrés SA from renewable resources Power España SL Parque Eólico Las Palmas de Spain 901,500.00 EUR Electricity generation Line-by-line Enel Green 66.33% 46.50% de Santa Lucía SA Gran Canaria from renewable resources Power España SL Parque Eólico Delfina Rio de Janeiro Brazil 6,963,977.00 BRL Electricity generation Line-by-line Enel Green 99.99% 100.00% Ltda from renewable resources Power Brasil Participações Ltda Enel Green 0.01% Power Desenvolvimento Ltda Parque Eólico Farlan Madrid Spain 3,006.00 EUR Wind plants Line-by-line Enel Green 100.00% 70.10% SL Power España SL Parque Eólico Finca Las Palmas de Spain 3,810,340.00 EUR Plant construction and Line-by-line Enel Green 90.00% 63.09% de Mogán SA Gran Canaria operation Power España SL Parque Eólico Montes Madrid Spain 6,540,000.00 EUR Plant construction and Line-by-line Enel Green 75.50% 52.93% de Las Navas SA operation Power España SL Parque Eólico Madrid Spain 3,006.00 EUR Wind plants Line-by-line Enel Green 100.00% 70.10% Muniesa SL 462 Power España SL Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Parque Eólico Punta Tenerife Spain 528,880.00 EUR Electricity generation Line-by-line Enel Green 52.00% Consolidation % Group % holding 36.45% de Teno SA from renewable resources Power España SL Parque Eólico Sierra Soria Spain 7,193,970.00 EUR Electricity generation Line-by-line Enel Green 58.00% 40.66% del Madero SA from renewable resources Power España SL Parque Eólico Taltal Santiago Chile 20,878,010,000.00 CLP Electricity generation Line-by-line Enel Green 99.99% 100.00% SA from renewable resources Power Chile Ltda Enel Green 0.01% Power Latin America SA Parque Eólico Valle Santiago Chile 566,096,564.00 CLP Electricity generation Line-by-line Enel Green 99.99% 100.00% de los Vientos SA from renewable resources Power Chile Ltda Enel Green 0.01% Power Latin America SA Parque Salitrillos SA Mexico City Mexico 100.00 MXN Electricity generation Held for sale Enel Green 99.00% 100.00% de Cv from renewable resources Power México S de RL de Cv Hidroelectricidad 1.00% del Pacífico S de RL de Cv Parque Solar Cauchari San Salvador Argentina 500,000.00 ARS Electricity generation Line-by-line Enel Green 95.00% 100.00% IV SA de Jujuy from renewable resources Power Argentina SA Enel Green 5.00% Power Latin America SA Parque Talinay Santiago Chile 66,092,165,171.00 CLP Electricity generation Line-by-line Enel Green 61.37% 95.94% Oriente SA from renewable resources Power Chile Ltda Enel Green 34.57% Power SpA Paynesville Solar LLC Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC Pegop - Energia Abrantes Portugal 50,000.00 EUR Electricity generation Equity Endesa 0.02% 35.05% Eléctrica SA Pelzer Hydro Company LLC Wilmington USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% (Delaware) from renewable resources Hydro Holdings LLC Generación Portugal SA Endesa 49.98% Generación SA Pereda Power SL La Pereda Spain 5,000.00 EUR Development of Line-by-line Endesa 70.00% 49.07% (Mieres) generation activities Generación II SA PH Chucas SA San José Costa Rica 100,000.00 CRC Electricity generation Line-by-line Enel Green 40.31% 65.00% from renewable resources Power Costa Rica SA Enel Green 24.69% Power SpA PH Don Pedro SA San José Costa Rica 100,001.00 CRC Electricity generation Line-by-line Enel Green 33.44% 33.44% from renewable resources Power Costa Rica SA PH Guacimo SA San José Costa Rica 50,000.00 CRC Electricity generation Line-by-line Enel Green 65.00% 65.00% from renewable resources Power Costa Rica SA 463 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding PH Río Volcán SA San José Costa Rica 100,001.00 CRC Electricity generation Line-by-line Enel Green 34.32% Consolidation % Group % holding 34.32% from renewable resources Power Costa Rica SA Pincher Creek LP Alberta Canada - CAD Renewable energy Line-by-line Enel Alberta 99.00% 100.00% Wind Inc. Enel Green 1.00% Power Canada Inc. Pine Island Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% Distributed Solar LLC from renewable resources Distributed Solar LLC Planta Eólica Europea Seville Spain 1,198,530.00 EUR Electricity generation Line-by-line Enel Green 56.12% 39.34% SA from renewable resources Power España SL PowerCrop Bologna Italy 100,000.00 EUR Electricity generation Equity PowerCrop Srl 100.00% 50.00% Macchiareddu Srl from renewable resources PowerCrop Russi Srl Bologna Italy 100,000.00 EUR Electricity generation Equity PowerCrop Srl 100.00% 50.00% from renewable resources PowerCrop Srl Bologna Italy 4,000,000.00 EUR Electricity generation Equity Enel Green 50.00% 50.00% from renewable resources Power SpA Prairie Rose Minneapolis USA - USD Electricity generation Line-by-line Prairie Rose 100.00% 50.00% Transmission LLC (Minnesota) from renewable resources Wind LLC Prairie Rose Wind New York USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% LLC (New York) from renewable resources Wind Holdings LLC Primavera Energia SA Rio de Janeiro Brazil 36,965,444.64 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% and sale Power Brasil Participações Ltda Productor Regional Valladolid Spain 3,088,398.00 EUR Plant development and Line-by-line Enel Green 100.00% 70.10% de Energía Renovable III SA construction Power España SL Productor Regional de Valladolid Spain 710,500.00 EUR Plant development and Line-by-line Enel Green 100.00% 70.10% Energía Renovable SA Productora de Energías SA Barcelona Spain 30,050.00 EUR Hydroelectric plants Equity Enel Green 30.00% 21.03% Power España SL construction Power España SL Promociones Ponferrada Spain 12,020.00 EUR Electricity generation Line-by-line Enel Green 100.00% 70.10% Energéticas del Bierzo SL Proveedora de Electricidad de Occidente S de RL de Cv Mexico City Mexico 89,708,835.00 MXN Electricity generation Line-by-line Enel Green 99.99% 99.99% from renewable resources Power México S de RL de Cv from renewable resources Power España SL Proyecto Almería Madrid Spain 601,000.00 EUR Desalinization and Equity Endesa SA 45.00% 31.55% Mediterráneo SA water supply Proyecto Solar Don Mexico City Mexico 100.00 MXN Electricity generation Held for sale Enel Green 1.00% 100.00% José SA de Cv from renewable resources Power Guatemala SA Proyecto Solar Mexico City Mexico 100.00 MXN Electricity generation Held for sale Enel Green 1.00% 100.00% Villanueva Tres SA de Cv from renewable resources Power Guatemala SA Enel Green 99.00% Power México S de RL de Cv Enel Green 99.00% Power México S de RL de Cv 464 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Proyectos de Energía Mexico City Mexico 147,375,734.00 MXN Renewable energy Line-by-line Enel Green 99.00% 100.00% Sol y Viento 1 SA de Cv Power SpA Energía y 1.00% Servicios South America SpA Proyectos de Energía Mexico City Mexico 288,584,564.00 MXN Renewable energy Line-by-line Enel Green 99.00% 100.00% Sol y Viento 2 SA de Cv Power SpA Energía y 1.00% Servicios South America SpA Proyectos de Energía Mexico City Mexico 324,082,368.00 MXN Renewable energy Line-by-line Enel Green 99.00% 100.00% Sol y Viento 3 SA de Cv Power SpA Energía y 1.00% Servicios South America SpA Proyectos de Energía Mexico City Mexico 116,428,613.00 MXN Renewable energy Line-by-line Enel Green 99.00% 100.00% Sol y Viento 4 SA de Cv Power SpA Energía y 1.00% Servicios South America SpA Proyectos de Energía Mexico City Mexico 139.00 MXN Renewable energy Line-by-line Enel Green 99.00% 100.00% Sol y Viento 5 SA de Cv Power SpA Energía y 1.00% Servicios South America SpA Proyectos de Energía Mexico City Mexico 139.00 MXN Electricity generation Line-by-line Enel Green 99.00% 100.00% Sol y Viento 6 SA de Cv from renewable resources Power SpA Energía y 1.00% Servicios South America SpA Proyectos de Energía Mexico City Mexico 139.00 MXN Renewable energy Line-by-line Enel Green 99.00% 100.00% Sol y Viento 7 SA de Cv Power SpA Energía y 1.00% Servicios South America SpA Proyectos de Energía Mexico City Mexico 139.00 MXN Electricity generation Line-by-line Enel Green 99.00% 100.00% Sol y Viento 8 SA de Cv from renewable resources Power SpA Energía y 1.00% Servicios South America SpA Proyectos Alicante Spain 180,000.00 EUR Electricity generation Equity Enel Green 33.33% 23.36% Universitarios de Energías Renovables SL from renewable resources Power España SL Proyectos y Lima Peru 1,000.00 PEN Electricity generation Line-by-line Enel Green 0.10% 100.00% Soluciones Renovables SAC Power Latin America SA Enel Green 99.90% Power Partecipazioni Speciali Srl PT Enel Green Power Jakarta Indonesia 10,000,000.00 USD Electricity generation Line-by-line Enel Green 90.00% 90.00% Optima Way Ratai from renewable resources Power SpA Pulida Energy (RF) Houghton South Africa 10,000,000.00 ZAR Electricity generation Line-by-line Enel Green 52.70% 52.70% (Pty) Ltd from renewable resources Power RSA (Pty) Ltd 465 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Pyrites Hydro LLC New York USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% (New York) from renewable resources Hydro Holdings LLC Quatiara Energia SA Rio de Janeiro Brazil 16,566,510.61 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% Power Brasil Participações Ltda Rattlesnake Creek Lincoln USA - USD Electricity generation Line-by-line Enel Kansas LLC 100.00% 100.00% Wind Project LLC (Nebraska) from renewable resources Reaktortest Sro Trnava Slovakia 66,389.00 EUR Research and Equity Slovenské 49.00% 16.17% development elektrárne AS Red Centroamericana Panama Panama 2,700,000.00 USD Telecommunications - Enel SpA 11.11% 11.11% de Telecomunicaciones Delaware USA - USD Renewable energy Line-by-line Enel Green 100.00% 100.00% SA Red Dirt Wind Holdings I LLC Red Dirt Wind Holdings LLC Delaware USA Red Dirt Wind Project Delaware USA LLC - - USD Renewable energy Line-by-line Enel Kansas LLC 100.00% 100.00% USD Renewable energy Line-by-line Red Dirt Wind 30.00% 100.00% Power North America Inc. Holdings I LLC Red Dirt Wind 70.00% Holdings LLC Retfinskaya GRES Reftinskiy Russia 10,000.00 RUB Electricity generation Line-by-line Enel Russia 100.00% 56.43% and sale PJSC Reftinskaya GRES Asbest Russia 10,000.00 RUB - Line-by-line Enel Russia 100.00% 56.43% Limited Liability Company PJSC Renovables de Guatemala City Guatemala 1,924,465,600.00 GTQ Electricity generation Line-by-line Enel Green 0.01% 100.00% Guatemala SA from renewable resources Power Guatemala SA Riverview LP Alberta Canada - CAD Renewable energy Line-by-line Enel Alberta 99,00% 100,00% Enel Green 99.99% Power SpA Wind Inc. Enel Green 1,00% Power Canada Inc. Rock Creek Hydro Delaware USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% LLC from renewable resources Power North America Inc. Rock Creek Wind Delaware USA - USD Renewable energy Line-by-line Enel Green 100.00% 100.00% Holdings I LLC Power North America Inc. Rock Creek Wind - USA - USD Electricity generation Line-by-line EGPNA Preferred 100.00% 100.00% Holdings LLC from renewable resources Holdings II LLC Rock Creek Wind Clayton USA - USD Holding company Line-by-line Rock Creek 30.00% 100.00% Project LLC (California) Wind Holdings I LLC Rock Creek 70.00% Wind Holdings LLC Rocky Caney Holdings LLC Oklahoma City USA (Oklahoma) Rocky Caney Wind New York USA LLC (New York) - - USD Renewable energy Equity Enel Kansas LLC 100.00% 20.00% USD Electricity generation Equity Enel Kansas LLC 100.00% 20.00% from renewable resources 466 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Rocky Ridge Wind Oklahoma City USA - USD Electricity generation Equity Rocky Caney 100.00% 20.00% Project LLC (Oklahoma) from renewable resources Wind LLC RusEnergoSbyt LLC Moscow Russia 2,760,000.00 RUB Electricity trading Equity Enel Investment 49.50% 49.50% Holding BV RusEnergoSbyt Krasnoyarskiy Russia 4,600,000.00 RUB Electricity sales Equity RusEnergoSbyt 50.00% 24.75% Siberia LLC Kray LLC RusEnergoSbyt Yaroslavl Russia 100,000.00 RUB Electricity sales Equity RusEnergoSbyt 50.00% 24.75% Yaroslavl LLC Ruthton Ridge LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Sacme SA Buenos Aires Argentina 12,000.00 ARS Monitoring of electricity Equity Empresa 50.00% 18.68% system Distribuidora Sur SA - Edesur Salmon Falls Hydro Delaware USA - USD Electricity generation Held for sale Enel Green 100.00% 100.00% LLC from renewable resources Power North America Inc. Salto de San Rafael Seville Spain 461,410.00 EUR Hydroelectric plants Equity Enel Green 50.00% 35.05% SL Power España SL San Juan Mesa Wind Wilmington USA - USD Electricity generation Line-by-line Padoma Wind 100.00% 100.00% Project II LLC (Delaware) from renewable resources Power LLC Sanatorium- Nevinnomyssk Russia 10,571,300.00 RUB Energy services Line-by-line Enel Russia 99.99% 56.43% Preventorium Energetik LLC PJSC OGK-5 Finance 0.01% LLC Santo Rostro Seville Spain 207,000.00 EUR Cogeneration of - Enel Green 45.00% 31.55% Cogeneración SA electricity and heat Power España SL Se Hazelton A LLC Los Angeles USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% (California) from renewable resources Hydro Holdings LLC Se Predaj Sro Bratislava Slovakia 4,505,000.00 EUR Electricity supply Equity Slovenské 100.00% 33.00% elektrárne AS SE Služby Kalná nad Slovakia 200,000.00 EUR Services Equity Slovenské 100.00% 33.00% inžinierskych stavieb Hronom s.r.o. elektrárne AS Seguidores Solares Murcia Spain 3,010.00 EUR Electricity generation Line-by-line Enel Green 100.00% 70.10% Planta 2 SL from renewable resources Power España SL Servicio de Operación Mexico City Mexico 3,000.00 MXN Electricity generation Line-by-line Enel Green 0.01% 100.00% y Mantenimiento para Energías Renovables S de RL de Cv from renewable resources Power Guatemala SA Energía Nueva 99.99% Energía Limpia México S de RL de Cv Servizio Elettrico Rome Italy 10,000,000.00 EUR Electricity sales Line-by-line Enel SpA 100.00% 100.00% Nazionale SpA Shield Energy Storage Delaware USA - USD Electricity generation Line-by-line EGP Energy 100.00% 100.00% Project LLC from renewable resources Storage Holdings LLC Sierra Energy Storage Camden USA - USD Electricity generation Line-by-line EGP Energy 51.00% 51.00% LLC (Delaware) from renewable resources Storage Holdings LLC SIET - Società Piacenza Italy 697,820.00 EUR Analysis, design and Equity Enel Innovation 41.55% 41.55% Informazioni Esperienze Termoidrauliche SpA research in thermal technology Hubs Srl Sistema Eléctrico de Granada Spain 44,900.00 EUR Electricity generation Equity Enel Green 16.70% 11.71% Conexión Montes Orientales SL Power España SL 467 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Sistema Eléctrico de Madrid Spain 175,200.00 EUR Electricity generation Equity Enel Green 28.13% Conexión Valcaire SL Power España SL Consolidation % Group % holding 19.72% Sistemas Energéticos La Coruña Spain 2,007,750.00 EUR Electricity generation Line-by-line Enel Green 96.00% 67.30% Mañón Ortigueira SA from renewable resources Power España SL Slate Creek Hydro Los Angeles USA - USD Electricity generation Equity Slate Creek 95.00% 47.50% Associates LP (California) from renewable resources Hydro Company LLC Slate Creek Hydro Wilmington USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% Company LLC (Delaware) from renewable resources Hydro Holdings LLC Slovak Power Holding Amsterdam Netherlands 25,010,000.00 EUR Holding company Equity Enel Produzione 50.00% 50.00% BV SpA Slovenské elektrárne Bratislava Slovakia 1,269,295,724.66 EUR Electricity generation - Slovak Power 66.00% 33.00% AS Slovenské elektrárne Cˇeská republika s.r.o. Prague Czech Republic 3,000.00 CZK Electricity supply Equity Slovenské 100.00% 33.00% elektrárne AS Holding BV Smart P@Per SPA Potenza Italy 2,184,000.00 EUR Services - Servizio Elettrico 10.00% 10.00% Smoky Hill Holdings Wilmington USA II LLC (Delaware) Smoky Hills Wind Farm Topeka USA LLC (Kansas) - - USD Renewable energy Line-by-line Enel Kansas 100.00% 100.00% LLC USD Electricity generation Line-by-line Texkan Wind 100.00% 100.00% Nazionale SpA from renewable resources LLC Smoky Hills Wind Topeka USA - USD Electricity generation Line-by-line Nevkan 100.00% 100.00% Project II LLC (Kansas) from renewable resources Renewables LLC Snyder Wind Farm Dallas USA - USD Electricity generation Line-by-line Texkan Wind 100.00% 100.00% LLC (Texas) from renewable resources LLC Socibe Energia SA Rio de Janeiro Brazil 19,969,032.25 BRL Electricity generation Line-by-line Enel Green 100.00% 100.00% and sale Power Brasil Participações Ltda Sociedad Agrícola de Santiago Chile 5,738,046,495.00 CLP Financial investment Line-by-line Enel Chile SA 57.50% 34.86% Cameros Ltda Sociedad Eólica de Seville Spain 4,507,590.78 EUR Electricity generation Line-by-line Enel Green 64.74% 45.38% Andalucía SA Power España SL Sociedad Eólica El Seville Spain 1,643,000.00 EUR Electricity generation Equity Enel Green 50.00% 35.05% Puntal SL from renewable resources Power España SL Sociedad Eólica Los Cadiz Spain 2,404,048.42 EUR Electricity generation Line-by-line Enel Green 60.00% 42.06% Lances SA from renewable resources Power España SL Sociedad Portuaria Bogotá DC Colombia 5,800,000.00 COP Port construction and Line-by-line Emgesa SA ESP 94.95% 25.08% Central Cartagena SA management Inversora 4.90% Codensa SAS Sol Real Istmo SA Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Panama SA Sol Real Uno SA Panama Panama 10,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power Panama SA Soliloquoy Ridge LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Somersworth Hydro Wilmington USA 100.00 USD Electricity generation Held for sale Enel Green 100.00% 100.00% Company Inc. (Delaware) from renewable resources Power North America Inc. 468 Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Sona Enerjì Üretìm Istanbul Turkey 50,000.00 TRY Electricity generation Line-by-line Enel Green 100.00% 100.00% Anonìm S¸ ìrketì from renewable resources Power Turkey Enerjì Yatirimlari Anonìm S¸ ìrketì Sotavento Galicia SA Santiago de Spain 601,000.00 EUR Electricity generation Equity Enel Green 36.00% 25.24% Compostela from renewable resources Power España SL Southwest Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% Transmission LLC (Minnesota) from renewable resources Wind LLC Spartan Hills LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Stillman Valley Solar Delaware USA LLC Stillwater Woods Hill Delaware USA Holdings LLC - - USD Renewable energy Line-by-line Enel Kansas LLC 100.00% 100.00% USD Renewable energy Line-by-line Enel Kansas LLC 100.00% 100.00% Stipa Nayaá SA de Cv Mexico City Mexico 1,811,016,348.00 MXN Electricity generation Line-by-line Enel Green 55.21% 95.37% from renewable resources Power México S de RL de Cv Enel Green 40.16% Power Partecipazioni Speciali Srl Sublunary Trading (RF) Johannesburg South Africa 10,000.00 ZAR Electricity generation Line-by-line Enel Green 57.00% 57.00% (Pty) Ltd from renewable resources Power Solar Energy Srl Suministradora Cadiz Spain 12,020,240.00 EUR Electricity distribution Equity Endesa Red SA 33.50% 23.48% Eléctrica de Cádiz SA and sale Suministro de Luz y Torroella de Spain 2,800,000.00 EUR Electricity distribution Line-by-line Hidroeléctrica de 60.00% 42.06% Fuerza SL Montgri (Girona) Catalunya SL Summit Energy Wilmington USA 2,050,000.00 USD Electricity generation Line-by-line Enel Green 75.00% 75.00% Storage Inc. (Delaware) from renewable resources Power North America Inc. Sun River LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) Sundance East Wind Wilmington USA Project LLC Sundance (Delaware) Wilmington USA Interconnect LLC (Delaware) Sundance Wind Wilmington USA Project LLC (Delaware) Sweetwater Concord USA Hydroelectric LLC (New Hampshire) - - - - from renewable resources Wind LLC USD Renewable energy Line-by-line Sundance Wind 100.00% 100.00% Project LLC USD Renewable energy Line-by-line Land Run Wind 50.00% 100.00% Project LLC Sundance East 50.00% Wind Project LLC USD Renewable energy Line-by-line Enel Kansas LLC 100.00% 100.00% USD Electricity generation Held for sale Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Taranto Solar Srl Rome Italy 100,000.00 EUR Electricity generation - Enel F2i Solare 100.00% 50.00% from renewable resources Italia SpA Tecnatom SA Madrid Spain 4,025,700.00 EUR Electricity generation Equity Endesa 45.00% 31.55% and services Generación SA Tecnoguat SA Guatemala City Guatemala 30,948,000.00 GTQ Electricity generation Line-by-line Enel Green 75.00% 75.00% from renewable resources Power SpA Tejo Energia Produção Paço de Arcos Portugal 5,025,000.00 EUR Electricity generation, Equity Endesa 43.75% 30.67% e Distribuição de (Oeiras) Energia Eléctrica SA transmission and distribution Generación SA 469 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Tenedora de Energía Mexico City Mexico 1,359,424,561.00 MXN Renewable energy Line-by-line Enel Green 99.00% 100.00% Renovable Sol y Viento SAPI de Cv Power SpA Energía y 1.00% Servicios South America SpA Teploprogress OJSC Sredneuralsk Russia 128,000,000.00 RUB Electricity sales Line-by-line Enel Russia 60.00% 33.86% Termoeléctrica José Buenos Aires Argentina 500,000.00 ARS Plant construction and Equity de San Martín SA operation PJSC Central Costanera SA 5.33% 8.80% Central Dock 1.42% Sud SA Enel Generación 18.85% El Chocón SA Termoeléctrica Buenos Aires Argentina 500,000.00 ARS Plant construction and Equity Central 5.33% 8.80% Manuel Belgrano SA operation Costanera SA Central Dock 1.42% Sud SA Enel Generación 18.85% El Chocón SA Termotec Energía AIE Valencia Spain 481,000.00 EUR Cogeneration of - Enel Green 45.00% 31.55% (in liquidation) electricity and heat Power España SL Texkan Wind LLC Wilmington USA - USD Electricity generation Line-by-line Enel Texkan Inc. 100.00% 100.00% (Delaware) from renewable resources Thunder Ranch Wind Delaware USA - USD Renewable energy Line-by-line Enel Green 100.00% 100.00% Holdings I LLC Thunder Ranch Wind Delaware USA Holdings LLC Thunder Ranch Wind Delaware USA - - Project LLC Power North America Inc. USD Renewable energy Line-by-line Enel Kansas LLC 100.00% 100.00% USD Electricity generation Line-by-line Thunder Ranch 30.00% 100.00% from renewable resources Wind Holdings I LLC Thunder Ranch 70.00% Wind Holdings LLC Tko Power LLC Los Angeles USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% (California) from renewable resources Hydro Holdings LLC Tobivox (RF) (Pty) Ltd Houghton South Africa 10,000,000.00 ZAR Electricity generation Line-by-line Enel Green 60.00% 60.00% from renewable resources Power RSA (Pty) Ltd Toledo Pv AEIE Madrid Spain 26,887.96 EUR Photovoltaic plants Equity Enel Green 33.33% 23.36% Power España SL Tradewind Energy Wilmington USA 200,000.00 USD Electricity generation Equity Enel Kansas LLC 19.90% 19.90% Inc. (Delaware) from renewable resources Transmisora Guatemala City Guatemala 233,561,800.00 GTQ Electricity generation Line-by-line Enel Green 0.00% 100.00% de Energía Renovable SA from renewable resources Power Guatemala SA Transmisora Eléctrica Santiago Chile 440,644,600.00 CLP Electricity transmission Equity Gas Atacama 50.00% 18.50% de Quillota Ltda and distribution Chile SA Transportadora de Buenos Aires Argentina 100,000.00 ARS Electricity generation, Line-by-line Enel Argentina 0.00% 51.61% Enel Green 100.00% Power SpA Energía SA - TESA 470 transmission and distribution SA Enel CIEN SA 100.00% Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by Consolidation Transportes y Distribuciones Eléctricas SA Olot (Girona) Triton Energy Inc. Delaware Triton Power Company New York (New York) Spain 72,120.00 EUR Electricity transmission Line-by-line Endesa Distribución Eléctrica SL USA USA 5,000.00 - USD USD Renewable energy Line-by-line EnerNOC Inc. 100.00% 100.00% Electricity generation Line-by-line Enel Green 2.00% 100.00% from renewable resources Power North America Inc. % holding 73.33% Group % holding 51.41% Highfalls Hydro 98.00% Company Inc. Tsar Nicholas LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Twin Falls Hydro Seattle USA - USD Electricity generation Equity Twin Falls Hydro 99.51% 49.76% Associates (Washington) from renewable resources Company LLC Twin Falls Hydro Wilmington USA - USD Electricity generation Equity EGPNA REP 100.00% 50.00% Company LLC (Delaware) from renewable resources Hydro Holdings LLC Twin Lake Hills LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Twin Saranac Holdings LLC Wilmington USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% (Delaware) from renewable resources Power North America Inc. Tynemouth Energy London United Kingdom 2.00 GBP Services Line-by-line Enel SpA 100.00% 100.00% Aranjuez Spain 304,150.00 EUR Electricity generation - Enel Green 40.00% 28.04% from renewable resources Power España SL Storage Limited Ufefys SL (in liquidation) Ukuqala Solar Johannesburg South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% (Pty) Ltd from renewable resources Power RSA (Pty) Ltd Unión Eléctrica de Las Palmas de Spain 190,171,520.00 EUR Electricity generation Line-by-line Endesa 100.00% 70.10% Canarias Generación Gran Canaria SAU Generación SA Upington Solar Johannesburg South Africa 1,000.00 ZAR Electricity generation Line-by-line Enel Green 100.00% 100.00% (Pty) Ltd from renewable resources Power RSA (Pty) Ltd Ustav Jaderného Rez Czech Republic 524,139,000.00 CZK Research and Equity Slovenské 27.77% 9.17% Výzkumu Rez AS development elektrárne AS Vektör Enerjì Üretìm Istanbul Turkey 3,500,000.00 TRY Plant construction and Line-by-line Enel Green 100.00% 100.00% Anonìm S¸ ìrketì electricity generation Power SpA from renewable resources Vientos del Altiplano Mexico City Mexico 751,623,040.00 MXN Electricity generation Held for sale Enel Green 99.99% 100.00% S de RL de Cv from renewable resources Power México S de RL de Cv Hidroelectricidad 0.01% del Pacífico S de RL de Cv Villanueva Solar SA Mexico City Mexico 100.00 MXN Electricity generation Held for sale Enel Green 1.00% 100.00% de Cv from renewable resources Power Guatemala SA Viruleiros SL Santiago de Spain 160,000.00 EUR Electricity generation Equity Enel Green 67.00% 46.97% Compostela from renewable resources Power España SL Enel Green 99.00% Power México S de RL de Cv 471 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Walden Hydro LLC Delaware USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% from renewable resources Power North America Inc. Waseca Solar LLC Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% from renewable resources Distributed Solar LLC Weber Energy Storage Delaware USA - USD Electricity generation Line-by-line EGP Energy 100.00% 100.00% Project LLC from renewable resources Storage Holdings LLC West Faribault Solar Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% LLC from renewable resources Distributed Solar LLC West Hopkinton Delaware USA - USD Electricity generation Held for sale Enel Green 100.00% 100.00% Hydro LLC from renewable resources Power North America Inc. West Waconia Solar Delaware USA - USD Electricity generation Line-by-line Aurora 100.00% 51.00% LLC from renewable resources Distributed Solar LLC Western New York Albany USA 300.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Wind Corporation (New York) from renewable resources Power North America Inc. White Current Vermont USA - USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Corporation from renewable resources Power North America Inc. Willimantic Power Hartford USA 1,000.00 USD Electricity generation Line-by-line Enel Green 100.00% 100.00% Corporation (Connecticut) from renewable resources Power North America Inc. Wind Parks Anatolis - Maroussi Greece 1,168,188.00 EUR Electricity generation Held for sale Enel Green 100.00% 100.00% Prinias SA from renewable resources Power Hellas Wind Parks of South Evia SA Wind Parks of Bolibas Maroussi Greece 551,500.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% SA from renewable resources Power Hellas SA Wind Parks of Maroussi Greece 556,500.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% Distomos SA from renewable resources Power Hellas SA Wind Parks of Folia Maroussi Greece 424,000.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% SA from renewable resources Power Hellas SA Wind Parks of Gagari Maroussi Greece 389,000.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% SA from renewable resources Power Hellas SA Wind Parks of Goraki Maroussi Greece 551,500.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% SA Wind Parks of Gourles SA Wind Parks of Kafoutsi SA Wind Parks of Katharas SA Wind Parks of Kerasias SA from renewable resources Power Hellas SA Maroussi Greece 555,000.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% from renewable resources Power Hellas SA Maroussi Greece 551,500.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% from renewable resources Power Hellas SA Maroussi Greece 728,648.00 EUR Electricity generation Held for sale Enel Green 100.00% 100.00% from renewable resources Power Hellas Wind Parks of South Evia SA Maroussi Greece 895,990.00 EUR Electricity generation Held for sale Enel Green 100.00% 100.00% from renewable resources Power Hellas Wind Parks of South Evia SA Wind Parks of Milias Maroussi Greece 994,774.00 EUR Electricity generation Held for sale Enel Green 100.00% 100.00% SA 472 from renewable resources Power Hellas Wind Parks of South Evia SA Annual Report 2017Company name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding Wind Parks of Mitikas Maroussi Greece 732,639.00 EUR Electricity generation Held for sale Enel Green 100.00% 100.00% SA Wind Parks of Paliopirgos SA Maroussi Greece 200,000.00 EUR Electricity generation Line-by-line Enel Green 80.00% 80.00% from renewable resources Power Hellas SA from renewable resources Power Hellas Wind Parks of South Evia SA Wind Parks of Petalo Maroussi Greece 575,000.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% SA Wind Parks of Platanos SA Maroussi Greece 585,467.00 EUR Electricity generation Held for sale Enel Green 100.00% 100.00% from renewable resources Power Hellas SA from renewable resources Power Hellas Wind Parks of South Evia SA Wind Parks of Skoubi Maroussi Greece 472,000.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% SA from renewable resources Power Hellas SA Wind Parks of Spilias Maroussi Greece 807,490.00 EUR Electricity generation Held for sale Enel Green 100.00% 100.00% SA Wind Parks of Strouboulas SA Maroussi Greece 576,500.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% from renewable resources Power Hellas SA from renewable resources Power Hellas Wind Parks of South Evia SA Wind Parks of Vitalio Maroussi Greece 361,000.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% SA from renewable resources Power Hellas SA Wind Parks of Vourlas Maroussi Greece 554,000.00 EUR Electricity generation Equity Enel Green 30.00% 30.00% SA from renewable resources Power Hellas SA Windlife Kola Vetro Murmansk Russia 10,000.00 RUB - Line-by-line Enel Rus Wind 100.00% 56.43% LL1 Limited Liability Company Generation LLC Winter’s Spawn LLC Minneapolis USA - USD Electricity generation Line-by-line Chi Minnesota 51.00% 51.00% (Minnesota) from renewable resources Wind LLC Woods Hill Solar LLC Wilmington USA - USD Renewable energy Line-by-line Stillwater Woods 100.00% 100.00% (Delaware) Hill Holdings LLC WP Bulgaria 1 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 10 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 11 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 12 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 13 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 14 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 15 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 19 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD 473 AttachmentsCompany name Headquarters Country Share capital Currency Activity method Held by holding Consolidation % Group % holding WP Bulgaria 21 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 26 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 3 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 6 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 8 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD WP Bulgaria 9 EOOD Sofia Bulgaria 5,000.00 BGN Plant construction, Line-by-line Enel Green 100.00% 100.00% operation and maintenance Power Bulgaria EAD Yacylec SA Buenos Aires Argentina 20,000,000.00 ARS Electricity transmission Equity Enel Américas 22.22% 11.51% SA Yedesa-Cogeneración Almería Spain 234,394.72 EUR Cogeneration of - Enel Green 40.00% 28.04% SA electricity and heat Power España SL 474 Annual Report 2017475 Attachments07Corporate governance 476 Annual Report 2017477 Corporate governanceReport on corporate governance and ownership structure The corporate governance structure of Enel SpA complies with Group is essentially aimed at creating value for the sharehold- the principles set forth in the edition of the Corporate Govern- ers over the medium-long term, taking into account the social ance Code for listed companies most recently amended in July importance of the Group’s business operations and the con- 2015(1),which has been adopted by the Company. Furthermore, sequent need, in conducting such operations, to adequately the aforementioned corporate governance structure is inspired consider all the interests involved. by CONSOB’s recommendations on this matter and, more gen- In compliance with the provisions of Italian law governing com- erally, international best practice. panies with listed shares, the Company’s organization is char- The corporate governance system adopted by Enel and the acterized by: S For more detailed information on the corporate governance system, please see the Report on Corporate Governance and Ownership Structure of Enel, which has been published on the Company’s website (www.enel.com, in the “Governance” section). u e r g i o D a ir m a h C Romina Guglielmetti Auditor Roberto Mazzei Auditor Alfredo Antoniozzi Director, independent Alberto Bianchi Director, independent a c n C Cesare C Director, inde alari e p n d e nt Board of Auditors Board of Directors Shareholders’ Meeting Independent auditors Nomination and Compensation Committee Corporate Governance and Sustainability Committee Control and Risk Committee Related Parties Committee a n d C F r a G h i e e n n f c e E e r a l x s e c c o M u a t i n v S a e g t a e O r r , f a fi c e c e x e e r c u t i v e C C h a i r P a m a n , t r i z i a n o n - e x e G r i e c o c u t i v e nt e d n e p Paola Girdinio Director, in e d E Y S pA C C Angelo Taraborrelli Director, independent Anna Chiara Svelto Director, independent e r a e p n d e nt r t o P e d e c t o r, i n A l b D ir e (1) The current edition of the Code is available on the website of Borsa Italiana (http://www.borsaitaliana.it/borsaitaliana/regolamenti/corporategovernance/code2015.en.pdf). Drawn from the majority slate Drawn from the minority slate C Chairman 478 Annual Report 2017  > a Board of Directors charged with managing the Company; sions concerning, among other issues – in ordinary or ex- > a Board of Auditors charged with monitoring: (i) compli- traordinary session: (i) the appointment and termination of ance with the law and the bylaws, and with the principles members of the Board of Directors and the Board of Au- of sound administration in the performance of company ditors and their compensation and responsibilities; (ii) the business; (ii) the financial reporting process, as well as the approval of the financial statements and allocation of net adequacy of the organizational structure, the internal con- income; (iii) the purchase and sale of treasury shares; (iv) trol system and the administrative-accounting system of the stock-based compensation plans; (v) amendments of the Company; (iii) the statutory auditing of the annual accounts bylaws; and (vi) the issue of convertible bonds. and the consolidated accounts, as well as the independence The statutory auditing of the accounts is performed by a spe- of the statutory audit firm; and (iv) the manner in which the cialized firm entered in the appropriate official register. It was corporate governance rules set out in the Corporate Govern- engaged by the Shareholders’ Meeting on the basis of a rea- ance Code are actually implemented; > a Shareholders’ Meeting, which is competent to take deci- soned proposal of the Board of Auditors. Romina Guglielmetti Roberto Mazzei Auditor Auditor Alfredo Antoniozzi Director, independent Alberto Bianchi Director, independent C a c n u e r g i o D a ir m a h C S Cesare C Director, inde alari e p n d e nt Board of Auditors Board of Directors a n F d C r G h a i n e e n f c e E e r a l x s e c c o M u a t i S n v a e g t a e O r r , f a fi c e c e x e e r c u t i v e C h a i Shareholders’ Meeting Independent auditors Nomination and Compensation Committee Corporate Governance and Sustainability Committee Control and Risk Committee Related Parties Committee C P a t r i z i a G r i e c o r m a n , n o n - e x e c u t i v e nt e d n e p e d Paola Girdinio Director, in E Y S pA C C Angelo Taraborrelli Director, independent Anna Chiara Svelto Director, independent e r a n d e nt e p r t o P e c t o r, i n d e A l b e D ir Drawn from the majority slate Drawn from the minority slate C Chairman 479 Corporate governance Concept design and realization HDRÀ Group Copy editing postScriptum di Paola Urbani Printing Varigrafica Alto Lazio Print run: 25 copies Published in June 2018 INSIDE PAGES Paper Fedrigoni X-PER P.W. Weight 120 g/m2 Number of pages 480 COVER Paper Fedrigoni X-PER P.W. Weight 320 g/m2 This publication is printed on FSC® certified 100% paper Publication not for sale By Communications Italy Enel Società per azioni Registered Office 00198 Rome - Italy Viale Regina Margherita, 137 Stock Capital Euro 10,166,679,946 fully paid-in Companies Register of Rome and Tax I.D. 00811720580 R.E.A. of Rome 756032 VAT Code 00934061003 © Enel SpA 00198 Rome, Viale Regina Margherita, 137 7 1 0 2 t r o p e R l a u n n A Annual Report 2017 enel.com 

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